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Date and Time: 10 June 2020 16:55:00 IST
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Documents (88)
1. [s 1] Short title extent, commencement and application.—

Client/Matter: -None-
2. [ 1 Corresponds to section 2 of the Companies Act, 1956. s 2] Definitions.—
3. 1 Enforced vide S.O. 902(E) dt. 26-3-2014, w.e.f. 1-4-2014 and corresponds to section 12 of the 1956 Act. [s
3] Formation of company.—
4. 41 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to sections 13, 14 and
20 of the Companies Act, 1956. See Notification No. G.S.R. 463(E),dt. 5 June 2015, regarding exemptions to
Government Companies under section 462 of the 2013 Act. For the text of Notification refer Appendix 63. [S
4] Memorandum.—
5. 62 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to sections 26, 27, 28
and 29 of the C 1956 Act. S. 5. Articles.—
6. 5 Enforced vide Notification S.O. 902(E) dt. 26-03-2014, w.e.f. 01-04-2014 and corresponds to section 9 of
the 1956 Act. S. 6. Act to override memorandum, articles etc.—Save as otherwise expressly provided in this
Act—
7. 39 Enforced vide Notification S.O. 902(E) dt. 26-03-2014, w.e.f. 01-04-2014 and corresponds to sections
15(c), 33 and 34 of the 1956 Act. [S. 7. Incorporation of company.—
8. 53 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to section 25 of the
1956 Act. See Notification No. G.S.R. 466(E), dt. 05-06-2015, regarding exemptions to Companies formed
with charitable objects, etc. under section 462 of the 2013 Act. [S. 8. Formation of companies with charitable
objects, etc.—
9. 25 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to sections 34(2) and
46 of the 1956 Act. S. 9. Effect of registration.—
1956 Act. S. 10. Effect of memorandum and articles.—
11. 43 Section 11 omitted by the Companies (Amendment) Act, 2015, section 4 (w.e.f. 29-5-2015). [S. 11.
Commencement of business.—]
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12. 44 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to sections 17A, 146
and 147 of the 1956 Act. S. 12. Registered office of company.—
13. 8 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to sections 16, 17, 18,
19, 21, 23 and 37 of the 1956 Act. S. 13. Alteration of memorandum.—
1956 Act. [ S. 14. Alteration of Articles.—
1956 Act. S. 15. Alteration of memorandum or articles to be noted in every copy.—
1956 Act. [S. 16. Rectification of name of company.—
1956 Act. S. 17. Copies of memorandum, articles, etc., to be given to members. —
1956 Act. S. 18. Conversion of companies already registered.—
19. 7 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section
42 of the 1956 Act. S. 19. Subsidiary company not to hold shares in its holding company.—
20. 12 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to sections 51, 52 and
53 of the 1956 Act. S. 20. Service of documents.—
21. 65 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to
section 54 of the 1956 Act. S. 21. Authentication of Documents, Proceedings and Contracts.—
22. 70 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to
sections 47 and 48 of the 1956 Act. S. 22. Execution of Bills of Exchange, etc.—
23. [s 23] Public Offer and Private Placement.—
24. 5 Notified by Notification S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds
to section 55A of the 1956 Act. [s 24] Power of Securities and Exchange Board to regulate issue and transfer
of securities, etc.—
25. 40 Sub-sections (1), (2) and (4) were notified by Notification S.O. 2754(E) dt. 12 September 2013., w.e.f. 12
September 2013, and sub-section (3) was notified by Notification S.O. 902(E) dt. 26 March 2014, w.e.f. 01
April 2014 and corresponds to section 64 of the 1956 Act. [s 25] Documents containing offer of securities for
sale to be deemed prospectus.—
Mr. Laghir1 Rabari
26. 45 Notified by Notification S.O. 902 (E) dt. 26 March 2014, w.e.f. 01 April 2014 and correspond to sections
55, 56, 57, 58, 59 and 60 and Schedule II of the 1956 Act. [s 26] Matters to be stated in prospectus.—
27. 76 Notified by Notification S.O. 902(E) dt. 26 March 2014, w.e.f. 01 March 2014 and corresponds to section
61 of the 1956 Act. [s 27] Variation in terms of contract or objects in prospectus.—
28. 85 Notified vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014. [s 28] Offer of Sale by Certain Members
of Company.—
29. 90 Enforced by Notification No. S.O. 2754(E), dt. 12 September 2013, w.e.f. 12 September 2013 and
corresponds to section 68B of the 1956 Act. See the Depositories Act, 1996 (22 of 1996). [s 29] Public offer
of securities to be in dematerialised form.—
30. 94 Notified by Notification No. S.O. 2754(E), dt. 12-09-13 w.e.f. 12 September 2013 and corresponds to
section 66 of the 1956 Act. [s 30] Advertisement of prospectus.—
31. 95 [s 31] Shelf Prospectus.—
32. 99 Notified by Notification No. S.O. 2754(E), dt. 12 September 2013 w.e.f. 12 September 2013 and
corresponds to section 60B of the 1956 Act. [s 32] Red herring prospectus.—
33. 13 Sub-sections (1) and (2) were notified by Notification No. S.O. 2754(E), dt. 12 September 2013, w.e.f. 12
September 2013 and corresponds to section 56(3) of the 1956 Act. [s 33] Issue of application forms for
securities.—
34. 20 Notified by Notification No. S.O. 2754(E), dt. 12 September 2013, w.e.f. 12 September 2013. [s 34]
Criminal liability for mis-statements in prospectus.—
35. 34 Sub-sections (1), (2) and (3) were notified by Notification No. S.O. 2754 (E), dt. 12 September 2013
w.e.f. 12 September 2013. Sub-section (1)(e) was notified by Notification No. S.O. 902 (E), dt. 26 March
2014 w.e.f. 1 April 2014. Section 35 of the 2013 Act corresponds to section 62 of the 1956 Act. [s 35] Civil
liability for mis-statements in prospectus.—
36. 70 Notified by Notification No. S.O. 2754(E) dt. 12-09-2013, w.e.f. 12 September 2013 and corresponds to
section 68 of the 1956 Act. [s 36] Punishment for fraudulently inducing persons to invest money.—
37. 86 Notified by Notification No. S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013. [s 37] Action
by affected persons.—
38. 95 Notified by Notification No. S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and
corresponds to section 68A of the 1956 Act. [s 38] Punishment for personation for acquisition, etc., of
securities.—
corresponds to sections 69 and 75 of the 1956 Act. [s 39] Allotment of securities by company.—
Mr. Laghir1 Rabari
40. 47 Sub-sections (1) to (5) were notified by Notification No. S.O. 2754 (E) dt. 12 September 2013, w.e.f.12
September 2013 and sub-section (6) was notified by Notification No. S.O. 902 (E) dt. 26-03-2014, w.e.f. 1
April 2014. Section 40 corresponds to sections 73 and 76 of the 1956 Act. [s 40] Securities to be dealt with in
stock exchanges.—
41. 95 Notified by Notification No. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014. [s 41] Global depository
receipt.—
42. 6 Notified by Notification No. S.O. 902(E), dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to section
67 of the 1956 Act. [s 42] Offer or invitation for subscription of securities on private placement.—
43. 1 Notified by Notification S.O. 902(E) dt. 26-03-2014, w.e.f. 01 April 2014 and corresponds to sections 85
and 86 of the 1956 Act. [s 43] Kinds of share capital.—
44. 17 Notified by Notification No. S.O. 2754(E) dt. 12-09-2013, w.e.f. 12 September 2013 and corresponds to
section 82 of the 1956 Act. [s 44] Nature of shares or debentures.—
corresponds to section 83 of the 1956 Act. [s 45] Numbering of shares.—
46. 53 Notified by Notification No. S.O. 902(E) dt. 26 March 2014 w.e.f. 1 April 2014 and corresponds to section
84 of the 1956 Act. [s 46] Certificate of shares.—
47. 8 Notified by Notification No. S.O. 902 (E), dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to section
87 of the 1956 Act. [s 47] Voting rights.—
48. 23 [s 48] Variation of shareholders' rights.—
49. 48 Notified by Notification No. S.O. 2754(E), dt. 12 September 2013 w.e.f. 12 September 2013 and
corresponds to section 91 of the 1956 Act. [s 49] Calls on shares of same class to be made on uniform
basis.—
50. 50 Notified by Notification No. S.O. 2754 (E), dt. 12 September 2013 w.e.f. 12 September 2013 and
corresponds to section 92 of the 1956 Act. [s 50] Company to accept unpaid share capital, although not
called up.—
51. 52 Notified by Notification No. S.O. 2754(E) dt. 12-09-2013, w.e.f 12-09-2013 and corresponds to section 93
of the 1956 Act. [s 51] Payment of dividend in proportion to amount paid-up.—
52. 54 Notified by Notification No. S.O. 902 (E), dt. 26-03-2014 w.e.f. 1 April 2014 and corresponds to section
78 of the 1956 Act. [s 52] Application of premiums received on issue of shares.—
53. 72 Notified by Notification No. S.O. 902 (E), dt. 26 March 2014 w.e.f. 01 April 2014 and corresponds to
section 79 of the 1956 Act. [s 53] Prohibition on issue of shares at discount.—
Mr. Laghir1 Rabari
54. 86 Notified by Notification No. S.O. 902 (E), dt. 26 March 2014 w.e.f. 01 April 2014 and corresponds to
section 79A of the 1956 Act. [s 54] Issue of sweat equity shares.—
55. 89 Sub-sections (1) and (2) were notified by Notification No. S.O. 902(E). dt. 27 March 2014, w.e.f. 1 April
2014. Section 55 corresponds to sections 80 and 80A of the 1956 Act. [s 55] Issue and redemption of
preference shares—
56. 33 Notified by Notification No. S.O. 902(E), dt. 26 March 2014 w.e.f. 01 April 2014 and corresponds to
sections 108, 109B, 110 and 113 of the 1956 Act. [s 56] Transfer and transmission of securities.—
57. 85 Notified by Notification No. S.O. 2754(E), dt. 12-09-2013 w.e.f. 12-09-2013 and corresponds to section
116 of the 1956 Act. [s 57] Punishment for personation of shareholder.—
58. 90 Notified by Notification No. S.O. 2754(E), dt. 12-09-2013, w.e.f. 12 September 2013 and corresponds to
sections 111, 111A(2) of the 1956 Act. [s 58] Refusal of registration and appeal against refusal.—
59. 56 Enforced vide S.O. 2754(E), dt. 12 September 2013, w.e.f. 19 September 2013 and corresponds to
section 111 and 111A of the 1956 Act. [s 59] Rectification of register of members.—
60. 70 Notified by Notification No. S.O. 2754(E), dt. 12-09-2013, w.e.f. 12-09-2013 and corresponds to section
148 of the 1956 Act. [s 60] Publication of authorised, subscribed and paid-up capital.—
61. 74 Notified by Notification No. S.O. 902(E), dt. 26 March 2014, w.e.f. 1 April 2014. Section 61 corresponds
to section 94 of the 1956 Act. [s 61] Power of limited company to alter its share capital.—
62. 90 Sub-sections (1) to (3) notified by Notification No. S.O. 902(E), dt. 26 March 2014 w.e.f. 01 April 2014.
Sub-sections (4) to (6) yet to be notified. Section 62 corresponds to sections 81 and 94-A(1) of the 1956 Act.
[s 62] Further issue of share capital.—
63. 96 Notified by Notification No. S.O. 902(E), dt. 26 March 2014, w.e.f. 01 April 2014. [s 63] Issue of bonus
shares.—
64. 22 Notified by Notification No. S.O. 902(E), dt. 26-03-2014, w.e.f. 01 April 2014 and corresponds to sections
94A(3), 95 and 97 of the 1956 Act. [s 64] Notice to be given to Registrar for alteration of share capital.—
65. 35 Notified by Notification No. S.O. 2754(E), dt. 12 October 2013, w.e.f. 12 October 2013 and corresponds
to section 98 of the 1956 Act. [s 65] Unlimited company to provide for reserve share capital on conversion
into limited company.—
66. 36 As on the date of going to press, this section has not been notified. Section 66 corresponds to sections
100 to 105 of the 1956 Act. [s 66] Reduction of share capital.—
67. 84 [s 67] Restrictions on purchase by company or giving of loans by it for purchase of its shares.—
Mr. Laghir1 Rabari
68. 26 Notified by Notification No. S.O. 902(E), dt. 6-03-2014 w.e.f. 1 April 2014 and corresponds to Section
77A of the 1956 Act. [s 68] Power of company to purchase its own securities.—
69. 74 Notified by Notification No. S.O. 2754(E), dt. 12 September 2013, w.e.f. 12 September 2013 and
corresponds to section 77AA of the 1956 Act. [s 69] Transfer of certain sums to capital redemption reserve
account.—
70. 76 Sub-section (1) notified by Notification No. S.O. 2754(E), dt. 12 September 2013 w.e.f. 12 September
2013. Section 70 corresponds to section 77B of the 1956 Act. [s 70] Prohibition for buy-back in certain
circumstances.—
71. 79 Notified by Notification No. S.O. 902(E), dt. 26 March 2014 w.e.f. 1 April 2014 and corresponds to
sections 117, 117A, 117B, 117C, 118, 119 and 122 of the 1956 Act. See also rules 6 and 18 of the
Companies (Share Capital and Debentures) Rules, 2014 by Notification No. G.S.R. 265(E), dt. 31 March
2014 w.e.f. 1 April 2014. [s 71] Debentures.—
72. [s 72] Power to nominate.—
73. 1 Notified by Notification No. S.O. 902(E), dt. 26 March 2014, w.e.f. 01 April 2014 and corresponds to
section 58A of the 1956 Act. [s 73] Prohibition on acceptance of deposits from public.—
74. 20 Notified by Notification No. S.O. 902(E), dt. 26 March 2014, w.e.f. 01 April 2014. For clarification in
relation to repayment of deposits accepted by the Companies prior to 2013 Act, see MCA General Circular
No. 09/2015, dt. 18 June 2015. [s 74] Repayment of deposits, etc. accepted before the commencement of
this Act.—
75. 24 Notified by Notification No. S.O. 1934(E), dt. 01 June 2016 w.e.f. 1 June 2016. [s 75] Damages for
fraud.—
76. [s 76] Acceptance of deposits from public by certain companies.—
77. [S. 76A. Punishment for contravention of section 73 or section 76.—
78. [s 77] Duty to register charges, etc.—
79. 33 Notified by S.O. 902(E), dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to section 134 of the
1956 Act. [s 78] Application for registration of charge.—
80. 40 Notified by Notification No. S.O. 902(E), dt. 26-03-2014, w.e.f. 1 April 2014 and corresponds to sections
127 and 135 of the 1956 Act. [s 79] Section 77 to apply in certain matters.—
81. 48 Notified by Notification No. S.O. 902(E), dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to s 126
of the Companies Act, 1956. [s 80] Date of notice of charge.—
Mr. Laghir1 Rabari
82. 54 Notified by Notification No. S.O. 902(E), dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to s. 130
of the 1956 Act. [s 81] Register of charges to be kept by Registrar.—
sections 138 and 140 of the 1956 Act. [s 82] Company to report satisfaction of charge.—
sections 139 and 140 of the 1956 Act. [s 83] Power of Registrar to make entries of satisfaction and release in
absence of intimation from company.—
85. 67 Notified by Notification No. S.O. 902(E). dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to
section 137 of the 1956 Act. [s 84] Intimation of appointment of receiver or manager.—
86. 90 [s 85] Company’s register of charges.—
87. 8 Notified by Notification No. S.O. 2754(E), dt. 12-9-2013, w.e.f. 12 November 2013 and corresponds to s.
142 of the 1956 Act. [s 86] Punishment for contravention.—
88. 12 Notified by Notification No. S.O. 902(E), dt. 26-3-2014, w.e.f. 1 April 2014 and corresponds to section
141 of the 1956 Act. [s 87] Rectification by Central Government in register of charges .—
Mr. Laghir1 Rabari
[s 1] Short title extent, commencement and
application.—
CR Datta: Company Law, 7th ed
C R DattaSpecialist Contributors
CR Datta: Company Law, 7th ed > CR Datta: Company Law, 7th ed > Volume 1 > CR Datta:
Company Law > CHAPTER I PRELIMINARY
CR Datta: Company Law
CHAPTER I PRELIMINARY
1 [s 1] Short title extent, commencement and

application.—
(1) This Act may be called the Companies Act, 2013.

(2) It extends to the whole of India.
(3) This section shall come into force at once and the remaining provisions of this Act shall come
into force on such date2 as the Central Government may, by notification in the Official
Gazette, appoint and different dates may be appointed for different provisions of this Act and
any reference in any provision to the commencement of this Act shall be construed as a
reference to the coming into force of that provision.
(4) The provisions of this Act shall apply to—
(a) companies incorporated under this Act or under any previous company law;
(b) insurance companies, except in so far as the said provisions are inconsistent with the
provisions of the Insurance Act, 1938 (4 of 1938) or the Insurance Regulatory and
Development Authority Act, 1999 (41 of 1999);
(c) banking companies, except in so far as the said provisions are inconsistent with the
provisions of the Banking Regulation Act, 1949 (10 of 1949);
(d) companies engaged in the generation or supply of electricity, except in so far as the said
provisions are inconsistent with the provisions of the Electricity Act, 2003 (36 of 2003);
(e) any other company governed by any special Act for the time being in force, except in so
far as the said provisions are inconsistent with the provisions of such special Act; and
(f) such body corporate, incorporated by any Act for the time being in force, as the Central
Government may, by notification, specify in this behalf, subject to such exceptions,
modifications or adaptation, as may be specified in the notification.
NOTES
Section 1 of the Companies Act, 2013 was notified on 12-09-2013 vide Notification S.O.
2754(E) and has been in effect from 12-09-2013 and this section corresponds to sections 1, 616,
617, 620-B and 620-C of the Companies Act, 1956.
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[s 1] Short title extent, commencement and application.—
Legislative History
THE COMPANIES ACT, 2013 (18 OF 2013).—The Notes on Clauses to the Companies Bill, 2011, explained
as follows:
Clause 1.—It has been made flexible to enforce various sections on different dates and different states. Sub-clause (4)
makes position clear as to application of this Act.
The Companies Act, 2013 (the 2013 Act) received the assent of the President on 29 August 2013.
The passage of the Companies Act 2013 (“the 2013 Act”) marks the culmination of a process that
has spanned over several years, incorporating recommendations of several committees, and several
unsuccessful attempts to get the law passed in the Parliament. After being presented first as a Bill in
2009, it went to the Standing Committee on Finance, and was redrafted and presented as
Companies Bill 2011 in December, 2011. The revised Bill of 2011 was once again referred to the
Standing Committee in early January 2012, and the Standing Committee submitted its report in June
2012.3
The corporate sector is the most important segment of the country’s economy, particularly when most
of the banking companies and PSUs have also been registered as companies. This Act is the basic
statute that is responsible for the incorporation, regulation, privileges, restrictions and regulations
applicable to the corporate sector.
The Companies Act can be considered the growth engine of the country’s economy. The Companies
Act, 1956 (“the 1956 Act”) regulated companies for nearly 57 years. There were several amendments
that came during the stint of the 1956 Act – such as the introduction of “deemed public” companies,
or regulations on inter-corporate loans and investments, which were seen as stifling, but these were
later either dropped or considerably liberalised.
Statement of Objects and Reasons
The 1956 Act had been enacted with the object to consolidate and amend the law relating to the
companies and certain other associations. The said Act has been in force for about 55 years and had
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Page 3 of 177
been amended several times.
2. In view of changes in the national and international economic environment and expansion and
growth of economy of our country, the Central Government after due deliberations decided to repeal
the Companies Act, 1956 and enact a new legislation to provide for new provisions to meet the
changed national and international, economic environment and further accelerate the expansion and
growth of our economy. And for this purpose a Bill, namely, the Companies Bill, 2009 was introduced
on 3 August 2009 in the Lok Sabha along with the Statement of Objects and Reasons appended to
the said Bill outlining its salient features. The said Bill was referred to the Parliamentary Standing
Committee on Finance for examination and report and the Committee gave its Report on the 31
August 2010.
3. Subsequent to the introduction of the Companies Bill, 2009 in the Lok Sabha, the Central
Government received several suggestions for amendments in the said Bill. The Parliamentary
Standing Committee on Finance also made numerous recommendations in its Report. The Central
Government has accepted in general the recommendations of the Standing Committee and also
considered the suggestions received by it from various stakeholders.
4. In view of large amendments to the Companies Bill, 2009 arising out of the recommendations of
the Parliamentary Standing Committee on Finance and suggestions of the stakeholders, the Central
Government decided to withdraw the Companies Bill, 2009 and introduce a fresh Bill incorporating
therein the recommendations of Standing Committee and suggestions of the stakeholders.
5. Paragraph 7 of the Statement of Objects and Reasons appended to the Companies Bill, 2009
states the salient features of the said Bill. The notes on clauses appended to the aforesaid Bill also
explain the provisions of the Companies Bill, 2009, pending in this august House. The revised Bill,
namely, the Companies Bill, 2011, inter alia, makes the following amendments to the Companies Bill,
2009 which broadly include—
(i) E-Governance:—Maintenance and allowing inspection of documents by companies in

electronic form being allowed for the first time.
(ii) Concept of Corporate Social Responsibility is being introduced.

(iii) Enhanced Accountability on the part of Companies:
(a) In addition to the concept of Independent Directors (IDs) introduced, the provisions in
respect of their tenure and liability, etc., have been provided. Code for IDs provided in a
new Schedule to the Bill. Databank for IDs proposed to be maintained by a body/institute
notified by the Central Government to facilitate appointment of IDs.
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(b) Corporate Social Responsibility (CSR) Committee of the Board proposed in addition to
other Committees of the Board viz Audit Committee, Nomination and Remuneration and
Stakeholders Relationship Committee. These committees shall have IDs/non-executive
directors to bring more independence in Board functioning and for protection of interests
of minority shareholders.
(c) Definition of “promoter” also included along with his liability in certain cases.
(d) Provisions in respect of vigil mechanism (whistle blowing) proposed to enable a company
to evolve a process to encourage ethical corporate behaviour, while rewarding employees
for their integrity and for providing valuable information to the management on deviant
practices.
(e) The Central Government has been empowered to prescribe restrictions in respect of
layers of subsidiaries for any class or classes of companies.
(f) New provisions suggested for allowing re-opening of accounts in certain cases with due
safeguards.
(iv) Additional Disclosure Norms:
(a) New disclosures like development and implementation of risk management policy,
Corporate Social Responsibility Policy, manner of formal evaluation of performance of
Board of directors and individual directors included in the Board report in addition to
disclosures proposed in such report in the Companies Bill, 2009.
(b) Consolidation of accounts: Accounts of Foreign subsidiaries to be attached for filing them
with the Registrar. Subsidiary to include “associate” and “joint venture” for the purpose of
consolidation.
(c) Every listed company required to file a return with the Registrar regarding change in the
shareholding position of promoters and top 10 shareholders of such company.
(v) Facilitating raising of capital by companies:
(a) Provisions for offer or invitation for subscription of securities on private placement basis
revised to ensure more transparency and accountability.
(b) Companies being allowed to issue equity shares with differential voting rights.
(c) Central Government empowered to prescribe, through rules, the requirements in

connection with provision for money made by a company for allowing purchase of
company’s shares by its employees under a scheme for their benefit. Disclosure to be
made in the Board’s report in respect of voting rights not exercised directly by the
employees in respect of shares to which the scheme relates.
(vi) Audit Accountability:
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(a) Rotation of auditors and audit firms being provided for.
(b) Stricter and more accountable role for auditor being retained. Provisions relating to
prohibiting auditor from performing non-audit services revised to ensure independence
and accountability of auditor. Subject to the maximum prescribed number of companies,
the members of a company may resolve that the auditor or audit firm of such company
shall not become auditor in companies beyond the number as may be specified in such
resolution.
(c) National Advisory Committee on Accounting and Auditing Standards (NACAAS) proposed
to be renamed as National Financial Reporting Authority (NFRA) with a mandate to
ensure monitoring and compliance of accounting and auditing standards and to oversee
quality of service of professionals associated with compliance.
The Authority shall consider the International Financial Reporting Standards and other
internationally accepted accounting and auditing policies and standards while making
recommendations on such matters to the Central Government which will improve the
competitiveness of our companies with other companies. The Authority is also
proposed to be empowered with quasi-judicial powers to ensure independent
oversight over professionals.
(d) Cost Audit: Cost records to be mandated for companies engaged in production of such
goods or rendering of such services as may be prescribed. The concept of “cost auditing
standards” being mandated.
(e) Secretariat Audit: Prescribed class of companies would need to attach with the Board’s
Report, a Secretarial Audit Report given by a company secretary in practice.
(vii) Managerial Remuneration:
(a) Provisions relating to limits on remuneration provided in the existing Act (11% of net
profits) included.
(b) For companies with no profits or inadequate profits remuneration shall be payable in
accordance with new Schedule of Remuneration annexed to the Bill and in case a
company is not able to comply with such Schedule, approval of Central Government
would be necessary. Individual limits for remuneration enhanced in the Bill vis-à-vis the
existing limits. Concept of payment of periodic fees which shall include sitting fees to
directors being included in the Bill.
(c) Independent Directors (IDs) not to get stock option: IDs not to get stock option but may
get payment of fees and profit linked commission subject to limits specified in the
Bill/rules. Central Government may prescribe amount of fees under the rules.
(viii) Facilitating Mergers/Acquisitions:
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Simplified procedure (through confirmation by the Central Government), laid down for
compromise or arrangement including for merger or amalgamation of holding companies
and wholly owned subsidiary(ies), between two or more small companies and for such
other class or classes of companies as may be prescribed. This would result into faster
decisions on approvals for mergers and amalgamations resulting effective restructuring in
companies and growth in the economy. For other companies, such matters would be
approved by Tribunal.
(ix) Protection for Minority Shareholders:
(a) Exit option to shareholders in case of dissent to change in object for which public issue
was made.
(b) Specific disclosure regarding effect of merger on creditors, key managerial personnel,
promoters and non-promoter shareholders is being provided. The Tribunal is being
empowered to provide for exit offer to dissenting shareholders in case of compromise or
arrangement.
(c) The Board may have a director representing small shareholders who may be elected in
such manner as may be prescribed by rules.
(x) Investor Protection:
(a) Acceptance of deposits from public subject to a more stringent regime.
(b) Central Government to have power to prescribe class or classes of companies which shall
not be permitted to allow use of proxies. The Bill also to have provisions to provide that a
person shall have proxies for such number of members/such shares as may be
prescribed.
(c) Provisions for Class Action Suits revised to provide minimum number of persons who may
apply for such suits. Safeguards against misuse of these provisions also being included.
(xi) Serious Fraud Investigation Office (SFIO): Statutory status to SFIO proposed. Investigation
report of SFIO filed with the Court for framing of charges shall be treated as a report filed by a
Police Officer. SFIO shall have power to arrest in respect of certain offences of the Bill which
attract the punishment for fraud. Those offences shall be cognizable and the person accused
of any such offence shall be released on bail subject to certain conditions provided in the
relevant clause of the Bill. Definition of “Fraud” provided. Stringent penalty provided for fraud
related offences.
(xii) Woman Director: At least one woman director being made mandatory in the prescribed class
or classes of companies.
(xiii) National Company Law Tribunal (Tribunal): Keeping in view the Supreme Court’s
judgment, on the 11 May 2010 on the composition and constitution of the Tribunal,
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modifications relating to qualification and experience, etc., of the members of the Tribunal
have been made. Appeals from Tribunal shall lie to NCLAT.
(xiv) Mediation and Conciliation Panel: It is proposed to create and maintain as “Mediation and
Conciliation Panel” for facilitating mediation and conciliation between parties during any
proceeding under the proposed Legislation before the Central Government or Tribunal.
(xv) Central Government to have power to exempt/modify provisions of the Act for a class or
classes of companies in public interest. Relevant notification shall be required to be laid in
draft form in Parliament for a period of 30 days.
6. The notes on clauses explain, in detail, provisions of the Bill.
7. The Bill seeks to achieve the above objectives.
Statement of Objects and Reasons appended to the Companies (Amendment) Bill, 2014 (Bill No. 185
of 2014):
The Companies (Amendment) Act, 2015 (21 of 2015)
Companies Act, 2013 was notified on 29 August 2013. Barring provisions relating to Chapters XV to
XX and certain other provisions relating to setting up of/exercise of powers by the National Company
Law Tribunal (NCLT)/National Company Law Appellate Tribunal (NCLAT); Investor Education and
Protection Fund (IEPF); National Financial Reporting Authority (NFRA) and Special Court, all
provisions of the Act have been brought into force with effect from 1 April 2014.
After the commencement of provisions of the Act, Government have received representations from
various stakeholders (including Industry Chambers, Professional Institutes, Legal Experts and
Ministries/Departments) expressing practical difficulties in complying with some of the requirements
laid down in the commenced provisions. It was noted that some of the issues raised and suggestions
made can be addressed only by way of amendment in the Act and their immediate resolution is also
considered to be necessary. Some of the amendments are also required with a view to further
facilitate “ease of doing business” and deal with certain difficulties in this behalf brought out by
Industry Chambers and other agencies.
The proposed amendments deal with related party transactions, fraud reporting by auditors, public
inspection of Board resolutions, responsibilities of audit committee, restrictions on bail, making
common seal optional, requirement for minimum paid-up share capital, strength of benches for
hearing winding up cases, jurisdiction of special courts to try offences.
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Amendments are also being proposed in the Act to incorporate some of the provisions earlier left out
inadvertently, setting off of past losses/depreciation before declaring dividend and exemptions for
giving of loans/guarantee/security by holding companies to its subsidiaries.
Accordingly, it has been decided to move amendments in the Act through an Amendment Bill. The
Bill, namely, the Companies (Amendment) Bill 2014, inter alia, contains the amendments to the
Companies Act, 2013 as under:—
(i) to amend clauses (68), (71) of section 2 and section 11 of the said Act to omit the requirement for minimum
paid-up share capital, and consequential changes;
(ii) to amend sections 9, 12, 22, 46 and 223 of the said Act for making common seal optional, and consequential
changes for authorisation for execution of documents;
(iii) to insert a new section 76A to provide for punishment for deposits accepted in violation of the provisions of the
said Act;
(iv) to amend clause (g) of sub-section (3) of section 117 to prohibit public inspection of Board resolutions filed in
the Registry;
(v) to amend sub-section (1) of section 123 of the said Act to include provisions for writing off past
losses/depreciation before declaring dividend for the year;
(vi) to amend sub-section (6) of section 124 of the said Act for rectifying the requirement of transferring equity
shares for which unclaimed/unpaid dividend has been transferred to the Investors Education and Protection
Fund even though subsequent dividend(s) has been claimed;
(vii) to amend sub-section (3) of section 134 and sub-section (12) of section 143 of the said Act to incorporate
enabling provisions to prescribe thresholds beyond which fraud shall be reported to the Central Government
(below the threshold, it will be reported to the Audit Committee). Disclosures for the latter category also to be
made in the Board’s Report;
(viii) to amend clause (iv) of sub-section (4) of section 177 of the said Act to provide provision empowering Audit
Committee to give omnibus approvals for related party transactions on annual basis;
(ix) to amend section 185 of the said Act to provide for exemption u/s 185 (Loans to Directors) provided for loans
to wholly owned subsidiaries and guarantees/securities on loans taken from banks by subsidiaries;
(x) to amend sub-section (1) of section 188 of the said Act for replacing “special resolution” with “resolution” for
approval of related party transactions by nonrelated shareholders;
(xi) to amend sub-section (1) of section 188 of the said Act to exempt related party transactions between holding
companies and wholly owned subsidiaries (WOS) from the requirement of approval of non-related
shareholders’;
(xii) to amend sub-section (6) of section 212 of the said Act to provide for bail restrictions to apply only for offence
relating to fraud u/s 447;
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(xiii) to amend sub-section (4) of section 419 of the said Act to provide for winding up cases to be heard by 2-
member Bench instead of a 3-member Bench; and
(xiv) to amend sections 435 and 436 of the said Act to provide for that Special Courts to try only offences carrying
imprisonment of two years or more.
The Bill seeks to achieve the above objectives.
Amendments made to the Companies Act 2013, by the Insolvency and

Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code, 2016 received presidential assent on 28 May 2016. However,
this code is yet to be notified. Schedule XI of the Code amends the Companies Act, 2013 and is
reproduced below:
THE ELEVENTH SCHEDULE
(See section 255)
AMENDMENTS TO THE COMPANIES ACT, 2013 (18 OF 2013)
1. In section 2,—
(a) for clause (23), the following clause shall be substituted, namely:—
(23) “Company Liquidator” means a person appointed by the Tribunal as the Company Liquidator in
accordance with the provisions of section 275 for the winding up of a company under this Act;;
(b) after clause (94), the following clause shall be inserted, namely:—
(94A) “winding up” means winding up under this Act or liquidation under the Insolvency and Bankruptcy
Code, 2016, as applicable..
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2. In section 8, in sub-section (9), for the words “the Rehabilitation and Insolvency Fund formed under section 269”, the
words “Insolvency and Bankruptcy Fund formed under section 224 of the Insolvency and Bankruptcy Code, 2016” shall
be substituted.
3. In section 66, in sub-section (8), for the words, brackets and figures “is unable, within the meaning of sub-section (2)
of section 271, to pay the amount of his debt or claim,”, the words and figures “commits a default, within the meaning of
section 6 of the Insolvency and Bankruptcy Code, 2016, in respect of the amount of his debt or claim,” shall be
substituted.
4. In sections 77, in sub-section (3), after the words “the liquidator”, the words and figures “appointed under this Act or
the Insolvency and Bankruptcy Code, 2016, as the case may be,” shall be inserted.
5. In section 117 in sub-section (3), in clause (f), for the word and figures “section 304”, the words and figures “section
59 of the Insolvency and Bankruptcy Code, 2016” shall be substituted.
6. In section 224, in sub-section (2), after the words “wound up under this Act”, the words and figures “or under the
Insolvency and Bankruptcy Code, 2016” shall be inserted.
6A. In section 230,—
(a) in sub-section (1), after the word “liquidator”, the words “appointed under this Act or under the Insolvency and
Bankruptcy Code, 2016, as the case may be,” shall be inserted;
(b) in sub-section (6), after the word “on the liquidator”, the words “appointed under this Act or under the
Insolvency and Bankruptcy Code, 2016, as the case may be,” shall be inserted;
7. In section 249, in sub-section (1), for clause (e), the following clause shall be substituted, namely:— “(e) is being
wound up under Chapter XX of this Act or under the Insolvency and Bankruptcy Code, 2016.”.
8. Sections 253 to 269 shall be omitted.
9. For section 270, the following section shall be substituted, namely:— “270. The provisions of Part I shall apply to the
winding up of a company by the Tribunal under this Act.”.
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10. For section 271, the following section shall be substituted, namely:— “271. A company may, on a petition under
section 272, be wound up by the Tribunal,—
(a) if the company has, by special resolution, resolved that the company be wound up by the Tribunal;
(b) if the company has acted against the interests of the sovereignty and integrity of India, the security of the
State, friendly relations with foreign States, public order, decency or morality;
(c) if on an application made by the Registrar or any other person authorised by the Central Government by
notification under this Act, the Tribunal is of the opinion that the affairs of the company have been conducted
in a fraudulent manner or the company was formed for fraudulent and unlawful purpose or the persons
concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct
in connection therewith and that it is proper that the company be wound up;
(d) if the company has made a default in filing with the Registrar its financial statements or annual returns for
immediately preceding five consecutive financial years; or
(e) if the Tribunal is of the opinion that it is just and equitable that the company should be wound up.”.
12. For section 272, the following section shall be substituted, namely:—
• “272. (1) Subject to the provisions of this section, a petition to the Tribunal for the winding up of a company
shall be presented by—
(a) the company;
(b) any contributory or contributories;
(c) all or any of the persons specified in clauses (a) and (b);
(d) the Registrar;
(e) any person authorised by the Central Government in that behalf; or
(f) in a case falling under clause (b) of section 271, by the Central Government or a State Government.
(2) A contributory shall be entitled to present a petition for the winding up of a company, notwithstanding that he may
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be the holder of fully paid-up shares, or that the company may have no assets at all or may have no surplus assets left
for distribution among the shareholders after the satisfaction of its liabilities, and shares in respect of which he is a
contributory or some of them were either originally allotted to him or have been held by him, and registered in his
name, for at least six months during the 18 months immediately before the commencement of the winding up or have
devolved on him through the death of a former holder.
(3) The Registrar shall be entitled to present a petition for winding up under section 271, except on the grounds
specified in clause (a) or clause (e) of that sub-section: Provided that the Registrar shall obtain the previous sanction of
the Central Government to the presentation of a petition: Provided further that the Central Government shall not accord
its sanction unless the company has been given a reasonable opportunity of making representations.
(4) A petition presented by the company for winding up before the Tribunal shall be admitted only if accompanied by a
statement of affairs in such form and in such manner as may be prescribed.
(5) A copy of the petition made under this section shall also be filed with the Registrar and the Registrar shall, without
prejudice to any other provisions, submit his views to the Tribunal within sixty days of receipt of such petition.”.
13. In section 275,—
(a) for sub-section (2), the following sub-section shall be substituted, namely:—
• (2) The provisional liquidator or the Company Liquidator, as the case may, shall be appointed by the Tribunal
from amongst the insolvency professionals registered under the Insolvency and Bankruptcy Code, 2016;;
(b) sub-section (4) shall be omitted.
• 280. The Tribunal shall, notwithstanding anything contained in any other law for the time being in force, have
jurisdiction to entertain, or dispose of,—
(a) any suit or proceeding by or against the company;
(b) any claim made by or against the company, including claims by or against any of its branches in
India;
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(c) any application made under section 233;
(d) any question of priorities or any other question whatsoever, whether of law or facts, including those
relating to assets, business, actions, rights, entitlements, privileges, benefits, duties, responsibilities,
obligations or in any matter arising out of, or in relation to winding up of the company, whether such
suit or proceeding has been instituted, or is instituted, or such claim or question has arisen or arises
or such application has been made or is made or such scheme has been submitted, or is submitted,
before or after the order for the winding up of the company is made..
15. Section 289 shall be omitted.
15A. The heading “Part II.—
• Voluntary winding up” shall be omitted.
16. Sections 304 to 323 shall be omitted.
17. Section 325 shall be omitted.
• “326.(1) In the winding up of a company under this Act, the following debts shall be paid in priority to all other
debts:—
(a) workmen’s dues; and
(b) where a secured creditor has realised a secured asset, so much of the debts due to such secured
creditor as could not be realised by him or the amount of the workmen’s portion in his security (if
payable under the law), whichever is less, pari passu with the workmen’s dues:
• Provided that in case of the winding up of a company, the sums referred to in sub-clauses (i) and (ii)
of clause (b) of the Explanation, which are payable for a period of two years preceding the winding
up order or such other period as may be prescribed, shall be paid in priority to all other debts
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(including debts due to secured creditors), within a period of thirty days of sale of assets and shall
be subject to such charge over the security of secured creditors as may be prescribed.
(2) The debts payable under the proviso to sub-section (1) shall be paid in full before any payment is made to secured
creditors and thereafter debts payable under that subsection shall be paid in full, unless the assets are insufficient to
meet them, in which case they shall abate in equal proportions.
Explanation.—For the purposes of this section, and section 327—
(a) “workmen’’, in relation to a company, means the employees of the company, being workmen within the
meaning of clause (s) of section 2 of the Industrial Disputes Act, 1947 (14 of 1947);
(b) “workmen’s dues’’, in relation to a company, means the aggregate of the following sums due from the
company to its workmen, namely:—
(i) all wages or salary including wages payable for time or piece work and salary earned wholly or in part
by way of commission of any workman in respect of services rendered to the company and any
compensation payable to any workman under any of the provisions of the Industrial Disputes Act,
1947 (14 of 1947);
(ii) all accrued holiday remuneration becoming payable to any workman or, in the case of his death, to
any other person in his right on the termination of his employment before or by the effect of the
winding up order or resolution;
(iii) unless the company is being wound up voluntarily merely for the purposes of reconstruction or
amalgamation with another company or unless the company has, at the commencement of the
winding up, under such a contract with insurers as is mentioned in section 14 of the Workmen’s
Compensation Act, 1923 (19 of 1923), rights capable of being transferred to and vested in the
workmen, all amount due in respect of any compensation or liability for compensation under the said
Act in respect of the death or disablement of any workman of the company;
(iv) all sums due to any workman from the provident fund, the pension fund, the gratuity fund or any other
fund for the welfare of the workmen, maintained by the company;
(c) “workmen’s portion’’, in relation to the security of any secured creditor of a company, means the amount which
bears to the value of the security the same proportion as the amount of the workmen’s dues bears to the
aggregate of the amount of workmen’s dues and the amount of the debts due to the secured creditors.
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Illustration
The value of the security of a secured creditor of a company is Rs 1,00,000. The total amount of the workmen’s dues is
Rs 1,00,000. The amount of the debts due from the company to its secured creditors is Rs3,00,000. The aggregate of
the amount of workmen’s dues and the amount of debts due to secured creditors is Rs 4,00,000. The workmen’s
portion of the security is, therefore, one-fourth of the value of the security, that is Rs 25,000.”.
(a) after sub-section (6), the following sub-section shall be inserted, namely:—
(7) Sections 326 and 327 shall not be applicable in the event of liquidation under the Insolvency and
Bankruptcy Code, 2016.;
(b) in the Explanation, for clause (c), the following clause shall be substituted, namely:—
(c) the expression “relevant date” means in the case of a company being wound up by the Tribunal, the
date of appointment or first appointment of a provisional liquidator, or if no such appointment was
made, the date of the winding up order, unless, in either case, the company had commenced to be
wound up voluntarily before that date under the Insolvency and Bankruptcy Code, 2016;.
• 329. Any transfer of property, movable or immovable, or any delivery of goods, made by a company, not being
a transfer or delivery made in the ordinary course of its business or in favour of a purchaser or encumbrancer
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in good faith and for valuable consideration, if made within a period of one year before the presentation of a
petition for winding up by the Tribunal under this Act shall be void against the Company Liquidator..
• 334. In the case of a winding up by the Tribunal, any disposition of the property including actionable claims, of
the company and any transfer of shares in the company or alteration in the status of its members, made after
the commencement of the winding up shall, unless the Tribunal otherwise orders, be void..
22. In section 336, in sub-section (1), in the opening paragraph, for the words “whether by the Tribunal or voluntarily, or
which is subsequently ordered to be wound up by the Tribunal or which subsequently passes a resolution for voluntary
winding up”, the words “by the Tribunal under this Act or which is subsequently ordered to be wound up by the Tribunal
under this Act” shall be substituted.
23. In section 337, for the words “or which subsequently passes a resolution for voluntary winding up,”, the words
“under this Act”, shall be substituted.
24. In section 342, sub-sections (2), (3) and (4) shall be omitted.
25. In section 343, for sub-section (1), the following sub-section shall be substituted, namely—
(1) The Company Liquidator may, with the sanction of the Tribunal, when the company is being wound up by the
Tribunal,—
(i) pay any class of creditors in full;
(ii) make any compromise or arrangement with creditors or persons claiming to be creditors, or having or
alleging themselves to have any claim, present or future, certain or contingent, against the company,
or whereby the company may be rendered liable; or
(iii) compromise any call or liability to call, debt, and liability capable of resulting in a debt, and any claim,
present or future, certain or contingent, ascertained or sounding only in damages, subsisting or
alleged to subsist between the company and a contributory or alleged contributory or other debtor or
person apprehending liability to the company, and all questions in any way relating to or affecting
the assets or liabilities or the winding up of the company, on such terms as may be agreed, and take
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any security for the discharge of any such call, debt, liability or claim, and give a complete discharge
in respect thereof.
(1) When the affairs of a company have been completely wound up and it is about to be dissolved, the books and
papers of such company and those of the Company Liquidator may be disposed of in such manner as the
Tribunal directs..
(1) If the winding up of a company is not concluded within one year after its commencement, the Company
Liquidator shall, unless he is exempted from so doing, either wholly or in part by the Central Government,
within two months of the expiry of such year and thereafter until the winding up is concluded, at intervals of
not more than one year or at such shorter intervals, if any, as may be prescribed, file a statement in such
form containing such particulars as may be prescribed, duly audited, by a person qualified to act as auditor of
the company, with respect to the proceedings in, and position of, the liquidation, with the Tribunal:
• Provided that no such audit as is referred to in this sub-section shall be necessary where the provisions of
section 294 apply;.
• 357. The winding up of a company by the Tribunal under this Act shall be deemed to commence at the time of
the presentation of the petition for the winding up..
29. In section 370, in the proviso, after the words “obtained for the winding up the company”, the words “in accordance
with the provisions of this Act or of the Insolvency and Bankruptcy Code, 2016” shall be inserted.
30. In section 372, after the words “The provisions of this Act”, the words “or of the Insolvency and Bankruptcy Code,
2016, as the case may be,” shall be inserted. 31. In section 419, for sub-section (4), the following sub-section shall be
substituted, namely:—
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(4) The Central Government shall, by notification, establish such number of benches of the Tribunal, as it may
consider necessary, to exercise the jurisdiction, powers and authority of the Adjudicating Authority conferred
on such Tribunal by or under Part II of the Insolvency and Bankruptcy Code, 2016..
(i) in sub-section (1), after the words, “other provisions of this Act”, the words “or of the Insolvency and
Bankruptcy Code, 2016” shall be inserted;
(ii) in sub-section (2), after the words, “under this Act”, the words “or under the Insolvency and Bankruptcy Code,
2016” shall be inserted. 33. In section 429, for sub-section (1), the following sub-section shall be substituted,
namely:—
• “(1)The Tribunal may, in any proceedings for winding up of a company under this Act or in any proceedings
under the Insolvency and Bankruptcy Code, 2016, in order to take into custody or under its control all
property, books of account or other documents, request, in writing, the Chief Metropolitan Magistrate, Chief
Judicial Magistrate or the District Collector within whose jurisdiction any such property, books of account or
other documents of such company under this Act or of corporate persons under the said Code, are situated
or found, to take possession thereof, and the Chief Metropolitan Magistrate, Chief Judicial Magistrate or the
District Collector, as the case may be, shall, on such request being made to him,—
(a) take possession of such property, books of account or other documents; and
(b) cause the same to be entrusted to the Tribunal or other persons authorised by it.”.
434. (1) On such date as may be notified by the Central Government in this behalf,—
(a) all matters, proceedings or cases pending before the Board of Company Law Administration (herein
in this section referred to as the Company Law Board) constituted under sub-section (1) of section
10E of the Companies Act, 1956 (1 of 1956), immediately before such date shall stand transferred to
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the Tribunal and the Tribunal shall dispose of such matters, proceedings or cases in accordance
with the provisions of this Act;
(b) any person aggrieved by any decision or order of the Company Law Board made before such date
may file an appeal to the High Court within sixty days from the date of communication of the
decision or order of the Company Law Board to him on any question of law arising out of such order:
Provided that the High Court may if it is satisfied that the appellant was prevented by sufficient
cause from filing an appeal within the said period, allow it to be filed within a further period not
exceeding sixty days; and
(c) all proceedings under the Companies Act, 1956 (1 of 1956), including proceedings relating to
arbitration, compromise, arrangements and reconstruction and winding up of companies, pending
immediately before such date before any District Court or High Court, shall stand transferred to the
Tribunal and the Tribunal may proceed to deal with such proceedings from the stage before their
transfer:
• Provided that only such proceedings relating to the winding up of companies shall be transferred to
the Tribunal that are at a stage as may be prescribed by the Central Government.
(2) The Central Government may make rules consistent with the provisions of this Act to ensure timely transfer of
all matters, proceedings or cases pending before the Company Law Board or the courts, to the Tribunal
under this section.
35. In section 468, for sub-section (2), the following sub-section shall be substituted, namely:—
• (2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all
or any of the following matters, namely:—
(i) as to the mode of proceedings to be held for winding up of a company by the Tribunal under this Act;
(ii) for the holding of meetings of creditors and members in connection with proceedings under section
230;
(iii) for giving effect to the provisions of this Act as to the reduction of the capital;
(iv) generally for all applications to be made to the Tribunal under the provisions of this Act;
(v) the holding and conducting of meetings to ascertain the wishes of creditors and contributories;
(vi) the settling of lists of contributories and the rectifying of the register of members where required, and
collecting and applying the assets;
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(vii) the payment, delivery, conveyance, surrender or transfer of money, property, books or papers to the
liquidator;
(viii) the making of calls; and
(ix) the fixing of a time within which debts and claims shall be proved..
36. In Schedule V, in Pt II, in section III, for clause (b), the following clause shall be substituted, namely:—
(b) where the company—
(i) is a newly incorporated company, for a period of seven years from the date of its incorporation, or
(ii) is a sick company, for whom a scheme of revival or rehabilitation has been ordered by the Board for
Industrial and Financial Reconstruction for a period of five years from the date of sanction of scheme
of revival, or
(iii) is a company in relation to which a resolution plan has been approved by the National Company Law
Tribunal under the Insolvency and Bankruptcy Code, 2016 for a period of five years from the date of
such approval, it may pay remuneration up to two times the amount permissible under section II..
Background to the Companies Act, 1956
The, Companies Act, 1956 (1 of 1956) was a consolidation of the existing laws, statutory rules and
certain principles laid down in decisions of the courts in India and in England. The 1956 Act
substantially incorporated provisions of the English Companies Act, 19484 which consolidated the
principles of equity. Behind the English as well as Indian Companies Acts, therefore, there is a
general body of laws and equity principles and it is there that most of the fundamental principles will
be found and, as such, they are helpful in understanding the present-day Company Law. So far as
the laws have been consolidated the old decisions will be binding in appropriate cases.5
During the 11th to 13th Centuries, the associations of merchants called the Merchant Guilds obtained
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charters from the Crown mainly to secure for its members a monopoly in respect of a particular trade
or commodity. Each member traded on his own account but subject to the regulations of his Guild.
Gradually there grew up trading on joint account subject to the rules of the Guild. This joint account
trading was either known as Commenda or Societas. In Commenda, a trader lent money to another
for trading, got a share of the profit and in case of loss his liability was limited to the money lent. The
financier was somewhat a sleeping partner with limited liability. In Societas all the members took part
in the management of the trade and had unlimited liability. The Societas had now matured into
partnership. Commenda is still to be found in the Continental countries.
In the 14th Century, the word “Company” was adopted by certain merchants for trading overseas. By
Royal Charters these merchants were given certain privileges in trading. This was more or less an
extension of the Guild in foreign trade. By the 16th Century such Charters became common granting
monopoly of trade to members of the company and Governmental power over the territory to the
company. These companies were called “regulated companies”.
By the end of the 16th century these individuals traded separately with their funds or stock, as also
jointly with other members of the company. Gradually the members gave up separate trading and
diverted their stock to the joint trading. Thus there became joint fund or joint stock with which the
members started trading on a joint account. The regulated companies thus became joint commercial
enterprises instead of trade protection associations.
East India Company was established by a Charter in 1600. It had monopoly of trade in the Indies; its
members could carry on trade individually and had the option to subscribe to the joint fund or stock of
the Company. After each voyage the profits made, together with the subscription amount, were re-
divided among the members. In 1614, it was decided that the subscription should be for a number of
years. In 1653, a permanent subscribed fund was introduced. Thus, there came into existence a
permanent joint stock of the East India Company.
In 1692, private trading by the members of the Company was prohibited. The term “Joint Stock
Company” was used at that time in relation to such a company to distinguish it from a “regulated
company” whose members had the freedom to trade separately and had options to subscribe to the
joint fund or stock of the company. The term “Joint Stock Company” is now obsolete.
The principle of limited liability of members of non-trading corporations was accepted in the 15th
Century and subsequently in case of trading companies. This was important for the company as for
the separate debts of members the properties of the company could be attached. Most of the
Charters conferred power on the company to make calls on the members and, as such, the limited
liability of members was illusory. Moreover, the creditors could proceed directly against the members
if the company did not take action. To avoid such unlimited liability the members used to enter into
agreements with the company that the company would have no power to make calls on them.
Monopolistic powers of company were not favoured and after the Revolutions of 1688 the Crown, it
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was assumed, had the power to grant a Charter of incorporation but a monopolistic or other special
privilege could be conferred on a company only by a statute. Gradually the foreign companies
declined and the domestic companies grew up. The domestic companies invited the public to
subscribe to its capital but in other respects were similar to public corporations enjoying monopoly.
The Bank of England is an instance of such a corporation. These companies were extensions of the
Guilds and partnerships.
The first 20 years of the 18th Century witnessed the flood of speculative and often fraudulent
schemes of company flotations of which the notorious scheme of the South Sea Company is the
best-known example. The South Sea Company had a scheme to acquire virtually the whole of the
national debt by purchasing the holdings or exchanging the holdings for the stocks of the company.
The possession of interest-bearing loan owned by the State was a basis upon which the company
might raise vast sums of money for extension of its trade. But the company had very little trade to
expand. It had paid a huge sum of money for obtaining the Charter in competition with the Bank of
England. Ultimately, the company failed. When such speculation and gambling were at its height and
a large number of companies came into existence the Parliament passed the Bubble Act, 1720. The
Act prohibited generally the use of corporations unless the corporation was authorised to act as such
by an Act of Parliament or Royal Charter, but exempted all undertakings established before 24 June
1718. Proceedings were started against some of the companies operating under obsolete Charters
with a view to forfeiting the Charters. This led to a widespread panic. The stock of the South Sea
Company lost its value, and many of the companies disappeared like the bursting of the bubbles.
To avoid the rigours of the Bubble Act, 1720, large partnerships were formed from the beginning of
19th Century by a deed of settlement. The parties to the deed agreed to be associated with a joint
fund or stock divided into a number of transferable shares and agreed to alterations of the provisions
of the deed by a specified majority. They delegated the management to the directors. The property
was vested in a body of trustees. The trustees were given power to sue or be sued on behalf of the
company as the courts did not at that time permit a suit to be filed in the firm’s name.
In 1825, the Bubble Act was repealed. It made a provision enabling the Crown to declare the extent
of the members’ liability on the grant of incorporation. To meet the needs of the business community,
the Trading Companies Act of 1834 was passed empowering the Crown to confer by Letters Patent
all or any of the privileges of incorporation, except limited liability, without actually granting a Charter.
This enabled companies to sue and be sued in names of their officials. It was a first general Act
requiring public registration of members, but it expressly preserved their unlimited liability. The
Chartered Companies Act, 1837, re-enacted the 1834 Act but provided that personal liability of
members might be expressly limited by the Letters Patent to a specified amount per share.
In 1844, the Joint Stock Companies Act was passed. (1) It provided for the registration of all new
companies with more than 25 members or with shares transferable without the consent of all the
members. (2) It provided for incorporation by registration. Such registration was provisional,
authorising the company to function for a limited purpose. Thereafter, on filing a deed of settlement
containing the prescribed particulars and other documents, the company was finally incorporated. (3)
The Act created the office of the “Registrar of Companies” and required particulars of the company’s
constitution, changes therein and annual returns to be filed with the Registrar of Companies so that
there would be full publicity. Limited liability was not granted, but it was provided that after transfer of
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shares a member would have no liability on the expiry of three years and that creditors had to
proceed first against the assets of the company. A separate Act of 1844 made provisions for winding
up of companies and application of bankruptcy laws.
In the middle of the 19th Century the limited liability concept was mooted and there were various
criticisms. The proposed statute introducing the limited liability concept was branded as “The Rogues’
Charter” and that the Parliament was devising means for the encouragement of speculation, over-
trading and swindling. If men were allowed to subscribe for a limited amount in the capital of a
company and be no further liable, a spirit of gambling would develop to the detriment of the country
and its tradition of sober judgement. It would encourage excessive and reckless enterprises and open
the door to dishonesty and fraud.
In practical experience it has been found that during over century-and-half, to be precise, in the last
160 years the critics of the limited liability concept were wrong and that the limited liability concept
has shown expansion and achievement on a scale that the critics could hardly have dreamt of. Such
expansion and achievement, in the considered view of leading economists, could not have been
attained without the limited liability. The institution has survived and flourished in spite of isolated
cases of dishonesty and fraud. The legislature and judiciary have helped the business to grow and at
the same time protecting the interests of the public.
In 1855, the Limited Liability Act was passed providing for limited liability of the members of a
company on complete registration if (1) the company had at least 25 members holding £ 10 shares
paid up to the extent of 20%., (2) not less than three-fourths of the nominal capital was subscribed,
(3) “Limited” was added to the company’s name, and (4) the Board of Trade’s approval obtained for
appointment of auditors. The directors were made personally liable if they paid dividend knowing the
company to be insolvent or made loans to the members and the company had to wind up and it was
found that three-fourths of the capital was lost.
The Act was repealed within a few months by the Joint Stock Companies Act, 1856. It omitted the
provisional registrations and the deed of settlement and introduced the memorandum and articles of
associations and made provisions for winding up. This Act allowed incorporation with limited liability
and any seven or more persons could register a memorandum of association. It omitted some of the
restrictive provisions of the 1855 Act. The Joint Stock Companies Act, 1856, was amended in 1857.
In 1862, the law was codified. There were several amendments, and in 1908 the Companies
Consolidation Act was passed. Thereafter several amendments were made and in 1929 the Act was
again consolidated.
The English Companies Act, 1948, was passed consolidating the law and thereafter amended and
consolidated in 1967, 1976, 1980, 1981 and 1983.
The English Companies Act, 1985 has again consolidated the English Companies Act. The English
Companies Act, 1989 has further inserted and substituted several sections in the English Companies
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Act, 1985. It is significant to note that the English Companies Act, 1985 as amended by the English
Companies Act, 1989 is not a complete code in itself. The provisions relating to companies in the UK
are now contained in the Companies and other related Acts [explained hereinafter]. All these Acts are
to be considered to have a complete picture of the provisions relating to Companies. The Companies
Act in the UK has been rapidly changing and will change to harmonise its provisions with the
“Directives” of the European Economic Community (EEC) to achieve the economic integration of its
members.
In India, in 1850, an Act for “Registration of Joint Stock Companies” was passed in line with the
Companies Act, 1844. Under the 1850 Act, the Supreme Courts of Calcutta, Madras and Bombay
were the registering authorities of companies. The Act permitted registration of an unincorporated
partnership formed under a deed and containing provision for transfer of shares in its stock or
business without the consent of all the partners, and of non-trading companies, with or without limited
liability. The privilege of limited liability was not granted to banking and insurance companies until the
Act of 1860. The Indian Companies Act, 1866, was passed consolidating and amending “the laws
relating to incorporation, regulation and winding up of trading companies and other associations”. The
Act was amended and the law was consolidated from time to time keeping pace with the English
Acts.
The Companies Act, 1956 (1 of 1956) was passed consolidating the law and incorporating provisions
to meet the socio-economic needs of the country. The Companies Act, 1956 was largely based on
the English Companies Act, 1948. The English system and provisions of the English Acts till 1948
have been transplanted in the (Indian) 1956 Act (1 of 1956).
The Indian 1956 Act is mainly based on the English Companies Act, 1948 and the case laws. There
has since been substantial shift of principles and concepts from those contained in and developed
around the English Companies Act, 1948. There is now a wide gulf between the Indian 1956 Act and
the English Companies Act, 1985 with the associated enactments.6
In the last over a decade, an attempt has, however, been made to narrow this gulf by amending the
Companies Act, 1956 and associated corporate Acts, eg, the Securities and Exchange Board of India
Act, 1992, SEBI Rules, Regulations, etc., to somewhat keep pace with the English Companies Acts
and other associated corporate legislations in the globalised economic scenario.
Analysis of the provision
Section 1 corresponds, generally, to sections 1, 620, 620B and 620C of the 1956 Act. It provides for
the scope of the application of the 2013 Act geographically, i.e., to the whole of India (sub-section 2),
as well as to the type of companies to be covered by the application of the provisions of the 2013 Act
(sub-section 4).
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That latter coverage is wide – namely, the provisions of the companies Act, 2013 apply to any
company incorporated under any previous company law; as well as to insurance companies, banking
companies and companies engaged in the generation or supply of electricity except, in each case,
insofar as the provisions of the 2013 Act are not inconsistent with the special or specific legislation or
statute governing each of these types of entities. Indeed, sub-section 4(e) of section 1 specifically
provides that the 2013 Act shall apply to each company governed by any special statute for the time
being in force, except insofar as the provisions of the 2013 Act are inconsistent with the provisions of
such special legislation. Finally, the power of the Central Government is preserved (sub-section 4(f))
by enabling it to extend the application of the 2013 Act to any such body corporate incorporated by
any statute in force for the time being, subject to such exceptions, modifications or adaptations as the
Central Government may, by notification, specify in that behalf.
While section 1 of the 2013 Act comes into force “at once”, the manner in which the 2013 Act has
been notified is based on the entitlement, specifically set forth in sub-section 3, enabling the Central
Government to appoint or designate different dates for notifying the coming into force of the different
provisions of the statute. In other words, the 2013 Act can be and, indeed, has been brought into
force, on different dates in keeping with the need to promulgate the application of the statute in a
phased manner for various reasons, including, pending judicial challenges against certain provisions
of the law (for instance, the sections dealing with the NCLT that was the subject matter of a challenge
as to its very vires).
Commencement Notifications
For the Text of these Notifications refer Appendix 61.
Extent
The Companies Act, 2013 applies to all of India. The Companies Act, 1956 also provided that the Act
would extend to the whole of India. Section 620B, 620C and the proviso to section 1(3) of the 1956
Act allowed the Central Government to modify the application to Goa, Daman, Diu, Jammu and
Kashmir and Nagaland. Please see more detailed commentary on these 1956 sections below.
Extending Application of the Companies Act, 2013, [Section 1 (4)]
Section 1(4) of the Companies Act, 2013 extends the application of the Act to:
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(a) companies incorporated under this Act or under any previous company law;
(b) insurance companies, except in so far as the said provisions are inconsistent with the
provisions of the Insurance Act, 1938 (4 of 1938) or the Insurance Regulatory and
Development Authority Act, 1999 (41 of 1999);
(c) banking companies, except in so far as the said provisions are inconsistent with the
(d) companies engaged in the generation or supply of electricity, except in so far as the said
provisions are inconsistent with the provisions of the Electricity Act, 2003 (36 of 2003);
(e) any other company governed by any special Act for the time being in force, except in so far
as the said provisions are inconsistent with the provisions of such special Act; and
(f) such body corporate, incorporated by any Act for the time being in force, as the Central
Government may, by notification, specify in this behalf, subject to such exceptions,
modifications or adaptation, as may be specified in the notification.
Clauses (b) to (e) above correspond to section 616 of the Companies Act, 2013.
Interpretation and Construction
The rules of interpretation and construction are useful servants but quite often tend to become
difficult masters. They are not rules in the ordinary sense of having some binding force. They are our
servants not our masters. They are aids to construction, presumptions or pointers. Not infrequently
one “rule” points in one direction, another in a different direction. In each case we must look at all
relevant circumstances and decide as a matter of judgment what weight to attach to any particular
“rule”.7
It is a well-settled principle of law that where wordings of a statute are absolutely clear and
unambiguous recourse to different principles of interpretations may not be resorted to. But where the
words of a statute are not so clear and unambiguous, the other principles of interpretation should be
resorted to.8
When the language of the section is not clear and there is a need to resort to the aids of construction,
such aids can be either internal or external. Internal aids of construction are Preamble, Sections,
Sub-sections, Non obstante clauses, Headings, Marginal Notes, Provisos, Explanations, Exceptions,
Fictions, Deeming provisions, Definitions, Punctuations, Saving clauses, etc. The Dictionaries, Earlier
Acts, History of Legislation, Parliamentary History, Parliamentary Proceedings, State of Law as it
existed when the Act was passed, the mischief sought to be suppressed and the remedy sought to
be advanced by the Act are external aids.9
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Fundamental principles or rules of interpretation and construction of statutes, Internal or intrinsic aids
to interpretation and construction, External or extrinsic aids, Interpretation and construction of
Subordinate, secondary or delegated legislation, viz., Rules and Notifications, etc., are enunciated
hereinafter.
Literal Construction
It is well settled that the court cannot read anything into a statutory provision which is plain and
unambiguous. A statute is an edict of the Legislature. The language employed in a statute is the
determinative factor of legislative intent. The first and primary rule of construction is that the intention
of the legislation must be found in the words used by the Legislature itself.10 It is now a well settled
principle of law that a literal meaning should be assigned to a statute unless the same leads to
anomaly or absurdity.11 When the words of the legislation are clear, the court must give effect to them
as they stand and cannot demur on the ground that the Legislature must have intended otherwise.12
The first and foremost principle of interpretation of a statute in every system of interpretation is the
literal rule of interpretation. Recourse can be had to the legislative intent for the purpose of
interpreting a provision of law when the language employed by the Legislature is doubtful or
ambiguous or leads to some absurdity. When the language is plain and explicit and does not admit of
any doubt, the Court cannot by reference to an assumed legislative intent expand or alter the plain
meaning of an expression employed by the Legislature. It is also well settled that when there is a
conflict between law and equity, it is the law which has to prevail.13
The primary and golden rule of interpretation is the literal construction. No doubt the object of
interpretation is to discover the intention of Parliament, but the intention of Parliament must be
deduced from the language used. Where the language is plain and admits of but one meaning, that
meaning is to be given to the language in the statute. It is only when words are susceptible of more
than one meaning that other rules of interpretation come into play.14
If there is one principle of interpretation more well-settled than any other, it is that a statutory
enactment must ordinarily be construed according to the plain natural meaning of its language and
that no words should be added, altered or modified unless it is plainly necessary to do so in order to
prevent a provision from being unintelligible, absurd, unreasonable, unworkable, or totally
irreconcilable with the rest of the statute. This rule of literal construction is firmly established.
Therefore, where the language of the statute is clear and explicit, effect must be given to it, for in
such a case the words best declare the intention of the Legislature.15
Where alternative constructions are possible, the one is to be chosen which will be consistent with
the smooth working of the system which the statute purports to regulate. A construction which would
leave out any part of the language of a statute will normally be rejected. If the Legislature has not so
laid down, the court cannot fill up the casus omissus. An Act ought not to be so construed as to
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convict the Legislature of having used an expression which would be absurd. The principle of casus
omissus is not to be created or applied by the court.16
Casus omissus
The rules of interpretation do not permit the court to read something in a statute which is a clear
omission. The maxim or rule is known as “casus omissus”. While interpreting, the court only interprets
the law and cannot legislate it. If a provision of law is misused and subjected to the abuse of process
of law, it is for the Legislature to amend, modify or repeal it by having recourse to appropriate
procedure, if deemed necessary. Legislative casus omissus cannot be supplied by judicial
interpretative process.17 The court can merely interpret the section; it cannot re-write, recast or
redesign the section. In interpreting the provision, the exercise undertaken by the court is to make
explicit the intention of the legislature which enacted the legislation. It is not for the court to reframe
the legislation.18
It is true that normally it is not permissible for the court to read words in a statute which are not there.
But if the meaning of the statute is not clear, it is permissible in certain cases to have recourse to a
construction by implication and to draw inferences to supply of obvious omission.19
Court cannot supply words or casus omissus
The Court must proceed on the assumption that the Legislature did not make a mistake and that it
intended to say what it said. Assuming there is a defect or an omission in the words used by the
Legislature, the Court cannot correct or make up the deficiency. The Court cannot add words to a
Statute or read words into it which are not there, especially when a literal reading thereof produces
an intelligible result. The Court is not authorised to alter a word or provide a casus omissus.20
Casus omissus cannot be supplied by Court in absence of necessity
The principal of law of casus omissus cannot be supplied by the Court in the absence of any
necessity. From a plain reading of sections 542 and 543 of the Companies Act, 1956 as a whole, as it
was evident that the statute itself was very clear and there was no ambiguity with regard to
entitlement to filing an application under sections 542 and 543 of the Act, the principal of law of casus
omissus could not be supplied by the Court in the absence of any necessity. Application under
sections 542 and 543 preferred by the Administrator of the company in liquidation was not
maintainable nor was the company judge empowered to impose a fine in lieu of imprisonment under
section 542(3) of the Companies Act, 1956. The contention that the Administrator had been
appointed to complement the work of the Official Liquidator and could also file a petition under
sections 542 and 543 of the Act could not be accepted as there was nothing on the record to suggest
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that the Official Liquidator empowered the Administrator to perform the job on his behalf.21
Rational Construction
It is a well-recognised rule of construction that a statutory provision must be so construed, if possible,

that absurdity and mischief may be avoided. It is now a well settled rule of construction that where the
plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result
which could never have been intended by the Legislature, the court may modify the language used
by the Legislature or even “do some violence” to it, so as to achieve the obvious intention of the
Legislature and produce a rational construction.22
Two principles of construction—one relating to casus omissus and the other in regard to reading the
statute as a whole—appear to be well settled. Under the first principle a casus omissus cannot be
supplied by the court except in the case of clear necessity and when reason for it is found in the four
corners of the statute itself but at the same time a casus omissus should not be readily inferred and
for that purpose all the parts of a statute or section must be construed together and every clause of a
section should be construed with reference to the context and other clauses thereof so that the
construction to be put on a particular provision makes a consistent enactment of the whole statute.
This would be more so if literal construction of a particular clause leads to manifestly absurd or
anomalous results which could not have been intended by the Legislature. An intention to produce an
unreasonable result is not to be imputed to a statute if there is some other construction available.
Where to apply words literally would defeat the obvious intention of the legislation and produce a
wholly unreasonable result the court must do some violence to the words and so achieve that
obvious intention and produce a rational construction.23
Reasonable or Purposive Construction
It is well-settled that the rule of reasonable construction must be applied while construing a statute.
Literal construction should be avoided if it defeats the manifest object and purpose of the Act.24 The
exercise of purposive interpretation by looking into the object and scheme of the Act and the
legislative intendment would arise only if the language of the statute is either ambiguous or conflicting
or gives a meaning leading to absurdity.25
Legislation has an aim. That aim is evidenced in the language of the statute, as read in the light of
other external manifestations of purpose. The provisions of section 31 of the Recovery of Debts Due
to Banks and Financial Institutions Act, 1993 must be construed in such a manner that, after the Act,
no suit by the bank is decided by the civil court and all such suits are decided by the Debt Recovery
Tribunal.26
Section 11(2) of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992
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(27 of 1992) was not intended to secure taxes. The purposive interpretation must be resorted to
ensure that amounts realised from the properties attached come back to the banks and financial
institutions also.27
Rule of purposive construction or mischief rule
It is well settled that in interpreting a Statute the Court must adopt that construction which suppresses
the mischief and advances the remedy. This is a rule laid down in Heydon’s case also known as the
rule of purposive construction or mischief rule.28
Two views possible
It is now trite that when an expression is capable of more than one meaning, the court would attempt
to resolve that ambiguity in a manner consistent with the purpose of the provisions and with regard to
the consequences of the alternative constructions. Where regulations 11 and 12 of the SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 1997 were not clear, the rule of
purposive construction was taken recourse to.29
The courts must interpret the law as it reads. While a purposive interpretation is permissible where
two interpretations are possible, the purposive interpretation must be such as preserves the
constitutionality of the provision.30
If two interpretations are possible, one which furthers the object of the statute and the other defeats it
or permits a cunning person to commit a fraud, the former which furthers the object of the statute
must be given.31
National interest
When construing statutes enacted in the national interest, the court has necessarily to take the broad
factual situations contemplated by the Act and interpret its provisions so as to advance and not to
thwart the particular national interest whose advancement is proposed by the legislation. Traditional
norms of statutory interpretation must yield to broader notions of the national interest.32
Harmonious Construction
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To interpret and in such a way as to harmonize laws with laws is the best mode of interpretation.33
The different provisions of an Act are to be construed in such manner as to make them harmonious.34
The expressions used in a statute should ordinarily be understood in the sense in which they best
harmonise with the object of the statute and effectuate the object of the Legislature.35 A harmonious
construction of provisions of two different Acts, e.g., the Life Insurance Corporation Act, 1956 and the
Income-tax Act, 1961, is to be made if it leads to the result which is also in consonance with logic and
justice of the cause.36
It is a well-established rule of interpretation that, while interpreting a particular provision of a statute,

courts should bear in mind the object and scheme of the entire Act. A particular provision of the Act
cannot be considered or interpreted in isolation so as to give room for conflict inter se between the
provisions of the same Act. Courts should also bear in mind that while interpreting a provision of the
Act an interpretation leading to the provision becoming ultra vires the Legislature should be
avoided.37
Not to render provision Meaningless, Redundant or Otiose
It is a settled rule of interpretation of statutes that, if the language and words used are plain and
unambiguous, full effect must be given to them as they stand and, in the garb of finding out the
intention of the Legislature, no words should be added thereto or deleted therefrom. Likewise, it is
again a settled rule that statutory provisions should be construed in a manner which sub serves the
purpose of the enactment and does not defeat it and that no part thereof is rendered surplus or
otiose.38
In construing the provisions of a statute, courts should be slow to adopt a construction which tends to
make any part of the statute meaningless, ineffective, redundant or otiose. An interpretation which
leads to an anomalous or mischievous results or renders the working of a statute or provision
unworkable, nugatory and otiose must always be avoided. An attempt must always be made so to
reconcile the relevant provisions as to advance the remedy intended by the statute. Where the
statute prescribes a mandatory sentence of imprisonment and fine, a company or firm which cannot
be sent to prison can be punished with the sentence of fine.39
Long title or Preamble
This Act both consolidates and amends the laws relating to companies existing in 1956. To the extent
the 1956 Act consolidates, the decisions of courts given on the basis of the previous Acts will be
binding if similar cases arise under the present Act. So far as it amends the previous law, the old
decisions may not be authorities in cases arising out of such amended provisions of the Act. Where
the meaning of any provision of the present Act is clear and unambiguous, full effect must be given to
it, even though it effects an alteration in the law as established by judicial decisions under the earlier
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Acts.40
An Act consists of a long title which precedes the preamble and the said long title is a part of an Act
itself and is admissible as an aid to its construction. A long title along with preamble or even in its
absence is a good guide regarding the object, scope or purpose of the Act whereas the preamble
being only an abbreviation for purposes of reference is not a useful aid to construction. The preamble
to an Act, no doubt can also be read along with the other provisions of the Act to find out the meaning
of the words in enacting provisions to decide whether they are clear or ambiguous but the preamble
in itself not being an enacting provision is not of the same weight as an aid to construction of a
section of the Act as are the other relevant enacting words to be found elsewhere in the Act. The
utility of the preamble diminishes on a conclusion as to clarity of enacting provisions. It is, therefore,
said that the preamble is not to influence the meaning otherwise ascribable to the enacting parts
unless there is a compelling reason for it. If in an Act the preamble is general or brief statement of the
main purpose, it may well be of little value.41
Although the preamble does not control the statute, it is an admissible aid to construction thereof.42
The preamble or long title may be referred to in case of ambiguity. But, it cannot control circumscribe
or widen the scope of the legislation, if the provisions are clear and unambiguous. It is a well-settled
principle of interpretation that a provision of law should be interpreted in its ordinary grammatical
meaning. When there is no ambiguity in the provision reference to the preamble would be
unwarranted.43 The preamble of an Act “affords useful light as to what the statute intends to reach” or
in other words “affords a clue to the scope of the statute”.44
Parliamentary intention may be gathered from several sources. First, of course, it must be gathered
from the Statute itself, next from the Preamble to the statute, next from the Statement of Objects and
Reasons, thereafter from Parliamentary debates, Reports of Committees and Commissions which
preceded the legislation and finally from all legitimate and admissible sources from where there may
be light. Regard must be had to legislative history too.45
Short Title
It is a title given to the Act solely for the purpose of facility of reference. It may not be taken into
account in construing a statute.46
Headings or Marginal NOTES
Headings prefixed to sections or sets of sections are regarded as preambles to those sections. The
marginal heading to a section cannot control the interpretation of the words of the section particularly
when the language of the section is clear and unambiguous.47 The heading or marginal notes cannot
control the construction of the language used in the section when it is clear and unambiguous. But, in
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case of doubt, they can be relied upon as one of the aids for construction. They cannot control plain
words of the statute but may explain ambiguous words.48
The marginal note or heading to a section cannot be referred to for the purpose of construing the
section but it can certainly be relied upon as indicating the drift of the section or to show what the
section is dealing with. It cannot control the interpretation of the words of a section particularly when
the language of the section is clear and unambiguous but, being part of the statute, it prima facie
furnishes some clue as to the meaning and purpose of the section. In case of ambiguity or doubt the
heading can be referred to as an aid in construing the provision.49
Provisions of Act or Statute must be read as a whole
It is a well-settled rule of interpretation that provisions in an enactment must be read as a whole

before ascertaining the scope of any particular provision. The intention of the Legislature must be
found by reading the statute as a whole. Sections 391 to 394A of the Companies Act, 1956, must be
read not in isolation but with reference to the other relevant provisions of the Act. There is no difficulty
in reconciling the need to satisfy the requirements of both sections 391 to 394A and section 466 of
the Act while dealing with a company which has been ordered to be wound up. There is no
incongruity in looking into the aspects of public interest, commercial morality and the bona fide
intention to revive a company while considering whether a compromise or arrangement put forward in
terms of section 391 of the Act should be accepted or not. There is no conflict in applying both the
provisions and in harmoniously construing them and in finding that while the Court will not sit in
appeal over the commercial wisdom of the shareholders of a company, it will certainly consider
whether there is a genuine attempt to revive the company that has gone into liquidation and whether
such revival is in public interest and conforms to commercial morality.50
Sections and sub-sections
The court can merely interpret the section; it cannot re-write, recast or redesign the section. In
interpreting the provision, the exercise undertaken by the court is to make explicit the intention of the
legislature which enacted the legislation. It is not for the court to reframe the legislation.51
The question of interpretation of any section or word in a statute arises if and when there is any
ambiguity. If the meaning of the section is clear, in that case the aid of interpretation need not be
sought for.52 To ascertain the meaning of a section, it is not permissible to omit any part of it; the
whole section must be read together and an attempt should be made to reconcile all the parts. When
reconciliation, however, is not possible, we have to determine which is the leading provision and
which is the subordinate provision and which must give way to the other. If this method also is not
possible then, we shall have resort to yet another well-established rule, namely, if two sections are
repugnant, the known rule is that the last must prevail.53
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The sub-sections of a section must be construed as a whole, “each portion throwing light, if need be,
on the rest”.54
Non obstante clause
A clause beginning with “notwithstanding anything contained in” is sometimes appended to a section
in the beginning with a view to give the enacting part of the section in case of conflict an overriding
effect over the provision of the same Act or some other enactment mentioned in the non obstante
clause.55
Where two statutes have competing non obstante provisions, the non obstante clause in subsequent
enactment would prevail over non obstante clause in the former Act, unless subsequent enactment is
a general statute and the former Act is a special one, in which event the maxim generalia specialibus
non derogant would apply. The Sick Industrial Companies (Special Provisions) Act, 1985 and the
State Financial Corporations Act, 1951 are both special statutes. Therefore, in case of sick
companies, the provisions in 1985 Act would prevail.56
Where both the Acts are special Acts, the non obstante clause in later Act must prevail. The SICA,
1985 and the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992
containing non obstante clause are both special Acts, in such an event the later Act must prevail.57
Section 529A of the Companies Act, 1956 having a non obstante clause inserted in 1985 is later
provision and will override the special provisions under the State Financial Corporations Act, 1951.58
The scope and purport of the non obstante clause has to be ascertained by reading it in the context
of the provisions and consistent with the scheme of the enactment.59 The expression “notwithstanding
in any other law” in a section cannot take away the effect of any provision of the Act.60
Non obstante clause—Harmonious construction
The ordinary rule of construction is that where there are two non obstante clauses, the later shall
prevail. But it is equally well-settled that the ultimate conclusion would depend upon the limited
context of the statute. The endeavour of the Court would, however, always be to adopt a rule of
harmonious construction. Where both the Acts, viz., the Sick Industrial Companies (Special
Provisions) Act, 1985 (1 of 1986) and the Arbitration and Conciliation Act, 1996 (26 of 1996)
contained non obstante clauses. The Supreme Court held that the provisions of section 22(3) of the
Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) have been made to seek to
achieve a higher goal and, thus, the provisions thereof would be applicable, despite section 5 of the
Arbitration and Conciliation Act, 1996 (26 of 1996).61
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The Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) (SICA) shall be repealed on
the promulgation of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003.
Non obstante clause—Special Statute vis-a-vis General Statute
A non obstante clause must be given effect to, to the extent the Parliament intended and not beyond
the same. The provisions of the Companies Act, 1956 may be a Special Statute but if the special
statute does not contain any specific provision dealing with the contractual and other statutory rights
between different kinds of secured creditors, the specific provisions contained in the General Statute
shall prevail. Section 529A of the Companies Act, 1956 does not ex facie contain a provision on the
aspect of priority amongst the secured creditors and, hence, it would not be proper to read therein to
things, which Parliament did not comprehend. The subject of mortgage, apart from having been dealt
with under the common law, is governed by the provisions of the Transfer of Property Act, 1882 (4 of
1882). It is also governed by the terms of the contract. While enacting a statute, Parliament cannot be
presumed to have taken away a right in property. Right to property is a Constitutional right. Right to
recover the money lent by enforcing a mortgage would also be a right to enforce an interest in the
property. In terms of section 48 of the Transfer of Property Act, 1882 the claim of the first charge
holder shall prevail over the claim of the second charge holder. Thus, while enacting the Companies
Act, 1956, the Parliament cannot be held to have intended to deprive the first charge holder of the
said right. Such a valuable right, therefore, must be held to have been kept preserved. Deprivation of
legal right existing in favour of a person cannot be presumed in construing the Statute.62
Generalia specialibus non derogant
Special provisions or Acts prevail over general.—The maxim generalia specialibus non derogant
means that when there is a conflict between a general and a special provision, the latter shall prevail.
In other words, if there is an apparent conflict between two independent provisions of law, the special
provision must prevail.63 It may be laid down as a rule for the construction of statutes that, where a
special provision and a general provision are inserted which cover the same subject-matter, a case
falling within the words of the special provision must be governed thereby, and not by the terms of the
general provision.64 The doctrine generalia specialibus non derogant embodies a rule of construction,
but this rule is not of universal application. It is subject to the condition that there is nothing in the
general provision, expressed or implied, indicating an intention to the contrary. To invoke it, the
general and special provisions should occupy the same field.65
Where both the Acts are special Acts the later Act must prevail. The Companies Act, 1956 is a
general Act and does not prevail over the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993. Alternatively, the Companies Act and the RDB Act can both be treated as special laws and
the principle that when there are two special laws, the latter will normally prevail over the former if
there is a provision in the latter special Act giving it overriding effect. Such a provision is there in
section 34 of the RDB Act. Therefore, the RDB Act, 1993 overrides the Companies Act, 1956.66
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In case of inconsistency between the provisions of two enactments, both of which can be regarded as
special in nature, the conflict has to be resolved by reference to the purpose and policy underlying
the two enactments and the clear intendment conveyed by the language of the relevant provisions
therein.67
Sections “subject to other provisions”
The distinction between the expression “subject to other provisions” and the expression
“notwithstanding anything contained in other provisions of the Act” was explained by a Constitution
Bench of the Supreme Court. The expression “subject to” conveys the idea of a provision yielding
place to another provision or other provisions to which it is made subject. The non obstante clause,
i.e., the phrase “notwithstanding anything in” is equivalent to saying that in spite of the other
provisions or that the other provisions shall not be an impediment to the operation of that provision.68
Legislation by incorporation.— Inclusion of provision of other Act
Where a provision is borrowed from one enactment and incorporated into another, the provision must
be construed in the sense it bore in the statute from which it was taken. Where, the provisions of
section 205 of the 1956 Act stood bodily lifted and incorporated into section 115J of the Income-tax
Act, 1961. The term “loss” occurring in section 205(1), proviso clause (b) of the Companies Act, 1956
had to be understood and read as the amount arrived at after taking into account the depreciation.69
Referential incorporation
A statute which refers to the law of a subject generally adopts the law on the subject as of the time
the law is invoked, i.e., with all the changes made from time to time. This will include all the
amendments and modifications of the law subsequent to the time the reference statute was
enacted.70
Principles of legislation by incorporation or by reference
The principles of legislation by incorporation or by reference have been dealt with by the Supreme
Court in many cases. A distinction has been made between a mere reference or citation of one of the
Statutes into another and incorporation. A Statute may instead of referring to a particular previous
Statute or to any specific provision therein refer to the Law on the subject generally. In such cases a
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reference is construed to mean that the law is as it reads thereafter including amendments
subsequently to the time of adoption. If a subsequent Act brings into itself by reference some of the
Clauses of a former Act, the legal effect of that, as has often been held, is to write those Sections into
the new Act just as if they had been actually written in it with the pen, or printed on it. If there is mere
reference to a provision without incorporation, then unless a different intention appears it has to be
considered as reference to the provision. If a provision is incorporated in another, any subsequent
amendment or even its repeal would not affect the provision as incorporation in the latter Statute.71
Proviso
A proviso qualifies the generality of the main enactment by providing an exception and taking out
from the main provision, a portion, which, but for the proviso would be a part of the main provision. A
proviso must, therefore, be considered in relation to the principal matter to which it stands as a
proviso. A proviso should not be read as if providing something by way of addition to the main
provision which is foreign to the main provision itself. Indeed, in some cases, a proviso may be an
exception to the main provision though it cannot be inconsistent with what is expressed in the main
provision and if it is so, it would be ultra vires the main provision and struck down. As a general rule
in construing an enactment containing a proviso, it is proper to construe the provisions together
without making either of them redundant or otiose. Even, where the enacting part is clear, it is
desirable to make an effort to give meaning to the proviso with a view to justify its necessity.72
Only in case of ambiguity the proviso may throw some light on the section. An attempt should be
made to reconcile the section with its proviso if there is an inconsistency.73 There may be cases in
which the language of the statute may be so clear that a proviso may be construed as a substantive
clause. But whether a proviso is construed as restricting the main provision or as a substantive
clause, it cannot be divorced from the provision to which it stands as a proviso. It must be construed
harmoniously with the main enactment.74
The proviso cannot take away substantive right conferred by the main provision in absence of a clear
indication.75 A proviso which is inserted to remedy unintended consequences and to make the
provision workable, a proviso which supplies an obvious omission in the section and is required to be
read into the section to give the section a reasonable interpretation, requires to be treated as
retrospective in operation, so that a reasonable interpretation can be given to the section as a
whole.76
Explanation
It is well-settled that an Explanation added to a statutory provision is not a substantive provision in

any sense of the term but as the plain meaning of the word itself shows it is merely meant to explain
or clarify certain ambiguities which may have crept in the statutory provision. The object of an
Explanation to a statutory provision is—(a) to explain the meaning and intendment of the Act itself,
(b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to
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make it consistent with the dominant object which it seems to sub serve, (c) to provide an additional
support to the dominant object of the Act in order to make it meaningful and purposeful, (d) an
Explanation cannot in any way interfere with or change the enactment or any part thereof but where
some gap is left which is relevant for the purpose of the Explanation, in order to suppress the
mischief and advance the object of the Act it can help or assist the court in interpreting the true
purport and intendment of the enactment, and (e) it cannot, however, take away a statutory right with
which any person under a statute has been clothed or set at naught the working of an Act by
becoming a hindrance in the interpretation of the same.77
The mere use of the label “Explanation” is not decisive of the true meaning and scope of the
provision. Ordinarily, the purpose of an Explanation in a statute is to clarify or explain or settle any
doubt or ambiguity or controversy. It may even widen the scope of the main provision in rare cases.
The words used alone can reflect the true intent and they should be construed on their own terms. In
this regard, the context, background and history of the legislation may be looked into.78
An Explanation cannot be decisive of the true meaning of the section. But where two interpretations
are sought to be put upon a provision, that which fits the Explanation is to be adopted.79 Where a
section contains a number of clauses, and there is an Explanation at the end of the section, it should
be seen as to which clause it applies and the clarification contained in it.80 When the Explanation
serves the purpose of the clarification of the existing law, there is no question of any prospective or
retrospective operation of the Explanation.81
Illustration
In construing a section an illustration to it cannot be ignored or brushed aside because it is not part of
the body of the section.82
Exception clause
On principle as well as on authority, it is settled position in law that an exception clause must be
construed strictly and cannot be interpreted so as to nullify or destroy the main provision.83
Penal provisions
The penal provision must be strictly construed. When two interpretations are possible of a penal
provision, that which is less onerous to the accused should be preferred.84
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The principle that a statute enacting an offence or imposing a penalty is strictly construed is not of
universal application which must necessarily be observed in every case. The provisions have to be
specially construed in a manner which will suppress the mischief and advance the remedy or object
which the Legislature had in view.85
A penal statute indisputably is required to be strictly construed. But a different situation may arise if
the penalty is sought to be levied as a result of failure on the part of the person statutorily obliged to
comply with the statutory provisions which are imperative in nature. When words employed in a penal
statute are not clear, the principle “against doubtful penalisation” would be applied.86
Appeals and remedies
There is no inherent right of appeal. It has to be spelt from the words of the statute, if any, providing
for an appeal. But it is an equally well settled proposition of law that, if there is a provision conferring
a right of appeal, it should be read in a reasonable, practical and liberal manner.87
See detailed Notes under sections 10, 10E, 10FB, 10FQ and 10GF of the Companies Act, 1956.
Schedules
Schedules are part of the statute and may be used in construing provisions of the sections;88 the
provisions in the Schedules may be construed with reference to the sections89 and the ambiguous
words within the Schedule may be construed by reference to the cross-headings.90 Ordinary rules of
statutory construction should not be applied to an understanding of the entries in Schedules.91 Rules
under the Act cannot prevail over Schedule to the Act.92
Legal fictions or Deeming provisions
If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from
doing so, also imagine as real the consequences and incidents which, if the putative state of affairs
had in fact existed, must inevitably have flowed from or accompanied it. The statute says that you
must imagine a certain state of affairs; it does not say that having done so, you must cause or permit
your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.1 In
construing the scope of a legal fiction it would be proper and even necessary to assume all those
facts on which alone the fiction can operate. A legal fiction has to be carried to its logical conclusion.2
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Deeming provisions or legal fictions are only for a definite purpose and they are limited to the
purpose for which they are created and should not be extended beyond that legitimate field.3 The
legal fiction is of course to be carried to its logical conclusion but that must be within the framework of
the purpose for which it is created. When a statute enacts that something shall be deemed to have
been done, which in fact and truth was not done, the court is entitled and bound to ascertain for what
purposes and between what persons the statutory fiction is to be resorted to and full effect must be
given to the statutory fiction and it should be carried to its logical conclusion.4
Repeals and Savings
By sections 465 of the Companies Act, 2013 certain provisions of the repealed Act, viz., the Indian
1956 Act have been made applicable to the present Act for eg Chapters relating to Producer
Companies. Please see detailed Notes on section 465 in chapter 29.
Definitions and Meanings
Normally the definition and meaning of words and expressions given in the section should be applied
and given effect to but this normal rule may, however, be departed from if there be something in the
context to show that the definition should not be applied.5 When there exists a statutory definition in
respect of an expression, the dictionary meaning thereof cannot be applied. When a statutory
definition uses the word “includes”, it provides an extended meaning thereto but the words are
required to be construed in terms of the legislative intent. If the words are general and not precise,
their interpretations are to be restricted to the fitness of the matter.6 A construction which leads to
absurdity, repugnancy or inconsistency has to be avoided. Ordinarily, a word or expression used at
several places in one enactment should be assigned the same meaning so as to avoid “a head-on
clash” between two meanings assigned to the same word or expression occurring at two places in
the same enactment. When the Legislature uses the same word or expression in different parts of the
same section or statute, there is a presumption that the word is used in the same sense throughout.7
See detailed Notes on interpretation of Definitions or Meanings given in the Act and meaning of
words “means” or “includes” under section 2.
Mandatory or directory provision
Meaning of words “shall” or “may”.—There is no general rule which can be laid down whether a
particular provision is mandatory or directory. It is always the duty of the courts to try to get at the real
intention of the Legislature by carefully construing the whole scope of the statute.8
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When a statute uses the word “shall”, prima facie, it is mandatory, but the court may ascertain the
real intention of the Legislature by carefully attending to the whole scope of the statute. For
ascertaining the real intention of the Legislature, the court may consider, inter alia, the nature and the
design of the statute, and the consequences which could flow from construing it one way or the other,
the impact of other provisions whereby the necessity of complying with the provisions in question is
avoided, the circumstances that the statute provides for a contingency of the non-compliance with the
provisions, the fact that the non-compliance with the provisions is or is not visited by some penalty,
the serious or trivial consequences that flow therefrom, and, above all, whether the object of the
legislation will be defeated or furthered.9
When the Legislature changes the expression “may” to “shall” by amendment of the statute, it is clear
that it intended to make the provision mandatory from the existing directory provision.10 It is now well-
settled that a procedural provision, ordinarily, should not be construed as mandatory.11
Grammatical Meaning
The elementary rule of construction is that the words used in a section must be given their plain
grammatical meaning. The recourse to extrinsic aids in interpreting a statutory provision would be
fortified only within well recognised limits. The language which is plain and easily understood should
be looked to without extensive aid for the meaning intended.12
The words in the statute must, prima facie, be given their ordinary meanings. Where the grammatical
construction is clear, manifest and without doubt, that construction ought to prevail unless there are
some strong and obvious reasons to the contrary. A literal construction should be given effect to.13
It is equally well settled that the words of a statute, when there is doubt about their meaning, are to
be understood in the sense in which they best harmonise with the subject of the enactment and the
object which the Legislature has in view. Their meaning is found not so much in a strictly grammatical
or etymological propriety of language, nor even in its popular use, as in the subject or in the occasion
on which they are used, and the object to be attained.14
Punctuation
Punctuation is a minor element in the interpretation and construction of a statute, and very little
attention is paid to it by English courts. When a statute is carefully punctuated and there is doubt
about its meaning, weight should undoubtedly be given to the punctuation. Punctuation may have its
uses in some cases, but it cannot certainly be regarded as a controlling element and cannot be
allowed to control the plain meaning of a text.15
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Punctuation is disregarded in the construction of a statute with the result that if required the Court or
Tribunal may read a punctuation as if it is not there;16 or read a punctuation where there is none.17
Conjunctives and disjunctives
Meaning of words “and”, “or”.—In ordinary usage “and” is conjunctive and “or” is disjunctive. The
circumstances under which the word “and” may be construed as “or” and vice versa should be
somewhat rare. Otherwise, if the two are taken to be interchangeable terms, then it would result in
Parliament throwing into the statute the two expressions indiscriminately and leave them to the courts
to sort out the meaning.18
Gender, singular and plural
One of the basic principles of interpretation of a statute is that the singular always includes the plural
and vice versa.19
Section 13 of the General Clauses Act, 1897 (10 of 1897) provides that in all Central Acts and
Regulations, unless there is anything repugnant in the subject or context, the words importing the
masculine gender shall be taken to include females; and the words in the singular shall include the
plural, and vice versa.
Undefined Words
The principles of interpretation and construction of words defined and meanings given in the Act or
statute have been enunciated hereinbefore. See also Notes under section 2—Definitions.
Principles of interpretation and construction of words not defined in the Act or statute, eg, the words
ought to be given Normal, Ordinary, Popular, Common Parlance, Contextual, Technical and
Dictionary Meaning, etc., are dealt with hereinafter.
Normal, Ordinary or Popular Meaning
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The words not defined in the Act or the Rules must be understood in its normal connotation—the
sense in which it is understood in the commercial world. It is equally well to keep in mind the context
since a word takes its colour from the context. A statute cannot always be construed with the
dictionary in one hand and the statute in the other. Regard must also be had to the scheme, context
and legislative history of the provision.20 It is well-settled that where the definition of a word has not
been given in the statute, it must be construed in its popular sense if it is a word of everyday use.
Popular sense means that sense which people conversant with the subject-matter with which the
statute is dealing, would attribute to it. An interpretation clause which extends the meaning of a word
does not take away its ordinary meaning.21 The expressions occurring in the context of amalgamation
of companies will have to be understood in its popular sense, that is to say, the sense or meaning
that is attributed to it by men of business, trade or commerce and by persons or institutions interested
in or dealing with companies.22
It is well established that, in the absence of any definition in the statute, the words occurring in a
statute have to be understood with reference to the objects of the Act and in the context in which they
occur. The meaning or definition of words in a different provision or a different statute cannot
automatically be imported for the interpretation of the same words in another statute.23
Contextual Meaning
Interpretation must depend on the text and the context. They are the bases of interpretation. If the
text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That
interpretation is best which makes the textual interpretation match the contextual. A statute is best
interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as
a whole and then section by section, clause by clause, phrase by phrase and word by word. If a
statute is looked at in the context of its enactment, with the glasses of the statute-maker provided by
such context, its scheme, sections, clauses, phrases and words may take colour and appear
different. With those glasses, we must look at the Act as a whole and discover what each section,
clause, phrase and word is meant and designed to say as to fit into the scheme of the entire Act. No
part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed
so that every word has a place and everything is in its place.24
When the question arises as to the meaning of a certain provision in a statute it is not only legitimate
but proper to read that provision in its context. The context means; the statute as a whole, the
previous state of law, other statutes in pari materia, the general scope of the statute and the mischief
that it was intended to remedy.25 In interpreting the Act, emphasis on one word “disjuncted” from its
preceding and succeeding words is not permissible. If the word is not defined in the Act, then the
dictionary meaning or the ordinary meaning could be taken.26
When the word is not defined in the Act it may be permissible to refer to the dictionary to find out the
meaning of that word as understood in the common parlance. But where the dictionary gives
divergent or more than one meaning, it is not safe to construe the said word according to the
suggested dictionary meaning. In such a situation, the word has to be construed in the context of the
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provisions of the Act and regard must also be had to the legislative history and scheme of the Act. It
is a settled principle of interpretation that the meaning of the words, occurring in the provisions of the
Act must take their colour from the context in which they are so used.27
Dictionary Meaning
In the well-known words of Judge Learned Hand, one cannot make a fortress out of the dictionary;
and should remember that statutes have some purpose and object to accomplish whose sympathetic
and imaginative discovery is the surest guide to their meaning.28
A statute cannot always be construed with the dictionary in one hand and the statute in the other.
Regard must also be had to the scheme, context and legislative history of the provision.29 Dictionary
meanings, however helpful in understanding the general sense of the words, cannot control where
the scheme of the statute or the instrument considered as whole clearly conveys a somewhat
different shade of meaning. The words have to be so construed as to fit in with the idea which
emerges on a consideration of the entire context.30
Ejusdem generis rule
General words following specific words confined to the same kind as those specified.—The ejusdem
generis rule means when general words follow particular and specific words of the same nature, the
general words must be confined to the things of the same kind as those specified. However, the
specific words must form a distinct genus or category. Further, it is not an inviolable rule of law, but it
is only permissible inference in the absence of an indication to the contrary. Interpretation ejusdem
generis or noscitur a sociis need not always be made when words showing particular classes are
followed by general words. Before the general words can be so interpreted, there must be a genus
constituted or a category disclosed with reference to which the general words can and are intended
to be restricted.31
The legal maxim ejusdem generis means “of the same kind”. The ejusdem generis rule serves to
restrict the meaning of a general word to things or matters of the same genus as the preceding
particular words. This, however, is only the application of a commonsense rule of language: if a man
tells his wife to go out and buy butter, milk, eggs and anything else she needs, he will not normally be
understood to include in the term “anything else she needs” a new hat or an item of furniture.32
The ejusdem generis rule strives to reconcile the incompatibility between specific and general words.
The doctrine applies when (i) the statute contains an enumeration of specific words; (ii) the subject of
the enumeration constitutes a class or category; (iii) that class or category is not exhausted by the
enumeration; (iv) the general term follows the enumeration; and (v) there is no indication of a different
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legislative intent.33
Doctrine of Noscitur a sociis
Analogous words take colour from each other.—It is a well recognised rule of construction that when
two or more words which are susceptible of analogous meaning are coupled together noscitur a
sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from
each other, that is, the more general is restricted to a sense analogous to the less general. A word is
known by the company it keeps.34
The doctrine or maxim noscitur a sociis is merely a rule of construction and it cannot prevail in cases
where it is clear that the wider words have been deliberately used in order to make the scope of the
defined word correspondingly wider. It is only where the intention of the Legislature in associating
wider words with words of narrower significance is doubtful, or otherwise not clear that this rule of
construction can be usefully applied. It can also be applied where the meaning of the words of wider
import is doubtful; but, where the object of the Legislature in using wider words is clear and free of
ambiguity, the rule cannot be pressed into service.35
Judicially interpreted words used by Legislature
When words acquire a particular meaning or sense because of their authoritative construction by
superior courts, they are presumed to have been used in the same sense when used in a subsequent
legislation in the same or similar context.36 When certain terms have become words of well-
recognised legal import, they have to be understood as such when found introduced in any statute,
unless they are defined otherwise or are stated in a different context. There is, therefore, no reason
to ascribe a different meaning to the word “trust” occurring in section 153B of the Companies Act,
1956 from what has come to be understood in the context of the Indian Trusts Act, 1882.37
Prior Legislation, Previous Acts and English Law
The 2013 Act is a consolidation of the existing laws, statutory rules and certain principles laid down in
decisions of Courts in India and in England. So far as the laws have been consolidated the decisions
under the 1956 Act will be binding in appropriate cases.
The words of a statute are to be taken as they stand and to be interpreted ordinarily without any
reference to the previous state of the law on the subject or the English law upon which it may be
founded. The proper course in the first instance is to examine the language of the statute and to ask
what is its natural meaning, uninfluenced by any consideration derived from the previous state of the
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law.38
It is now well settled that regard must be had not only to the existing law but also to the prior
legislation and to the judicial interpretation thereof.39
When the question arises as to the meaning of a certain provision in a statute it is not only legitimate
but proper to read that provision in its context. The context means; the statute as a whole, the
previous state of law, other statutes in pari materia, the general scope of the statute and the mischief
that it was intended to remedy.40
Decisions under old law— Ratio decidendi or principle of law
In case of change of law, the decisions under the Companies Act, 1956 (and earlier English
Companies Acts) are to be referred to with caution. Further, it is a well settled proposition that the
ratio decidendi of a case is the principle of law that decided the dispute in the facts of the case and,
therefore, a decision on a point which did not arise for decision cannot be relied upon in support of a
proposition that it did not decide. Judgments of Courts are not to be construed as statutes. To
interpret words, phrases and provisions of a statute, it may become necessary for judges to embark
into lengthy discussions but the discussion is meant to explain and not to define. Judges interpret
statutes, they do not interpret judgments. They interpret words of statutes; their words are not to be
interpreted as statutes. A case is an authority for what it actually decides and not for what may seem
to follow logically from it.41
It is important to bear in mind that any interpretation of the provisions of the Companies Act, 2013 in
light of similar provisions under the 1956 Act should be attempted with caution. While some sections
of the two statutes are in pari materia, many others are similar, although not worded exactly the
same. Consequently, decisions under the 1956 Act would tend to apply directly in cases where the
provisions are exactly the same; although, here again, it would be prudent to take recourse to a fresh
view of the interpretation of the 2013 statute as the overall enactment is different in many respects
than the Companies Act, 1956.
However, where there are obvious differences in the two statutes, the earlier decisions may have a
lower precedential value, especially if the latter statutory provision has been changed with a
deliberate intention of modifying the legal position. Clarifications issued by the MCA must also
similarly be viewed with caution as merely persuasive of the legal analysis of the particular provision
involved which must, at all times, be interpreted in accordance with the prevailing rules as to statutory
interpretation.
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Legislative Intent
It is well settled principle in law that the court cannot read anything into a statutory provision which is
plain and unambiguous. A statute is an edict of the Legislature. The language employed in a statute
is the determinative factor of legislative intent. The first and primary rule of construction is that the
intention of the legislation must be found in the words used by the Legislature itself.42 As long as
there is no ambiguity in the statutory language, resort to any interpretative process to unfold the
legislative intent becomes impermissible. The supposed intention of the Legislature cannot then be
appealed to to whittle down the statutory language which is otherwise unambiguous. If the
intendment is not in the words used, it is nowhere else. The need for interpretation arises when the
words used in the statute are, on their own terms, ambivalent and do not manifest the intention of the
Legislature.43
The court has to determine the intention as expressed by the words used. If the words of a statute
are themselves precise and unambiguous then no more can be necessary than to expound those
words in their ordinary and natural sense. The words themselves alone do in such a case best
declare the intention of the law-giver.44
There is a perceivable change now in the approach to interpretation of statutes. The emphasis is now
on garnering legislative intent, and not on grammatical meaning. The principle of literal construction
does not rule out the application of the principles of reasonable construction to give effect to the
purpose or intention of any particular provision as apparent from the scheme of the Act, with the
assistance of such external aids as are permissible under the law.45 Due importance must be given to
the legislative history and background that led to the enactment of the provision.46 A construction
which will assist the legislative intent is to be adopted. A beneficial provision is to be liberally
construed to advance the object.47
The fairest and most rational method to interpret the will of the law-maker is by exploring his
intentions at the time when the law was made, by signs the most natural and probable. And these
signs are either the words, the context, the subject-matter, the effects and consequences or the spirit
and reason of the law.48
Parliamentary intention may be gathered from several sources. First, of course, it must be gathered
from the statute itself, next from the preamble to the statute, next from the Statement of Objects and
Reasons, thereafter from Parliamentary debates, reports of Committees and Commissions which
preceded the legislation and finally from all legitimate and admissible sources from where there may
be light. Regard must be had to legislative history too.49
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It is well-settled that when the language of the statute is clear and admits of no ambiguity, recourse to
the Statement of Objects and Reasons for the purpose of construing a statutory provision is not
permissible.50
The Statement of Objects and Reasons appended to a Bill is not admissible as an aid to the
construction of the provisions of the Act, though it may be referred to for ascertaining the objects
underlying the legislation and the conditions which necessitated the enactment.51 For determining the
purpose or object of the legislation, it is permissible to look into the circumstances which prevailed at
the time when the law was passed and which necessitated the passing of that law. For the limited
purpose of appreciating the background and the antecedent factual matrix leading to the legislation, it
is permissible to look into the Statement of Objects and Reasons of the Bill which actuated the step
to provide a remedy for the then existing malady.52
One of the objects of the Companies Act is to prevent snow-balling of finance and formation of
bubble companies. It accepts the organic theory and makes the company liable for the acts of
directors and officers.53
Notes on Clauses
It is now well-settled that in cases of doubt or difficulties encountered in ascribing proper meaning to
a provision or word in a provision, the Statement of Objects and Reasons or the explanatory Notes
on Clauses relating to the amendment or the Report of the Joint Parliamentary Committee which
preceded the legislation concerned will be useful to ascertain the intention of the Legislature in
enacting a particular provision.54
Reports of Committees
If the words used in the Act are obscure and ambiguous, the background of the law, including
Committee Reports, may be examined, but the court should not be unduly influenced by the same.55
Speech of the Minister and Parliamentary Debates
Now, it is true that the speeches made by the Members of the Legislature on the floor of the House
when the Bill is being debated are inadmissible for the purpose of interpreting the statutory provision
but the speech made by the mover of the Bill explaining the reason for the introduction of the Bill can
certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the
legislation and the object and purpose for which the legislation was enacted. This is in accord with
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the recent trend in juristic thought not only in Western countries but also in India that interpretation of
a statute being an exercise in the ascertainment of meaning, everything which is logically relevant
should be admissible.56
Statement by Law Minister cannot change clear words of Statute
When the statute is very clear, whatever statement by the Law Minister made in the floor of the
House, cannot change the words and intendment which is borne out from the words. The letter of the
Law Minister cannot be read to interpret the provisions of section 100A of the Code of Civil
Procedure, 1908 (5 of 1908). The intendment of the Legislature is more than clear in the words and
the same has to be given its natural meaning and cannot be subject to any statement made by the
Law Minister in any communication. The words speak for themselves. It does not require any further
interpretation by any statement made in any manner. Therefore, the power of the High Court in
exercising Letters Patent in a matter where a single judge has decided the appeal from original order
has been taken away and it cannot be invoked in the present context. There are no two opinions in
the matter that when the CLB exercises its power under sections 397 and 398 of the Act, it exercised
its quasi-judicial power as an original authority. It may not be a court but it has all the trappings of a
Court. Therefore, the CLB while exercising its original jurisdiction under sections 397 and 398 of the
Act passed the order and against that order appeal lies to the learned Single Judge of the High Court
and thereafter no further appeal could be filed. The second appeal from the order of the Company
Judge under section 10F of the 1956 Act was not valid in view of section 100A of the Code of Civil
Procedure, 1908 (5 of 1908) (w.e.f. 1 July 2002). The Supreme Court held that no further appeal lies
to the Division Bench of the High Court.57
See detailed Notes on Appeal—Change of law—No further Appeal to Division Bench under sections
10E, 10F, 10FA, 10FB–10GF, 397, 398 and 483.
Subsequent Amendments
An Amendment Act must be read as if the words of the amendment had been written into the Act
except where that would lead to an inconsistency.58 An amending provision can certainly give
guidance to interpretation of the existing provisions.59 Speaking generally, subsequent legislation
cannot be used for construction of an earlier statute but if an enactment is really ambiguous,
subsequent legislation can be used as a parliamentary exposition of the former.60
Subsequent Acts
Generally speaking, a subsequent Act of Parliament affords no useful guide to the meaning of
another Act which came into existence before the later one was ever framed. Under special
circumstances, the law does, however, admit of a subsequent Act to be resorted to for this purpose
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but the conditions under which the later Act may be resorted to for the interpretation of the earlier Act
are strict; both must be laws on the same subject and the part of the earlier Act which it is sought to
construe must be ambiguous and capable of different meanings.61
Updating construction
It is presumed that Parliament intends the court to apply to an ongoing Act a construction that
continuously updates its wording to allow for changes since the Act was initially framed (an updating
construction). While it remains law, it is to be treated as always speaking. This means that in its
application on any date, the language of the Act, though necessarily embedded in its own time, is
nevertheless to be construed in accordance with the need to treat it as current law. In construing an
ongoing Act, the interpreter is to presume that Parliament intended the Act to be applied at any future
time in such a way as to give effect to the true original intention. Accordingly the interpreter is to
make allowances for any relevant changes that have occurred, since the Act’s passing, in law, social
conditions, technology, the meaning of words, and other matters.62
Analogous Acts or provisions in pari materia
The words and expressions defined in one Act or statute or as judicially interpreted do not afford a
guide to the construction of the same words or expressions in another Act or statute unless both the
statutes are pari materia legislations or it is specifically so provided in one statute to give the same
meaning to the words as defined in other statute.63
It is a sound rule of construction to confine the provisions of a statute to itself. The relief under section
633 of the 1956 Act cannot be granted in respect of liability under any Act other than the Companies
Act.64
Rules
The power to make rules under an Act is derived from the enabling provision found in such Act.
Therefore, it is fundamental that a delegate on whom such power is conferred has to act within the
limits of the authority conferred by the Act and it cannot enlarge the scope of the Act. A delegate
cannot override the Act either by exceeding the authority or by making provision which is inconsistent
with the Act. Any rule made in exercise of such delegated power has to be in consonance with the
provisions of the Act, and if the rule goes beyond what the Act contemplates, the rule becomes in
excess of the power delegated under the Act. If the rule-making authority does any of the above, the
rule becomes ultra vires the Act.65 The Rules are meant only for the purpose of carrying out the
provisions of the Act and they cannot take away what is conferred by the Act or whittle down its
effect.66
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See detailed Notes under section 642 [Power of the Central Government to make Rules]. For SEBI
Rules and Regulations see Notes under section 55A.
Procedural provisions
The rules or procedures are handmaids of justice, not its mistress. It is a fundamental rule of
construction that the rules of procedure are to sub serve the purpose of the Act and are the handmaid
of justice and should not be allowed to become the mistress to defeat the justice of the Act.67
Prescribed manner
If an Act provides that a thing is to be done in a particular manner then it cannot be done in any other
manner. It is mandatory for a body corporate to comply with the statutory provisions in performing a
particular act. A meeting is to be held in the manner permissible under the Act, or under the Articles.68
Notifications
The Notifications cannot curtail the scope of deductions, etc., granted by the provisions of the Act.69
Notifications can be relied on and the same have to be read in its entirety and not in parts.70
See detailed Notes under section 637—Delegation by the Central Government of its powers and
functions under the Companies Act.
Regulations
Regulations being regulatory in nature, the intent and object sought to be achieved thereby must be
firmly applied.71
When any criteria are fixed by a statute or by a policy, an attempt should be made by the authority
making the delegated legislation to follow the policy formulation broadly and substantially and in
conformity therewith.72
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Retrospective Legislation
When the law is amended with retrospective effect, the court, when it decides any proceeding, has to
apply such retrospectively amended law as if it were in force at all material times. A court cannot
ignore the retrospective operation of a law which is in existence when it decides a matter.73
Where a statutory provision not expressly made retrospective by the Legislature seeks to affect
vested rights and corresponding obligations of parties, such provision cannot be said to have any
retrospective effect by necessary implication.74 The degree of retrospectivity is to be spelt out from
the language of the provision itself.75
Procedural law, generally speaking, is applicable to pending cases. No suitor can be said to have a
vested right in procedure. A change in law of procedure operates retrospectively and unlike the law
relating to vested right, is not only prospective.76
See detailed Notes under section 10—Jurisdiction of Courts.
Restrictive Legislation
Provisions enabling regulation or restriction of rights, e.g., the MRTP Act, 1969 (54 of 1969) [now the
Competition Act, 2002 (12 of 2003)] which restrict or control the rights of the traders must be strictly
construed.77
Circulars cannot override Act, Rules and Regulations
In every legal system there is a hierarchy of laws, and the general principle is that if there is a conflict
between a norm in a higher layer of the hierarchy and a norm in a lower level of the hierarchy, then
the norm in the higher layer prevails, and the norm in the lower layer becomes ultra vires. In our
Country this hierarchy is as follows: (1) The Constitution of India. (2) Statutory law, which may be
either Parliamentary law or law made by the State Legislature. (3) Delegated legislation which may
be in the form of Rules, Regulations, etc., made under the Act. (4) Administrative instructions which
may be in the form of GOs, Circulars, etc. The SEBI Act, 1992 is in the second layer of this hierarchy
and the SEBI Rules and Regulations are in the third layer, whereas the SEBI Circular is in the fourth
and the lowest layer in the hierarchy. Hence, if there is a conflict between the Act and the Rules and
Regulations the Act will prevail, and if there is a conflict between the Act, Rules and Regulations on
the one hand, and the Circular on the other, the former will prevail and the latter becomes ultra vires.
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In the instant case, the SEBI Rules and Regulations support the interpretation that only one
registration of Stock Broker with the SEBI is required and multiple registration with the SEBI is not
necessary for a Stock Broker even if he functions from several Stock Exchanges. It was contended
that the SEBI Circular No. SMD Policy Cir-11/98, dt. 16-03-1998, clause 7(e) refers to SEBI
registration numbers and multiple registration with the SEBI is contemplated by the law. Negativing
this contention, it was held that section 12(1) of the SEBI Act, 1992 is very clear and it clearly
envisages only one registration by the SEBI. Hence, it is really not necessary to look into the Rules
and Regulations in this connection, far less looking into any Circular. In view of this, the Circular
inconsistent with section 12(1) was quashed.78
Binding force of Department’s views or Circulars
The benevolent Circulars or instructions given by the Board (CLB) or the Department (DCA) are
binding in law on the Authorities under the Act regardless of interpretation placed on that phrase by
the Courts.79 It is well-settled that Circulars or Department’s views can bind the Department or
Authorities but will not bind the Appellate Authority or the Tribunal or the Court or even the assessee,
the company or the subject.80
Doctrine of contemporanea expositio
The rule of construction by reference to contemporanea expositio is a well-established rule for

interpreting a statute by reference to the exposition it has received from contemporary authority,
though it must give way where the language of the statute is plain and unambiguous. The
contemporaneous construction placed upon an ambiguous section by the administrators entrusted
with the task of executing the statute, eg, the Department, the Government of India and the SEBI, is
extremely significant in the interpretation of a statute.81
Contemporary exposition only by officers charged with the enforcement and administration of the
relevant statute are to be given weight.82
Clarificatory Circulars and Press NOTES
Clarificatory Circulars and Press Notes issued by the Government can be relied on.83 A Clarificatory
Note or Press Release is however not binding like Department’s views or Circulars.84
Circulars—Service Tax—Firm to include Company—Valid
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Two Circular Nos. 43/5/97-TRU, dt. 02-07-1997 and Trade Circular, dt. 03-07-1997, issued by the
Ministry of Finance clarifying that “Firm” includes a Company for the purposes of Service Tax, were
declared to have been issued within the parameters of delegated legislation flowing from the parent
Act and were valid pieces of delegated legislation in consonance with the provisions of the parent
Act. As per these Circulars the word “firm” used in the definition of “consulting engineer” interpreted in
the context and scheme of section 65 of the Finance Act, 1994 (32 of 1994) in consonance with
sections 66 and 68 and the meaning conferred to the word “Firm” elsewhere in the statute includes a
Company since there is nothing to support an intelligible differentia or a rational classification
between a Company and a Firm providing Taxable Service defined under section 65(48)(g) [now
section 65(105)(g)] of the Finance Act, 1994 to exclude a company from the tax net when both
providing the same Taxable Service being the taxable event in a statute, which is not meant for
providing special provisions for or benefit to a company. The two Circulars cannot be held to be
contrary to the provisions of the Statute or inconsistent with the scheme and the context of the
Service Tax Law or repugnant to the clear legislative provisions defining “consulting engineer” under
section 65(13) [now section 65(31)] of the Finance Act, 1994. The Circulars were not issued in
excess of the parameters limited by the legislation delegating the power. It is well within the
parameters and, therefore, can never be ultra vires the parent Act or void. Since it is well within the
enactment, it is not a case that a tax is being imposed by reason of the said two Circulars on the
company though not liable through subordinate legislation without being authorised by the parent
Act.85
Guidelines
In a case under the COFEPOSA, the Supreme Court held that the guidelines laid down and
published by the Government were intended to guide the customs or intelligence officers as to how to
act and what to do in the detection and apprehension of smugglers. They do not have any force of
law and there cannot be any valid complaint of discrimination.86 Guidelines may, however, be a
ground in support in an application for relief under section 633 of the Companies Act, 1956.
Promissory Estoppel
The true principle of promissory estoppel is that where one party has by his word or conduct made to
the other a clear and unequivocal promise or representation which is intended to create legal
relations or affect a legal relationship to arise in the future, knowing or intending that it would be acted
upon by the other party to whom the promise or representation is made and it is in fact so acted upon
by the other party, the promise or representation would be binding on the party making it and he
would not be entitled to go back upon it, if it would be inequitable to allow him to do so, having regard
to the dealings which have taken place between the parties. It is now well-settled in India that the
doctrine of promissory estoppel is not limited in its application only to defence but it can also found a
cause of action. The doctrine may operate as a shield and sometime as a sword. The doctrine of
promissory estoppel is applicable against the Government in the exercise of its governmental, public
or executive functions. In this case, the representation made by the Central Board of Excise and
Customs (CBEC) to the Manufacturers’ Association with approval of the Central Government was
held to be valid until withdrawn. The Central Government and the CBEC were bound by promissory
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estoppel.87
Doctrine of precedent or stare decisis
India is governed by a judicial system identified by a hierarchy of courts, where the doctrine of
binding precedent is a cardinal feature of its jurisprudence. The doctrine of precedent has the merit of
promoting a certainty and consistency in judicial decisions, and enables an organic development of
the law, besides providing assurance to the individual as to the consequence of transactions forming
part of his daily affairs. And, therefore, the need for a clear and consistent enunciation of legal
principles in the decisions of a court.88
The doctrine of precedent or stare decisis, which is part of English jurisprudence and is concerned
with the binding force of decisions or judge-made law, has been enshrined in Articles 141 and 227 of
the Constitution of India, which make the decisions of the Supreme Court and the jurisdictional High
Court absolutely binding.
Binding force of Supreme Court, High Court and English decisions has been briefly outlined below.
As understanding the working of the doctrine of precedent or stare decisis depends upon having a
sound grasp of the court structure, these have been fully dealt with in Notes under section 10—
Jurisdiction of Courts.
Binding force of Supreme Court decisions
In the hierarchical system of courts which exists in our country, it is necessary for each lower tier,
including the High Court, to accept loyally the decisions of the higher tiers. It is inevitable in a
hierarchical system of courts that there are decisions of the supreme appellate tribunal which do not
attract the unanimous approval of all members of the judiciary. But the judicial system only works if
someone is allowed to have the last word and that last word, once spoken, is loyally accepted. The
better wisdom of the court below must yield to the higher wisdom of the court above. That is the
strength of the hierarchical judicial system. The High Court cannot disregard the decision of the
Supreme Court by applying to it the label per incuriam. That label is relevant only to the right of an
appellate court to decline to follow one of its own previous decisions, not to its right to disregard a
decision of a higher appellate court or to the right of a Judge of the High Court to disregard a decision
of the Supreme Court. It is needless to add that in India under Article 141 of the Constitution of India,
the law declared by the Supreme Court shall be binding on all courts within the territory of India.89
A decision of the Supreme Court takes its colour from the questions involved in the case in which it is
rendered and, while applying the decision to a later case, the courts must carefully try to ascertain the
true principle laid down by the decision.90
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See detailed Notes on ratio decidendi, obiter dicta, sub silentio, per incuriam, etc., decisions of the
Supreme Court, decisions of different Benches of the Supreme Court, Supreme Court decisions vis-
a-vis Privy Council decisions, etc., how far binding at the end of Notes under section 10—Jurisdiction
of Courts.
Jurisdictional High Court decisions binding in the State
Under Article 227 of the Constitution of India, the High Court has jurisdiction over all courts and
tribunals throughout the territories in relation to which it exercises jurisdiction. It would be anomalous
to suggest that a Tribunal over which the High Court has superintendence can ignore the law
declared by that court and start proceedings in direct violation of it. If a tribunal can do so, all the
subordinate courts can equally do so, for there is no specific provision, just like in the case of the
Supreme Court, making the law declared by the High Court binding on subordinate courts. It is
implicit in the power of supervision conferred on a superior tribunal that all the tribunals subject to its
supervision should conform to the law laid down by it. Such obedience would also be conducive to
their smooth working: otherwise, there would be confusion in the administration of law and respect for
law would irretrievably suffer. The law declared by the highest Court in the State is binding on
Authorities or Tribunals under its superintendence, and that they cannot ignore it.91
See detailed Notes including, inter alia, jurisdictional High Court decisions binding even if appeal is
pending in the Supreme Court, decisions of different Benches of the High Court how far binding,
persuasive value of outside High Court decisions, etc., under section 10—Jurisdiction of Courts.
Contempt of Court
For decisions on contempt of court see Binding force of Supreme Court decisions and Binding force
of jurisdictional High Court decisions in Notes under section 10—Jurisdiction of Courts.
Special Leave Petition
It is well-settled that dismissal by the Supreme Court of a Special Leave Petition (SLP) in limine does
not lay down any binding principle under Article 141 of the Constitution of India.92
It is not the policy of the Supreme Court to entertain Special Leave Petitions (SLPs) and grant leave
under Article 136 of the Constitution of India save in those cases where some substantial question of
law of general or public importance is involved or there is manifest injustice resulting from the
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impugned order or judgment. The dismissal of a special leave petition in limine by a non-speaking
order does not, therefore, justify any inference that by necessary implication the contentions raised in
the special leave petition on the merits of the case have been rejected by the Supreme Court. The
dismissal of special leave petition (SLP) does not preclude the party from moving the High Court for
seeking relief under Article 226 of the Constitution. Neither on the principle of res judicata nor on any
principle of public policy, would the order of the Supreme Court dismissing the special leave petition
operate to bar the trial of identical issues in the writ proceeding before the High Court.93
See detailed Notes under Special Leave Petition and Doctrine of Merger under Binding force of
Supreme Court and jurisdictional High Court decisions in Notes under section 10—Jurisdiction of
Courts.
Writs, Judicial review and Constitutional validity
The power of judicial review over legislative action vested in the High Courts under Article 226 and in
the Supreme Court under Article 32 of the Constitution of India is an integral and essential feature of
the Constitution, constituting part of its basic structure. Ordinarily, therefore, the power of the High
Courts and the Supreme Court to test the constitutional validity of legislations can never be ousted or
excluded. The power vested in the High Courts to exercise judicial superintendence over the
decisions of all courts and tribunals within their respective jurisdictions under Article 227 is also part
of the basic structure of the Constitution. All decisions of Tribunals, whether created pursuant to
Article 323A or Article 323B of the Constitution, will be subject to the High Court’s writ jurisdiction
under Article 226/227 of the Constitution, before a Division Bench of the High Court within whose
territorial jurisdiction the particular Tribunal falls.1
Res judicata
The doctrine of res judicata is codified in section 11 of the Code of Civil Procedure, 1908 (5 of 1908).
Section 11 generally comes into play in relation to civil suits. The doctrine of res judicata has been
applied since long in various other kinds of proceedings and situations by courts in England, India
and other countries. If by any judgment or order any matter in issue has been directly and explicitly,
or necessarily by implication, decided, the decision operates as res judicata and bars the trial of an
identical issue in a subsequent proceeding between the same parties. Before a plea of res judicata
can be given effect to, the following conditions must be proved (1) the litigating parties must be the
same; (2) the subject-matter of the suit also must be identical; (3) the matter must be finally decided
between the parties; and (4) the suit must be decided by a court of competent jurisdiction.2
English decisions
The Indian Companies Act is modelled on the English Companies Act. Therefore, if the words used in
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the Act are obscure, ambiguous and identical, assistance can be had of English decisions. But
having regard to socio economic provisions of the Act they should be cautiously applied. It is well
settled that the English decisions are not binding precedents but only persuasive.3
Tribunals and Appellate Authorities
From the constitution of the National Company Law Tribunal (NCLT) under section 10FB of the
Companies Act, 1956, as inserted by the Companies (Second Amendment) Act, 2002 (11 of 2003),
the jurisdiction of the CLB and High Court shall be vested in the Tribunal (NCLT).Person aggrieved
by order or decision of the Tribunal (NCLT) may prefer an appeal to the Appellate Tribunal except
consent orders [section 10FQ]. Person aggrieved by order of Appellate Tribunal may file an appeal to
the Supreme Court on question of law arising out of such order [Section 10GF].
Views of ICAI
The views of the Institute of Chartered Accountants of India (ICAI) and the principles of accountancy
cannot override the provisions of the Act and the binding decisions of the Supreme Court or the
jurisdictional High Court and to the extent they are in conflict with such decisions, they have to be
ignored.4
POSITION UNDER THE COMPANIES ACT, 1956
[s 1] Short title, commencement and extent.—(1) This Act may be called the Companies Act,
1956. The Companies Act, 1956 provision
(2) It shall come into force on such date5 as the Central Government may, by notification in the
Official Gazette, appoint.
6[(3) It extends to the whole of India:
7[ * * * ]]:
8[Provided 9[***] that it shall apply to the State of Nagaland subject to such modifications, if any, as
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the Central Government may, by notification in the Official Gazette, specify.]
NOTES
Section 1 of the Companies Act, 1956 corresponds to section 1 of the Companies Act,
2013.
English Act, 1948 : Section 462 Companies Act, 1913 : Section 1
Amending Acts and Adaptation Orders
The Companies Act, 1956 (Act No. 1 of 1956), which came into force from 01-04-1956, has been
further amended by the following Amending Acts and Adaptation Orders:
1. The Jammu and Kashmir (Extension of Laws) Act, 1956 (62 of 1956).
2. The Adaptation of Laws (No. 3) Order, 1956.
3. The Repealing and Amending Act, 1957 (36 of 1957).
4. The Companies (Amendment) Act, 1960 (65 of 1960).
6. The Goa, Daman and Diu (Laws) No. 2 Regulation, 1963 (11 of 1963).
9. The Repealing and Amending Act, 1964 (52 of 1964).
12. The Companies (Second Amendment) Act, 1966 (37 of 1966).
13. The Companies Tribunal (Abolition) Act, 1967 (17 of 1967).
14. The Central Laws (Extension to Jammu and Kashmir) Act, 1968 (25 of 1968).
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16. The Madras State (Alteration of Name) (Adaptation of Laws on Union Subjects) Order, 1970.
19. The Mysore State (Alteration of Name) (Adaptation of Laws on Union Subjects) Order, 1974.
21. The Monopolies and Restrictive Trade Practices (Amendment) Act, 1984 (30 of 1984).
24. The Monopolies and Restrictive Trade Practices (Amendment) Act, 1991 (58 of 1991).
25. The Depositories Act, 1996 (22 of 1996).
27. The Depositories Related Laws (Amendment) Act, 1997 (8 of 1997).
29. The Trade Marks Act, 1999 (47 of 1999).
32. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (54 of 2002).
34. The Companies (Second Amendment) Act, 2002 (11 of 2003).
35. The Election and Other Related Laws (Amendment) Act, 2003 (46 of 2003).
36. The Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004
(30 of 2004).
38. The Repealing and Amending (Second) Act, 2015
39. The Repealing and Amending Act, 2016
Note: There may be some other Act also passed after 2006 and before the enactment of the
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Companies Act, 2013.
Legislative History of the principal Act and Amending Acts has been annotated at the beginning of
Notes under each Section.
Legislative History
The Statement of Objects and Reasons for the principal Act and various Amending Acts with
reference to the Bills to which these have been appended are reproduced below.
THE COMPANIES ACT, 1956 (1 OF 1956).—The Statement of Objects and Reasons appended to the
Companies Bill, 1953 (46 of 1953)10 is reproduced below:
The object of this Bill is to amend and consolidate the law relating to Companies. The last major amendment of the
Indian Companies Act, 1913 (VII of 1913) was undertaken in 1936 when the Indian Companies (Amendment) Act,
1936 (XXII of 1936) was passed. At the end of World War II the need was felt for a further extensive revision of the
Companies Act. Apart from the experience gained of the actual working of the Amendment Act of 1936, which
disclosed the necessity for an early amendment of some of its provisions, many changes had taken place in the
intervening years in the organisation and management of joint stock companies, and over a wide sector that was
dominated by new elements in trade and industry, the character of company management had also materially altered.
Further, at the end of the War, the Company Law Amendment Committee in the United Kingdom, more familiarly
known as the Cohen Committee, had submitted its Report after a laborious enquiry spread over two years. This Report
recommended several far-reaching changes in the English Companies Act, 1929. As the Indian company law had been
always largely based on the prevailing English law, the then Government felt that the time was ripe for a further review
of the Indian Companies Act. A good deal of exploratory work was done between 1946 and 1950. Two distinguished
company lawyers were successively appointed to advise Government on the broad lines on which the Indian
Companies Act should be revised. The recommendations of these two lawyers were further examined in the then
Ministry of Commerce, and certain tentative departmental views which emerged were circulated in a memorandum to
the general public for eliciting opinion on them. Many representations on this memorandum were duly received from
trade and industrial organisations, learned bodies, associations, State Governments and the general public. At the end
of 1950, the Government of India appointed a Committee under the chairmanship of Shri C.H. Bhabha to go into the
entire question of the revision of the Indian Companies Act, with particular reference to its bearing on the development
of Indian trade and industry. This Committee examined a large number of witnesses in different parts of the country
and submitted its Report in March 1952. The Report was circulated to all State Governments, Chambers of Commerce,
many trade associations and several learned bodies for an expression of their views on the recommendations
contained in it. A special officer was also appointed in the Department of Economic Affairs at the same time to examine
the Report and, on the basis of the views expressed by these organised trade and other associations and the general
public, to submit proposals to Government for the revision of the Indian Companies Act.
2. The present Bill is based largely on the recommendations of the Company Law Committee modified in a few
particulars by the views expressed on these recommendations. The main principles underlying these
recommendations are as follows:
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(i) the provisions of the law both in regard to the formation and management of joint stock companies should be
such as would ensure the maintenance of a minimum standard of good behaviour in company promotion and
management without imposing needlessly irksome or rigid rules which may hamper legitimate business or
affect initiative or enterprise;
(ii) the law should provide for the fullest possible disclosure in prospectuses or statements in lieu of prospectuses
issued, both before and after a company is formed, and failure to make such disclosure should be visited with
effective penalties;
(iii) company accounts should be prepared in such a way as to disclose all facts which are material to a full
understanding of the manner in which companies are worked;
(iv) company meetings should be called and conducted in such a way as to ensure that shareholders receive all
reasonable facilities for exercising an intelligent judgment on the activities of the management;
(v) the provisions for investigation into the affairs of a company should be so designed as to enable an
appropriate authority to intervene in its affairs not merely when an offence has been committed, but also
when it is established that the affairs of a company are being managed in a manner prejudicial to the
shareholders of the company or oppressive to any substantial portion of them or when such investigation is
otherwise necessary in the public interest;
(vi) the law should also provide for the establishment of an appropriate authority not merely for enforcing the
provisions of the Companies Act or for carrying out the investigations which may be necessary under it, but
also for generally overseeing the administration of the Act and for exercising in the public interest that reserve
of authority which must necessarily vest in some organ of Government.
The provisions of the Bill in its different Parts follow largely from the above principles. The major changes in the
present Indian Companies Act which the Bill introduces thus relate to the following topics:
(a) the promotion and formation of companies (clauses 50 to 74);
(b) the capital structure of companies (clauses 79 to 83);
(c) company meetings and procedure (clauses 158 to 189);
(d) the presentation of company accounts, their audit, and the powers and duties of auditors (clauses 195 to 218);
(e) the inspection and investigation of the affairs of companies (clauses 219 to 235);
(f) the constitution of boards of directors, and the powers and duties of directors, managing directors and
managers (clauses 236 to 306);
(g) the appointment of managing agents, terms and conditions of their service, their remuneration, the powers of
managing agents vis-a-vis directors, and the activities of managing agents in regard to borrowings, loans,
contracts, sales and purchases (clauses 307 to 359); and
(h) the administration of company law.
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Most of the new provisions contained in the Bill [the Companies Bill, 1953] on all these points are self-explanatory, and
in the case of almost all these provisions the relevant notes on clauses have indicated the recommendations of the
Company Law Committee on which they are based.
3. As has been already mentioned, in a few particulars, the provisions of the Bill have deviated from the
recommendations of the Company Law Committee. These deviations are, however, of a minor nature, and the notes
on clauses have duly indicated and explained them. There is, however, one important deviation from the
recommendations of the Company Law Committee which needs special mention. The Company Law Committee
devoted a good deal of space in its Report to problems of organisation and administration, and recommended that the
Central Government should not only resume its responsibility for the administration of joint stock companies which it
had delegated to the State Governments, but that a statutory authority at the Centre, to be called “Corporate
Investment and Administration Commission”, should be set up under the new Act for the administration of the company
law as well as for the discharge of other related functions, e.g., capital issue control and regulation of stock exchanges
when a Central measure for this latter purpose was passed. Action has already been taken on the first
recommendation of the Company Law Committee. The State Governments have been addressed regarding the
intention of the Central Government to resume its powers under the Indian Companies Act and the constitution of a
Central Organisation under the administrative control of the Department of Economic Affairs has been sanctioned. It is,
however, proposed that the question of conferring statutory status on this Organisation, if so necessary, may be
considered after this Central Organisation has been set up and functioned for a reasonable period. For present
therefore the duties and responsibilities which the Company Law Committee visualised for the statutory authority would
be carried on by the new departmental organisation.
In the light of the recent experience of the Central Government, provision has also been made in the Bill in respect of
one or two matters which were not covered by the recommendations of the Company Law Committee but which are
considered to be of sufficient importance to the working of joint stock companies in future to justify the making of
special provisions in regard to them (e.g. clause 366). The notes on the relevant clauses will explain the reasons for
these provisions.
4. It is necessary to draw attention in this context to two other recommendations of the Company Law Committee
which have affected the structure of the Bill. In the Indian Companies (Amendment) Act, 1951 (LII of 1951), certain
special powers were conferred on Courts of Law and the Central Government. While the powers conferred on the
Courts by section 7 of that Act were based largely on the provisions of section 210 of the English Companies Act,
1948, the other powers conferred on the Central Government were of a quasi-administrative nature to be exercised on
the recommendations of an Advisory Commission provided for under section 8 of the Amendment Act. The Company
Law Committee recommended that if and when the Indian Companies Act was comprehensively revised on the lines of
its recommendations, Government should consider the desirability of repealing sections 2, 3, 4, 5, 6 and 8 of the
Amendment Act of 1951 containing these quasi-administrative powers. While it is not proposed to retain indefinitely
these special powers, which the Central Government assumed in 1951, it is considered that it will not be expedient for
the Central Government in the present circumstances of company management in this country, to divest itself of these
powers till experience of the working of the new Act has shown that these special powers are no longer necessary.
Clause 598 of the Bill, therefore, proposes the retention of these powers for a period of three years from the
commencement of the new Act. The provisions of sections 2, 3, 4, 5, 6 and 8 of the Amendment Act of 1951, which
have been incorporated in the present Indian Companies Act as sections 86J, 87AA, 87B [second proviso to clause
(c)], 87BB, 87CC and 289B, have therefore been relegated to a Schedule (Schedule XI) attached to this Bill. Section 7
of the Amendment Act, which it is proposed to incorporate permanently in the Companies Act, has been retained as
clauses 367 to 377. The notes on these clauses explain these structural changes.
In regard to Table A in the present Act, the Company Law Committee recommended that having regard to the
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importance of the provisions contained in the compulsory regulations of this Table, it was desirable that they should be
inserted as independent sections in the Act itself. The acceptance of this recommendation has involved the transfer to
the body of the Bill of many of the provisions hitherto included in Table A. Further, in order to avoid unnecessary
duplication, those regulations in Table A which merely draw attention to the relevant provisions of the Act have been
omitted. In the result the new Table A has been considerably abridged. The notes on clauses relating to this Table
explain these structural alterations.
5. Advantage has been taken of the opportunity offered for the consolidation of the Act for the first time since 1913 to
re-arrange its different Parts in a more logical order. The general principle has been to arrange the different Parts of
the Act in such a way that they follow, as far as possible, the chronological sequence in the formation, growth and
decay of companies. Thus, for example, it has been felt that the provisions of the Act which relate to the formation of
companies should precede those relating to their management. The re-arrangement of matter which has followed as a
consequence of this decision has entailed considerable changes in the structure of the present Act. It is, however, felt
that these changes will eventually result in a better understanding and appreciation of the scheme of the Indian
Companies Act. [Statement of Objects and Reasons appended to the Companies Bill, 1953].
The Bill was introduced in the Lok Sabha on the 2nd September, 1953. The motion for reference of
the Bill to a Joint Committee of the Houses was moved by the Minister of Finance, Shri C.D.
Deshmukh, on the 28th April, 1954, was discussed on the 29th and 30th April, and the 1st and 3rd
May, 1954 and was adopted on the 3rd May, 1954. The Rajya Sabha discussed the motion on the
12th and 13th May, 1954, and concurred in it on the 13th May, 1954. The Committee held 61 sittings
in all and submitted its Report proposing certain changes in the Bill.
The recommendations of the Company Law Committee, Notes on Clauses of the Bill and the reasons
given by the Joint Committee in its Report for the changes proposed by them have been reproduced
under relevant Sections.
OF 1960).—The Statement of Objects and Reasons appended to

THE COMPANIES (AMENDMENT) ACT, 1960 (65
the Companies (Amendment) Bill, 1959 (37 of 1959)11 is reproduced below:
The object of this Bill is to amend the Companies Act, 1956. The Act had been in force for about a year when
Government decided that the defects and deficiencies in its working should be examined by a Committee. Accordingly,
in May, 1957, the Government appointed a Committee under the chairmanship of Shri A.V. Visvanatha Sastri, a former
judge of the Madras High Court, to examine the structure of the Act as well as its contents with a view not only to
removing its defects and deficiencies but also ensuring better fulfilment of the purposes underlying the Act. In
November, 1957, the Committee submitted its Report, which the Government published and placed before both
Houses of Parliament in December, 1957.
2. The present Bill is based largely on the recommendations of the Committee, although in some particulars they have
been modified partly in the light of the experience of the working of the Act gained since the submission of the Report
and partly by the views expressed on these recommendations by Chambers of Commerce and others. The
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amendments of the Companies Act, as included in the Bill, fall under the following heads:
(i) amendments considered necessary to overcome practical difficulties experienced in the course of the working
of the Act;
(ii) amendments of a clarificatory nature, designed to remove drafting defects and obscurities which have caused
difficulty in the interpretation of the Statute; and
(iii) amendments considered necessary to ensure the better fulfilment of the purposes of the Act and to remove
lacunae in the existing provisions.
The recommendations of the Companies Act Amendment Committee, Notes on Clauses of the Bill
and the reasons for the changes proposed by the Joint Committee in its Report on the Bill have been
reproduced under relevant Sections.

Section 293(1)(e) of the Companies Act, 1956, provides that the Board of directors of a public company or of a private
company, which is a subsidiary of a public company, may contribute to charitable and other funds not directly relating
to the business of the company or the welfare of its employees, any amount not exceeding in aggregate, in any
financial year, Rs 25,000 or 5%. of its average net profits during the three financial years immediately preceding,
whichever is greater. If the Board wishes to exceed this limit, it must obtain the consent of the company in general
meeting. The general meeting of a company can be called by giving not less than 21 days’ clear notice. Thus, the
convening and holding of a general meeting of a public company necessarily entails time and expense.
2. Although the above-mentioned restrictions regarding contributions to charitable or other funds are not applicable to
the private companies which are not subsidiaries of public companies, it may not be possible for many such companies
to make such contributions in view of the provisions of their memorandum or articles of association.
3. It was felt that companies may like to make generous contributions to the National Defence Fund which has recently
been created by the Government to meet the emergency which has arisen as a result of China’s aggression against
India, uninhibited by the limits and conditions imposed by section 293(1)(e) of the Companies Act, 1956, or by their
memorandum or articles of association. Hence, an Ordinance, namely, the Companies (Amendment) Ordinance, 1962,
was promulgated by the President on the 3rd Nov., 1962, authorising the Board of directors of companies themselves
to make contributions to the National Defence Fund or any other Fund approved by the Central Government for the
purpose of national defence, without any limit and without obtaining the sanction of the company in general meeting.
4. The present Bill seeks to replace the aforesaid Ordinance with the addition of a provision for the disclosure in the
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profit and loss account of a company of the amounts of contributions made to the National Defence Fund or to any
other Fund approved for the purpose of national defence by the Central Government.
The Repealing and Amending Act, 2016, repeals many of the Company Amendment Acts below,
including the amendment Acts of 1960, 1962, 1964, 1965, 1966 (Second Amendment), 1999, 2000,
2001, 2002 and 2006. Some of these amendments have the effect of repealing amendments to
the1956 provisions which are still in force. The implication of repeal on these provisions will cause
certain confusion, For Example how will section 458A of the 1956 Act be treated. This section was
inserted by the Companies Amendment Act 1960.
The amendment Acts to Companies Act, 1956 are discussed below for academic interest and to
understand the evolution of the law.

In order to facilitate quick action against persons involved in cases of fraud, misfeasance and other such malpractices
and irregularities in the management of companies, it is considered necessary to set up a Tribunal whose findings
would enable the Central Government to remove such persons from positions of managerial authority in any company.
This Tribunal will also be empowered to hear certain applications under section 203 and sections 397 and 398 of the
Companies Act, as these relate to matters of a similar nature. The scope of sections 397 and 398 and other related
sections is being enlarged to provide for the entertainment of applications on grounds of public interest as well besides
those stated there. This Tribunal will also be empowered to exercise the powers and functions of the court under such
sections of the Companies Act as the Central Govt. may from time to time, notify.
In order to prevent the use of voting rights attached to shares held by trusts for the advancement of personal interests
of the donors, it is considered necessary to regulate the exercise of such rights in suitable cases. For this purpose, it is
proposed to empower the Central Government to appoint a person to exercise voting rights in respect of trusts with
significant shareholding, when necessary, with a view to securing proper management of the company in the interests
of the shareholders.
In cases where Government has advanced a loan to a company, it is considered necessary that Government should
have the power to direct the conversion of such a loan into shares of that company on fair and equitable terms. Where
the loan agreement provides for such conversion, it is proposed to dispense with the procedure prescribed under
section 81 of the Companies Act in regard to such conversion of loans given by Government and specified financial
institutions. Section 81 of the Act is proposed to be amended accordingly.
Further, it is considered desirable, for the better and convenient administration of the Companies Act, to set up a Board
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to which will be entrusted most of the powers and functions of the Central Government under the Companies Act or
other laws. The Board will function subject to the control of the Central Govt. in all matters.
The Bill seeks to amend the Companies Act to give effect to the above proposals.
THE COMPANIES (AMENDMENT) ACT, 1964 (32 OF 1964).—The

Statement of Objects and Reasons appended to
Investigations of the affairs, true ownership and other related matters of companies cannot be effectively conducted
unless there is full disclosure by their employees of factual information in regard to various matters to be scrutinised by
the Inspectors appointed by the Central Government. In order to give to the employees of the affected companies
temporary protection against victimisation in such cases it has been considered necessary to make a suitable provision
in the Companies Act that no company can discharge or take any other action against any of its employees during the
investigation of its affairs and true ownership, etc. by Inspectors or during the pendency of proceedings against any of
its managerial personnel before the Tribunal, unless it has given previous intimation to the Company Law Board of the
proposed action against the employees and the Company Law Board has not raised any objection to such action.
As it was apprehended that some of the companies whose affairs were under investigation might take action against
their employees if they disclosed full information to the Inspectors, the amendment of the Companies Act on the lines
indicated above was considered to be a matter of extreme urgency and the Companies (Amendment) Ordinance,
1964, was, therefore, promulgated by the President on the 5th July, 1964. The present Bill seeks to replace the said
Ordinance without any modification in the provisions thereof.

the Companies (Second Amendment) Bill, 1964 (64 of 1964)15 is reproduced below:
In pursuance of its terms of reference, the Commission of Inquiry on the administration of Dalmia-Jain Companies
made certain recommendations for the amendment of the Companies Act with a view to prevent in future malpractices
of the nature observed by it, and also to ensure due and proper administration of the funds and assets of companies in
the interest of the investing public. Later, at the instance of Government, a Committee consisting of Shri C.K. Daphtary
and Shri A.V. Visvanatha Sastri examined the recommendations of the Commission of Inquiry and made some
suggestions of its own for amending the said Act [the Companies Act, 1956]. The Bill, inter alia, seeks to implement the
recommendations of the Commission of Inquiry and the Daphtary-Sastri Committee.
2. Opportunity is also being taken (i) to strengthen the provisions relating to investigation into the affairs of companies
and to provide for more effective audit in dealing with cases of dishonesty and fraud in the corporate sector, and (ii) to
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simplify some of the procedural requirements which are at present burdensome to the companies without being of
corresponding advantage to the Government.
The recommendations of the Commission of Inquiry on the Administration of Dalmia-Jain Companies

(Vivian Bose Commission), the Daphtary-Sastri Committee, Notes on Clauses and observations of
Joint Committee on principal changes proposed in the Bill have been reproduced in Notes under
relevant Sections.

The Vivian Bose Commission of Inquiry had recommended, inter alia, that inter-company loans should rank at par with
inter-company investments and should be subject to the same restrictions as the latter. This recommendation was
sought to be given effect to by amending section 370 of the Companies Act, 1956 by section 46 of the Companies
(Amendment) Act, 1965. It has, however, been noticed that the restrictions placed by this amendment would equally
apply in respect of guarantees given and securities provided by certain classes of companies, viz., financial institutions,
insurance companies and private companies simpliciter, and would, therefore, act as a serious hindrance to their
normal functioning. Since loans given by such companies have already been exempted from the scope of the
restriction, it has been decided to afford similar exemption to guarantees given and securities provided by such
companies.
2. Opportunity is also being taken to make a consequential amendment to sub-section (1A) of section 240 on the lines
of similar amendments made to clause (a) of sub-section (1) and clause (a) of sub-section (3) of that section by the
Companies (Amendment) Act, 1965.
3. The Bill seeks to achieve the above objects.
THE COMPANIES (SECOND AMENDMENT) ACT, 1966 (37 OF 1966).—Sub-sections

(1A), (1B) and (1C) of section 108
of the Companies Act, 1956 were substituted and sub-section (1D) was amended by the Companies
(Second Amendment) Act, 1966 (37 of 1966) (w.r.e.f 1-4-1966). This Amendment Act was originally
promulgated as the Companies (Amendment) Ordinance, 1966 (11 of 1966).17
OF 1967).—The Statement of Objects and Reasons

THE COMPANIES TRIBUNAL (ABOLITION) ACT, 1967 (17
appended to the Companies Tribunal (Abolition) Bill, 1967 (7 of 1967)18 is reproduced below:
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At the time of the setting up of the Companies Tribunal, it was intended that the findings of the Tribunal, quickly given,
would enable the Central Government to remove from office, even before the expiry of their terms, persons who have
committed acts of fraud, misfeasance or indulged in malpractices and irregularities in the management of companies.
Experience of the functioning of the Tribunal for the first three years has not been very encouraging in realising these
objectives as the Tribunal had to adopt meticulous and time-consuming judicial procedure and proceedings before it
were also liable to be stayed by appeals from its interim orders or by writ petitions before the High Courts. Moreover
the physical work-load of the Tribunal has been very light and persons affected in places outside Delhi have found it
difficult and expensive to avail themselves of its powers. The Tribunal has not been able to make any impact either by
injecting health in the corporate management or by building up a wealth of case law which could lay down standards
and norms for the corporate sector of our economy as was hoped for when it was created. The Bill, therefore, proposes
to abolish the Tribunal and to revert to the old scheme of jurisdiction vesting in the Central Govt. or the Court, as the
case may be, the powers and functions now exercised by the Tribunal. It also provides for vesting in the High Courts
the new powers which were conferred on the Tribunal when it was set up.

On the 1st Dec., 1967, an assurance was given to the Lok Sabha that Govt. would bring forward during the next
following budget session of Parliament a Bill to ban contributions by companies to any political party, or for any political
purpose to any individual or body and to abolish the system of management of companies by managing agents. The
Bill seeks to fulfil the assurance. It also seeks to abolish simultaneously the system of management of companies by
secretaries and treasurers which is akin to the system of management of companies by managing agents.
2. The propriety of companies making contributions to any political party, or for any political purpose to any individual
or body has for some time been the subject of discussion both inside and outside the Parliament. A view has been
expressed that such contributions have a tendency to corrupt political life and to adversely affect healthy growth of
democracy in the country, and it has been gaining ground with the passage of time. It is, therefore, proposed to ban
such contributions.
3. Section 324 of the Companies Act, 1956 (1 of 1956), empowers the Central Government to notify that companies
engaged in specified classes of industry or business shall not have managing agents. Under the Rules framed
thereunder, Government appointed the Managing Agency Enquiry Committee to enquire into the desirability of
applying the said provisions to companies engaged in established industries or any other industry or business as may
be deemed fit by the Committee. In pursuance of the Report of the Committee submitted on the 16th March, 1966,
Government issued a notification to the effect that the term of office of a managing agent of any company in the
specified industries shall expire at the end of three years from the 2nd April, 1967.
The Monopolies Inquiry Commission observed that the system of managing agencies was one of the most important
causes which hastened the process of concentration of economic power in India.
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Taking all the factors into consideration, it is proposed to abolish the system of management of companies by
managing agents altogether at the same time as in the case of specified industries referred to above.
4. The Managing Agencies Enquiry Committee observed that, at one time, the institution of secretaries and treasurers
was thought of as a suitable alternative to the managing agency system but for all practical purposes secretaries and
treasurers exist only in those cases where managing agents already in existence had to shed some of the managed
companies in view of the limit of ten on the total number of companies that a managing agent can manage. The
Committee did not see any particular gain in such a change. Secretaries and treasurers can be given all the powers
and privileges of a managing agent except that they (i.e. the former) cannot appoint their representative on the Board
of directors of the managed company, and cannot draw more than 7.5% as their commission while the managing
agents can draw up to 10% of the net profit. It would thus be obvious that no useful purpose would be served by
abolishing the managing agency system alone if the resultant void is to be filled up by the secretaries and treasurers.
Hence the Government proposes to abolish the system of management of companies by secretaries and treasurers
simultaneously with the abolition of the system of management of companies by managing agents.

The Companies Act was brought on the Statute Book with effect from 1st April, 1956. Thereafter it has undergone
amendments by means of Amending Acts, of which those of 1960, 1965 and 1969 may be mentioned as incorporating
some significant changes in the law. As observed in the Report of the Jenkins Committee in the U.K., the Company law
is not a “field of legislation” in which “finality is to be expected”, as the law “falls to be applied to a growing and
changing subject matter” and the “growing uses of the company system as an instrument of business and finance and
the possibilities of abuse inherent in that system.
2. The present Bill seeks to meet cases of such abuse or distortion of the system which have, of late, assumed
comparatively serious proportions. It further represents an installment of the remedial measures under contemplation
as a result of the process of comprehensive review of the working of the Act, which has been undertaken by
Government, in the light of the report of the Administrative Reforms Commission and its concerned working group and
in the light of various suggestions received by Government from diverse quarters from time to time for the amendment
of the Act.
3. A striking unhealthy phenomenon which has appeared in the corporate sector in recent times is a trend towards
take-over of well established companies by individuals or groups or combines. It may be stated in this connection that
the provisions of section 372 of the Companies Act, 1956, or section 23 of the MRTP Act, 1969 (54 of 1969), are not
adequate to regulate the “take-over” of companies. Such take-overs are often unfair to the non-controlling
shareholders, particularly the financial institutions, who are kept in the dark while secret negotiations are entered into
by third parties with the controlling shareholders who have an edge over the other shareholders in getting better price
for their shareholdings. The non-controlling shareholders are thus constrained to continue with their shares in the
company, while the control passes into possibly undesirable hands. It is, therefore, proposed under this Bill to provide
safeguards against such take-overs.
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4. The provisions of the Bill also seek to regulate the transfer of shares by every body corporate, or bodies corporate
under the same management, whether holding singly or in the aggregate 10% or more of the nominal value of the
equity share capital of a company. But where the shares proposed to be transferred are held in a company engaged in
an industry covered by the Industrial Policy Resolution of the Central Government, such shares shall, if so directed by
the Central Government, be transferred to the Central Government or to such corporation owned or controlled by that
Government, as may be specified in the direction. So also restrictions are sought to be placed on the transfer of shares
in a foreign body corporate having an established place of business in India in cases where the shares proposed to be
transferred constitute 10% or more of the nominal capital of the foreign company concerned.
5. Section 408 is intended as a corrective against oppression and mismanagement in a company. But it has not proved
effective as the directors appointed by the Central Government do not have an effective voice in the management of
the company. The proposed amendment seeks to rectify this position in the interest of the company and in public
interest.
6. Under the present Bill some other practices prevalent in the corporate sector, in so far as they may prove injurious or
undesirable, are also sought to be checked. The provisions contained in the Bill designed for this purpose deal with the
following:
(1) Failure to enlist shares with all the Stock Exchanges mentioned in a prospectus. In legislating on this point, it
is proposed to make an incidental amendment to the Securities Contracts (Regulation) Act, 1956.
(2) Invitation of deposits from the public by non-banking companies.
(3) Benami holding of shares.
(4) Continuation of the same auditors for a company for indefinite period giving rise to complaints of monopoly of
audit work.
(5) Use of reserve funds by way of dividends to the detriment of company’s interest.
(6) Non-availability of liquid funds for payment of dividends declared.
(7) Use of unclaimed dividends by management.
7. Under the present Bill the concept of the expression “under the same management” is proposed to be amended. In
view of the abolition of the system of management of companies by managing agents and secretaries and treasurers,
the scope of the definition of this expression needs a change so that control by groups in alternative forms or by
alternative methods calculated to cause injury to public interest may be avoided. The amendment proposed will also
help proper implementation of the concept of inter-connected undertakings within the meaning of section 2(g) of the
Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969). Therefore an incidental amendment to that Act is
also proposed in the present Bill.
8. The Bill proposes to make it compulsory for companies of a comparatively large size to have secretarial assistance.
This will encourage the growth of the profession of Company Secretaries, to which Government is committed. It will
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also promote a better observance by the companies of the laws relating to trade, industry and commerce.
9. It is further proposed in the Bill to put foreign companies of which not less than 50%. of the share capital is held by
one or more citizens of India or by one or more bodies corporate incorporated in India on par with Indian companies for
the purpose of compliance with such of the provisions of the Act as may be prescribed in that behalf. It is also
proposed that the provisions relating to inspection of the books of accounts of companies and investigation into the
affairs of companies shall apply to a foreign company having an established place of business in India. This meets the
demand that there should be more effective control over the working of foreign companies in this country.
10. The Bill provides for an extension of the scope of section 43A of the Act whereby some private companies
satisfying certain conditions shall be deemed to be public companies in certain circumstances. This is meant to bring
such private companies under the discipline applicable to public companies.
11. Powers are proposed to be taken to regulate agreements or arrangements which have been, or may be, entered
into between the former managing agents or secretaries and treasurers of companies with their erstwhile managed
companies in order to ensure that such arrangements are clearly in the interests of the company concerned and are
not a device to circumvent the provisions of law abolishing those systems of management.
12. Further, various existing provisions of the Act, such as those relating to inspection, cost audit, sole selling agency,
appointment or re-appointment of managing or whole-time directors and fixation of their remuneration and contracts in
which directors are interested, have been streamlined for a more effective regulation of the working of companies and
for preventing unhealthy practices. Besides these, some of the powers of the court under the Act are proposed to be
transferred to Government, in line with the recommendation of the Administrative Reforms Commission. As it is noticed
that corporate funds are being misapplied through the instrument of sole purchasing agencies, necessary provisions
have also been incorporated in the Bill regulating sole purchasing agencies on the same lines as sole selling
agencies.” [Statement of Objects and Reasons appended to the Companies (Amendment) Bill, 1972 (72 of 1972)].

In the Companies Act, 1956, section 58A relating to acceptance of deposits was inserted by the Companies
(Amendment) Act, 1974 (41 of 1974), which came into force on the 1st February, 1975. Prior to the coming into force of
this section, acceptance of deposits by companies was regulated by the directions issued by the Reserve Bank of India
under Chapter IIIB of the Reserve Bank of India Act, 1934. Clause (a) of sub-section (3) of section 58A provides that
every deposit accepted by a company at any time before the commencement of the said amendment Act of 1974,
shall, if it is not renewed by a company in accordance with the provisions of that section, be repaid in accordance with
the terms of such deposit. Clause (c) of that sub-section provides that any deposit received by a company in
contravention of the aforesaid directions of the Reserve Bank shall be repaid in full on or before 1st April, 1975. Sub-
section (5) of that section provides for penalty for the contravention of the provisions of the section. A review of the
cases of contraventions shows that sometimes they are due to circumstances beyond the control of the companies,
namely, strikes, riots, power-cuts, recession, etc. Sub-section (7) of section 58A empowers the Central Government to
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give total exemption to a company from the provisions of the section after consulting the Reserve Bank of India. There
is, however, no power to grant partial relaxation like extension of time in deserving cases for the repayment of
deposits. A study group constituted by the Reserve Bank of India under the chairmanship of Shri James S. Raj
recommended that section 58A of the Act may be suitably amended to grant extension of time to comply with or to
exempt any company from the provisions of that section. It is proposed to accept this recommendation and amend
section 58A suitably.
In State of Bombay v. Bandhan Ram Bhandani, (1961) 31 Comp. Cas. 1 (SC) : AIR 1961 SC 186*, the question arose
as to whether the company and its officers are liable to be prosecuted under the 1913 Act for not laying the balance
sheet and the profit and loss account before the company in annual general meeting where the annual general meeting
of the company was not held. In that case, the Supreme Court took the view that a person charged with an offence
could not rely on his own default as a defence to the charge. If he was responsible for not calling the annual general
meeting, he could not be heard to say in his defence to the charge that as the annual general meeting was not held,
the balance sheet and profit and loss account could not be laid before the company in annual general meeting. A
different view has, however, been taken on the point by the Supreme Court in the case of State of A.P. v. Andhra
Provincial Potteries Ltd., (1973) 43 Comp. Cas. 514 (SC) : AIR 1973 SC 2429†
Persons in charge of the management of some of the companies sometimes omit to convene the annual general
meeting of the company and by such omission keep the shareholders as well as the creditors of the company in the
dark about the affairs of the company and its financial condition. Further, by such omission, they also evade the
necessity of filing the balance sheet and the profit and loss account with the Registrar of Companies. When a
document is filed with the Registrar of Companies, it is open to any shareholder or creditor to inspect such document
and to obtain a copy thereof. In the circumstances, it is absolutely essential that even where the annual general
meeting of the company has not been held, the balance sheet and profit and loss account should be filed with the
Registrar of Companies to enable the shareholders and other persons to find out, from inspection of the said
documents, the affairs of the company and its financial condition. The Bill seeks to amend section 220 of the
Companies Act, 1956 to achieve the said object.
Under section 293 of the Companies Act, 1956, a company is empowered to make donations for charitable purposes
up to five per cent. of its average net profits during the preceding three years or up to Rs. 25,000, whichever is greater.
The ceiling of Rs. 25,000 was fixed long ago and it is felt that, in the present context, the said ceiling should be raised
to Rs. 50,000. The Bill seeks to amend section 293.
Section 620 empowers the Central Government to modify, by notification, any of the provisions of the Act in its
application to a particular Government company or to Government companies in general. Every notification proposing
to make such modification is required to be placed, in draft, before each House of Parliament for a period of not less
than 30 days while it is in session. Since the said period of 30 days cannot, sometimes, be completed in one session, it
is necessary to amend the section to permit the period of 30 days to be completed in one session or in two or more
successive sessions. The Bill seeks to amend section 620 to achieve the said object.
Other amendments included in the Bill are of a consequential or formal nature.
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THE MONOPOLIES AND RESTRICTIVE TRADE PRACTICES (AMENDMENT) ACT, 1984 (30 OF 1984).—The
Statement of Objects
and Reasons appended to the MRTP (Amendment) Bill, 1983 (37 of 1983)22 explained the
amendments as follows:
The provisions of sections 108A to 108H of the Companies Act, 1956, regulate the acquisition and transfer of shares of
companies to which the provisions of the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969) apply.
They are really intended to prevent acquisition or take-over of companies leading to further concentration of economic
power. As recommended by the Sachar Committee, it is considered more appropriate that these provisions find place
in the Monopolies and Restrictive Trade Practices Act, 1969 with necessary modifications. The provisions in the
Companies Act are simultaneously proposed to be omitted.
Sections 108A to 108H were later re-transferred to the Companies Act, 1956.

“At present, under section 293A of the Companies Act, 1956 (1 of 1956) there is a blanket ban on political contributions
by companies. In his Budget Speech, the Finance Minister has made an announcement that with a view to permitting
the corporate sector to play a legitimate role within the defined norms in the functioning of our democracy, necessary
legislation would be, undertaken to allow companies to make contributions to political parties from out of their profits.
For this purpose, it is proposed to substitute [vide clause 2 of the Companies (Amendment) Bill, 1985] a new section
for section 293A of the Companies Act, 1956. The new section seeks to continue the existing blanket ban against
political contributions in the case of Government companies and companies which have been in existence for less than
three financial years. The new section seeks to permit any other company to make political contributions not exceeding
5%. of its average net profits if a resolution authorising such contributions is passed at a meeting of the Board of
directors. The new section also seeks to impose an obligation on every company to disclose in its profit and loss
account any amount or amounts contributed by it to any political party or for any political purpose. Under the new
section, if a company makes any political contribution in contravention of the provisions thereof, the company would be
liable to fine which may extend to three times the amount so contributed. Further, every officer of the company in
default, would be liable to imprisonment for a term which may extend to three years and also to fine.
2. Another announcement made by the Finance Minister in his Budget Speech relates to the decision of the
Government to introduce necessary legislation so that legitimate dues of workers rank pari passu with secured
creditors in the event of closure of the company and above even the dues to Government. The resources of the
companies constitute a major segment of the material resources of the community and common good demands that
the ownership and control of the resources of every company are so distributed that in the unfortunate event of its
liquidation, workers, whose labour and effort constitute an invisible but easily perceivable part of the capital of the
company are not deprived of their legitimate right to participate in the product of their labour and effort. It is accordingly
proposed to amend sections 529 and 530 of the Companies Act, 1956 and also to incorporate a new section in the
Companies Act, namely section 529A [vide clauses 4, 5 and 6 of the Companies (Amendment) Bill, 1985 (16 of 1985)].
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3. Section 396 of the Companies Act empowers the Central Government to order amalgamation of companies in public
interest. The Committee on Subordinate Legislation (Seventh Lok Sabha) have recommended that the Company Law
Board should be empowered to reassess compensation on appeal from the order of the prescribed authority assessing
the compensation payable under an order of amalgamation under this section. The Committee have also
recommended that the order of amalgamation itself may provide for the continuation of any pending legal proceedings
by and against the transferee company on the lines of the existing provisions of section 394 of the Act under which the
High Court orders amalgamation. Section 396 of the Act is proposed to be amended suitably to give effect to these
recommendations (vide clause 3 of the Bill).
4. The Bill seeks to achieve the above objects.”

“Government has, in the light of the recommendations made by the Expert Committee (Sachar Committee) and in the
light of the experience gained in the administration of the Companies Act, 1956, over the last few years, felt it
necessary to bring certain amendments to that Act.
2. The salient features of the amendments are:
(a) the setting up of an independent Company Law Board to exercise such judicial and quasi-judicial functions as
are presently being exercised either by the Court or the Central Government and are proposed to be
transferred to that Board;
(b) compounding of offences punishable with fine;
(c) dispensing with Government approval for managerial appointments and remuneration subject to the fulfilment
of certain statutory guidelines which are proposed to be incorporated in the Act itself;
(d) de-linking of the rates of depreciation from the rates specified under the Income-tax Act and laying down the
rates of depreciation in the Act itself to reflect the true and fair view of the state of affairs of the company;
(e) protecting the interests of the investors by providing for intervention by the Company Law Board against non-
repayment of public deposits; compulsory redemption of preference shares in certain cases; requiring
companies to disclose reasons for refusal to register transfer of shares; and protecting the rights of the
transferee pending mutation of his name in the register of members; and also compulsory listing of all public
issues;
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(f) reducing unnecessary cost or burden by requiring companies to attach only an abridged form of prospectus to
the application form and only an abridged version of balance sheets and auditors’ report to members and
also by requiring companies to hold a poll in general meeting only at the instance of the shareholders having
some minimum stake in the company; and further requiring companies to file full annual return only once in
six years;
(g) provision for disclosure of information relating to conservation of energy, technology absorption, foreign
exchange earnings and outgo as well as particulars of employees having some minimum stake in the
company and drawing remuneration in excess of that drawn by managerial personnel.
3. The proposals also include provisions to plug loopholes and remove some lacunae which have
come to surface in the working of the Act. It is also proposed to streamline some of the existing
provisions for better working and administration of the Act. Certain consequential and incidental
changes are also sought to be made. The Bill seeks to achieve the above objectives.
4. The notes on clauses explain in detail the provisions of the Bill.” [Statement of Objects and
Reasons appended to the Companies (Amendment) Bill, 1987].
The Notes on Clauses and recommendations of the Sachar Committee have been reproduced under
relevant Sections.
The Bill introduced in the Rajya Sabha on 31st August, 1987 was passed with substantial
amendments. The Notes on Clauses under relevant sections have thus been given with reference to
these official amendments.
THE MONOPOLIES AND RESTRICTIVE TRADE PRACTICES (AMENDMENT) ACT, 1991 (58 OF 1991).—The Statement of Objects
and Reasons appended to the MRTP (Amendment) Bill, 1991 (198 of 1991)25 is reproduced below:
The Monopolies and Restrictive Trade Practices Act, 1969, came into force with effect from 1st June, 1970. The basic
philosophy behind the MRTP Act was never to inhibit industrial growth in any manner but to ensure that such growth is
channelised for the public good and is not instrumental in perpetuating concentration of economic power to the
common detriment. With the growing complexity of industrial structure and the need for achieving economies of scale
for ensuring higher productivity and competitive advantage in the international market, the thrust of the industrial policy
has shifted to controlling and regulating the monopolistic, restrictive and unfair trade practices rather than making it
necessary for certain undertakings to obtain prior approval of the Central Government for expansion, establishment of
new undertakings, merger, amalgamation, take over and appointment of directors. It has been the experience of the
Government that pre-entry restriction under the MRTP Act on the investment decision of the corporate sector has
outlived its utility and has become a hindrance to the speedy implementation of industrial projects. By eliminating the
requirement of time-consuming procedures and prior approval of the Government, it would be possible for all
productive sections of the society to participate in efforts for maximisation of production. It is, therefore, proposed to
restructure the MRTP Act by omitting the provisions of sections 20 to 26 and transfer the provisions contained in
Chapter III-A regarding restrictions on acquisition and transfer of shares to the Companies Act, 1956. The Schedule to
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the MRTP Act is also consequently to be transferred with modification to the Companies Act, 1956.
2. It is also proposed to enlarge the scope of inquiry by the MRTP Commission with a view to taking effective steps to
curb and regulate monopolistic, restrictive and unfair trade practices which are prejudicial to public interest. It is also
proposed to provide for deterrent punishment for contravention of the orders passed by the MRTP Commission and the
Central Government and empower the Commission to punish for its contempt. Certain other consequential changes
are also found necessary in the MRTP Act.
3. The criteria for determining dominance, applicable to acquisition and transfer of shares under newly inserted
sections 108A, 108B and 108C of the Companies Act, 1956, is proposed to be determined only on the basis of market
share of 25 per cent. of the total goods produced, supplied, distributed or services rendered in India or substantial part
thereof.
4. The Bill seeks to replace the MRTP (Amendment) Ordinance, 1991 (8 of 1991), with modifications and to achieve
the aforesaid objects.
THE DEPOSITORIES ACT, 1996 (22 OF 1996).—The Statement of Objects and Reasons appended to the
Depositories Bill, 1996 (29 of 1996)26 is reproduced below:
“Paper based ownership and transfer of securities has been a major drawback of the Indian securities market as this
often results in delay in settlement and transfer of securities, leads to ‘bad delivery’, theft, forgery, etc., causing
hardship to the investor. In order to enable safe and speedy transfer of securities, it has become essential to enact a
law which provides a legal framework for establishment of depositories.
2. The depositories legislation, inter alia, provides for:
(a) a legal framework for establishment of depositories for maintenance of ownership records of securities and
effect changes in ownership records through book entry;
(b) dematerialisation of securities in the depositories mode. It provides the option to the investor to hold securities
in physical form as at present or in a dematerialised form in depository;
(c) enabling free transferability of securities; and
(d) exempting all transfers of shares within a depository from stamp duty.
3. As Parliament was not in session, the President promulgated the Depositories (Third) Ordinance, 1996, on 21st
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June, 1996, for the said purpose.
4. The Bill seeks to replace the said Ordinance.”
THE COMPANIES (AMENDMENT) ACT, 1996 (5 OF 1997).—The Statement of Objects and Reasons appended to the
Companies (Amendment) Bill, 1996 (34 of 1996)27is reproduced below:
“In 1977, Government appointed a Committee for the amendment of the Companies Act, 1956, and the Monopolies
and Restrictive Trade Practices Act, 1969, popularly known as the Sachar Committee. Some of the recommendations
of the Sachar Committee led to the Companies (Amendment) Acts of 1985 and 1988. However, while considering the
proposals which led to the enactment of the Companies (Amendment) Act, 1988, a decision was taken by the
Government for a comprehensive review of the existing law.
2. Accordingly, the Companies Bill, 1993, was introduced in the Rajya Sabha on 14th May, 1993. The Bill has not yet
been taken up for consideration. In view of suggestions from the different forums, the Government feels that the Bill
would require comprehensive revision keeping in view the changes which have taken place in the capital market,
operation of corporate sector and liberalisation policies. For this purpose and having due regard to the statement made
on 22nd July, 1996, in Parliament, the Government has set up a working group to revise the Act. Since, this process
would take a considerable time to complete its work, it is felt that some changes in the Companies Act are imminent,
therefore, it is proposed to amend the Act, inter alia, as follows, namely:
(i) to provide protection to the depositors;
(ii) to provide protection to employees’ interest in case of winding up of a company;

(iii) to simplify some procedural and legal requirements in the interest of corporate sector.
3. The Bill seeks to achieve the above objectives.”
THE DEPOSITORIES RELATED LAWS (AMENDMENT) ACT, 1997 (8 OF 1997).—The

appended to the Depositories Related Laws (Amendment) Bill, 1997 (16 of 1997)28 is reproduced
below:
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“The Depositories Act, 1996, provides, inter alia, for a legal framework for the establishment of depositories for dealing
in securities. However, the said Act allows only securities of companies to be dealt in a depository mode. The
securities of statutory bodies like the Industrial Development Bank of India, the Unit Trust of India, the State Bank of
India and other banks established under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970,
and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, could not be dealt with in a
depository mode. In order to remove this lacuna and also to give effect to certain consequential changes, the
Depositories Related Laws (Amendment) Ordinance, 1997, was promulgated on the 15th January, 1997, amending the
Depositories Act, 1996, the Companies Act, 1956, the Industrial Development Bank of India Act, 1964, the State Bank
of India Act, 1955, the State of Bank of India (Subsidiary Banks) Act, 1959, the Banking Companies (Acquisition and
Transfer of Undertakings) Act, 1970, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980,
and the Indian Stamp Act, 1899.
2. The Bill seeks to replace the said Ordinance.” [Statement of Objects and Reasons appended to the Depositories
Related Laws (Amendment) Bill, 1997].

“The Companies Act, 1956, has been in force for more than four decades and the economy has undergone
considerable changes since its introduction. Further, the law relating to corporate sector has been undergoing changes
in other countries taking into account recent developments in the field of corporate law and practices. Taking into
consideration these developments and on the basis of a report prepared by a working group constituted in 1996, the
Companies Bill, 1997, was introduced in Rajya Sabha on August 14, 1997, to replace the Companies Act, 1956. The
Companies Bill, 1997, stands referred to department related Standing Committee on Home Affairs and the report of the
Standing Committee is awaited.
2. In view of the urgency felt by the Government in this regard and as Parliament was not in session, the President
promulgated the Companies (Amendment) Ordinance, 1998 (19 of 1998), on the 31st October, 1998. It is proposed to
replace the Companies (Amendment) Ordinance, 1998, by a Bill which, inter alia, provides for the following matters:
(a) to declare Infrastructure Development Finance Company Limited as a public financial institution;
(b) to provide for nomination facility to the holders of shares, debentures and fixed deposit holders;
(c) allowing the companies to buy-back their shares subject to certain safeguards;
(d) to provide for transfer of certain sums to the capital redemption reserve account when a company purchases
its own shares out of free reserves;
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(e) to provide for issue of sweat equity subject to fulfilment of certain conditions;
(f) to provide for establishment of an Investors Education and Protection Fund;
(g) to provide for constitution of a National Advisory Committee on Accounting Standards;
(h) to provide for compliance of accounting standards by a company in preparation of profit and loss account and
balance sheet; and
(i) to permit the companies to make inter-corporate investments and loans subject to fulfilment of certain
conditions without prior approval of the Central Government.
3. The corporate sector is going through difficult times. The capital market is also at a low ebb, which requires
immediate morale-boosting efforts on the part of the Government to promote investors’ confidence. Besides, the
economy needs certain impetus for promoting inter-corporate investments considering slow flow of funds in new
investments. In order to overcome these adverse conditions faced by the corporate sector, it was felt that the company
should be permitted to buy-back their own shares, to make investments or loans freely without prior approval of the
Central Government, to provide for nomination facility to the holders of shares, deposits and debentures and also to
make provision in law for establishment of the Investors Education and Protection Fund (IEPF) broadly on the lines of
provisions contained in the Companies Bill, 1997.
4. In the present Bill, as compared to the Ordinance promulgated, some further changes have been made in order to
make some of the legal provisions more simple, practical and specific and to remove ambiguity in respect of some
other provisions. Broadly, the changes are as follows:
(a) buy-back of shares has been restricted to 25% of the paid-up capital and the funds used for this purpose are
not to exceed 25%. of the paid-up capital and free reserves. Free reserves have been defined for the purpose
of buy-back;
(b) restriction of 24 months, after the buy-back, for further issue of securities will apply only in respect of issue of
the same security. The company will have no restriction to issue other securities during this period;
(c) prior approval of financial institutions in the case of investment/loan/guarantee up to 60%. of the net worth will
not be required if there is no default in repayment of loan/interest to public financial institutions;
(d) company shall not be allowed to make any inter-corporate investment if there is a default in repayment of
deposits or interest thereon. Restrictions on inter-corporate investments will also not apply in case of wholly
owned subsidiary companies or companies established with the object of financing industrial enterprises and
for subscribing to right shares;
(e) in the case of corporate guarantee, the companies would be permitted to obtain ex-post-facto approval of the
shareholders within a specified period;
(f) the powers to the Board of directors to decline or to suspend registration of shares in the case of a nominee
have been withdrawn;
(g) for transfer of unclaimed funds from company to investor protection fund, the period has been increased from
five years to seven years and thereafter no claim to be entertained;
(h) for issue of sweat equity, a special resolution has been provided instead of ordinary resolution.
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5. The Bill seeks to replace the said Ordinance.” [Statement of Objects and Reasons appended to the Companies
(Amendment) Bill, 1998 (174 of 1998)].
Relevant paragraphs of the Statement of Objects and Reasons have been annotated under
Legislative History in Notes under respective Sections.
OF 1999).—Sections 20 and 22 of the Companies Act, 1956 (1 of 1956)

THE TRADE MARKS ACT, 1999 (47
regarding Companies not to be registered with undesirable names and Rectification of name of
company have been amended by the Trade Marks Act, 1999 (47 of 1999) (w.e.f. 15-9-2003).

“The Government introduced a comprehensive Companies Bill, 1997, in Rajya Sabha on 14-8-1997, and the same was
referred to the Standing Committee of Parliament for examination and report thereon. The process of examination,
however, is not yet over and is still to take some more time. The passing of this Bill is thus likely to be delayed further.
It is however considered desirable by the Government that some more important changes in the Companies Act, 1956,
are brought about in order to provide immediately certain measures for good corporate governance and for protection
of investors. These measures are as follows:
(i) to provide a minimum paid up capital of Rs 1 lakh for private companies and Rs 5 lakhs for public companies;
(ii) to delete provisions relating to deemed public companies;
(iii) to reduce the period for disbursing dividend/interim dividend to shareholders from 42 days to 30 days;
(iv) to request the companies to inform the Company Law Board within 60 days if the company fails to make
repayment of deposits on maturity to small deposit holders and the Company Law Board would be enabled to
consider these defaults reported by companies and make an order within 30 days which the company shall
be bound to comply with. A company which fails to report or comply with the order of the Company Law
Board shall be punishable with imprisonment which may extend to three years and shall also be liable to fine
or a fine of not less than Rs 500 per day during which such default continues;
(v) to provide that the Securities and Exchange Board of India (SEBI) be entrusted with powers with regard to all
matters relating to public issues and transfers including power to prosecute defaulting companies and their
directors;
(vi) to include a Directors’ Responsibility Statement in the Board’s report to highlight the accountability of directors
in good corporate governance;
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(vii) to provide that public listed companies with paid up capital of Rs 5 crores or more shall be required to set up
an audit committee of the Board of directors as a measure for better corporate governance;
(viii) to require companies with paid up capital of Rs 10 lakhs or more and which do not have whole-time secretary
in their employment to submit a Secretarial Compliance Certificate from a company secretary in whole-time
practice;
(ix) to delete the provisions for appointment of a public trustee by the Central Government with a view to enabling
the trust to directly exercise the voting power;
(x) to provide that any offer of shares or debentures to more than 50 persons shall be treated as public issue with
suitable modification in the case of public financial institutions and non-banking financial companies;
(xi) to prescribe voting through postal ballot in case of only important items with effect from such date as may be
notified by the Government to ensure good corporate governance;
(xii) to empower the Regional Director to allow change of registered office of companies from jurisdiction of one
Registrar of Companies to another Registrar of Companies within the same State;
(xiii) to empower the Comptroller and Auditor-General of India to appoint the auditors in respect of Government
companies and also to provide that shareholders of such companies will fix their remuneration in annual
general meeting;
(xiv) to provide that in the case of a public company which does not file annual accounts and annual returns
continuously for the last three years, the directors of such companies will be debarred from becoming
directors of other public companies for five years. Similarly, in the case of any public company which fails to
repay its depositors on maturity of deposit amount/debentures, dividend and interest on deposits/debentures
on the due dates, the whole-time directors of defaulting companies as on such date will be debarred from
becoming directors of any other public company for a period of five years;
(xv) to provide that for purpose of managerial remuneration, the amount of depreciation will be the same as
provided in the profit and loss account of the company;
(xvi) to provide that no person can hold office of director in more than 15 companies at a time;
(xvii) to provide for appointment of one director as a nominee of small shareholders who constitute a minimum of
1000 in number and having shares of not more than Rs 20,000 with effect from the date to be specified and
subject to such other conditions as may be prescribed by the Central Government;
(xviii) to provide penal provisions for increased fine for offences under the Act;
(xix) to provide that a shareholder of the company be disqualified for appointment as auditor of the company;
(xx) to delete the provisions relating to managing agent, secretaries and treasurers as they have become
redundant after abolition of the system of managing agent, secretaries and treasurers;
(xxi) to provide that private limited companies shall be excluded in reckoning the number of companies which an
auditor can audit.
2. It is expected that the above amendments in a short Bill will ensure better corporate governance, transparency in
working of companies and also more effective enforcement by enhancing the penalty/punishment for contravention so
as to ensure better compliance with the provisions of the Companies Act, 1956.
3. The notes on clauses explain in detail the provisions of the Bill.” [Statement of Objects and Reasons appended to
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the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
The Notes on Clauses of the Bill explaining the provisions/amendments made by the Act have been
reproduced under Legislative History in Notes under relevant Sections in this book.

the Companies (Third Amendment) Bill, 2001 (100 of 2001)31 is reproduced below:
“For a considerable time, the market sentiment has been very weak. Because of the recent developments in the United
States of America and other places, the situation has become worse.
2. Section 77A of the Companies Act, 1956, permits a company to purchase its own shares or other specified
securities (hereafter referred to as “buy-back”) subject to the provisions contained in that section. The Ministry of
Finance (Department of Economic Affairs) has suggested that the provisions for buy-back by companies should be
liberalised with a view to improving the market sentiment. Liberalisation has also been supported by the SEBI, financial
institutions and some others.
3. In view of the above, it was decided to liberalise certain provisions of section 77A of the Companies Act, 1956,
relating to buy-back and for this purpose, the Companies (Amendment) Ordinance, 2001 (Ordinance 7 of 2001) was
promulgated on the 23rd day of October, 2001, so as to, inter alia,—
(a) provide that if the buy-back was to the extent of or less than 10%. of the total paid-up capital and free reserves
of the company and such buy-back had been authorised by means of a resolution passed at its Board
meeting, such buy-back shall not require special resolution to be passed by a general meeting as required by
clause (b) of sub-section (2) of section 77A which prohibits a company to purchase its own shares or other
specified securities unless a special resolution is passed in general meeting of the company authorising such
buy-back;
(b) provide that no offer of buy-back referred to in (a) above shall be made within a period of 365 days reckoned
from the date of the preceding offer of buy-back;
(c) reduce the time-limit from 24 months specified under sub-section (8) of section 77A of the Companies Act,
1956, to six months for issue of the same kind of shares.
4. The Bill seeks to replace the said Ordinance.” [Statement of Objects and Reasons appended to the Companies
(Third Amendment) Bill, 2001]
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THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 (54
OF 2002).—Relevant extracts from the Statement of Objects and Reasons appended to the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Bill, 2002 (53 of 2002)32 are reproduced
below:
• “(f) declaration of any securitisation company or reconstruction company registered with the Reserve Bank of
India as a public financial institution for the purpose of section 4A of the Companies Act, 1956.”

Statement of Objects and Reasons appended to the
Companies (Second Amendment) Bill, 2001 (88 of 2001)33 is reproduced below:
“During the last decade, changes have taken place in the Indian economy, in the communication and transportation
infrastructures, as well as in the method of commerce, banking and international trade. Liberalization of the economy is
in the process of changing the terms of trade between rural and urban, labour and industry, finance and commerce.
Biotechnology, the information revolution, computerization can all be used to raise the standard of living of the rural
masses and ultimately link this economy with regional, national and global demand. Institutions are needed to link the
rural economy with the emerging new opportunities. Rural producers are at a potential disadvantage given their
generally limited assets, resources, education and access to advanced technology. In the present competitive
scenario, if co-operative enterprises are to continue to serve rural producers, they require an alternative to the
institutional form presently available under law.
2. Keeping all this in view the Government constituted a committee consisting of experts led by Dr. Y.K. Alagh,
Economist, former Union Minister to examine and make recommendations with regard to (a) framing a legislation
which would enable incorporation of co-operatives as companies and conversion of existing co-operatives into
companies and (b) ensuring that the proposed legislation accommodates the unique elements of co-operative business
within a regulatory framework similar to that of companies. The Committee had a series of meetings during which it
interacted with, and received responses from various co-operatives, institutes and individuals.
3. On the basis of the recommendations of the committee the present Bill has been prepared with the main objective of
facilitating formation of co-operative business as companies and to convert existing business into companies. The
salient features of the Bill are:
(i) To offer a statutory and regulatory framework that creates the potential for producer-owned enterprises to
compete with other enterprises on a competitive footing. The Companies Act envisages and provides for
various forms of companies including private limited, public limited, trusteeship companies and nidhis, each
with specific and appropriate provisions applicable to them.
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(ii) To provide for the formation and registration of producer companies which include the mutual assistance and
co-operative principles within the more liberal regulatory framework afforded by the company law with
suitable adaptations.
(iii) To provide an opportunity to co-operative institutions to voluntarily transform themselves into the new form of
producer companies.
(iv) Under the Bill conversion of co-operatives to producer companies is purely voluntary.
(v) Member equity may not be publicly traded, but may only be transferred, with the approval of the producer
company’s Board of directors. Producer companies would not be vulnerable to the takeover by multinationals
or other companies.
(vi) The conversion option by co-operative society to producer company can be exercised only if two-thirds of the
members of the concerned society vote in favour of a resolution to that effect.
(vii) The new form of company is designated as “producer company” to indicate that only certain categories of
persons can participate in the ownership of such companies. The members of the producer company have
necessarily to be “primary producers”, that is persons engaged in an activity connected with, or relatable to,
primary produce.
(viii) The objects of a producer company have been defined to include, among other things, production,
processing, manufacture and sale of primary produce as well as allied matters.
4. The Bill seeks to achieve the above objectives.” [Statement of Objects and Reasons appended to the Companies
(Second Amendment) Bill, 2001 (88 of 2001)].

THE COMPANIES (SECOND AMENDMENT) ACT, 2002 (11
appended to the Companies (Amendment) Bill, 2001 (80 of 2001)34 is reproduced below:
“The latest developments and innovations in corporate laws required that the Companies Act, 1956, and other related
laws concerning winding up of companies should be remodelled in line with the international practices in this field.
Government constituted a Committee consisting of experts under the chairmanship of Justice V. Balakrishna Eradi,
retired Supreme Court Judge to examine the law relating to insolvency and winding up of companies.
2. The Committee examined Companies Act, 1956, and also other laws having a bearing on the subject such as Sick
Industrial Companies (Special Provisions) Act, 1985 (SICA), Recovery of Debts Due to Banks and Financial Institutions
Act, 1993, and Securities Contracts (Regulation) Act, 1956; it also considered laws on corporate insolvency prevailing
in industrially advanced countries. The Committee held wide ranging hearings and consultations on the subject.
3. On the basis of the recommendations of the Committee the present Bill [the Companies (Amendment) Bill, 2001]
has been prepared with the main objective of facilitating or expediting revival/rehabilitation of sick companies and
protection of workers’ interests and where necessary, winding up of companies. The salient features of the Bill are as
follows:
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(i) A National Company Law Tribunal will be set up. The powers and jurisdiction presently being exercised by
various bodies, viz., the Company Law Board or the Board for Industrial and Financial Reconstruction or the
Appellate Authority for Industrial and Financial Reconstruction or High Courts will now be consolidated and
entrusted to the Tribunal. Thus, multiplicity of litigation before various courts or quasi-judicial bodies or forums
regarding revival or rehabilitation or merger or amalgamation or winding up will be avoided as all these
matters will be heard and decided by the proposed National Company Law Tribunal;
(ii) All the parties will be bound by the Tribunal’s orders and in the case of non-availability of a workable proposal
for revival or rehabilitation, etc., the Tribunal can decide the matter on the merits including introduction of its
own scheme;
(iii) The Tribunal shall work through Benches. There shall be 10 special Benches which will deal with the matters
relating to revival or reconstruction or rehabilitation or winding up of companies;
(iv) This will reduce the entire process which is presently taking several years in winding up of the companies to
about two years or so;
(v) Stripping of assets of sick companies will be avoided;
(vi) Since individual affidavits will be filed with the National Company Law Tribunal which will have powers of
contempt of court, there will be an in-built seriousness;
(vii) There will be a fund known as rehabilitation and revival fund which will be used to make primarily:
(a) interim payment of the dues of workmen of the company which has been declared sick or is under
liquidation;
(b) protection of the assets of sick companies;
(c) revival and rehabilitation of sick companies;
(viii) “Industrial undertaking” in terms of sickness does not include:
(a) small scale industrial undertakings, as defined in clause (j) of section 3 of the Industries
(Development and Regulation) Act, 1951;
(b) Public sector undertakings, unless a reference is made by the Central Government and/or State
Govt., as the case may be;
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(ix) As a result of this enactment everyone including workers, creditors, investors and the economy as a whole will
stand to benefit.
5. The Bill seeks to achieve the above objectives.
6. The notes on clauses explain, in detail, the provisions of the Bill.”
AND OTHER RELATED LAWS (AMENDMENT) ACT, 2003 (46 OF 2003).—In section 293A(5) of the
THE ELECTION
Companies Act, 1956, an Explanation has been inserted by the Election and Other Related Laws
(Amendment) Act, 2003.
The Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004 (30 of
2004).—Sections 4A and 424A of the 1956 Act (1 of 1956) have been amended.

Statement of Objects and Reasons appended to
the Companies (Amendment) Bill, 2006 (24 of 2006)† is reproduced below:
“In context of the rapid developments witnessed in technology, the Ministry of Company Affairs decided to enable the
operations carried out by the Ministry and its field offices to be performed more efficiently and effectively through the
use of contemporary information technology and computers. It was felt that the earlier efforts at computerisation had
not yielded the desired efficiency in operation of the system and an operating system that took into account
contemporary technology was necessary. Therefore, it was decided to implement a comprehensive e-Governance
system and programme to achieve the above objective.
2. The Ministry of Company Affairs on the recommendations of Department of Information Technology is implementing
an e-Governance initiative through a project named as “MCA-21”. This project will provide the public, corporate entities
and others an easy and secure online access to the corporate information, including filing of documents and public
access to the information required to be in the public domain under the statute, at any time and from anywhere. This
would also result in efficiency in statutory supervision of corporate processes and efficient professional services under
the Companies Act, 1956 (the Act).
3. The filing and registration of documents is a statutory requirement under the Act. At present, the Act lays down the
procedures for filing of various documents in physical form and the processes associated therewith. While, the broad
enabling framework for such an initiative is available under the Information Technology Act, 2000 (21 of 2000) read
with the Companies Act, 1956, enabling provisions would still be required to support certain online electronic
processes which have since become available due to technological advancement for various detailed procedural
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requirements under the Companies Act, 1956.
4. It is, therefore, proposed to insert new sections 610B, 610C, 610D and 610E in the Companies Act, 1956 so as to
make provision for electronic filing system and for payment of fees through electronic form under the said Act which
are essential for the successful implementation of the MCA-21 Project. After the proposed amendments to the
Companies Act, 1956 have been enacted, the documents in electronic form duly authenticated with digital signatures
shall be accepted under the provisions of that Act. The proposed electronic system also provides for multiple modes of
payment of statutory fees.
5. The provisions of the Companies Act, 1956 allow an individual to be a director of up to 15 companies and such
companies can be located in the jurisdiction in any of the Registrars of Companies. There is a need for individual
identity of person(s) intending to be directors of companies to be established. This would also facilitate effective legal
action against the directors of such companies under the law, keeping in view the possibility of fraud by companies and
the phenomenon of companies that raise funds from the public and vanish thereafter. It is, therefore, proposed to insert
new sections 266A, 266B, 266C, 266D, 266E, 266F and 266G in the Companies Act, 1956 so as to, inter alia, provide
for allotment of a unique Director Identification Number to any individual, intending to be appointed as a director in a
company or to any existing director of a company, for the purpose of his identification as such, through electronic or
other form and to provide for penalty for any violation in this regard.
6. This Bill seeks to achieve the above objectives.” [Statement of Objects and Reasons appended to theCompanies
Notes on Clauses and Committee Reports explaining the provisions have been reproduced under
Legislative History in Notes under relevant Sections.
In such circumstances, where the corresponding provision of the 2013 Act is not yet in force, but the
provision under the 1956 Act has been repealed by the Repealing and Amending Act, 2016, the strict
legal position would point to the absence of any such provision; unless the MCA mitigates the
situation through an appropriate clarification or otherwise. Still, even with such a clarification, the
position is not entirely clear nor a very happy one for the purposes of the proper implementation of
the statute.
Applicability of the Companies Act, 1956
The Companies Act, 1956 came into force on 01-04-1956 vide Notification No. S.R.O. 612, dt. 8-03-
1956.
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The 1956 Act envisages and provides for various forms of companies including private limited, public
limited, trusteeship companies, nidhis, producer companies, etc., each with specific and appropriate
provisions applicable to them.
The Act extends or applies to the whole of India. [section 1(3)]. This is subject to certain special
provisions, privileges, exemptions and modifications given below.
State of Nagaland [Proviso to section 1(3) of the Companies Act, 1956]
The 1956 Act shall apply to the State of Nagaland subject to modifications, if any, as the Central
Government may, by notification specify.
Goa, Daman and Diu [Section 620-B of the Companies Act, 1956]
The Central Government may, by notification, direct that for such period or periods (w.e.f. 26-1-1963)
or any subsequent date, any of the provisions of this Act specified in the notification shall not apply or
shall apply only with such exceptions and modifications or adaptations as may be specified in the
notification. See detailed Notes under s. 620-B.
Jammu and Kashmir [Section 620-C of the Companies Act, 1956]
The Central Government may, by notification, direct that with effect from the commencement of the
Central Laws (Extension to Jammu and Kashmir) Act, 1968 (25 of 1968), or any subsequent date,
any of the provisions of the Act specified in the notification shall not apply, or shall apply only with
such exceptions and modifications or adaptations as may be specified.
The provisions of the 1956 Act were made applicable to Jammu and Kashmir by omitting first proviso
to section 1(3) of the Companies Act, 1956 by the Central Laws (Extension to Jammu and Kashmir)
Act, 1968 (25 of 1968), section 2 and Sch. (w.e.f. 15-8-1968) [Section 1(3) read with footnotes].
Consequently, aforesaid section 620-C was inserted.
Sikkim [Article 371F of the Constitution]
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The State of Sikkim has been granted special status under Article 371F of the Constitution of India.
As per clause (n) of Article 371F containing Special provisions with respect to the State of Sikkim, the
President may, by notification, extend with such restrictions or modifications as he thinks fit to the
State of Sikkim any enactment which is in force in India. Until such a Notification is issued extending
the 1956 Act to the State of Sikkim, the State shall be governed by the Sikkim Registration of
Private Company [Section 3(1)(iii) of the Companies Act, 1956]
Certain privileges and exemptions have been given under the 1956 Act (1 of 1956) to a Private
Company (not being a subsidiary of a public company).
Public Company [Section 3(1)(iv) of the Companies Act, 1956]
As per section 3(1)(iv) substituted by the Companies (Amendment) Act, 2000 (53 of 2000) (w.e.f. 13-
12-2000) public company means a company which—(a) is not a private company, (b) has a minimum
paid-up capital of Rs 5 lakhs or higher sum prescribed, and (c) is a private company which is a
subsidiary of a company which is not a private company.
Deemed public company [Section 43A of the Companies Act, 1956]
The concept of Private Companies to become Public Companies in certain cases [section 43A], i.e.,
Deemed Public Companies, is not applicable (w.e.f. 13-12-2000) vide section 43A(11).
Charitable Companies [Section 25 of the Companies Act, 1956]
Where an association is formed as a limited company for promoting commerce, art, science, religion,
charity or any other useful object, and intends to apply its profits, if any, or other income in promoting
its objects, and to prohibit the payment of any dividend to its members, the Central Government may,
by licence, direct that the association may be registered as a company with limited liability, without
the addition to its name of the word “Limited” or the words “Private Limited”.
Sick Industrial Companies [Sections 424A-424L of the Companies Act, 1956]
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A new Part VIA containing sections 424A to 424L has been inserted in the 1956 Act by the
Companies (Second Amendment) Act, 2002 (11 of 2003) providing for revival, rehabilitation and
winding up of Sick Industrial Companies. The Sick Industrial Companies (Special Provisions) Act,
1985 (1 of 1986) (SICA) would consequently be repealed and the Board for Industrial and Financial
Reconstruction (BIFR) would be replaced by the National Company Law Tribunal (NCLT) to be
constituted under section 10FB.
Producer Companies [Sections 581A-581ZT of the Companies Act, 1956]
A new Pt IXA containing Chapters I to XII, sections 581A to 581ZT has been inserted in the 1956 Act
by the Companies (Amendment) Act, 2002 (1 of 2003) (w.e.f. 6-02-2003) facilitating formation of co-
operative business as companies and to convert existing business into companies on a voluntary
basis. The aim is to provide statutory and regulatory framework that creates the potential for
producer-owned enterprises to compete with other enterprises on a competitive footing with more
liberal regulatory framework and certain privileges of a private company.
Foreign Company [Sections 591-608 of the Companies Act, 1956]
Special provisions have been made in the 1956 Act for foreign companies in Pt XI—Companies
Incorporated Outside India, viz., Provisions as to Establishment of Place of business in India
[sections 591-602 of the 1956 Act] and Prospectuses [sections 603–608 of the 1956 Act].
Banking, Insurance, Electricity and other Companies governed by special Acts

[Section 616 of the Companies Act, 1956]
The provisions of the 1956 Act shall apply—
(a) to insurance companies, except in so far as the said provisions are inconsistent with the
provisions of the Insurance Act, 1938 (4 of 1938);
(b) to banking companies, except in so far as the said provisions are inconsistent with the
(c) to companies engaged in the generation or supply of electricity, except in so far as the said
provisions are inconsistent with the provisions of the Indian Electricity Act, 1910 (9 of 1910),
or the Electricity Supply Act, 1948 (54 of 1948);
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(d) to any other company governed by any special Act for the time being in force except in so far
as the said provisions are inconsistent with the provisions of such special Act;
(e) to such body corporate, incorporated by any Act for the time being in force, as the Central
Government may, by notification in the Official Gazette, specify in this behalf, subject to such
exceptions, modifications or adaptations, as may be specified in the notification.
Government Company [Sections 617–620 of the Companies Act, 1956]
Special provisions have been made for Application of the Companies Act, 1956 to Government
Companies, viz., Definition of “Government Company” [section 617], Application of sections 224 to
233 to Government companies [section 619], Annual Reports on Government companies [section
619A], Provisions of section 619 to apply to certain companies in which not less than 51% of the
paid-up capital is held by one or more of specified Governments or Government companies or any
combination thereof [section 619B], Power to modify Act in relation to Government companies
[section 620].
Nidhi or Mutual Benefit Society [Section 620-A of the Companies Act, 1956]
The Companies Act, 1956 contains provisions as to modification of Act in its application to Nidhis and
Mutual Benefit Societies. Under 620-A, the Central Government has the power to modify Act in its
application to “Nidhi” or “Mutual Benefit Society”.
Act not Applicable to State Corporations, Universities, etc.
As per Article 246 of the Constitution of India the legislative powers are distributed between the Union
and the States. There are three Lists in the Seventh Schedule to the Constitution specifying the
subjects or topics of legislation.
List I—Union List comprises 97 items. These subjects are within the exclusive competence of the
Union Parliament. [Article 246(1)].
List II—State List contains 66 items over which the State Legislatures alone have the power to
legislate. [Article 246(3)].
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List III—Concurrent List contains 47 subjects in regard to which both the Union and the State can
legislate. [Article 246(2)].
Parliament has exclusive power to make law with respect to matters not enumerated in Concurrent or
State List. [Article 248(1)].
The Companies Act, 1956 (1 of 1956) has been enacted by the Parliament on matters contained in
Items 43 and 44 in List I—Union List, in the Seventh Schedule to the Constitution of India, which read
thus:
“43. Incorporation, regulation and winding up of trading corporations, including banking, insurance and financial
corporations but not including co-operative societies.
44. Incorporation, regulation and winding up of corporations, whether trading or not, with objects not confined to one
State, but not including universities.”
The 1956 Act, therefore, does not apply to corporations (other than trading corporations) whose
objects are confined to one State and universities; unincorporated trading, literary, scientific, religious
and other societies and associations; and co-operative societies as mentioned in Item 32 of the State
List in the Seventh Schedule to the Constitution of India.
As already stated a new Part IXA containing Chapters I to XII, sections 581A to 581ZT has been
inserted in the 1956 Act (1 of 1956) by the Companies (Amendment) Act, 2002 (1 of 2003) (w.e.f. 6-
2-2003) facilitating the formation of co-operative business as producer companies and to convert
existing business into companies on a voluntary basis.
[s 616] Application of Act to insurance, banking, electricity supply and other companies governed by special
Acts.—The provisions of this Act shall apply— The Companies Act, 1956 provision
(a) to insurance companies, except in so far as the said provisions are inconsistent with the provisions of the
Insurance Act, 1938 (4 of 1938);
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(b) to banking companies, except in so far as the said provisions are inconsistent with the provisions of the
Banking Companies Act, 1949 (10 of 1949);*
(c) to companies engaged in the generation or supply of electricity, except in so far as the said provisions are
inconsistent with the provisions of 35[the Indian Electricity Act, 1910 (9 of 1910), or] the Electricity Supply Act,
1948 (54 of 1948);**
(d) to any other company governed by any special Act for the time being in force, except in so far as the said
provisions are inconsistent with the provisions of such special Act;
36[(e) to such body corporate, incorporated by any Act for the time being in force, as the Central Government may, by
notification in the Official Gazette, specify in this behalf, subject to such exceptions, modifications or adaptations, as
may be specified in the notification.]
NOTES
Section 616 of the Companies Act, 1956 corresponds to section 1 of the

Companies Act, 1913 : Section 287
Legislative History
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on clauses explained this section as follows:
This clause incorporates the provision contained in s. 287 of the Indian Act. It makes it clear that insurance and other
companies which are governed by special Acts will continue to be governed by those Acts and that such companies
will be governed by the provisions of the Bill [the 1956 Act] in so far as those provisions are not inconsistent with those
contained in the special Acts governing those companies. [Clause 574 of the Companies Bill, 1953 (46 of 1953)].
THE COMPANIES (AMENDMENT) ACT, 1960 (65 OF 1960).—The Notes on clauses explained the amendments in
this section as follows:
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This is consequential on the amendment suggested in s. 211(5)(iii). [Clause 191 of the Companies (Amendment) Bill,
1959 (37 of 1959)].
THE COMPANIES (AMENDMENT) ACT, 1974 (41 OF 1974).—The Notes on clauses explained the reasons for
insertion of clause (e) as under:
It has come to the notice of the Government that there are a few associations or bodies corporate, incorporated under
special statutes which were enacted long ago, prior to the earliest of the Companies Act which preceded the present,
1956 Act. Such associations, etc., are outside the discipline of the various provisions of the 1956 Act, including the
requirement for filing annual returns and balance-sheets, with the Registrar of Companies. It is found that the
Government cannot take adequate action on complaints, against such bodies corporate as the old statutes do not
contain proper remedial provisions. To enable adequate action being taken in such cases under the law, suitable
amendment is proposed. [Clause 33 of the Companies (Amendment) Bill, 1972 (72 of 1972)].
See Statement of Objects and Reasons, Legislative History, Background and Applicability of the
Companies Act in Notes under section 1.
Analysis of the Provision
This provision corresponds exactly to sections 1(4)(b) through section 1(4)(f) of the 2013 Act.
The coverage of the application of both the 1956 and 2013 Acts are wide – namely, the provisions of
both statutes apply to any company incorporated under any previous company law; as well as to
insurance companies, banking companies and companies engaged in the generation or supply of
electricity except, in each case, insofar as the provisions of the concerned Act are not inconsistent
with the special or specific legislation or statute governing each of these types of entities. Indeed,
both the 1956 Act and the 2013 Act apply to each company governed by any special statute for the
time being in force, except insofar as the provisions of the concerned Act are inconsistent with the
provisions of such special legislation. Finally, the power of the Central Government is preserved by
enabling it to extend the application of the concerned Act to any such body corporate incorporated by
any statute in force for the time being, subject to such exceptions, modifications or adaptations as the
Central Government may, by notification, specify in that behalf.
Of course, the above discussion in the context of the 1956 Act is academic and moot as the
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provisions of the 2013 Act now apply to different types of companies as specified above.
Insurance Companies [Section 616(a) of the Companies Act, 1956]
The provisions of the Companies Act, 1956 (1 of 1956) apply to Insurance Companies. In case of
inconsistency or conflict between the provisions governing an Insurance Company and the provisions
of the 1956 Act (1 of 1956), the former, i.e., the provisions of the Insurance Act, 1938 (4 of 1938) will
prevail. Insurance Companies which have been Nationalised are governed by the respective Acts
nationalising them.
Balance Sheet—Insurance Company
Schedule VI to the 1956 Act will not be applicable to Insurance Company, or any other class of
company for which Forms of Balance sheet and Profit and loss account have been specified by any
other Law. [Proviso to sub-section (1) and (2) of section 211].
True and Fair View [Section 211(5) of the Companies Act, 1956]
Balance sheet and Profit and loss account shall not be treated as not disclosing a true and fair view
of the state of affairs of the company, if they do not disclose any matters which are not required to be
disclosed in the case of an Insurance Company by the Insurance Act, 1938 (4 of 1938).
Statutory Audit of Insurance Companies
Section 12 of the Insurance Act, 1938 (4 of 1938) provides that the financial statements of every
insurer are required to be audited annually by an Auditor unless they are subject to audit under the
1956 Act (1 of 1956).
Life Insurance Corporation
Section 25 of the Life Insurance Corporation Act, 1956 (31 of 1956), dealing with “Audit” is specific
about appointment of Auditors by the Corporation with the previous approval of the Central
Government.
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General Insurance Business
The General Insurance Business (Nationalisation) Act, 1972 (57 of 1972) has no specific mention
and hence section 619 of the companies Act, 1956 (1 of 1956) which prescribes appointment of
Statutory Auditors by the Comptroller and Auditor General of India (C&AG) becomes applicable.
Guidance Notes on Audit of Insurance Companies
The Institute of Chartered Accountants of India (ICAI) has issued “Guidance Note on Audit of
Companies Carrying on General Insurance Business” and “Guidance Note on Audit of Companies
Carrying on Life Insurance Business” to provide detailed guidance to the Chartered Accountants
relating to Special Features of Audit pertaining to General Insurance Companies and Life Insurance
Companies.
See also Technical Guide for Inspection of Investment Function of Insurance Companies, published
by the ICAI, First Edition, February 2005.
Private Insurance Companies
In the current scenario, with the Private Insurance Companies operating in the Insurance market, the
appointment of the Statutory Auditors has come within the ambit of powers and functions of the
Insurance Regulatory and Development Authority (IRDA).
[See Professional Opportunities for Members—An Appraisal, published by the ICAI, Fifth Edition,
2004 (Reprint 2007), pages 22–23].
Audit of Accounts of Insurance Companies
Relevant provisions on Audit of Insurance Companies are dealt with below:
Comptroller and Auditor General of India (CAG)
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“The accounts of Government Companies set up under the provisions of the 1956 Act (including
Government Insurance Companies and Companies deemed to be Government Companies as per
provisions of the Companies Act) are audited by the Comptroller and Auditor General of India (CAG)
under the provisions of section 619 of the 1956 Act. The accounts certified by the Statutory Auditors
(Chartered Accountants) appointed by the CAG under the 1956 Act are subject to supplementary or
test audit by the officers of the CAG and the CAG gives his comments or supplements the Report of
the Statutory Auditors. The 1956Act empowers the CAG to issue Directions to the Statutory Auditors
on the manner in which the Company’s accounts shall be audited.” [Extracts from Preface to Annual
Report of the Comptroller and Auditor General of India (CAG) 2006 : C&AG website
http://www.cag.nic.in or http://www.cag.gov.in].
Audit of General Insurance Companies
In terms of section 619(3)(a) of the Companies Act, 1956 the Comptroller and Auditor General of
India (C&AG) has the power to instruct the Auditors appointed under section 619(2) in regard to any
matter relating to the performance of his functions. The instructions/directions issued in this regard
were last revised in February 1993. A Working Group consisting of representatives of the Institute of
Chartered Accountants of India (ICAI), Senior officials of the General Insurance Corporation (GIC)
and the C&AG office was constituted to review the existing instructions applicable to Insurance
Companies.
The recommendations of the Working Group were accepted and revised Directions under section
619(3)(a) of the 1956 Act applicable to General Insurance Companies have been issued by the
C&AG. The Statutory Auditors are to follow the revised Directions with immediate effect.
Annexure A to the Directions consists of the items for which the information is required to be obtained
from the Management by the Auditors and submitted along with the Report. The General Insurance
Corporation in consultation with its Subsidiary Companies also decided that the Divisional Offices
should prepare a Balance Sheet instead of the present system of Trial Balance. A proforma devised
by General Insurance Corporation in this regard has been enclosed as Annexure B.
Directions of the Comptroller and Auditor General of India (C&AG) under section
619(3)(a) of the Companies Act, 1956 to Statutory Auditors of General Insurance Companies
Revised Directions of the Comptroller and Auditor General of India (C&AG) under section 619(3)(a)
of the 1956 Act applicable to General Insurance Companies are reproduced below.
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(I) System of Accounts
(1) Examine the following systems and give your views as regards their deficiencies along with suggestions for
remedial measures:
(a) Recording of receipts and expenditure.
(b) Drawing periodical trial balance.
(c) Compilation of accounts.
(d) Reconciliation of inter-office accounts.
(e) Reconciliation of registers/records relating to property, assets, investments, premiums, claims, loans,
etc., with financial books.
(f) Maintenance of up-to-date records in respect of assets which are pledged, encumbered or blocked in
any way.
(2) Are the bank accounts of the company reconciled with the bank statements regularly? If not, describe the
failures.
(3) Are control accounts and subsidiary accounts up-to-date and reconciled regularly? If not, describe the failures.
(4) Examine the accounting policies of the Company. Are these in conformity with the Accounting Standards
(National and in the absence of National Standards, the corresponding International Standards)? Give
particulars of material departures from these Standards, if any, along with their effect on the financial
statements; quantify the impact wherever possible.
(II) System of Financial Control
(1) Examine the delegation of financial powers and indicate whether these are clearly and legally made within the
company. If not, describe the defects in the delegation of powers and suggest remedial measures.
(2) Indicate whether the cash and imprest balances were physically verified during the year on a regular basis by
an authorised officer? Highlight the inadequacies in this regard, if any.
(3) Whether transfers of surplus funds are being made on a timely basis and whether these are being properly
monitored?
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(4) Examine whether the system of the company ensures adequate control over issue and custody of critical
items of stationery, e.g., cover notes, policy documents, receipts and acknowledgements relating to risk
accepted, etc? If not, describe the inadequacies.
(5) Give your comments on internal audit system stating whether its reporting status, scope of work, level of
competence, etc. are adequate? If not, describe the shortcomings thereof. Is there an adequate compliance
mechanism on internal audit observations?
(6) Indicate the serious lacunae in the system of internal control which have come to your notice during audit.
(III) Investments (Applicable only at HO)
(1) Indicate whether the Board of directors of the company has laid down an investment policy? If yes, please
indicate the following:
(a) Is the policy in accordance with the laws, rules and regulations applicable to the company?
(b) In your opinion, are there any defects in the policy?
(c) Has the company followed it in case of all material investments made during the year?
(d) Were the investments made by the company in its best interest?
(2) Does the company have adequate system of periodic physical verification of investments and reconciliation
thereof with books? Have the discrepancies been properly dealt with?
(3) Does the system of the company ensure proper recording of rights, entitlements and options on investments
held? Are adequate records maintained in support of exercise/non-exercise of such rights, etc.?
(4) Does the system of the company ensure recording of accrual of dividend, interest and other yields on
investments and for follow up of amounts accrued but not received?
(5) In the case of investments matured and income due but not received/collected, is satisfactory explanation
available for non-receipt/non-collection?
(IV) Loans (Applicable only at HO)
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(1) Indicate whether the Board of directors of the company has laid down a policy regarding granting of loans. If
yes, please indicate the following:
(a) Is the policy in accordance with the laws, rules and regulations applicable to the company?
(b) In your opinion, are there any defects in the policy?
(c) Has the company followed it in the case of all material loans made during the year?
(d) Were the loans made by the company in its best interest?
(e) Has adequate provision been made in the accounts in respect of bad and doubtful loans? If not,
describe the failures.
(f) Does the company have an effective system of identifying non-performing loans? Does the company
monitor such loans effectively?
(g) Has the company taken adequate steps against the defaulters during the year? If not, indicate
significant instances of failures.
(V) Revenue Accounts
(1) Does the company have an effective system to ensure that premiums for risks assumed/accepted during the
year for various classes of business are properly computed and accounted for?
(2) Is the system of collection of premium on policies issued adequate? If not, give instances of major violations of
relevant legal provisions and prescribed procedures.
(3) Have the norms for determining premium for non-tariff business been laid down by the company and are these
followed by divisions/branches booking the business?
(4) Have you come across instances of prohibited/declined risks having been accepted in excess of the delegated
authority?
(5) In respect of system relating to claims, comment on the following aspects, giving instances of significant
deviations/failures in each case:
(a) Are claims promptly recorded in the claims intimation register for each class of business? Is the
liability of the company ascertained/assessed expeditiously?
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(b) Are surveyors appointed and their preliminary/final survey reports obtained within a reasonable time?
(c) Is collection and accounting of salvage as well as its disposal expeditious?
(d) Are close proximity claims, i.e., claims within a short period after commencement of the risk,
identified? Are the procedures for processing of such claims effective?
(e) Are pending claims reviewed periodically and follow up action taken in appropriate cases?
(6) Does the system of the company ensure that claims are recorded net of co-insurance at the D.O./Branch and
net of re-insurance as per arrangement with other insurers at the Head Office?
(7) Is the system of monitoring the accepted or ceded business and accounting of premiums and claims in
connection therewith adequate? Indicate major defects.
(8) Are balances under accepted treaties periodically reconciled and action taken for outstanding recoveries?
(9) Does the system of the company ensure proper recording of incoming and outgoing co-insurance transactions
and periodic reconciliation of co-insurers’ balances?
(10) Does the system of the company ensure periodic reconciliation of ledger balances relating to premiums and
claims with the relevant figures as per the business and claims registers as communicated by divisions in the
underwriting returns for purpose of re-insurance?
(11) Were the re-insurance treaties entered into by the company in its best interest? Indicate cases of re-
insurance treaties which have resulted in heavy losses continuously.
(VI) Miscellaneous
(1) Are the (i) Premium deposit accounts, (ii) Bank guarantee account, (iii) Agent’s balances accounts, (iv)
Outstanding premium accounts, (v) Amount due to and from other persons/bodies carrying on insurance
business accounts, (vi) Treaty inwards and outwards control accounts, (vii) Sundry debtors and creditors
accounts including outstanding claims, regularly reviewed and pursued for clearance/adjustment? Have
confirmations been obtained of such outstanding accounts? In the case of credit balance including Premium
deposits, Sundry deposits and Agents’ balances, are appropriate premium adjustments made for risks
assumed, if any?
(2) Were there any special features in the year which have affected the results shown by the Profit and Loss
Account substantially? If so, give details.
(3) Are there any other significant matters which in your opinion deserve the attention of the Management?
ANNEXURE A
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(This information is factual and should be obtained from the management)
(1) Indicate the areas where the company has computerised the accounts system. Have the General and
Application controls been reviewed periodically to derive assurance that the system is producing results that
can be relied upon by the auditors? State the deficiencies reported by internal auditors/statutory auditors
along with the remedial measures being taken by the Management.
(2) Are the accounts of the company in arrears? If so, state the reasons therefore and the action taken/being
taken to bring the accounts up-to-date.
(3) Please note on operation of foreign branches/agencies with relevant details. In case of adverse results
remedial measures taken and results thereof should be described.
(4) What are non-performing investments? Please indicate the cost, book value and market value of such
investments.
(5) What is the average yield on investments in last three years?
(6) What percentage of loans was considered doubtful at the end of each of the three preceding years and the
absolute amount thereof?
(7) Give age-wise break-up of outstanding claims for each class of business (numbers and amount).
(8) List out top 30 claims (above Rs 5 lakhs each) provided/settled during the year (10 for each class of business).
(9) Have any cases of frauds/embezzlements/misappropriation come to light during the year? If so, give details.
Time Schedule for Submission of the Report under section 619(3)(a) of the
Companies Act, 1956 by the Auditors
The Report under section 619(3)(a) of the 1956 Act shall be prepared by the Statutory Auditors as well as by the
Branch Auditors.
Branch Auditors
The Branch Auditors shall prepare the Report within a period of two weeks from the date of signing their Audit Report
and send the same to:
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(a) The Statutory Auditors consolidating the accounts of the company.
(b) Office of the Principal Director of Commercial Audit and Ex-officio Member, Audit Board-I, Engineering Centre,
6th Floor, No. 9, Mathew Road, Mumbai-400 004 for Reports relating to General Insurance Corporation,
Oriental Insurance Company, New India Assurance Company and National Insurance Company together with
a copy to Resident Audit Officer of each of the Company located at Mumbai, New Delhi and Kolkata.
(c) Office of the Principal Director of Commercial Audit and Ex-officio Member, Audit Board, Indian Oil Bhavan,
139, Nungambakkam High Road, Chennai-600 034 for Reports relating to United India Insurance Company
together with a copy to Resident Audit Officer of the Company at Chennai.
(d) The Chairman-cum-Managing Director of the company.
Statutory Auditors
The Statutory Auditors shall prepare a consolidated Report under these Directions, taking into account the report of the
Branch Auditors wherever applicable, within a period of three weeks from the date of signing their Auditors’ Report and
send the same to:
(a) Chairman, Audit Board & Dy. Comptroller and Auditor General, 10, Bahadur Shah Zafar Marg, New Delhi-110
002.
(b) Office of the Principal Director of Commercial Audit and Ex-officio Member, Audit Board-I, Engineering Centre,
6th Floor, No. 9, Mathew Road, Mumbai-400 004 for Reports relating to General Insurance Corporation,
Oriental Insurance Company, New India Assurance Company and National Insurance Company together with
a copy to Resident Audit Officer of each of the Company located at Mumbai, New Delhi and Kolkata.
(c) Office of the Principal Director of Commercial Audit and Ex-officio Member, Audit Board, Indian Oil Bhavan,
139, Nungambakkam High Road, Chennai-600 034 for Reports relating to United India Insurance Company
together with a copy to Resident Audit Officer of the Company at Chennai.
(d) The Board of Directors of the company.
Where there is more than one Statutory Auditors, the Report under section 619(3)(a) of the 1956 Act will be prepared
jointly by all the Statutory Auditors and signed by all of them.
ANNEXURE B
[Proforma of Balance Sheet devised by General Insurance Corporation for Divisional

Offices (Not reproduced)]
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[See The Chartered Accountant, Journal of the Institute of Chartered Accountants of India (ICAI),
New Delhi, August 1996, pages 66–73. Reproduced in Guidance Note on Audit of Companies
Carrying on General Insurance Business, Issued by the ICAI, New Delhi, 2002, pages 181–190].
Auditor’s Report—Private Insurance Company
The provisions of the Insurance Regulatory and Development Authority (Preparation of Financial
Statements and Auditor’s Report of Insurance Companies) Regulations, 2002 are as follows:
Accounting principles and General Instructions
Schedules A and B to the IRDA (Preparation of Financial Statements and Auditor’s Report of
Insurance Companies) Regulations, 2002, inter alia, provide for:
Accounting principles for preparation of financial statements [Part I], Applicability of accounting
standards [Part I (1)], Disclosures forming part of financial statements [Part II], General instructions
for preparation of financial statements [Part III], Contents of management report [Part IV] of
Schedules A and B respectively.
Financial statements of Life Insurance Company
Preparation of financial statements [Part V] of Schedule A provides as follows:
(1) An insurer shall prepare the Revenue account [policyholders’ account], Profit and loss account
[shareholders’ account] and the Balance-sheet in Form A-RA, Form A-PL and Form A-BS, as
prescribed in Part V of Schedule A to the IRDA (Preparation of Financial Statements and Auditor’s
Report of Insurance Companies) Regulations, 2002, or as near thereto as the circumstances permit:
Provided that an insurer shall prepare Revenue account and Balance-sheet for the undermentioned
businesses separately and to that extent the application of AS 17 shall stand modified:
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(a) Participating policies and non-participating policies; (b) (i) Linked business [As defined in
Regulation 2(i) of the IRDA (Registration of Indian Insurance Companies) Regulations, 2000],
(ii) Non-linked business separately for Ordinary Life, General Annuity, Pensions and Health
Insurance; (c) Business within India and Business outside India.
(b) An insurer shall prepare separate Receipts and Payments Account in accordance with the
direct method prescribed in AS 3—”Cash Flow Statements” issued by the Institute of
Chartered Accountants of India (ICAI).
Financial statements of General Insurance Company
Preparation of financial statements [Part V] of Schedule B provides as follows:
(1) An insurer shall prepare the Revenue account, Profit and loss account [shareholders’ account]
and the Balance-sheet in Form B-RA, Form B-PL and Form B-BS, as prescribed in Pt V of Schedule
B to the IRDA (Preparation of Financial Statements and Auditor’s Report of Insurance Companies)
Regulations, 2002, or as near as circumstances permit:
Provided that an insurer shall prepare Revenue accounts separately for Fire, Marine, and
Miscellaneous Insurance business and separate Schedules shall be prepared for Marine Cargo,
Marine—other than marine cargo and the following classes of Miscellaneous Insurance business
under miscellaneous insurance and accordingly application of AS 17—Segment Reporting—shall
stand modified.
1. Motor; 2. Workmen’s compensation/employers’ liability; 3. Public/product liability;
4. Engineering; 5. Aviation; 6. Personal accident; 7. Health insurance; 8. Others.
(2) An insurer shall prepare separate Receipts and Payments Account in accordance with the direct
method prescribed in AS 3—”Cash Flow Statements” issued by the Institute of Chartered
Accountants of India (ICAI).
Auditor’s Report of Insurance Companies
The Report of the Auditors on the financial statements of every insurer and reinsurer shall deal with
the matters specified in Schedule C to the IRDA (Preparation of Financial Statements and Auditor’s
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Report of Insurance Companies) Regulations, 2002.
IRDA Revises Norms for Auditors
Insurance Regulatory and Development Authority (IRDA) has allowed non-life insurers to pick their
own Auditors instead of relying on its pool of Auditors, beginning April next year.
In a Circular, the IRDA said, due to various constraints, it would not keep a panel of Auditors and
instead prescribe the requirements to be satisfied by the Chartered Accountant firms for appointment
of Statutory Auditors.
Under the Revised Guidelines, the Regulator has spelt out certain criteria for the appointment of
Chartered Accountants to general insurers.
[See www.expressindia.com : Chartered Accountant, August 2005, page 322].
IRDA website [ www.irda.org ]
See also Insurance Regulatory and Development Authority (IRDA) website www.irda.org.
Winding up—Insurance Companies—Jurisdiction
There is a clear inconsistency between the Court having jurisdiction for winding up of a company
under the 1956 Act (1 of 1956) and the Insurance Act, 1938 (4 of 1938). Therefore, the Special
provision made in the Insurance Act, 1938 for jurisdiction of the court to order winding up of an
Insurance Company shall prevail over the general provisions made under the Companies Act, 1956.37
Insurance Companies—Winding up by Tribunal (NCLT)
The Companies (Second Amendment) Act, 2002 (11 of 2003), section 133 and Schedule, makes
amendment in certain provisions of the Insurance Act, 1938 (4 of 1938) specified in the Schedule to
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the Amendment Act which shall be amended in the manner specified therein.
The Notes on clauses appended to the Companies (Amendment) Bill, 2001 (80 of 2001) explained
the reasons for amendments as under:
This clause seeks to amend the enactment specified in the Schedule to the Bill. It is proposed to amend certain
sections in the Insurance Act, 1938, to provide that an Insurance Company shall be wound up by the Tribunal instead
of the High Court. This amendment is of consequential nature. [Clause 121 of the Companies (Amendment) Bill, 2001
(80 of 2001)].
See also Statement of Objects and Reasons and Legislative History in Notes under sections 1, 10FB
to 10GF and 425 to 560 of the Companies Act, 1956.
Powers and functions of the Tribunal (NCLT)
From the date of constitution of the National Company Law Tribunal (NCLT) under section 10FB of
the 1956 Act as inserted by the Companies (Second Amendment) Act, 2002 (11 of 2003) and
enforcement of the Companies (Second Amendment) Act, 2002 (11 of 2003) the powers, functions
and jurisdiction of the High Court under the Insurance Act, 1938 have been conferred on the Tribunal
(NCLT) (w.e.f. date to be notified).
Any person aggrieved by an order or decision of the Tribunal (NCLT) may prefer an appeal to the
National Company Law Appellate Tribunal (NCLAT) except consent orders [section 10FQ of the1956
Act]. Civil Court shall have no jurisdiction in such matters [section 10GB of the Companies Act, 1956].
The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to an appeal
made to the Appellate Tribunal [section 10GE of the Companies Act, 1956].
Person aggrieved may file an appeal to the Supreme Court on any question of law arising out of
decision or order of the Appellate Tribunal [section 10GF of the Companies Act, 1956].
Insurance Companies—Role for Chartered Accountants
As per the Institute of Chartered Accountants of India [Insurance Portal of ICAI website] the
Chartered Accountants have engaged themselves in Audit of Insurance Companies since long. With
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the transition in the Insurance Sector, the horizons for their contribution have broadened. There has,
emerged a king-size pool of opportunities that the Chartered Accountants can explore and apply their
professional wisdom and experience to.
The structure of an insurance company, generally, comprises the Operating Department,

Administrative Department and the Finance Department.
The Operating Department generally performs the basic functions pertaining to the designing of
products, marketing thereof, servicing the insured, management of portfolio, etc. The Administrative
Department looks after the day to day affairs of the company. The Finance Department backs the
operations and administration of the company by accounting for the transactions, streamlining the
flow of funds, materializing the management decisions, etc.
The Administration Department as well as the Finance Department, usually, functions through in-
house setup. The Finance Department functions in the areas of accounting, financial and
management reporting, budgeting and controlling, etc. and thus renders enormous scope for finance
professionals.
See Introduction, Role for Chartered Accountants, Chartered Accountants as an Insurance Agent,
Chartered Accountant as a Surveyor and Loss Assessor, etc., on the Institute of Chartered
Accountants of India (ICAI) website http://www.icai.org at URL
http://www.icai.org/icairoot/resources/insurance.jsp.
Banking Companies [Section 616(b) of the Companies Act 1956]
The provisions of the Companies Act, 1956 will apply to Banking Companies. But if provisions of any
Act governing Banking Companies are in conflict with the provisions of the 1956 Act, the former, i.e.,
the Banking Regulation Act, 1949 (10 of 1949) will prevail.
Nationalised Banks
So far as Nationalised Banks are concerned they are governed by the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980) and the Banking Regulation Act,
1949.
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Balance Sheet—Banking Company
Schedule VI to the Companies Act, 1956 will not be applicable to Banking Company, or any other
class of company for which Forms of Balance sheet and Profit and loss account have been specified
by any other Law. [Proviso to sub-s. (1) and (2) of section 211]
disclosed in case of a Banking Company by the Banking Regulation Act, 1949 (10 of 1949).
See detailed Notes under section 211 of the Companies Act, 1956. See also Certain Companies to
publish Statement in the Form in Table F in Schedule I [section 223 of the 1956 Act].
Banking Company.—Form and Content of Financial Statements
Relevant Paras 3.02 to 3.05 of the Guidance Note on Audit of Banks issued by the Institute of
Chartered Accountants of India (ICAI) summarise the position as follows:
3.02 Sub-s. (1) and (2) of s. 29 of the Banking Regulation Act, 1949 (10 of 1949), deal with Form and Content of
Financial Statements of a Banking Company and their signing. These sub-sections are also applicable to Nationalised
Banks, State Bank of India, Subsidiaries of the SBI, and Regional Rural Banks.
3.03 Sub-s. (1) of s. 29 requires every Banking Company to prepare a Balance sheet and a Profit and loss account in
the Forms set out in the Third Schedule to the Banking Regulation Act, 1949 (10 of 1949) or as near thereto as the
circumstances admit. These financial statements have to be prepared as on the last working day of each financial year
(i.e., 31st March) in respect of all business transacted during the year. A Foreign Banking Company (i.e., a Banking
Company incorporated outside India and having a place of business in India) has to similarly prepare a Balance sheet
and a Profit and loss account every year in respect of all business transacted through its branches in India.
3.04 Form A of the Third Schedule to the Banking Regulation Act, 1949, contains the form of Balance sheet and Form
B contains the form of Profit and loss account.
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3.05 The Balance sheet as well as the Profit and loss account are required to be presented in a Vertical Form.
[Extracts from the Guidance Note on Audit of Banks, published by the Institute of Chartered Accountants of India
(ICAI), Third Edition, 2005, paras 3.02 to 3.05, page 29 : Fourth Edition, 2006].
Form of Balance Sheet of Banking Company
Form A of the Third Schedule to the Banking Regulation Act, 1949 requires detailed information in
Balance Sheet, viz., Capital and Liabilities [Schedules 1 to 5] and Assets [Schedules 6 to 12].
Profit and loss account of Banking Company
Form B of the Third Schedule to the Banking Regulation Act, 1949 requires detailed information in
Profit and loss account, viz., Income [Schedules 13 and 14] and Expenditure [Schedules 15 and 16].
See Third Schedule to the Banking Regulation Act, 1949 (10 of 1949): Guidance Note on Audit of
Banks, published by the Institute of Chartered Accountants of India (ICAI), Third Edition, 2005,
Appendix 2, pages 529 to 538.
See Guidance Note on Audit of Banks, published by the ICAI, Fourth Edition, 2006.
Report of Auditors of Banking Company
Report of the Auditors of a Banking Company, inter alia, requires the Auditors to state:
The Balance Sheet and the Profit and Loss Account have been drawn up in accordance with the provisions of Section
29 of the Banking Regulation Act, 1949 read with s. 211 of the 1956 Act. [Guidance Note on Audit of Banks, ICAI, Third
Edition, 2005, Appendix 8, page 643].
See detailed Notes on Auditors’ Report of a Banking Company and Bank Branches under sections
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227 and 228 of the Companies Act, 1956 in this book.
Notes and Instructions for compilation issued by RBI
Notes and Instructions for compilation of Balance sheet and Profit and loss account of Banking
Companies issued by the Reserve Bank of India have been reproduced in Guidance Note on Audit of
Banks, ICAI, Third Edition, 2005, Appendix 4, page 600.
See Guidance Note on Audit of Banks, published by the ICAI, Fourth Edition, 2006.
RBI Circulars
See Reserve Bank of India (RBI) Circulars, eg, Guidelines on compliance with Accounting Standards
(AS) by Banks Guidelines on compliance with Accounting Standard (AS) 11 (Revised 2003) ‘The
Effects of Changes in Foreign Exchange Rates’, etc., reproduced from Guidance Note on Audit of
Banks, published by the Institute of Chartered Accountants of India (ICAI), Third Edition, 2005 in
Notes under section 211 of the Companies Act, 1956 in this Book.
Accounting Practices
See detailed Notes and Lists of Accounting Standards (AS), Accounting Standards Interpretations
(ASI), Guidance Notes on Accounting, Authority Attached to Documents Issued by the Institute of
Chartered Accountants of India (ICAI), etc., under section 211 of the Companies Act, 1956.
Companies (Accounting Standards) Rules, 2006
In exercise of the powers conferred by section 642(1)(a) read with section 211(3C) and section
210A(1) of the 1956 Act (1 of 1956), the Central Government, in consultation with National Advisory
Committee on Accounting Standards has made the Companies (Accounting Standards) Rules, 2006†
(w.e.f. 7-12-2006) vide Notification No. G.S.R. 739(E), dt. 7-12-2006, published in the Gazette of
India, Extraordinary, No. 582, Pt II, section 3(i), page 217 : (2007) 135 COMP CASES (St.) 73.
See detailed Notes under sections 210A and 211(3C) of the Companies Act, 1956.
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GAAP on Banking
See Comparative Study of Indian, International and US GAAP on Banking earlier and GAAP for
Financial Services Sector below.
Banks and Financial Institutions
Accounting and Financial Reporting Standards and Pronouncements under the Indian GAAP (AS),
Guidance Notes, etc., of the ICAI, the International GAAP (IAS/IFRS) of the IASB, the English GAAP
(FRS) of ICAEW and the US GAAP (FAS) of the FASB, etc., are as follows:
Indian GAAP
AS Under Preparation.
At present covered by the Banking Regulation Act, 1949 (10 of 1949) and certain Norms prescribed
by the Reserve Bank of India (RBI) as explained above.
International GAAP
Disclosures in the Financial Statements of Banks and Similar Financial Institutions [IAS 30].
US GAAP
Banks and Bank Holding Companies [FRR 401].
See detailed Notes and Lists under section 211(3C) of the Companies Act, 1956.
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US GAAP for Financial Services Sector
List of US GAAP, viz., Financial Reporting Release (FRR) for Financial Service Sector is given below:
FRR 401 Banks and Bank Holding Companies.
FRR 402 Broker-Dealers.
FRR 403 Insurance Companies.
FRR 404 Registered Investment Companies.
[FASB website www.fasb.org : ICAI publication A Comparative Study of Accounting Standards—

Indian GAAP, IAS [now IFRS] and US GAAP, the Institute of Chartered Accountants of India, August
2001, Chapter 9, page 279].
See detailed Notes and Lists under section 211(3C) of the Companies Act, 1956.
Statutory Audit of Public Sector Banks
Banks and their Branches utilize the services of Chartered Accountants for their Statutory Audit.
In order to assist its Members and the Bank Authorities, the Institute of Chartered Accountants of
India (ICAI) prepares a panel of Auditors every year for Statutory Audits of Branches of Public Sector
Banks/Central and Branch Audit of Regional Rural Banks, which is maintained by the Reserve Bank
of India (RBI).
RBI appoints Auditors of Branches of Public Sector Banks including State Bank of India, and
Statutory Central Auditors and Branch Auditors of Regional Rural Banks.
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The entire panel for Bank Branch Auditors from the year 2003–2004 onwards has been hosted on the
website of the Institute of Chartered Accountants of India (ICAI) [http://www.icai.org] and
Members/Firms can see their empanelment position on the Institute’s website by entering their
Unique Code Number.
The Council of the Institute at its 235th Meeting held from 21st to 24th July, 2003 considered the
recommendations of the Professional Development Committee and decided to change the procedure
for making applications for the empanelment of the Auditors for (i) Statutory Audit of Branches of 27
Public Sector Banks (ii) Statutory Central and Branch Audit of Regional Rural Banks (RRBs) and (iii)
other authorities from the year 2004–2005 onwards.
In view of this, the applications are invited on-line at the Institute’s website [http://www.icai.org] from
the year 2004–2005 onwards.
2004 (Reprint 2007), pages 20 to 22].
RBI letter No. DBS.ARS.No.393/08.91.008/2003-04, dt. 8-12-2003 regarding Implementation of

revised Empanelment norms for appointment of Statutory Auditors (both Central and Branch) of
Public Sector Banks, select all India Financial Institutions and RBI has been published as Annexure
“B” to this ICAI publication.
2004, pages 153 to 160].
Multipurpose Empanelment Form (MEF)
In the year 2005 the usual Bank Empanelment Form has been expanded in scope to make it a
Multipurpose Empanelment Form (MEF). [See Chartered Accountant, Journal of the ICAI, June 2005,
page 1755 : ICAI website http://www.icai.org].
See also List of Firms Included in the panel of Statutory Central Auditors of Public Sector Banks
(PSBs) for 2007–2008 on the Comptroller and Auditor-General of India (C&AG) website
http://www.cag.gov.in or http://www.cag.nic.in.
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See Multipurpose Empanelment Form (MEF) for 2007–08 on the Institute of Chartered Accountants
of India (ICAI) website http://www.icai.org.
See also Updating of data for Empanelment of CA firms for the year 2008–09 empanelled with the
Comptroller and Auditor-General of India (C&AG) office for the year 2007–08 for appointment as
Auditors of Government Companies/Corporations. [See Chartered Accountant, January 2008, page
1166 : Office of Comptroller and Auditor General of India (C&AG) website : http://www.cag.gov.in].
See detailed Notes under sections 224, 227 and 619 of the 1956 Act.
Audit of Banks and Banking Companies
Guidance Note on Audit of Banks issued by the Institute of Chartered Accountants of India (ICAI)
summarises the position on provisions of Audit of Nationalised Banks and Banking Companies:
Audit of Accounts
3.31 Sub-s. (1) of s. 30 of the Banking Regulation Act, 1949 (10 of 1949) requires that the Balance sheet and Profit
and loss account of a Banking Company should be audited by a person duly qualified under any law for the time being
in force to be an Auditor of companies. Similar provisions are contained in the enactments governing Nationalised
Banks [s. 10 of the Banking Companies (Acquisition and Transfer of Undertakings) Act of 1970/1980], State Bank of
India [s. 41 of the State Bank of India Act, 1955], subsidiaries of State Bank of India [s. 41 of the State Bank of India
(Subsidiary Banks) Act, 1959] and Regional Rural Banks [s. 19 of the Regional Rural Banks Act, 1976]. It is important
to note that Section 41 of the State Bank of India Act, 1955, specifically provides that the affairs of the bank shall be
audited by ‘two or more auditors’. [Guidance Note on Audit of Banks, published by the Institute of Chartered
Accountants of India (ICAI), Third Edition, 2005, para 3.31, page 36].
See “Guidance Note on Audit of Banks”, published by the Institute of Chartered Accountants of India
(ICAI), Fourth Edition, 2006 for details relating to Special Features of Audit pertaining to Banks and
Banking Companies.
Appointment and Remuneration of Auditors
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See Relevant paragraphs, viz., Nationalised Banks [paras 2.19 to 2.24], Appointment and
Remuneration of Auditors of a Banking Company, Nationalised Banks, State Bank of India and
Regional Rural Banks [paras 3.39 to 3.41] of the Guidance Note on Audit of Banks, issued by the
ICAI, Fourth Edition, 2006, in Notes under section 224A of the Companies Act, 1956.
Auditing Practices
See detailed Notes on Powers and Duties of Auditors and Auditing Practices under section 227 of the
NBFCs (Reserve Bank) Directions
See detailed Notes and List of the Reserve Bank of India Act, 1934 (2 of 1934), RBI Directions and
Guidelines, including inter alia, the Non-Banking Financial Companies Prudential Norms (Reserve
Bank) Directions, 1998, the Non-Banking Financial Companies Auditor’s Report (Reserve Bank)
Directions, 1998, RBI Guidelines for Asset-Liability Management (ALM) System in Non-Banking
Financial Companies (NBFCs), RBI Circulars and Master Circulars for NBFCs, MNBCs and RNBCs,
etc., under section 58A of the Companies Act, 1956 in this Book.
RBI website [ www.rbi.org.in ]
See RBI Act, RBI Directions etc. in Appendices. See also the Reserve Bank of India (RBI) website at
http://www.rbi.org.in.
Banking Companies—Jurisdiction of Civil Court to try Suit
Civil actions are cognizable by a Civil Court under section 9 of the Code of Civil Procedure, 1908 (5
of 1908), unless the jurisdiction of the Civil Court is expressly or by necessary implication barred.
Ouster of jurisdiction of a Civil Court ought not to be lightly inferred. Section 45B of the Banking
Regulation Act, 1949 (10 of 1949) confers exclusive jurisdiction on the High Court in respect of
matters relating to winding up of Banking Companies. Section 616(b) of the 1956 Act (1 of 1956)
provides that the provisions of the Act shall apply to Banking Companies in so far as they are not
inconsistent with those of the Banking Regulation Act, 1949. Section 45A of the Banking Regulation
Act, 1949 overrides the provisions of any law which is repugnant. A suit for recovery of money due
from a shareholder of a Banking Company does not relate to the winding up of the company and,
therefore, the Civil Court has the jurisdiction to entertain the Suit.38
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See also Notes under sections 10, 425, 433 and 439 of the Companies Act, 1956.
Transfer of Shares by a Banking Company
The 1956 Act has made a distinction between a “banking company” and a “body corporate”. As
section 108B of the 1956 Act provides for prohibition or restriction on the transfer of shares by a body
corporate and not by a banking company, the provisions of section 108B would not be applicable to
the Transfer by a Banking Company. A close reading of the various provisions of section 108B with
its sub-sections will indicate that the object of this section is to see that the stability and the identity of
the company is maintained without any interference by parties with monopolistic tendencies or
propensities. Obviously, the Banking Company in this case, which was a Scheduled Bank under the
control of the Reserve Bank of India, could not be expected to have such a motive. Even if section
108B of the 1956 Act could be held to be attracted, the section would be repugnant to section 6(1)(f),
(g) and (n) of the Banking Regulation Act, 1949 (10 of 1949). The provisions of the Banking
Regulation Act, 1949 would prevail in view of section 616(b) of the 1956 Act.39
See also Notes under sections 2(5), 2(7) and 108B of the 1956 Act.
Banking Company—Winding up
A Banking Company can be wound up only under the Banking Regulation Act, 1949 (10 of 1949) and
not under section 433(f) of the 1956 Act. Application under sections 397, 398 and 433(f) is not
maintainable in the case of winding up of Banking Company.40
See also Notes under sections 397, 398, 433(f) and 439 of the Companies Act, 1956.
Electricity Companies [Section 616(c) of the Companies Act, 1956]
The provisions of the 1956 Act (1 of 1956) will apply to Companies engaged in the generation or
supply of Electricity unless those are inconsistent with the provisions of the Indian Electricity Act,
1910 (10 of 1949) or the Electricity Supply Act, 1948 (54 of 1948).
The Electricity Act, 2003 (36 of 2003)
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The Indian Electricity Act, 1910 (9 of 1910), the Electricity (Supply) Act, 1948 (54 of 1948) and the
Electricity Regulatory Commissions Act, 1998 (14 of 1998) have now been repealed and replaced by
the Electricity Act, 2003 (36 of 2003), section 185 (w.e.f. 10-6-2003).
Repeal and Saving [Section 185 of the Electricity Act, 2003]
Sections 12 to 18 of the Indian Electricity Act, 1910 and Rules made there under shall have effect
until the Rules under sections 67 to 69 of the Electricity Act, 2003 are made.
The Indian Electricity Rules, 1956 made under section 37 of the Indian Electricity Act, 1910 as it
stood before such repeal shall continue to be in force till the Regulations under section 53 of the
Electricity Act, 2003 are made.
All Rules made under section 69(1) of the Electricity (Supply) Act, 1948 shall continue to have effect
until such Rules are rescinded or modified.
Balance Sheet—Electricity Company
Schedule VI to the 1956 Act will not be applicable to Electricity Company, or any other class of
company for which Forms of Balance sheet and Profit and loss account have been specified by any
other Law. [Proviso to sub-section (1) and (2) of section 211 of the Companies Act, 1956].
disclosed in case of a company engaged in the generation or supply of Electricity, by the Indian
Electricity Act, 1910 (9 of 1910) and the Electricity (Supply) Act, 1948 (54 of 1948) [Both these Acts
have now been repealed and replaced by the Electricity Act, 2003 (36 of 2003), section 185 (w.e.f.
10-06-2003)].
See detailed Notes under section 211 and Schedule VI of the Companies Act, 1956.
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Form of Balance-sheet
Earlier, the Form of Balance-sheet for Electricity Companies, eg, Company engaged in the
generation and/or supply of Electricity has been specified in the Indian Electricity Rules, 1956 framed
under section 37 of the Indian Electricity Act, 1910 (9 of 1910).
Now see sections 16, 53, 67 to 69, 74, 75, 100, 104, 149, 175 to 182 and 185, etc., of the Electricity
Act, 2003 (36 of 2003) and relevant Rules and Regulations made under the Electricity Act, 2003 (36
of 2003).
Filing by Electricity Company [Section 220 of Companies Act, 1956]
As per Department’s views [Reproduced in Notes under Proviso to sub-section (1) and (2) of section
211 of the 1956 Act] it would be sufficient compliance of provisions of section 220 of the Companies
Act, 1956, if such an Electricity Company files with the Registrar of Companies (ROC) the copies of
Balance-sheet and other Accounts it is required to draw up under the Indian Electricity Rules.
Companies Exempted from Schedule VI
As per section 211(1) and (2), proviso, Schedule VI to the Companies Act, 1956 will not be applicable
to:
(1) any Company engaged in the generation or supply of Electricity, or
(2) an Insurance Company, or
(3) Banking Company, or
(4) any Other Class of Company,
for which the Forms of Balance sheet and Profit and loss account have been specified by any other
Law, i.e., Special Acts or Statutes governing such Companies.
See detailed Notes and Department’s views under “Companies Exempted” [Proviso to sub-section
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(1) and (2) of section 211] of the 1956 Act.
Filing of Balance Sheet [Section 220 of the Companies Act, 1956]
Such Companies may, therefore, file with the Registrar of Companies (ROC) the copies of Balance-
sheet and other Accounts drawn up under the Special Acts and Rules governing those Companies.
See detailed Notes, Form and Procedure under Three copies of Balance sheet, etc., to be filed with
Registrar (ROC) [section 220] of the 1956 Act.
Company governed by any Special Act [Section 616(d) of the Companies Act,
1956]
The provisions of the 1956 Act will apply to any other company governed by any Special Act for the
time being in force, except in so far as the said provisions are inconsistent with the provisions of such
Special Act.
Other Bodies Corporate [Section 616(e) of the Companies Act, 1956]
Under clause (e) of section 616 of the Companies Act, 1956, the Government or the Registrar of
Companies (ROC) will be in a position to take adequate action against the Associations or Bodies
Corporate incorporated under Special Statutes prior to the 1956 Act.
These Associations and Bodies were outside the scope of the 1956 Act or major portions thereof and
were not required to file any Annual Returns or Balance-sheets with the Registrar of Companies
(ROC) and the Government could not take adequate steps against them even on complaint made
against these Associations or Bodies Corporate.
This clause [section 616(e) of the 1956 Act] provides that such Associations and Bodies Corporate
will also be governed by the 1956 Act with such exceptions, modifications or adaptations as may be
specified by Notification.
Until such Notification is made or issued under section 616(e) of the 1956 Act such companies
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remain outside the scope of this Act.
Applicability of the Companies Act, 1956
See detailed Notes on the Applicability of the Companies Act, 1956 (1 of 1956) to various Kinds of
Companies, Legislative History and Background under sections 1 and 3.
The Indian Companies Act, 1913
In the aforesaid Special Acts references to sections of the Indian Companies Act, 1913 (7 of 1913)
should be read as references to the corresponding provisions of the Companies Act, 1956 (1 of
1956).
Application of Act to Government Companies
[s 617] Definition of “Government Company”.—For the purposes of 41[this Act], Government

company means any company in which not less than fifty-one per cent. of the 42[paid-up share
capital] is held by the Central Government, or by any State Government or Governments, or partly by
the Central Government and partly by one or more State Governments 43[and includes a company
which is a subsidiary of a Government company as thus defined]. The Companies Act, 1956
provision
NOTES
Section 617 of the Companies Act, 1956 corresponds to section 1 of the Companies
Act, 2013.
Legislative History
THE COMPANIES ACT, 1956 (1 OF 1956).—See Legislative History, Background and Applicability of the Act in
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Notes under section 1.
THE COMPANIES (AMENDMENT) ACT, 1960 (65 OF 1960).—The amendments have been made on the
recommendations of the Companies Act Amendment Committee under the chairmanship of Shri A.V.
Visvanatha Sastri with a view to remove defects and deficiencies and ensure better fulfilment of the
purposes underlying the Act.
See Statement of Objects and Reasons appended to the Bills and Legislative History in Notes under
section 1.
Analysis of the Provision
This section of the 1956 Act corresponds exactly to section 2(45) of the 2013 Act. For an analysis of
this provision see section 2(45).
Government Company [Section 617 of the Companies Act, 1956]
For the purposes of the 1956 Act (1 of 1956) a Government Company means a company in which the
Government (Central Government or State Government or both of them together) holds 51% or more
of the paid-up share capital in a company.
Subsidiary of Government Company
A Subsidiary to such a Government Company shall also be a Government Company.
Government Company [Section 2(18) of the Companies Act, 1956]
Government Company means a Government company within the meaning of section 617 of the 1956
Act.
Government Company [Sections 617–620 of the Companies Act, 1956]
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Special provisions have been made for Application of the 1956 Act to Government Companies, viz.:
Definition of “Government Company” [section 617], Application of sections 224 to 233 to Government
Companies [section 619], Annual Reports on Government companies [section 619A], Provisions of
section 619 to apply to certain companies in which not less than 51% of the paid-up capital is held by
one or more of specified Governments or Government Companies or any combination thereof
(Deemed Government Companies) [Section 619B], Power to modify Act in relation to Government
Companies [section 620] of the 1956 Act.
See detailed Notes under sections 2(18) and 617 to 620 of the Companies Act, 1956.
Government Company a separate legal entity
A Government Company is a separate legal entity, it is not an Agent or Department of the

Government, and for prosecution of its employees or acquisition of land for its use no prior sanction
of the Central Government is necessary.44
FCI is a Company
Corporation created by Statute is not a Department of the Government. The Food Corporation of
India (FCI) constituted under the Food Corporation Act, 1964 (37 of 1964) is a Company. For the
acquisition of property for the Corporation (FCI) the provisions of the Land Acquisition Act, 1894 (1 of
1894) have to be complied with. Where the provisions of P VII of the Land Acquisition Act, 1894 were
not complied with, the acquisition would be invalid.45
Audit of Government Companies [Sections 619 and 224 to 233 of the Companies
Act, 1956]
See detailed Notes on the Audit of Government Companies under section 619 read with sections 224
to 233 of the, 1956 Act.
Auditor of Government Company [Section 619(2) of the Companies Act, 1956]
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The Auditor of a Government Company is to be appointed or re-appointed by the Comptroller and

Auditor-General of India (CAG).
Earlier, the Auditor of a Government Company was appointed by the Central Government on the
advice of the Comptroller and Auditor-General of India (CAG). The words “the Central Government
on the advice of” have been omitted by the Companies (Amendment) Act, 2000 (53 of 2000), section
220 (w.e.f. 13-12-2000).
See detailed Notes on Application of sections 224 to 233 of the Companies Act, 1956 to Government
Companies under section 619.
Annual Report of Government Company [Section 619A of the Companies Act,

1956]
Where in a Government Company, the Central Government is a Member, it shall cause an Annual
Report on the working and affairs of the company to be prepared and laid before both Houses of
Parliament together with Audit Report.
At the Annual General Meeting (AGM), the Audit Report and Notes of the Comptroller and Auditor-
General of India (CAG) are placed. Within 3 months thereof the Annual Report has to be prepared.
Certain provisions of Act not to apply [Section 620 of the Companies Act, 1956]
The Central Government may specify by Notification that certain provisions of the Act will not apply or
will apply with Exceptions, Modifications and Adaptations.
See Notifications in Notes under section 620. Relevant Extracts have also been annotated under
respective sections in the Notes.
Government Company—Disinvestment of Government Company—Audit of

Government Company [Sections 617, 619 and 224 to 233 of the Companies Act, 1956]
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In writ petitions filed in public interest calling in question the decision of the Government to sell
majority of shares in Hindustan Petroleum Corporation Ltd. (HPCL) and Bharat Petroleum
Corporation Ltd. (BPCL) to private parties without Parliamentary approval or sanction as being
contrary to and violative of the provisions of the ESSO (Acquisition of Undertaking in India) Act, 1974
(4 of 1974), the Burmah Shell (Acquisition of Undertaking in India) Act, 1976 (2 of 1976), and the
Caltex [Acquisition of Shares of Caltex Oil Refining (India) Limited and of the Undertakings in India of
Caltex (India) Limited] Act, 1977 (17 of 1977). It was held that although the two companies, viz.,
HPCL and BPCL, were Government Companies and being instrumentalities of the State, they could
enter into contracts among other things, this power was circumscribed by any Statute either
expressly or by necessary implication. In order to interpret the enactments in question it was
necessary to look to the Preamble to the Act. The Preamble to the Act clearly stated that acquisition
was done “in order to ensure that the ownership and control of petroleum products, distributed and
marketed in India by the said company are vested in the State and thereby so distributed as best to
subserve the common good”. The Preamble though does not control the Statute, is an admissible aid
to construction. What was contemplated under section 7 of the Acquiring Acts was only a
Government Company and no other. Therefore, sales of shares of these companies, though
uninhibited, could not be to such an extent that the substratum of the character of the Government
Companies was allowed to be lost and converted into an ordinary company without being approved
by the general body of shareholders and, in this case, the Government. The Government, in turn,
was subject to the statutory limitations. Here what was required to be seen was, not which asset
could be transferred or not, but whether the undertaking could change its character from a
Government Company to an ordinary company without Parliamentary clearance in the light of the
Statute of acquisition. The debate as to whether a privatisation law is necessary has been going on
all-over the world. After having an overview of the position the world-over on whether there was any
need for law regarding privatisation or what routes are to be adopted for achieving the same.
Irrespective of those considerations, the Supreme Court based its decision on the Statutes with which
it was concerned. Distinguishing and observing that, in the case of Balco, executive action to
disinvest was not challenged probably due to the fact that there was no statutory backing of the
nature with which the Supreme Court was concerned in the present case. In the case of Maruti
Udyog Limited though acquired under an enactment, there was no challenge to the same to disinvest
merely by executive action and these cases stood on a different footing. The Supreme Court
observed that there was no challenge before the Supreme Court as to the Policy of Disinvestment.
The only question raised was whether the method adopted by the Government in exercising its
executive powers to disinvest HPCL and BPCL without repealing or amending the law was
permissible or not. The Supreme Court held that on the language of the Act such a course was not
permissible at all. The disinvestment in HPCL and BPCL could result in the State losing control over
their assets and oil distribution business and, therefore, it was contrary to the object of the
enactments. If disinvestment takes place and the company ceases to be a Government Company as
defined under section 617 of the 1956 to say that it is still a Government Company as contemplated
under section 7 of the Acquiring Acts will be a fallacy. Section 2(18) of the Companies Act, 1956
defines a “Government company” to mean “a company as defined in section 617 of the Companies
Act, 1956”. Section 617 of the 1956 Act, provides that a Government Company means “any company
in which not less than 51%. of the paid up share capital is held by the Central Government or by any
State Government or Governments, or partly by the Central Government and partly by one or more
State Governments and includes a company which is a subsidiary of a Government. In relation to a
Government Company sections 224 to 233 of the 1956 Act are substituted and the audit of the
Government Company takes place under the supervision and control of the Comptroller and Auditor
General of India (C&AG) who shall give effect to section 224(1B) and (1C) of the 1956. The Auditors
shall submit a Report to the Comptroller and Auditor General of India and even when audit takes
place, subject to his instructions. The Comptroller and Auditor General of India may also conduct
Supplementary Audit and a Test Audit. Under section 19(1) of the Comptroller and Auditor General’s
(Duties, Powers and Conduct of Service) Act, 1971 (56 of 1971), Audit of Government Companies is
to be conducted by him in terms of the Companies Act. Annual Reports on the working of affairs of
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the company are laid before Parliament under section 619(1)(b) of the 1956 Act. Such control will be
lost if a company ceases to be a Government Company. In the result, the writ petitions were allowed
restraining the Central Government from proceeding with disinvestment resulting in HPCL and BPCL
ceasing to be Government Companies without appropriately amending the Statutes concerned
suitably.46
See detailed Notes on Application of sections 224 to 233 of the Companies Act, 1956 to Government
Policy of Disinvestment—Government Company—Public Interest Litigation (PIL)

challenging the Transfer of Shares
Policy of Disinvestment to transfer 51% shares of the Government Company cannot be questioned in
a Public Interest Litigation (PIL) challenging the transfer of shares. Policy of Disinvestment cannot be
questioned unless illegality or mala fides are shown. Valuation of shares is a question of fact. The
Public Interest Litigation (PIL) is not a pill or a panacea for all wrongs. It is essentially meant to
protect violation of Article 21 or basic human rights of the weak and the disadvantaged who on
account of poverty, helplessness or economic and social disabilities cannot approach the Court for
relief. In view of increasing instances of abuse of Public Interest Litigation (PIL) in recent times, the
Supreme Court has in this decision recapitulated and re-emphasized the parameters within which PIL
can be resorted to by a petitioner and entertained by the Court. It is the legal rights which are secured
by the Courts. However, Public Interest Litigation (PIL) is not meant to be a weapon to challenge the
financial or economic decisions which are taken by the Government in exercise of their administrative
power. No doubt a person personally aggrieved by any such decision, which he regards as illegal,
can impugn the same in a Court of law, but, a Public Interest Litigation (PIL) at the behest of a
stranger ought not to be entertained. The decision to disinvest and the implementation thereof is
purely an administrative decision relating to the economic policy of the State and challenge to the
same at the instance of a busy body cannot fall within the parameters of Public Interest Litigation
(PIL). The writ petition was therefore declined.47
Disinvestment of Government Companies—Disinvestment Policy—Department of

Disinvestment
See detailed Notes on Disinvestment of Government Companies or Public Sector Undertakings

(PSUs) and Government of India, Ministry of Finance, Department of Disinvestment (Vinivesh
Vibhag) websitehttp://www. divest.nic.in or http://www.divest.gov.in under section 619 of the
Scheme of Arrangement—Demerger—Government Company—Policy of

Disinvestment
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The Scheme of Demerger in a Government Company was opposed by the Workers. It was held that
the Policy of Disinvestment by a Government Company cannot be questioned in a Court [the Tribunal
(NCLT)]. In such application the workers need not be heard nor their prior consent is required.
Moreover, the interests of workmen were safeguarded. The Scheme provided that from the date of
closing of the company for one year the interests of the workmen would be protected.48
Government Company—Disinvestment—Employees—Writ
A Government Company can disinvest its shareholdings to the extent of becoming a non-
Government Company and this is not a subject matter of judicial review at the instance of the
employees. Employees have no vested right in employer continuing to be Government Company.
Consent of the employees is therefore not necessary. For disinvestment, the consent of employees is
not required. But such disinvestment should not affect the right of continuity of job of the employees
concerned. The rights of the employees as industrial workers would however not be affected. Policy
decision of the Government is not amenable to writ petition or judicial review.49
Employees of Government Company
The Employees of Government Companies are not holders of Civil Post under the Union of India.50
Article 311 of the Constitution of India does not apply to them.51
Industrial Adjudication
The principles applicable to the Employees of Private Sector undertakings will govern the Employees
of Government Companies or Public Sector Undertakings (PSUs) in Industrial adjudication.52
Termination of Employee
Where an employee was appointed by the Board of Directors and the Managing Director was
delegated authority to appoint or terminate services of the employees. The Managing Director was
empowered to dismiss an employee appointed by the Board of Directors. It was held that the
termination was valid. In the Articles of Association of the Government Company there was no
provision similar to Article 311(1) of the Constitution of India.53
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Writ Petitions—Government Company
Generally no writ under Article 226 of the Constitution of India will lie against a Government Company
or any of its officers. It will not lie in relationship of the company with its workmen.54
No writ of mandamus
A writ of mandamus will not lie against a Government Company if it has no statutory duty or
Government function to perform. In the absence of a statutory provision a Commercial Corporation
acting on its own behalf even though it is controlled wholly or partially by a Government Department,
will be ordinarily presumed not to be a Servant or Agent of the State.55
Government Company not “State”
The observations made by the Hon’ble Supreme Court in various cases leave no room for doubt that
a Corporation or Government Company incorporated under the Companies Act has got a separate
legal entity and has to be treated as distinct from its member or members. Such a Corporation, even
when cent. per cent. of its shares are owned by the State cannot be “State” under Article 12 of the
Constitution of India and would not be amenable to the writ jurisdiction of the High Court as such.56
See detailed Notes under sections 2(18), 34 and 617 to 620 of the 1956 Act.
Breach of Contract—Bank Guarantee—No Writ
The Court will not entertain a Writ Petition either to restrain the Government Company or the bank in
performing their part under an Agreement. Where a contractor committed breach of a contract with a
Government Company and the Company terminated the contract, the dispute as to the validity of the
termination cannot be decided in a Writ Jurisdiction. A Writ will not lie against the Government
Company inasmuch as the Government Company in the matter of entering into or cancelling the
contract or enforcing the Bank Guarantee is not discharging any statutory function. The rights and
obligations of the parties must be governed by the contract and no question of any violation of Article
14 of the Constitution of India or any other Article of the Constitution arises. The Courts will do their
utmost to enforce the obligations under a Bank Guarantee according to its terms and will not in the
ordinary course of things interfere by way of injunction to prevent its due implementation.57
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State or an instrumentality of State—Public or private domain
The Court will examine the actions of State if they pertain to the public law domain and refrain from
examining them if they pertain to the private law field. Whether an action lies in the public law domain
or in the private law field must be decided in each case with reference to the particular action, the
activity in which the State or the instrumentality of the State is engaged when performing the action,
public law or private law character of the action and a host of other relevant circumstances. Generally
every action of the State or an instrumentality of the State must be informed by reason and that
actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or
Article 32 of the Constitution of India. Article 14 of the Constitution of India is not a charter for judicial
review of State actions and will not justify calling upon the State to account for its actions in its
manifold activities by stating reasons for such actions. If the action of the State is political or
sovereign in character, the Court will keep away from it. If the action of the State is related to
contractual obligations or obligations arising out of tort, the Court may not ordinarily examine it unless
the action has some public law character attached to it. Broadly speaking, the Court will examine
actions of State if they pertain to the public law domain and refrain from examining them if they
pertain to the private law field.58
Public law domain and private law field
Public law comprises Constitutional Law, Administrative Law and Procedure, Local Government Law,
Social Security Law, Revenue Law, Military Law, Criminal Law and Procedure.
Private law comprises the principles and rules dealing with the relations of ordinary individuals with
one another, the relations of the State or an agency thereof with an individual in circumstances where
the State or its agency does not have any special position or privilege by virtue of being a
Department of State.
Private law comprises the Law of Persons, Personal Law and Family Law, Obligations arising from
Contract, Tort or on other grounds, Property, Trusts, Succession on death, Commercial or Mercantile
Law, Industrial or Labour Law, Maritime Law, and Remedies and also International private law.
Where there is a Statutory provision bearing directly on the right of a Public Authority it may inject an
element of public law necessary to attract the remedies of administrative law. In such cases the Law
may underpin the position of the person with whom the Public Authority would be dealing, restricting
the freedom of action of the Public Authority and thereby giving the person concerned a Public Law
right making him a potential candidate for the Administrative Law remedy. If the remedy sought is a
purely Private Contractual Remedy, it will not attract the supervisory powers of the Court in a writ
application or petition.59
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Governmental Functions—“State” or “Authority”
With the increase in the magnitude and range of Governmental Functions there has been a growth in
Government largess. The form of company is adopted to carry on these functions while ultimate
control of the Government Company vests with the Government. The Government Company would
be an Authority within the meaning of Article 12 of the Constitution of India, if it is the instrumentality
of the Government and that would be decided on proper assessment of the facts. If in the light of
relevant facts it is proved that a Government Company is an Authority, then such Government
Company would be a “State” for the purposes of Part III of the Constitution of India and a writ under
Article 32 of the Constitution would lie for enforcing any Fundamental Right. In the instant case,
various provisions of the Burmah Shell (Acquisition of Undertaking in India) Act, 1976 (2 of 1976)
emphasise the fact that it is not a mere company but much more than that and has a Statutory flavour
in its operations and functions, in its powers and duties and in its personality itself, apart from being
functionally and administratively under the thumb of the Government. It is a limb of the Government,
an agency of the State, a vicarious creature of Statute working on the wheels of the Acquisition Act.
The Bharat Petroleum Corporation Ltd. (BPCL), in which the right, title and interest and liabilities of
Burmah-Shell were vested therefore, is a “State” or “Authority” for the purposes of Article 12 and Pt III
of the Constitution and a writ application will lie against it under Article 32 of the Constitution of
India.60
Contract, Statutory duty, Sovereign obligation, Public function
The remedy of Article 226 of the Constitution of India, i.e., writ petition in the High Court, is not
available to enforce a contract qua contract. What is relevant is not whether the company is State or
Public Authority but whether what is enforced is a Statutory duty or Sovereign obligation or public
function of a Public Authority. Private law may involve a State, a statutory body or a public body in
contractual or tortuous actions. But they cannot be siphoned off into the writ jurisdiction.61
Authority, Instrumentality of State, Article 12 of the Constitution
Whether a company is an Authority or Instrumentality or Agency of the Government of India would be

decided on consideration of the background and history of the company, its structure, the purpose of
incorporation, the public importance of functions it is intended to perform, financial structure and
resources, essential functional character, presence or absence of plenary control resting with the
Government, presence or absence of the State-conferred or State-protected monopoly status,
existence or otherwise of some elements of authority or command. Where the Government of India
owned only a bare majority, a substantial part of the share capital belonged to a Foreign Company,
there was no unusual financial assistance given to the company by the Government, the Board of
Directors had practically full control over the management of the affairs of the company and the
presence of nominees of the Foreign Company in the Board was a significant factor, it was held that
the company was not an Authority or instrumentality or agency of the Government and a Writ Petition
for enforcement of Fundamental Rights against the company was not maintainable.62
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Other Authorities under Article 12 of the Constitution
A Constitutional or other Statutory body or juristic body created under the 1956 Act, the Societies
Registration Act, 1860 (21 of 1860), the Indian Trusts Act, 1882 (2 of 1882) or any other Act may be
an authority or instrumentality of the State depending upon the aim and object of its creation and
function it is entrusted with.63
Instrumentality or Agency of State—Lifting of Corporate Veil
For the purposes of Article 12 of the Constitution of India, one must necessarily see through the
Corporate Veil to ascertain whether behind that veil is the face of an instrumentality or agency of the
State. The various tests laid down by the Courts are to be applied to ascertain whether a Government
Company is a “State” for the purposes of Article 12 of the Constitution of India. In the instant case,
the Corporation was held to be a State under Article 12 of the Constitution of India. A wholly-owned
Government Company may be treated as “State” within the meaning of Article 12 of the Constitution
of India if the Government operates from behind the Corporate veil. Such a company is amenable to
writ jurisdiction of the Court.64
See detailed on Lifting of Corporate Veil under section 34 of the Companies Act, 1956.
Government Company—Corporate Identity—Different from the Central

Government—Employees not Government Servants—Pay Scales
The legal position is that identity of the Government Company within the meaning of section 617 of
the Companies Act, 1956 is distinct from the Government. The Government Company is not
identified with the Union but has been placed under a special system of control and is conferred
certain privileges by virtue of the provisions contained in sections 619 and 620 of the 1956 Act.
Merely because the entire shareholding is owned by the Central Government that will not make the
incorporated company as the Central Government. It is also equally well settled that the employees
of the Government Company are not Civil Servants and so are not entitled to the protection afforded
by Article 311 of the Constitution of India. Since employees of Government Companies are not
Government Servants they have absolutely no legal right to claim that the Government should pay
their salary or that the additional expenditure incurred on account of revision of their Pay Scale
should be met by the Government. Being employees of the companies it is the responsibility of the
companies to pay them salary and if the company is sustaining losses continuously over a period and
does not have the financial capacity to revise or enhance the Pay Scales, the petitioners cannot claim
any legal right to ask for a direction to the Central Government to meet the additional expenditure
which may be incurred on account of Revision of Pay Scales. After the change in Economic Policy
introduced in early nineties, the Government took a decision that the Public Sector Undertakings
(PSUs) will have to generate their own resources to meet the additional expenditure incurred on
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account of increase in wages and that the Government will not provide any funds for the same. Such
of the Public Sector Enterprises (Government Companies) which had become Sick and had been
referred to the BIFR, were obviously running on huge losses and did not have their own resources to
meet the financial liability which would have been incurred by Revision of Pay Scales. Non-revision of
Pay Scales in such Sick Companies would not amount to violation of their Fundamental Rights
guaranteed under Article 21 of the Constitution of India. Article 21 provides that no person shall be
deprived of his life or personal liberty except according to procedure established by law. The scope
and content of this Article has been expanded by judicial decisions. Even under the Industrial Law,
the view is that the workmen should get a minimum wage or a fair wage, but not that his wages must
be revised and enhanced periodically. What should be the salary structure to lead a “life with human
dignity” is a difficult exercise and cannot be measured in absolute terms. It will depend upon nature of
duty and responsibility of the post, the requisite qualification and experience, working conditions and
a host of other factors. The salary structure of similarly placed persons working in other Public Sector
Undertakings (PSUs) may also be relevant. The economic viability or the financial capacity of the
employer is an important factor which cannot be ignored while fixing the wage structure. In the
absence of material to show that the salary currently being paid to them was so low that the
Employees were unable to maintain their living having regard to the post which they were holding, no
declaration of violation of Fundamental Right could be made.65
See detailed Notes under sections 34 and 617 to 620 of the 1956 Act.
Corporate Veil—Government Company—Lifting of—Deep and pervasive

Control—Constitutional obligation—Employees’ Salary
A company incorporated under the 1956 Act is a juristic person. A company indisputably has a
distinct and separate entity vis-a-vis its shareholders. It is now well-settled that the corporate veil can
in certain situations be pierced or lifted. The principle behind the doctrine is a changing concept and
is ever expanding its horizons. Though a Government Company registered under the 1956 Act is a
juristic person having separate identity from its shareholders. In certain cases, the Court can lift the
Corporate Veil and see who are the persons responsible for the management of the Government
Company. In a Government Company the company is a separate entity. In a Government Company,
the Government acts through the instrumentality or agency of the Company and has certain
Constitutional limitations. The Government Company is a “State” and it would be constitutionally
liable to respect or protect life and liberty of all persons in terms of Article 21 of the Constitution.
Article 298 of the Constitution of India confers a prerogative right upon the State to carry on trade or
business. In doing trade or business the State must fulfil its Constitutional obligations. It must ensure
protection and preservation of the rights as contained in Articles 14, 19, 21 and 300A of the
Constitution of India. The term “life” used in Article 21 of the Constitution of India has a very wide and
far-reaching concept. Several Government Companies and Public Sector Undertakings (PSUs) of
State of Bihar did not pay salaries to their workmen and other employees for a long time resulting in
death of several persons and misery to a large number of families. The Government of Bihar for all
practical purposes was the sole shareholder of the Government Companies. Under the Companies
Act its liability towards the company’s debtors is confined to the shares it held. However, having
regard to the deep and pervasive control it exercises over the Government Companies the State has
an additional duty to see that the rights of the employees are not infringed. It is liable to see that the
right of employees to life and liberty is fully safeguarded. It has a Constitutional obligation to protect
the life and liberty of the employees of the Government owned Companies and Corporations. These
employees are citizens of India. The Government has an additional liability having regard to its
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supervisory deep and pervasive control over the Government Company. It cannot be permitted to say
that it did not know the actual state of affairs of the Government Companies and Public Sector
Undertakings (PSUs) or that it did not know that salaries of employees had not been paid for years at
a stretch leading to starvation death of large number of employees and suicides. Even though the
State is not liable for day-to-day functioning of the Companies but it is liable for failure to perform its
Constitutional duties and for the functioning of the Public Sector Undertakings (PSUs) and State’s
Constitutional obligations in relation thereto. The State being a welfare State has a duty to do all
things which they are Statutorily obliged to perform under the Payment of Wages Act, 1936 (4 of
1936), the Minimum Wages Act, 1948 (11 of 1948) and the provisions of other Statutes. Financial
stringency cannot be a ground for not issuing requisite directions by the State when the question of
violation of Fundamental Rights arose. The liability of the State of Bihar cannot be shifted to Union of
India merely on the ground that the Union of India was the repository of fund raised by it through
Central Excise and other levies and imposts. The Central Government is not directly or indirectly or
vicariously liable for the failure of the State Public Sector Undertakings (PSUs). The investments
made by the State in the Public Sector Undertakings (PSUs) in pursuit of social justice were for public
account. The State was, therefore, accountable to the public through the Legislature. If the State or
State Agencies fail to perform their duties it cannot take wrap or shelter under the financial stringency
or shift its liability to the Union of India. However, it cannot be said that in all situations the State can
be directly or vicariously liable to pay salaries or remuneration of the employees of the Public Sector
Undertakings (PSUs) or the Government Company.66
A Government Company or Public Sector Undertaking (PSU) is bound to pay to its employee’s equal
pay for the equal work done.67
See detailed Notes on the Lifting of Corporate Veil under section 34 of the Companies Act, 1956 in
this Commentary.
Government Company—Separate Entity—No Privileges, Concessions, Tax

Exemptions, etc., of Government
A Government Company is a separate legal entity having attributes of a company distinct from the
State or Union of India. A Government Company is not the Government itself. The Government
Company is not entitled to Privileges, Concessions and Tax Exemptions, etc., as the Government is
entitled to. The Government Company or Public Sector Undertaking (PSU) is distinct from the Central
Government and cannot claim Concessions or Exemptions from Taxation under Article 285 of the
Constitution of India.68
A Government Company is entitled to the same rights and privileges as any other company. Piercing
the veil is not allowed in ordinary cases but will apply in finding out the status of a person either in
Revenue matters or in cases of Fraud, etc.69
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See detailed Notes under section 34 of the Companies Act, 1956.
Lifting the veil—Governmental Functions
Judicial approach in lifting the corporate veil has been cautious and circumspect. There should be
clear words of Statute to enable a Court to pierce the veil. Even though practically the State is the
owner, the company has a separate legal entity and the veil cannot be lifted to say that the company
is in reality the Government Agent or Department.70
But if the company performs any Governmental functions as distinct from Commercial functions, the
corporate veil will be readily lifted.71
See detailed Notes under sections 2(18), 12, 34 and 617 to 620 of the Companies Act, 1956.
Misfeasance or Malfeasance—Lifting the Corporate veil
Without special circumstances the Court or the Tribunal will not pierce the Corporate veil to make the
shareholders or Government liable for the wrong committed by the company. Only under the special
circumstances, a Court or Tribunal can lift the corporate veil and treat the company having the status
of Government for discharging its Governmental functions. This is mainly for the purpose of the writ
petition under Article 226 of the Constitution of India but so far as the Court or Tribunal is concerned,
the principle of lifting the corporate veil may be available to see as to who are the officers or the
directors responsible for the misfeasance or malfeasance.72
Managerial Decisions—Collaboration—MoU—President’s powers
A Government Company must act fairly and to arrive at the best possible arrangement. The Court
would start on the presumption that the management must have acted in the best interests of the
Company. In the absence of mala fide a Memorandum of Understanding (MoU) with a Collaborator
was not interfered with by the Court. Where the Articles of Association of the Government Company
give the President of India the authority to give directives to the company any directives issued by the
Government of India or the President shall be binding on the company. The President will act through
competent authority working under him.73
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Resignation by Chairman and Managing Director
A person was appointed as the Chairman and Managing Director of a Government Company by the
President of India in exercise of the powers under Article 83 of the Articles of Association of the
Government Company for two years at the first instance subsequently extended by another three
years. The Chairman and Managing Director was holding office at the pleasure of the President of
India. Under the terms and conditions of employment the appointment was terminable by either side
on three months’ notice. The employee submitted his resignation but the Director of Public
Enterprises, Ministry of Industry, Government of India informed that the resignation of the employee
had not been accepted and since disciplinary proceedings were contemplated the employee was
placed under suspension by the President of India. The employee challenged the Orders of non-
acceptance of resignation and/or suspension by writ petition. Subsequently the employee was served
with a Charge Sheet. This was also challenged as mala fide by a writ petition. It was held that it could
not be said that because the petitioner was appointed by the President of India, he was not free to
resign from his office. The concept of bonded labour could no longer be invoked. The petitioner had
the right to resign from his office. It was found that the allegations in the Charge Sheet against the
Chairman and Managing Director were not supported by documents and, therefore, the Orders of
Suspension and Charge Sheet were liable to be quashed.74
Appointment and Removal of Managing Director by Governor
A Statutory Corporation or a Government Company and the State are two distinct entities even
though the Corporation or Government Company is owned and controlled by the State and the
conduct of the business of the Corporation or Government Company is regulated by the Statute
creating the Corporation or the Articles of Association of the Government Company. Though the
Governor of the State is virtually the only shareholder of the Corporation or Government Company in
which the funds of the State are invested, it does not mean that he acts in his individual capacity. The
functions performed by him in the matters connected with the Corporation or Company are in fact the
executive functions of the State in the exercise whereof he has to be aided and advised by his
Council of Ministers and they cannot be said to be functions which are to be discharged in his
discretion. Therefore, where the Articles of Association of a Government owned Corporation or
Government Company provides that the Governor may from time to time appoint one of the Directors
to the office of the Managing Director of the Corporation or Government Company and may from time
to time remove or dismiss him from the office and appoint another in his Place, this power to appoint
and remove from office is to be exercised by the State Government in the name of the Governor. A
person who has been removed from the office of Managing Director by the executive order of the
State Government cannot contend that such removal was illegal or without jurisdiction.75
Government Company—Recall or Removal of Nominee Directors
The directors who represent public institutions being their nominees are not liable to retire by rotation.
They cannot be appointed by the Company’s equity shareholders. They cannot be removed under
section 284 of the 1956 Act. Recalling of the director in accordance with the Articles of Association of
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the company does not amount to removal. Such recalling cannot be agitated in the Writ jurisdiction it
being a contractual matter. In accordance with the Articles of a Government Company the Governor
of the local State appointed the petitioner as a director and also granted her the position of
Chairperson. The Government subsequently removed her because of factually substantiated
irregularities. The aggrieved petitioner challenged her removal. The Bombay High Court held that the
question could not be decided in Writ Petition as the matter related to the realm of contract. The
power of appointment of a director includes the power of removal. The Administrator empowered to
appoint the director could call back the nomination and the director would cease to be a director. It is
a matter of contract only. The removal of the director cannot be a subject matter of writ under Article
226 of the Constitution of India.76
See detailed Notes under sections 268 and 284 of the Companies Act, 1956.
Removal of Director appointed by President of India under Articles
Under section 284(1) of the 1956 Act, the Director of the company can be removed by Ordinary
Resolution. No doubt, there is an exception in section 284 itself that the director appointed by the
Central Government cannot be removed before the expiry of his period of office. Under the Articles of
Association of the Minerals and Metals Trading Corporation of India Ltd. (MMTC), the directors could
be removed in pursuance of section 284 of the 1956 Act. It was contended that as the President of
India himself appoints the directors, the exception of section 284 was applicable. Negativing this
contention, it was held that when the President appoints a person as a director of the company, such
appointment is only in exercise of the powers conferred by the Articles of the company and not by
virtue of any powers under the Constitution of India. It cannot be stated that the President of India
derives the powers under the Constitution of India for the appointment of the directors or the
Chairman of the companies owned by the Union Government. As the Articles provided the method of
appointment of office bearers of the company by virtue of such powers under the Articles, the
President of India, as head of the Union Government, appoints any directors. Therefore, a person
appointed by the President does not become a Government servant. The appointment of the director,
though by the President of India, as the appointment was by virtue of the Articles, it could not be
stated that he was appointed by the Central Government. Therefore, the exception to section 284 of
the 1956 Act was not available to the Director of MMTC. A company is a separate legal entity of its
own like any Statutory Corporation and the employees of such a Company or Corporation are not
Government servants. Even though as per section 21 of the Indian Penal Code, 1860 (45 of 1860)
such persons can be public servants, they cannot be Government servants for the purpose of
obtaining sanction under section 197 of the Code of Criminal Procedure, 1973 (2 of 1974). In this
case, though the President appoints the director, under the Articles of Association, the Board of
directors also could remove him by Resolution. So when the Board of directors also had that power of
removal, section 197 of the Code of Criminal Procedure, 1973 (2 of 1974) for obtaining sanction of
the Central Government for prosecution of the Government servant was not attracted.77
Employees of Government Company not Public Servants
Employees of a Government Company are not Public Servants and for their prosecution sanction of
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the Government is not required or necessary.78
However, in certain cases dealt with below, in the facts and circumstances of the cases, it has been
held that the Employees of a Government Company would be Public Servants and sanction of the
Government would be required.
Government Company or Public Body—Employee or Officers not Civil Servant—

Prosecution—Sanction of Government not necessary
A Company limited by Guarantee and registered under the 1956 Act over which the Central
Government exercises some control by virtue of Articles of Association of the Government Company
is not a “Public Body” or a “Public Authority” or a “Local” or “Other Authority” within the meaning of
Article 12 of the Constitution of India. An employee of such a company is not a “Civil Servant” within
the meaning of Article 311 of the Constitution of India. An employee of such a company can be
prosecuted without sanction of the Government.79
Offences and Prosecution—Directors of Government Company—Failure to file

Balance sheet
There was a failure on the part of the company to file Balance Sheets and Profit and Loss Accounts
within the stipulated time. This was a Government Company and the Directors were public servants
and could not be prosecuted without sanction of the Government. The complaint was filed against
persons who were not the Directors at the relevant time. The complaint was against the Government
Company and the petitioners who were public servants and no sanction was taken for prosecuting
them. Further, their acts did not amount to any offence. A director cannot be responsible for laches of
his predecessors. The complaint from the Registrar of Companies (ROC) was quashed on the
petition of the Government Company and the petitioners.80
See also Notes under sections 210 and 220 of the Companies Act, 1956.
Factories Act—Offences—Government Company the Occupier
In the case of a company, which owns a factory, the Company can nominate only a Director as
occupier of the factory for the purposes of the Factories Act, 1948 (63 of 1948). The company cannot
nominate any other officer or employee to be the occupier. Discretion given to the Inspector of
Factories can be exercised only when the director has not been identified or nominated by the
company as occupier, treating any one of the directors as the deemed occupier of the factory, for
prosecution and punishment in case of breach or contravention of the provisions or offences under
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the Factories Act. In case of a Government Company, however, the factory is effectively and really
owned by the Government and person appointed to manage the affairs of the Government Company
is the occupier and not the Directors of the company.81
See detailed Notes on Officers of Company in default and Vicarious Liability of Directors under
section 5 of the 1956 Act in this Book.
Government Company—Office of profit—Chartered Accountant—Auditor—

Disqualified for Election to Parliament
A Chartered Accountant who as a partner of a Firm of Chartered Accountants holds the office of
Auditors of a Government Company within the meaning of section 2(18) read with section 617 of the
1956 Act of which all the shares are held by the Central Government, is a person who holds “an
office of profit under the Government of India” and is, therefore, disqualified under Article 102(1)(a) of
the Constitution of India from being chosen as and for being a Member of either House of Parliament
(MP).82
Employee of Government Company—Not office of profit—Not barred from

seeking Election to Legislative Assembly (MLA)
An employee of a Government Company does not hold office of profit under the Government and he
is not debarred from seeking election to the Legislative Assembly (MLA).83
See section 10 of the Representation of the People Act, 1951 (43 of 1951) and Article 102(1)(a) of
the Constitution of India.
Government Company—Foreign Company—Winding up—Scheme of

Compromise or Arrangement
A Government Company may be wound up by the Court [the Tribunal (NCLT)]. A Foreign Company
may be a Government Company. The Central Government may hold 51% or more shares in a
Foreign Company. The Court has jurisdiction to entertain an application for and make an order
sanctioning a scheme of arrangement or compromise between a Government Company and its
creditors or member under section 391 of the 1956 Act.84
Winding up—Government Company—Secured Creditor—Order of Attachment
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under Criminal Laws
A Government Company within the meaning of section 617 of the Companies Act, 1956 to which the
company in liquidation was indebted initiated prosecution of Directors and obtained order of
attachment under the Criminal Laws. The Government Company was entitled to be treated as a
secured creditor of the company in respect of the property of the respondent-company attached by
order of the District Judge subject to conviction of Directors in prosecution and the Criminal Court
recording finding as to the value of goods procured by the offences. The petitioner company might be
required to seek approval of the Winding up Court, i.e., the Company Court [the Tribunal (NCLT)]
under section 446 of the 1956 Act, if an order of conviction was passed against the Directors of the
respondent company under sections 406 and 420 of the Indian Penal Code, 1860 (45 of 1860).
However, the provisions of section 446 of the 1956 Act had no effect on the order of attachment
passed by the District Judge under the Criminal Laws.85
Suits by Government Company—Limitation
In West Bengal for suits by a Government Company, owned wholly either by the Central Government
or by a State Government or jointly by the Central Government and State Governments the limitation
is 30 years under Article 112 of Limitation Act, 1963 (36 of 1963) as amended in the State of West
Bengal in 1977.
Nationalised Bank—Writ
Taxpaying Citizen alleging dereliction of duty by Senior Officers of the Nationalised Bank resulting in
losses of over Rs. 200 Crores has a locus standi to maintain Public Interest Litigation (PIL). However,
Nationalised Bank is not a Department of or owned by the Central Government. The Comptroller and
Auditor General of India (CAG) has no duty to Audit the Accounts of Nationalised Banks. On
allegation of systematic depletion of funds by Senior Officials no mandamus can be issued to seek
opinion of the Comptroller and Auditor General of India (CAG). Provisions of sections 45D, 45T and
46A of the Banking Regulation Act, 1949 apply only in winding up of a Banking Company and not in
proceedings on writ petition under Article 226 of the Constitution of India.86
Bank Employees—Nationalised Bank—Prevention of Corruption
The Nationalised Bank is a Government Company within the meaning of section 617 of the 1956 Act
and its employees are public servants within the meaning of section 21 of the Indian Penal Code,
1860 (45 of 1860). Such employees can be prosecuted under the Prevention of Corruption Act, 1947
(2 of 1947) [now the Prevention of Corruption Act, 1988 (49 of 1988)] and Criminal offences, eg,
Misappropriation committed by the employee of the Nationalised Bank.87
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Nationalised Banks are Corporation
The Nationalised Banks in India have been constituted as distinct juristic persons and are owned by
the Central Government. They have all the attributes of a new pattern of public corporation. Merely
because the expression “Body Corporate” has been used in relation to the Nationalised Banks in
section 3(4) of the Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and
1980 and the expression “Corporation” has not been used, this does not mean that the Nationalised
Bank is not a Corporation. The expression “Body Corporate” is used in legal parlance to mean “a
public or private corporation”.88
Government Company—Insolvency Act not applicable
A company registered under section 617 of the Companies Act, 1956 as a Government Company is
not liable to be proceeded against in Insolvency Proceedings under section 8 of the Provincial
Insolvency Act, 1920 (5 of 1920). Insolvency Proceedings were not allowed to be presented against
the Punjab National Bank, it being a Banking Company registered as a Government Company. It is a
Nationalised Bank.89
Government Company—Bifurcation of State—Inter-State Corporation
Any Government company, be it a company constituted under section 617 of the Companies Act,
1956, or a Statutory Corporation, by virtue of its inclusion in Schedule 9 to the Bihar Reorganisation
Act, 2000 (30 of 2000), becomes an inter-State Corporation and has to function notwithstanding the
provisions contained in the 1956 Act, until a law is enacted or agreement is reached between the
successor States or directions are issued by the Central Government. The petitioners were
incorporated as Government Companies within the meaning of section 617 of the 1956 Act. Upon the
financial conditions of the three companies becoming precarious to the extent that they were unable
to discharge their routine liabilities such as payment of salary and wages to their employees, it was
resolved by the Board of directors and the shareholders to wind up the companies. Thereafter,
petitions for winding up were filed. During the pendency of the petitions, the Bihar Reorganisation
Act, 2000 was enacted whereunder the State of Bihar was bifurcated into the States of Bihar and
Jharkhand. By virtue of this the three Government Companies became inter-State corporations as
they were included in the Ninth Schedule to the Act and continued to function in the area in which
they were functioning prior to the reorganisation of the State. The workers and the employees’ unions
objected to the winding up. Dismissing the winding up petitions, it was held that the petitioner
companies had become Inter-State Corporations by virtue of sections 46(4) and 65(1) read with
Schedule 9 to the Bihar Reorganisation Act, 2000. Therefore, they had to function in the areas in
which they were functioning immediately before the appointed day until the law was framed,
agreement was reached between the successor States or directions issued by the Central
Government.90
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Sovereign immunity
A private limited company incorporated in Foreign Country entire share capital of which is held by the
Government of that Country would be a Government Company. It would be entitled to claim
sovereign immunity under section 86 of the Code of Civil Procedure, 1908 (5 of 1908).91
Government Company and the MRTP Act
The Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969) did not apply to a
Government Company within the meaning of section 617 of the 1956 Act unless Notification by the
Central Government under section 3 of the MRTP Act, 1969 was issued.92
Notification G.S.R. No. 605(E), dt. 27-9-1991 was issued under section 3 of the Monopolies and
Restrictive Trade Practices Act, 1969 (54 of 1969).
Competition Act, 2002 (12 of 2003)
The MRTP Act, 1969 (54 of 1969) has been repealed and replaced by the Competition Act, 2002 (12
of 2003), section 66.
The MRTP Commission has been replaced by the Competition Commission of India (CCI). The
remedy for unfair trade practices shall now lie with the Consumer Forum under the Consumer
Protection Act, 1986 (68 of 1986).
See detailed Notes and Statement of Objects and Reasons (SOR) under section 10 of the 1956
Act—Jurisdiction of Courts.
Government NBFCs—NBFC (RBI) Regulations
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(i) There are a number of Government NBFCs which fall within the ambit of RBI Regulations. The
Government Department or the Ministry or the Bureau of Public Enterprises to which such companies
are attached, are expected to prescribe the norms for their operations on healthy lines and monitor
their financial health. Such companies being Government Companies pose little supervisory concern
regarding repayment of the deposits held by them and protection of interests of the depositors.
Needless to mention, all these Companies are required to be Audited by the Statutory Auditors as per
the provisions of the 1956 Act and the irregularities, if any, in their functioning are brought to the
notice of Government by the Auditors for corrective steps.
(ii) Although, we do not intend to discriminate among the NBFCs on the basis of ownership but in
view of the role being played by these companies in discharge of their social obligations and the
norms prescribed for their working by their respective supervisory Departments and for avoiding dual
control over them, we have decided, in consultation with Government, to exempt the Government
Companies as conforming to section 617 of the 1956 Act from applicability of the provisions of the
RBI Act relating to maintenance of liquid assets and creation of reserve funds, and the directions
relating to acceptance of public deposits and prudential norms. The requirement of statutory
registration of these companies under section 45-IA of the RBI Act, 1934, shall, however, continue.”
[Extracts from RBI Circular Ref. DNBS(PD).CC. No. 12/02.01/99-2000, dt. 13-1-2000 : Addressed to
All the Non-Banking Financial Companies (NBFCs) including Residuary Non-Banking Companies
(RNBCs) : (2000) 100 COMP CASES (St.) 28].
See detailed Notes on NBFC (Reserve Bank) Directions under section 58A of Companies Act, 1956
in this Book.
See Notes on Government Companies under sections 617–620 of the 1956 Act.
93[s 620B] Special provisions as to companies in Goa, Daman and Diu.—The Central
Government may, by notification in the Official Gazette, direct that for such period or periods with
effect from the 26th January, 1963 or any subsequent date, any of the provisions of this Act specified
in the notification shall not apply or shall apply only with such exceptions and modifications or
adaptations as may be specified in the notification, to— The Companies Act, 1956 provision
(a) any existing company in the Union Territories of Goa, Daman and Diu;
(b) any company registered in the said Union Territory under this Act on or after the 26th
January, 1963.]
NOTES
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Section 620-B of the 1 Companies Act, 1956 corresponds to section 1 of the

Companies Act, 2013
Legislative History
See Statement of Objects and Reasons, Legislative History, Background, Applicability of the
Companies Act, Meaning and Kinds of Companies in Notes under sections 1, 2 and 3.
Modified provisions of the Companies Act, 1956 to apply to Companies in Goa,

Daman and Diu [Section 620B]
The Central Government may by Notification in the Official Gazette direct that the provisions of the,
1956 Act mentioned in the Notification shall not apply or will apply with modifications to any existing
company or a company registered after 26-01-1963.
Object—Registration of Per Quota Societies
The object of the section is to give opportunity to Per Quota Societies formed under the Portuguese
law to register under the Companies Act, 1956. By Notifications the Central Government gave certain
facilities to these Societies upto 30-06-1965 within which period about 21 Por Quota Societies were
registered under the 1956 Act.
Notifications under section 620B of the Companies Act, 1956—Modification of

Act to Companies in Goa, Daman and Diu
In exercise of the powers conferred by section 620B of the 1956 Act (1 of 1956), as extended to the
Union Territory of Goa, Daman and Diu [now the State of Goa and Union Territory of Daman and Diu]
the Central Government issued the following Notifications modifying the Act in its application to
Companies in Goa, Daman and Diu.
Notification No. G.S.R. 641, dated 24-4-1967—Modification in section 145 of the

Companies Act, 1956
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“In exercise of the powers conferred by section 620B of the 1956 Act (1 of 1956), as extended to the Union Territory of
Goa, Daman and Diu, the Central Government hereby directs that section 145 of the said Act shall apply to the Union
Territory of Goa, Daman and Diu subject to the modification, specified below:
In the said section 145 of the 1956 Act (1 of 1956), the following proviso shall be inserted at the end, namely:
‘Provided that any charge specified in clauses (a) to (i) of sub-s. (4) of s. 125 which was created before, and remaining
unsatisfied at, the date of incorporation of any ‘Sociedade per quotas responsibilidade limitada’ as a company under
the proviso to sub-s. (2) of s. 34 shall, in so far as it remains unsatisfied on the date of publication of this notification in
the Gazette of India, be void against the liquidator and any creditor of the company, unless the prescribed particulars of
the charge together with the instrument, if any, by which the charge is created or evidenced, or a copy thereof verified
in the prescribed manner, are filed with the Registrar for registration in the manner required by this Act, within thirty
days of the date of publication of this notification in the Gazette of India.’ “[Notification No. G.S.R. 641, dt. 24-4-1967:
Government of India Publication, Clarifications and Circulars on Company Law, 1977 Edition, page 301].
Earlier Notifications
Earlier, Notification No. G.S.R. 615, dt. 24-4-1965* and Notification No. G.S.R. 1621, dt. 28-10-1965**
were issued under this section specifying in the Schedule annexed to these Notifications certain
provisions of the Companies Act, 1956 and the exceptions, modifications and adaptations specified in
the Schedule, with which these provisions were to apply to the Companies and “Sociedade per
quotas responsibilidade limitada”, incorporated under the 1956 Act as extended to the Union
Territories of Goa, Daman and Diu.
But these Notified exceptions, modifications and adaptations under section 620B were available till
31-12-1965.
Text of the Notifications is therefore not being reproduced.
Department’s View— Section 620B: Clarification of Notification
It was decided in consultation with the Goa Administration that Per Quota Societies formed under the Portuguese Law
should be given an opportunity to be incorporated as companies under the 1956 Act. Upon such incorporation such a
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society should be deemed to be a company under the said Act with effect from the date of its formation under the
Portuguese Commercial Code, as if the Companies Act had been in force on the date of its formation under that Code.
To achieve this purpose, a Notification was issued under section 620B of the 1956 Act (as extended to Goa) amending
section 34 of the 1956 Act in its application to Goa, Daman and Diu. The said Notification gave the benefit of continuity
of existence to Por Quota Societies, provided they registered themselves as companies under the 1956 Act on or
before the 18-03-1965. The time-limit was later extended to the 30-06-1965, at the instance of the interests concerned.
By another Notification, such Per Quota Societies as registered themselves as companies within the aforesaid period
were given exemption from the initial payment of Registration Fee, and Fees in respect of Filing the documents
required to be filed at the time of registration. Till 30-06-1965, 21 Por Quota Societies have been registered as private
companies. [Extracts from the Ninth Annual Report on the Working and Administration of the Companies Act, 1956—
Year ended 31-03-1965 : Government of India Publication, Clarifications and Circulars on Company Law, 1977 Edition,
page 301].
State of Goa (w.e.f. 30-5-1987)
As per section 3 of the Goa, Daman and Diu Reorganisation Act, 1987 (18 of 1987) from the
appointed day, i.e., 30-5-1987 vide Notification No. S.O. 518(E), dt. 26-5-1987, a new State has been
formed to be known as the State of Goa and a new Union Territory has been formed to be known as
the Union Territory of Daman and Diu.
See the Constitution of India, First Schedule, I. The States, Entry 25. Goa and II. The Union
Territories, Entry 5. Daman and Diu. [See Government of India, Ministry of Law and Justice,
Legislative Department websitehttp://lawmin.nic.in or http://indiacode.nic.in : Government of Goa
website http://goagovt.nic.in].
94 [ Special provision as to companies

in Jammu and Kashmir
[s 620C] Special provision as to companies in Jammu and Kashmir.—The Central Government

may by notification in the Official Gazette, direct that with effect from the commencement of the
Central Laws (Extension to Jammu and Kashmir) Act, 1968 (25 of 1968), or any subsequent date,
any of the provisions of this Act specified in the notification shall not apply, or shall apply only with
such exceptions and modifications or adaptations as may be specified in the notification, to— The
Companies Act, 1956 provision
(a) any existing company in the State of Jammu and Kashmir;
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(b) any company registered in that State under this Act after the commencement of the Central
Laws (Extension to Jammu and Kashmir) Act, 1968 (25 of 1968).]
NOTES
Section 620-C of the Companies Act, 1956 corresponds to section 1 of the Companies
Act, 2013.
Legislative History
See Statement of Objects and Reasons, Legislative History, Background, Applicability of the
Companies Act, Meaning and Kinds of Companies in Notes under sections 1, 2 and 3.
Companies in Jammu and Kashmir [Section 620C of the Companies Act, 1956]
The Central Government may direct that the provisions mentioned in the Notification will not apply or
will apply with modifications to Companies in Jammu and Kashmir.
The provisions of the 1956 Act were made applicable to Jammu and Kashmir by the Central Laws
(Extension to Jammu and Kashmir) Act, 1968 and section 620-C of the Companies Act, 1956 was
inserted.
Modifications of the Act—Jammu and Kashmir
In exercise of the powers conferred by this Section the Central Government has issued a Notification.
Notification under section 620C of the Companies Act, 1956
“In exercise of the powers conferred by section 620C of the 1956 Act (1 of 1956), the Central Government hereby
directs that, with effect from the 15th August 1968, the provisions of the said Act as specified in column (1) of the
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Schedule annexed hereto shall not apply, or as the case may be, shall apply with such exceptions, modifications or
adaptations specified in the corresponding entry in column (2) thereof, to companies, other than banking, insurance
and financial corporations, registered in the State of Jammu and Kashmir before the said date.
THE SCHEDULE
Provisions of the Extent of Application

Companies Act, 1956
(1) (2)
Sub-section (4) of section 89 For the words, figures and letters “the 1st day of December,
1949”, the words, figures and letters “the 15th day of August,
1968” shall be substituted.
Section 211 After the proviso to sub-section (1), the following proviso shall
be inserted, namely:
“Provided further that in respect of any financial year

commencing on a date prior to the 15th day of August, 1968,
the balance-sheet of a company registered in the State of
Jammu and Kashmir need not be in the Form set out in Pt I of
Schedule VI.”
Section 226(1) Sub-section (1) of section 226 shall not apply to a private
company which is not a subsidiary of a public company in
respect of the balance-sheet and profit and loss account
relating to any financial year commencing before the 15th day
of August, 1968.
Section 259 In clause (a) for the words, figures and letters “the 21st day of
July, 1951”, the words, figures and letters “the 15th day of
August, 1968” shall be substituted.
Section 284 In the first proviso to sub-section (1), for the words, figures and
letters “the 1st day of April, 1952”, the words, figures and
letters “the 15th day of August, 1958” shall be substituted.
Section 294 (i) Reference to the commencement of the Companies

(Amendment) Act, 1960, shall, in relation to a company
registered in the State of Jammu and Kashmir, be construed
as reference to the commencement of the Companies Act,
1956, in that State.
(ii) For sub-section (3), the following sub-section shall be

substituted, namely:
“(3) Where, before the commencement of this Act in the State

of Jammu and Kashmir, a company registered in that State
has appointed a sole selling agent for any area for a period of
not less than five years and the period of such appointment
has not expired, and is not likely to expire earlier, such
appointment shall be placed before the company in general
meeting within a period of eighteen months from such
commencement, and the company in general meeting may, by
resolution, terminate the appointment with the effect from such
date, not being a date later than the 15th day of August, 1970,
as may be specified in the resolution:
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Provisions of the Extent of Application

Companies Act, 1956
(1) (2)
Provided that in the event of any omission to place such
appointment before the company in general meeting for its
approval, such appointment shall stand terminated on the
expiry of a period of eighteen months from such
commencement.”
Section 295 In sub-section (6), for the words, figures and letters “the 1st
day of April, 1956”, the words, figures and letters “the 15th day
of August, 1968” shall be substituted.
Section 325 In sub-section (4), for the words, figures and letters “the 15th
day of August, 1956”, the words, figures and letters “the 31st
day of March, 1970” shall be substituted.
Section 330 Shall not apply.
Section 332 In sub-section (1), for the words, figures and letters “the 15th
day of August, 1960”, the words, figures and letters “the 31st
day of March, 1970” shall be substituted.
Section 361 For the words and figures “the first day of March, 1958”, the
words and figures “the third day of April, 1970” shall be
substituted.
Section 373 (i) For the words and figures “after the first day of April, 1952”,
the words and figures “before the fifteenth day of August,
1968” shall be substituted.
(ii) For the words “within six months”, the words, “within
eighteen months”, shall be substituted.
Section 618 Shall not apply.”
[Notification No. G.S.R. 71, dt. 29-12-1969 : Government of India Publication, Clarifications and
Circulars on Company Law, 1977 Edition, pages 301-303].
Company Law Settlement (Jammu and Kashmir) Scheme, 2003
“Whereas the Central Government has decided to make a Scheme, namely, the Company Law
Settlement (Jammu and Kashmir) Scheme, 2003 for granting immunity from prosecution and
compounding the period of delay involving in filing certain documents under the Companies Act, 1956
(1 of 1956), to companies in the State of Jammu and Kashmir;
Now, therefore, in exercise of the powers conferred by clause (b) of section 637B read with section
637 of the said Act, the Central Government hereby notifies the following Scheme, namely:
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1. Short title and commencement.—(1) This Scheme may be called the Company Law Settlement
(Jammu and Kashmir) Scheme, 2003.
(2) It shall come into force on the 1st October, 2003.
2. Definitions.—In this Scheme, unless the context otherwise requires,—
(a) “Act” means the Companies Act, 1956 (1 of 1956);
(b) “company” means a company (including a Government company) registered under the Act
and having its registered office in the State of Jammu and Kashmir;
(c) “declarant” means the company making the declaration under this Scheme and includes an
officer of such company as defined in clause (30) of section 2 of the Act in relation to the
offence mentioned in the declaration filed under this scheme;
(d) “designated authority” means the Registrar of Companies, Jammu and Kashmir;
(e) “offence” means the non-compliance with the provisions of the Act in relation to the filing of
any documents specified in the Act in respect of non-compliance of which a fine or
imprisonment or both has been prescribed but shall not include any non-compliance referred
to in Clause 8 of this Scheme;
(f) All other words and expressions used and not defined under this Scheme, but defined in the
Act, shall have the meanings respectively assigned to them in the Act.
3. Settlement of offences.—Subject to the provisions of this Scheme, any company may make a
declaration along with proof of payment of prescribed fee under acknowledgement on or after the 1st
day of October, 2003, but on or before 5.00 pm of the 31st day of March, 2004, to the designated
authority in respect of any offence committed under the Act and seek settlement of the offence so
committed.
4. Declaration to be filed by the applicant with the designated authority.—The declaration under
the Scheme shall be made to the designated authority in Form A.
5. Time and manner of payment of fees for seeking immunity under the Scheme.—The
declarant shall pay lump sum amount based on the period of delay and the nominal filing fees as per
Schedule X to the Act, apart from the lump sum amount as stated in the Table given below:
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TABLE
Sl. No. Number of documents Amount payable for Amount payable for
delay less than 3 years delay for period more
than 3 years
(a) Upto 2 Rs. 2,500 Rs. 3,000
(b) Upto 5 Rs. 5,000 Rs. 6,000
(c) Upto 10 Rs. 7,500 Rs. 9,000
(d) More than 10 Rs. 10,000 Rs. 15,000
The amount payable shall be deposited along with a Challan Form in any of the designated Branches
of the Punjab National Bank or by way of Pay Order or Demand Draft payable to the Registrar of
Companies, Jammu and Kashmir. Any sum paid for seeking immunity under the Scheme shall not be
refundable under any circumstances.
6. Withdrawal of appeal against prosecution launched for the offences.—If the company has
filed any appeal against any notice issued for violation of the provisions under the Act in respect of
which declaration is made under this Scheme, the declarant shall withdraw the appeal and furnish the
proof of such withdrawal along with the declaration.
7. Order by designated authority granting immunity from the penalty and prosecution.—The
designated authority shall consider the declaration and upon being satisfied shall pass an order in
writing inter alia stating the reasons for granting the immunity.
8. Scheme not to apply to certain offences.—(1) This Scheme shall not apply to the filing of Form
5 relating to increase in authorised capital of the company for which specific interest has to be paid
for filing the intimation for the delay and such other provisions of the Act where specific approval of
the Company Law Board or Central Government is to be obtained:
Provided that the Scheme shall apply to such intimations which are to be submitted to the Registrar
of Companies along with the prescribed fees but for which no specific Form has been specified.
(2) This Scheme shall also not apply for non-compliance of the provisions of the Act where the
penalty of imprisonment only has been prescribed.
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9. After passing the appropriate order, the Registrar of Companies (ROC), Jammu and Kashmir shall
inform the concerned Court or Regional Director or Company Law Board before whom the matter for
prosecution or compounding application is pending in appropriate cases.
Form A
DECLARATION UNDER COMPANY LAW SETTLEMENT (JAMMU AND KASHMIR) SCHEME, 2003
Form of Declaration
To
The Registrar of Companies,
Jammu and Kashmir
Sir/Madam,
I/We herewith make a declaration under the Company Law Settlement (Jammu and Kashmir)
Scheme, 2003 and give below the following particulars, namely:
1. Name of the declarant and Address :
(in Block letters)
2. Name of the Company :
3. Registration No. of company :
4. Date of incorporation of the company :
5. Address of the Company :
6. Status of the company: whether public/private :
If public Listed/Non-listed :
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7. Business/objects of the company :
• (Tick in appropriate column)
• Manufacturing :
• Trading :
• Finance :
• Service :
• Others (please specify) :

8. Statement of Declaration of non-compliance :
S. No. Nature of Return to be Section under which to Status of offence

filed be filed (whether still continuing)
• 9.
Sl. Due
No. Nature of date of filing Period of delay Amount Details of
document payable under payment (a)
Company Law Demand Draft
Settlement No.
(Jammu and (b)
Kashmir) Date
Scheme, 2003 (c)
(Rs.) Name of Bank
(d) Amount
(Rs.)
•
Company Registration No. Signature of the Managing Director/
Whole-Time Director/Director/
Manager/Company Secretary
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10. Whether declarant on behalf of the company would like to be granted immunity for non-
compliance?
11. Submission:
In the light of the circumstances herein mentioned above and keeping in mind the admission of
the offence by the applicant/company and taking into consideration the nature, scope, extent,
seriousness, gravity of the offence, the applicant/company, himself requests for the grant of
immunity in the form of relief for non-compliance.
12. List of enclosures.
Place : …………………………………………………….
Date : Designation/Signature of the applicant
(Seal of Declarant)
VERIFICATION
I……………………… son/daughter/wife of Shri ………………………………. in my capacity as

……………… in the company, solemnly declare that—
(a) the information given in this declaration is true to the best of my knowledge and belief.
(b) The company had failed to comply with the provisions of the Act as mentioned above.
(c) I have withdrawn the appeals pending before Court/Company Law Board/Regional Director or
other adjudicating authority.
I further declare that this declaration is in my capacity as the Managing Director/Director and that I
am competent to make this declaration and verify it.
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Place : …………………………………………………….
Date : Designation/Signature of the applicant
(Seal of Declarant)
CERTIFICATE GRANTING IMMUNITY FROM PENALTY AND PROSECUTION UNDER THE COMPANY LAW SETTLEMENT
(JAMMU AND KASHMIR) SCHEME, 2003
Whereas………………………………………… (hereinafter referred to as the company) had made a

declaration under the Company Law Settlement (Jammu and Kashmir) Scheme, 2003, and had filed
the documents mentioned below along with the declaration and also paid the compounding fee of Rs.
…………………………… payable as per the said declaration:
S. No. Nature Section

of Return to be filed under which to be filed
And, whereas, the declarant had also declared that no petition or appeal before any Court/Company
Law Board/Regional Director against any notice or order in respect of the fine payable has been filed
by such applicant/had withdrawn such appeal/writ petition from the Court/Company Law
Board/Regional Director.
Now, therefore, in exercise of the powers conferred under this Scheme, the undersigned hereby
issues this certificate to the said company to,—
(a) certify receipt of payment from the declarant towards full and final settlement of the
compounded fee payable under this Scheme;
(b) grant immunity subject to the provisions contained in the Scheme from instituting and
proceeding for prosecution for any offence under the Act, or from the imposition of penalty
under the Act for the time being in force in respect of matters covered in the aforesaid
declaration made by the declarant.
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Place : ……………………………
Date : Designated Authority.”
[Notification No. S.O. 1136(E), dt. 30-9-2003, published in the Gazette of India, Extraordinary, No.
897, Pt II, section 3(ii), page 9, dt. 30-9-2003 : the Ministry of Company Affairs (MCA) website
http://www.mca.gov.in : (2003) 117 COMP CASES (St.) 239].
Jammu and Kashmir Government website
See the Official Website of Jammu and Kashmir Government, India http://www.jammukashmir.nic.in.
1 Corresponds to sections 1, 616, 617, 620-B and 620-C of the Companies Act,
1956.
2 Enforced certain provisions vide S.O. 2754(E), dt. 12-09-2013, w.e.f. 12-09-2013
and also enforced certain other provisions vide S.O. 582(E) dt. 27-2-2014, w.e.f. 01-04-2014, S.O. 902(E) dt. 26-3-
2014, w.e.f. 1-4-2014, S.O. 1934(E) dt. 01-06-2016, S.O. 2866(E) dt. 05-09-2016 and F No. A-45011/14/2016-Ad-IV dt.
09-09-2016. Enforcement dates are given under respective sections.
3 The Report of the Committee is available at:

http://www.prsindia.org/uploads/media/Company/ Companies_ Bill_%20SC%20Report%202012.pdf, Last accessed in
November 2016.
4 CIT v Girdhardas & Co Pvt Ltd, AIR 1967 SC 795 : (1967) 1

Comp LJ 1 (SC) : (1967) 63 ITR 300 (SC) : (1967) 1 SCR 777. Corresponding provisions of the Previous Act, 1913, the
English Act, 1948 and the English Act, 1985 as amended by 1989 Act have been annotated under each Section in this
book. Decisions enunciating the usefulness of provisions and decisions under Previous Acts and English Acts have
been dealt with under Principles of Interpretation in later paragraphs and Doctrine of Precedent in Notes under section
10—Jurisdiction of Courts.
5 Keshavji Ravji and Co v CIT, AIR 1991 SC 1806 : (1990) 1 Comp

LJ 374 (SC) : (1990) 183 ITR 1 (SC).Oft-quoted rule in Heydon’s case, (1584) 3 Co. Rep. 7a : 76 ER 637, Principles of
Interpretation and Doctrine of Precedent have been dealt with in later paragraphs.
6 See Hind Overseas Pvt Ltd v Raghunath Prasad Jhunjhunwalla,

(1976) 46 COMP CASES 91 (SC) : AIR 1976 SC 565; Kilpest Pvt Ltd v Shekhar Mehra, (1996) 87 COMP CASES 615
(SC) under Doctrine of Precedent in Notes under section 10—Jurisdiction of Courts.
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7 Keshavji Ravji and Co v CIT, AIR 1991 SC 1806 : (1990) 1

Comp. LJ 374 (SC) : (1990) 183 ITR 1 (SC); Utkal Contractors and Joinery Pvt Ltd v State of Orissa, AIR 1987 SC
1454 : (1987) 3 SCR 317; Maunsell v Olins, (1975) 1 All ER 16 (HL).
8 Swedish Match AB v SEBI, (2004) 122 COMP CASES 83 (SC) :

AIR 2004 SC 4219; National Stock Exchange Member v UOI, (2006) 133 COMP CASES 504 (Del.—DB).
9 Doypack Systems Pvt Ltd v UOI, (1989) 65 COMP CASES 1

(SC) : AIR 1988 SC 782.
10 Unique Butyle Tube Industries Pvt Ltd v U.P. Financial Corp,

(2003) 113 COMP CASES 374 (SC); Rishabh Agro Industries Ltd v P.N.B. Capital Services Ltd, (2000) 101 COMP
CASES 284 (SC) : AIR 2000 SC 1583; Padmasundara Rao v State of Tamil Nadu, (2002) 255 ITR 147 (SC); Institute
of Chartered Accountants of India v Price Waterhouse, (1997) 90 COMP CASES 113 (SC) : AIR 1998 SC 74;Re, Swift
Formulations Pvt Ltd, (2004) 121 COMP CASES 27 (P&H) (FB). See also Notes under Casus omissus hereinafter.
11 Colgate Palmolive (India) Ltd v MRTP Commission, (2003) 113

COMP CASES 14 (SC).
12 IFCI Ltd v Cannanore Spg. & Wvg. Mills Ltd, (2002) 110 COMP
CASES 685 (SC); Patheja Bros. Forgings and Stamping v ICICI Ltd, (2000) 102 COMP CASES 21 (SC).
13 Raghunath Rai Bareja v Punjab National Bank, (2007) 135

COMP CASES 163 (SC).
14 Lloyd Insulations (India) Ltd v Cement Corpn. of India Ltd, (2001)

105 COMP CASES 729 (Delhi) (DB); Economic Chit Funds Pvt Ltd v P.S. Krishnoji Rao, (1985) 58 COMP CASES 838
(Kar.); Re, Beejay Engineers Pvt Ltd, (1983) 53 COMP CASES 918 (Delhi) (DB); Special Steels Ltd v Jay Prestressed
Products Ltd, (1991) 72 COMP CASES 277 (Bom.). See also Rational Construction, Casus omissus, Legislative Intent,
Internal and External Aids in succeeding paragraphs.
15 Polestar Electronic Pvt Ltd v Addl. CST, AIR 1978 SC 897 :

(1978) 41 STC 409 (SC); Kailash Nath Agarwal v Pradeshiya Industrial and Investment Corp of U.P. Ltd, (2003) 114
COMP CASES 4 (SC).
16 Upendra Kumar Joshi v Kesoram Industries and Cotton Mills Ltd,

(1983) 54 COMP CASES 1 (Pat.) (FB). See also Casus omissus in succeeding paragraphs.
17 Rishabh Agro Industries Ltd v P.N.B. Capital Services Ltd,

(2000) 101 COMP CASES 284 (SC) : AIR 2000 SC 1583; Padmasundara Rao v State of Tamil Nadu, (2002) 255 ITR
147 (SC). See also Literal Construction in earlier paragraphs.
18 State of Kerala v Mathai Verghese, (1987) 62 COMP CASES

857 (SC). See also Internal and External Aids to Interpretation and Construction explained in later paragraphs.
19 Margadarsi Chit Fund Pvt Ltd v Govt. of A.P., (2001) 103 COMP
CASES 876 (AP); Surjit Singh Kalra v UOI, (1991) 2 SCC 87. See also Rational Construction hereinafter.
Mr. Laghir1 Rabari

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20 Delhi Financial Corporation v Rajiv Anand, (2006) 131 COMP

CASES 285 (SC).
21 P. Hema v M. Muthusamy, (2007) 139 COMP CASES 214

(Mad.) (DB).
22 Tata Consultancy Services v UOI, (2002) 111 COMP CASES

292 (Kar.); Tirath Singh v Bachittar Singh, AIR 1955 SC 830; CIT v J.H. Gotla, AIR 1985 SC 1698 : (1985) 156 ITR 323
(SC); K.P. Varghese v ITO, AIR 1981 SC 1922 : (1981) 131 ITR 597 (SC) : (1982) 1 SCR 629; Oxford University Press
v CIT, (2001) 247 ITR 658 (SC).
23 Rishabh Agro Industries Ltd v PNB Capital Services Ltd, (2000)

101 COMP CASES 284 (SC) : AIR 2000 SC 1583; Padmasundara Rao v State of Tamil Nadu, (2002) 255 ITR 147
(SC); Luke v IRC, (1963) AC 557 (HL) : (1964) 54 ITR 692 (HL); Prakash Nath Khanna v CIT, (2004) 266 ITR 1 (SC).
See also Notes under Casus omissus hereinbefore.
24 Allied Motors Pvt Ltd v CIT, (1997) 224 ITR 677 (SC); Goodyear
India Ltd v State of Haryana, AIR 1990 SC 781 : (1991) 188 ITR 402 (SC); CWT v Kripashankar Dayashankar Worah,
AIR 1971 SC 2463 : (1971) 81 ITR 763 (SC); R.B. Jodha Mal Kuthiala v CIT, AIR 1972 SC 126 : (1971) 82 ITR 570
(SC).
25 CIT v Anjum M.H. Ghaswala, (2001) 252 ITR 1 (SC).
26 United Bank of India v Abhijit Tea Co Pvt Ltd, (2000) 102 COMP
CASES 53 (SC); Allahabad Bank v Canara Bank, (2000) 101 COMP CASES 64 (SC).
27 Harshad S. Mehta v Custodian, (1998) 92 COMP CASES 936

(SC) : (1998) 231 ITR 871 (SC).
28 D. Vinod Shivappa v Nanda Belliappa, (2006) 131 COMP

CASES 663 (SC); Heydon’s case (1584) 3 Co. Rep. 7a : 76 ER 637.
29 Swedish Match AB v SEBI, (2004) 122 COMP CASES 83 (SC);

Clark and Tokeley Ltd (T/A Spellbrook) v Oakes, (1998) 4 All ER 353 (CA); Anand Rathi v SEBI, (2002) 110 COMP
CASES 837 (Bom.) (DB). See detailed Notes on the SEBI Act, Rules and Regulations under relevant section 55A of the
Companies Act, 1956—Powers of SEBI in this book.
30 Tejkumar Balakrishna Ruia v A.K. Menon, (1996) 87 COMP

CASES 539 (SC).
31 Apple Finance Ltd v Mantri Housing and Construction Ltd, (2002)

112 COMP CASES 480 (Bom.). See also Notes under section 433(e).
32 LIC v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986
SC 1370.
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Page 159 of 177
33 Pundalik v District Deputy Registrar, (1991) 72 COMP CASES

38 (SC).
34 Grindlays Bank P.L.C. v UOI, (2001) 106 COMP CASES 1 (Cal.);

Karimtharuvi Tea Estates Ltd v State of Kerala, AIR 1963 SC 760 : (1963) 48 ITR 83 (SC).
35 Workmen of Dimakuchi Tea Estate v Management of Dimakuchi

Tea Estate, AIR 1958 SC 353. New India Sugar Mills Co Ltd v CST, AIR 1963 SC 1207 : (1963) 14 STC 316 (SC).
36 LIC v CIT, (1996) 219 ITR 410 (SC) : (1996) 133 CTR (SC) 82.
37 Assam Co Ltd v State of Assam, (2001) 248 ITR 567 (SC).
38 Maharashtra State Financial Corp v Jaycee Drugs and

Pharmaceuticals Pvt Ltd, (1991) 71 COMP CASES 360 (SC); Mohammad Ali Khan v CWT, (1997) 224 ITR 672 (SC);
J.K. Cotton Spg. and Wvg. Mills Co Ltd v State of U.P., AIR 1961 SC 1170 : (1961) 3 SCR 185; CIT v Distributors
(Baroda) Pvt Ltd, AIR 1972 SC 288 : (1972) 83 ITR 377 (SC).
39 Manian Transports v S. Krishna Moorthy, ITO, (1991) 72 COMP

CASES 746 (Mad.).
40 Thomas v United Butter Co of France Ltd, (1909) 2 ChD 484 : 79

LJ Ch. 14 : 101 LT 388; MacConnell v E. Prill & Co Ltd, (1916) 2 ChD 57 : (1916–17) All ER Rep. Ext. 1344 : 85 LJ Ch.
674 : 115 LT 71 : 32 TLR 509 : 60 SJ 556; Food Controller v Cork, (1923) AC 647 : (1923) All ER Rep. 463 : 92 LJ Ch.
587 (HL). See also Literal Construction, Prior Legislation, Doctrine of Precedent and Binding force of Indian and English
decisions.
41 UOI v Elphinstone Spinning and Weaving Co Ltd, (2001) 105

COMP CASES 309 (SC). See also Contextual Meaning hereinafter.
42 Centre for Public Interest Litigation v UOI, (2003) 117 COMP

CASES 123 (SC).
43 Kavalappara Kottarathil Kochuni v State of Madras, AIR 1960 SC

1080.
44 R.K. Garg v UOI, AIR 1981 SC 2138 : (1982) 133 ITR 239 (SC).
45 Girdharilal & Sons v Balbir Nath Mathur, AIR 1986 SC 1499.
46 Vacher & Sons Ltd v London Society of Compositors, (1913) AC

107 (HL) : (1911–13) All ER Rep. 241 : 82 LJ KB 232 : 107 LT 722 (HL).
47 Chandroji Rao v CIT, AIR 1970 SC 1582 : (1970) 77 ITR 743

(SC).
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Page 160 of 177
48 Western India Theatres Ltd v Municipal Corporation of the City of

Poona, AIR 1959 SC 586; Bhinka v Charan Singh, AIR 1959 SC 960; Prakash Nath Khanna v CIT, (2004) 266 ITR 1
(SC).
49 Oriental Insurance Co Ltd v Hansrajbhai v Kodala, (2001) 105

COMP CASES 743 (SC); Salaam M. Bavazier v Mohd. Azgaruddin, (1998) 93 COMP CASES 609 (AP); K.P. Varghese
v ITO, AIR 1981 SC 1922 : (1981) 131 ITR 597 (SC) : (1982) 1 SCR 629.
50 Meghal Homes Pvt Ltd v Shree Niwas Girni K. K. Samiti, (2007)

139 COMP CASES 418 (SC).
51 State of Kerala v Mathai Verghese, (1987) 62 COMP CASES

857 (SC). See also the Principle of Literal Construction and Casus omissus in earlier paragraphs.
52 Special Steels Ltd v Jay Prestressed Products Ltd, (1991) 72

COMP CASES 277 (Bom.); Killick Nixon Ltd v Bank of India, (1985) 57 COMP CASES 831 (Bom.) (DB); Re, Beejay
Engineers Pvt Ltd, (1983) 53 COMP CASES 918 (Delhi) (DB); Keshavji Ravji and Co v CIT, AIR 1991 SC 1806 : (1990)
183 ITR 1 (SC) : (1990) 1 Comp. LJ 374 (SC). See also Literal Construction.
53 Sudarsan Trading Co Ltd v Govt. of India, (1991) 71 COMP

CASES 265 (Ker.); Institute of Patent Agents v Lockwood, (1894) AC 347 (HL); K.M. Nanavati v State of Bombay, AIR
1961 SC 112; Ashok Kumar Oswal v S.P. Oswal, (2002) 110 COMP CASES 747 (CLB). See also Contextual Meaning
in later paragraphs.
54 Madanlal Fakirchand Dudhediya v Sri Changdeo Sugar Mills Ltd,

(1962) 32 COMP CASES 604 (SC) : AIR 1962 SC 1543 : (1962) Supp. 3 SCR 973.
55 Orient Paper and Industries Ltd v State of Orissa, AIR 1991 SC

672; South India Corp Pvt Ltd v Secretary, Board of Revenue, AIR 1964 SC 207 : (1964) 15 STC 74 (SC); UOI v G.M.
Kokil, AIR 1984 SC 1022; T.R. Thandur v UOI, AIR 1996 SC 1643; Smt. Parayankandiyal E.K.K.A. v K. Devi, AIR 1996
SC 1963.
56 Maharashtra Tubes Ltd v State Industrial and Investment Corp of

Maharashtra Ltd, (1993) 78 COMP CASES 803 (SC); Sanwarmal Kejriwal v Vishwa Co-operative Housing Society Ltd,
AIR 1990 SC 1563. See also generalia specialibus non derogant hereinafter.
57 Solidaire India Ltd v Fairgrowth Financial Services Ltd, (2001)

104 COMP CASES 569 (SC); A.S. Nizar Ahmed and Co Ltd v Collector of Vellore District, (2004) 119 COMP CASES
583 (Mad.); Hyderabad Engineering Industries v A.P. Industry Facilitation Council, (2004) 120 COMP CASES 195 (AP).
58 Official Liquidator v Haryana Financial Corp, (1999) 98 COMP

CASES 683 (P&H); Titus Daniel v South Indian Parenterals Pvt Ltd, (2000) 101 COMP CASES 117 (Ker.).
59 Bharat Hari Singhania v CWT, (1994) 207 ITR 1 (SC) : (1994)

118 CTR (SC) 125.
60 P. Virudhachalam v Management of Lotus Mills, AIR 1998 SC

554; T.D. Bonny v Registrar of Co-operative Societies, AIR 1998 SC 2012.
Mr. Laghir1 Rabari

Page 161 of 177
61 Morgan Securities and Credit Pvt Ltd v Modi Rubber Ltd, (2007)
136 COMP CASES 113 (SC); Jay Engineering Works Ltd v Industry Facilitation Council, (2006) 133 COMP CASES
670 (SC).
62 ICICI Bank Ltd v SIDCO Leathers Ltd, (2006) 131 COMP

CASES 451 (SC).
63 UOI v India Fisheries Pvt Ltd, (1965) 35 COMP CASES 669 (SC)
: AIR 1966 SC 35 : (1965) 57 ITR 331 (SC) : (1965) 3 SCR 679; P. George Philip v Official Liquidator, (2004) 120
COMP CASES 444 (Cal.) (FB). See also Notes under section 483.
64 J.K. Cotton Spg. and Wvg. Mills Co Ltd v State of U.P., AIR 1961
SC 1170; South India Corporation Pvt Ltd v Secy., Board of Revenue, AIR 1964 SC 207 : (1964) 15 STC 74 (SC).
65 CIT v Shahzada Nand & Sons, AIR 1966 SC 1342 : (1966) 60

ITR 392 (SC).
66 Allahabad Bank v Canara Bank, (2000) 101 COMP CASES 64

(SC) explained and distinguishedin Pennar Paterson Ltd v State Bank of Hyderabad, (2001) 106 COMP CASES 338
(AP) (DB); Raghunath Rai Bareja v Punjab National Bank, (2007) 135 COMP CASES 163 (SC). See also Notes under
sections 442, 446, 529, 529A and 537.
67 Ashoka Marketing Ltd v Punjab National Bank, (1992) 74 COMP

CASES 482 (SC).
68 South India Corpn. Pvt Ltd v Secy., Board of Revenue, AIR 1964
SC 207 : 15 STC 74 (SC).
69 Surana Steels Pvt Ltd v Dy. CIT, (1999) 237 ITR 777 (SC).
70 Singhai Rakesh Kumar v UOI, (2001) 247 ITR 150 (SC).
71 P.C. Agarwala v Payment of Wages Inspector, (2005) 127

72 J.K. Industries Ltd v Chief Inspector of Factories and Boilers,

(1997) 88 COMP CASES 285 (SC); Swedish Match AB v SEBI, (2004) 122 COMP CASES 83 (SC); CIT v Indo-
Mercantile Bank Ltd, AIR 1959 SC 713 : (1959) 36 ITR 1 (SC) : (1959) Supp. 2 SCR 256; Abdul Jabar Butt v State of
J&K, AIR 1957 SC 281 : 1957 SCR 51; H.E.H. Nizam’s Religious Endowment Trust v CIT, AIR 1966 SC 1007 : (1966)
59 ITR 582 (SC).
73 Tahsildar Singh v State of U.P., AIR 1959 SC 1012.
74 In Re, Marybong and Kyel Tea Estate Ltd, (1977) 47 COMP

CASES 802 (Cal.); CIT v Ajax Products Ltd, AIR 1965 SC 1358 : (1965) 55 ITR 741 (SC) : (1965) 1 SCR 700; State of
Orissa v Debaki Debi, AIR 1964 SC 1413 : (1964) 15 STC 153 (SC); Hindusthan Ideal Insurance Co Ltd v L.I.C., AIR
1963 SC 1083 : (1963) 1 Comp. LJ 49 (SC).
Mr. Laghir1 Rabari

Page 162 of 177
75 Madhu Gopal v Sixth Addl. District Judge, (1988) 4 SCC 644.
76 Allied Motors Pvt Ltd v CIT, (1997) 224 ITR 677 (SC). See also
Reasonable Construction.
77 S. Sundaram Pillai v V.R. Pattabhiraman, AIR 1985 SC 582;

Swedish Match AB v SEBI, (2004) 122 COMP CASES 83 (SC).
78 Aphali Pharmaceuticals Ltd v State of Maharashtra, AIR 1989

SC 2227; Keshavji Ravji and Co v CIT, AIR 1991 SC 1806 : (1990) 183 ITR 1 (SC) : (1990) 1 Comp. LJ 374 (SC).
79 State of Bombay v United Motors (India) Ltd, AIR 1953 SC 252.
80 Patel Roadways Ltd v Prasad Trading Co, AIR 1992 SC 1514.
81 ITO v D. Manoharlal Kothari, (1999) 96 COMP CASES 275

(Mad.).
82 Murlidhar Chatterjee v International Film Co Ltd, AIR 1943 PC 34

: 70 IA 1 (PC).
83 T. Devadasan v UOI, AIR 1964 SC 179.
84 Sham Sunder v State of Haryana, (1990) 67 COMP CASES 1

(SC) : AIR 1989 SC 1982; Tolaram Relumal v State of Bombay, AIR 1954 SC 496 : 1955 SCR 158; Grindlays Bank
P.L.C. v UOI, (2001) 106 COMP CASES 1 (Cal.).See detailed Notes under sections 5 and 621 to 631.
85 Lalita Jalan v Bombay Gas Co Ltd, (2003) 114 COMP CASES

515 (SC); Goaplast Pvt Ltd v Chico Ursula D’Souza, (2003) 114 COMP CASES 644 (SC); Standard Chartered Bank v
Directorate of Enforcement, (2005) 125 COMP CASES 513 (SC).
86 Swedish Match AB v SEBI, (2004) 122 COMP CASES 83 (SC);

Balram Kumawat v UOI, (2003) 7 SCC 628. See also Notes under section 55A.
87 CIT v Ashoka Engineering Co, (1992) 194 ITR 645 (SC): (1993)
109 CTR (SC) 491. See detailed Notes under section 10—Jurisdiction of Courts.
88 R v Legal Aid Committee No. 1 (London) Legal Aid Area, ex p.

Rondel, (1967) 2 QB 482.
89 IRC v Littlewoods Mail Order Stores Ltd, (1963) AC 135 (HL) :

(1962) 2 All ER 279 (HL).
90 Qualter, Hall & Co Ltd v Board of Trade, (1962) ChD 273 : (1961)
2 WLR 63 : (1961) 31 COMP CASES 445.
Mr. Laghir1 Rabari

Page 163 of 177
91 Premier Mills Ltd v CIT, (1985) 152 ITR 457 (Mad.).
92 CWT v R Susheela, (1989) 176 ITR 232 (Kar.) : (1989) 79 CTR

(Kar.) 138.
1 East End Dwellings Co Ltd v Finsbury Borough Council, (1952)

AC 109 (HL) : (1951) 2 All ER 587 (HL); A.S. Glittre D/5 I/S Garonne v CIT, (1997) 225 ITR 739 (SC); CIT v Godavari
Sugar Mills Ltd, (1967) 37 COMP CASES 68 (SC) : AIR 1967 SC 556 : (1967) 63 ITR 310 (SC) : (1967) 1 SCR 798;
CIT v Jaykrishna Harivallabhdas, (1998) 93 COMP CASES 875 (Guj.) (DB); S. and D. Securities Pvt Ltd v UOI, (2004)
119 COMP CASES 210 (Cal.). See also Notes under sections 481, 497, 509, 547, 577.
2 CIT v G. Narasimhan, (1999) 236 ITR 327 (SC); CIT v S. Teja

Singh, AIR 1959 SC 352 : (1959) 35 ITR 408 (SC).
3 CIT v Mother India Refrigeration Industries Pvt Ltd, (1985) 155

ITR 711 (SC) : (1985) 48 CTR (SC) 176; Bengal Immunity Co Ltd v State of Bihar, AIR 1955 SC 661 : (1955) 6 STC
446 (SC) : (1955) 2 SCR 603; Har Charan Singh v Shiv Rani, AIR 1981 SC 1284.
4 State of Bombay v Pandurang Vinayak Chaphalkar, AIR 1953

SC 244 : 1953 SCR 773; Consolidated Coffee Ltd v Coffee Board, AIR 1980 SC 1468 : (1980) 46 STC 164 (SC); CIT v
Maharaj Kumar Kamal Singh, AIR 1973 SC 1056 : (1973) 89 ITR 1 (SC).
5 S.K. Gupta v K.P. Jain, (1979) 49 COMP CASES 342 (SC) : AIR
1979 SC 734 : (1979) 2 SCR 1184. See fuller discussion in Notes under section 2—Definitions.
6 R.D. Goyal v Reliance Industries Ltd, (2003) 113 COMP CASES

1 (SC); United Bank of India v Debts Rocovery Tribunal, (1999) 96 COMP CASES 602 (SC) : AIR 1999 SC 1381.
7 Central Bank of India v Ravindra, (2001) 107 COMP CASES 416

(SC).
8 L. Hazari Mal Kuthiala v ITO, AIR 1961 SC 200 : (1961) 41 ITR

12 (SC); State of U.P. v Manbodhan Lal Srivastava, AIR 1957 SC 912 : 1958 SCR 533; Govind Lal Chaggan Lal Patel
v Agriculture Produce Market Committee, AIR 1976 SC 263; Manohar Gunaji Anubhawne v State of Maharashtra,
(2004) 120 COMP CASES 94 (Bom.). See also Notes under section 630.
9 State of U.P. v Babu Ram Upadhya, AIR 1961 SC 751; Rubber

House v Excellsior Needle Industries Pvt Ltd, AIR 1989 SC 1160 : (1989) 1 JT 488 (SC); CWT v Mahadeo Jalan,
(1972) 86 ITR 621 (SC) : AIR 1973 SC 1023; Hemalatha Gargya v CIT, (2003) 259 ITR 1 (SC).
10 CIT v Anjum M.H. Ghaswala, (2001) 252 ITR 1 (SC); Jaywant S.

Kulkarni v Minochar Dosabhai Shroff, AIR 1988 SC 1817.
11 CIT v Hardeodas Agarwalla Trust, (1992) 198 ITR 511 (Cal.).
12 New Piece Goods Bazaar Co Ltd v CIT, AIR 1950 SC 165 :

(1950) 18 ITR 516 (SC) : 1950 SCR 553. See also Literal Construction in earlier paragraphs.
Mr. Laghir1 Rabari

Page 164 of 177
13 Doypack Systems Pvt Ltd v UOI, (1989) 65 COMP CASES 1

(SC) : AIR 1988 SC 782. See also Literal Construction in earlier paragraphs.
14 Workmen of Dimakuchi Tea Estate v Management of Dimakuchi

Tea Estate, AIR 1958 SC 353 : (1958) 14 FJR 41 (SC). See also Contextual Meaning and Legislative Intent hereinafter.
15 Aswini Kumar Ghose v Arabinda Bose, AIR 1952 SC 369 :

(1953) SCR 1.
16 Luby v Newcastle-under-Lyme Corporation, (1965) 1 QB 214.
17 Re, Naranjan Singh, (1962) 1 QB 211 : (1961) 2 All ER 565.
18 CIT v Puthuthotam Estates (1943) Ltd, (1981) 127 ITR 481

(Mad.).
19 Punjab Agro Industries Corp Ltd v Superior Genetics (India) Ltd,

(2002) 108 COMP CASES 349 (CLB). See also Notes under section 235 of the Companies Act, 1956.
20 CIT v N.C. Budharaja & Co, (1993) 204 ITR 412 (SC) : (1993)
114 CTR (SC) 420 : (1993) 70 Taxman 312 (SC); Indian Hotels Co Ltd v ITO, (2000) 245 ITR 538 (SC). See also
Contextual Meaning and Dictionary Meaning in subsequent paragraphs.
21 CIT v Taj Mahal Hotel, AIR 1972 SC 168 : (1971) 82 ITR 44

(SC); CGT v N.S. Getti Chettiar, AIR 1971 SC 2410 : (1971) 82 ITR 599 (SC); Commissioner of Customs v
Parasrampuria Synthetics Ltd, (2002) 253 ITR 274 (SC). See also Interpretation of Definitions, Meanings and Inclusive
definition inComments under section 2.
22 CIT v Mahindra and Mahindra Ltd, (1983) 54 COMP CASES 651

(SC) : AIR 1984 SC 1182 : (1983) 144 ITR 225 (SC).
23 CIT v Venkateswara Hatcheries Pvt Ltd, (1999) 237 ITR 174

(SC); Jagatram Ahuja v CGT, (2000) 246 ITR 609 (SC); D.N. Banerji v P.R. Mukherjee, AIR 1953 SC 58; S. Mohan Lal
v R. Kondiah, AIR 1979 SC 1132. See also Analogous Acts in pari materia in later paragraphs.
24 RBI v Peerless General Finance and Investment Co Ltd, (1987)

61 COMP CASES 663 (SC) : AIR 1987 SC 1023; S. Gopal Reddy v State of A.P., AIR 1996 SC 2184; D.K. Kapur v
RBI, (2001) 105 COMP CASES 643 (Delhi) (DB).

26 Bhagirathi Shenoy v K.P. Balakuraiya, AIR 1999 SC 2143;

United Bank of India v Debts Rocovery Tribunal, (1999) 96 COMP CASES 602 (SC) : AIR 1999 SC 1381; Municipal
Board v Imperial Tobacco Co of India Ltd, AIR 1999 SC 264.
Mr. Laghir1 Rabari

Page 165 of 177
27 CIT v Venkateswara Hatcheries Pvt Ltd, (1999) 237 ITR 174

(SC).
28 Allied Motors Pvt Ltd v CIT, (1997) 224 ITR 677 (SC).
29 Indian Hotels Co Ltd v ITO, (2000) 245 ITR 538 (SC); CIT v N.C.
Budharaja & Co, (1993) 204 ITR 412 (SC) : (1993) 114 CTR (SC) 420; CGT v N.S. Getti Chettiar, AIR 1971 SC 2410 :
(1971) 82 ITR 599 (SC); Bolani Ores Ltd v State of Orissa, AIR 1975 SC 17 : (1975) 2 SCR 138. See also Ordinary and
Contextual Meaning in earlier paragraphs.
30 CIT v Anand Theatres, (2000) 244 ITR 192 (SC); Dy. Chief
Controller of Imports and Exports v K.T. Kosalram, AIR 1971 SC 1283 : (1971) 2 SCR 507.
31 Kavalappara Kottarathil Kochuni v State of Madras, AIR 1960 SC

1080; Jagdish Chandra Gupta v Kajaria Traders (India) Ltd, AIR 1964 SC 1882; Gwalior Sugar Co Ltd v Shyam Saran
Gupta and Co, (1969) 39 COMP CASES 657 (MP) (DB) : AIR 1969 MP 74 (DB).
32 CIT v The Statesman Ltd, (1992) 198 ITR 582 (Cal.).
33 Siddeshwari Cotton Mills Pvt Ltd v UOI, AIR 1989 SC 1019 :

(1989) 75 STC 75 (SC); Amar Chandra Chakraborty v Collector of Excise, AIR 1972 SC 1863; Calcutta National Bank
Ltd v Rangaroon Tea Co Ltd, (1970) 40 COMP CASES 565 (Cal.) (DB); Aluminium Industries Ltd v State of Orissa,
(1991) 72 COMP CASES 436 (Orissa).
34 M.K. Ranganathan v Govt. of Madras, (1955) 25 COMP CASES

344 (SC) : AIR 1955 SC 604; Stonecraft Enterprises v CIT, (1999) 237 ITR 131 (SC).
35 State of Bombay v Hospital Mazdoor Sabha, AIR 1960 SC 610;

Rohit Pulp and Paper Mills Ltd v CCE, AIR 1991 SC 754 : 1990 (47) ELT 491 (SC) : 1990 (30) ECR 1 (SC).

ITR 1 (SC) : (1990) 1 Comp. LJ 374 (SC); F.S. Ghandhi v CWT, (1990) 184 ITR 34 (SC) : (1990) 84 CTR (SC) 35;
Ahmed G.H. Ariff v CWT, AIR 1971 SC 1691 : (1970) 76 ITR 471 (SC). See also Doctrine of Precedent in later
paragraphs and Notes under section 10—Jurisdiction of Courts.
37 New Bank of India Ltd v UOI, (1981) 51 COMP CASES 375

(Delhi) (DB).
38 Bank of England v Vagliano Bros., (1891) AC 107 (HL); Stock v

Frank Jones (Tipton) Ltd, (1978) 1 All ER 948 (HL); Upendra Kumar Joshi v Kesoram Industries and Cotton Mills Ltd,
(1983) 54 COMP CASES 1 (Pat.) (FB). See Literal Construction in earlier paragraphs.
39 Heydon’s case, (1584) 3 Co. Rep. 7a : 76 ER 637 : 42 Digest

614; Dr. Baliram Waman Hiray v Mr. Justice B. Lentin, AIR 1988 SC 2267 : (1989) 176 ITR 1 (SC); Bengal Immunity Co
Ltd v State of Bihar, AIR 1955 SC 661 : (1955) 6 STC 446 (SC) : (1955) 2 SCR 603; CIT v Sodra Devi, AIR 1957 SC
832 : (1957) 32 ITR 615 (SC) : (1958) SCR 1; Project and Equipment Corpn. of India Ltd v Aluminium Industries Ltd,
(2003) 115 COMP CASES 522 (Ker.) (DB).
Mr. Laghir1 Rabari

Page 166 of 177

41 Shin-Etsu Chemical Co Ltd v Aksh Optifibre Ltd, (2005) 127

COMP CASES 97 (SC).
42 Padmasundara Rao v State of Tamil Nadu, (2002) 255 ITR 147

(SC). See also Literal Construction, Casus omissus and Rational Construction in earlier paragraphs.

ITR 1 (SC) : (1990) 1 Comp. LJ 374 (SC); Doypack Systems Pvt Ltd v UOI, (1989) 65 COMP CASES 1 (SC) : AIR
1988 SC 782. See also Literal Construction and Grammatical Meaning in earlier paragraphs.
44 B.N. Muttoo v Dr. T.K. Nandi, AIR 1979 SC 460 : (1979) 2 SCR
409.
45 Kehar Singh v State (Delhi Admn.), AIR 1988 SC 1883; Shree

Sajjan Mills Ltd v CIT, (1985) 156 ITR 585 (SC) : (1985) 49 CTR (SC) 193 : AIR 1986 SC 484. See also Literal
Construction and Reasonable Construction in earlier paragraphs.
46 Imperial Chit Funds Pvt Ltd v ITO, (1996) 86 COMP CASES 555
(SC) : (1996) 219 ITR 498 (SC) : (1996) 133 CTR (SC) 505 : (1996) 85 Taxman 513 (SC).
47 Transport Corp of India v E.S.I. Corporation., AIR 2000 SC 238;

Madan Singh Shekhawat v UOI, (1998) 6 SCC 459.
48 CCE v Parle Exports Pvt Ltd, AIR 1989 SC 488 : (1990) 183 ITR
624 (SC).
49 Girdharilal & Sons v Balbir Nath Mathur, AIR 1986 SC 1499;

Municipal Corporation of Greater Bombay v Hindustan Petroleum Corporation, (2001) 8 SCC 143.
50 Govind Saran Ganga Saran v CST, AIR 1985 SC 1041 : (1985)

155 ITR 144 (SC).
51 A. Thangal Kunju Musaliar v M. Venkatachalam Potti, ITO, AIR

1956 SC 246 : (1956) 29 ITR 349 (SC) : (1955) 2 SCR 1196; M.K. Ranganathan v Govt. of Madras, (1955) 25 COMP
CASES 344 (SC) : AIR 1955 SC 604.
52 Shashikant Laxman Kale v UOI, (1990) 185 ITR 104 (SC) :

(1990) 3 JT 267 (SC); State of West Bengal v UOI, AIR 1963 SC 1241 : (1964) 1 SCR 371; Central Bank of India v
Workmen, (1959) 29 COMP CASES 367 (SC) : AIR 1960 SC 12.; Rib Tapes (India) Pvt Ltd v UOI, AIR 1986 SC 2014 :
1986 (26) ELT 193 (SC); Re YKM Holdings Pvt Ltd, (2001) 105 COMP CASES 249 (Delhi) (DB). See also Legislative
Intent in earlier paragraphs.
53 Gopal Khaitan v State, (1969) 39 COMP CASES 150 (Cal.) : AIR

1969 Cal 132 : 73 Cal WN 22.
Mr. Laghir1 Rabari

Page 167 of 177

Imperial Chit Funds Pvt Ltd v ITO, (1996) 86 COMP CASES 555 (SC) : (1996) 219 ITR 498 (SC). See also Legislative
Intent and Statement of Objects and Reasons in preceding paragraphs.

Imperial Chit Funds Pvt Ltd v ITO, (1996) 86 COMP CASES 555 (SC) : (1996) 219 ITR 498 (SC); Mithilesh Kumari v
Prem Behari Khare, AIR 1989 SC 1247 : (1989) 177 ITR 97 (SC); CIT v Vadilal Lallubhai, AIR 1973 SC 1016 : (1972)
86 ITR 2 (SC); CIT v Sodra Devi, AIR 1957 SC 832 : (1957) 32 ITR 615 (SC) : (1958) SCR 1. See also Legislative
Intent in earlier paragraphs.
56 K.P. Varghese v ITO, AIR 1981 SC 1922 : (1981) 131 ITR 597
(SC) : (1982) 1 SCR 629; Anandji Haridas & Co Pvt Ltd v Engg. Mazdoor Sangh, AIR 1975 SC 946 : (1975) 99 ITR 592
(SC) : (1975) 3 SCR 542; Sole Trustee, Loka Shikshana Trust v CIT, AIR 1976 SC 10 : (1975) 101 ITR 234 (SC). See
also Legislative Intent in earlier paragraphs.
57 Kamal Kumar Dutta v Ruby General Hospital Ltd, (2006) 134

58 Yadlapati Venkateswarlu v State of A.P., AIR 1991 SC 704 :

(1991) 190 ITR 375 (SC).
59 V.M. Salgaocar and Bros. Pvt Ltd v CIT, (2000) 243 ITR 383
(SC).
60 CIT v P. Doraiswamy Chetty, (1990) 183 ITR 559 (SC) : (1990)

86 CTR (SC) 192; Manickam & Co v State of T.N., AIR 1977 SC 518 : (1977) 39 STC 12 (SC).
61 ITO v Mani Ram, AIR 1969 SC 543 : (1969) 72 ITR 203 (SC) :
(1969) 1 SCR 724.
62 CIT v Podar Cement Pvt Ltd, (1997) 226 ITR 625 (SC).
63 Jagatram Ahuja v CGT, (2000) 246 ITR 609 (SC); Board of

Muslim Wakfs, Rajasthan v Radha Kishan, AIR 1979 SC 289 : (1979) 2 SCR 148; Mrs. Sheila Kaushish v CIT, AIR
1981 SC 1729 : (1981) 131 ITR 435 (SC); Amolak Ram Khosla v CIT, (1981) 131 ITR 589 (SC); Poothundu Plantations
Pvt Ltd v Agril. ITO, (1996) 221 ITR 557 (SC).
64 Rabindra Chamaria v Registrar of Companies, (1992) 73 COMP

CASES 257 (SC).
65 Assam Co Ltd v State of Assam, (2001) 248 ITR 567 (SC).
66 CIT v Taj Mahal Hotel, AIR 1972 SC 168 : (1971) 82 ITR 44

(SC).
67 CST v Auraiya Chamber of Commerce, AIR 1986 SC 1556 :

(1987) 167 ITR 458 (SC).
Mr. Laghir1 Rabari

Page 168 of 177
68 Chandra Kishore Jha v Mahavir Prasad, (1999) 8 SCC 266; M.I.

Builders Pvt Ltd v Radhey Shyam Sahu, AIR 1999 SC 2467.
69 CIT v Sirpur Paper Mills, (1999) 237 ITR 41 (SC). See detailed
70 Grasim Industries Ltd v State of M.P., AIR 2000 SC 66.
71 Swedish Match AB v SEBI, (2004) 122 COMP CASES 83 (SC).

See detailed Notes on the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 under relevant
section 55A of the Companies Act, 1956—Powers of SEBI in this book.
72 Clariant International Ltd v SEBI, (2004) 122 COMP CASES 112

(SC). See also Notes under section 55A of the 1956 Act—Powers of SEBI in this book.
73 State of U.P. v Modi Industries Ltd, AIR 1977 SC 513 : (1977) 40

STC 73 (SC).
74 R. Rajagopal Reddy v Padmini Chandrasekharan, (1995) 213

ITR 340 (SC) : (1995) 124 CTR (SC) 311 : (1995) 79 Taxman 92 (SC). See also Notes under section 10—Jurisdiction
of Courts.
75 UOI v Raghubir Singh, (1989) 66 COMP CASES 466 (SC) : AIR

1989 SC 1933 : (1989) 178 ITR 548 (SC). See detailed Notes under section 10—Jurisdiction of Courts.
76 CWT v Sharvan Kumar Swarup & Sons, (1994) 210 ITR 886
(SC) : (1994) 122 CTR (SC) 380. See also Notes under section 10—Jurisdiction of Courts.
77 R.D. Goyal v Reliance Industries Ltd, (2003) 113 COMP CASES

1 (SC).
78 National Stock Exchange Member v UOI, (2006) 133 COMP

CASES 504 (Delhi) (DB).
79 CCE v Dhiren Chemical Industries, (2002) 254 ITR 554 (SC) :

(2002) 139 ELT 3 (SC); Commissioner of Customs v Indian Oil Corp Ltd, (2004) 267 ITR 272 (SC). See detailed Notes
on Binding force of Supreme Court and High Court decisions under section 10 and Binding force of Department’s views
or Circulars under section 637 of the 1956 Act.
80 CIT v Hero Cycles Pvt Ltd, (1997) 228 ITR 463 (SC); M.D.
Mundhra v Asst. ROC, (1980) 50 COMP CASES 346 (Cal.) (DB); Sudhir Kumar Seal v Asst. ROC, (1979) 49 COMP
CASES 462 (Cal.) (DB); Harrisons and Crosfield (India) Ltd v ROC, (1980) 50 COMP CASES 426 (Ker.); ITO v D.
Manoharlal Kothari, (1999) 96 COMP CASES 275 (Mad.).
81 Raymond Synthetics Ltd v UOI, (1992) 73 COMP CASES 762

(SC); Desh Bandhu Gupta & Co v Delhi Stock Exchange Association Ltd, (1980) 50 COMP CASES 84 (SC) : AIR 1979
SC 1049 : (1979) 3 SCR 373; K.P. Varghese v ITO, AIR 1981 SC 1922 : (1981) 131 ITR 597 (SC); Shrabony Dey v
Howrah Motor Co Ltd, (2004) 122 COMP CASES 597 (Cal.) (DB). See detailed Notes on Binding force of Department’s
Mr. Laghir1 Rabari

Page 169 of 177
views or Circulars and the Doctrine of contemporanea expositio under section 637 and Powers of SEBI under section
55A of the Companies Act, 1956.
82 Indian Banks’ Association v Devkala Consultancy Service,

(2004) 120 COMP CASES 612 (SC) : (2004) 267 ITR 179 (SC).
83 UOI v V.M. Salgaonkar, AIR 1998 SC 1367.
84 CIT v Anjum M.H. Ghaswala, (2001) 252 ITR 1 (SC). See

detailed Notes on Binding force of Department’s views or Circulars under section 637.
85 M.N. Dastur and Co Ltd v UOI, (2005) 128 COMP CASES 618
(Cal.) (DB).
86 Smt. Hemlata Kantilal Shah v State of Mah., (1983) 54 COMP

CASES 559 (SC) : AIR 1982 SC 8.
87 UOI v Godfrey Philips India Ltd, (1986) 59 COMP CASES 526

(SC) : AIR 1986 SC 806 : (1986) 158 ITR 574 (SC); State of Punjab v Nestle India Ltd, (2004) 269 ITR 97 (SC). See
detailed Notes under section 10—Jurisdiction of Courts.
88 UOI v Raghubir Singh, (1989) 66 COMP CASES 466 (SC) : AIR

1989 SC 1933 : (1989) 178 ITR 548 (SC); Sundarjas Kanyalal Bhatija v Collector, (1990) 68 COMP CASES 20 (SC) :
AIR 1991 SC 261 : (1990) 183 ITR 130 (SC); M.A. Murthy v State of Karnataka, (2003) 264 ITR 1 (SC). See detailed
Notes on Doctrine of precedent or stare decisis, Binding force of Supreme Court and jurisdictional High Court decisions
under section 10—Jurisdiction of Courts.
89 ACCE v Dunlop India Ltd, (1985) 58 COMP CASES 145 (SC) :

AIR 1985 SC 330 : (1985) 154 ITR 172 (SC); Cassell & Co Ltd v Broome, (1972) AC 1027 (HL) : (1972) 1 All ER 801
(HL) : (1972) 2 WLR 645 (HL). Per incuriam rule and Binding force of Supreme Court decisions have been fully dealt
with at the end of Notes under section 10—Jurisdiction of Courts.
90 CIT v Sun Engineering Works Pvt Ltd, (1992) 198 ITR 297 (SC).
See detailed Notes on Binding force of Supreme Court decisions under section 10—Jurisdiction of Courts.
91 East India Commercial Co Ltd v Collector of Customs, AIR 1962

SC 1893 : (1963) 3 SCR 338; State of A.P. v CTO, (1988) 63 COMP CASES 273 (AP) : (1988) 169 ITR 564 (AP). See
detailed Notes under section 10—Jurisdiction of Courts.
92 Nawab Sir Mir Osman Ali Khan v CWT, (1986) 162 ITR 888 (SC)
: (1986) 57 CTR (SC) 89; Daryao v State of U.P., AIR 1961 SC 1457 : (1962) 1 SCR 574; CIT v Shree
Manjunathesware Packing Products and Camphor Works, (1998) 231 ITR 53 (SC). See detailed Notes on Special
Leave Petition under Binding force of Supreme Court decisions at the end of Notes under section 10—Jurisdiction of
Courts.
93 Indian Oil Corporation Ltd v State of Bihar, (1987) 62 COMP

CASES 541 (SC) : AIR 1986 SC 1780 : (1987) 167 ITR 897 (SC); Kunhayammed v State of Kerala, (2000) 245 ITR 360
(SC). See detailed Notes on Special Leave Petition and Doctrine of Merger under Binding force of Supreme Court
decisions at the end of Notes under section 10—Jurisdiction of Courts.
Mr. Laghir1 Rabari

Page 170 of 177
1 L. Chandra Kumar v UOI, (1997) 228 ITR 725 (SC). See detailed
discussion in Notes under section 10—Jurisdiction of Courts.
2 Workmen v Board of Trustees of Cochin Port Trust, AIR 1978 SC

1283 : (1978) 53 FJR 80 (SC); Daryao v State of U.P., AIR 1961 SC 1457 : (1962) 1 SCR 574; S. Balwant Singh v
Krishna Bus Service Pvt Ltd, (1967) 37 COMP CASES 471 (C.T.). For fuller discussion see Notes under section 10—
3 Hind Overseas Pvt Ltd v Raghunath Prasad Jhunjhunwalla,

(1976) 46 COMP CASES 91 (SC) : AIR 1976 SC 565; Kilpest Pvt Ltd v Shekhar Mehra, (1996) 87 COMP CASES 615
(SC); Madanlal Fakirchand Dudhediya v Sri Changdeo Sugar Mills Ltd, (1962) 32 COMP CASES 604 (SC) : AIR 1962
SC 1543. See detailed Notes under section 10—Jurisdiction of Courts.
4 Tuticorin Alkali Chemicals and Fertilizers Ltd v CIT, (1997) 227

ITR 172 (SC); Challapalli Sugars Ltd v CIT, AIR 1975 SC 97 : (1975) 98 ITR 167 (SC) : (1975) 2 SCR 538. See
detailed Notes under sections 10, 208 and 211.
5 The Act came into force from 1st April, 1956, vide Notification
No. S.R.O. 612, dt. 8-3-1956, published in the Gazette of India, Extraordinary, 1956, Pt II, section 3, p 473.
6 Substituted by the Jammu and Kashmir (Extension of Laws) Act,

1956 (62 of 1956), section 2 and Sch., for sub-section (3) (w.e.f. 1-11-1956). Prior to substitution sub-section (3) stood
as under:
“(3) It extends to the whole of India except the State of Jammu and Kashmir.”
7 First proviso omitted by the Central Laws (Extension to Jammu

and Kashmir) Act, 1968 (25 of 1968), section 2 and Sch. (w.e.f. 15-08-1968). Prior to omission first proviso stood as
under:
“Provided that it shall not apply to the State of Jammu and Kashmir except to the extent to which the provisions of this Act relate
to the incorporation, regulation and winding up of banking, insurance and financial corporations.”
8 Inserted by the Companies (Amendment) Act, 1965 (31 of 1965),

section 2 (w.e.f. 15-10-1965).
9 The word “further” omitted by Act 25 of 1968, section 2 and

Schedule (w.e.f. 15-08-1968).
10 Published in the Gazette of India, Extraordinary, Part II, section

2, dt. 02-09-1953.
11 Gazette of India, Extraordinary, Pt II, section 2 : (1959) 29 COMP

CASES (St.) 106.
12 Published in the Gazette of India, Extraordinary, Pt II, section 2,

p 819, dt. 13-11-1962 : (1962) 32 COMP CASES (St.) 200.
Mr. Laghir1 Rabari

Page 171 of 177

p 809, dt. 26-11-1963 : (1964) 34 COMP CASES (St.) 8.

p 437, dt. 7-9-1964 : (1964) 34 COMP CASES (St.) 230.

p 596, dt. 21-9-1964 : (1964) 34 COMP CASES (St.) 247.

p 1125, dt. 22-11-1965 : (1966) 36 COMP CASES (St.) 1.

p 433, dt. 21-9-1966 : (1966) 36 COMP CASES (St.) 121.

p 477, dt. 12-6-1967 : (1967) 37 COMP CASES (St.) 136.

p 697, dt. 10-5-1968 : (1968) 38 COMP CASES (St.) 88.

dt. 11-8-1972 : (1972) 42 COMP CASES (St.) 234.

p 735, dt. 24-11-1977 : (1978) 48 COMP CASES (St.) 4.
* State of Bombay v Bandhan Ram Bhandani, (1961) 31 COMP

CASES 1 (SC) : AIR 1961 SC 186 : (1961) 1 SCR 801. See detailed Notes under sections 159, 162, 166 and 220.
† State of Andhra Pradesh v Andhra Provincial Potteries Ltd,

(1973) 43 COMP CASES 514 (SC) : AIR 1973 SC 2429. See Notes under sections 159, 162, 166, 168, 210(5) and
220(3) of the 1956 Act.
22 Published in the Gazette of India, Extraordinary, No. 54, Pt II,

section 2, dt. 22-12-1983 : (1984) 56 COMP CASES (St.) 90.


dt. 31-8-1987 : (1987) 62 COMP CASES (St.) 114.

dt. 16-12-1991 : (1992) 73 COMP CASES (St.) 13.
Mr. Laghir1 Rabari

Page 172 of 177
26 Gazette of India, Extraordinary, Pt II, section 2 : (1996) 87 COMP

CASES (St.) 51.

dt. 10-9-1996 : (1996) 87 COMP CASES (St.) 59.
28 Published in the Gazette of India, Extraordinary, Pt II, section 2 :

(1997) 89 COMP CASES (St.) 241.

dt. 22-12-1998 : (1999) 95 COMP CASES (St.) 47.

dt. 23-12-1999 : (2000) 99 COMP CASES (St.) 107.

dt. 22-11-2001 : (2001) 107 COMP CASES (St.) 485.


dt. 31-8-2001 : (2001) 107 COMP CASES (St.) 116.

† Published in the Gazette of India, Extraordinary, No. 10, Pt II,

* Now the Banking Regulation Act, 1949 (10 of

1949).
35 Inserted by the Companies (Amendment) Act,

1960 (65 of 1960), section 197.
** Now the Electricity Act, 2003 (36 of 2003).
36 Inserted by the Companies (Amendment) Act, 1974 (41 of

1974), section 34 (w.e.f. 1-2-1975).
37 All India Motor Transport Mutual Insurance Co Ltd v Raphel

George, (1963) 33 COMP CASES 1166 (Bom.) (DB). See also Notes under section 10 of the Companies Act, 1956.
† See the Companies (Accounting Standards) Rules, 2006 in

Appendix 74.
Mr. Laghir1 Rabari

Page 173 of 177
38 Bhagwandas Garg v Canara Bank Ltd, (1981) 51 COMP CASES

38 (AP).
39 Kanchanlal Hiralal Nanavati v R. Prabhu, (1984) 55 COMP

CASES 6 (Mad.).
40 K.P. Chackochan v Federal Bank, (1989) 66 COMP CASES 953

(Ker.). But see PIK Securities Management Pvt Ltd v United Western Bank Ltd, (2002) 109 COMP CASES 500 (CLB).
41 Substituted by Act 65 of 1960, section 198, for “sections 618,

619 and 620”.
42 Substituted by Act 65 of 1960, section 198, for “share capital”.
43 Inserted by the Companies (Amendment) Act, 1960 (65 of 1960),

section 198.
44 State v B.L. Ohri, AIR 1967 Pat. 441; Thomas Varghese v

Joseph Thomas, AIR 1968 Ker. 1.
45 State of Punjab v Raja Ram, (1982) 52 COMP CASES 104 (SC)

: AIR 1981 SC 1694 : (1981) 2 SCR 712 (the definition of the “Company” is unduly wide in the Land Acquisition Act).
46 Centre for Public Interest Litigation v UOI, (2003) 117 COMP

CASES 123 (SC).
47 Balco Employees Union (Regd.) v UOI, (2002) 108 COMP

CASES 193 (SC).
48 Karnataka ITDC Hotels Officers Association v India Tourism

Development Corporation, (2003) 115 COMP CASES 924 (Kar.); Balco Employees Union (Regd.) v UOI, (2002) 108
COMP CASES 193 (SC). See also Notes under sections 391 and 393 of the 1956 Act.
49 Southern Structurals Staff Union v Management of Southern

Structurals Ltd, (1994) 81 COMP CASES 389 (Mad.).
50 Ranjit Kumar Chatterjee v UOI, (1969) 39 COMP CASES 327

(Cal.) : AIR 1969 Cal. 95.
51 Abani Bhusan Biswas v Hindusthan Cables Ltd, (1968) 38

COMP CASES 528 (Cal.) : 72 CWN 410; D.M. Nagaraja Rao v Indian Oil Corporation Ltd, (1969) 39 COMP CASES
896 (Mys.) (DB); Sunil Kumar Debnath v Mining and Allied Machinery Corporation Ltd, (1968) 38 COMP CASES 652
(Cal.) (DB) : AIR 1968 Cal. 322 (DB) : 72 CWN 144.
Mr. Laghir1 Rabari

Page 174 of 177
52 Hindustan Antibiotics Ltd v Workmen, AIR 1967 SC 948 : (1967)

1 SCR 652.
53 Pyare Lal Sharma v Jammu and Kashmir Industries Ltd, (1990)

67 COMP CASES 195 (SC) : AIR 1989 SC 1854.
54 Praga Tools Corporation v C.V. Imanual, (1969) 39 COMP

CASES 889 (SC) : AIR 1969 SC 1306 : (1970) 1 Comp. LJ 50 (SC); Sunil Kumar Debnath v Mining and Allied
Machinery Corporation Ltd, (1968) 38 COMP CASES 652 (Cal.) (DB) : AIR 1968 Cal. 322 (DB) : 72 CWN 144. See
also Notes under sections 2(18) and 34 of the 1956 Act.
55 Heavy Engineering Mazdoor Union v State of Bihar, (1969) 39

COMP CASES 905 (SC) : AIR 1970 SC 82 : (1969) 3 SCR 995 : (1969) 2 Comp. LJ 273 (SC); Praga Tools Corporation
v C.V. Imanual, (1969) 39 COMP CASES 889 (SC) : AIR 1969 SC 1306 : (1970) 1 Comp LJ 50 (SC); Sohan Lal v UOI,
AIR 1957 SC 529 : 1957 SCR 738; Kartick Chandra Nandi v West Bengal Small Scale Industries Corporation, AIR
1967 Cal. 231; R. Lakshmi v Neyveli Lignite Corporation Ltd, (1966) 36 COMP CASES 197 (Mad.).
56 R.D. Singh v Secretary, Bihar State Small Industries Corporation,

(1975) 45 COMP CASES 527 (Pat.) (DB).
57 Alliance Mills (Lessees) Pvt Ltd v UOI, (1986) 59 COMP CASES

194 (Cal.).
58 LIC v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986
SC 1370.
59 R. v East Berkshire Health Authority, (1984) 3 All ER 425.
60 Som Prakash Rekhi v UOI, (1981) 51 COMP CASES 71 (SC) :

AIR 1981 SC 212; Ramana Dayaram Shetty v International Airport Authority of India, AIR 1979 SC 1628 : (1979) 3
SCR 1014; State of Punjab v Raja Ram, (1982) 52 COMP CASES 104 (SC) : AIR 1981 SC 1694 : (1981) 2 SCR 712.
61 Kulchhinder Singh v Hardayal Singh Brar, AIR 1976 SC 2216.
62 K.M. Thomas v Cochin Refineries Ltd, (1985) 58 COMP CASES

48 (Ker.) : AIR 1982 Ker. 248; P.B. Ghayalod v Maruti Udyog Ltd, (1994) 79 COMP CASES 96 (Delhi) (DB); Nav
Bharat Corporation v Nagarjuna Fertilizers and Chemicals Ltd, (1991) 72 COMP CASES 518 (AP).
63 Sanghi Technologies Pvt Ltd v UOI,(1995) 34 DRJ 345 (Delhi)

(DB.).
64 Central Inland Water Transport Corporation Ltd v Brojo Nath

Ganguly, (1986) 60 COMP CASES 797 (SC) : AIR 1986 SC 1571; Star Enterprises v City and Industrial Development
Corporation of Maharashtra Ltd, (1991) 72 COMP CASES 1 (SC); Mysore Paper Mills Ltd v Mysore paper Mills
Officers’ Association, (2002) 108 COMP CASES 652 (SC).
65 A.K. Bindal v UOI, (2003) 114 COMP CASES 590 (SC).
Mr. Laghir1 Rabari

Page 175 of 177
66 Kapila Hingorani v State of Bihar, (2003) 116 COMP CASES 133

(SC).
67 Employees of Tannery and Footwear Corporation of India v UOI,

(1991) 1 Comp. LJ 106 (SC).
68 Steel Authority of India Ltd v Shri Ambica Mills Ltd, (1998) 92

COMP CASES 120 (SC); Food Corporation of India v Municipal Committee, (1999) 98 COMP CASES 824 (SC);
Electronics Corporation of India Ltd v Secretary, Revenue Department, Government of Andhra Pradesh, (1999) 97
COMP CASES 470 (SC) : (1999) 4 SCC 458 : (1999) 3 Scale 123 (SC) : (1999) 3 Comp. LJ 353 (SC); Hindustan Steel
Works Construction Ltd v State of Kerala, (1998) 2 Comp. LJ 383 (SC); Rewa Gases Pvt Ltd v State of Uttar Pradesh,
(2000) 101 COMP CASES 212 (All.) (DB) :(1999) 3 Comp. LJ 227 (All.) (DB); Cotton Corporation of India Ltd v G.C.
Odusumath, (1999) 33 CLA 458 (Kar.). See also Notes under s. 34 of the 1956 Act.
69 Inland Steam Navigation Workers’ Union v Rivers Steam

Navigation Co Ltd, (1968) 38 COMP CASES 99 (Cal.) (DB) : 71 CWN 897. See detailed Notes under s. 34 of the 1956
Act.
70 Sunil Kumar Debnath v Mining and Allied Machinery Corporation

Ltd, (1968) 38 COMP CASES 652 (Cal.) (DB) : AIR 1968 Cal. 322 (DB) : 72 CWN 144; Inland Steam Navigation
Workers’ Union v Rivers Steam Navigation Co Ltd, (1968) 38 COMP CASES 99 (Cal.) (DB) : 71 CWN 897; Tata
Engineering and Locomotive Co Ltd v State of Bihar, (1964) 34 COMP CASES 458 (SC) : AIR 1965 SC 40 : (1964) 6
SCR 885; State Trading Corporation of India Ltd v Commercial Tax Officer, (1963) 33 COMP CASES 1057 (SC) : AIR
1963 SC 1811 : (1963) 2 Comp. LJ 234 (SC).
71 Heavy Engineering Mazdoor Union v State of Bihar, (1969) 39

COMP CASES 905 (SC) : AIR 1970 SC 82 : (1969) 3 SCR 995 : (1969) 2 Comp. LJ 273 (SC); Central Inland Water
Transport Corporation Ltd v Brojo Nath Ganguly, (1986) 60 COMP CASES 797 (SC) : AIR 1986 SC 1571. See also
Notes under section 34 for further discussion in the matter.
72 See Electronics Corporation of India Ltd v Secretary, Revenue

Department, Government of Andhra Pradesh, (1999) 97 COMP CASES 470 (SC) : (1999) 4 SCC 458 : (1999) 3 Scale
123 (SC) : (1999) 3 Comp. LJ 353 (SC); Southern Structurals Staff Union v Management of Southern Structurals Ltd,
(1994) 81 COMP CASES 389 (Mad.).
73 G.D. Zalani v UOI, (1995) 84 COMP CASES 40 (SC).
74 Prasanta Chandra Sen v UOI, (1990) 67 COMP CASES 87

(Cal.).
75 Lajpat Rai Mago v Governor of Haryana, (1971) 41 COMP

CASES 693 (P&H).
76 Smt. Farrel Futado v State of Goa, (1994) 80 COMP CASES 659

(Bom.) (DB); B.M. Varma v State of U.P., (2005) 128 COMP CASES 860 (All.) (DB); A.S. Gill v State of Punjab, (2006)
132 COMP CASES 759 (P&H).
77 Medchel Chemicals and Pharmaceuticals Pvt Ltd v Dr. D.C.

Mallik, (1998) 94 COMP CASES 259 (Mad.). See also Notes under section 284 of the 1956 Act.
Mr. Laghir1 Rabari

Page 176 of 177
78 T.M. Devassy, Secretary-cum-Finance Manager, Periyar Latex

Pvt Ltd v Managing Director, Periyar Latex Pvt Ltd, (1994) 81 COMP CASES 560 (Ker.).
79 Mohd. Hadi Raja v State of Bihar, (1998) 93 COMP CASES 362

(SC).
80 Andhra Pradesh State Essential Commodities Corporation Ltd v

Registrar of Companies, (2004) 119 COMP CASES 745 (AP); P.K. Pradhan v State of Sikkim, AIR 2001 SC 2547.
81 Indian Oil Corporation Ltd v Chief Inspector of Factories, (1998)

94 COMP CASES 64 (SC) : AIR 1998 SC 2456; J.K. Industries Ltd v Chief Inspector of Factories and Boilers, (1997)
88 COMP CASES 285 (SC). See detailed Notes under section 5 of the Companies Act, 1956.
82 Guru Gobinda Basu v Sankari Prasad Ghosal, (1963) 33 COMP

CASES 1132 (SC) : AIR 1964 SC 254 : (1964) 4 SCR 311.
83 Aklu Ram Mahto v Rajendra Mahto,(1999) 97 COMP CASES

882 (SC).
84 Inland Steam Navigation Workers’ Union v Rivers Steam

Navigation Co Ltd, (1968) 38 COMP CASES 99 (Cal.) (DB) : 71 CWN 897; Re Rivers Steam Navigation Co Ltd, (1967)
2 Comp. LJ 106 (Cal.) : 71 CWN 854. See detailed Notes under section 34 of the Companies Act, 1956.
85 MSTC Ltd v Shree Diwan Steel (I.) Ltd, (2003) 115 COMP
CASES 587 (P&H).
86 R.R. Dalavai v Indian Overseas Bank,(1994) 81 COMP CASES

446 (Mad.); State of Gujarat v Central Bank of India,(1988) 63 COMP CASES 598 (Guj.) (DB).
87 M.P. Kini v State,(1992) 75 COMP CASES 289 (AP); Kurian v

State of Kerala, (1984) 55 COMP CASES 536 (Ker.) (DB) : (1982) Cr. LJ 780 (Ker.) (DB); State of Maharashtra v L.D.
Kanchan, (1991) 72 COMP CASES 632 (Bom.).
88 Ashoka Marketing Ltd v Punjab National Bank, (1992) 74 COMP

CASES 482 (SC).
89 Nagendra Kumar Jain v District Judge, Moradabad, (2002) 1

Comp LJ 95 (All.) : AIR 2001 All. 289.
90 Bihar State Small Industries Corporation Ltd v State of Bihar,

(2007) 140 COMP CASES 694 (Pat.)
91 Kenya Airways v Jinibai B. Kheshwala, (1999) 96 COMP CASES

140 (Bom.) (DB).
92 Re Travancore-Cochin Chemicals Ltd, (1978) 48 COMP CASES

765 (MRTPC).
Mr. Laghir1 Rabari

Page 177 of 177
93 Inserted by the Goa, Daman and Diu (Laws) (No. 2) Regulations,

1963 (11 of 1963), section 9.
* Notification No. G.S.R. 615, dt. 24-4-1965 : Government of India

Publication, Clarifications and Circulars on Company Law, 1977 Edn, p 299.
** Notification No. G.S.R. 1621, dt. 28-10-1965 : Government of

India Publication, Clarifications and Circulars on Company Law, 1977 Edn, p 300.
94 Inserted by Central Laws (Extension to Jammu and Kashmir)

Act, 1968 (25 of 1968), section 2 and Schedule (w.e.f. 15-8-1968).
End of Document
Mr. Laghir1 Rabari

[ 1 Corresponds to section 2 of the Companies Act, 1956. s 2] Definitions.—
Company Law > CHAPTER I PRELIMINARY
CHAPTER I PRELIMINARY
[ 1 s 2] Definitions.—
In this Act, unless the context otherwise requires,—
Chapter 2(1) “abridged prospectus” means a memorandum containing such salient features of a
prospectus as may be specified by the Securities and Exchange Board by making regulations
in this behalf;
3(2)“accounting standards” means the standards of accounting or any addendum thereto for
companies or class of companies referred to in section 133;
4(3)“alter” or “alteration” includes the making of additions, omissions and substitutions;
5(4)“Appellate Tribunal” means the National Company Law Appellate Tribunal constituted under
section 410;
6(5)“articles” means the articles of association of a company as originally framed or as altered
from time to time or applied in pursuance of any previous company law or of this Act;
7(6)“associate company”, in relation to another company, means a company in which that other
company has a significant influence, but which is not a subsidiary company of the company
having such influence and includes a joint venture company.
Explanation.—For the purposes of this clause, “significant influence” means control of at

least twenty per cent. of total share capital, or of business decisions under an agreement;
8(7)“auditing standards” means the standards of auditing or any addendum thereto for companies
or class of companies referred to in sub-section (10) of section 143;
9(8)“authorised capital” or “nominal capital” means such capital as is authorised by the
memorandum of a company to be the maximum amount of share capital of the company;
10(9) “banking company” means a banking company as defined in clause (c) of section 5 of the
Banking Regulation Act, 1949 (10 of 1949);
11(10) “Board of Directors” or “Board”, in relation to a company, means the collective body of the
directors of the company;
12(11) “body corporate” or “corporation” includes a company incorporated outside India, but does
not include—
(i) a co-operative society registered under any law relating to co-operative societies; and
Mr. Laghir1 Rabari

Page 2 of 361
(ii) any other body corporate (not being a company as defined in this Act), which the Central
Government may, by notification, specify in this behalf;
13(12) “book and paper” and “book or paper” include books of account, deeds, vouchers,
writings, documents, minutes and registers maintained on paper or in electronic form;
14(13) “books of account” includes records maintained in respect of—
(i) all sums of money received and expended by a company and matters in relation to which
the receipts and expenditure take place;
(ii) all sales and purchases of goods and services by the company;
(iii) the assets and liabilities of the company; and
(iv) the items of cost as may be prescribed under section 148 in the case of a company which
belongs to any class of companies specified under that section;
15(14) “branch office”, in relation to a company, means any establishment described as such by
the company;
16(15) “called-up capital” means such part of the capital, which has been called for payment;
17(16) “charge” means an interest or lien created on the property or assets of a company or any
of its undertakings or both as security and includes a mortgage;
18(17) “chartered accountant” means a chartered accountant as defined in clause (b) of sub-
section (1) of section 2 of the Chartered Accountants Act, 1949 (38 of 1949) who holds a
valid certificate of practice under sub-section (1) of section 6 of that Act;
19(18) “Chief Executive Officer” means an officer of a company, who has been designated as
such by it;
20(19) “Chief Financial Officer” means a person appointed as the Chief Financial Officer of a
company;
21(20) “company” means a company incorporated under this Act or under any previous company
law;
22(21) “company limited by guarantee” means a company having the liability of its members
limited by the memorandum to such amount as the members may respectively undertake to
contribute to the assets of the company in the event of its being wound up;
23(22) “company limited by shares” means a company having the liability of its members limited
by the memorandum to the amount, if any, unpaid on the shares respectively held by them;
24[(23)“Company Liquidator” means a person appointed by the Tribunal as the Company
Liquidator in accordance with the provisions of section 275 for the winding up of a company
under this Act;]
25(24) “company secretary” or “secretary” means a company secretary as defined in clause (c) of
sub-section (1) of section 2 of the Company Secretaries Act, 1980 (56 of 1980) who is
appointed by a company to perform the functions of a company secretary under this Act;
26(25) “company secretary in practice” means a company secretary who is deemed to be in
practice under sub-section (2) of section 2 of the Company Secretaries Act, 1980 (56 of
1980);
27(26) “contributory” means a person liable to contribute towards the assets of the company in
the event of its being wound up.
Explanation.—For the purposes of this clause, it is hereby clarified that a person holding
fully paid-up shares in a company shall be considered as a contributory but shall have no
Mr. Laghir1 Rabari

Page 3 of 361
liabilities of a contributory under the Act whilst retaining rights of such a contributory;
28(27) “control” shall include the right to appoint majority of the directors or to control the
management or policy decisions exercisable by a person or persons acting individually or in
concert, directly or indirectly, including by virtue of their shareholding or management rights
or shareholders agreements or voting agreements or in any other manner;
29(28) “cost accountant” means a cost accountant as defined in clause (b) of subsection (1) of
section 2 of the Cost and Works Accountants Act, 1959 (23 of 1959);
30[(29)“court” means—
(i) the High Court having jurisdiction in relation to the place at which the registered office of
the company concerned is situate, except to the extent to which jurisdiction has been
conferred on any district court or district courts subordinate to that High Court under sub-
clause (ii);
(ii) the district court, in cases where the Central Government has, by notification, empowered
any district court to exercise all or any of the jurisdictions conferred upon the High Court,
within the scope of its jurisdiction in respect of a company whose registered office is
situate in the district;
(iii) the Court of Session having jurisdiction to try any offence under this Act or under any
previous company law;]
• 31[(iv) the Special Court established under section 435;]
• 32[(v) any Metropolitan Magistrate or a Judicial Magistrate of the First Class having
jurisdiction to try any offence under this Act or under any previous company law;]
33(30) “debenture” includes debenture stock, bonds or any other instrument of a company
evidencing a debt, whether constituting a charge on the assets of the company or not;
34(31) “deposit” includes any receipt of money by way of deposit or loan or in any other form by a
company, but does not include such categories of amount as may be prescribed in
consultation with the Reserve Bank of India;
35(32) “depository” means a depository as defined in clause (e) of sub-section (1) of section 2 of
the Depositories Act, 1996 (22 of 1996);
36(33) “derivative” means the derivative as defined in clause (ac) of section 2 of the Securities
Contracts (Regulation) Act, 1956 (42 of 1956);
37(34) “director” means a director appointed to the Board of a company;
38(35) “dividend” includes any interim dividend;
39(36) “document” includes summons, notice, requisition, order, declaration, form and register,
whether issued, sent or kept in pursuance of this Act or under any other law for the time being
in force or otherwise, maintained on paper or in electronic form;
40(37) “employees’ stock option” means the option given to the directors, officers or employees
of a company or of its holding company or subsidiary company or companies, if any, which
gives such directors, officers or employees, the benefit or right to purchase, or to subscribe
for, the shares of the company at a future date at a pre-determined price;
41(38) “expert” includes an engineer, a valuer, a chartered accountant, a company secretary, a
cost accountant and any other person who has the power or authority to issue a certificate in
pursuance of any law for the time being in force;
42(39) “financial institution” includes a scheduled bank, and any other financial institution defined
or notified under the Reserve Bank of India Act, 1934 (2 of 1934);
43(40) “financial statement” in relation to a company, includes—
Mr. Laghir1 Rabari

Page 4 of 361
(i) a balance sheet as at the end of the financial year;

(ii) a profit and loss account, or in the case of a company carrying on any activity not for
profit, an income and expenditure account for the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to, or forming part of, any document referred to in sub-
clause (i) to sub-clause (iv):
• Provided that the financial statement, with respect to One Person Company, small
company and dormant company, may not include the cash flow statement;
44(41) “financial year”, in relation to any company or body corporate, means the period ending on
the 31st day of March every year, and where it has been incorporated on or after the 1st day
of January of a year, the period ending on the 31st day of March of the following year, in
respect whereof financial statement of the company or body corporate is made up:
Provided that on an application made by a company or body corporate, which is a

holding company or a subsidiary of a company incorporated outside India and is required
to follow a different financial year for consolidation of its accounts outside India, the
Tribunal45 may, if it is satisfied, allow any period as its financial year, whether or not that
period is a year:
Provided further that a company or body corporate, existing on the commencement of

this Act, shall, within a period of two years from such commencement, align its financial
year as per the provisions of this clause;
46(42) “foreign company” means any company or body corporate incorporated outside India
which—
(a) has a place of business in India whether by itself or through an agent, physically or
through electronic mode; and
(b) conducts any business activity in India in any other manner.
47(43) “free reserves” means such reserves which, as per the latest audited balance sheet of a
company, are available for distribution as dividend:
Provided that—
(i) any amount representing unrealised gains, notional gains or revaluation of assets,
whether shown as a reserve or otherwise, or
(ii) any change in carrying amount of an asset or of a liability recognised in equity, including
surplus in profit and loss account on measurement of the asset or the liability at fair value,
shall not be treated as free reserves;
48(44) “Global Depository Receipt” means any instrument in the form of a depository receipt, by
whatever name called, created by a foreign depository outside India and authorised by a
company making an issue of such depository receipts;
49(45) “Government company” means any company in which not less than fifty-one per cent. of
the paid-up share capital is held by the Central Government, or by any State Government or
Governments, or partly by the Central Government and partly by one or more State
Governments, and includes a company which is a subsidiary company of such a Government
company;
Mr. Laghir1 Rabari

Page 5 of 361
50(46) “holding company”, in relation to one or more other companies, means a company of
which such companies are subsidiary companies;
51(47) “independent director” means an independent director referred to in sub-section (6) of
section 149;
52(48) “Indian Depository Receipt” means any instrument in the form of a depository receipt
created by a domestic depository in India and authorised by a company incorporated outside
India making an issue of such depository receipts;
53(49) “interested director” means a director who is in any way, whether by himself or through
any of his relatives or firm, body corporate or other association of individuals in which he or
any of his relatives is a partner, director or a member, interested in a contract or
arrangement, or proposed contract or arrangement, entered into or to be entered into by or
on behalf of a company;
54(50) “issued capital” means such capital as the company issues from time to time for
subscription;
55(51) “key managerial personnel”, in relation to a company, means—
(i) the Chief Executive Officer or the managing director or the manager;
(ii) the company secretary;
(iii) the whole-time director;
(iv) the Chief Financial Officer; and
(v) such other officer as may be prescribed;
56(52) “listed company” means a company which has any of its securities listed on any
recognised stock exchange;
57(53) “manager” means an individual who, subject to the superintendence, control and direction
of the Board of Directors, has the management of the whole, or substantially the whole, of the
affairs of a company, and includes a director or any other person occupying the position of a
manager, by whatever name called, whether under a contract of service or not;
58(54) “managing director” means a director who, by virtue of the articles of a company or an
agreement with the company or a resolution passed in its general meeting, or by its Board of
Directors, is entrusted with substantial powers of management of the affairs of the company
and includes a director occupying the position of managing director, by whatever name
called.
Explanation.—For the purposes of this clause, the power to do administrative acts of a

routine nature when so authorised by the Board such as the power to affix the common
seal of the company to any document or to draw and endorse any cheque on the account
of the company in any bank or to draw and endorse any negotiable instrument or to sign
any certificate of share or to direct registration of transfer of any share, shall not be
deemed to be included within the substantial powers of management;
59(55) “member”, in relation to a company, means—

(i) the subscriber to the memorandum of the company who shall be deemed to have agreed
to become member of the company, and on its registration, shall be entered as member
in its register of members;
(ii) every other person who agrees in writing to become a member of the company and
whose name is entered in the register of members of the company;
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(iii) every person holding shares of the company and whose name is entered as a beneficial
owner in the records of a depository;
60(56) “memorandum” means the memorandum of association of a company as originally framed
or as altered from time to time in pursuance of any previous company law or of this Act;
61(57) “net worth” means the aggregate value of the paid-up share capital and all reserves
created out of the profits and securities premium account, after deducting the aggregate
value of the accumulated losses, deferred expenditure and miscellaneous expenditure not
written off, as per the audited balance sheet, but does not include reserves created out of
revaluation of assets, write-back of depreciation and amalgamation;
62(58) “notification” means a notification published in the Official Gazette and the expression
“notify” shall be construed accordingly;
63(59) “officer” includes any director, manager or key managerial personnel or any person in
accordance with whose directions or instructions the Board of Directors or any one or more of
the directors is or are accustomed to act;
64(60) “officer who is in default”, for the purpose of any provision in this Act which enacts that an
officer of the company who is in default shall be liable to any penalty or punishment by way of
imprisonment, fine or otherwise, means any of the following officers of a company, namely:—
(i) whole-time director;
(ii) key managerial personnel;
(iii) where there is no key managerial personnel, such director or directors as specified by the
Board in this behalf and who has or have given his or their consent in writing to the Board
to such specification, or all the directors, if no director is so specified;
(iv) any person who, under the immediate authority of the Board or any key managerial
personnel, is charged with any responsibility including maintenance, filing or distribution of
accounts or records, authorises, actively participates in, knowingly permits, or knowingly
fails to take active steps to prevent, any default;
(v) any person in accordance with whose advice, directions or instructions the Board of
Directors of the company is accustomed to act, other than a person who gives advice to
the Board in a professional capacity;
(vi) every director, in respect of a contravention of any of the provisions of this Act, who is
aware of such contravention by virtue of the receipt by him of any proceedings of the
Board or participation in such proceedings without objecting to the same, or where such
contravention had taken place with his consent or connivance;
(vii) in respect of the issue or transfer of any shares of a company, the share transfer agents,
registrars and merchant bankers to the issue or transfer;
65(61) “Official Liquidator” means an Official Liquidator appointed under sub-section (1) of
section 359;
66(62) “One Person Company” means a company which has only one person as a member;
67(63) “ordinary or special resolution” means an ordinary resolution, or as the case may be,
special resolution referred to in section 114;
68(64) “paid-up share capital” or “share capital paid-up” means such aggregate amount of money
credited as paid-up as is equivalent to the amount received as paid-up in respect of shares
issued and also includes any amount credited as paid-up in respect of shares of the
company, but does not include any other amount received in respect of such shares, by
whatever name called;
69(65) “postal ballot” means voting by post or through any electronic mode;
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70(66) “prescribed” means prescribed by rules made under this Act;

71[(67)“previous company law” means any of the laws specified below:—
(i) Acts relating to companies in force before the Indian Companies Act, 1866 (10 of 1866);
(ii) the Indian Companies Act, 1866 (10 of 1866);
(iii) the Indian Companies Act, 1882 (6 of 1882);
(iv) the Indian Companies Act, 1913 (7 of 1913);
(v) the Registration of Transferred Companies Ordinance, 1942 (Ord. 54 of 1942);
(vi) the Companies Act, 1956 (1 of 1956); and
(vii) any law corresponding to any of the aforesaid Acts or the Ordinances and in force—
(A) in the merged territories or in a Part B State (other than the State of Jammu and
Kashmir), or any part thereof, before the extension thereto of the Indian Companies
Act, 1913 (7 of 1913); or
(B) in the State of Jammu and Kashmir, or any part thereof, before the commencement of
the Jammu and Kashmir(Extension of Laws) Act, 1956 (62 of 1956), in so far as
banking, insurance and financial corporations are concerned, and before the
commencement of the Central Laws (Extension to Jammu and Kashmir) Act, 1968 (25
of 1968), in so far as other corporations are concerned;
(viii) the Portuguese Commercial Code, in so far as it relates to sociedades anonimas;]
and
(ix) the Registration of Companies (Sikkim) Act, 1961 (Sikkim Act 8 of 1961);
72(68) “private company” means a company having a minimum paid-up share capital 73[* * *] as
may be prescribed, and which by its articles,—
(i) restricts the right to transfer its shares;
(ii) except in case of One Person Company, limits the number of its members to two
hundred:
• Provided that where two or more persons hold one or more shares in a company jointly,
they shall, for the purposes of this clause, be treated as a single member:
Provided further that—
(A) persons who are in the employment of the company; and
(B) persons who, having been formerly in the employment of the company, were
members of the company while in that employment and have continued to be
members after the employment ceased, shall not be included in the number of
members; and
(iii) prohibits any invitation to the public to subscribe for any securities of the company;
74(69) “promoter” means a person—
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(a) who has been named as such in a prospectus or is identified by the company in the
annual return referred to in section 92; or
(b) who has control over the affairs of the company, directly or indirectly whether as a
shareholder, director or otherwise; or
(c) in accordance with whose advice, directions or instructions the Board of Directors of the
company is accustomed to act:
• Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a
professional capacity;
75(70) “prospectus” means any document described or issued as a prospectus and includes a
red herring prospectus referred to in section 32 or shelf prospectus referred to in section 31
or any notice, circular, advertisement or other document inviting offers from the public for the
subscription or purchase of any securities of a body corporate;
76(71) “public company” means a company which—
(a) is not a private company;
(b) has a minimum paid-up share capital 77[* * *] as may be prescribed:
• Provided that a company which is a subsidiary of a company, not being a private
company, shall be deemed to be public company for the purposes of this Act even where
such subsidiary company continues to be a private company in its articles;
78(72) “public financial institution” means—
(i) the Life Insurance Corporation of India, established under section 3 of the Life Insurance
Corporation Act, 1956 (31 of 1956);
(ii) the Infrastructure Development Finance Company Limited, referred to in clause (vi) of
sub-section (1) of section 4A of the Companies Act, 1956 (1 of 1956) so repealed under
section 465 of this Act;
(iii) specified company referred to in the Unit Trust of India (Transfer of Undertaking and
Repeal) Act, 2002 (58 of 2002);
(iv) institutions notified by the Central Government under sub-section (2) of section 4A of the
Companies Act, 1956 (1 of 1956) so repealed under section 465 of this Act;
(v) such other institution as may be notified by the Central Government in consultation with
the Reserve Bank of India:
• Provided that no institution shall be so notified unless—
(A) it has been established or constituted by or under any Central or State Act; or
(B) not less than fifty-one per cent. of the paid-up share capital is held or controlled by the
Central Government or by any State Government or Governments or partly by the
Central Government and partly by one or more State Governments;
79(73) “recognised stock exchange” means a recognised stock exchange as defined in clause (f)
of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
80(74) “register of companies” means the register of companies maintained by the Registrar on
paper or in any electronic mode under this Act;
81(75) “Registrar” means a Registrar, an Additional Registrar, a Joint Registrar, a Deputy
Registrar or an Assistant Registrar, having the duty of registering companies and discharging
various functions under this Act;
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82(76) “related party”, with reference to a company, means—

(i) a director or his relative;
(ii) a key managerial personnel or his relative;
(iii) a firm, in which a director, manager or his relative is a partner;
(iv) a private company in which a director or manager 83[or his relative] is a member or
director;
• 84(v)a public company in which a director or manager is a director 85[and holds] along with
his relatives, more than two per cent. of its paid-up share capital;
(vi) any body corporate whose Board of Directors, managing director or manager is
accustomed to act in accordance with the advice, directions or instructions of a director or
manager;
(vii) any person on whose advice, directions or instructions a director or manager is
accustomed to act:
• Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or
instructions given in a professional capacity;
• 86(viii) any company which is—
(A) a holding, subsidiary or an associate company of such company; or

(B) a subsidiary of a holding company to which it is also a subsidiary;
(ix) such other person as may be prescribed;87
88(77) “relative”, with reference to any person, means any one who is related to another, if—
(i) they are members of a Hindu Undivided Family;
(ii) they are husband and wife; or
(iii) one person is related to the other in such manner as may be prescribed;89
90(78) “remuneration” means any money or its equivalent given or passed to any person for
services rendered by him and includes perquisites as defined under the Income-tax Act, 1961
(43 of 1961);
91(79) “Schedule” means a Schedule annexed to this Act;
92(80) “scheduled bank” means the scheduled bank as defined in clause (e) of section 2 of the
Reserve Bank of India Act, 1934 (2 of 1934);
93(81) “securities” means the securities as defined in clause (h) of section 2 of the Securities
Contracts (Regulation) Act, 1956 (42 of 1956);
94(82) “Securities and Exchange Board” means the Securities and Exchange Board of India
established under section 3 of the SEBI Act, 1992 Securities and Exchange Board of India(15
of 1992);
95(83) “Serious Fraud Investigation Office” means the office referred to in section 211;
96(84) “share” means a share in the share capital of a company and includes stock;
97(85) “small company” means a company, other than a public company,—
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as
may be prescribed which shall not be more than five crore rupees; 98[and]
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(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees
or such higher amount as may be prescribed which shall not be more than twenty crore
rupees:
• Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or

(C) a company or body corporate governed by any special Act;
1(86) “subscribed capital” means such part of the capital which is for the time being subscribed
by the members of a company;
2[(87) “subsidiary company” or “subsidiary”, in relation to any other company (that is to say the
holding company), means a company in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total share capital either at its own or
together with one or more of its subsidiary companies:]
• Provided that such class or classes of holding companies as may be prescribed shall not
have layers of subsidiaries beyond such numbers as may be prescribed.
3[Explanation.—For the purposes of this clause,—
(a) a company shall be deemed to be a subsidiary company of the holding company even if
the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company
of the holding company;
(b) the composition of a company’s Board of Directors shall be deemed to be controlled by
another company if that other company by exercise of some power exercisable by it at its
discretion can appoint or remove all or a majority of the directors;
(c) the expression “company” includes any body corporate;]
• 4[(d) “layer” in relation to a holding company means its subsidiary or subsidiaries;]
5(88) “sweat equity shares” means such equity shares as are issued by a company to its
directors or employees at a discount or for consideration, other than cash, for providing their
know-how or making available rights in the nature of intellectual property rights or value
additions, by whatever name called;
6(89) “total voting power”, in relation to any matter, means the total number of votes which may
be cast in regard to that matter on a poll at a meeting of a company if all the members thereof
or their proxies having a right to vote on that matter are present at the meeting and cast their
votes;
7(90) “Tribunal” means the National Company Law Tribunal constituted under section 408;
8(91) “turnover” means the aggregate value of the realisation of amount made from the sale,
supply or distribution of goods or on account of services rendered, or both, by the company
during a financial year;
9(92) “unlimited company” means a company not having any limit on the liability of its members;
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10(93) “voting right” means the right of a member of a company to vote in any meeting of the
company or by means of postal ballot;
11(94) “whole-time director” includes a director in the whole-time employment of the company;
12[(94A) “winding up” means winding up under this Act or liquidation under the Insolvency
and Bankruptcy Code, 2016, as applicable.]
13(95) words and expressions used and not defined in this Act but defined in the Securities
Contracts (Regulation) Act, 1956 (42 of 1956) or the SEBI Act, 1992 Securities and Exchange
Board of India(15 of 1992) or the Depositories Act, 1996 (22 of 1996) shall have the
meanings respectively assigned to them in those Acts.
The definitions provided under section s.2 of the 2013 Act are discussed in detail
hereunder as follows:
S. 2(1): Abridged Prospectus.—(1)“Abridged prospectus” means a memorandum

containing such salient features of a prospectus as may be specified by the Securities
and Exchange Board of India by making regulations in this behalf;
NOTES
Section 2(1) of the Companies Act, 2013 was notified on 12-09-2013 vide Notification S.O. 2754(E)
and has been in effect from 12-09-2013 and this section corresponds to section 2(1) of the
[s 2.1] Legislative History
as follows:
Clause 2.—This clause corresponds to section 2 of the Companies Act, 1956 and defines various
expressions used in the Bill.
[s 2.2] Analysis of the Definition
This definition of abridged prospectus is a reproduction of the definition which was proposed in the
Companies Bill, 2011. The 2013 Act has conferred on SEBI the power to specify the contents of the
abridged prospectus. The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009,
inter-alia, contains the requirements of a prospectus. Rule 58(1) of the Regulations provides that an
abridged prospectus shall contain the disclosures of the memorandum prescribed under sub-section
(3) of section 56 of the 1956 Act and additional disclosures as specified in Pt D of Schedule VIII of
SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. The disclosures set out in
section 56 (3) of the 1956 Act have been correspondingly set out in section 26(1) of the 2013 Act.
Abridged Prospectus [Section 2(1)].—Abridged prospectus means a memorandum containing

salient features of a prospectus as may be prescribed. The Companies Act, 1956 provision
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NOTES
Section 2(1) of the Companies Act, 1956 corresponds to section 2(1) of the Companies Act, 2013.
THE COMPANIES (AMENDMENT) ACT, 2000 (53 OF 2000).—Clause

(1) of section 2 defining “abridged prospectus”
was inserted by the Companies (Amendment) Act, 2000 (w.e.f. 13-12-2000) after renumbering the
existing clause (1) of section 2 as clause (1A) thereof. The Companies (Amendment) Act, 2000 has
been repealed by the Repealing and Amending Act, 2016.
See detailed Notes and salient features prescribed under section 56(3) of the 1956 Act. See also
Notes under Prospectus [section 2(36) of the Companies Act, 1956 hereinafter].
S. 2(2): Accounting Standards.—“accounting standards” means the standards of accounting or any

addendum thereto for companies or class of companies referred to in section 133.
NOTES
Section 2(2) of the Companies Act, 2013 was notified on 26-03-2014 vide S.O. 902(E) and has been
in effect from 01-04-2014 and this section corresponds to section 211 of the 1 Companies Act, 1956.
as follows:
Clause 2—This clause corresponds to section 2 of the Companies Act, 1956 and defines various
Section 2(2) is a new definition; however, section 211 of the Companies Act, 1956 had defined
“accounting standards” for the purposes of the section itself.
The Central Government notified section 2(2) vide S.O. 902(E) thereby giving it effect from 01-04-
2014. The definition is a reproduction of what had been proposed in the Companies Bill, 2011.
‘The definition directs to section 133 for reference to the class of companies mentioned. However,
Section 133 empowers the Central Government to prescribe the standards of accounting as
recommended by the Institute of Chartered Accountants of India in consultation with and after
examination of the recommendation made by the National Financial Reporting Authority. General
Circular No. 3/2013 states that the until such time that accounting standards are prescribed under the
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2013 Act, the accounting standards that have been notified under the 1956 Act will be applicable.
The Companies (Accounting Standards) Amendment Rules, 2016 was notified on 30-03-2016.
However, the Ministry of Corporate Affairs has used the power under section 133 in conjunction with
other provisions of the 2013 Act to notify the Companies (Accounts) Rules, 2014.
The Report on Company Law by the Dr. Irani Committee, 2005, had suggested that under the 2013
Act the accounting standards should be notified early. The Committee had also taken note of the
contributions of the National Advisory Committee on Accounting Standards and the Institute of
Chartered Accountants of India and recommended that the then existing institutional mechanism for
formulating and notifying the accounting standards under the 1956 Act may be retained.
The Report of the Standing Committee on Finance, 2009–10 had noted that the definition of
accounting standards needed harmonisation with the International Financial reporting Standards. The
Institute of Cost Accountants of India had make remarks to the Committee suggesting that “Cost
Accounting Standards” should also be defined. The Ministry of Corporate Affairs replied to the same
by pointing out that in the Act, sections 209(1) (d) and 233B of the 1956 Act govern cost accounting
standards sufficiently. The Ministry further directed their reply to the Expert Committee on Company
Law Report, 2005 which had noted the following:
“… the present corporate scenario also included a sizeable component of Government owned enterprises or
companies operating under administered price mechanisms or a regime of subsidies. It would be relevant for the
Government or the regulators concerned with non-competitive situations to seek costing data. The Committee
therefore took the view that while the enabling provision may be retained in the law providing powers to the
Government to cause Cost Audit, legislative guidance has to take into account the role of management in addressing
cost management issues in context of liberalised business and economic environment. Further, Government approval
for appointment of Cost Auditor for carrying out such Cost Audit was not considered necessary.”
S. 2 (3): Alter or Alteration.—“Alter” or “Alteration” includes the making of additions, omissions and
submissions;
NOTES
and has been in effect from 12-09-2013 and this section corresponds to section 2(1A) of the
as follows:
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This definition of alter or alteration is a reproduction of the definition which was proposed in the
Companies Bill, 2011. The 2013 Act has added the word “substitution” in section 2(3) after additions
and omissions. The change is clarificatory in nature, and makes no material change to the definition.
The term “alter” or alteration” is significant for considering alteration of constituent documents of a
body corporate. The definition of “alter” or “alteration” is relevant for the purposes of sections 13, 14,
15 and 61 of the 2013 Act.
[S. 2(1A)].—“Alter” and “Alteration” shall include the making of additions and omissions. Addition or
omission amounts to alteration as well as modification. The Companies Act, 1956 provision
NOTES
The terms “alter” and “alteration” are identical with the definition of the terms “modify” or
“modification” in section 2(29) of the Companies Act, 1956.
OF 2000) - Former Clause (1) of section 2 defining “alter and

alteration” was renumbered as (1A) by the Companies (Amendment) Act, 2000 (w.e.f. 13-12-2000).]
The Companies (Amendment) Act, 2000 has been repealed by the Repealing and Amending Act,
2016.
S. 2(4): Appellate Tribunal.—“Appellate Tribunal” means the National Company Law Appellate
Tribunal constituted under Section 410;
NOTES
and has been in effect from 12-09-2013 and this section corresponds to section 2(1B) of the
as follows:
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This definition of Appellate Tribunal is a reproduction of the definition which was proposed in the
Companies Bill, 2011. Appellate Tribunal refers to NCLAT constituted under section 410 of the 2013
Act to deal with appeals against the orders of the NCLT, which has been constituted under section
408 of the 2013 Act. Section 421 of the 2013 Act confers power on any person who is aggrieved by
an order or decision of the NCLT to file an appeal to the Appellate Tribunal.
S. 2(1B).—“Appellate Tribunal” means the National Company Law Appellate Tribunal constituted
under sub-section (1) of section 10FR. The Companies Act, 1956 provision
THE COMPANIES (SECOND AMENDMENT) ACT, 2002 (11 OF 2003).—The Notes on clauses explained as follows:
Clause (1B) proposes to define “Appellate Tribunal” which means the National Company Law Appellate Tribunal
constituted under the proposed sub-section (1) of section 10FR of the Companies Act, 1956. [Clause 2 of the
Companies (Amendment) Bill, 2001 (80 of 2001)].
NOTES
The Companies (Second Amendment) Act, 2002 has been repealed by the Repealing and Amending
(Second) Act, 2015.
See detailed Notes on Tribunals under Chapter 27.
S. 2(5): Articles.—“articles” means the articles of association of a company as originally framed or as

altered from time to time or applied in pursuance of any pursuance of any previous company law or of
this Act;
NOTES
and has been in effect from 12-09-2013 and this section corresponds to section 2(2) of the
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as follows:
This definition of “articles” is a reproduction of the definition which was proposed in the Companies
Bill, 2011.
Section 2(5) of the 2013 Act makes reference to articles framed or altered in pursuance of any
previous company law or of the 2013 Act, whereas the 1956 Act contained a reference to Table B of
the Indian Companies Act of 1857, Table A of the Indian Companies Act 1913, Table A of the 1882
Act, and Table A of the 1956 Act. Section 2(67) of the 2013 Act, contains a list of the earlier
legislations, in the definition of the term “previous company law”. This change is clarificatory in
nature, and does not make an alteration to the definition.
Section 5 of the 2013 Act provides for the form and manner in which the articles are required to be
maintained. Tables F, G, H, I and J of Schedule I to the 2013 Act contain the framework of
regulations to be captured while drafting the articles. Further, section 6 stipulates that the 2013 Act
shall at all times override the articles and any provisions in the articles that are repugnant to the
provisions in the 2013 Act are void.
See detailed commentary under sections 5 and 6.
See also commentary under sections 14 and 15 in relation to alteration of articles.
Articles [Section 2(2)].—Articles means the articles of association of a company as originally framed
or as altered from time to time. The Companies Act, 1956 provision
[s 2.14] Analysis
Table A in Schedule I annexed to this Act contains model Regulations for management of a company
limited by shares.
See sections 26 to 31 of the Companies Act, 1956 for provisions relating to Articles of Association.
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THE 1956 ACT (1 OF 1956).—The Notes on clauses explained this clause as follows:
The articles of a company may be altered by the Court [the Company Law Board (now the Tribunal)] in pursuance of
the power conferred on it by clause 374 [s. 404] of the Bill which corresponds to Section 153C(6) of the existing Act
[the Indian Companies Act, 1913 (7 of 1913)]. Reference has, therefore, been made to alteration in pursuance of this
Act or of any previous company laws. The other alterations made are purely consequential. [Clause 2(1) of the
Companies Bill, 1953 (46 of 1953)].
[s 2.16] Articles of Association
The Articles of Association of a company provides for the regulation of internal management of a
company of which each shareholder is attributed with notice. It is a business document and is to be
interpreted strictly.14 Articles should, however, be construed as a business document so as to give
them reasonable business efficacy unless the language is against such construction.15
The Articles inconsistent with the provisions of the Act are void [Section 9 of the 1956 Act]. In view of
this, model Regulations in relevant Tables in Schedule I should be carefully studied while drafting
Articles of Association of a company.
See Notes under sections 26–31 containing provisions relating to Articles of Association and
Schedule I containing Model Regulations in Tables A to F.
[s 2.17] Alteration of Articles
Articles of Association may be altered by Special Resolution [section 31 of the 1956 Act]; by Special
Resolution and with the approval of the Central Government [sections 268 and 310 of the 1956 Act];
by Special Resolution and with the sanction of the Court (now the Tribunal) [section 100 of the 1956
Act]; by an order of the Company Law Board (now the Tribunal) [sections 397, 398 and 404 of the
1956 Act] and by the Central Government [section 408(1), proviso of the 1956 Act]. See detailed
Notes under section 31 of the 1956 Act.
[s 2.18] Model Articles [Schedule I, Table A ]
Model Articles or Regulations contained in Table “A” of Schedule I to the Act will apply to a public
company limited by shares, if they are not inconsistent with the company’s own Articles, if any.
Model Articles given in Table “A” of Schedule I to the 1956 Act have been annotated or referred to in
Notes under relevant Sections.
See detailed Notes under sections 26–31 and Schedule I of the 1956 Act.
S. 2(6) “Associate Company”.—16“associate company”, in relation to another company, means a
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company in which that other company has a significant influence, but which is not a subsidiary
company of the company having such influence and includes a joint venture company.
Explanation.—For the purposes of this clause, “significant influence” means control of at least twenty per cent. of total
share capital, or of business decisions under an agreement;
NOTES
Section 2(6) of the Companies Act, 2013 was notified vide Notification S.O. 2754(E) and has been in
effect from 12-09-2013 and there is no corresponding provision under the Companies Act, 1956.
as follows:
Section 2(6) of the Companies Act, 2013 is a new definition. Associate company is only with respect
to a company. A joint venture company has been included in the definition of an associate company
irrespective of the shareholding of a company in a joint venture company as per section 2(6) of the
2013 Act.
The definition of “associate company” in the 2013 Act is similar to the definition of associate company
as given in AS-23 except that in AS-23, it is 20% of voting power which would determine whether a
company has significant influence on the other while in this definition, it is at least 20% of total share
capital or of business decisions under an agreement that would determine whether a company has
significant influence on the other. Thus a company holding 20% of total share capital comprising
entirely of non-voting shares will not make the investee company an associate company under AS-23
while it will be considered as an associate company as per section 2(6) of the 2013 Act.
Since the definition says “total capital” it would mean that even preference share capital would be
included in the 20% to determine “significance influence”.
This definition is relevant for related party the meaning of which is given under section 2(76) of the
2013 Act. It provides that “related party” with reference to a company inter alia means a holding,
subsidiary or an associate company of such company.
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This expression is also relevant for Explanation to section 129(3) of the 2013 Act that provides for
preparation of consolidated financial statement of the company and of all the subsidiaries and states
that the word “subsidiary” shall include associate company and joint venture.
Associate company is also mentioned in section 149 of the Companies Act, 2013 with reference to
independent directors, section 192 of the 2013 Act relating to dealings in non-cash transactions,
section 194(1) of the 2013 Act which prohibits forward dealings in securities of a company or in its
holding, subsidiary or associate company.
The term “associate company” is referred in other statutes like notification under section 5A of the
Maharashtra Electricity Duty Act, 1958 but this term was not defined in the said Act nor under the
1956 Act.
[s 2.21] Holding of Shares in Fiduciary Capacity
In continuation of the General Circular No. 20/2013 dt. 27-12-2013, it is clarified that the shares held
by a company in another company in a “fiduciary capacity” shall not be counted for the purpose of
determining the relationship of “associate company” under section 2(6) of the 2013 Act. [General
Circular No. 24/ 2014 dt 25-06-2014]
S. 2 (7): Auditing Standards.—“Auditing standards” means the standards of auditing or any

addendum thereto for companies or class of companies referred to in sub-section (10) of section 143.
NOTES
and has been in effect from 01-04-2014 and there is no corresponding provision under the
as follows:
The definition is a reproduction of what had been proposed in the Companies Bill, 2011.
The Standing Committee on Finance, 2009–10 noted recommendations made by various bodies to
include the definition of “Cost Auditing Standards” in line with that of Auditing Standards. The Ministry
of Corporate Affairs accepted the proposal and assured that attempts were being made to harmonize
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the Bill with the International Financial Reporting Standards.
The Standing Committee on Finance Report, 2011–12 had recommended that the National Advisory
Committee for Auditing and Accounting Standards be entrusted to prepare a list of audit firms over a
period of three years, subsequent to which, it would be necessary for any company to select a firm
from the list. The Ministry of Corporate Affairs rejected such recommendation preferring a
professional body like the Institute of Chartered Accountants of India to maintain such a list of firms.
Despite section 2(7) of the Companies Act, 2013 referring to section 143(10) of the 2013 Act for
specifications regarding companies or class of companies, the latter provision does not provide any
such detail. Section 143(10) of the 2013 Act empowers the Central Government to prescribe
standards of auditing or any addendum as may be prescribed by the Institutes of Chartered
Accountants of India in consultation with the National Financial reporting Authority.
See Notes under section 143 of the Companies Act, 2013.
An amendment to section 143 of the 2013 Act was recommended by the Companies Law Committee,
February 2016, whereby the first proviso to section 143(1) of the 2013 Act, which allows the auditors
of a holding company access to the books of accounts of the subsidiary company, will also include
access to the books of accounts of associate companies and joint venture companies whose
accounts are to be consolidated.
S. 2 (8): Authorised Capital or Nominal Capital,—“Authorised Capital” or “Nominal Capital” means

such capital as is authorised by the memorandum of a company to be the maximum amount of share
capital of the company
NOTES
as follows:
The definition remains unchanged from the Companies Bill, 2011. Under Schedule I to the 2013 Act,
the Capital Clause of the Memorandum of Association of a company limited by shares the company
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must state the share capital of the company and the division of such shares. The share capital with
which the company is registered is the authorised capital or the nominal capital.
The definition is important for section 60 of the Companies Act, 2013, which is to do with the
publication of authorised capital and section 61 of the 2013 Act, which deals with the powers of a
limited company to alter its share capital.
See Notes under sections 60 and 61 of the Companies Act, 2013.
S. 2 (9): Banking Company.—“Banking Company” means a banking company as defined in clause

(c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);
NOTES
effect from 12-09-2013 and the corresponding provision is section 2(5) of the Companies Act, 1956.
as follows:
Section 2(9) of the 2013 Act was notified on 12-09-2013 vide S.O. 2754(E) and has been in effect
from 12-09-2013. This definition of banking company is a reproduction of the definition which was
proposed in the Companies Bill, 2011.
This is a reproduction of the definition in the 1956 Act, with the specific clause number of the Banking
Regulation Act specified. The word “Banking Company” is defined under section 5(1)(c) of the
Banking Regulation Act, 1949 as “any company which transacts the business of banking in India”.
Banking Company may also carry on, along with banking business, several other ancillary
businesses as enumerated in section 6 of the Banking Regulation Act, 1949.
This definition is relevant for the purposes of the following sections of the 2013 Act: (i) Section 1(4)(c)
on the applicability of the 2013 Act, (ii) Section 73 on acceptance of deposits, (iii) Section 129 relating
to financial statement, (iv) Section 179 dealing with powers of the Board, and (v) Section 186 on
loans and investment by a company.
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Banking Company [Section 2(5)]—“Banking company” has the same meaning as in the Banking
Companies Act, 1949 (10 of 1949) [now the Banking Regulation Act, 1949 (10 of 1949)]. The
NOTES
Section 5(b), (c) and (d) of the Banking Regulation Act, 1949 (10 of 1949) define “banking”, “banking
company” and “company” as under:
“(b) ‘banking’ means the accepting, for the purpose of lending or investment, of deposits of money
from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or
otherwise.
(c) ‘banking company’ means any company which transacts the business of banking in India.
Explanation.—Any company which is engaged in the manufacture of goods or carries on any trade
and which accepts deposits of money from the public merely for the purpose of financing its business
as such manufacturer or trader shall not be deemed to transact the business of banking within the
meaning of this clause.
(d) ‘company’ means any company as defined in section 3 of the Companies Act, 1956 (1 of 1956);
and includes a foreign company within the meaning of section 591 of that Act.”
Section 6 of the Banking Regulation Act, 1949 (10 of 1949) provides for the forms of business in
which the banking companies may engage, in addition to the business of banking.
A Banking company registered under the Registration of Companies Act, Sikkim, 1961 is a company
within the meaning of section 5(d) of the Banking Regulation Act, 1949 and section 3 of the
Companies Act, 1956
S. 2 (10): Board of Directors.—“board of directors” or “board”, in relation to a company, means the

collective body of the directors of the company;
NOTES
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Section 2(10) of the Companies Act, 2013 was notified vide Notification S.O. 2754(E) and has been
in effect from 12-09-2013 and the corresponding provision is section 2(6) of the Companies Act,
1956.
as follows:
This definition of board of directors is a reproduction of the definition which was proposed in the
Companies Bill, 2011.
This definition is important for the provisions relating to appointment, removal, powers and duties and
other provisions relating to directors that are contained in sections 149–195 of the Companies Act,
2013. The intent of this modified definition is to clarify that the Board of Directors of a company is a
collective body and no director can unilaterally take decisions on behalf of the company.
See detailed Notes on Chapter XI (Appointment and Qualifications of Directors) and Chapter XII
(Meeting of Board and its Powers).
Board of Directors [Section 2(6)].—“Board of directors” or “Board”, in relation to a company, means

the Board of directors of the company. The Companies Act, 1956 provision
NOTES
Section 2(6) of the 1956 Act corresponds to section 2(10) of the 2013 Act.
The company’s powers and functions vest in the directors collectively. In short, all the directors
collectively are called the Board of directors. In general, all the acts of the company must be done by
the Board. A single director has no power to act on behalf of the company. A single director can act
on behalf of the company only if the Board by resolution has delegated its power to him.
S. 2(11): Body Corporate.—“Body corporate” or “corporation” includes a company incorporated
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outside India, but does not include—
•
(i) A co-operative society registered under any law relating to co-operative societies;
and
(ii) Any other body corporate (not being a company as defined in this Act), which the
Central Government may, by notification, specify in this behalf;
NOTES
1956.
as follows:
This definition of body corporate is a reproduction of the definition which was proposed in the
Companies Bill, 2011. The 57th Standing Committee Report had recommended that the definition of
body corporate should specifically include the definition of “limited liability partnership”, to make it
consistent with the definition of “body corporate” in the Ltd Liability Partnership Act, 2008. The
Ministry, however, felt that the addition of the term LLP to body corporate in the 2013 Act “would
create confusion as the Companies Act is meant for only a particular species of body corporates, viz.,
Companies”.
The definition of body corporate in the 2013 Act is a reproduction of the definition in the 1956 Act,
although with one modification, which is that the 1956 Act also excluded a corporation sole from the
purview of a body corporate. Although not defined under company law, a corporation sole, in legal
parlance, is understood as a corporation with a series of successive person holding an office. This
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exclusion has been omitted in the 2013 Act, thus providing only two exclusions – cooperative society,
and any other body corporate that the Central Government may specify in this behalf. The Central
Government has not specified any negative exclusions so far, under the 2013 Act.
As per section 1(4) of the 2013 Act, the 2013 Act is also applicable to such body corporate
incorporated by any Act in force, as the Central Government may, by notification specify. Throughout
the Companies Act (both 1956 Act and the 2013 Act), there are certain sections of the respective
Companies Act which apply to only companies, and sections which apply to body corporates, which
is a broader term.
Body Corporate or Corporation [Section 2(7)].—This includes a company incorporated outside

India but does not include (a) a corporation sole; (b) a co-operative society registered under any law
relating to co-operative societies; and (c) any other body corporate (not being a company as defined
in this Act) which the Central Government may by notification in the Official Gazette, specify. The
NOTES
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on clauses explained this clause as follows:
This definition is based on the definition found in section 455(3) of the English Act, 1948 [now section 740 of the
English Companies Act, 1985]. This term has been defined on the recommendation of the Company Law Committee
Report, page 231, paragraph 28. [Clause 2(4) of the Companies Bill, 1953 (46 of 1953)].
THE COMPANIES (AMENDMENT) ACT, 1960 (65 OF 1960).—The Notes on clauses explained the amendments as
follows:
The proposed amendment clarifies that, for purposes of the Companies Act, co-operative societies do not fall within the
purview of the definition (vide para 14 of the Companies Act Amendment Committee Report, 1957). Power is also
proposed to be taken to exclude any other body corporate from the scope of the definition by notification in the Official
Gazette. [Clause 2(c) of the Companies (Amendment) Bill, 1959 (37 of 1959)].
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[s 2.34] Body Corporate, General
An entity having authority under law to act as a single person distinct from the shareholders who own
it and having rights to issue stock and exist indefinitely; a group or succession of persons established
in accordance with legal rules into a legal or juristic person that has a legal personality distinct from
the natural persons who make it up, exists indefinitely apart from them, and also has the legal powers
that its constitution gave it.17
The term “body corporate” under the Companies Act is an inclusive definition, but does not define
what is meant by a body corporate. The term body corporate, as understood in general legal
parlance, means a legal entity distinct from its constituents. A body corporate also includes a legal
liability partnership and public financial institutions.
[s 2.35] Foreign Company
The term “body corporate or corporation” is wider than the term “company” and includes a foreign
company.
A scheme of amalgamation of a foreign company (transferor) and an Indian company (transferee)

was sanctioned as the definition of the term “body corporate” includes foreign company.18
[s 2.36] Society or Corporation Sole
Body corporate means an association of persons which has been incorporated under some statute
having perpetual succession, a common seal and having a legal entity different from the members
constituting it. A society registered under the Societies Registration Act, 1860 is not a body corporate
under the 1956 Act, so also a corporation sole, e.g., a Public Trustee.19 The exclusion of corporation
sole has been omitted in the 2013 Act.
[s 2.36.1] Department’s View— Society registered under the Societies Registration Act, 1860
not to be deemed to be a “body corporate”
The question whether a society registered under the Societies Registration Act, 1860 (21 of 1860), should be
considered a ‘body corporate’ within the meaning of section 2(7) of the Companies Act, 1956, has been carefully
examined further in consultation with the Ministry of Law as well as in the light of recent judgment of the Supreme
Court in the Board of Trustees v. State of Delhi,AIR 1962 SC 458. It has been decided that such a society should not
be deemed to be a ‘body corporate’ within the meaning of the aforesaid provisions of the Companies Act, although
such a society can be treated as a ‘person’ having separate legal entity apart from the members constituting it and
thereby capable of becoming a member of a company under section 41(2) of the Companies Act, 1956. The view
expressed in para 1 of the Department’s Letter No. 8/2(7)/56-PR, dt. 30-11-1957 to Registrar of Companies, New
Delhi, copy endorsed to all other field officers, may accordingly be deemed to have been modified to the extent stated
above.
Consistent with the revised interpretation of the expression ‘body corporate’ as stated above, the said expression
occurring in various provisions of the Companies Act, 1956, viz., sections 43A, 293, 303, 372, etc., should be so
interpreted as to exclude a society registered under the Societies Registration Act, 1860 (21 of 1860) from the scope of
the expression ‘body corporate’.
[Circular Letter No. 8/48/2(7)/63-PR, dt. 24-11-1962: Government of India publication, Clarifications
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and Circulars on Company Law, 1977 Edition, page 1].
[s 2.37] Co-operative Societies
The term “body corporate or corporation” does not include co-operative societies.
Although the definition of “body corporate or corporation” in section 2(7) of the Companies Act, 1956,
does not include a co-operative society, the reference to body corporate under the 1956 Act is for the
purpose of deposits or investments being made by one body corporate with another. Pt IX of the
1956 Act does not make reference to “body corporate” as contemplated under section 370 or 372 of
the 1956 Act or to “body corporate” as defined in section 2(7) of the 1956 Act. Therefore, a co-
operative society would not be disqualified for registration under Pt IX on the ground that the
definition of “body corporate” in section 2(7) excludes co-operative societies.20
[s 2.38] Co-operatives as Producer Companies
Part IXA consisting Chapters I to XII, sections 581A to 581ZT has been inserted in the 1956 Act by
the Companies (Amendment) Act, 2002 (11 of 2003) (w.e.f. 6-02-2003) facilitating formation of co-
operative business as companies and to convert existing business into companies on a voluntary
basis. The aim is to provide statutory and regulatory framework that creates the potential for
producer-owned enterprises to compete with other enterprises on a competitive footing with more
liberal regulatory framework and certain privileges of a private company.
[s 2.39] Oil and Natural Gas Commission
In pursuance of section 2(7)(c) of the 1956 Act, the Central Government had [vide Notification No.
G.S.R. 1883, dt 20-12-1965] notified the Oil and Natural Gas Commission, a body corporate,
established under section 3 of the Oil and Natural Gas Commission Act, 1959 (43 of 1959).
[s 2.40] Powers of the Central Government
Earlier the powers and functions of the Central Government under section 2(7) had been delegated
to the Company Law Board vide Notification No. G.S.R. 443(E), dt 18-10-1972, this notification has
since been rescinded by Notification No. G.S.R. 287(E), dt 31-05-1991. For details see Notes under
sections 10E and 637 of the 1956 Act.
[s 2.41] Contributions by a “foreign source” under Foreign Contribution (Regulation) Act,

1976
It is evident that section 2(e)(iii) of the Foreign Contribution (Regulation) Act, 1976 treats “Foreign
Company” within the meaning of section 591 of the 1956 Act, its subsidiaries and multi-national
corporations as a “Foreign Source” for the purpose of the Act.21
[s 2.42] Amalgamation—Body Corporate—Banking Company and Public Financial

Institutions—Holding Company and Subsidiary Company—Transferee Company need not file
separate Application under Section 394 of the Companies Act, 1956
The term “body corporate” in section 2(7) of the 1956 Act (corresponding section 2(11) of the 2013
Act) is wider than the expression “company” and is used in several Sections of the Act to denote not
only a company incorporated in India, but also a Foreign Company. It includes a Corporation formed
under any Special Law of India or a Foreign Country, except as expressly excluded by the definition.
It includes all Public Financial Institutions mentioned in section 4A of the 1956 Act (corresponding
section 2(72) of the 2013 Act) as well as the Nationalised Banks incorporated under Section 3(4) of
the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) and the
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980). However, it
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excludes a body corporate, which is not a company under the Companies Act, and which is specified
by the Central Government in the notification in the Official Gazette. In other words, it includes a body
corporate other than those which the Central Government may by notification in the Official Gazette
specify.
In the instant case, it was held that Vijaya Bank squarely falls within the aforesaid definition of the
term body corporate. The Transferee Company, a Banking Company, was a Body Corporate and
Holding Company of the Transferor Company, i.e., the Subsidiary Company, a company under the
1956 Act. Holding Company was, therefore, a company for the purpose of section 394 of the 1956
Act. Since the scheme of transfer would not affect the rights of the members or creditors of the
Transferee Company as between themselves and the company. There being no reorganisation of the
Share Capital of the Transferor Company, there was no need for the Transferee Company to file an
application and a petition under sections 392 to 394 of the 1956 Act.22
In view of the definition “transferor company” contained in section 394(4)(b) which, inter-alia includes
“body corporate”, the transferor company which is situated outside India can be amalgamated with
the transferee company situated in India.23
S. 2 (12): “Book and Paper”.—“book and paper” and “book or paper” include books of account,
deeds, vouchers, writings, documents, minutes and registers maintained on paper or in electronic
form.
NOTES
1956.
as follows:
This definition of Book and Paper is a reproduction of the definition which was proposed in the
Companies Bill, 2011. The option to maintain books in the electronic form was not provided by the
definition in the 1956 Act. However, this has been amended in the 2013 Act following a
recommendation by the JJ Irani committee.
The 2013 Act has widened the scope of the definition of Book and Paper compared to the 1956 Act.
The definition under the 2013 Act includes minutes and registers as Book and Paper and also gives
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statutory recognition to Book and Papers maintained in the electronic form as well as on paper.
Book and Paper [Section 2(8)].—“book and paper” and “book or paper” include books of account,
deeds, vouchers, writings, documents, minutes and registers maintained on paper or in electronic
form The Companies Act, 1956 provision
NOTES
This definition is based on the definition found in section 455(1) of the English Act, 1948. This term has been defined
on the recommendation of the Company Law Committee Report, page 231, para 28. [Clause 2(4) of the Companies
Bill, 1953 (46 of 1953)].
follows:
It is proposed to make clear that books and papers which are sometimes interpreted to exclude vouchers should
include such documents. This is necessary to ensure that they are maintained along with other books and papers, and
are available to Inspectors for purposes of investigation. [Clause 2(i) of the Companies (Second Amendment) Bill, 1964
(64 of 1964)].
[s 2.46] Statutory Books, Records and Documents
For list of statutory books, including inter alia, books of account, cost accounting records, other
statistical books, records and documents, etc., required to be maintained as per various provisions of
the Companies Act read with Rules see Notes under section 209 of the 1956 Act. The corresponding
provision under the 2013 Act is section 128.
S. 2(13): Books of Account.—“books of account” includes records maintained in respect of—
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•
(i) all sums of money received and expended by a company and matters in relation to
which the receipts and expenditure take place;
(ii) all sales and purchases of goods and services by the company;
(iii) the assets and liabilities of the company; and
(iv) the items of cost as may be prescribed under Section 148 in the case of a
company which belongs to any class of companies specified under that Section.
NOTES
Section 2(13) of the Companies Act, 2013 was notified vide Notification S.O. 902 (E) and has been
in effect from 01-04-2014 and the corresponding provision is section 209 of the Companies Act,
1956.
as follows:
The language of the Section is as it was in the Companies Bill, 2011.
The Expert Committee Report on Company Law, 2005 had recommended that boos of account be
preserved for a period of seven years. It had also made a recommendation regarding companies
being allowed to maintain books in an electronic form. The categories of books that are to be kept are
the same in section 2(13) as they were in section 209 of the 1956 Act.
Section 128(1) of the 2013 Act requires every company to keep at its registered office books of
accounts and other relevant documentation for the purposes of providing a true and fair view of the
company and it affairs. The Section also allows keeping books of account in the electronic form as
recommended by the Expert Committee, 2005. Some of the provisos to section 209(1) in the 1956
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Act are placed in section 128 of the 2013 Act.
See, Notes on section 128 of the Companies Act, 2013.
Section 148 of the 2013 Act empowers the central Government to require companies engaged in
production of certain goods or providing certain services to include in their books of accounts
particulars about utilisation of labour or materials in addition to what is stated in section 2(13).
S. 2(14): Branch Office.—“branch office”, in relation to a company, means any establishment

described as such by the company;
NOTES
1956.
as follows:
This definition of branch office is a reproduction of the definition which was proposed in the
Companies Bill, 2011. Section 2(14) applies to only those establishments which are declared as
branches by a company. Thus, it is for a company to authorize an establishment as a “branch office”.
In the Companies Act, 1956, the term branch office also covered any establishment of a company
carrying on either the same or substantially the same activity carried on by the head office of the
company, or any establishment engaged in any production, process or manufacture. In addition, the
power of the Central Government to declare that an establishment is not a branch office under
section 8 of the 1956 Act has not been carried forward to the Companies Act, 2013.
Among other things, a company is required to ensure that its branch office, whether situated in India
or outside India maintains proper books of account and sends properly summarized returns to its
registered office periodically as stipulated under section 128(2) of the 2013 Act. The accounts
maintained by a branch office are also required to be audited in accordance with section 143(8) of the
2013 Act.
See commentary under sections 128 and 143 of the Companies Act, 2013.
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Branch Office [Section 2(9)].—Branch office means any establishment (a) described as a branch by
the company, or (b) carrying on either the same or substantially the same activity as that carried on
by the head office of the company, or (c) engaged in any production, processing or manufacture, but
does not include any establishment specified in any order made by the Central Government under
section 8. The Companies Act, 1956 provision
NOTES
THE COMPANIES (AMENDMENT) ACT, 1960 (65 OF 1960).—The Notes on clauses explained the substituted clause
as follows:
“The redraft seeks mainly to clarify the circumstances in which an establishment of a company should be deemed to be
a ‘branch office’ so that the provisions of Section 228, as proposed to be amended, in regard to audit of accounts of
branch office of a company, may be more effective (para 15 of the Companies Act Amendment Committee Report).”
[Clause 2(d) of the Companies (Amendment) Bill, 1959 (37 of 1959)].
2016.
The recommendations of the Companies Act Amendment Committee, 1957 are reproduced below:
“The definition of a ‘branch office’ in section 2(9) is not happy though it has an important bearing on other parts of the
Act like sections 209, 228 and 292. Since sections 2(9) and 8 are interdependent an amendment of both would be
necessary. ‘Branch office’ in section 2(9) might be defined as meaning ‘any establishment described as a branch by
the company or any establishment carrying on either the same or substantially the same activity as that carried on at
the head office of the company or engaged in any production, processing or manufacture.’
To fit in with this suggested amendment, s. 8 might be recast as follows: ‘The Central Government may, by order,
declare that in the case of any company, not being a banking or insurance company, any establishment thereof shall
not be treated as a branch office of the company for all or any of the purposes of this 2013 Act.’
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Though s. 8 of the 2013 Act refers to ‘head office’ this term is nowhere defined. We think this should be done and have
accordingly attempted a definition of ‘head office’ in paragraph 18 infra.” [Report: para 15].
The definition is related to sections 8, 209(2), 228 and 292 of the 1956 Act. Its importance lies in the
fact that branch office account need not be audited by the company’s auditor but may be done by
another auditor or an accountant. Usually the branch sends summarised returns at quarterly or
shorter intervals.
The registered office and the head office of a company may be different. In that case the head office
will be treated as a branch. A manufacturing establishment situated within the same locality as that of
the registered office or head office or principal office will not be treated as a branch. The Central
Government has power under section 8 to declare any establishment not to be a branch provided the
company has not declared such an establishment as its branch.
S 2(15): Called-up Capital.—“Called-up Capital” means such part of the capital, which has been
called for payment
NOTES
in effect from 12-09-2013 and there is no corresponding provision under the Companies Act, 1956.
as follows:
The Section has retained the form that was proposed in the Companies Bill, 2011. That part of the
capital which has been called for payment is “Called up Capital”. The definition is important in
conjunction with section 50, which allows companies to accept unpaid share capital, although the
same may not be called up.
S. 2(16): Charge.—24"charge” means an interest or lien created on the property or assets of a

company or any of its undertakings or both as security and includes a mortgage;
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NOTES
1956.
as follows:
Clause 2.—This clause corresponds to section 2 of the Companies Act, 1956 and defines various expressions used in
the Bill.
Section 2(16) of the 2013 Act corresponds to section 124 of the Companies Act, 1956. Section 124 of
the 1956 Act only specified that “charge” would include mortgage. It did not define the term “charge”
in detail. Clause (16) of section 2 of the Companies Act, 2013 provides a comprehensive definition of
“charge”.
Section 124 : In this Part, the expression “charge” includes a mortgage.
S 2 (17): Chartered Accountant.—“Chartered Accountant” means a chartered accountant as

defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 who
holds a valid certificate of practice under sub-section (1) of Section 6 of that Act The Companies
Act, 1956 provision
NOTES
However, the Explanation to section 10GD of the 1956 Act did provide a definition for the purposes of
section 10GD itself.
as follows:
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The section is the same as had been proposed in the Companies Bill, 2011. The 1956 Act had
defined the term only with regard to legal representation in section 10GD. Section 33 of the 1956 Act,
which required a declaration by a chartered accountant, in whole time practice in India. Prior to the
Companies (Amendment) Act, 1988, the Section had “a chartered accountant practicing in India”. It is
to be noted that section 10GD had not become operative despite having been brought into force.
Reference has been made to sections 2(1)(b) and 6(1) of the Chartered Accountants Act, 1949. The
former section defines a chartered accountant as a person who is a member of the Institute while
section 6 governs the necessary obtaining of certificates of practice.
S. 2 (18): Chief Executive Officer.—“Chief Executive Officer” means an officer of a company, who
has been designated as such by it.
NOTES
as follows:
The provision remains unchanged from the Companies Bill, 2011. It has been in effect from 9
September 2013, notified by S.O. 2754(E).
The Report on Company Law, 2005, had suggested that it should be made mandatory for every
company to appoint a Chief Executive Officer, a Chief Financial Officer and a Company Secretary
who will be appointed and removed by the Board.
The Section does not shed any light on the duties and responsibilities of a Chief Executive Officer. A
Chief Executive Officer is designated and not appointed; implying that the definition is not in terms of
responsibilities or functions but based on a designation as such. Reference to section 203(1) of the
Companies Act, 2013 informs that a Chief Executive Officer will be a whole-time key managerial
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personnel. Section 2(51)(i) of the 2013 Act verifies this. Section 199 of the 2013 Act makes a
reference to the Chief Executive Officer for the purposes of recovery of remuneration in certain
cases. A Chief Executive Officer comes under the ambit of a person in default as defined by section
2(60) of the 2013 Act and all implications that come with such responsibility are attached to the
position.
See, Notes on section 2(60) of the Companies Act, 2013.
S. 2 (19): Chief Financial Officer.—“Chief Financial Officer” means a person appointed as the Chief
Financial Officer of a company
NOTES
as follows:
The definition has not been altered from the form in which it was proposed in the Companies Bill,
2011. The Section has been in effect from 12-09-2013, having been notified by S.O. 2754(E).
Much like the section 2(18) of the 2013 Act, the definition Section does little to elaborate on the duties
of the Chief Financial Officer. The Standing Committee Report of 2009–10 had proposed that
qualifications be prescribed for the position of Chief Financial Officer. The Ministry of Corporate
Affairs rejected the same on the grounds of the existing language of the provisions affording the
company flexibility, which would be compromised by imposing qualifiers.
Similarities also extend to both Chief Executive Officer and the Chief Financial Officer being officers
in default under section 2(60) of the 2013 Act. A key difference is that section 2(19) of the 2013 Act
requires the Chief Financial Officer to be appointed.
S. 2(20): Company.—Company means a company incorporated under this Act or any other previous
company law;
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NOTES
in effect from 12-09-2013 and the corresponding provision is section 2(10) read with section 3 of the
as follows:
from 12-09-2013. This definition of “company” is a reproduction of the definition which was proposed
in the Companies Bill, 2011.
The definition in the 2013 Act has not undergone any changes, except to state that a company
incorporated under the 2013 Act will also be a company, in addition to any other previous company
law. The 2013 Act has defined previous company law in section 2(67),25 and includes all laws which
were present in the 1956 Act, while also adding the 1956 Act to previous company law. The 2013
has, however, expressly added the Registration of Companies (Sikkim) Act, 1961 to previous
company law (the State of Sikkim has its own companies law charter),26
Further, the 2013 Act has omitted the definition of “existing company” from its purview, and instead
treats a company incorporated under the 2013 Act or any previous company law, as a company.
[s 3] Definitions of “company”, “existing company”, “private company” and “public

company”.—(1) In this Act, unless the context otherwise requires, the expressions “company”,
“existing company”, “private company” and “public company” shall, subject to the provisions of sub-
section (2), have the meanings specified below:— The Companies Act, 1956 provision
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•
(i) “company” means a company formed and registered under this Act or an existing
company as defined in clause (ii);
(ii) “existing company” means a company formed and registered under any of the
previous companies laws specified below:—
(a) Any Act or Acts relating to companies in force before the Indian Companies Act, 1866 (10
of 1866) and repealed by that Act;
(b) The Indian Companies Act, 1866 (10 of 1866);
(c) The Indian Companies Act, 1882 (6 of 1882);
(d) The Indian Companies Act, 1913 (7 of 1913);
(e) The Registration of Transferred Companies Ordinance, 1942 (54 of 1942); and
• 27[(f) Any law corresponding to any of the Acts or the Ordinance aforesaid and in force—
(1) in the merged territories or in a Pt B State (other than the State of Jammu and
Kashmir), or any part thereof, before the extension thereto of the Indian Companies
Act, 1913 (7 of 1913); or
(2) in the State of Jammu and Kashmir, or any part thereof, before the commencement of
the Jammu and Kashmir (Extension of Laws) Act, 1956 (62 of 1956), 28[in so far as
banking, insurance and financial corporations are concerned, and before the
commencement of the Central Laws (Extension to Jammu and Kashmir) Act, 1968 (25
of 1968) in so far as other corporations are concerned];] and29[(g) The Portuguese
Commercial Code, 30[***] in so far as it relates to “sociedades anomimas”;
(iii) “private company” 31[means a company which has a minimum paid-up capital of
one lakh rupees or such higher paid-up capital as may be prescribed, and by its
articles,—]
(a) restricts the right to transfer its shares, if any;

(b) limits the number of its members to fifty not including—
(i) persons who are in the employment of the company; and

(ii) persons who, having been formerly in the employment of the company, were
members of the company while in that employment and have continued to be
members after the employment ceased; and
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(c) prohibits any invitations to the public to subscribe for any shares in, or debentures of,
thecompany;
• 32[(d)
prohibits any invitation or acceptance of deposits from to persons other than its
members, directors or their relatives:]
• Provided that where two or more persons hold one or more shares in a company jointly,
they shall, for the purposes of this definition, be treated as a single member;
• 33[(iv) “public company” means a company which—
(b) has a minimum paid-up capital of five lakh rupees or such higher paid-up capital, as may
be prescribed;
(c) is a private company which is a subsidiary of a company which is not a private company;]
(2) Unless the context otherwise requires, the following companies shall not be included within the
scope of any of the expressions defined in clauses (i) to (iv) of sub-section (1), and such companies
shall be deemed, for the purposes of this Act, to have been formed and registered outside India:—
•
(a) a company the registered office whereof is in Burma, Aden or Pakistan and which
immediately before the separation of that country from India was a company as
defined in clause (i) of sub section (1);
(b) 34[* * *]
35[(3)
Every private company, existing on the commencement of the Companies (Amendment) Act,
2000, with a paid-up capital of less than one lakh rupees, shall, within a period of two years from
such commencement, enhance its paid-up capital to one lakh rupees.
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(4) Every public company, existing on the commencement of the Companies (Amendment) Act,
2000, with a paid-up capital of less than five lakh rupees, shall, within a period of two years from such
commencement, enhance its paid-up capital to five lakh rupees.
(5) Where a private company or a public company fails to enhance its paid-up capital in the manner
specified in sub-section (3) or sub-section (4), such company shall be deemed to be a defunct
company within the meaning of section 560 and its name shall be struck off from the register by the
Registrar.
(6) A company registered under section 25 before or after the commencement of Companies
(Amendment) Act, 2000 shall not be required to have minimum paid-up capital specified in this
section.]
NOTES
Section 3 of the Companies Act, 1956 corresponds to section 2(20) of the Companies Act, 2013
English Act, 1948 : Section 455 Companies Act, 1913 : Sections 2, 2A
English Act, 1985 : Section 744
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on clauses explained this provision as follows:
“This combines clauses (2), (7), (13) and (13A) of sub-section (1) of section 2 and section 2A of the existing Act. The
Acts enumerated in clause 3(1)(ii) are previous companies laws. Proviso (i) to section 2A of the existing Act has
become spent and has therefore been omitted.” [Clause 3 of the Companies Bill, 1953 (46 of 1953)].
[s 2.65] Company [Section 3(1)(i) of the Companies Act, 1956]
In this Act, unless the context otherwise requires, the expression “company” means a company
formed and registered under this Act or an existing company as defined in clause (ii).
[s 2.65.1] Existing Company [Section 3(1)(ii) of the Companies Act, 1956]
Existing company means a company formed and registered under any of the previous companies
laws and is still in existence. A defunct company [section 560 of the 1956 Act] is not an existing
company.
[s 2.66] Definition Subject to Definitions in other Provisions
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The definition of company in section 3(1)(i) of the 1956 Act is subject to definitions in other provisions
of the Act, if the context otherwise requires. If the expression “company” for the purpose of sections
391 and 393 of the 1956 Act were to be understood as meaning a company in terms of section 3 of
the 1956 Act, a large number of companies, such as, unregistered companies and foreign
companies, would be outside the purview of the provisions contained in Chapter V of the Act, with
regard to compromise, arrangement and reconstruction including amalgamation, even though these
categories of companies would be within the winding-up sweep of the Act by virtue of the provisions
in Pt X of the Act. It is for this reason that the expression “company” is redefined in section 390(a) of
the 1956 Act for the purposes of sections 391 and 393 of the 1956 Act, so as to bring these
categories of companies within Chapter V and to enable these companies to become parties to
schemes of amalgamation, etc.36
[s 2.67] Government Company [Section 617 of the Companies Act, 1956]
A Government company is a company under this Act. Sections 391 and 394 of the 1956 Act are
applicable to it even though the reconstructed company was not registered under this Act but
incorporated in a foreign country.37
[s 2.68] “Holding Company” and “Subsidiary”
For the definition and meaning of “holding company” and “subsidiary” see Notes under section 4 of
the 1956 Act.
[s 2.69] Kinds of Companies
The Companies Act, 1956.envisages and provides for various forms of companies each with specific
and appropriate provisions applicable to them, viz., Private Company [section 3(1)(iii) of the 1956
Act], Public Company [section 3(1)(iv) of the 1956 Act], Holding company and subsidiary [section 4 of
the 1956 Act], Charitable Companies [section 25 of the 1956 Act], Sick Industrial Companies
[sections 424A-424L of the 1956 Act], Producer Companies [sections 581A-581ZT of the 1956 Act],
Foreign Company [sections 591–608 of the 1956 Act], Banking, Insurance, Electricity and other
Companies governed by special Acts [section 616], Government Company [sections 617–620], Nidhi
or Mutual Benefit Society [section 620-A of the 1956 Act].
The corresponding s. of the 2013 Act are as follows: Private Company [section 2(68)], Public
Company [section 2(71)], Holding company and subsidiary [section 2(46) and 2(87)], Charitable
Companies [section 8], Sick Industrial Companies [section 253 and sections 260–267], Producer
Companies [section 465], Foreign Company [section 2(42) and sections 379 - 393], Banking,
Insurance, Electricity and other Companies governed by special Acts [section 1] Government
Company [section 2(45), section 139, 143, and sections 294–395], Nidhi or Mutual Benefit Society
[section 406].
Besides, special provisions have been made for Companies in Goa, Daman and Diu [section 620-B
of the 1956 Act], Jammu and Kashmir [section 620-C of the 1956 Act], Sikkim [Article 371F of
Constitution and the Sikkim Registration of Companies Act, 1961] and State of Nagaland [section
1(3), proviso]. There are no corresponding provisions for the 2013 Act.
[s 2.70] Companies in Sikkim [Article 371-F of the Constitution of India]
The State of Sikkim has been granted special status under Article 371F of the Constitution of India.
As per clause (n) of Article 371F containing special provisions with respect to the State of Sikkim, the
President may, by notification, extend with such restrictions or modifications as he thinks fit to the
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State of Sikkim any enactment which is in force in India. Until such a Notification is issued extending
the 1956 Act to the State of Sikkim, the State shall be governed by the Sikkim Registration of
Companies Act, 1961. The Banking Regulation Act, 1949 (10 of 1949) has been extended to Sikkim
by the President, by Notification, dt. 15-01-1976 (w.e.f. 15-12-1987). “Company” is defined by section
5(d) of the Banking Regulation Act, 1949 as meaning any company as defined in section 3 of the
1956 Act. As the 1956 Act has not been extended to the State of Sikkim, the meaning of company is
to be ascertained with reference to the corresponding law in force in the State of Sikkim, viz., the
Sikkim Registration of Companies Act, 1961.38
The 2013 Act expressly provides for the Sikkim Registration of Companies Act, 1961 under previous
company law. Thus, the Companies Act, 2013 is extended to the State of Sikkim.
[s 2.71] Name with “Ltd” or “Pvt Ltd” as last words
The Memorandum of Association of every company shall, inter alia, state—(a) the name of the
company with “Ltd” as the last word of the name in the case of a public limited company, and with
“Pvt Ltd” as the last words of the name in the case of a Pvt Ltd company. [section 13(1)(a) of the
1956 Act – corresponding to section 4 of the 1956 Act].
[s 2.72] Incorporation of Company
See Pt II of the Companies Act, 1956—Incorporation of Company and Matters Incidental Thereto
[sections 11–54] and Pt II of the 2013 Act Incorporation of Company and Matters Incidental Thereto
[sections 4–23 of the 2013 Act.]
These, inter alia, provide for: Mode of forming incorporated company [section 12 – corresponding
section 4 of the 2013 Act], Memorandum of Association [sections 12–19 – corresponding sections 3,
4, 7, 12 and 13 of the 2013 Act], Provisions with respect to names of companies [sections 20–25 -
corresponding sections 4, 8, 13 and 16 of the 2013 Act], Articles of Association [sections 26–31 -
corresponding sections 5, 7 and 14 of the 2013 Act], Change of registration of companies [section 32
- corresponding section 18 of the 2013 Act], General provisions with respect to memorandum and
articles [sections 33–40 – corresponding sections 7, 9, 10, 13, 15 and 17 of the 2013 Act],
Membership of company [sections 41–42 – corresponding sections 2 and 19 of the 2013 Act],
Consequences of default in complying with conditions constituting a company a private company
[section 43], Prospectus or statement in lieu of prospectus to be filed by private company on ceasing
to be private company [section 44 - corresponding section 14 of the 2013 Act], Reduction of Number
of Members below Legal Minimum [section 45].
[s 2.73] Company [Section 2(10) of the Companies Act, 1956]
This means a company as defined in section 3, or a company as defined in section 2(20) of the
[s 2.74] Company is a Juristic Person
The term company includes company in existence in 1956, a private company, a government
company and a company incorporated under the Act. It is a juristic person separate and distinct from
its members.39 The shareholders are not the owners of the company’s assets, they have merely a
right to participate in the profits of the company subject to the contract contained in the Articles of
Association. In a writ petition the jurisdiction of the Court to grant relief cannot be denied, when by
State action the rights of individual shareholder are impaired if that action also impairs the right of the
company. The Court, in such a case, will not, concentrating merely upon the technical operation of
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the action, deny itself jurisdiction to grant relief.40
It is a separate juristic personality but the Court is entitled to lift the veil and see the economic
realities behind the legal facade of corporate entity.41
The principle laid down in Salomon’s case42 more than a century ago in 1897 by the House of Lords
that the company is at law a different person altogether from the subscribers, who have limited
liability, is the foundation of Joint Stock Company and a basic incidence of incorporation both under
the English law and Indian law. Lifting the veil of incorporation under statutes and decisions of the
courts is an equally settled position of law. This is more readily done under American law. To look at
the realities of the situation and to know the real state of affairs behind the facade of the principle of
the corporate personality, the courts have pierced the veil of incorporation.43
The majority of the members exercise powers of corporation or a company.44 The company is a
juristic person. It is managed by the Board of Directors. The powers of Board of Directors are given
under section 291. The members of the Board of directors may change. They may appoint another
person as managing director of the company. This, however, does not cancel or change the terms of
a contract which a person has entered into for or on behalf of the company.45
[s 2.74.1] Department’s View— Loans to Directors of private companies
Loans given to directors of private limited companies unless they are subsidiaries of public companies are exempted
from the approval of the Central Government and, therefore, guidelines issued for regulating loans given by a public
limited company to its directors are not applicable.
This information was given by the Union Minister of Law, Justice and Company Affairs in a written reply to a question in
the Lok Sabha. [PIB Press Release, New Delhi, dt. 9-05-2002 : (2002) 110 COMP CASES (St.) 120].
See Department’s views, e.g., Huge loans at low rate to Directors of companies in Notes under
section 295 of the Companies Act, 1956. See also Privileges and Exemptions to a Private Company
(not being a subsidiary of a public company)
Section 185 of the 2013 Act restricts private companies from issuing loans to its directors unless the
director is a managing director, or whole-time director of the company, and such loans given form a
part of conditions of service extended to all of its employees or pursuant to any scheme approved by
members vide special resolution.
The Notification dt. 05-06-2015 exempts private companies from complying with section 185,
provided the private company satisfies the following conditions:
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(a) in whose share capital no other body corporate has invested any money;
(b) if the borrowings of such a company from banks or financial institutions or any
body corporate is less than twice of its paid up share capital or Rs 50 crore,
whichever is lower; and
(c) such a company has no default in repayment of such borrowings subsisting at the
time of making transactions under this section.
[s 2.75] Writ
No writ petition lies against a public or private company unless it is “state” or “other authority”
exercising governmental function or public duty.46
[s 2.76] Recovery of Income-tax
As per section 179 of the Income-tax Act, 1961, if it is found that any tax due from a private company
in liquidation cannot be recovered, every person who was a director of the private company during
the relevant year shall be jointly and severally liable for the payment of such tax unless he proves
that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his
part in relation to the affairs of the company.47
[s 2.77] Private Company—Director when liable to pay Tax assessed on Company
Proceedings were taken by Department under section 179 of the Income-tax Act, 1961 (43 of 1961)
for recovery of unrealised tax from the private company. This was challenged by the Director under
Article 226 of the Constitution of India. The petition was allowed on the ground that in the notice
issued by the Department to the petitioner who was a director of the company there has been no
averment about the due compliance of the show cause notice issued under section 179 to the effect
that the “tax could not be recovered from the company”. Under section 179 proceedings can be
initiated against the Director of a private company provided there is the finding that the tax for the
relevant period cannot be recovered from the company. The notice issued by the Department on the
director did not contain any such statement and as such there was non-compliance of provisions of
section 179 of the Income-tax Act, 1961. The Writ Petition was allowed and the notice was
quashed.48
[s 2.78] Default in Telephone, Director’s liability
A company is a juristic person having a separate legal entity. When company is the subscriber to a
telephone, its liability is not automatically transferred to the Directors. In a Pvt Ltd company, the
liabilities of the Directors are limited and they are not the subscribers of the company’s telephone.
Therefore, a Director’s personal telephone cannot be disconnected on account of any default in
respect of the company’s telephone.49
[s 2.79] Sovereign immunity
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A Pvt Ltd company incorporated in foreign country, entire share capital of which is held by the
Government of that country would be a Government company. It would be entitled to claim sovereign
immunity under section 86 of the Code of Civil Procedure, 1908 (5 of 1908).50
[s 2.80] Cooperative society under Bangalore Development Authority Act, 1976
The expression “company” under the Act includes a cooperative society registered under the
Societies Registration Act, 1960.51
[s 2.81] Striking off name of Company from Register
An appellant would have to establish his status before we can make an application under section 560
against the order of the Registrar, striking a company’s name off the Register.52
[s 2.82] Member of a company
A member of a company can be a natural or a legal person. A Division Bench of the Kerala High
Court has held that unless the member is a company in its own right, by the mere fact that it is a
member of the respondent company, it cannot be transformed into a company against which a
petition under section 433 of the 1956 Act would be maintainable.53
[s 2.83] Branch offices of a company for professional tax
A division bench of the Supreme Court has held that the Andhra Pradesh State Legislature was not
denuded of its power in crafting the explanation to “person” under the Andhra Pradesh Tax on
Professions, Trades and Callings Employments Act, 1987, and thus, the term person, for the
purposes of the said Act, includes branch offices of a company as separate persons, and hence
liable to be taxed separately.54
[s 2.84] Government company and land acquisition
It has been held by a division bench of the Supreme Court that a government company will not fall in
the definition of a “company” under the Land Acquisition Act, 1984 which excludes government
company from company.55
[s 2.85] Dispute between members
Where in a private company members of the family were the only shareholders. On dispute between
the members certain resolutions were passed in pursuance of a compromise. It was however
challenged on part of one member on the ground of undue influence and coercion. The Supreme
Court enunciated the meaning of burden of proof and substantial question of law.
[s 2.86] Compliance Certificate—Pvt Ltd Company
Relevant paras of the Form appended to the Companies (Compliance Certificate) Rules, 2001 and
ICSI Guidance Note on Compliance Certificate are dealt with below.
[s 2.86.1] Companies (Compliance Certificate) Rules, 2001
Every company not required to employ a whole-time Secretary under sub- section (1) of section 383A
of the Companies Act, 1956 and having a paid-up share capital of Rs 10 lakh or more shall obtain a
Compliance Certificate from a Secretary in whole-time practice.
Compliance Certificate shall be filed with the Registrar of Companies (ROC), a copy of such
Certificate shall be attached with Board’s Report under section 217 of the Act and laid by the
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company in its Annual General Meeting (AGM).
[s 2.86.2] Form of Compliance Certificate [Para 3]
Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001,
inter alia, requires the Practising Company Secretary (PCS) to state as follows:
3. The company being Pvt Ltd Company has the minimum prescribed paid-up capital and its maximum number of
members during the said financial year was ……………… excluding its present and past employees and the company
during the year under scrutiny—
(i) has not invited public to subscribe for its shares or debentures; and
(ii) has not invited or accepted any deposits from persons other than its members, directors or their relatives.
[Para 3 of Form of Compliance Certificate appended to the Companies (Compliance Certificate)

Rules, 2001 : See Full Text under section 383A].
[s 2.87] ICSI Guidance Note on Compliance Certificate
The Institute of Company Secretaries of India (ICSI) has issued a Guidance Note on Compliance
Certificate to be issued in terms of the newly inserted proviso to sub- section (1) of section 383A of
the 1956 Act as prescribed in the Companies (Compliance Certificate) Rules, 2001 by a Practising
Company Secretary (PCS).
[s 2.87.1] Check-List for issue of Compliance Certificate
Check-List for issue of Compliance Certificate on relevant Para 3 of the Form of Compliance
Certificate as contained in ICSI Guidance Note on Compliance Certificate is reproduced below.
Status of the Company.—(a) In the case of a Private Company.—Check whether:
(i) the company has a minimum paid up capital of Rs 1 lakh or such higher paid-up capital as may be prescribed.
In case of an existing Private Company this requirement was required to be complied within a period of two
years from the commencement of the Companies (Amendment) Act, 2000 (53 of 2000) i.e. 13-12-2000;
(ii) Company’s Articles contain provisions—
(a) restricting the right to transfer its shares;
(b) limiting the number of members to fifty;
(c) prohibiting any invitation to public to subscribe its shares/debentures; and
(d) prohibiting any invitation or acceptance of deposits from persons other than its members, directors or their
relatives.
Note: The requirement as at (d) above was prescribed by the Companies (Amendment) Act, 2000 (53 of 2000). Private
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companies formed before the commencement of the said Amendment Act may not contain the clause. Such private
companies should, therefore, be advised to amend the Articles of Association to include this clause.
(b) In case of a Private Company which is a Subsidiary of a Public Company.— Check whether the company has
a minimum paid-up capital of one lakh rupees or such higher paid up capital, as may be prescribed. In case of existing
company, check that it has enhanced its paid up capital as required within two years from the commencement of the
Companies (Amendment) Act, 2000 i.e. 13-12-2000.
Note: A Company registered under section 25 of the 1956 Act before or after the commencement of the Companies
(Amendment) Act, 2000 shall not be required to have minimum paid up capital specified above. However, a Guarantee
Company having share capital should have minimum paid up capital specified above.
[See Guidance Note on Compliance Certificate, issued by the Institute of Company Secretaries of
India (ICSI), Second Edition, August 2003, page 33].
See Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules,
2001, ICSI Guidance Note on Compliance Certificate, e.g., Scope and Specimen of Compliance
Certificate, etc., in Notes under section 383A of the 1956 Act.
The Companies Act, 2013 has replaced the Compliance Certificate, as required under the 1956 Act
with a secretarial audit report.
Under 2013 Act all listed companies and the following categories of companies must file a secretarial
audit report which has to be submitted along with the Board Report in Form No. MR. 3 to the
Registrar of Companies.
1. a public company having a paid up capital of more than 50 crores or more, or,
2. a public company having a turnover of Rs 250 crores or more
[s 2.88] Producer Company treated as Private Company [Section 581C(5) of the Companies
Act, 1956]
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On Registration of the Producer Company, it will be treated as a Pvt Ltd Company without limitation
of its Membership to 50.
Irrespective of the number of Members, the other activities of the Producer Company shall remain as
a Private Company.
[s 2.89] Application of provisions relating to Private Company to Producer Company [Section

581ZR of the Companies Act, 1956]
The Producer company shall be treated as a Private Company and all provisions of Companies Act
shall apply so far as they are not inconsistent with sections 581A to 581ZT of the Companies Act,
1956.
[s 2.90] Privileges and Exemptions of Private Companies may also be available to Producer
Company by virtue of Sections 581C(5) and 581ZR of the Companies Act, 1956
Private Companies (not being a subsidiary of a public company) enjoy certain Privileges and
Exemptions, principally on the ground that they are family concerns in which the public is not directly
interested. The main object was that they would operate as a family business, a partnership on a
small scale and without taking advantage of public money.
As the Producer Company is deemed as Private Company under section 581C(5) of the Companies
Act, 1956 and in view of the provisions of section 581ZR of the 1956 Act Privileges and Exemptions
available to Private Company shall also be available to a Producer Company so far as they are not
inconsistent with sections 581A to 581ZT of the 1956 Act.
See Privileges and Exemptions to Private Companies (not being a subsidiary of a public company)
enumerated earlier in Notes under section 3(1)(iii) of the Companies Act, 1956.
These should, however, be read subject to the Special Provisions for Producer Companies under
sections 581A to 581ZT of the Companies Act, 1956.
[s 2.91] Companies (Accounting Standards) Rules, 2006
Committee on Accounting Standards has made the Companies (Accounting Standards) Rules,
2006*vide Notification No. G.S.R. 739(E), dt. 7-12-2006, published in the Gazette of India,
Extraordinary, No. 582, Pt II, section 3(i), page 217 : (2007) 135 COMP CASES (St.) 73.
[s 2.92] “Enterprise”—Company as defined in Section 3
As per Rule 2(e) of the Companies (Accounting Standards) Rules, 2006*: “Enterprise” means a
Company as defined in section 3 of the Companies Act, 1956.
See also Definition of “Small and Medium Sized Company” (SMC) [Rule 2(f)] and detailed Notes
under sections 210A and 211(3C) of the Companies Act, 1956.
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[s 2.93] Public and Private Company under the English Act
Under the English Companies Act, 2006, a public company must have a minimum authorised capital
of £ 50,000, its shares to the extent of 25% plus the premium must be paid-up and its name must end
with “public limited company” or “plc”. Further a public company must have minimum two directors,
one of either must be a person.
A “private company” is any company that is not a public company which means every company is a
private company if it is not a public company. A private company shall not offer any shares or
debentures to the public, and its name must end with the word “Limited” or “Ltd.”. No private
company needs to specify their minimum authorized capital in its Memorandum instead they will need
to deposit an initial statement of capital or, as appropriate, a statement of guarantee when
incorporating. A private company can be formed with one member and it needs to have minimum one
director as a person. At a meeting of the shareholders a proxy may speak, the right of pre-emption
may be excluded by the Memorandum or the Articles, it may purchase or redeem its own share out of
capital or distributable profits.
S. 2 (21): Company Limited by Guarantee.—“company limited by guarantee” means a company

having the liability of its members limited by the memorandum to such amount as the members may
respectively undertake to contribute to the assets of the company in the event of its being wound up
NOTES
as follows:
Clause 2.— This clause corresponds to section 2 of the Companies Act, 1956 and defines various
This is a new definition. Section 12 of the 1956 Act did state a company limited by guarantees as one
under the various modes of forming an incorporated company. The language used in the 1956 Act
has not been altered. Section 2(23) of the 1956 Act defines a “limited company” as a company limited
by shares or guarantee.
The provision remains unchanged from the Companies Bill, 2011 and section 12(2)(b) of the 1956
Act.
The Dr. Irani Committee Report, 2004 classifies companies based on liability as limited or unlimited.
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Ltd companies are further classified as limited by either shares or guarantees.
The memorandum of the company limited by guarantee will specify a fixed sum that the liability of the
members is limited to. The members cannot be called to contribute more than what the limited sum
is. Section 4 of the 2013 Act dictates that the memorandum of the company must state if the liability
of the members is limited or unlimited and also the amount up to which each member undertakes to
contribute.
See, Notes on section 4 of the Companies Act, 2013.
The Report of the Companies Law Committee, February, 2016, takes note of the fact that unlike
section 97 of the Companies Act, 1957, the 2013 Act has no requirement to intimate the Registrar of
Companies (ROC) of any change in the number of members of a guarantee company. The Report
also noted that Rule 15 of the Companies (Share Capital and Debentures) Rules, 2014* read with
section 64, prescribes filing of Form SH-7 with the ROC for any alteration of share capital and also
provides a field for intimating any change in the number of members and date of special resolution
approving the same. The Committee recommended that Rule 15 be modified to mandate notifying
the increase in number of members of a guarantee company as part of an increase or alteration of
capital.
S. 2 (22): Company Limited by Shares.—“company limited by shares” means a company having

the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares
respectively held by them.
NOTES
as follows:
the Bill.
This is a new definition. Section 2(23) of the 1956 Act defined a limited company as one which may be limited by
shares or guarantees. Section 12(2)(a) of the 1956 Act used language similar to the present provision to describe a
company limited by shares for the purposes of listing the modes of forming an incorporated company.
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The definition remains unchanged from the Companies Bill, 2011.
An analysis of section 12(2)(a) of the 1956 Act will shed light on the provision in the 2013 Act. The
use of “limited” is indication that the liability of members for whatever liabilities the company incurs is
limited. This limitation extends to the amount undertaken by the members towards the share capital
of the company. The liability of members for a company limited by shares is limited to the unpaid
amount on the nominal amount of the person’s hares. Except for calls on shares made in the event of
winding up or those dictated by the articles or the law for when the company is a going concern, there
is no liability to pay the balance amount due on shares.
S. 2 (23): Company Liquidator.—“Company Liquidator”, in so far as it relates to the winding up of a

company, means a person appointed by—
•
a. the Tribunal in case of winding up by the Tribunal; or
b. the company or creditors in case of voluntary winding up, as a Company

Liquidator from a panel of professionals maintained by the Central Government
under sub-section (2) of section 275
NOTES
This provision is not yet notified and there is no corresponding provision under the Companies Act,
1956.
as follows:
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The provision remains unaltered from the Companies Bill, 2011. It has yet to be notified.
Section 2(23) of the 2013 Act allows the NCLT, a company or creditors to appoint a company
liquidator. This is in contrast with the 1956 Act, which allowed only the High Courts to appoint official
liquidators at the time of winding up. The Central Government shall maintain a panel of professionals
as dictated by section 275(2) of the 2013 Act. The Section must be read in conjunction with Chapter
XX on winding up.
See Notes on “Official Liquidator” under section 2(61) of the 1956 Act.
S. 2 (24): Company Secretary.—“company secretary” or “secretary” means a company secretary as

defined in clause (c) of sub-section (1) of Section 2 of the Company Secretaries Act, 1980 (56 of
1980) who is appointed by a company to perform the functions of a company secretary under this
Act;
NOTES
1956.
as follows:
This definition of company secretary is a reproduction of the definition which was proposed in the
As per section 2(24) of the 2013 Act, only a person possessing qualification under the said section
can be appointed as company secretary of a company. The Central Government is empowered
under section 203(1) to prescribe a class or classes of companies which should mandatorily appoint
a company secretary. A company secretary is listed as a part of “key managerial personnel” under
section 2(51) of the 2013 Act.
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It is pertinent to note that the provisions of section 2(24) of the 2013 Act do not apply to section 8
companies as notified vide G.S.R. 466(E), dt. 05-06-2015. In terms of [Notification No. G.S.R. 466E
dt. 5th June 2015],* the provisions of section 2(24) do not apply to section 8 companies. In other
words, the mandatory requirement to appoint a company secretary in certain circumstances, does not
extend to section 8 companies.
Secretary [Section 2(45)].—Secretary means a Company Secretary within the meaning of clause (c)
of sub-section (1) of section 2 of the Company Secretaries Act, 1980 (56 of 1980), and includes any
other individual possessing the prescribed qualifications and appointed to perform the duties which
may be performed by a secretary under this Act and any other ministerial or administrative duties.
This clause is as substituted by the Companies (Amendment) Act, 1988 (w.e.f. 1-12-1988). The
NOTES
as follows:
“Clause 2 brings the existing definition of ‘Secretary’ in section 2(45) of the Act in line with the
definition of ‘Company Secretary’ contained in the Company Secretaries Act, 1980 and seeks to
define a secretary who is in whole-time practice [Section 2(45A)].” [Clause 2 of the Companies
The Legislative History of the original clause (45) as it stood prior to its substitution is reproduced
below:
THE 1956 ACT (1 OF 1956).—The definition of the term “Secretary” was first introduced in the Companies
Act, 1956 (1 of 1956) by the Joint Committee on the Companies Bill, 1953 (46 of 1953). Section 2(45)
was then substituted by the Companies (Amendment) Act, 1960 (65 of 1960).
as follows:
The amendment is of a clarificatory nature and is intended to enable a firm or a body corporate comprising men of
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professional competence to function as secretaries of companies. (See para 20 of the Report.).[Clause 2(j) of the
“Section 2(30) of the Act defines ‘officer’ as including a secretary and section 2(45) defines a secretary as meaning a
person appointed to perform the duties of a secretary under the Act. The Act does not, however, define his duties
though it imposes penalties upon “officers” (including a secretary) for breach of the duties enjoined by the Act. Section
177 of the English Act provides that every company shall have a secretary and that a sole director shall not also be a
secretary. The suggestion has been made that a statutory provision requiring every company in India to have a
secretary should now be made. While it is desirable to have a competent secretary to guide the management in the
day-to-day work not only in matters of company law and mercantile law, but also in matters relating to accounts,
taxation, holding of meetings, drafting of resolutions and reports, etc., we doubt if, at present, it would be possible to
find an adequate number of competent secretaries for all companies. Accordingly, we feel that at this stage it should
continue to be left to the judgment of the Board of a company, to arrange for the carrying out of its secretarial work.
It has been suggested that firms qualified to perform the duties should be allowed to function as secretaries of
companies. It is said that not only the efficiency of company administration would be increased by the appointment of a
firm comprising men of professional competence as secretaries but the cost would be reduced if several companies
employed the same firm. Section 25(4) and the proviso to Section 226(1) recognise that a firm might be a member of a
company licensed under Section 25 or that a firm might be appointed as auditors of companies. Under Section 2(45),
as it stands, an individual or possibly a company but not a firm, is intended to be the secretary of a company. It has
been brought to our notice that persons purporting to be appointed as secretaries of companies have, in some cases,
been entrusted with functions and duties appropriately belonging to managing agents or secretaries and treasurers, as
defined in the Act and have in this manner sought to avoid the limitations attaching to the holders of these offices.
Nothing, of course, turns on the name and the duties and powers assigned to the office determine its true legal
character. The duties of secretaries, as visualised by the Companies Act, 1956 (sections 54 and 220) and in Table ‘A’
[(Regulation 84(2)] contained in Schedule I to the Act, though important, are not managerial. Though a secretary does
not enjoy the same status as a Managing Agent or Manager and though no specific duties or functions are assigned to
him under the Act, still they are not trivial and require administrative ability besides a good working knowledge of
company law and procedure. Being a principal officer of the company, he is responsible for the correctness of the
statements and documents filed with the Registrar. For default in compliance with the requirements of the Act,
knowingly or wilfully, he incurs penalties. If responsibility is to be distributed among a number of partners then not only
section 2(45) but allied sections like sections 539, 540 and 543 of the Act will have to be suitably amended, so as to
make each of the partners liable for the default of misconduct of the others.
If a firm or another company is to be allowed to function as the secretary of a company the word ‘secretary’ may
preferably be defined as ‘any individual, firm or company, appointed to perform ministerial and administrative functions
in relation to a company under the Act, but not entrusted with the direction, control or management of the affairs of the
company’. [Report : para 20].
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this clause as follows:
“This amendment prohibits any firm or body corporate from acting as secretary of a company.”
[Clause 2(vii)(a) of the Companies (Amendment) Bill, 1972 (72 of 1972)].
This amendment enlarged the scope of functions of a secretary by deleting the word “purely” that
appeared before the words “ministerial or administrative duties”.
The Notes on clause 2(vii)(b) of the above Bill (72 of 1972) explained the reasons for the
In order to promote the growth of the profession of company secretaries on healthy lines, it is necessary that they
should have requisite qualifications. The sub-clause seeks to empower the Central Government to prescribe the
qualifications in order that the companies which will be required to employ secretaries may appoint only such persons
as have the requisite qualifications to be prescribed. The scope of the functions and duties of a secretary has
increased considerably under modern conditions and the Court of Appeal also has held that it is no longer true that a
secretary is a ‘purely’ ministerial officer of the company. Hence the definition of secretary has been suitably amended.
[Clause 2(vii)(b) of the Companies (Amendment) Bill, 1972 (72 of 1972)].
Thus after this amendment: (a) only an individual could be a secretary; (b) such individual had to
possess the prescribed qualifications; and (c) such secretary could perform, in addition to the duties
under the 1956 Act any other ministerial or administrative duties.
As already stated, section 2(45) of the 1956 Act as substituted by the Companies (Amendment) Act,
1988 (w.e.f. 1-12-1988), brings the definition of “Secretary” in section 2(45) of the 1956 Act (1 of
1956) in line with the definition of “Company Secretary” in the Company Secretaries Act, 1980 (56 of
1980). The Companies (Amendment) Act, 1988 has also defined a secretary in whole-time practice.
[Section 2(45A)].
[s 2.103] “Company Secretary” under the Company Secretaries Act, 1980
“Company Secretary” means a person who is a member of the Institute. [section 2(1)(c) of the
Company Secretaries Act, 1980 (56 of 1980)]
“Institute” means the Institute of Company Secretaries of India constituted under this Act. [section
2(1)(g) of the Company Secretaries Act, 1980 (56 of 1980)]
[s 2.104] Definition of “Secretary” in the Companies Act, 1956 wider
The definition of “Secretary” in the 1956 Act was wider than the definition of “Company Secretary” in
the Company Secretaries Act, 1980. Under the Companies Act, a Secretary included a person who
may not have been a Company Secretary under the Company Secretaries Act, 1980 provided he
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possessed the prescribed qualifications and was appointed to perform the duties of a Secretary.
There is a scope that the Central Government may allow a company to appoint as “Secretary” a
person who is not a “Company Secretary” or a member of the Institute (ICSI).
Companies with small capital may, without employing whole-time Secretary, obtain the services of a
Company Secretary who is in practice.
[s 2.105] Certain companies to have Secretary
Section 383A of the 1956 Act (1 of 1956) makes it compulsory for every company having prescribed
paid-up share capital [Rs 2 Crores (w.e.f. 11 June 2002)*] to have a whole-time secretary. Further,
where the Board of directors of such company comprises only two directors, neither of them shall be
the secretary. [section 383A(1) of the Companies Act, 1956]
[s 2.106] Compliance certificate from a Secretary in whole-time practice
As per proviso inserted in section 383A(1) by the Companies (Amendment) Act, 2000, every
company not required to employ a whole-time secretary under sub- section (1) and having a paid-up
share capital of Rs 10 lakhs or more shall file with the Registrar a certificate from a secretary in
whole-time practice in prescribed form as to whether the company has complied with all the
provisions of the, Companies Act, 1956. A copy of certificate shall be attached with Board’s report in
section 217 of the 1956 Act.
This is applicable to both public and private companies. See detailed Notes, Form and Procedure
under section 383A of the 1956 Act.
See also Notes under Secretary in whole-time Practice [section 2(45A) of the Companies Act, 1956]
[s 2.107] Companies (Appointment and Qualifications of Secretary) Rules, 1988
Every company having a paid-up share capital of not less than Rs 2 Crores shall have a whole-time
secretary [Rule 2(1)]. No person shall be appointed as whole-time secretary unless he is member of
the Institute of Company Secretaries of India [Rule 2(2)]. A company having a paid-up share capital
of less than Rs 2 Crores may appoint any individual having prescribed qualifications under rule 2(4)
as its whole-time secretary to perform the duties of a secretary under the 1956 Act and any other
ministerial or administrative duties [Rule 2(3)].*
[s 2.108] Section 25—Company exempt
Charitable etc. companies to which a licence is granted under section 25 of the 1956 Act shall be
exempt from the provisions of section 2(45) in so far as they require the appointment of an individual
to perform the duties which may be performed by a Secretary under the Act and any other ministerial
or administrative duties only if he possesses the prescribed qualifications. [Notification No. S.O.
1578, dt. 1-07-1961: For text of the Notification see Notes under section 25 of the Companies Act,
1956].
[s 2.109] Powers and duties of Secretary
The nature of work of a secretary is ministerial and administrative and not managerial. The secretary
is the officer of a company, who is charged with the duty of ensuring that the affairs of the company
are conducted in accordance with the provisions of the Companies Act, the company’s articles and
generally in accordance with the law. Generally, the secretary is not a person liable for breach of trust
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and misfeasance by directors.56 But if he deals with the company’s funds without supervision, he
might be liable. The secretary, without approval or express authority from the Board, cannot call a
general meeting or issue notices,57 though the Board can ratify such action before the meeting.58 He
cannot alter the register of members or strike a name off the register without the Board’s authority,59
he cannot register a transfer before it has been passed by the Board.60
The secretary has no authority to bind the company by contract, to make representations as to the
company’s affairs or to induce people to take shares in the company.61 Where a director advanced
money for the benefit of a company at the request of the secretary, without the authority of a properly
constituted Board of Directors, he was held not to be entitled to recover the money. In Barnett,
Hoares & Co v South London Tramways Co, decided in 1887, it was held that the secretary is a mere
servant; his position is that he is to do what he is told, and no person can assume that he has any
authority to represent anything at all. But times have changed. A company secretary is a much more
important person nowadays than he was in 1887. He is an officer of the company with extensive
duties and responsibilities. This appears not only in the modern Companies Acts, but also by the role
which he plays in the day-to-day business of the companies. He is no longer a mere clerk. He
regularly makes representations on behalf of the company and enters into contracts on its behalf
which come within the day-to-day running of the company’s business. So much so that he may be
regarded as “held out” as having authority to do such things on behalf of the company. He is certainly
entitled to sign contracts connected with the administrative side of a company’s affairs, such as
employing staff, and ordering cars on hire and so forth. All such matters now come within the
ostensible authority of a company’s secretary.62 See detailed Notes under section 383A of the
Companies At, 1956.
Within the scope of his express or implied authority, the acts of the secretary will bind the company
even if done wrongfully or fraudulently and even though they enure for the benefit of the secretary
himself.63
Secretary should be present at all the general and Board meetings, make proper minutes of
proceedings thereat, issue, under direction of the Board, notices of meetings, conduct
correspondence with shareholders and should be in charge of at least those books relating to internal
business of the company such as Register of Members, Share Ledger, Transfer Book and Register of
Debentures; he would certify transfers under the authority of the Board and perform other
administrative functions. He should look after filing of returns with the Registrar of Companies.
However, the duties of the secretary are those which are assigned to him by the company under its
articles or under his contract of service with the company or by the directors. The rights of a secretary
as against the company will depend on his contract. Since his contract is one of personal service, no
specific performance of the contract will be ordered.64 In a case specific performance of contract to
employ a managing director was refused.65
The secretary as an employee is entitled to a reasonable notice of dismissal or damages in lieu

thereof.66 Where power of dismissal is reserved at the company’s absolute discretion, proper notice
of the company’s intention to terminate must be given.67 An employee may be dismissed summarily
and without notice for acts which go against the root of the contract, such as, wilful disobedience of
order of the company, misconduct, incompetency or permanent disability or even an act of
forgetfulness by an employee having serious results may justify dismissal without notice.68
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A secretary like any other employee or ex-employee may generally be restrained by injunction from
revealing trade secrets.69
The Secretary cannot file suit on behalf of the company without proper authority and if he does so in
appropriate cases he may be made liable for costs. He has no right to commence proceedings on
behalf of the company without approval or authority from the Board of directors.70 However, the acts
which the secretary could have done with authority but done without such authority, might be ratified
by the Board. Where under the articles of association of the company, a suit on behalf of the
company had to be filed with the consent of the directors. The secretary of the company held a
general power of attorney from the directors and the Board subsequently ratified his action. There
could be no valid objection to the maintainability of the suit.71
The secretary has been empowered to discharge various ministerial and administrative duties on
behalf of the company which generally can be performed by an authorised agent. In due course of
the company’s business, the secretary has also been given certain statutory powers like signing the
annual return, etc. But under no circumstance he can discharge the functions of the Board or act on
behalf of the company in matters of policy or substantive steps which are not administrative or
ministerial in nature. He cannot usurp the functions and powers of the Board of directors or the
company. The secretary cannot present a petition under sections 397 and 398 of the 1956 Act for
relief in cases of oppression and mismanagement unless specifically authorised by the company and
the consent under section 399 of the 1956 Act is obtained. In case a secretary verifies any petition or
files a proxy or any petition under sections 397 and 398 of the 1956 Act, it must be accompanied by
an affidavit verifying the petition along with the statement that he has been duly authorised by the
company. The decision to present it must be taken by the Board of directors or backed by the
authority of the Board by a resolution or by a subsequent ratification by a Board meeting.72
A secretary in whole-time practice if authorised by a party in writing may represent such party before
a Bench of the Company Law Board. A company may authorise its company secretary to appear, in
its behalf, in any proceeding before the Bench. [Regulation 19(2) of the Company Law Board
Regulations, 1991].
As per section 10FA inserted by the Companies (Second Amendment) Act, 2002 (w.e.f. date to be
notified), the Company Law Board (CLB) shall stand dissolved. The powers and jurisdiction of the
Company Law Board (CLB) has been transferred under relevant sections to the National Company
Law Tribunal (NCLT). The Companies (Second Amendment) Act, 2002 has been repealed by the
Repealing and Amending (Second) Act, 2015.
[s 2.109.1] Department’s View— Authentication of Balance Sheet by a Secretary
For authentication of Balance Sheet, Annual Accounts, etc., by the Secretary of a company see
Department’s views in Notes under section 215 of the 1956 Act.
Press Note, dt. 13 February 2001 see Department’s views in Notes under section 383A of the 1956
Act.
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See detailed Notes on the Status, Functions, Powers, Ostensible Authority, Duties including, inter
alia, Statutory Duties under the 1956 Act, Rules, Regulations, SEBI and Corporate Laws,
Appointment, Remuneration, Removal and Termination, etc., of “Secretary” under section 383A of
the 1956 Act.
S. 2 (25) : Company Secretary in Practice.—“company secretary in practice” means a company

secretary who is deemed to be in practice under sub- section (2) of section 2 of the Company
Secretaries Act, 1980.
NOTES
as follows:
This is a new provision. Section 2(45) of the Companies Act, 1956 defined “Secretary” and section
2(45A) defined “Secretary in whole-time practice”.
The language of the provision remains unaltered from the Companies Bill, 2011. The Institute of
Company Secretaries of India had recommended that the present definition be in line with the
definitions of Chartered Accountants and Cost Accountant. The Ministry of Corporate Affairs was of
the opinion that the existing form of the definition was close to that of section 2(45) of the 1956 Act
and needed no alteration.
Section 2(2) of the Company Secretaries Act, 1980 deems any member of the Institute to be in
practice if he or she engages in any of the activities listed by the Section in consideration of
remuneration.
S. 2 (26) : Contributory.—Contributory means a person liable to contribute towards the assets of the
company in the event of its being wound up.
Explanation.—For the purposes of this clause, it is hereby clarified that a person holding fully paid-up shares in a
company shall be considered as a contributory but shall have no liabilities of a contributory under the Act whilst
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retaining rights of such a contributory.
NOTES
1956.
as follows:
This definition of Contributory is a reproduction of the definition which was proposed in the
This definition under section 2(26) of the Companies Act, 2013 has been included with minor
changes from the definition ascribed to it under section 428 of the Companies Act, 1956. Section
2(26) of the 2013 Act omits “deemed contributory” which was included in section 428 of the 1956 Act.
Under the concept of “deemed contributory”, any person alleged to be a contributory was considered
as a deemed contributory in a proceedings for determination of contributories.
Further, the explanation to the definition clarifies that a holder of fully paid up shares in a company
shall not have the liabilities of a contributory while retaining the rights that a contributory is entitled to.
The definition of “contributory” under section 2(26) of the 2013 Act, although notified, does not apply
to winding up as per the table provided in the General Circular No. 7/2014 dt. 01-04-2014. The
definition under section 428 of the Companies Act, 1956 continues to remain in force for the purpose
of winding up.
Definition of “contributory” [Section 428]—The term “contributory” means every person liable to
contribute to the assets of a company in the event of its being wound up, and includes the holder of
any shares which are fully paid up; and for the purposes of all proceedings for determining, and all
proceedings prior to the final determination of, the persons who are to be deemed contributories,
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includes any person alleged to be a contributory. The Companies Act, 1956 provision
NOTES
Section 428 of the Companies Act, 1956 corresponds to section 2(26) of the companies Act, 2013.
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on clauses explained as follows:
“See section 158 of the existing Act and section 213 of the English Act.” [Clause 392 of the
See also Statement of Objects and Reasons and Legislative History in Notes under sections 1, 10FB
to 10GF and 425 to 439 of the 1956 Act.
[s 2.115] Contributory [Section 428 of the Companies Act, 1956]
The term means a person liable to contribute to the assets of a company in the event of its being
wound up. The term includes the holder of fully-paid shares. The term also includes an alleged
contributory for purposes of proceedings for determining as to who are contributories. The term
includes a person alleged to be a contributory for the purposes of proceedings prior to the final
determination of the persons who are to be deemed contributories.
The term “contributory” includes a holder of fully-paid shares and a person whose name does not
appear on the Register of Members during the last one year.
See detailed Notes under sections 426 to 432 of the 1956 Act.
[s 2.116] Fully-paid shares
Section 428 of the 1956 Act gives statutory recognition to the well-established judicial concept that a
fully paid shareholder of the company is a contributory. It explains the term “contributory” as including
the holder of any shares which are fully paid-up.73
See also Notes under sections 426, 439 and 511 of the Companies Act, 1956.
[s 2.117] Present and Past Members
The word “contributory” is defined in section 428 of the Companies Act, 1956 to mean every person
liable to contribute to the assets of a company in the event of its being wound up and includes the
holder of any shares which are fully paid up. The persons liable to the assets of the company are
those set out in section 426(1) of the 1956 Act which includes every present and past member
subject to the qualifications set out therein. In given circumstances even a past member can be a
contributory.74
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See detailed Notes under section 426 of the Companies Act, 1956.
[s 2.118] Two Lists of Contributories
This section provides that for the purpose of ascertaining whether a person’s name will be entered in
one of the two Lists of Contributories, proceedings can be taken, and he will be called by the name
contributory which does not attach any liability to him. It is only for the purpose of finding out the
liability or otherwise of a person against whom there is allegation.
[s 2.119] Contributories List “A” or List “B”
There is a difference between a “Contributory” and “placing the name of a person in the
Contributories’ Lists, viz., List “A” or List “B” of Contributories”.
[s 2.120] Fully-paid shares not placed in Lists of Contributories
A person who holds fully paid up shares cannot be placed in either List “A” or List “B” of the
contributories and made to contribute towards the assets of the company in winding up.75
A person whose name does not appear on the Register of Members or did not appear in the Register
during the last one year preceding the commencement of the winding up cannot also be placed in
either of the two Lists of Contributories.
See also Notes under sections 426, 432 and 483 of the Companies Act, 1956.
[s 2.121] “Member” and “Contributory”
The terms “contributory” and “member” are not interchangeable. By virtue of section 428 of the
Companies Act, 1956 every member would become a contributory. The converse, however, is not
true. Though a Member even of fully paid up shares would become a contributory. On his death his
legal representatives, by virtue of section 430 of the 1956 Act, would be regarded as contributories.
The legal representatives, however, would not be regarded as members unless and until their names
are put in the Register of Members. After the passing of the winding up order the Register of
Members would come into the custody of the Official Liquidator. The names entered in the Register
of Members are not erased therefrom. In fact under section 467 of the 1956 Act the Court [now the
Tribunal (NCLT)] has been given the power, while settling the List of Contributories, to rectify the
Register of Members. This obviously means that even after the winding up order has been passed
the Register of Members continues to exist. If this be so, any person whose name is entered in the
Register of Members shall by virtue of section 41 of the 1956 Act, be regarded as a Member and
would still be a member of the company, notwithstanding the winding up order having been passed.
Under different provisions of the Act a reference is made to Members even though a winding up order
has been passed such as sections 469(2) and 511 of the 1956 Act. Such a Member has a right to file
an application under section 391 of the 1956 Act for the revival of wound up company. Liquidator is
merely an additional person who can file application.76
See also Notes under sections 41, 391, 426 430, 442, 467, 469, 511 of the Companies Act, 1956.
[s 2.122] Winding up petition by Contributory
The petition is filed under section 439 read with section 433 of the 1956 Act. The term “Contributory”
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who can apply for winding up is defined in section 428 of the 1956 Act. The contributory must further
fulfil certain other conditions to file winding up petition. Though a contributory can file petition for
winding up but he must be in the Register of Members at least for six months within last 18 months
prior to making the petition or he must be a Signatory to the Memorandum of Association. A winding
up petition was made under just and equitable clause in section 433(f) of the 1956 Act. It was held
that there were disputes among the shareholders but such disputes did not lead to a deadlock and
did not affect the rights of the shareholders. The company was running at a loss but that is not
sufficient ground for winding up. The substratum of the company was intact. Allegations of
mismanagement and lack of probity and oppression was without any supporting evidence. The
winding up petition should not have been admitted and direction for advertisement should not have
been given. The petitioner’s remedy was not winding up of the company.77
See detailed Notes under sections 433 and 439(4)(b) of the Companies Act, 1956.
[s 2.123] Legal Representatives
The petition is filed under section 439 read with section 433 of the Companies Act, 1956. The term
“Contributory” who can apply for winding up is defined in section 428 of the 1956 Act. It is an
inclusive definition. It includes the holder of any shares which are fully paid up. It is now fairly settled
that members, past and present, and their legal representatives can present a petition for winding up.
The sine qua non is that the petitioner should be a Member. In all companies having a share capital,
the expressions “Member”, “Shareholder” and “Holder of shares” are “interchangeable terms”. If as a
result of death, shares devolve on more than one legal representatives of the deceased shareholder,
then though such holders are entitled to a share in the entirety of the holdings, it cannot be
predicated with certainty as to what is the precise and defined interest of each of such
representatives in the shares of the deceased.78
See Notes under sections 426, 428, 433 and 439(4)(b) of the Companies Act, 1956.
[s 2.124] Joint Shareholders—Survivor and Heirs
If shares are held jointly by two persons. On death of one of the shareholders, the interest of the
deceased shareholder passes to the survivor and not to heirs of the deceased shareholder. Heir of
deceased shareholder not registered as a Member of the company is not a Contributory and is not
entitled to file petition for winding up.79
See also Notes under section 108 of the Companies Act, 1956 and Schedule I, Table A, Regulation
25.
[s 2.125] Transferee Company in Amalgamation
The transferee company in Amalgamation whose name is not borne on the Register of Members
cannot be treated as contributory by operation of law. A “contributory” is defined in section 428 of the
1956 Act. The term” contributory” under section 428 includes the holder of any shares which are fully
paid-up. The Courts have held that the words, “holder of shares”, “shareholder” and “member” are
synonyms in so far as the 1956 Act are concerned and the said expressions have been
interchangeably used. Merely being contributory shall not clothe the petitioner to maintain the petition
for winding up order unless the conditions in section 439(4)(b) of the 1956 Act are met. Clause (b) of
sub- section (4) of section 439 of the 1956 Act provides that a contributory shall not be entitled to
present the petition for winding up a company unless, the shares of which he is a contributory or
some of them (i) were originally allotted to him or (ii) have been held by him and registered in his
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name for at least six months during the 18 months immediately before the commencement of the
winding up or (iii) have devolved on him through the death of a former holder. The category, “or have
devolved on him through the death of former holder” in section 439(4)(b) of the 1956 Act is applicable
only to personal representative of a person holding shares in the company in his individual capacity.
The said expression applies to devolution of rights on the death of a natural person and has no
application to a corporate entity or a juristic person. If the words “or have devolved on him through
the death of former holder” could also be applied to a company which has ceased to exist on
Amalgamation, it would be tampering with the plain language used in section 439(4)(b) of the 1956
Act which is not permissible.80
[s 2.126] No scope for floating new Shares
When a winding up order is passed, all the officers and directors are discharged under section 445(3)
of the 1956 Act. It puts an end to the powers of the directors. Even where stay of winding up is
obtained, there is no scope for floating new shares. Further issue of capital can be done only in
accordance with section 81 of the Act. Under section 428 of the Companies Act, 1956, the holders of
the shares of a company which is wound up no longer remain shareholders, but become
contributories liable to contribute to the assets of the company. New shareholders cannot therefore
be called upon to contribute.81
See also Notes under sections 81, 433, 445 and 466 of the Companies Act, 1956.
[s 2.127] Inspection by Contributory
Right of Contributory to inspect extends only to Minute Books and not to Account Books maintained
by the Official Liquidator. Any creditor or contributory of the company may inspect the books and
records maintained by the Liquidator. The latter may regulate, but cannot deny, such inspections. He
is also entitled to extracts from such books. He is also entitled to a copy of any document on payment
of fees. Under section 461(2) of the 1956 Act, a Contributory is entitled to inspect only those books
which are required to be kept by the Official Liquidator under section 461(1) of the 1956 Act, viz., the
books containing entries or minutes of meetings and such other matters as may be prescribed.
However, he is not entitled to inspect the Account Books which are prescribed by the Supreme Court
under Rule 286 of the Companies (Court) Rules, 1959,* to be maintained by the Official Liquidator.82
See detailed Notes, Form and Procedure under section 461 of the 1956 Act.
[s 2.128] Debtor is not a “Contributory”
Under section 468 of the 1956 Act, the Court [Tribunal (NCLT)] can pass orders directing delivery of
money, property, etc., to the Liquidator against the persons enumerated in section 468 of the 1956
Act. Debtor is not one of the persons mentioned in section 468 of the 1956 Act, who may be asked to
deliver, surrender or transfer any money or property to company through Liquidator. A debtor of the
company is not a “Contributory” as defined in section 428 of the 1956 Act.83
S. 2(27) : Control 84Section 2(27).—“control” shall include the right to appoint majority of the
directors or to control the management or policy decisions exercisable by a person or persons acting
individually or in concert, directly or indirectly, including by virtue of their shareholding or
management rights or shareholders agreements or voting agreements or in any other manner;
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NOTES
as follows:
This is a new definition and is similar to the definition of “control” given in Regulation 2(1)(e) of SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011. This is a very comprehensive
definition although inclusive; specifying that the term “control” includes the right to appoint majority
directors, to control the management and to control the majority policy decisions of the company.
Such rights could be exercised either individually or by persons acting in concert. Such exercise
could be either direct or indirect. The exercise of such control could be by virtue of shareholding or on
the basis of shareholders agreement or voting agreement. Proviso to regulation 2(1)(e) of SEBI
Regulations, 2011 which is clarificatory in nature is omitted in the 2013 Act.
This definition is relevant for the provisions relating to subsidiary and holding companies and also for
the definition of “subsidiary company” given under Clause (87) of section 2 and the meaning of
expression “to any other person in whom director is interested” under Explanation (d) to section
185(1) of the Companies Act, 2013.
S. 2 (28) : Cost Accountant.—“cost accountant” means a cost accountant as defined in clause (b) of
sub-section (1) of Section 2 of the Cost and Works Accountants Act, 1959.
NOTES
in effect from 12-09-2013.
as follows:
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The provision remains unchanged from the Companies Bill, 2011.
This is a new provision. The Companies Act, 1956 mentions a cost accountant in section 233B for
audit of cost accounts in certain cases. The auditor conducting the audit of cost accounts was
required to be a cost accountant under the Cost and Works Accountants Act, 1959. The concept of a
cost accountant was present in the 1956 Act provided under sections 233B(1) and 10GD of the 1956
Act. However, neither were general definitions; the former was with respect to audit of cost accounts
in certain cases and the latter was regarding representation. Reference to section 6(1) of the Cost
and Works Accountants Act, 1959 is also absent in the 2013 Act.
See Notes on the powers of the Central Government to specify audit of items of cost in respect of
certain companies in section 148 of the 2013 Act.
S. 2 (29) : Court.—Court means—
(i) the High Court having jurisdiction in relation to the place at which the registered office of the company
concerned is situate, except to the extent to which jurisdiction has been conferred on any district court or
district courts subordinate to that High Court under sub-clause (ii);
(ii) the district court, in cases where the Central Government has, by notification, empowered any district court to
exercise all or any of the jurisdictions conferred upon the High Court, within the scope of its jurisdiction in
respect of a company whose registered office is situate in the district;
(iii) the Court of Session having jurisdiction to try any offence under this Act or under any previous company law;
(iv) the Special Court established under section 435;
(v) any Metropolitan Magistrate or a Judicial Magistrate of the First Class having jurisdiction to try any offence
under this Act or under any previous company law;
NOTES
in effect from 12-09-2013 and the corresponding provisions are sections 2(11), 2(14), 10, 622 of the
as follows:
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Sub-clause (iv) of section 2(29) was notified vide S.O. 1795(E) dt. 18-05- 2016 and has been in effect
from 18-05- 2016. This definition of Court is a reproduction of the definition which was proposed in
the Companies Bill, 2011.
This definition of Court consolidates certain provisions of the Companies Act, 1956, namely, sections
2(11), 2(14), and 10. As per section 430 of the 2013 Act, no civil court has jurisdiction over any
matter where jurisdiction is conferred on the Tribunal and Appellant.
See commentary on section 430 of the Companies Act, 2013.
Section 2(29)(iv) of the 2013 Act includes Special Courts that are established under section 435 of
the 2013 Act within the definition of court. Special Courts have been established on 18 May 2016
vide S.O. 1796 (E).
See Notes on section 435 of the Companies Act, 2013.
Court [Section 2(11)] – The Court means (a) with respect to any matter relating to a company (other than any offence
against this Act), the Court having jurisdiction under this Act with respect to that matter relating to that company, as
provided in Section 10; (b) with respect to any offence against this Act, the Court of a Magistrate of the First Class or,
as the case may be, a Presidency Magistrate, having jurisdiction to try such offence. The Companies Act, 1956
provision
NOTES
follows:
“This amendment is merely clarificatory. (See para 16 of the Report.)”
[Clause 2(f) of the Companies (Amendment) Bill, 1959 (37 of 1959)]. The Companies (Amendment)
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Act, 1960 has been repealed by the Repealing and Amending Act, 2016.
Para 16 of the Companies Act Amendment Committee, 1957 Report is as follows:
The definition of the word ‘Court’ in section 2(11) in the Companies Act, 1956 refers to section 10 and section 10 of the
Companies Act, 1956 refers only to the jurisdiction of two types of courts, viz., the High Court and District Courts
subordinate thereto. There are, however, several sections in the 1956 Act, where the word ‘Court’ is used in a different
sense. In sections 274(1)(d) and 283(1)(c) of the 1956 Act, e.g., the word ‘Court’ is used in the sense of an ordinary
criminal court trying an offence punishable under the criminal law of the land. In sections 118(3), 144(4), 163(6),
196(4), 219(4) and 304(2) of the 1956 Act, the word ‘Court’ refers to the Court of a Presidency Magistrate or First Class
Magistrate trying offences under the Companies Act by virtue of sections 622 and 623 of the 1956 Act and not the
‘Court’ contemplated by section 10 of the 1956 Act.
Section 2(11) of Companies Act, 1956 might, therefore, be recast as follows:—‘The ‘Court’ means with respect to any
matter relating to a company, the Court having jurisdiction with respect to that matter in relation to that company as
provided in section 10.’
Section 10 of the 1956 Act will have to be amended by the omission of the word ‘and’ at the end of sub-section (1),
clause (a), the addition of the word ‘and’ at the end of the clause (b) of sub-section (1) and the following words as
clause (c):—
‘(c) in respect of any offence made punishable under this Act, the Court of a Presidency Magistrate or Magistrate of the
First Class having jurisdiction to try such offence’. [Report : para 16].
By section 2(11)(b) of the 1956 Act the jurisdiction has been given to a Magistrate of first class rank.
Section 454(5A) of the 1956 Act provides that the court by which the winding up order is made or the
provisional liquidator is appointed may take cognizance of an offence under this section and try the
offence itself as summons case is tried by the Magistrate under the Criminal Procedure Code.
See detailed Notes under sections 10, 10E and 10FB of the Companies Act, 1956.
[s 2.135] Court—Jurisdiction—Execution of Orders—Decree passed by Company Court to be

executed by Company Court alone
The words “any order” in section 634 of the Companies Act, 1956 mean and include an order for
payment of moneys and this can be enforced by various methods as had been provided under the
laws. Unsatisfied decrees can be enforced by filing execution application or initiating insolvency
proceedings, both in the case of Company judgment debtor or Individual judgment debtor. Section
634 of the 1956 Act makes it clear that the order for payment may be enforced in the same manner
as a decree may be enforced by the Court in a suit pending thereon. Sections 634 and 634A of the
1956 Act provide that the order for payment can be executed by the Court which has passed the
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order. Section 634A of the 1956 Act empowers the Company Law Board (CLB) to execute it. The
Court means the High Court as the Company Court has the exclusive jurisdiction to pass any order
including for enforcement of the order passed by it. In case an order passed by one Company Court
cannot be enforced under situation mentioned in section 635 of the 1956 Act then such order can be
executed by another Company Court but not by any other Court, i.e., the High Court as a Court of
principal Civil Jurisdiction. The order of the Company Court has to be executed by a Company Court.
Under sections 2(11) and 10 of the 1956 Act the authority of any other Court for any matter is
excluded except in case of enforcement of orders passed by the Company Law Board (CLB). The
application for execution filed before the High Court as a Court of principal Civil Jurisdiction was
therefore not maintainable. The written application is required to be filed before the Company Court
which passed the order.85
Provisions of section 634A of the Companies Act, 1956 which provides for enforcement of order of
the Company Law Board as if it were a decree of Court shall not apply on and after the
commencement of the Companies (Second Amendment) Act, 2002 (11 of 2003).
Section 10FZA of the 1956 Act (1 of 1956) inserted by the Companies (Second Amendment) Act,
2002 (11 of 2003) provides that any order made by the Tribunal (NCLT) or the Appellate Tribunal
(NCLAT) may be enforced in the same manner as if it were a decree made by a Court. The powers of
the Company Law Board (CLB) have conferred upon the Tribunal (NCLT).
Consequently, the provisions of section 634A of the 1956 Act shall not apply after the constitution of
Tribunal (NCLT) under section 10FB of the 1956 Act and commencement of the Companies (Second
Amendment) Act, 2002 (11 of 2003).
See detailed Notes, Form and Procedure under sections 2(11), 10, 10E, 10FB, 10FZA, 433, 434,
439, 443, 634, 634A and 635 of the of the Companies Act, 1956.
[s 2.136] Offences and Prosecution—“Court” with respect to Offences against the Act—
Magistrate’s Court [Sections 2(11) and 622 of the Companies Act, 1956]
“Court” is defined under section 2(11) of the 1956 Act, as meaning a Company Court having
jurisdiction under the Act with respect to matters relating to the company as provided under section
10 of the 1956 Act but it excludes such a “Court” from having jurisdiction with respect to offences
against the Act. On petitions filed by the appellants before the Company Court under section 108A of
the 1956 Act, alleging that the respondents had violated the provision contained in section 108A of
the 1956 Act which imposed restriction on acquisition of certain shares and seeking to prosecute
them, the Company Court relegated the appellants to the Magistrate’s Court. On appeal, dismissing
the appeal, it was held that under sections 2(11) and 622 of the 1956 Act any offence committed
under the 1956 Act or against the provisions of the Act had to be tried by a Presidency Magistrate or
a Magistrate of first class. The order did not need any intervention by the Appellate Court.86
District Court [Section 2(14) of the Companies Act, 1956]—District Court means the principal Civil
Court of original jurisdiction in a district, but does not include a High Court in the exercise of its
ordinary original civil jurisdiction.
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S. 10. Jurisdiction of Courts.—(1) The Court having jurisdiction under this Act shall be—
•
(a) the High Court having jurisdiction in relation to the place at which the registered
office of the company concerned is situate, except to the extent to which
jurisdiction has been conferred on any District Court or District Courts subordinate
to that High Court in pursuance of sub-section (2); and
(b) where jurisdiction has been so conferred, the District Court in regard to matters
falling within the scope of the jurisdiction conferred, in respect of companies
having their registered offices in the district.
(2) The Central Government may, by notification in the Official Gazette and subject to such
restrictions, limitations and conditions as it thinks fit, empower any District Court to exercise all or any
of the jurisdiction conferred by this Act upon the Court, not being the jurisdiction conferred—
•
(a) in respect of companies generally, by sections 237, 391, 394, 395 and 397 to 407,
both inclusive;
(b) in respect of companies with a paid-up share capital of not less than one lakh, by
Pt VII (sections 425 to 560) and the other provisions of this Act relating to the
winding up of companies.
(3) For the purposes of jurisdiction to wind up companies, the expression “registered office” means
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the place which has longest been the registered office of the company during the six months
immediately preceding the presentation of the petition for winding up.
NOTES
Section 10 of the Companies Act, 1956 corresponds to section 2(29) of the Companies Act, 2013.
[s 2.137] Analysis
See Notes under section 10 of the 1956 Act
S. 2 (30): Debenture.—“debenture” includes debenture stock, bonds, or any other instrument of a

company evidencing a debt, whether constituting a charge on assets of the company or not;
NOTES
1956.
as follows:
This definition of debenture is a reproduction of the definition which was proposed in the Companies
Bill, 2011. The term debenture under section 2(30) of the 2013 Act is similar to the definition given
under section 2(12) of the 1956 Act. The difference is the insertion of the words “or any other
instrument of a company evidencing a debt”, in place of the words, “and any other securities of a
company”. This particular definition is relevant for section 44 of the 2013 Act which clarifies that a
debenture shall be movable property that is transferable in accordance with the articles of a company
and section 71 of the 2013 Act, which describes the issuance of debentures.
See detailed Notes under section 71 of the Companies Act, 2013. Also refer rule 18 of the
Companies (Share Capital and Debentures) Rules, 2014.*
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Debenture [Section 2(12)].—Debenture includes debenture stock, bonds and any other securities of
a company, whether constituting a charge on the assets of the company or not. The Companies Act,
1956 provision
NOTES
The existing definition has been amplified on the lines of the definition found in the English Act, 1948 viz., section
455(1) [English Act, 1985, s. 744]. See para 27 and also page 228 of the Company Law Committee’s Report. [Clause
2(9) of the Companies Bill, 1953 (46 of 1953)].
The recommendations of the Company Law Committee are reproduced below:
Under the existing definition, ‘debenture’ includes ‘debenture stock’. A debenture means a document which either
creates or acknowledges a debt. Ordinarily a debenture constitutes a charge on the undertaking of the company or
some part of its property, but there may be debentures without any such charge and under the law, it is not necessary
that the debentures should create a charge. We have, therefore, brought the definition of ‘debenture’ in line with that
contained in the English Companies Act, 1948, which defines ‘debenture’ as including ‘debenture stock, bonds and
other securities of a company whether constituting a charge on the assets of the company or not’. [Report : para 27].
[s 2.141] Definition of debenture wider
A debenture means an instrument issued by the company normally called on the face of it a
debenture and providing for the payment of a sum with or without interest after a specified period or
on notice, or it may be irredeemable. It usually gives a charge by way of security. The definition is,
however, wider than the usual meaning in two respects—(i) it includes any securities and (ii) any
instrument without creating a charge may be a debenture.
The term debenture as used in modern commercial parlance is of extremely elastic character.87
Debenture includes a mortgage by a company issued to a single mortgagee.88 Debenture is the
description of an instrument. Debenture Stock is the description of a debt secured by an instrument. It
is a document which creates or acknowledges a debt.89
In Rayner’s case it has been held that securities in its broad commercial sense include shares.
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Though, debentures can hardly be intended to bear the wider meaning to include shares.90 Income
Stock Certificates to raise money are debentures if they contain an acknowledgement of
indebtedness notwithstanding that the debt is only payable in future and upon contingency of profits
being earned by the company.91
See detailed Notes under sections 117 to 123 of the Companies Act, 1956.
[s 2.142] Section 2(12) and section 2(45AA) of the Companies Act, 1956
The definition of “securities” in section 2(h) of the Securities Contracts (Regulation) Act, 1956 has
been incorporated in section 2(45AA) of the 1956 Act. Therefore, section 2(12) is to be read with
section 2(45AA) of the 1956 Act. Once the definition in SCRA is incorporated by reference it is taken
as cut and paste or written with ink and pen in the 1956 Act. No further reference is required to be
made to the SCRA to determine the scope and ambit of expressions “debenture” and “securities”.
The term “debenture” in section 439(2) has to carry the meaning assigned to it in section 2(12) of the
1956 Act and would include “any securities” which in turn in view of the definition of “securities”
incorporated by reference under section 2(45AA) of the 1956 Act would include beneficial right or
interest in debentures or securities. Further, securities for the purposes of the Companies Act need
not only be those marketable in India.92
[s 2.143] Debentures may be issued at a discount
The debentures may be issued at a discount.93 But a scheme under which the debentures so issued
as give to the holders an immediate right to exchange them at its nominal value for shares is void as
it may involve issuing the shares at a discount.94
[s 2.144] Convertible Debentures
Convertible debentures may be issued [section 81 of the 1956 Act], but they cannot be issued at a
discount as it would amount to a colourable scheme to issue shares at a discount which requires
fulfilment of conditions under section 79 of the 1956 Act.
Where in debentures with an option to convert partly into equity shares, the option was exercised
without issue of debentures and the shares were allotted. Held, the issue of debentures, though
desirable, would not always be mandatory. When there is no grievance on the part of the debenture
holders and the company has acted in terms of the debenture deed, the actual issue of debentures
would be a procedural aspect and an omission thereof would not vitiate issue of shares on
conversion.95
See detailed Notes and Kinds of Debentures under section 117 of the Companies Act, 1956.
[s 2.145] Debenture Stock
Debenture stock is a borrowed capital consolidated into one mass for convenience. It is of the same
nature as ordinary debenture except that instead of each bond securing a definite amount, the whole
sum secured is treated as a single stock, and certificates are issued declaring the holder to be
entitled to a definite sum being part of the stock. The debenture stock may be redeemable or
irredeemable.96
[s 2.146] Fixed and Floating Charges
The debenture-holders are secured creditors. Mortgage debentures are issued creating a charge
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upon the undertaking and properties of the company. The charge may either be “fixed” or “floating”.
When the charge is “fixed” it affects the property and the company can deal with the property only
subject to the charge. But when the charge is a “floating” one, the company may deal with the
property in the manner the business requires till the charge crystallises.97
If the debentures are not secured by the assets of the company, the position of debenture holder is
that of an unsecured creditor.98
[s 2.147] Special Provisions as to Debentures
See detailed Notes under Special Provisions as to Debentures [sections 117–123], Prospectus and
Allotment [sections 55–81], Share Capital and Debentures [sections 82–122], Registration of
Charges [sections 124–145], Register of debenture-holders [sections 150–158] of the Companies
Act, 1956.
See also Debenture trust deed [section 117A], Appointment of debenture trustees and duties of
debenture trustees [section 117B], and Liability of company to create security and debenture
redemption reserve [section 117C], inserted by the Companies (Amendment) Act, 2000 (53 of 2000),
section 48 (w.e.f. 13-12-2000). The Companies (Amendment) Act, 2000 has been repealed by the
Repealing and Amending Act, 2016.
[s 2.148] Debentures not goods before allotment
Debentures are not goods before allotment. Applicant for debentures is not a consumer. Raising of
share capital or debentures by a company is not a trading activity. The issue of shares or debentures
does not come under the Consumer Protection Act, 1986 (68 of 1986) or the MRTP Act, 1969 (54 of
1969) [now the Competition Act, 2002 (12 of 2003)].99]
S. 2 (31) : Deposit.—“deposit” includes any receipt of money by way of deposit or loan or in any
other form by a company, but does not include such categories of amount as may be prescribed in
consultation with the Reserve Bank of India.
NOTES
as follows:
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This is a new provision. Explanation to section 58A of the Companies Act, 1956 defined “deposit” for
the purpose of the Section only.
The language of the provisions remains unchanged from the Companies Bill, 2011. The Central
Government notified section 2(31) vide S.O. 902(E) thereby giving it effect from 1 April 2014.
The definition is not exhaustive in nature and must be read with the Companies (Acceptance of
Deposits) Rules, 2014* for whenever one calculates deposits. The definition is particularly relevant for
Chapter V of the 2013 Act, which governs the acceptance of deposits by Companies.
The Ministry of Corporate Affairs, via General Circular 05/2015, dt. 30-03-2015, declared that
amounts received by private companies from their members, directors or their relatives prior to 1 April
2014 shall not be treated as deposits under the Act or the Rules subject to the condition that the
relevant private companies shall disclose, in its financial statements commencing after 1 April 2014,
the figure of such amounts and the accounting head under which such amounts have been shown in
the financial statement. All deposits after 1 April 2014 must be in accordance with the Act and Rules
made thereunder.
S. 2 (32): Depository.—“depository” means a depository defined in clause (e) of the sub-section (1)
of Section 2 of the Depositories Act, 1966 (22 of 1996);
NOTES
in effect from 12-09-2013 and the corresponding provision section 2(12A) of the Companies Act,
1956.
as follows:
This definition of depository is a reproduction of the definition which was proposed in the Companies
Bill, 2011.
The definition of “depository” under the Companies Act, 2013 is de facto identical to the definition
under the 1956 Act. A depository serves the function of holding securities of a company in
dematerialized form and hence several provisions of the 2013 Act detail inter alia, the manner of
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maintaining registers of a depository, recording ownership of securities in a depository and

transfer/transmission of such securities.
Depository [Section 2(12A)].—Depository has the same meaning as in the Depositories Act, 1996
(22 of 1996). The Companies Act, 1956 provision
NOTES
Section 2(12A) of the Companies Act, 1956 corresponds to section 2(32) of the Companies Act,
2013.
The Depositories Act, 1996 (22 of 1996) and related amendments have made consequential
amendments in the 1956 Act (1 of 1956) and certain other Acts, eg, the SEBI Act, 1992, the
Securities Contracts (Regulation) Act, 1956, the Indian Stamp Act, 1899, the Income-tax Act, 1961,
the Benami Transactions (Prohibition) Act, 1988 and the Banking legislations. The provisions of the
Depositories Act, 1996 (22 of 1996) and consequential amendments have been dealt with in Notes
under section 68B.
See Notes under relevant ss of the 1956 Act, viz., sections 2A, 41(3), 49(5)(c), 51 proviso, 68A, 68B,
83, 108(3), 111(14), 111A, 113(4), 150(1)(b), 152(1)(b), 152A and Schedule II, Pt II, Clause C, Sub-
clause 9A.
[s 2.153] Issue of Securities in Demat Form [Section 68B of the Companies Act, 1956]
Every listed public company making initial public offer of any security for Rs 10 crores or more shall
issue the same only in Dematerialised (Demat) form by complying with provisions of the Depositories
Act, 1996 (22 of 1996) and Regulations made thereunder.
See detailed Notes under section 68B of the 1956 Act.
S. 2 (33): Derivative,—“derivative” means the derivative as defined in clause (ac) of section 2 of the
Securities Contracts (Regulation) Act, 1956 (42 of 1956);
NOTES
in effect from 12-09-2013 and the corresponding provision is section 2(12B) of the Companies Act,
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1956.
as follows:
[s 2.155] Analysis of the Position
This definition of derivative is a reproduction of the definition which was proposed in the Companies
Bill, 2011.
Section 2(33) of the 2013 Act defines derivative with reference to its definition in the Securities
Contracts (Regulation) Act 1956. Clause 2(aa) of the Securities Contract (Regulation) Act, 1956 (as
referenced in the 1956 Act), was renumbered as section 2(ac) by the Securities Laws (Amendment)
Act, 2004 (with effect from 22-10-2004.
Derivative [Section 2(12B)].—Derivative has the same meaning as in clause (aa) of section 2 of the
Securities Contracts (Regulation) Act, 1956 (42 of 1956). The Companies Act, 1956 provision
NOTES
Section 2(12B) of the Companies Act, 1956 corresponds to section 2(33) of the Companies Act,
2013.
This has been inserted by Act 53 of 2000. See also Hybrid [Section 2(19A of the 1956 Act)].
The definition of derivative was introduced in the 1956 Act by the Amendment Act, 2000 pursuant to
the recommendations of the Working Group on Re-drafting of the 1956 Act. Clause 2(aa) of the
Securities Contract (Regulation) Act, 1956 (as referenced in the 1956 Act), was renumbered as
section 2(ac) by the Securities Laws (Amendment) Act, 2004 (with effect from 22-10-2004.]
S. 2 (34) : Director.—Director means a director appointed to the Board of a company.
NOTES
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in effect from 12-09-2013 and the corresponding provision section 2(13) of the Companies Act, 1956.
as follows:
This definition of Director is a reproduction of the definition which was proposed in the Companies
Bill, 2011.
This definition under section 2 (34) of the Companies Act, 2013, is significantly different from the
definition prescribed to the term “director” under section 2(13) of the Companies Act, 1956. In the
2013 Act, a director is only one who is appointed by the Board of a company, while as per 1956 Act,
a director includes any person occupying the position of a director irrespective of the name by which
such person is called. The 2013 Act recognizes various categories of Directors in a company, such
as managing directors, resident directors, whole-time directors, woman directors, independent
directors, additional directors, nominee directors, and alternate directors.
The Directors of a company hold the most crucial position in a company. They are now also formally
included in the definition of Key Managerial Personnel under section 2(51) of the Companies Act,
2013.
The definition under the 2013 Act rules out shadow directors under this section. However, this
concept of shadow directors is included in sections 2(59) and 2(60) dealing with officer and officer in
default respectively.
Director [Section 2(13)] - Director includes any person occupying the position of director, by
whatever name called. The Companies Act, 1956 provision
NOTES
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Director includes any person occupying the position of a director, by whatever name called1 (but not
in respect of rights). Directors are agents for the company in carrying out the business of the
company,2 but they are not agents for the shareholders.3 Only by being a director a person does not
become servant in absence of a contract of service.4 They are not trustees for the creditors of the
company.5 The property of the company is not vested in them in trust for any specific purpose.6 As
agents of the company, they cannot make secret profits.7
Where the company requiring quorum of three directors for the meeting of its Board of Directors had
only two directors. The remaining directors were entitled to appoint a director to make up the quorum.
Such director holds office only until next Annual General Meeting of the company.8
[s 2.160] Position of Directors
See Notes under section 293 of the Companies Act, 1956.
See provisions relating to Directors in Pt VI—Management and Administration, Chapter II—Directors

[sections 252–323 of the Companies Act, 1956].
[s 2.161] Shadow Director
A person in accordance with whose directions or instructions the directors of the company are
accustomed to act is called a shadow director. An advice in professional capacity is different from the
directions and instructions of the shadow director. The shadow director may be prosecuted for
wrongfully acting and dominating the Board of Directors of a company.9
A shadow director is considered as an officer or an officer in default under the Companies Act, 2013.
A shadow director is not considered as a director the 2013 Act for the purpose of certain provisions
such as remuneration.
[s 2.162] De facto Director
A de facto director is one who claims to act and purports to act as a director although he is not validly
appointed as a director. A shadow director does not claim or purport to act as a director and he
claims he is not a director. He takes shelter behind the others who are the only directors of the
company to the exclusion of himself. He is not held out as a director of the company. To establish
that a person is a shadow director it has to be alleged and proved as to who are the Directors, de
facto or de jure that the defendant alone or with others directed directors how to act in relation to
company and the other directors acted in accordance with his directions and they are accustomed to
so act.10
See also Notes under sections 2(30), 203, 293 and 307 of the Companies Act, 1956. This
corresponds to sections 2(59) and 2(60) of the Companies Act, 2013.
[s 2.163] Duty of Directors
A company is a juristic person and it acts through its directors who are collectively referred to as the
Board of directors. An individual director has no power to act on behalf of a company of which he is a
director unless by some resolution of the Board of directors of the company specific power is given to
him. The directors act on behalf of a company in a fiduciary capacity and their acts and deeds have
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to be exercised for the benefit of the company. To the extent the powers of the directors are
delineated in the Memorandum and Articles of Association of the company, the directors are bound to
act accordingly. The fiduciary capacity within which the directors have to act enjoins upon them a
duty to act on behalf of a company with utmost good faith, utmost care and skill and due diligence
and in the interest of the company they represent. They have a duty to make full and honest
disclosure to the shareholders regarding all important matters relating to the company.11
[s 2.164] Insider Trading
As per Regulation 2(c), (g) and (h) of the SEBI (Prohibition of Insider Trading) Regulations, 1992,
“connected person” or “person deemed to be connected person” may, inter alia, include Director
[Section 2(13)], Deemed Director [Section 307(10)], Officer of a company [Section 2(30)] including an
auditor, Director or employee of Public Financial Institutions defined in section 4A, Relative of
connected persons [Section 6 of the Companies Act, 1956 and Regulation 2(h)].
S. 2 (35) : Dividend.—“dividend” includes any interim dividend;
NOTES
as follows:
This definition of dividend is a reproduction of the definition which was proposed in the Companies
Bill, 2011.
This clause is a reproduction of section 2(14A) of the 1956 Act.
See Chapter VIII of the 2013 Act for detailed Notes on the declaration and payment of dividend.
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Dividend [Section 2(14A)].—Dividend includes any interim dividend. The Companies Act, 1956
provision
NOTES
2013.
This inclusive definition in clause (14A) of section 2 has been inserted by the Companies (Amendment) Act, 2000
(w.e.f. 13-12-2000). Before the amendment, there was no specific statutory provision relating to interim dividend even
though Regulation 86, Table A, Schedule I of 1956 Act empowered the Board of Directors to pay such interim dividend
as appears to be justified by the profits of the company. Regulation 81 of Table F of Schedule I of the 2013 Act has
similar provision. The Companies (Amendment) Act, 2000 has been repealed by the Repealing and Amending Act,
2016.]
S. 2(36): Document.—“document” includes summons, notice, requisition, order, declaration, form

and register, whether issued, sent or kept in pursuance of this Act or under any other law for the time
being in force or otherwise, maintained on paper or in electronic form;
NOTES
The Companies Act, 2013, the Notes on Clauses to the Companies Bill, 2011 explained as follows:
This definition of document is a reproduction of the definition which was proposed in the Companies
Bill, 2011.
The definition under section 2(36) of the 2013 Act now provides that documents maintained in
electronic form will also fall within the purview of “document” as defined in the 2013 Act. This is a
welcome change as the 1956 Act did not expressly recognize electronic records as documents. The
definition of “electronic record” under rule 2(1)(i) of the Companies (Specifications of Definitions)
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Rules, 2014* defines electronic record to mean “the electronic record as defined under section 2(1)(t)
of the Information Technology Act, 200012”.
Document [Section 2(15)].—Document includes summons, notice, requisition, order, other legal process, and
registers, whether issued, sent or kept in pursuance of this or any other Act or otherwise. The Companies Act, 1956
provision
NOTES
This definition is based on the definition found in section 455(1) of the English Act, 1948. It has been enacted on the
recommendation of the Company Law Committee Report, page 231. [Clause 2(12) of the Companies Bill, 1953 (46 of
1953)].]
S. 2 (37): Employees’ Stock Option.— Employees’ stock option means the option given to the
directors, officers or employees of a company or of its holding company or subsidiary company or
companies, if any, which gives such directors, officers or employees, the benefit or right to purchase,
or to subscribe for, the shares of the company at a future date at a pre-determined price.
NOTES
1956.
as follows:
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This definition is a reproduction of the definition which was proposed in the Companies Bill, 2011.
The definition under section 2(37) of the 2013 Act is much wider in scope than the definition under
the 1956 Act. Under the 2013 Act, employee stock options (ESOPs) can be issued to part-time
directors in addition to whole-time directors, while under the 1956 Act; ESOPs could be issued only to
whole-time directors. Further, unlike the 1956 Act, the 2013 Act permits the issue of ESOPs of a
company to the directors, officers and employees of its holding or subsidiary company(ies) as well.
It is interesting to note that the 1956 Act stipulated that ESOPs confer a right to purchase or
subscribe at a future date, the securities offered by a company at a pre-determined price. The 2013
Act however, states that ESOPs confer the right to purchase or subscribe to shares of a company at
a future date at a pre-determined price. The term “securities” has been defined in both the 1956 Act
and the 2013 Act by making a reference to section 2(h) of the Securities Contracts (Regulation) Act,
1956. “Securities” is a broader term and includes shares, bonds, debentures, derivatives and other
such instruments.
The Securities Exchange Board of India (SEBI) has issued the SEBI (Employee Stock Option
Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 which governs the issuance of
ESOPs for all listed companies.
[s 2.173] Distinction between ESOPs and SARs
Although both ESOPs and Stock Appreciation Rights (SARs) are similar in that they confer a right to
an employee to receive shares at a future date, SARs are a contractual right of an individual to
receive cash or stock of a value equal to the appreciation of the stock from the grant date to the date
the SAR is exercised. When an employee exercises an ESOP, he is required to pay the grant price
for acquiring the shares underlying the option. However, when a SAR is exercised, the employee
receives shares or cash equivalent to the net appreciation amount, i.e., the current market value less
the grant price.
The 2013 Act is silent about issuance of SARs. The SEBI has clarified that SARs do not fall within the
purview of the SEBI (Share Based Employee Benefits) Regulations, 2014 as they do not involve
dealing in or subscribing to or purchasing securities of the company directly or indirectly.13
[s 2.174] Distinction between ESOPs and Sweat Equity Shares
The fundamental difference between ESOPs and sweat equity shares is that ESOPs confer upon the
holder, only an option to purchase shares of a company at a future date, whereas sweat equity
shares are actual equity shares issued by a company to employees or directors at a discount or for
consideration other than cash for providing the know-how or making available rights in the nature of
intellectual property rights or value additions, by whatever name called.
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See detailed Notes on sweat equity shares under section 54 of the Companies Act, 2013.
Employees Stock Option [Section 2(15A)] - Employees stock option means the option given to the
whole-time directors, officers or employees of a company, which gives such directors, officers or
employees the benefit or right to purchase or subscribe at a future date, the securities offered by the
company at a pre-determined price. The Companies Act, 1956 provision
NOTES
2013.
This definition has been inserted by the Companies (Amendment) Act, 2000 (53 of 2000) with effect
from 13-12-2000. The Companies (Amendment) Act, 2000 has been repealed by the Repealing and
Amending Act, 2016.
For SEBI Guidelines on Employees Stock Option Schemes (ESOS) see Notes under sections 55A
and 81 referred to therein.
S. 2 (38): Expert.—“expert” includes an engineer, a valuer, a chartered accountant, a company

secretary, a cost accountant and any other person who has the power or authority to issue a
certificate in pursuance of any law for the time being in force;
NOTES
as follows:
the Bill.
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The language of the section remains unaltered form the Companies Bill, 2011.
The 1956 Act did mention an expert with regard to consent of such expert and the allocation of
shares. However, the Act did not have a definition for an expert. Sections 57 and 58 also mentioned
an expert, but the meaning of the term was limited. The Act of 2013 provides a wider definition.
S. 2(39): Financial Institution.—“financial institution” includes a scheduled bank, and any other
financial institution defined or notified under the Reserve Bank of India Act, 1934;
NOTES
as follows:
The language of the Section is the same as that of the Companies Bill, 2011.
Section 4A of the 1956 Act defined “public financial institutions”. The definition itself stated that only
some financial institutions were public financial institutions. The 2013 Act defines both and does so
by offering lists in the definitions themselves. the Explanation to section 149(7) of the 2013 Act states
that a nominee director means any director nominated by a financial institution.
The Report of the Standing Committee on Finance, 2009–10 records the recommendations made by
the Confederation of Indian Industry which suggest the term “financial institutions” should be primarily
used to refer to institutions governed by the Reserve Bank of India. The reply by the Ministry was as
follows:
Various entities being regulated by RBI have different objectives and since he term ‘financial institution’ has been
defined in the RBI Act, the term ‘financial institution has been defined in the Bill in an inclusive manner, to include
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banks as well.’
The Committee was of the opinion that the definition provided in the Bill was not inclusive and that
“public financial institutions” were only those financial institutions where the government held majority
shareholding. It was recommended that financial institution needed a new and separate definition so
that the definition could be more inclusive and have a broader ambit.
See, Notes under section 149 of the 2013 Act.
S. 2(40): Financial Statement.—“financial statement” in relation to a company, includes—
•
(i) a balance sheet as at the end of the financial year;
(ii) a profit and loss account, or in the case of a company carrying on any activity not
for profit, an income and expenditure account for the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to, or forming part of, any document referred to in
sub-clause (i) to sub-clause (iv):
• Provided that the financial statement, with respect to One Person Company, small
company and dormant company, may not include the cash flow statement;
NOTES
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as follows:
The language of the section is a reproduction of the Companies Bill, 2011. The provision has been in
effect from 12-09-2013, having been notified by S.O. 2754(E).
The Standing Committee on Finance Report, 2011–12, documents that upon recommendations that
the International Financial Reporting Standards and the Indian Accounting Standards use “general
purpose accounting statements”. The Ministry replied by noting that all advantages that might arise
out of replacing “financial statement” with “general purpose accounting statements” are covered by
the proviso to Clause 129(1), which makes reference to the accounting standards for the purposes of
compliance. Further, “general purpose accounting statements” had already been defined by the
Companies (Accounting Standards) Rules, 2006.*
The definition is broad in the number of categories it includes. It makes exceptions for small
companies, one person companies and dormant companies in respect of cash flow statements. The
definition is self-explanatory in nature.
See, Notes under section 129 of the 2013 Act.
S. 2 (41): Financial Year.— Financial year in relation to any company or body corporate, means the
period ending on the 31st day of March every year, and where it has been incorporated on or after the
1st day of January of a year, the period ending on the 31st day of March of the following year, in
respect whereof financial statement of the company or body corporate is made up:
Provided that on an application made by a company or body corporate, which is a holding company or a subsidiary of a
company incorporated outside India and is required to follow a different financial year for consolidation of its accounts
outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a
year:
Provided further that a company or body corporate, existing on the commencement of this Act, shall, within a period of
two years from such commencement, align its financial year as per the provisions of this clause;
NOTES
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effect from 01-04-2014 and the corresponding provision is section 2(17) of the Companies Act, 1956.
as follows:
The definition of “financial year” in the 2013 Act is different from the definition in the 1956 Act. Under
the 1956 Act, companies had the flexibility to decide their financial year, based on the period for
which the profit and loss account was drawn up. The 2013 Act requires companies to adopt the
period from April 1st to March 31st of the subsequent year as the financial year, except in the following
circumstances:
•
(i) Where a company or a body corporate has been incorporated on or after January
1st of a year, the first financial year will close on March 31st of the following year; or
(ii) A company or body corporate which is a holding company or a subsidiary of a

company incorporated outside India that is required to follow a different financial
year for the purpose of consolidation of accounts outside India, may make an
application to the Tribunal to allow it to set its own financial year. The Company
Law Committee Report of February, 2016 has recommended that associate
companies and joint ventures incorporated outside India should also be permitted
to apply to the Tribunal for following a different financial year.
Companies or bodies corporate existing on the date of commencement of the 2013 Act have been
granted a period of two years from the date of commencement of the 2013 Act to align their financial
years with the requirements set out in section 2(41) of the 2013 Act.
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Section 210(4) of the 1956 Act provided that a financial year may be more or less than a calendar
year, but could not exceed 15 months. There is not such corresponding provision in the 2013 Act.
The Ministry of Corporate Affairs, in its written information submitted to the Parliamentary Standing
Committee (2009–2010) clarified the rationale for fixing the financial year as follows:
The intention behind provisions of the clause is to ensure uniformity in financial years. Attention, however, is drawn to
proviso to this clause which provides that on an application made by a company or body corporate, the Tribunal may, if
it is satisfied that the circumstances so warrant, allow any period as company‘s financial year, whether that period is a
year or not. Therefore, any company which may have difficulty in complying with the provisions of this clause may
make an application to Tribunal for necessary exemption. The suggestion to modify these provisions to empower
Tribunal to grant exemption from these provisions to a class of companies also may be considered.
Financial Year [Section 2(17)].—Financial year in relation to any body corporate means the period
in respect of which profit and loss account of the body corporate laid before Annual General Meeting
is made up, whether that period is a year or not. Provided that in relation to an insurance company
financial year means the calendar year referred to in section 11(1) of the Insurance Act 1938 (4 of
1938). The Companies Act, 1956 provision
NOTES
“This is based on the definition suggested at page 228 of the Company Law Committee’s Report. See also paragraph
28 of the Report. The provision that the financial year should not exceed 15 months or in special cases 18 months has
been embodied more appropriately in a substantive clause of the Bill, viz., clause 195 [Section 210] which provides for
the laying of the accounts of the company before the annual general meeting.” [Clause 2(14) of the Companies Bill,
1953 (46 of 1953)].
The Joint Committee added a proviso to make it clear that in relation to an insurance company, “financial year” means
the “calendar year”. [Report : para 10].
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In case of a company “financial year” may mean calendar year or any other period of 12 months, or
less or more. This term is important in relation to sections 166, 198, 205, 210(4), 211(2), 212, 213,
227, 349, 350, Schedule VI and XIII of the 1956 Act.
Section 3 of the Income-tax Act, 1961, from Assessment Year 1989–90 onwards requires all
assessees to follow financial year, i.e., April 1 to March 31 as uniform previous year for all the
sources of income. Thus, although the 1956 Act permits a different period, it would be convenient for
the companies to adopt this period, i.e., April 1 to March 31, as its financial year.
Section 29 of the Banking Regulation Act, 1949, as amended by Act 66 of 1988 w.e.f. 30-12-1988,
enabled the Central Govt. to change the accounting year of a banking company by a notification. The
Government notified that the accounts of the banking companies shall be closed as on 31st March
every year as against 31st December.
S. 2(42): Foreign Company.—“Foreign company” means any company or body corporate

incorporated outside India which
•
(a) Has a place of business in India whether by itself or through an agent, physically
or through electronic mode; and
(b) Conducts any business activity in India in any other manner;
NOTES
Section 2(41) of the 2013 Act was notified vide Notification S.O. 902(E) and has been in effect from
01-04-2014 and there is no corresponding provision under the 1956 Act.
as follows:
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This definition of foreign company is a reproduction of the definition which was proposed in the
This definition of foreign company contains similar language to section 591 of the 1956 Act. However,
the General Circular No. 07/2014, issued by the Ministry of Corporate Affairs does not identify a
corresponding provision to Clause (42) of the 2013 Act. By a strict interpretation of the Circular,
section 591 of the 1956 Act is still in force. It would be useful if the MCA released a clarification on
the position of section 591 of the 1956 Act, in relation with section 2(42) of the 2013 Act.
As per section 591 of the 1956 Act, it was essential for a company to fulfill either of the following
conditions to qualify as a foreign company: (i) for companies incorporated outside India after the
commencement of the 1956 Act, to have established a place of business within India; and (ii)
companies incorporated outside India which had established place of business within India before the
commencement of the 1956 Act, continue to have an established place of business in India at the
commencement of the 1956 Act.
The 2013 Act has modified the conditions for a company incorporated outside India to qualify as a
foreign company to the following, namely:
•
(i) the company has a place of business in India whether by itself or through an
agent, physically or through electronic mode. The meaning of place of business
has thus been expanded to include electronic mode, and has also clarified the
manner in which a place of business may be operated. OR
(ii) conducts any business activity in India in any other manner. This is a new
condition introduced under the 2013 Act. Rule 3 of the Companies (Registration
Offices and Fees) Rules, 2014* specifies the requirements for a company
(including foreign company) to carry on business activity through electronic
mode.14
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Therefore, a company can satisfy either of Conditions (i) or (ii) above to be considered a foreign
company under the 2013 Act; unlike the 1956 Act wherein a company necessarily was required to
have established a place of business in India.
A foreign company will also have to comply with the Section in Chapter XXII of the 2013 Act, to carry
on business.
Please see Chapter XXII (Companies incorporated outside India) of the 2013 Act for greater detail
about foreign companies under the 2013 Act.
S. 2 (43): “Free Reserves”.—“free reserves” means such reserves which, as per the latest audited
balance sheet of a company, are available for distribution as dividend:
Provided that—
•
(i) any amount representing unrealised gains, notional gains or revaluation of assets,
whether shown as a reserve or otherwise, or
(ii) any change in carrying amount of an asset or of a liability recognised in equity,

including surplus in profit and loss account on measurement of the asset or the
liability at fair value, shall not be treated as free reserves;
NOTES
12-09-2013 and the corresponding provisions are sections 2 (29A) and 372A of the 1956 Act.
THE COMPANIES ACT, 2013 (18 OF 2013).—The Notes on Clauses to the Companies Bill, 2011 explained
as follows:
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Section 2 (29A) of the 1956 Act defines the term “net worth” and the term Free Reserves was defined
only as an Explanation in the context of “net worth”. Free Reserves had different meanings attributed
to it in different ss of the 1956 Act. For example under section 372A of the 1956 Act, free reserves
was defined as reserves which were free for distribution for dividend including the balance to the
credit of share premium account but excluding share application money. On the other hand, in
section 293 (1) (d) of the 1956 Act, Free Reserves was defined as reserves not set apart for any
specific purpose.
In the 57th Report of the Standing Committee on Finance (2011–2012) on the Companies Bill, 2011,
certain suggestions were received to delete the words “unrealized gain” and “notional gains” from the
definition. This was suggested for the purpose of ensuring that mere revaluation does not give rise to
“free reserves” and will still be achieved by the definition which will exclude reserves arising from
“revaluation”. However, the Committee rejected the suggestion stating that the reference to such
words is necessary to match the provisions with requirements under International Financial Reporting
Standards.
The 2013 Act has included a comprehensive new definition which will apply to all provisions of the
2013 Act unless specifically defined elsewhere in the context of a particular provision15.
Net worth [Section 2(29A)].—Net worth means the sum total of paid-up capital and free reserves
after deducting the provisions or expenses as may be prescribed. The Companies Act, 1956
provision
Explanation - For the purposes of this clause, “free reserves” means all reserves created out of the
profits and share premium account but does not include reserves created out of revaluation of assets,
write back of depreciation provisions and amalgamation.
NOTES
Section 2(29A) of the 1956 Act corresponds to section 2(43) of the 2013 Act.
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“Clause (29A) proposes to define ‘net worth’ which means the sum total of the paid-up capital and free reserves. For
the purposes of this clause, ‘free reserves’ means all reserves created out of the profits and share premium account
but does not include reserves created out of revaluation of assets, write back of depreciation provisions and
amalgamation.” [Clause 2 of the Companies (Amendment) Bill, 2001 (80 of 2001)].
This definition is relevant for sections 424C and 424J relating to revival, rehabilitation and winding up
of Sick Industrial Companies of the 1956 Act.
Section 2(29A) of the 1956 Act defines net worth to be sum total of paid up capital and free reserves
after deduction of the provisions or expenses as may be prescribed. The term Free Reserves has
been defined as an Explanation to section 2 (29A) only “for the purposes of this clause”. Therefore,
unlike in the 2013 Act, the term Free Reserves under the 1956 Act must be understood only in the
context of the said Section.
See detailed Notes under sections 424A to 424L of the 1956 Act.
Clause (b) of the Explanation to section 77A of the 1956 Act states that “free reserves” shall have the
same meaning assigned to it in clause (b) of Explanation to section 372A of the 1956 Act. Clause (b)
of Explanation to section 372A of the 1956 Act states that “free reserves” means those reserves
which, as per the latest audited balance sheet of the company, are free for distribution as dividend
and shall include balance to the credit of the securities premium account but shall not include share
application money.
S. 2(44): Global Depository Receipt.—“Global Depository Receipt” means any instrument in the
form of a depository receipt, by whatever name called, created by a foreign depository outside India
and authorised by a company making an issue of such depository receipts;
NOTES
12-09-2013 and there is no corresponding provisions under the 1956 Act.
as follows:
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The language of the definition remains unaltered from the Companies Bill, 2011.
The definition is similar to how Global Depository Receipts is defined in Issue of Foreign Currency
Convertible Bonds and Ordinary Shares (through Depositary Receipt Mechanism) Scheme, 1993.
The definition in the 2013 Act is broader. The Scheme mentioned that global depository receipts had
to be issued to non-resident investors against the issue of ordinary shares or Foreign Currency
Convertible Bonds of the issuing company.
The Scheme governed all matters relating to issue of global depository receipts in conjunction with
circulars issued on the matter by the Central Government. Now, section 469 of the 2013 Act read
with the Companies (Issue of Global Depository Receipts) Rules, 2014* governs the same.
S. 2 (45): Government Company.—“Government company” means any company in which not less
than 51% of the paid-up share capital is held by the Central Government, or by any State
Government or Governments, or partly by the Central Government and partly by one or more State
Governments, and includes a company which is a subsidiary company of such a Government
company;
NOTES
12-09-2013 and the corresponding provision are sections 2(18) and 617 of the 1956 Act.
as follows:
This definition of Government Company is a reproduction of the definition which was proposed in the
It was opined in the J.J. Irani Report on Company Law (2005) that,
a Government Company should be clearly defined in law. It should be one where there is clear majority stake held by
the state i.e. central and/or state Governments. There is no rationale for the definition of Government Company being
extended to companies set up by Government companies in course of their commercial activities.
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Section 2(45) of the 2013 Act is a verbatim reproduction of section 617 of the 1956 Act. The 2013 Act
has not accepted the recommendation made by the J.J Irani Committee for not including companies
set up by Government companies in course of their commercial activities, as subsidiaries are also
included in the current definition of the 2013 Act.
See detailed commentary under sections 394 and 395 of the 2013 Act.
See also the exemptions granted to Government companies vide Notification No. G.S.R. 463, dt. 05-
06-2015.*
Government Company [Section 2(18)].—Government company means a Government company

within the meaning of section 617. The Companies Act, 1956 provision
NOTES
A Government company is one in which 51% or more of the paid-up share capital is held by the
Central Government, or by any State Government or Governments, or partly by the Central
Government and partly by one or more State Governments. A subsidiary of a Government company
is also a government company. Section 617 defines a Government company. It is a legal entity
separate from the Government.16
It is legally possible for the Government of India to buy shares more than 51% in a foreign company
having a place of business in India. A Government company may, in a proper case, be wound up or,
on an application made by it; a scheme may be sanctioned by the Court.17 However, employees of a
Government company are not Government servants and the protection of Article 311 of the
Constitution of India is not available to them,18 it is a juristic person.19 If the company performs
governmental functions as distinct from commercial functions, the corporate veil may be lifted.20
See detailed Notes under sections 617–620.
S. 2 (46): Holding Company.—“holding company”, in relation to one or more other companies,
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means a company of which such companies are subsidiary companies;
NOTES
Section 2(46) of the 2013 Act was notified on 12-09-2013 vide Notification S.O. 2754(E) and has
been in effect from 12-09-2013 and this section corresponds to section 2(19) of the 1956 Act.
as follows:
This definition of holding company is a reproduction of the definition which was proposed in the
According to Clause 2(46) of the 2013 Act, if a company has one or more subsidiary company(ies),
then it will be construed as a holding company in relation to such subsidiary (ies).The definition of a
subsidiary company is given under Clause 2(87) of the 2013 Act.
Under the Companies Act, 1956, the definition of “holding company” and “subsidiary company”
merely referenced section 4 of the said Act, which set out the meaning of holding and subsidiary
company. There is no separate provision in the 2013 Act that corresponds to section 4 of the 1956
Act, but the meaning of subsidiary company (and correspondingly, holding company) in the 2013 Act
has been detailed under Clause 2(87) itself.
Section 4(5) of the 1956 Act stipulated that a “company”, for the purpose of ascertaining the meaning
of a “holding company” and a “subsidiary company”, included any body corporate. It is pertinent to
note that a provision similar to section 4(5) of the 1956 Act finds place in the explanation to section
2(87) of the 2013 Act which defines a “subsidiary company”, but not under section 2(46) which
defines holding company. The Explanation to section 2(87) states that “for the purpose of this clause,
the expression “company” includes any body corporate.” This seems to suggest that a subsidiary
company may assume the form of any body corporate, however a holding company must necessarily
be a company incorporated under the 2013 Act or under any previous company law.
The Company Law Committee Report, released in February 2016 had recommended that a similar
explanation, as present in the current section 2(87) of the 2013 Act be incorporated in section 2(46)
so that any company incorporated outside India could be considered to be the holding company of
another company, for the purposes of the 2013 Act.21 The Companies (Amendment) Bill, 2016 has
proposed that such explanation be added in Clause 2(46).
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Please refer to section 2(87) for Notes on the two clauses under the 2013 Act, and the 1956 Act.
S. 2(47): Independent Director.—“independent director” means an independent director referred to

in sub-section (5) of section 149;
NOTES
as follows:
The language of the provision remains unchanged from the Companies Bill, 2011.
The Report on Company Law, 2005 cited the need for better corporate governance when they stated
that an independent director should be on the boards of companies having “significant public
interest”. The report encouraged the law to define an independent director. The Committee was also
clear in communicating that independent would not only mean independence from the promoters but
also for vulnerable shareholders who are not otherwise heard. The report by the Standing Committee
on Finance, 2009–10 made the same point. The report submitted as follows:
As the institution of Independent Directors is a critical instrument for ensuring good corporate governance, it is
necessary that the functioning of this institution is critically analysed and proper safeguards are made to ensure its
efficacy. The appointment of Independent Directors should not be a case of mere technical compliance reduced to the
letter of the law. It is important that Independent Directors play their designated role to nurture the financial health of
the Company and to protect the interests of various stakeholders, particularly the minority shareholders. The
Committee, therefore, believe provisions pertaining to the Independent Directors should be distinguished from other
Directors in the Bill. The Government should, therefore, prescribe precisely their mode of appointment, their
qualifications, extent of independence from promoters/management, their role and responsibilities as well as their
liabilities. In this context, it would be pertinent to mention that there is a need to circumscribe and limit the liabilities of
Independent Directors, so that they are able to act freely and objectively and are able to share their expertise with the
rest of the Board. A provision may also be made for their rotation by restricting their tenure in a company to say, five
years. The Ministry of Corporate Affairs thus needs to revisit the Institution of Independent Directors and make
amendments in the Bill accordingly.
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The definition refers to section 149 (5) of the 2013 Act. The Act, by section 149(5) or 149(4) of the
2013 Act does not qualify an independent director or distinguish such a position from any other
directors. Section 149(6) of the 2013 Act offers answers in this regard.
See, Notes on section 149 of the 2013 Act.
S. 2 (48): Indian Depositary Receipt.—“Indian Depository Receipt” means any instrument in the
form of a depository receipt created by a domestic depository in India and authorised by a company
incorporated outside India making an issue of such depository receipts;
NOTES
as follows:
The language of the Section is the same as the Companies Bill, 2011.
Section 605A of the 1956 Act dealt with the offer of Indian Depository Receipts, allowing the Central
Government to make rules. The Act did not define what such a receipt was. While the Government
gave effect to the Companies (Issue of Indian Depository Receipts) Rules, 2004, the SEBI also
governed on the matter via the SEBI (Issue of Capital and Disclosure Requirements) Regulations,
2009. Presently, the Companies (Registration of Foreign Companies) Rules, 2014* applies in
conjunction with the SEBI regulations.
See, Notes under section 390.
S. 2 (49): Interested Director.—Interested director means a director who is in any way, whether by
himself or through any of his relatives or firm, body corporate or other association of individuals in
which he or any of his relatives is a partner, director or a member, interested in a contract or
arrangement, or proposed contract or arrangement, entered into or to be entered into by or on behalf
of a company.
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NOTES
12-09-2013 and the corresponding provision are sections 287 and 300 of the 1956 Act.
as follows:
Bill, 2011. The JJ Irani Committee had observed:
Law should impose a duty on every director to disclose to the company, the contracts or arrangements with the
company, whether existing or proposed or acquired subsequently, in which he, directly or indirectly, has any interest or
concern.
This had been essentially captured in section 287 of the Companies Act, 1956 and now in
corresponding provision of section 184 of the Companies Act, 2013.
This definition under section 2(34) is newly introduced into the 2013 Act. The definition is specific and
exhaustive providing for direct and indirect interest of a director in a contract or arrangement or
proposed contract or arrangement. This definition is relevant to sections 174, 184, and 189 of the
2013 Act which provide for the quorum of meeting, specifics of disclosure of interests by director, and
maintenance of register of contracts or arrangements in which directors are interested. Particularly
section 184(2) further substantiate the definition of interested director.
The Report of the Companies Law Committee, 2016 states that this definition of interested director is
redundant as section 184(2) in essence defines interested director by providing nature of interests to
be disclosed by directors. Further, the only reference to the term “interested director” in the 2013 Act
is in section 174(3), and an explanation to that provision. The definition provided in section 2(49) of
the 2013 Act, though much wider, has not been used in the Act and is redundant. Therefore, the
Companies Law Committee had recommended that this definition be omitted. This recommendation,
however, has not been incorporated in the Companies (Amendment) Bill, 2016.
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See commentary on section 174(3) and section 184(2) of the 2013 Act.
Quorum for meetings [Section 287].—(1) In this section- The Companies Act, 1956 provision
•
(a) “total strength” means the total strength of the Board of directors of a company as
determined in pursuance of this Act, after deducting therefrom the number of the
directors, if any, whose places may be vacant at the time; and
(b) “interested director” means any director whose presence cannot, by reason of
section 300, count for the purpose of forming a quorum at a meeting of the Board,
at the time of the discussion or vote on any matter.
(2) The quorum for a meeting of the Board of directors of a company shall be one-third of its total
strength (any fraction contained in that one-third being rounded off as one), or two directors,
whichever is higher:
Provided that where at any time the number of interested directors exceeds or is equal to two-thirds
of the total strength, the number of the remaining directors, that is to say, the number of the directors
who are not interested 22[present at the meeting being not less than two], shall be the quorum during
such time.
NOTES
Section 287 of the 1956 Act corresponds to section 2(49) of the 2013 Act.
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on clauses explained this section as under:
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This is based on recommendation (iv) in para 109 of the Report. In sub-clause (a) of the clause the intention has been
made clear, viz., that members whose places may be vacant should also be taken into account for the purpose of
calculating the quorum. [Clause 265 of the Companies Bill, 1953 (46 of 1953)].
For recommendations of the Company Law Committee see Legislative History in Notes under
Section 285 of the 1956 Act.
The proposed amendment seeks to clarify that at least two disinterested directors, present at the Board meeting,
should constitute a quorum. (See paragraph 113 of the Report.)
[Clause 101 of the Companies (Amendment) Bill, 1959 (37 of 1959)]. The Companies (Amendment)
Act, 1960 has been repealed by the Repealing and Amending Act, 2016.
Section 287(2) has given rise to difficulties of interpretation as to the meaning of the words ‘remaining directors’ in the
proviso. They may refer either to disinterested directors remaining out of the total strength of the Board or out of those
who are present at the meeting of the Board. The intention apparently is to refer only to those present at the meeting
as a quorum. This might be made clear by the addition of the words ‘present at the meeting not being less than two’
after the words ‘the directors who are not interested’ in the proviso to section 287(2). [Report : para 113].
[s 2.205] Interested Director [Sub-section (1)(b)]
“Interested Director” means a director who has some interest in any contract or transaction proposed
to be considered by the Board of Directors of the company at its Meeting.
See detailed Notes on Interested Director not to participate or vote in Board’s proceedings under
[s 2.206] Directors interested being two-thirds [Sub-section (2), proviso]
Where directors having interest in the proposed Resolution exceed or are equal to two-thirds of the
total strength, the remaining directors present at the Board Meeting, not being less than two, shall be
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quorum for the purpose of the particular Resolution. The MCA vide notification G.S.R. 464(E) has
provided an exception in case of private companies. The MCA notification provides that an interested
director of a private company could participate in the Board Meeting after disclosure of his interest,
wherein the contract or arrangement or proposed contract or arrangement entered into or to be
entered into would be discussed.
[s 2.207] Department’s View— Quorum in cases where directors are interested
In reply to a query: “Interested directors will not be taken into consideration for the ‘quorum’ of the
Board meeting as per provisions of section 287. But where at any time the number of interested
directors exceeds or is equal to 2/3rds of the total strength of the number of remaining directors, i.e.,
the number of uninterested directors shall be quorum. In a contingency where all the directors are
interested (or more than 2/3rd of them) in a contract, can anyone of them sign a contract or for the
affixation of common seal of the company? What is the remedy in such a contingency?”
The Department has expressed the following views: “The remedy in such cases seems to increase
the strength of the Board by appointing disinterested directors or to co-opt or appoint Additional
Directors if so authorised by the Articles who are not interested in the said contract. If this is not found
practicable, it would be desirable to place the proposed contract before the General Meeting for
consent.”
[Letter No. 8/16/(1)61-PR, dt. 9-05-1961 : Government of India Publication, Clarifications and
Circulars on Company Law, 1977 Edition, page 168].
Interested director not to participate or vote in Board’s proceedings [Section 300].—(1) No

director of a company shall, as a director, take any part in the discussion of, or vote on, any contract
or arrangement entered into, or to be entered into, by or on behalf of the company, if he is in any
way, whether directly or indirectly, concerned or interested in the contract or arrangement; nor shall
his presence count for the purpose of forming a quorum at the time of any such discussion or vote;
and if he does vote, his vote shall be void. The Companies Act, 1956 provision
(2) Sub-section (1) shall not apply to—
•
(a) a private company which is neither a subsidiary nor a holding company of a public
company;
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(b) a private company which is a subsidiary of a public company, in respect of any

contract or arrangement entered into, or to be entered into, by the private
company with the holding company thereof;
(c) any contract of indemnity against any loss which the directors, or any one or more
of them, may suffer by reason of becoming or being sureties or a surety for the
company;
(d) any contract or arrangement entered into or to be entered into with a public
company, or a private company which is a subsidiary of a public company, in
which the interest of the director aforesaid 23[consists solely—
(i) in his being a director of such company and the holder of not more than shares of such
number or value therein as is requisite to qualify him for appointment as a director thereof,
he having been nominated as such director by the company referred to in sub-section (1),
or
(ii) in his being a member holding not more than 2%. of its paid-up share capital;]
(e) a public company, or a private company which is a subsidiary of a public

company, in respect of which a notification is issued under sub-section (3), to the
extent specified in the notification.
(3) In the case of a public company or a private company which is a subsidiary of a public company, if
the Central Government is of opinion that having regard to the desirability of establishing or
promoting any industry, business or trade, it would not be in the public interest to apply all or any of
the prohibitions contained in sub-section (1) to the company, the Central Government may, by
notification in the Official Gazette, direct that that sub-section shall not apply to such company, or
shall apply thereto subject to such exceptions, modifications and conditions as may be specified in
the notification.
(4) Every director who knowingly contravenes the provisions of this section shall be punishable with
fine which may extend to 24[Rs 50,000].
NOTES
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See section 91B of the existing Indian Act and paragraph 98 of the Company Law Committee’s Report. Not only voting
but also participation in the discussion is prohibited to directors who are concerned or interested. [Clause 278 of the
“Section 91B of the Companies Act of 1913 prohibits an interested director from voting on any contract or arrangement
in which he is directly or indirectly concerned or interested and also provides that his presence shall not count for the
purpose of forming a quorum at the time of voting and that if he votes his vote should not be counted. This section
which was amended by the Amendment Act of 1936 has been the subject of some criticism. It was suggested to us
that the provisions of the section should be strengthened by the requirement that an interested director should
withdraw from the meeting of the Board at which any subject to which he is interested is being discussed. We do not
accept the suggestion, for we consider that persons holding the position of directors should possess sufficient integrity
and independence of judgment not to be influenced by the mere presence of one of their colleagues at a meeting of
the Board. We have, however, provided that the interested director should not take part in the proceedings of such
meetings. Our other recommendation that the quorum at Board meetings should either be two directors or one-third of
the number of directors whichever is higher, which we have made later on in this Chapter, would, however, operate as
a further safeguard, by doing away with the present practice of incorporating into articles of association clauses
constituting one single director as a quorum when other directors are interested.
We would also like to draw attention to an addition made by us in the existing proviso to the section, under which it
would be competent for an interested director to vote in respect of any contract or arrangement with any other public
company in which he is merely interested as a director and holds no shares beyond those necessary for his
qualification as a director. We have not considered it advisable to go further than this. As in the case of section 91A,
we have enhanced the penalty prescribed for contravention of the provision to Rs. 5,000 [now Rs. 50,000].
We also recommend that the Central Authority should have the power to exempt any company from the operation of
this section if Government inform the Central Authority that such exemption is in the public interest. [Report : para 98].
follows:
The change seeks to liberalise the provisions of the section to some extent, as recommended in para 120 of the
Report. [Clause 110 of the Companies (Amendment) Bill, 1959 (37 of 1959)].
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Under section 300, an interested director is not to take any part in the discussion of or vote on any contract or
arrangement in which he is interested in terms of section 299. Sub-section (2) of section 300 exempts from the
operation of sub-section (1) the contracts therein mentioned, but the exemption provided in clause (d) of sub-section
(2) is very limited. We are of the opinion that the holding of shares by a director in a public company or a private
company which is its subsidiary not exceeding 2% of its paid up capital should not disqualify a director from taking part
in or voting upon any contract or arrangement with such a company and we recommend that clause (d) of sub-section
(2) of section 300 be amended accordingly. [Report : para 120].
this section as under:
This clause seeks to enhance the fine specified in sub-section (4) of Section 300 of the Act from five thousand rupees
to fifty thousand rupees. [Clause 139 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
[s 2.209] Interested Director not to participate [Section 300(1) of the Companies Act. 1956]
A director shall not take part in the discussion relating to any contract if he is in any way interested in
the same. He will not be counted in forming a quorum of the Board. He shall not vote. If he votes, his
vote shall be void.
Where at a Board Meeting there is a proposal to appoint a relative of one of the directors as a
director of the company, sound company practice requires that the director concerned should not
participate in the discussion at the Board Meeting and should not vote on the proposal for such
appointment. The vote by such an interested director at a Board Meeting will not be counted or taken
into account.
See Department’s views reproduced hereinafter.
[s 2.210] Resolution without vote of interested director valid
If without counting the interested director’s vote the business is carried at the Board Meeting then the
Board Resolution passed will be valid.25
[s 2.211] Contract voidable at the option of Company
Where such interested director votes and without such vote the Resolution cannot be passed, there
is a contravention of section 300 and the contract is voidable at the option of the company.26
[s 2.212] “Interested” Director—Meaning of “Interest”
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The interest or concern in sections 299(1) and 300(1) of the 1956 Act cannot be merely sentimental
interest or ideological concern. A relationship of friendliness with the directors who are interested in
contract or arrangement or even the mere fact of a lawyer-client relationship with such directors will
not disqualify a person from acting as a director on the ground of his being an “interested” director.27
[s 2.213] Private Company—Allotment of shares to interested Director
Where the certain respondents participated in the Board Meeting but the fourth respondent protested
against the allotment of shares and left the meeting and out of the remaining two directors the second
respondent was the interested director but participated in the voting on the allotment of shares to
himself. Section 300(1) of the 1956 Act stipulates that the interested directors cannot participate nor
vote in any contract or arrangement entered into on behalf of the company. However, by virtue of
section 300(2)(a) of the 1956 Act, the directors of private companies can count for a quorum at a
meeting which is considering the subject-matter of their interest and can also participate in voting.
Further, allotment of shares is not in the nature of a commercial contract. Therefore, the allotment of
shares to the second respondent was not illegal.28
See also Notes under sections 3, 111 and 397 to 403 of the 1956 Act.
[s 2.213.1] Department’s View— Director should not participate or vote if his near relative is
proposed to be appointed as a director
“The question whether, under the provisions contained in Sections 299 and 300 of the Companies
Act, 1956, a director can vote on a Board Resolution purporting to appoint a relative of such a
director as director or additional director of a company has recently been examined by the Company
Law Board (the Central Government). Section 299 provides that every director of a company who is
in any way, whether directly or indirectly, concerned or interested in a contract or arrangement or
proposed contract or arrangement, entered into or to be entered into by or on behalf of the company,
shall disclose the nature of his concern or interest at the meeting of Board of Directors. Section 300
provides that a director shall not take any part in the discussion of, or vote, on any contract or
arrangement entered into, or to be entered into, by or on behalf of the company, if he is in any way,
whether directly or indirectly concerned or interested in the contract or arrangement. Two different
views have been expressed on the question at issue. One view is that the appointment of a director is
an arrangement entered into by company and the director whose relative is appointed as a director or
additional director is interested in such appointments and, as such, is prevented from voting on
resolutions purporting to appoint such relative as a director. The other view held in some quarters is
that the word ‘arrangement’ used in the section is intended primarily to cover transactions in which a
director acquires some right or incurs some liability as a result of it and not supposed to cover
anything that is likely to have a bearing on the company’s affairs. Only a restrictive interpretation
should, therefore, be placed on the word ‘interested’ used in the section thus excluding a director who
has no pecuniary interest. Where, however, there is a pecuniary advantage, it must be regarded as
an ‘interest’ within the meaning of the section. The language of the section contemplates a pecuniary
interest, direct or indirect, of the director in the contract or arrangement. Accordingly the relationship
of the director with the contracting party will not per se make the director concerned or interested in
the contract or arrangement.
2. The Company Law Board (the Central Government) has carefully considered both the above-
mentioned viewpoints. It is of the opinion that whatever may be the strictly legal position in this
regard, the matter is essentially one to be viewed from the point of view of the development of sound
and healthy company practice. It should, therefore, be held to be a clearly unsound company practice
if a director, whose near relative is proposed to be appointed to the Board, were to participate in the
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discussions at the Board Meeting and vote on the proposal for such appointment. Regional Directors
and Registrars of Companies are accordingly requested to bring this view of the Company Law Board
(the Central Government) to the notice of company managements, Chambers of Commerce and
Trade Associations, in the course of their discussions with these bodies so as to ensure that such
practice does not gain currency.” [Circular Letter No. 8/46/(300)/64-PR, dt. 27-01-1965 : Company
News & Notes, dt. 16-03-1965 : Government of India Publication, Clarifications and Circulars on
Company Law, 1977 Edition, page 190].
[s 2.214] Resolution of the Board of Directors in regard to the fixation of or increase in the
Director’s Fees. Section 300(1) of the Companies Act, 1956 is not attracted
In reply to a query: “The articles of association of a public company provided that the director’s fees
for attending meetings of the Board will be fixed by the Board. Does the Department consider a
resolution of the Board fixing Director’s fee as a contract or arrangement in which the directors are
interested within meaning of section 300(1)?”
The Department has expressed the following views: “Having regard to the provisions of Section
309(1) of the Companies Act, 1956, any Resolution of the Board in regard to the fixation of or
increase in the director’s fees should be subject to the approval of the company in General Meeting,
and the provisions of Section 300(1) would not be attracted in the case of such a resolution to be
considered by the Board, because the final decision in the matter would be that of the company in
General Meeting.” [Letter No. 2/32/63-PR, dt. 20-9-1963 : Govt. of India Publication, Clarifications
[s 2.215] Quorum—Interested Director not counted to form quorum
As per section 300(1) of the 1956 Act, the presence of the Interested Director shall not be counted for
the purpose of forming a Quorum.
Section 297 of the 1956 Act provides that where the number of interested directors is two-thirds or
more of the total strength, the number of the remaining directors present at the Meeting if not less
than 2 shall be quorum for the time being.
[s 2.215.1] Department’s View— Section 300 of the Companies Act, 1956: Quorum of
interested directors
“On the ground that number of interested Directors exceed that of non-interested Directors, the
provisions of Section 300 of the Act cannot be disregarded.
2. The difficulties in getting required quorum at Board Meetings where the Directors are interested
should be solved by the company either by increasing the strength of the Board of Directors or co-
opting new members, if so authorised by the Articles. If it is not found practicable to do so, it might be
desirable to place the proposed contract before the General Meeting for consent of the
shareholders.” [File No. 7(22)CL-VI/68 : Government of India Publication, Clarifications and Circulars
on Company Law, 1977 Edition, page 191].
[s2.216] Allotment of shares to interested Director—General body approval
If there is a General Body approval for issue of shares to the Director. Section 300 of the 1956 Act
would not be applicable. When the General Body authorised the Board of directors to issue and allot
preference shares to the existing shareholders even interested Directors could then allot shares to
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themselves. In the case of transfer of shares, the transaction was a private arrangement and the
company comes to the picture only for the purpose of recognition of the transferee as the new
shareholder. Therefore, the contention that in the matter of transfer of shares the company was a
party and it was an arrangement within the purview of section 300 of the 1956 Act had to fail. So far
as the registration of transfer was concerned, it was not oppressive to the first petitioner nor against
the provisions of articles or the Act. Therefore, the transfer did not require to be declared invalid.29
See detailed Notes under sections 87(2), 90(2), 169, 300 and 397–398 of the 1956 Act.
[s 2.217] Conflict of Director’s interest not disclosed—Breach of Duty or Trust
If there be any conflict of a Director’s interest and his duty to the company, he should disclose the
same to the Board of Directors.30
[s 2.218] Disclosure of Directors’ interest—General Notice
Where proper disclosures of directors’ interest in sister concerns were made at the beginning of each
year in terms of section 299 of the 1956 Act. It was held that if a disclosure at the beginning of each
financial year in terms of section 299 has been made, that is deemed to be sufficient disclosure in
terms of section 299 of the Act. A notice of interest of a director in a contract has to be given at the
Meeting of the Board or arrangement has to be made that the notice is got up and read at the next
Meeting of the Board after the notice is given. The notice is entered in the Minutes of the Board
Meeting and read. Such notice is also required to be given every year so that new directors who may
be joining the Board become aware of the interests of the particular Director.31
See Procedure where Director interested. [sections 299 to 302 of the 1956 Act]
S. 2 (50) : Issued Capital.—“issued capital” means such capital as the company issues from time to
time for subscription;
NOTES
as follows:
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The definition is self-explanatory. The 1956 Act had used “issued share capital” in section 399, when
stating who could apply under sections 397 and 398 of the 1956 Act. This was despite not having
defined the term. While the 2013 Act does define issued capital, it uses issued share capital in
sections 43, 244 and 245 of the 1956 Act.
S. 2 (51) : Key Managerial Personnel.—“key managerial personnel”, in relation to a company,

means—
•
(i) the Chief Executive Officer or the managing director or the manager;
(ii) the company secretary;
(iii) the whole-time director;
(iv) the Chief Financial Officer; and
(v) such other officer as may be prescribed;
NOTES
as follows:
The addition of a whole-time director differentiates the section as present in the 2013 Act from the
Companies Bill, 2011. The Bill of 2011 also counted the Chief Financial Officer if the Board appointed
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him, while the Companies Act, 2013 offers no such liberties to the Board.
The Report on Company Law, 2005, noted that certain managerial positions had more agency to
conduct the affairs of the Company and thereby determine the quality of governance. Hence, the
Committee thought it prudent to 73ecognize these positions in law and identify liabilities. The
Committee had identified only the Chief Executive Officer or the Managing Director, the Company
Secretary and the Chief Finance Officer as key managerial personnel. The Committee also made the
following recommendations:
(v) The appointment and removal of key managerial personnel should be by Board of Directors;
(ii) Key managerial personnel, including managing director/ (whole time) Executive Directors should be in the
whole-time employment of only one company at any given time;
(iii) Both the Managing Director as also the whole time directors should not be appointed for five years at a time;
(iv) As provided currently, the option to a company to appoint a director by proportional representation may be
retained;
(v) The present requirement of having managing director/whole time director in a public company with a paid up
capital of Rs. 5 crores may be revised to Rs. 10 crores by appropriate amendment of the Rules. The said limit
could be reviewed from time to time.
The Committee recommended that exemption may be provided to small companies from appointing
key managerial personnel on a whole time basis.
The Report of the Standing Committee on Finance, 2009–2010, recommended that a whole time
director should be included as key managerial personnel irrespective of whether a company has a
managing director. This was despite the Ministry of Corporate Affairs having stated that there was no
need for such inclusion as a whole time director would come under the definition of an officer in
default. The Ministry argued that whole time directors do not exercise substantial powers in case of
companies where managing directors and managers exist. The Ministry did concede that whole time
directors might subsequently be included under the last subsection that offers the government the
power to notify any other category that does not already find mention. Section 2(60) of the 2013 Act
defining “Officer who is in Default” mentioned key managerial personnel and whole time directors as
two separate categories.
The identification of key managerial personnel is not only for attaching liabilities but also for granting
certain powers. The central Government reserves the right to bring any other officer under the ambit
of the definition.
See, Notes on sections 2(60), 194 and 203 of the 2013 Act.
S. 2 (52) : Listed Company.—Listed company means a company which has any of its securities
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listed on any recognised stock exchange.
NOTES
12-09-2013 and the corresponding provision is section 2(23A) of the 1956 Act.
as follows:
This definition of Listed Company is a reproduction of the definition which was proposed in the
Even though this definition is applicable only to public companies even though it has omitted the word
“public company”. This is because private companies are not permitted to issue their shares to the
public under section 2(68)(iii) of the 2013 Act.
The reference here is to “any of its securities” which would include not just equity but other
instruments or types of securities, not necessarily only equity. There is a list of recognized stock
exchanges in force at any relevant point in time. The listing of any of such securities of any such
companies on any of such recognized stock exchanges would satisfy the definition of a “listed
company”.
Listed Public Companies [Section 2(23A)] - Listed public companies means a public company
which has any of its securities listed in any Recognised Stock Exchange. Clause (23A) has been
inserted by the Act 53 of 2000. The Companies Act, 1956 provision
NOTES
Section 2(23A) of the 1956 Act is corresponds to section 2(52) of the 2013 Act.
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Section 55A of the 1956 Act provides that sections 55 to 58, 59 to 81 (including sections 68A, 77A
and 80A), 108, 109, 110, 112, 113, 116, 117, 118, 119, 120, 121, 122, 206, 206A and 207 of the
1956 Act, so far as they relate to issue and transfer of securities and non-payment of dividend shall,
in case of listed public companies or public companies which intend to get their securities listed on
any recognized stock exchange in India, be administered by the Securities and Exchange Board of
India (SEBI); and in any other case, by the Central Government.
See detailed Notes under section 55A of the 1956 Act—Powers of SEBI.
See also Notes under Public company [section 2(37) and section 3 of the 1956 Act], and Recognised
stock exchange [section 2(39) of the 1956 Act].
S. 2 (53): Manager.—Manager means an individual who, subject to the superintendence, control and
direction of the Board of Directors, has the management of the whole, or substantially the whole, of
the affairs of a company, and includes a director or any other person occupying the position of a
manager, by whatever name called, whether under a contract of service or not.
NOTES
12-09-2013 and the corresponding provision is section 2(24) of the 1956 Act.
as follows:
Bill, 2011.
This definition under section 2(34) is a reproduction of the definition under section 2(24) of the 1956
Act.
POSITION UNDER THE COMPANIES ACT 1956
Manager [Section 2(24)] – Manager means an individual 32[***] who, subject to the superintendence,
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control and direction of the Board of directors, has the management of the whole, or substantially the
whole, of the affairs of a company, and includes a director or any other person occupying the position
of a manager, by whatever name called, and whether under a contract of service or not. The
NOTES
The managing agent has been specifically excluded from the definition of ‘manager’ as suggested by the Company
Law Committee, vide paragraph 27 and page 229 of its Report. It has also been made clear that a manager must be
an individual and not a firm or a body corporate. [Clause 2(19) of the Companies Bill, 1953 (46 of 1953)].
The definitions of ‘manager’ [Section 2(24) of the 1956 Act] and ‘managing agent’ [Section 2(25) since omitted] gave us
a good deal of anxiety, but in the end we agreed that the distinguishing characteristics of the former should be that he
should be (a) an individual, (b) in charge of the whole or substantially the whole of the management of a company, (c)
whether under a formal contract of service or not, and (d) serving under the administrative control and supervision of
the directors. A managing agent, on the other hand, may be (a) a person, firm or a company, (b) in charge of the whole
or substantially the whole of the management of a company, but (c) deriving his or its authority by virtue of an
agreement with the company or by virtue of the memorandum or articles of association containing the terms of such
agreement. Unlike a manager, who would be administratively under the control and supervision of the directors, the
latter’s control over a managing agent would be exercised only in terms of the agreement or the provisions of the Act.
In this connection, we would refer to the new definition of ‘managing director’ [Section 2(26) of the 1956 Act] which we
have recommended, and which fills a lacuna in the present Act. The distinction between a manager and a managing
director, as we see it, is that whilst the latter derives his power of management from an agreement with the company
these powers need not necessarily extend to the whole or even substantially the whole of the company’s affairs but
may be and very often are restricted to one particular aspect of such affairs; unlike a managing agent the managing
director must be an individual director of the company. In para 146 of our Report we have recommended some special
provisions about the appointment and terms of office of a manager and a managing director, which will further bring out
the distinction between them and a managing agent. [Report : para 27].
See also Notes under Managing Director [section 2(26) of the 1956 Act], Officer [section 2(30) of the
1956 Act] and Officer who is in default [sections 2(31) and 5 of the 1956 Act].
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[s 2.228.1] Department’s View— A person who is a Manager as well as a Director of the

company, would be a Managing Director
See F. No. 8/16(1)/61-PR reproduced in Notes under Managing Director [section 2(26) of the 1956
Act].
Factory Manager not Manager within the meaning of Section 2(24).—“Factory managers incharge of
production not concerned with the buying of raw materials or the selling of finished products and not
having control over the company’s finances, would not be “managers” within section 2(24) of the Act.”
[Extract from the Minutes of the meeting of the Bombay Chamber of Commerce & Industry’s
Company Law Sub-Committee with the Secretary, Department of Company Law Administration on 26
April 1956 : Government of India publication, Clarifications and Circulars on Company Law, 1977
Edition, page 2].
[s 2.229] Site Manager for the purposes of Pollution Act
A Site Manager is not liable unless it can be shown that he was a decision maker and has the power
and responsibility to decide the company’s strategy and policy.33
[s 2.230] Financing company not Manager
Where the management of a company with substantial powers of management was given to a
financing company, but in the exercise of its powers and discharge of its functions it was never
subject to the superintendence, control or direction of the Board of directors of the company. The
financing company was not manager within the meaning of section 2(24) of the 1956 Act and the
illegality of section 384 of the 1956 Act was not attracted. The remuneration paid by the assessee
company to the financing company could not therefore be regarded as being in violation of section
384 of the 1956 Act and the expenditure incurred by way of remuneration was deductible as business
expenditure.34
[s 2.231] Manager’s authority to file suit
Where the plaintiff in a suit is a corporation, there has to be (1) proper authority by resolution of the
Board of directors, or (2) a power of attorney authorising institution of the suit on behalf of the
corporation, or (3) power conferred by the articles of association of a corporation. Where the articles
of the company conferred authority on the managing director and the joint managing director alone to
institute suits on behalf of the company, a suit filed by a whole-time director in terms of the power of
attorney granted to him, which showed him to be a director of the company and not a managing
director within the meaning of section 2(24) of the 1956 Act, was not maintainable. In this case, the
provisions of section 2(26) relating to managing director were not attracted for the reasons that the
plaintiff had himself accepted by the power of attorney given to him by the company that he was not
managing director. He was a whole-time director and general manager, but not the managing
director.35 Affidavit accompanying petition for winding up sworn by the assistant manager under
authorisation/delegation by the managing director was held to be competent.36
See detailed Notes in Pt VI—Chapter IV—B. Managers: Firm or body corporate not to be appointed
manager [section 384 of the 1956 Act], Certain persons not to be appointed managers [section 385 of
the 1956 Act], Number of companies of which a person may be appointed manager [section 386 of
the 1956 Act], Remuneration of manager [section 387 of the 1956 Act], Application of sections 269,
310, 311, 312 and 317 of the 1956 Act to managers [Section 388 of the 1956 Act], sections 386 to
388 of the 1956 Act not to apply to certain private companies [section 388A of the 1956 Act].
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See also Notes under section 197A which prohibits simultaneous appointment of different categories
of managerial personnel at the same time.
See also Notes under Managing Director [section 2(26) of the 1956 Act], Officer [section 2(30) of the
1956 Act] and Officer who is in default [sections 2(31) and 5 of the 1956 Act].
[s 2.232] Form 25A (substituted w.e.f. 10-2-2006)
See e-Form 25A* of the Companies (Central Government’s) General Rules and Forms, 1956,* as
substituted for Forms 25A and 26, by the Companies (Central Government’s) General Rules and
Forms (Amendment) Rules, 2006 vide Notification No. G.S.R. 56(E), dt. 10-2-2006, published in the
Gazette of India, Extraordinary, No. 50, Pt II, Section 3(i), page 156 : (2006) 130 COMP CASES (St.)
13.
NowE-Form 25A* [substituted for earlier Forms 25A and 26 (w.e.f. 10-2-2006)] contained the Form of
Application to the Central Government for Approval of Appointment or Re-appointment and
Remuneration or Increase in Remuneration or Waiver for excess or over payment to Managing or
Whole-time Director(s) or Manager and Commission or Remuneration or Expression of opinion to
Directors, pursuant to sections 198(4), 269, 309(3), 309(5B), 310, 311, 387, 388, 2(24), 4(7),
309(1)(b), 309(4)(a) and (b) and 316(4) of the 1956 Act.
[s 2.233] Revised e-Form 25A (released 24 December 2006)
See Revised e-Form 25A on the Ministry of Corporate Affairs (MCA) website http://www.mca.gov.in
under the category Provisions relating to Managerial Personnel, Date of Last Release (24 December
2006).
See Revised e-Form 25A of the Companies (Central Government’s) General Rules and Forms, 1956
[Pursuant to sections 198(4), 269, 309(3), 309(5B), 310, 311, 387, 388, 2(24), 4(7), 309(1)(b),
309(4)(a) and (b) and 316(4) of the 1956 Act] for Form of Application to the Central Government for
Approval of Appointment or Reappointment and Remuneration or Increase in remuneration or Waiver
for excess or over payment to Managing or Whole-time Director(s) or Manager and Commission or
Remuneration or Expression of Opinion to Directors.
See detailed Notes, Form and Procedure under section 388 of the 1956 Act.
[s 2.234] E-Form under the Companies Act, 2013
The e-Form corresponding to e-Form 25A under the 2013 Act is MR – 2. The corresponding
provisions under which the filing is to be made is sections 196, 197, 203, 2(53), 203 of the 1956 Act
and e-Form MR – 1 is to be filed for return of appointment of managing director or whole time director
or manager.
[s 2.234.1] Filing of e-Forms (w.e.f. 16 September 2006) [Sections 610A-610E of the

Companies Act, 1956]
See Provisions relating to Filing of Applications, Documents, Inspection, etc., through Electronic
Form under section 610B of the 1956 Act inserted by the Companies (Amendment) Act, 2006 (23 of
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2006) (w.e.f. 16-9-2006).
See the Companies (Electronic Filing and Authentication of Documents) Rules, 2006 framed under
sections 610A to 610E of the 1956 Act (w.e.f. 16-9-2006) vide Notification No. G.S.R. 557(E), dt. 14-
9-2006, published in the Gazette of India, Extraordinary, No. 437, Pt II, Section 3(i) : (2006) 133
COMP CASES (St.) 81.
See the Scheme for Filing of Statutory Documents and Other Transactions by Companies in
Electronic Mode (w.e.f. 27-10-2006)‡ vide Notification No. S.O. 1844(E), dt. 26-10-2006, published in
the Gazette of India, Extraordinary, No. 1287, Pt II, Section 3(ii), page 15, dt. 27-10-2006 : MCA
website http://www.mca.gov.in : (2006) 134 COMP CASES (St.) 91 in Notes under section 610B of
the 1956 Act.
See detailed Notes, Form and Procedure under sections 610A to 610E of the 1956 Act.
S. 2 (54) : Managing Director.—Managing director means a director who, by virtue of the articles of
a company or an agreement with the company or a resolution passed in its general meeting, or by its
Board of Directors, is entrusted with substantial powers of management of the affairs of the company
and includes a director occupying the position of managing director, by whatever name called.
Explanation.—For the purposes of this clause, the power to do administrative acts of a routine nature
when so authorised by the Board such as the power to affix the common seal of the company to any
document or to draw and endorse any cheque on the account of the company in any bank or to draw
and endorse any negotiable instrument or to sign any certificate of share or to direct registration of
transfer of any share, shall not be deemed to be included within the substantial powers of
management.
NOTES
as follows:
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Bill, 2011.
The above definition of managing director under the 2013 Act comes with significant changes from
the definition under the 1956 Act. As per section 2(26) of the 1956 Act, the exercise of powers by a
managing director was subject to the directions, superintendence and control of the Board. However,
the definition under the 2013 Act does not provide for such control and supervision. As per the Report
of the Companies Law Committee, 2016, it was suggested that a proviso be inserted
clarifying that the managing director should be allowed to exercise his powers, subject to the superintendence, control
and direction of the Board of Directors, as was provided in the second proviso to Section 2(26) of the Companies Act,
1956.
However, the Committee was of the opinion that it was implicit in the provision itself and therefore, an
amendment was not required in the Act. This, however, may hold good for substantial powers of the
managing director as the same are exercised as per the articles of the company or vide Board
Resolutions or resolutions at meetings, but not where certain other powers bestowed upon the
managing director which do not require such approvals.
Managing Director [Section 2(26)].—Managing director means a director who, by virtue of an

agreement with the company or of a resolution passed by the company in general meeting or by its
Board of directors or, by virtue of its memorandum or articles of association, is entrusted with
37[substantial powers of management] which would not otherwise be exercisable by him, and includes
a director occupying the position of a managing director, by whatever name called: The Companies
Act, 1956 provision
38[Provided that the power to do administrative acts of a routine nature when so authorised by the
Board such as the power to affix the common seal of the company to any document or to draw and
endorse any cheque on the account of the company in any bank or to draw and endorse any
negotiable instrument or to sign any certificate of share or to direct registration of transfer of any
share, shall not be deemed to be included within substantial powers of management:
Provided further that a managing director of a company shall exercise his powers subject to the
superintendence, control and direction of its Board of directors.]
NOTES
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A managing director means a director who, by virtue of an agreement with the company or of a
resolution passed by the company in general meeting or by its Board of directors or, by virtue of its
memorandum or articles of association, is entrusted with substantial powers of management which
would not otherwise be exercisable by him and includes a director occupying the position of a
managing director, by whatever name called.
As per proviso inserted by Act 65 of 1960, the power to do administrative acts of a routine nature
authorised by the Board such as power to affix the common seal of the company to documents, draw
and endorse cheques, negotiable instruments, sign certificates of share or direct registration of
transfer of any share, shall not be deemed substantial powers of management. A managing director
shall exercise his powers subject to the superintendence, control and direction of the Board.
THE COMPANIES ACT, 1956 (1 OF 1956).—See Legislative History under section 2(24) of the 1956 Act.
THE COMPANIES (AMENDMENT) ACT, 1960 (65 OF 1960).—The Notes on clauses explained as follows:
The proposed amendment seeks to clarify that the power to do acts of a routine administrative character alone, such
as signing of cheques and share certificates, will not make a director a managing director, and provide that the
managing director is as much subject to the supervision, direction and control of the Board of directors of a company
as other managerial personnel (para 19 of the Report). [Clause 2(f) of the Companies (Amendment) Bill, 1959 (37 of
1959)].
The definition of ‘managing director’ is important in relation to several sections of the Act, as for instance, sections 268,
269, 310, 316 and 317 of the Companies Act, 1956. It has been said that the definition of ‘managing director’ in section
2(26) of the Act is very wide inasmuch as it may include any director exercising powers of a routine character such as
signing share certificates, cheques, receipts etc. by delegation from the Board. This, we feel, could hardly have been
intended. The directors collectively have the right and duty to manage and supervise the business of the company but
an individual director does not exercise any power of management. Section 2(26) refers to ‘any powers of
management which would not otherwise be exercisable by’ a director. Certain powers like the power to affix the
company’s seal to documents, to draw and endorse cheques on the company’s bank account or to draw or endorse
negotiable instruments, to sign share certificates and to sanction registration of a transfer of shares and other acts
connected with the routine administration of a company may be exercised by a director, if so authorised by the Board.
Section 2(26) is, however, not intended to refer to or cover such acts. The expression ‘powers of management’
connotes exercise of discretion and capacity to take a decision to do or not to do a thing. Acts done in pursuance of a
direction given by the Board are not an exercise of any power of management. On the other hand, action taken
regarding investment matters or other functions such as buying and selling, being matters of policy, are in the exercise
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of powers of management and would attract the provisions of the section. In order, however, to remove any doubt as to
whether acts of a routine administrative character are intended to be included in this definition, we would suggest that
the expression ‘any powers of a management’ may be amended so as to read ‘any substantial power of management’.
[Companies Act Amendment Committee, 1957 Report : para 19].
The Joint Committee in its report also recommended as follows:
Specific provision should be made in the definition of ‘managing director’ to the effect that the power to do
administrative acts of a routine nature, when so authorised by the Board of directors, such as the power to affix the
common seal of the company to a document, should not be included within the substantial powers of management.
[Report : para 15].
[s 2.237.1] Department’s View— A person who is a Manager as well as a Director of the

company, would be a Managing Director
“A person who is a manager within the meaning of section 2(24) of the 1956 Act and is also a director
of the company, would be a managing director and would be subject to all restrictions applicable to a
Managing director under the Act. In this connection, ‘Manager’ means an individual who has the
management of the whole or substantially the whole of the affairs of a company and a director of a
company may also be its manager. On the other hand, a ‘Managing director’ means a director who is
entrusted with substantial powers of management of the whole or substantially the whole of the
affairs of the company.” [Clarification F. No. 8/16(1)/61-PR : Government of India publication,
Clarifications and Circulars on Company Law, 1977 Edition, page 2].
[s 2.238] A company may have more than one Managing Director
“Section 2(26) defines ‘Managing director’ as a director who is entrusted with substantial powers of
management which term refers to the nature of the powers and not the quantum thereof. Section
2(24) of the Act on the other hand has defined the word ‘manager’ as an individual who has the
management of the whole or substantially the whole of the affairs of a company. Thus the managing
director of a company may be entrusted with substantial power of management but not necessarily of
the whole or substantially the whole of the affairs of a company. A company may, therefore, have
more than one managing director.” [Clarification F. No. 8/16/(1)/61-PR : Govt. of India publication,
[s 2.239] Whether a Director is to be regarded as a Whole-time Director or as a Managing

Director
“Whether a director is to be regarded as a whole-time director or as a managing director of the

company would depend on the nature and extent of the duties entrusted to him and that the
designation under which the appointment is made would not make any difference in this regard.
Thus, if a director is entrusted with managerial functions, he would be in the position of a Managing
Director notwithstanding the fact that he may be designated as a technical adviser or as a technical
director of the company.” [Extracts from the Fourth Annual Report on the Working and Administration
of the Companies Act, 1956—Year ended 31 March 1960 : Government of India publication,
[s 2.240] Managing Director’s authority to file suit
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Where the Articles of the company conferred authority on the managing director to institute suits on
behalf of the company, a suit filed by a whole-time director and general manager, but not the
managing director was held not maintainable. See Notes under Manager [section 2(24) of the 1956
Act].
See detailed Notes under section 10 of the 1956 Act.
[s 2.241] Suit on behalf of company by Managing Director
The institution of a suit on behalf of the company by the Managing Director is deemed to be within the
meaning of “substantial powers of management” since such a power is necessary and incidental for
managing the day-to-day affairs and business of the company. The words “substantial powers of
management” specifically exclude certain acts from its purview. Therefore, except the excluded acts
the Managing Director has the power and privilege of conducting the business of the company in
accordance with the Memorandum and Articles of Association of the company.39
[s 2.242] Position of Managing Director
A person who is engaged to manage a business may be a servant or an agent according to the
nature of his service and the authority of his employment. A Director of a company is not a servant
but an agent inasmuch as the company cannot act in its own person but has only to act through
directors who qua the company have the relationship of an agent to its capacity. A Managing Director
may have a dual capacity. He may both be a Director as well as an employee. In the capacity of a
Managing Director he may be regarded as having not only the capacity as persona of a Director but
also has the persona of an employee, or an agent depending upon the nature of his work and the
terms of his employment. The nature of his employment may be determined by the Articles of
Association of a company and/or the agreement, if any, under which a contractual relationship
between the Director and the company has been brought about. Where the powers of the Managing
Director have to be exercised within the terms and limitations contained in the Articles and subject to
the control and supervision of the Board of Directors, the Managing Director would be servant of the
company and the remuneration payable to him would be taxable as salary under the Income-tax
Act.40
But, as the Managing Directors have got special powers and obligations under the Act they cannot
occupy the dual capacity of both the Managing Director and a Director. It is clear from the intention
and object of the Act as laid down in sections 267–269, 317 and 320 of the 1956 Act that the
managing director and the whole-time or non-rotational directors and ordinary directors of a company
are entirely separate officers having definite rights and obligations under the Act. The definitions of a
director in section 2(13) of the 1956 Act and managing director in section 2(26) of the 1956 Act
clearly define the two and having separate and specific provisions they cannot be mixed up and
treated alike. Therefore, if the terms of the Managing Directors expire, they cease to be managing
directors and cannot continue as directors without being validly appointed by the company according
to the relative provisions of the Act and the Articles of Association of the company. Otherwise, it will
become that once a managing director always a managing director which is not the purpose, object
and intention of sections 267 and 269 of the 1956 Act.41
A Managing Director has no legal status which can amount to a legal character within the meaning of
section 42 of the Specific Relief Act or which can be enforced as such against the company or his co-
directors.42 A Managing Director occupies the position of a trustee for the company and he has to
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safeguard the interest of the shareholders and the company.43
Section 2(26) of the 1956 Act, defines “managing directors” and section 2(30) of the 1956 Act defines
“Officer” to include director. Consequently, the managing directors, being directors, are officers of the
company. The managing directors, being officers of the company, are required to act in support of the
company’s petition and in the progress of the petition as envisaged by the scheme of the Act and the
rules themselves and they cannot plead total ignorance of the proceedings nor can they with any
justification, say that they are total strangers to these proceedings.44
Managing Director as an agent of the company does not have all the powers to act for and on behalf
of the company and may derive his powers of management to act for and on behalf of the company
only on the basis of one of the modes provided in the definition in section 2(26) of the of the 1956
Act. Where the managing director did not have the actual authority or power to fix the common seal
of the company to any document by arriving at any kind of settlement for and on behalf of the
company. He had no “actual” authority or power to act for and on behalf of the company. The
Memorandum of understanding (MoU) entered into between the managing director and the petitioner
was not for and on behalf of the respondent-company, nor was it a valid deed in terms of section 48
of the 1956 Act, so as to bind the company. The MoU or settlement did not create a binding debt.
Winding up could not, therefore, be ordered under section 433 and 434 of the 1956 Act.45
Managing Director is a director as also an employee of the company. He could be regarded as a

Principal Employer for the purpose of the ESI Act, 1948. He is an agent of the company with capacity
to bind the company within his authority in the sphere of management.46 A Managing Director is an
agent and his knowledge is knowledge of the company. He may both be a director as well as an
employee or servant of the company.47 For the recovery of dues from a company a decree was
passed against the company and it’s Managing Director. It was held that the Managing Director was
not liable in his personal capacity and therefore he could not be arrested and detained in a civil prison
for enforcing a Decree.48 The Managing Director is liable for offences as principal officer under
several Acts and as officer in default under section 5 of the 1956 Act during his tenure.49
A director cannot assign his office to anybody. Though the office of the director is not assignable, a
Director or Managing Director, if so empowered by the Articles of the company, can appoint his
successor by will or otherwise and such appointment of the successor will not be an “assignment” of
office by a director.50
See also Notes under Director [section 2(13) of the 1956 Act], Manager [section 2(24) of the 1956
Act], Officer [section 2(30) of the 1956 Act] and Officer who is in default [sections 2(31) and 5 of the
1956 Act].
See detailed Notes in Pt VI—Chapter II—Managing Directors, etc.: Certain persons not to be
appointed managing directors [section 267 of the 1956 Act], Amendment of provision relating to
managing, whole-time or non-rotational directors to require Government approval [section 268 of the
1956 Act], Appointment of managing or whole-time director or manager to require Government
approval only in certain cases [section 269 of the 1956 Act], Conditions to be fulfilled for the
appointment of a managing or whole-time Director or a Manager without the approval of the Central
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Government [Schedule XIII].
See also other relevant provisions, e.g., section 197A of the 1956 Act which prohibits simultaneous
appointment of different categories of managerial personnel and section 198 of the 1956 Act for
overall maximum managerial remuneration and managerial remuneration in case of absence or
inadequacy of profits.
[s 2.243] Powers of Managing Director
In the system of management of a company, the division of powers is governed by the Memorandum
and Articles of the company and the Act. In terms of section 2(26) of the 1956 Act, the Managing
Director (MD) is one who is entrusted with substantial powers of management by virtue of an
Agreement with the company or of a Resolution passed by the company in General Meeting or by its
Board of directors or by virtue of its Memorandum or Articles of Association. In terms of section 291
of the 1956 Act, subject to the provisions of the Act, the Board of Directors shall be entitled to
exercise all powers and to do all such acts and things as the company is authorised to do. There are
provisions in the Act according to which certain decisions can be taken only with the approval of the
General Body and there are provisions according to which certain decisions can be taken only by the
Board. In terms of the second proviso to section 291(1) of the 1956 Act, the exercise of the powers
by the Board is, inter alia, also subject to the provisions in the Articles. If a Director or Managing
Director (MD) has been vested with certain powers by the Articles, the Board or the General Body
cannot interfere with or alter the same without amending the Articles. In the instant case, the
Managing Director has been entrusted with all day-to-day affairs of the company by the Articles.
Therefore, except those matters reserved for the Board in terms of company’s Articles and the Act, all
other matters would fall within the day-to-day affairs of the Managing Director (MD).51
See detailed Notes under sections 2(26), 269 and 291 of the 1956 Act.
S. 2 (55) : “Member”.—“member”, in relation to a company, means—
•
(i) the subscriber to the memorandum of the company who shall be deemed to have
agreed to become member of the company, and on its registration, shall be
entered as member in its register of members;
(ii) every other person who agrees in writing to become a member of the company
and whose name is entered in the register of members of the company;
(iii) every person holding shares of the company and whose name is entered as a
beneficial owner in the records of a depository;
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NOTES
12-09-2013 and the corresponding provision is section 2(27) and 4 of the 1956 Act.
as follows:
[s 2.245] Analysis of Definition
Section 2(55) of the 2013 Act is a verbatim reproduction of the term in section 41 of the 1956 Act.
Section 2(55) of the 2013 Act categorizes members into three classes. First, the subscriber to the
memorandum of association. Second, every other person who agrees in writing to become a member
and whose name is entered in the register of members. And third, every person holding shares of the
company. On the other hand, section 2 (27) defined a Member to exclude a bearer of a share warrant
issued in pursuance of Section 114 of the 1956 Act. The expression in the 1956 Act was therefore,
much wider in scope than a shareholder and signifies persons who are members of all kinds of
companies, for example, a company limited by guarantee and without a share capital. In the case of
a company limited by shares, the definition would include shareholders holding both equity shares
and preference shares.
Member [Section 2(27)].—Member, in relation to a company, does not include a bearer of a share
warrant of the company issued in pursuance of section 114. The Companies Act, 1956 provision
NOTES
[s 2.246] Member and shareholder
Member and shareholder are interchangeable terms in a company limited by shares.52
Members may be ordinary shareholders or preference shareholders. The word “member” may be
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used in relation to all kinds of companies. The word “shareholder” is used only in relation to
companies having a share capital. A member may not be owner of shares for the time being, e.g.,
Signatories to the memorandum [sections 12 and 15 of the 1956 Act], Transferees of shares not yet
registered by the company [section 108 of the 1956 Act]. If the company so provides by its articles,
the bearer of a share warrant may be deemed to be a member for the purposes defined in the articles
[section 115(5) of the 1956 Act].
For the purposes of sections 397, 398 and 399 of the 1956 Act the definition of a member as
contained in section 2(27) of the 1956 Act is applicable and not the definition given in section 41(2) of
the 1956 Act.53 The legal representatives of a deceased member are entitled to file a petition under
sections 397 and 398 of the 1956 Act for relief against mismanagement or oppression even though
the names of the representatives have not been registered in the register of members.54
Section 41: Definition of “member”.—(1) The subscribers of the memorandum of a company shall
be deemed to have agreed to become members of the company, and on its registration, shall be
entered as members in its register of members.
(2) Every other person who 55[agrees in writing] to become a member of a company and whose name
is entered in its register of members, shall be a member of the company.
56[(3)
Every person holding equity share capital of company and whose name is entered as beneficial
owner in the records of the depository shall be deemed to be a member of the concerned company.]
NOTES
“This section corresponds to section 26 of the English Act, 1948 and section 30 of the existing Act.”
[Clause 36 of the Companies Bill, 1953 (46 of 1953)].
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The proposed amendment is intended to avoid the improper fastening of liability as contributories on persons, who
never applied for shares (para 38 of the Report.). [Clause 14 of the Companies (Amendment) Bill, 1959 (37 of 1959)].
“It has been suggested that a specific provision should be made that minors cannot be members of a company. Under
the Contract Act a minor is incapable of contracting and membership involves a contractual relationship between the
company and the members as well as the members inter se. No further provision is necessary.
Under section 117 of the English Companies Act no notice of any trust, expressed, implied or constructive, can be
entered in the register of members or debenture holders or be receivable by the Registrar. Section 153 of our Act is to
the same effect. In a few cases, the Act has recognised the holding of shares in the names of a nominee or nominees
of the real owner [see sections 4(3), 42, 49, 226(3) and 307]. It would be risky for a company to register transfers of
shares and pay dividends to the transferees if it was obliged to take notice of equitable interests in its share capital and
it was eventually proved that the transfers were in breach of trust. A trustee of shares who is on the register of
members is personally liable to the company for any calls or other obligations attaching to the shares. This has been
the settled law for a long time. We are, therefore, unable to accept the suggestion that the name of a minor who has
inherited shares as heir or legatee should be entered in the register as the holder of the shares. There would, however,
be no objection to having the name of the certificated guardian of a minor who has inherited the shares or the executor
of a probated will, under which a legacy of shares is given to a minor, being entered in the register and dividends being
paid to him.
We are also unable to accept the suggestion that the name of a trust owning shares should be entered in the register
in order to avoid the necessity for a transfer of the shares by one trustee to a succeeding trustee. To do so would be a
contravention of section 153.
It has been brought to our notice that in some cases, on the verge of liquidation, entries are made in the register of
members of the names of persons who never applied for shares, in order to fasten liability on these persons as
contributories. To avoid this contingency, we suggest the addition of the words ‘in writing’ after the word ‘agrees’ in
section 41(2).” [Report : para 38].
THE DEPOSITORIES ACT, 1996 (22 OF 1996).—The Notes on clauses explained the amendments in this section
as follows:
“Clause 30 provides for amendment to certain provisions of the Companies Act, 1956 provided in the
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Schedule to the Bill.” [Clause 30 of the Depositories Bill, 1996 (29 of 1996)].
[s 2.248] Definition of “member”
Section 41 of the 1956 Act defines the expression “member” of a company. The following persons
shall be or shall deemed to be a member of the company (1) subscribers of the memorandum of a
company on its registration, shall be entered as members in its register of members, (2) every other
person who agrees in writing to become a member of the company and whose name is entered in its
register of members, and (3) every person holding equity share capital of company and whose name
is entered as beneficial owner in the records of the depository.
[s 2.249] Subscribers to Memorandum as Members [Section 41(1) of the Companies Act,

1956]
The subscribers of the Memorandum of Association of a company shall be deemed to have agreed to
become members of the company, and on its registration, shall be entered as members in its register
of members. A subscriber to the memorandum is liable as the holder of shares which he has
undertaken to subscribe for.57
The test of membership is whether the name of a person appears on the register of members of the
company. A subscriber to the memorandum is not a member until his name appears on the register
of members; he shall be deemed to have agreed to become member. But it has been held that he
becomes ipso facto member on the incorporation of the company and is liable for the shares he has
subscribed.58 The words “shall be deemed to have agreed to become members of the company”
mean that the subscribers of the memorandum are to be treated as having become members by the
fact of the subscription.59 A subscriber to memorandum cannot repudiate his subscription on the
ground that he was induced to sign by misrepresentation.60
A subscriber cannot plead that he subscribed to the Memorandum of Association subject to certain
reservations.61 The subscribers are only bound to pay when calls are made unless otherwise
agreed.62
[s 2.250] Persons agreeing in writing to become Members [Section 41(2) of the Companies
Act, 1956].
Every other person who agrees in writing to become a member of a company and whose name is
entered in its Register of Members, shall be a member of the company.
A person who has agreed in writing to become a member will not be a member until his name
appears on the register of members. A person who has purchased shares in a company under a
blank transfer and in whose name the shares have not been registered in the books of the company
is not a shareholder in respect of such shares. A transferee of shares is not a member until his name
is entered in the register. No right arises till such registration takes place but on completion of the
transaction and his name being entered in the register it relates back to the time when the transfer
was first made. In most cases a shareholder is a member and a member is a shareholder and the
two terms are interchangeable. But a shareholder by transfer is not a member until his name is
entered in the register of the company.63
[s 2.251] Subscribers ipso facto Member—Subsequent Allotment
By virtue of section 41(1) of the 1956 Act, a Subscriber to the Memorandum of a Company, becomes
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ipso facto a Member on incorporation. In the case of a Subscriber, no application or allotment is

necessary to become a Member. For any other person to become a Member, section 41(2) of the
1956 Act stipulates two conditions, viz., that there is an agreement to become a Member and that his
name is entered in the Register of Members of the company. The words “agrees in writing” have
been substituted for “agrees” in section 41(2) by the Companies (Amendment) Act, 1960 (65 of 1960)
to protect innocent persons from the demands of companies on the verge of going into liquidation, as
borne out the suggestion of the Companies Act Amendment Committee. Thus, under section 41(2) of
the 1956 Act a person must give his consent in unequivocal terms by applying in writing for allotment
of shares. This requirement, is as regards the first allotment made after the formation of the
company. In the case of subsequent allotments to persons who are already shareholders, the
procedure prescribed in section 41(2) of the 1956 Act does not apply. Procedure prescribed under
section 41(2) of the 1956 Act does not apply to existing shareholders. Refusal to allot shares on this
ground amounts to oppression. Even otherwise, the requirement of section 41(2) of the 1956 Act was
satisfied in view of joint application made by the applicants that the petitioners wanted to maintain the
parity of shareholding. The company was directed to transfer the allotted shares.64
See detailed Notes under sections 41(1), (2), 397, 398, 402 and 403 of the 1956 Act.
[s 2.52] Two conditions to become Member cumulative
For a person other than a subscriber to the Memorandum of Association of a company, there are two
conditions to become a Member of a company, namely, (1) that there is an agreement in writing to
become a member and (2) that his name is entered in the Register of Members of the company. Both
the conditions are cumulative and have to be satisfied to enable him to exercise the rights of a
Member. But when once a person becomes a member, he is entitled to exercise all the rights of a
member until he ceases to be a member in accordance with the provisions of the Act.65
[s 2.253] Application for allotment in writing
In order to become a shareholder or member, there must be an agreement by him in writing under
section 41(2) of the 1956 Act. The words “in writing” indicate, by necessary implication that an
application for allotment of shares should be made in writing.66
[s 2.254] Condition cannot be waived by investors
The name of a person cannot be entered in the Register of Members without a written agreement.
The object with which the words “in writing” were introduced in section 41(2) of the 1956 Act after the
word “agrees” is more than clear from para 38 of the Report of the Companies Act Amendment
Committee [see Legislative History above]. The requirement of agreement “in writing” in section 41(2)
of the 1956 Act is founded upon principles of public policy and cannot be waived by the investors.
The names of persons included in the register of members without agreement in writing would be
liable to be removed.67
[s 2.255] Rectification of Register
Section 41 of the 1956 Act stipulates that a person, to become a member, should agree in writing.
Where there was no written application or written request or written agreement for allotment of shares
to the petitioner and other two companies. Non-compliance with provisions of law was a sufficient
cause to order rectification of register of members. Since the provisions of section 41 of the 1956 Act
had not been complied with, the register was ordered to be rectified under section 111A of the 1956
Act.68
[s 2.256] Section 25 Company—Denial by Association to admit a Member
Section 111 or 111A of the 1956 Act apply only to matters of transfer or transmission of shares or
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membership rights. Section 111(4)(a) of the 1956 Act deals with situations wherein the name of a
person is entered in the Register of Members without sufficient cause and when the name of a
person which is already on the Register of Members is omitted therefrom without sufficient cause. In
the instant case, the complaint of the petitioner was that the Association had rejected his application
for Membership and thereby refused to put his name in the Register of Members. The two conditions
prescribed in section 41 of the 1956 Act are cumulative in nature in the sense that there should not
only be an agreement in writing but the name also should be entered in the Register of Members to
be a member of a company. Merely agreeing to become a Member of a company and on that basis
to claim that the refusal of the company to enter his name in the Register would entitle a petitioner to
file a petition under section 111 of the 1956 Act was not sustainable. Whether the refusal by the
Association was mala fide or whether the Articles giving the power to the Association to reject an
application for membership were valid, etc., are beyond the scope of section 111 of the 1956 Act.
The denial of the Association to admit the petitioner as a Member was not a ground to invoke the
provisions of section 111 of the 1956 Act.69
[s 2.257] Register of Members
The Form of Register of Members shall be as prescribed in Appendix to the Companies (Issue of
Share Certificates) Rules, 1960.
[s 2.258] Definition of Member in Section 41(2) and Section 2(27) of the Companies Act, 1956
For the purposes of sections 397–399 of the 1956 Act, i.e., petition for relief in case of oppression
and mismanagement, the definition of a member as contained in section 2(27) of the 1956 Act is
applicable and not the definition given in section 41(2) of the 1956 Act. Requirement of application in
writing under section 41(2) of the 1956 Act is directory and not mandatory. The limited purpose of
amending section 41(2) of the 1956 Act by the incorporation of the words “agrees in writing” was to
protect innocent persons from the demands of companies on the verge of going into liquidation. The
underlying purpose of section 41(2) of the 1956 Act is that a person must give his consent in
unequivocal terms by applying in writing for allotment of shares. But it does not mean that the
company cannot allot the shares even when a person has not complied with the requirement of
section 41(2) of the 1956 Act. The allotment of shares is a matter of contract between the parties and
that contract could either be express or implied. If a person is treated as a shareholder of the
company either by entering his name in the register of members or treating him as a member by any
subsequent conduct, his right of membership cannot be questioned by the company on the ground
that he has not complied with section 41(2) of the 1956 Act. If a shareholder who claims relief under
sections 397 and 398 of the 1956 Act satisfies the Company Court [the CLB (now the Tribunal)] that
he is a shareholder of a company by virtue of allotment of shares in his favour which is evidenced not
only by the register of members maintained by the company but also by the statutory returns and
documents maintained and filed by the company, it is not open to the company to contend that for the
purpose of sections 397 and 398 of the 1956 Act, a shareholder must comply with the condition
precedent stipulated in section 41(2) of the 1956 Act.70
[s 2.259] Guardian representing Minor
In a different context it has been held that the provisions of section 41(2) of the 1956 Act are directory
and not mandatory. It is not always necessary that there should be agreement in writing to become a
member. Shares can be registered in the name of a minor indicating there in the name of the
Guardian representing the minor. Articles may provide restriction as to the voting rights but that will
not affect transfer of shares in the name of the applicant.71
See detailed Notes on Position of Minor as Member hereinafter.
[s 2.260] List of contributories in winding up
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A written application for allotment of shares is necessary before a person can be entered as a
member in the register and consequently to be placed on the list of contributories in case of winding
up.72
[s 2.261] “Contributory”, “Holder of shares”, “Shareholder” and “Member”
The transferee company in Amalgamation whose name is not borne on the Register of Members
cannot be treated as contributory by operation of law. A “contributory” is defined in section 428 of the
1956 Act. The term “contributory” under section 428 of the 1956 Act includes the holder of any shares
which are fully paid-up. The Courts have held that the words, “holder of shares”, “shareholder” and
“member” are synonyms in so far as the Companies Act are concerned and the said expressions
have been interchangeably used. Merely being contributory shall not clothe the petitioner to maintain
the petition for winding up order unless the conditions in section 439(4)(b) of the 1956 Act are met.
Clause (b) of sub-section (4) of section 439 of the 1956 Act provides that a contributory shall not be
entitled to present the petition for winding up a company unless, the shares of which he is a
contributory or some of them (i) were originally allotted to him or (ii) have been held by him and
registered in his name for at least six months during the 18 months immediately before the
commencement of the winding up or (iii) have devolved on him through the death of a former holder.
The category, “or have devolved on him through the death of former holder” in section 439(4)(b) of
the 1956 Act is applicable only to personal representative of a person holding shares in the company
in his individual capacity. The said expression applies to devolution of rights on the death of a natural
person and has no application to a corporate entity or a juristic person. If the words “or have devolved
on him through the death of former holder” could also be applied to a company which has ceased to
exist on Amalgamation, it would be tampering with the plain language used in section 439(4)(b) of the
1956 Act which is not permissible.73
[s 2.262] Membership by Transfer of Shares
A person who has agreed in writing to become a member will not be a member until his name
appears on the register of members. A transferee of shares is not a member until his name is entered
in the register. No right arises till such registration takes place but on completion of the transaction
and his name being entered in the register it relates back to the time when the transfer was first
made. In most cases a shareholder is a member and a member is a shareholder and the two terms
are interchangeable. But a shareholder by transfer is not a member until his name is entered in the
register of the company.74
A share is transferable but while a transfer may be effective between transferor and transferee from
the date of transfer, the transfer is truly complete and the transferee becomes a shareholder in the
true and full sense of the term, with all the rights of a shareholder, only when the transfer is registered
in the company’s register. A transfer effective between the transferor and the transferee is not
effective as against the company and persons without notice of the transfer until the transfer is
registered in the company’s register. Until the transfer is registered in the books of the company, the
person whose name is found in the register alone is entitled to receive the dividends, notwithstanding
that he has already parted with his interest in the shares. However, on the transfer of shares, the
transferee becomes the owner of the beneficial interest though the legal title continues with the
transferor. The relationship of trustee and “cestui que trust” is established and the transferor is bound
to comply with all the reasonable directions that the transferee may give. He also becomes a trustee
of the dividends as also of the right to vote. The right of the transferee “to get on the register” must be
exercised with due diligence and the principle of equity which makes the transferor a constructive
trustee does not extend to a case where a transferee takes no active interest “to get on the
register”.75
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In exercise of their absolute discretion under articles to refuse to register transfer of shares, the
directors will act for the paramount interest of the company and for the general interest of the
shareholders. The directors are required to act bona fide and not arbitrarily and not for any collateral
motive.76 The transferors as constructive trustees of the transferees may file petitions under sections
397 and 398 of the 1956 Act. The transferees who hold power of attorney from the transferors shall
be competent to file a petition under sections 397 and 398 of the 1956 Act.77 Where the transfer has
been effected by the company and the name of the transferee entered in the register, the transferor
shall not be competent to file a petition under sections 397 and 398 of the 1956 Act.78
Section 111A of the 1956 Act makes the shares of a Public Company freely transferable. Section 111
of the 1956 Act has been restricted to Private Companies only.
[s 2.263] Form and Procedure
For transfer of shares an instrument in the prescribed form, duly stamped, executed by the transferor
and transferee together with share certificate or if no certificate has been issued, the letter of
allotment, should be submitted to the company. If these conditions are not fulfilled, the Board of
Directors will not be competent to register the transfer.
[s 2.264] Blank Transfers
Transfers of shares take place either by a fully executed document contemplated by Regulation 19 of
Table A of Schedule I to the 1956 Act, or by what are known as “blank transfers”. In such blank
transfers, the name of the transferor is entered, and the transfer deed signed by the transferor is
handed over with the share scrip to the transferee, who, if he so chooses, completes the transfer by
entering his name and then applying to the company to register his name in place of the previous
holder of the share. The company recognises no person except one whose name is on the register of
members, upon whom alone calls for unpaid capital can be made and to whom only the dividend
declared by the company is legally payable. Of course, between the transferor and the transferee,
certain equities arise even on the execution and handing over of “a blank transfer”, and among these
equities is the right of the transferee to claim the dividend declared and paid to the transferor who is
treated as a trustee on behalf of the transferee. These equities, however, do not touch the company,
and no claim by the transferee whose name is not in the register of members can be made against
the company, if the transferor retains the money in his own hands and fails to pay it to him.79
Even where the holder of a share whose name is entered in the register of members hands over his
shares with blank transfer forms duly signed, the transferee would not be able to claim the rights of a
member as against the company concerned until his name is entered in the register of members.80
[s 2.265] Allotment in blank form
The shares cannot be allotted in blank form. There must be the name of a person to whom it has
been allotted. Allotment can be made to a person applying in writing. Where allotment was made in
blank to unknown persons. The order of the Special Court holding that there was no allotment of
shares and directing the company to return the money to the Custodian was justified.81
[s 2.266] Depository deemed to be a Member [Section 41(3) of the Companies Act, 1956]
Sub-section (3) of section 41 of the 1956 Act was inserted by the Depositories Act, 1996 (22 of 1996)
and provides that every person holding equity share capital of company and whose name is entered
as beneficial owner in the records of the depository shall be deemed to be a member of the
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concerned company.
[s 2.267] Depository [Section 2(12A) of the Companies Act, 1956]
Depository has the same meaning as in the Depositories Act, 1996 (22 of 1996). [section 2(12A) of
the 1956 Act and section 2 (32) of the 2013 Act].
The Depositories Act, 1996 (22 of 1996) and further related amendments have made consequential
amendments in the 1956 Act (1 of 1956).
[s 2.268] Member, meaning of—Depository
Member’s holding equity share capital of the company and whose names are entered as the
beneficial owner in the Records of Depository are to be deemed to be members of the concerned
company.82
[s 2.269] Register of Members
Under sections 150 and 151 read with section 41(3) of the 1956 Act the company has to keep a
register of members and index if its members exceed 50. For refusing inspection, taking extracts or
sending copies of register of members under sections 163(1), (3) and (4) of the 1956 Act the
company and officers in default shall be punishable under section 163(5) of the 1956 Act.83
[s 2.270] Member includes Beneficial Owners in the records of Depository
The definition of “Member” under section 41(3) of the 1956 Act, includes a beneficial owner, whose
name is entered in the records of the Depository, and he shall be deemed to be a Member of the
concerned company. Once the Members of the Depository are deemed to be Members of the
company, the Register of Members of the company, maintained under sections 151 and 152 of the
1956 Act, must contain the names of the Beneficial Owners maintained by the Depository. Section
163 of the 1956 Act, mandates the company to keep the Register and Returns for inspection. Section
152A of the 1956 Act, also states that the Register and Index of the Beneficial Owners maintained by
a Depository under section 11 of the Depositories Act, 1996, shall be deemed to be an index of
members and register and index of debenture holders, as the case may be, for the purposes of the
1956 Act. The appellant was a member of the respondent-Bank holding 100 equity shares, and
sought extracts of the Register of Members of the Bank which was refused by the Bank. On a petition
by the appellant before the Company Law Board for a direction to issue extracts of the Register of
Members, the Bank contended that the claim of the appellant was contrary to section 163(2) of the
1956 Act, inasmuch as the persons claiming a copy of the Register of Members should have
inspected the register which was a pre-condition for demanding extracts of the register of members.
Though the Company Law Board held that the right to seek a copy of the register of members was
available only to those members who inspected the register, it granted the prayer of the petitioner
considering his age. On appeal the appellant challenged the direction of the Company Law Board in
not including the list of Beneficial Owners of the shares of the bank in the Membership list. Reversing
the decision of the Company Law Board, the Court held that if the interpretation given by the
Company Law Board was to be accepted, the insertion of section 41(3) of the 1956 Act would be
rendered meaningless. A member of the company was defined without any ambiguity in the 1956 Act
and the intention of the Legislature should not be given a narrow interpretation. It was not open for
the Bank to contend that it would maintain a List of Members, excluding the Beneficial Owners whose
names were found in the records of the Depository. The order passed by the Company Law Board
was contrary to section 41(3) of the 1956 Act, and in violation of section 152A of the 1956 Act.84
[s 2.271] Deceased Member
The word “member” includes a deceased member so long as his name is on the register of
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members.85
[s 2.272] Membership by Transmission of Shares
In the case of transmission of shares by operation of law, e.g., death of the member, the company
must register the name of an heir or other legal representative as a member only on application in
writing as in view of section 41(2) of the 1956 Act there must be an agreement in writing to become a
member.
The legal representative of a deceased member may transfer the shares by executing of transfer.
The legal representative is not a member of the company, but he can transfer the shares of the
deceased. The company may, however, ask the legal representative to show his authority to act on
behalf of the deceased, such as the Succession Certificate, Probate or Letters of Administration.86
The decision of the directors to refuse to register transmission of shares is liable to be set aside if
they acted oppressively, capriciously, corruptly or mala fide.87
The legal representatives of a deceased member acquire certain rights including the right to present
a petition for mismanagement and oppression. The legal representatives are entitled to file a petition
under sections 397 and 398 of the 1956 Act for relief against mismanagement or oppression even
though the names of legal representatives have not been registered in the register of members.88
[s 2.274] Nomination of Shares
Sections 109A and 109B of the 1956 Act, inserted by Companies (Amendment) Act, 1999 (21 of
1999) (w.e.f. 31-10-1998), provide for nomination facility to shareholders. Every holder of shares
may, at any time, nominate, in the prescribed manner, a person to whom his shares shall vest in the
event of his death. The joint-holders may together nominate a person to whom all the rights in the
shares shall vest in the event of death of all the joint holders. Where the nominee is a minor, it shall
be lawful for the holder of the shares to make the nomination to appoint a person to become entitled
to shares in the event of his death, during the minority.
[s 2.275] Transmission of Shares by Nominee
As per section 109B of the 1956 Act by virtue of the provisions of section 109A of the 1956 Act,
nominee upon the production of such evidence as may be required by the Board of directors and
subject to the provisions of this section, elect, either—(a) to be registered himself as holder of the
share; or (b) to make such transfer of the share as the deceased shareholder could have made.
[s 2.276] Joint Shareholders
Joint shareholders in a public company are not a single member, each of the joint holders is a
separate member.89
[s 2.277] Position of Joint Shareholders
The position of joint shareholders in a company under various provisions of the 1956 Act is explained
below.
[s 2.278] Joint-holders in Private Company [Proviso to Section 3(1)(iii) of the Companies Act,
1956]
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For the purposes of counting maximum limit of 50 members in a private company joint-holders will be
treated as a single member. See detailed Notes under section 3.
Where Articles of a private company contain pre-emption clause the transfer of shares to one of
several joint holders shall be permissible. Joint-holders of shares are also shareholders of the
company. They are treated as one member only for the purpose of proviso to section 3(1)(iii) of the
1956 Act. The joint holders are entitled to register themselves separately. But the directors may
refuse to do so, if it contravenes the provisions of the Act and is likely to endanger its remaining
private company, i.e., it would result in increasing its total number of members beyond the maximum
limit of fifty.90
[s 2.279] Service of Documents on joint-holders [Section 53(4) of the Companies Act, 1956]
A document may be served by the company on the joint-holders of a share by serving it on the joint
holder named first in the Register in respect of the share.
[s 2.280] Share Certificate [Sch. I, Table A, Regulation 7(3) of the Companies Act, 1956]
In respect of any share or shares held jointly by several persons, the company shall not be bound to
issue more than one certificate, and delivery of a certificate for a share to one of several joint holders
shall be sufficient delivery to all such holders.
[s 2.281] Requisitioning EGM [Section 169(8) of the Companies Act, 1956]
Where two or more persons hold shares or interest in a company jointly, a requisition, or a notice
calling a meeting, signed by one or some only of them shall be sufficient and have the same force
and effect as if it had been signed by all of them.
[s 2.282] Payment of Dividend [Section 205(5)(b) of the Companies Act, 1956]
Dividend may be paid in case of joint shareholders to the joint shareholder first named on the register
of members, or to such person and to such address as the joint shareholders may in writing direct.
[s 2.283] Nominee Joint-Member with a Company
Where the shares are registered in the joint names of a Company and one of its Directors, the
director is a nominee of the company, he has no rights in respect of the shares and is not entitled to
attend the proceedings of the company as a shareholder. He must act with the company as a joint
holder of shares.91
[s 2.284] Non-Resident (NRI) Shareholder
A non-resident or a foreigner can subscribe to the memorandum and become a member with
necessary permission of the Reserve Bank of India under the Foreign Exchange Management Act,
1999 (42 of 1999).*
Where the transfer of shares is regulated by a Statute, as in the case of a transfer of shares to a Non-
Resident which is regulated by the Foreign Exchange Regulation Act, 1973 (46 of 1973) [now the
FEMA, 1999*], the permission, if any, prescribed by the statute must be obtained. The permission of
the RBI could be ex post facto and conditional. In the absence of the permission, the transfer will not
clothe the transferee with the right “to get on the register” unless and until the requisite permission is
obtained. A transferee who has the right to get on the register, where no permission is required or
where permission has been obtained, may ask the company to register the transfer and the company
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may not refuse to register the transfer except for a bona fide reason, neither arbitrarily nor for any
collateral purpose. The paramount consideration is the interest of the company and the general
interest of the shareholders. On the other hand, where the requisite permission under the FERA [now
the FEMA*] is not obtained, it is open to the Indian company and, indeed, it is bound to refuse to
register the transfer of shares of an Indian company in favour of a Non-Resident. But once
permission is obtained, whether before or after the purchase of the shares, the company cannot,
thereafter, refuse to register the transfer of shares. Nor is it open to the company or any other
authority or individual to take upon itself or himself, thereafter, the task of deciding whether the
permission was rightly granted by the Reserve Bank. Where under the portfolio investment scheme,
any foreign company whose shares were owned to the extent of more than 60% by persons of Indian
nationality or origin could avail of the facility irrespective of the fact whether the same group of
shareholders figured in the different companies. The Reserve Bank was not guilty of any mala fides
or non-application of mind in granting permission to the Caparo Group of companies. No mala fides
could be attributed to the Union of India either.92
[s 2.285] Register of the Members—Rectification of register
Section 41(2) of the 1956 Act, provides that for any person to become a member of a company, two
conditions must be fulfilled (a) that there is an agreement in writing to become a member, and (b) that
the name is entered in the Register of Members. There were correspondence between the parties
showing that the Non-Resident agreed in writing to invest in company and would be issued shares of
the company at mutually agreeable premium. The conditions for membership were satisfied. But
there were no record or evidence to substantiate mutual agreements between the parties or due
compliance with the guidelines issued by the Controller of Capital Issues (CCI) [now the Securities
and Exchange Board of India (SEBI)] and the Foreign Exchange Regulation Act, 1973 (46 of 1973)
(the FERA) [now the Foreign Exchange Management Act, 1999 (42 of 1999) (the FEMA)]. Therefore
the allotment of shares in favour of the petitioner was irregular and not in consonance with the
relevant provisions of the Foreign Exchange Regulation Act, 1973 (the FERA) [now the Foreign
Exchange Management Act, 1999 (42 of 1999) (the FEMA)] and this would be sufficient to order
rectification of the Register of Members of the Company. Rectification of name in the Register of
Members was ordered as the allotment of shares in question in favour of the petitioner was irregular
and not in consonance with the relevant statutory provisions.93
[s 2.286] Membership of a Company
As per section 41 of the 1956 Act only a person who agrees in writing to become a member and
whose name is entered in the Register of Members of the company shall be a member.
[s 2.286.1] Who can be a Member
The position of Minors, Company, Firm, HUF, etc., as Members of a company is as follows.
[s 2.286.2] Minor as Member
The position of minors as subscribers and members of a company is explained below.
[s 2.286.3] Minor cannot be a subscriber
A minor cannot enter into a contract. A contract by a minor is ab initio void. The subscriber to the
Memorandum of Association of a company enters into an implied agreement to become a member of
the company by acceptance of the number of shares of the company written against his name. Since
a minor cannot enter into a contract, he cannot subscribe his name to the memorandum of
association of a company. So where there are seven subscribers to the memorandum of which one is
a minor, the Registrar of Companies may refuse to register the company. A minor cannot be a
subscriber even through his guardian.94
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See also Department of Company Affairs’ Circular No. 312(43)-CL-III/63, dt. 30-9-1963 reproduced
under Department’s view hereinafter. This circular further clarifies that a minor may hold shares in a
company through his guardian.
In English law an infant subscriber may be counted to make up essential minimum of subscribers.
But, under the Indian law if the Registrar is aware of such fact, he should refuse to register the
company as a minor cannot enter into such a contract. But, where one of the subscribers is a minor
and the certificate of incorporation is issued the company would be duly constituted, the certificate of
incorporation being conclusive that the provisions of the Act had been complied with.95
[s 2.287] Minors can be Member through Guardian
There is nothing in law to prevent minors from acquiring or holding shares in a company if they are
properly represented and act by lawful guardians.96 The expression “agrees in writing” was inserted in
section 41(2) of the 1956 Act to protect innocent persons from being made contributories in the event
of liquidation of a company. The provisions of section 41(2) of the 1956 Act are not mandatory but
only directory. To become a member, it is not always necessary that one should agree in writing.
Assuming that in terms of section 41(2) of the 1956 Act a minor cannot agree in writing to become a
member, the settled law is that
the natural guardian of a minor can enter into contracts on behalf of the minor for the latter’s benefit
and in such cases, such contracts are binding on the minor. A guardian can agree in writing on behalf
of a minor to become a member of a company. It would not be a case of a trust under section 153 of
the 1956 Act because the shares would be registered in the names of the minors themselves as
represented by the guardian and the members will be the minors themselves.1 See also
Department’s views hereinafter.
[s 2.288] Minor can purchase fully paid shares
There is a difference between an agreement to become a member and to purchase shares and an
agreement of purchase and thereby becoming a member. The test is: will the minor have any future
commitment under the agreement? Where the minor will have any future commitment, the agreement
will be void. Where the minor will not have any future commitment, the agreement will be valid.
Therefore if fully paid shares are purchased by a minor or by the guardian in the name of the minor,
the minor becomes a member by such purchase and such purchase is a valid one.2
See also Department’s views and Notes hereinafter.
[s 2.289] Transfer of shares to Minor
Transfer of shares to a minor is good provided the company registers the transfer. A company has a
right to refuse transfer in the name of a minor where the shares are not fully paid up. In case of fully
paid shares, transfer to a minor is valid provided his guardian acts on the minor’s behalf.3
The Board of directors cannot refuse to register the shares in the name of a minor acting through a
guardian. Articles may provide restriction as to the voting rights but that will not affect transfer of
shares in the name of the minor.4
[s 2.289.1] Department’s View— Holding of shares by a Minor in a company
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“This Department has been advised that the Judicial Committee of the Privy Council in the leading
case of Mohori Bibi v Dharamadas Ghosh, (1903) : 30 Cal. 539 held that in India a contract by a
minor is ab initio void. Apart from the subscribers to the memorandum of association of a company a
person can become a member of that company only when he agrees in writing to be a member and
when, pursuant to such agreement the name of the person is entered in the register of members.
Since a minor cannot enter into a contract or agreement except through a guardian, and since in view
of section 153 of the Companies Act, 1956, no notice can be taken of the fact that the guardian holds
a share in trust for a minor, it follows that his name cannot be entered in the register of members and
therefore, he cannot become a member of a company. A subscriber to the memorandum of
association of a company also enters into an implied agreement to become a member of the
company by acceptance of the number of shares of the company written against his name. Since a
minor cannot enter into contract, it follows that he cannot subscribe his name to the memorandum of
association of a company. There is, however, no objection in law to the guardian of a minor entering
into a contract on behalf of a minor or a minor entering into a contract by or through his guardian. In
such an event, however, owing to the operation of section 153 of the Companies Act, the name of the
minor cannot be entered in the register of members along with that of his guardian nor can the name
of the guardian be entered in the register of members in a manner which will show that the person
concerned (the guardian) is holding the shares in question on behalf of another person, viz., the
minor.* In view of the fiduciary relationship between the guardian and the minor as laid down in the
Guardians and Wards Act, 1890 (8 of 1890)†, a guardian is responsible for his acts and dealings to
the minor in respect of the “ward” property. There is a distinction between an agreement for sale and
the sale itself. Whereas, due to the provisions of section 10 of the Indian Contract Act, 1872 (9 of
1872) a minor is not competent to enter into any contract for the purchase of shares, there is no bar
to a minor purchasing fully paidup shares since in the event of such purchase there will be no
covenant subsequent on the part of the minor. In view of the legal position explained above, the
Government feels it desirable that in the case of shares owned by a minor the name of the guardian
and not of the minor is shown in the register of members.” [Circular No. 312(43)-CL-III/63, dt. 30-09-
1963 : Govt. of India publication, Clarifications and Circulars on Company Law, 1977 Edition, page
21].
[s 2.290] Minor can purchase fully paid-up shares
“In a reference from the Federation of Indian Chambers of Commerce and Industry, New Delhi, the
question relating to the holding of shares in a company by a minor was examined in the Department
and it has been decided that whereas due to the provisions of section 10 of the Indian Contract Act,
1872 a minor is not competent to enter into any contract for the purchase of shares, there is no bar to
a minor purchasing fully paid-up shares, provided the name of the guardian and not that of the minor
is entered in the register of members.” [Circular No. 8/18(41)/63-PR, dt. 2-11-1963 : Govt. of India
publication, Clarifications and Circulars on Company Law, 1977 Edition, page 23].
[s 2.291] Membership of a company—Whether a minor can be a member.
“Registrars should not raise any objection to the allotment or registration of transfer/transmission of
shares to a minor and the entry of the name of a minor in the register of members or in the return of
allotment or in any other return.” [Letter No. 8/18(41)/63-PR, dt. 31-03-1964 : Government of India
[s 2.292] Repudiation of contract with Minor
Where a transfer in the name of a minor has been registered in ignorance of the minority the
company may repudiate the registration and retain the name of the transferor in the register of
members. The company may refuse to recognise a minor. But if it has once accepted a minor as a
member, it cannot repudiate the contract except on grounds of misrepresentation or fraud. Similarly,
a minor may repudiate any transfer of shares in his name. He may repudiate a contract to take
shares at any time during his minority and within a reasonable time on attaining majority. But not later
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than winding up.5 A minor who is a member of the company can exercise full powers of membership.6
A transferor to a minor remains liable for all future calls on the shares so long they are held by the
minor. But a transfer by the minor to another adult person will relieve the first transferor from liability
to pay the call money.7
Where the minor’s name was placed on the register in ignorance of his minority, the official liquidator
could refuse to accept him as a shareholder although after coming of age he was willing to confirm
the transfer.8
[s 2.293] Transfer of Minor’s shares
Where transfer of shares of a minor was registered under the guardianship of the father. Shares were
transferred by the father during the minority. The minor after attaining majority challenged the transfer
and asked for rectification of the share register. No relief could be granted unless fraud against the
company was alleged and proved and the application was within the time. The limitation will start
from the date of the transfer and not the date of knowledge.9
[s 2.293.1] Minor as Nominee [Section 109A(4) of the Companies Act, 1956]
A minor can be nominated by a holder of shares or debentures and in that event the name and
address of the guardian shall be given by the holder. Where nominee is a minor, shareholders or
debenture holders may nominate any person to become entitled to shares or debentures of the
company, in the event of his death, during the minority.
[s 2.294] Company as Member
A company may be a member of another company it being a juristic person. See also Notes under
Subject to section 42 of the 1956 Act, a company or a body corporate may become a member. A
company which holds shares in another company does not lose its right to exercise its voting rights in
respect of the shares merely because the management of the industrial units belonging to it is taken
over by an order of the Central Government under section 18AA(l)(a) of the Industries (Development
and Regulation) Act, 1951 (65 of 1951).10
[s 2.295] Firm cannot be a Member
A partnership firm being only the collective name of the partners cannot be registered as a member
of a company. The partners individually or jointly may become members of a company.
A Partnership Firm is not a legal entity or a “person” as contemplated under section 41 of the 1956
Act and it cannot become a member of a company.11 A partnership in its firm name cannot be a
member of a company. The partners may, however, be registered as joint-holders of shares.12
[s 2.295.1] Department’s View— A partnership firm cannot be a member of a company
“A firm, not being a person cannot be registered as a member of a company except where the
company is licenced under section 25 of the Companies Act, 1956. Companies which have firms
registered as shareholders should be advised to take steps to rectify the position within a specified
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time. In case the irregularity persists, despite a warning, necessary action can be taken under section
150(2) of the Companies Act, 1956.” [Circular No. 4/72, dt. 9-03-1972 : Govt. of India publication,
Where, a company formed in 1940 allotted shares to firms as per then prevailing practice. In
pursuance of above Circular 4/72, the company took steps to rectify the position and have the shares
transferred in the names of partners of firms. But, it was unable to trace the individuals behind
several firms. The Registrar filed complaint under section 150 on the basis of Circular. The company
filed a petition under section 111(4), praying for rectification of the register of members by deleting
the names of firms and transferring the shares in trust. The CLB ordered to transfer all the impugned
shares to a trust and directed the Department to withdraw the complaint.13
[s 2.296] HUF can be a Member through Karta
There is no legal bar on a Hindu undivided family investing its monies in shares and securities and
the Companies Act does not prohibit membership of Hindu undivided family. A Hindu undivided
family means persons constituting the family and all such persons are owners of HUF property. The
karta is one of the coparceners. Under section 153 of the 1956 Act, a company cannot take notice of
any trust on its register of members. In the case of a Hindu undivided family, if the shares are held in
the name of the karta of the HUF it cannot be equated with trust property held by a trustee. In respect
of shares held by a minor, it has been held in a number of cases that there is nothing objectionable if
the shares are registered in the name of the minor represented by his guardian. Similar is the position
in the case of a Hindu undivided family and the shares can be registered in the name of the karta of
the Hindu undivided family.14
[s 2.297] Receiver cannot be a Member
Receiver normally cannot be a member because the shares do not vest in him. A receiver appointed
under Order XL of the Code of Civil Procedure, 1908 (5 of 1908), only holds the property committed
to his control under the order of the court but the property does not vest in him. The privileges of a
member can be exercised by only that person whose name is entered in the register of members. A
receiver whose name is not entered in the register of members cannot exercise any of those rights
unless in a proceeding to which the company concerned is a party and an order is made therein.
Whatever may be the other powers of a receiver dealing with the property which is in custodia legis
while in his custody; he is not to be construed as either an assignee or beneficial owner of such
property. Even assuming that an entry has been made in the register of charges maintained in
accordance with section 137 of the 1956 Act of the appointment of receiver, in respect of the shares
of the shareholder, it would not have the effect of taking away the right of the shareholder to exercise
the right to vote in respect of those shares. Mere appointment of a receiver in respect of certain
shares of a company without more cannot, therefore, deprive the holder of the shares whose name is
entered in the register of members of the company the right to vote at the meetings of the company
or to issue a notice under section 169 of the 1956 Act.15
A receiver appointed by a court in respect of certain shares which had not been duly entered in the
register of members as belonging to him could not acquire certain newly issued shares which could
be obtained by the members of the company.16
[s 2.278] Official Liquidator
Official Liquidator normally cannot be a member because the shares do not vest in him. Under
section 41(2) of the 1956 Act every other person who agrees in writing to become a member of a
company and whose name is entered in its register of members, shall be a member of the company.
Hence, every person who has agreed to be a member and whose name appears in the register of
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members is a member. Handing over of the share certificate to the official liquidator does not amount
to a surrender of shares to the company. A company which is being wound up can be taken out of
the winding up. Section 391 of the 1956 Act in terms applies to a company which is being wound up,
and the section provides that in the case of a company which is being wound up, an application
under section 391 of the 1956 Act can be made by a liquidator also, in addition to a creditor or a
member of the company. Therefore, section 391 of the 1956 Act would apply to a company which is
being wound up. An arrangement under section 391 of the 1956 Act would cover an arrangement to
take such a company out of the winding up.17
[s 2.279] “Member” and “Contributory”
The terms “contributory” and “member” are not interchangeable. By virtue of section 428 of the 1956
Act every member would become a contributory. The converse, however, is not true. Though a
member even of fully paid up shares would become a contributory. On his death his legal
representatives, by virtue of section 430 of the 1956 Act, would be regarded as contributories. The
legal representatives, however, would not be regarded as members unless and until their names are
put in the register of members. After the passing of the winding up order the register of members
would come into the custody of the official liquidator. The names entered in the register of members
are not erased therefrom. In fact under section 467 of the 1956 Act the Court [now the Tribunal] has
been given the power, while settling the list of contributories, to rectify the register of members. This
obviously means that even after the winding up order has been passed the register of members
continues to exist. If this be so, any person whose name is entered in the register of members shall
by virtue of section 41 of the 1956 Act, be regarded as a member and would still be a member of the
company, notwithstanding the winding up order having been passed. Under different provisions of the
1956 Act a reference is made to members even though a winding up order has been passed such as
sections 469(2) and 511 of the 1956 Act. Such a member has a right to file an application under
section 391 of the 1956 Act for the revival of wound up company.18
[s 2.280] President or Governor as Member
As regards subscription of the Memorandum of Association or membership by the Central

Government or the State Government, this will be done or registered only in the name of the
President of India or the Governor of the State concerned.
[s 2.280.1] Department’s View— Government Company
“The shares in a Government company can be held in the name of the President of India or the
Governor of the State concerned.” [Extracts from File No. 15/32/65-IGC, dt. 30 September 1966].
“Under Article 299 of the Constitution of India, all contracts are required to be in the name of the
President or the Governor as the case may be and under Article 300 of the Constitution all suits by or
against the Union/State Governments are required to be filed in the name of the President or the
Governor as the case may be.” [Extracts from File No. 25851/67 : Government of India publication,
[s s 2.281] Administrator-General
The Administrator-General constituted under the Administrators-General Act, 1963 (45 of 1963) is a
corporation sole and can be a member of the company. See Department’s view hereinafter.
[s s 2.282] Corporation sole
A “corporation sole” is a corporation constituted in a single person who in the right of some office or
function has corporate status. It has the same characteristics of perpetual succession and separation
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of rights and duties of the corporate body from those of the corporator as all corporations possess.
See Department’s view under Public office below.
[s s 2.283] Public office
A public office cannot be a member of a company unless it is a Corporation sole such as

Administrator-General.
[s s 2.283.1] Department’s View— Public office—Collector not a Corporation sole cannot

become member
“There is no provision in the Companies Act, 1956 that the shares in a company may be held in the
name of a public office. Section 41(2) provides how a “person” (other than a subscriber of the
memorandum) becomes a member. The Collector of Central Excise or the Secretary, to the
Government of India, as such, is not a legal entity. Shares cannot, therefore, be held in the name of
such office. Similar observations apply to the holder of any other public office which is not a
corporation sole constituted by statute [e.g., the Administrator-General constituted a corporation sole
by the Administrators-General Act, 1963 (45 of 1963)]. Hence shares in a company cannot be
registered in the name of a public office which is not a corporation sole as understood in law.
The question raised is whether the Collector of a District is entitled to hold shares of a Company
incorporated under the Companies Act. A ‘member’ has been defined in section 41 of the Companies
Act. According to that section, the subscribers to the Memorandum of Association of a company and
other persons who agree in writing to become a member shall be deemed to be members of the
Company. The answer to the question raised will, therefore, depend on whether the Collector of a
District is ‘a person’ within the meaning of the Companies Act. The term ‘person’ has been held to
include among others a ‘corporation sole’. The Collector of a District can only be entitled to be a
shareholder as a corporation sole in case it is held that his office constitutes a corporation sole. A
‘corporation sole’ is a corporation constituted in a single person who in the right of some office or
function has corporate status. The object of a corporation sole is to make it possible to distinguish the
holder of an office or function in his official and in his private capacity. By this fiction of law, it is
possible to attach rights and duties to the holder, for the time being, of the office or functions to
convey real or personal property to him in his official capacity, and to sue him and for him to bring an
action in his official name and style. In short, a ‘corporation sole’ has the same characteristics of
perpetual succession and separation of rights and duties of the corporate body from those of the
corporator as all corporations possess.
Illustrations of corporation sole in existence in the modern law are the sovereign, an archbishop, a
minister or officer of the Crown who is given the status usually by statutes (see Palmer’s Company
Law—21st Edition).
The Collector of a District is a civil servant of the Union/State. Under Article 299 of the Constitution of
India, all contracts are required to be in the name of the President or the Governor as the case may
be and under Article 300 all suits by or against the Union/State Governments are required to be filed
in the name of the President or the Governor as the case may be. A Collector has no power under
the Constitution either to enter into contracts or to sue or to be sued in his capacity as a collector.
Therefore, the Collector cannot be said to be a Corporation sole.
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In the circumstances, he is not competent to hold shares in a limited company incorporated under the
Companies Act, as the Collector.” [Extracts from File No. 25851/67 : Government of India publication,
[s s 2.284] Trust as Member
Trustee can be registered as member in respect of the shares held by him as trustee. The shares
should thus be held in the name of the Trustees.
See Department’s views under Societies as Member hereinafter.
[s s 2.284.1] Duties of Trustees
Although as a rule, trustees must execute their duties of their office jointly, this general principle is
subject to the following exceptions when one trustee may act for all (1) where the trust deed allows
the trust to be executed by one or more or by majority of trustees; (2) where there is express sanction
or approval of the act by the co-trustees; (3) where the delegation of power is necessary; (4) where
the beneficiaries competent to contract consent to the delegation; (5) where the delegation to a co-
trustee is in the regular course of the business; (6) where the co-trustee merely gives effect to a
decision taken by the trustees jointly. Where the co-trustees authorised a trustee to file a petition for
oppression and mismanagement under sections 397 and 398 of the 1956 Act. The resolution of the
trust and affidavit of co-trustee authorising the petitioner to file petition was substantial compliance
and the petition was maintainable. The owner of beneficial interest is not a member of a company.
The devolution on beneficiary does not affect locus standi to file the petition. The consent of
supporting members must be obtained prior to filing the petition. The filing of documents, i.e., consent
letters with the petition is directory. Substantial compliance with the regulation would be sufficient.19
[s s 2.284.2] Oppression and Mismanagement— Locus standi —Shares held by Trust
A petition was made alleging oppression and mismanagement. An equitable or beneficial interest in
the shares does not make the owner of interest a Member of company. Even while assuming that in
terms of the Trust Deed, the shares had devolved on the Beneficiary of the Trust this fact does not
mean that the beneficiaries were the actual owners of the shares already registered with the
Company. Unless the beneficiaries are entered in the Register of Members of the Company, they
would not be competent to file a petition under sections 397 and 398 of the 1956 Act. Where shares
were held by Trust, an Affidavit of Co-Trustees authorising the Trustee to file petition was substantial
compliance. Petition was held to be maintainable.20
[s s 2.285] Societies can be a Member
Societies registered under the Societies Registration Act, 1860 (21 of 1860) can be a member.
[s 2.285.1] Department’s View— Society registered under the Societies Registration Act,
1860 not a “body corporate” but it can be a Member
“The question whether a society registered under the Societies Registration Act, 1860 (21 of 1860),
should be considered a ‘body corporate’ within the meaning of section 2(7) of the Companies Act has
been carefully examined further in consultation with the Ministry of Law as well as in the light of
recent judgment of the Supreme Court in the Board of Trustees v State of Delhi, AIR 1962 SC 458. It
has been decided that such a society should not be deemed to be a ‘body corporate’ within the
meaning of the aforesaid provisions of the Companies Act, although such a society can be treated as
a ‘person’ having separate legal entity apart from the members constituting it and thereby capable of
becoming a member of a company under section 41(2) of the Companies Act, 1956. The view
expressed in para 1 of the Department’s Letter No. 8/2(7)/56-PR, dt. 30-11-1957 to Registrar of
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Companies, New Delhi, copy endorsed to all other field officers, may accordingly be deemed to have
been modified to the extent stated above.
Consistent with the revised interpretation of the expression ‘body corporate’ as stated above, the said
expression occurring in various provisions of the Companies Act, 1956, viz., sections 43A, 293, 303,
372, etc., should be so interpreted as to exclude a society registered under the Societies Registration
Act, 1860 (21 of 1860) from the scope of the expression ‘body corporate’.” [Circular Letter No.
8/48/2(7)/63-PR, dt. 24-11-1962 : Government of India publication, Clarifications and Circulars on
Company Law, 1977 Edition, pages 1 and 23].
[s 2.286] Charitable Trust or Society as member
“In 1957 the Department of Company Affairs was advised that the shares in a company, being the
property of a charitable trust, can be held in the names of the trustees simpliciter without describing
them as trustees and that if the trustees constitute a society registered under the Societies
Registration Act, 1860, the shares can be held in the name of such a society. [vide U.O. No.
21031/57-Adv.(F), dt. 27 May 1957]. This view was reiterated in the subsequent opinion bearing U.O.
No. 21767/62-Adv.(F), dt. 16 July 1962, wherein it was pointed out that though a society registered
under the Societies Registration Act, 1860 is not a body corporate, it is a “person” capable of being a
member of company under section 41(2) of the Companies Act, 1956. Such a society is also a
‘person’ as contemplated by section 153B of the Companies Act, 1956.” [Extracts from File No. 1(43)-
PT/67 : Govt. of India publication, Clarifications and Circulars on Company Law, 1977 Edition, page
23].
[s 2.287] Trust/Society
“Goenka Charitable Trust although the name indicates so, is not a Trust created under the Indian
Trusts Act, 1882 (2 of 1882). It is a Society registered under the Societies Registration Act, 1860 (21
of 1860) and as such the provisions of the Societies Registration Act shall apply. Under section 5 of
the said Act [the Societies Registration Act, 1860], moveable and immoveable properties of a Society
so registered, if not vested in Trustees, shall be deemed to be vested for the time being in the
governing body of such Society. Under the rules and regulations of the Goenka Charities Trust, the
management of the Society is vested in a Board of Trustees. The Board of Trustees, therefore, is the
governing body of the Society for the purposes of section 5 of the said Act irrespective of whether the
trust properties have been transferred to the Trustees as required by section 6 of the Indian Trusts
Act. The shares should therefore be held in the name of the Trustees.
Section 108 of the Companies Act, 1956 inter alia requires that a company shall not register transfer
of shares unless a proper instrument of transfer duly stamped and executed by and on behalf of the
transferor and transferee has been delivered to the company. As the section under which the
application has been made requires that the transfer should be on a proper instrument duly stamped
and executed, the CLB [now the Tribunal] is, competent to advise the applicant that the share should
be held in the name of the Trustees and not the Trust and that the application should be amended
accordingly.” [Extracts from File No. 32/108/68-CL-V : Govt. of India publication, Clarifications and
[s 2.288] Attachment of Shares
An order of attachment of shares cannot have the effect of depriving the holder of the shares of his
title to the shares. The attachment of the shares does not deprive the holder of his rights in respect of
those shares, e.g., right to vote at the meeting or to issue a requisition under section 169 of the 1956
Act.21
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[s 2.289] Pledgee of shares not a Member
The pledgee or pawnee of shares cannot be treated as the holder of the shares pledged in his favour.
The holder of shares continues to be the member of shares pledged and can exercise his rights in
respect of the shares pledged, e.g., under section 169 of the 1956 Act.22
[s 2.290] Trade Union can be a Member
A Trade Union registered under the Trade Unions Act, 1926 (16 of 1926) is a body corporate with
attendant requirements like perpetuity, succession, etc. A registered Trade Union is thus a “person”.
It can be registered as a Member of a company and can hold shares in its own name. Section 14 of
the Trade Unions Act, 1926 providing that the provisions of the Companies Act are not applicable to a
Trade Union relates to the registration and functioning of the trade union and not its rights to invoke
the provisions of the 1956 Act to enforce its rights arising therefrom.23
[s 2.291] Co-operative Societies as Member
A co-operative society which is a registered society/company having separate legal entity can be a
member of a company.
As explained in sections 2(7) and 2(10) a co-operative society is not a corporation, it is not a
company under the Companies Act.
[s 2.292] Producer Companies [Sections 581A-581ZT of the Companies Act, 1956]
A new Pt IXA consisting of Chapters I to XII [sections 581A to 581ZT of the 1956 Act] has been
inserted in the 1956 Act by the Companies (Amendment) Act, 2002 (1 of 2003) (w.e.f. 6-2-2003)
facilitating formation of co-operative business as companies and to convert existing business into
companies on a voluntary basis. The aim is to provide statutory and regulatory framework that
creates the potential for producer-owned enterprises to compete with other enterprises on a
competitive footing with more liberal regulatory framework and certain privileges of a private
company.
[s 2.293] Insolvent’s position
An insolvent does not cease to be a member and so long his name appears on the register of
members, he is entitled to vote24 and can make use of provisions like sections 397, 398 of the 1956
Act in exercise of his right as a minority shareholder.25 He cannot, however, become a member so
long he remains an undischarged insolvent.
[s 2.294] Member and Shareholder
The member and shareholder are interchangeable terms in a company limited by shares. Members
may be ordinary shareholders or preference shareholders. The word “member” may be used in
relation to all kinds of companies. The word “shareholder” is used only in relation to companies
having a share capital. A member of an unlimited company and of a company limited by guarantee
without any share capital is not a shareholder.26
[s 2.295] Shareholders not owners of company’s property
The position of members is not analogous to that of partners inter se and the shareholders cannot
claim that the properties of the company are their property. A company is a separate entity from its
shareholders. It is the company which is the owner of its assets, including immovable properties, and
not the shareholders. The shareholder in such a company has a right to share in the profits, by way
of receipt of dividends. He has a right, in an appropriate case, to apply for the winding up of the
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company and to take part in the distribution of the surplus assets after payment of the debts and
liabilities, which must of course be done in accordance with the articles of association and the
provisions of the Act. As long as the company continues to exist, that is to say, before its dissolution,
no shareholder can be said to have any interest in the properties and assets of the company, either
legal or equitable. When the company is being wound up, their only right is to participate in the
surplus assets after the payment of debts and liabilities.27
While it is firmly established ever since Salomon v Salomon & Co Ltd28 was decided that a company
has an independent and legal personality distinct from the individuals who are its members, it has
since been held that the corporate veil may be lifted, the corporate personality may be ignored and
the individual members recognised for who they are in certain exceptional circumstances.29
[s 2.296] Admission to Membership as per Articles
Admission to membership must be in accordance with the Articles of Association of the Company.
Persons admitted to membership without following procedure contained in the Articles are not legally
members of the company and cannot constitute a valid General Meeting.30
[s 2.297] Register of members not conclusive
Section 150(1) of the 1956 Act casts a duty upon every company to maintain a register of its
members and enter the relevant particulars more fully set out in clauses (a) to (d) thereof. Failure to
comply with the mandatory duty enacted under section 150(1) of the 1956 Act is made punishable
under section 150(2) of the 1956 Act. Once a person’s name is entered as a member of the company
in its register of members, it is not open to question his membership. However, the converse does not
necessarily flow. Even if the prescribed register of the company does not incorporate the names of all
its shareholders as members of the company, the particulars so entered in the register are not
conclusive. The shareholders of the company, in whose favour share certificates are issued, can
exercise rights as members of the company notwithstanding the omission of their membership as
found in the prescribed register.31
[s 2.298] Rights of a Member or Shareholder
A shareholder has an undoubted interest in a company, an interest which is represented by his

shareholding. Share is movable property, with all the attributes of such property. The rights of a
shareholder are (i) to elect directors and thus to participate in the management through them; (ii) to
vote on resolutions at meetings of the company; (iii) to enjoy the profits of the company in the shape
of dividends; (iv) to apply to the Court [the CLB (now the Tribunal)] for relief in the case of
oppression; (v) to apply to the Court [the CLB (now the Tribunal)] for relief in the case of
mismanagement; (vi) to apply to the Court [now the Tribunal] for winding up of the company; and (vii)
to share in the surplus on winding up. A share is transferable but while a transfer may be effective
between transferor and transferee from the date of transfer, the transfer is truly complete and the
transferee becomes a shareholder in the true and full sense of the term, with all the rights of a
shareholder, only when the transfer is registered in the company’s register.32
The expressions “a member”, “a shareholder” or “holder of a share” used in the 1956 Act are
synonymous to indicate the person who is recognised by a company as the owner for its purposes.
When once a person becomes a member, he is entitled to exercise all the rights of a member until he
ceases to be a member in accordance with the provisions of the Act. A person ceases to be a
member by transferring his share to another person, by transmission of his share by operation of law,
by forfeiture of share, by death, or by any other reason known to law. A person who is a shareholder
of a company has many rights under the Act. Some of them are: (i) the right to vote at all meetings
[section 87 of the 1956 Act], (ii) the right to requisition an extraordinary general meeting of the
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company or to be a joint requisitionist [section 169 of the 1956 Act], (iii) the right to receive notice of a
general meeting [section 172 of the 1956 Act], (iv) the right to appoint proxy and inspect proxy
registers [section 176 of the 1956 Act], (v) in the case of a body corporate which is a member, the
right to appoint a representative to attend a general meeting on its behalf [section 187 of the 1956
Act], and (vi) the right to require the company to circulate his resolutions [section 188 of the 1956
Act]. The privileges of a member can be exercised by only that person whose name is entered in the
register of members. The required number of members to requisition a meeting under section 169 of
the 1956 Act is needed at the time of deposit of the requisition with the company. After such
requisition any of the requisitionists may cease to be a member by transfer of shares or otherwise or
may withdraw but that will not invalidate the requisition. The right to requisition or vote at a meeting
by a shareholder is not affected by pledge or attachment of his shares or by appointment of a
Receiver over the shares. Such rights are not affected by taking over of management under the IDR
Act of the shareholder company.33
In most cases a shareholder is a member and a member is a shareholder and the two terms are
interchangeable. But a shareholder by transfer is not a member until his name is entered in the
register of the company.34
So long as the name of the member continues to be on the register of members and until he ceases
to be a member in accordance with the provisions of the Act, he continues to be a member. Even a
bankrupt is held to be a member of the company so long as his name is on the register. Even after
the company is wound up, the name of the member does not stand erased from the register of
members and he does not cease to be a member. A member can therefore make the application
under section 391 of the 1956 Act even if the company is being wound up.35
A person who has applied for shares but has not been allotted any shares and his name has not
been entered in the Register of Members is not a member and cannot exercise any right or make any
application to the Court [the CLB (now the Tribunal)] in relation to the management of the affairs of
the company.36
[s 2.299] Legal representatives
The legal representatives of a deceased shareholder or member acquire certain rights including the
right to present and continue a suit or petition for oppression and mismanagement.37
[s 2.300] Suit by Company
The company is a separate legal entity having perpetual succession. It can sue and be sued
exclusively for its own purpose.38
[s 2.301] Actions by Members against company
A member as defined under section 41 of the 1956 Act can maintain an action against the
company,—(i) to enforce a personal right, e.g., the right to vote at or to attend a meeting; (ii) a
representative action under Order 1, Rule 8 of the Civil Procedure Code, 1908 (5 of 1908) on behalf
of himself and other shareholders. Such action can be maintained if the same is a derivative action.
In such a derivative action a shareholder can seek reliefs in favour of the company. Such action,
therefore, is not to enforce a personal right of the shareholder. Under the Indian company law, only a
person who is on the register of members of the company is a member/shareholder of the company.
The Court would not lift the veil of incorporation at the instance of a person having no right of relief
against the company or whose name does not appear in the register of members of the company to
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enable him to show his beneficial interest in the company through a chain of inter corporate
investments. Where the shares in the Indian company were held by subsidiary of a foreign company,
the suit by foreign company and its nominee on the Board of the Indian company was not
maintainable. Neither of them was a person on the register of members of the company. Therefore,
derivative action by them was not maintainable. The doctrine of the lifting of a corporate veil cannot
be applied to a plaintiff who is not a shareholder of a company but claims that if the veil of the
corporate personality of the plaintiff is lifted, the real holder will emerge. The corporate veil is lifted
when in defence proceedings, such as for the evasion of tax, an entity relies on its corporate
personality as a shield to cover its wrong doings. The plaintiff therefore could not attain locus standi
to maintain the suit by asking the Court to lift not only its own corporate veil but also the corporate veil
of the subsidiaries. Further, the claim as to beneficial holding would also be contrary to the Benami
Transactions (Prohibition) Act, 1988 (45 of 1988).39
[s 2.302] Actions by Minority Shareholders
Actions by minority shareholders, viz., Derivative or Representative action, constitutes exception to

the Rule of internal management in Foss v Harbottle. Actions by the Co, Rule of Internal
Management in Foss v Harbottle, Exceptions to the rule, Shareholders’ Corporate Membership
Rights and Personal rights, viz., Derivative or Representative actions and Suits by a Member are
explained below.
[s 2.303] Actions by the Company
For wrongs or injuries done to the company, the action should be brought by the company. The
company should be the plaintiff and the wrong-doers should be made the defendants. The plaint in
such a suit by the company may be signed by the secretary, director or other principal officer able to
depose to the facts. Such plaint may also be signed by a person authorised by the company to sign
on its behalf.40
[s 2.304] Power to sue
The Articles of Association of the company generally empower the Board of Directors to take any
legal proceedings.41 Shareholders in general meeting cannot forbid the exercise by the Board of this
power by ordinary resolution.42 A Board of directors containing majority of errant directors is not likely
to initiate litigation against themselves but such litigation may be initiated by a new Board.43 The
shareholders may by ordinary resolution in general meeting bring litigation in the name of the
company where the directors are alleged to be wrong-doers.44
A minority shareholder may bring an action against miscreant directors where his personal or
individual right is infringed. Such action may be a derivative or representative action where the
plaintiff and other shareholders, or a class of them, have common interest.45 See detailed Notes
hereinafter.
[s 2.305] Authority to file suit
Where the plaintiff in a suit is a corporation, there has to be (1) proper authority by Resolution of the
Board of Directors, or (2) a Power of Attorney authorising institution of the suit on behalf of the
corporation, or (3) power conferred by the Articles of Association of a corporation. The authority to
institute a suit is distinct from and in addition to what is contemplated by Order 29 of the Code of Civil
Procedure, 1908 (5 of 1908), which deals only with signing of plaints and verification of pleadings by
certain persons mentioned in that provision. Where the Articles of the company conferred authority
on the Managing Director and the joint managing director alone to institute suits on behalf of the
company. A suit filed by a whole-time director was not maintainable.46
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An action brought without proper authority may be ratified. Where the company had no directors, two
individuals brought an action on the company’s behalf to recover debts without any authority, it was
held that the liquidator could ratify the action.47
[s 2.306] Rule of Internal Management in Foss v Harbottle
In Foss v Harbottle it has been laid down that prima facie every action must be brought in the name
of the company to remedy a wrong done to it.48
In Mozley v Alston it has been laid down that to redress a wrong done to the company or to recover
property of the company or to enforce the rights of the company the suit should be filed by the
company in its own name as the plaintiff. The name of the company as plaintiff can be used if the
majority directors so decide or if the company at a general meeting so resolves. The court will not
ordinarily intervene in the case of an internal irregularity if the matter is one which the company can
ratify or condone by its own internal procedure, e.g., rectify it by ordinary resolution.49
The rule in Foss v Harbottle is: First, the proper plaintiff in an action in respect of a wrong alleged to
be done to a company or association is prima facie the company or the association itself. Secondly,
where the alleged wrong is a transaction which might be made binding on the company or
association and on all its members by a simple majority of the members, no individual member of the
company is allowed to maintain an action in respect of that matter.50
[s 2.307] Locus standi
The issue of locus standi is governed by the rule in Foss v Harbottle. Thus, prima facie, where a
wrong is done to the company, the derivative action should not be available and the individual
shareholder should ask either the Board of directors or the general meeting to commence litigation in
the company’s name. Derivative action was not allowed against alleged wrongdoing receiver since
such action could be brought by the Board of directors or general meeting.51
[s 2.308] Action by Liquidator
Derivative action was not allowed against alleged director/shareholder of a deadlocked company in
liquidation since the Liquidator could commence action in the company’s name.52
[s 2.309] Exceptions to the rule in Foss v Harbottle
Every suit for redress of individual wrongs cannot be considered as merely concerned with matters of
internal management. The rule of internal management as stated in Foss v Harbottle does not apply
to : (1) an act which is ultra vires the company or illegal; or (2) an act which constitutes a fraud
against the minority and the wrongdoers are themselves in control of the company; or (3) a resolution
which requires a qualified majority but has been passed by a simple majority. The rule does not apply
because the majority cannot sanction those acts. A resolution which is ultra vires or illegal or is a
fraud on the minority or is not bona fide or for the benefit of the company as a whole or is intended to
discriminate between the majority shareholders and the minority shareholders is illegal and can be
questioned by a separate action in a Civil Court. The reason for this is that if the minority were denied
that right, their grievance could never reach the Court because the wrongdoers themselves being in
control would not allow the company to take any action. (4) The rule is not rigid and exception will be
made where the justice of the case demands it. (5) The rule against interference by Court with
internal management of company is not applicable to cases of infringement of individual membership
rights as distinct from corporate membership rights. Unless there is exclusion of the jurisdiction of the
Civil Court by words express or implied, a suit would be maintainable, and there is no such exclusion
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in respect of individual rights. A Director of a company can maintain a suit in a Civil Court challenging
the validity of resolutions passed by its Board of directors to the effect that he had been disqualified
from being a Director.53
[s 2.310] Derivative action
This term describes an action brought by a shareholder on behalf of a company to redress a wrong
done to the company. It is the company which has the right to the action and the shareholder derives
his right of action from the company and hence his right is a derivative right.54
A procedure devised to enabling a Court to do justice to a company controlled by miscreant directors

or shareholders is called a derivative action, which is normally permissible with the leave of the
Court.55
[s 2.311] Representative actions
Such action is the minority shareholder’s sword to the majority shareholders’ two shields, legal entity
and majority rule. The minority shareholder can only get a wrong done to the company, and un-
remedied by the management, redressed by persuading the majority shareholders to his point of view
or enlisting their express or implied support in removing the directors. He brings the action for self
and all other members aggrieved by the wrongful act of the company and obtains leave under Order
1, Rule 8 of the Civil Procedure Code, 1908 if necessary. This process is difficult, if not impossible, to
achieve the purpose. An action before the court involves enormous expense which is not worthwhile
in most of the cases where a minority shareholder intends to have his grievances redressed. For
example, it is reported that four senior counsels with seven juniors appeared in the courts for about
80 days involving an expenditure of not less than Rs 80,00,000 in the Prudential (No. 1) and (No. 2)
cases.56 In view of this a simpler and cheaper procedure is to be evolved to redress the grievances of
minority shareholders in addition to section 408 of the 1956 Act.
[s 2.312] Indemnity of costs from company to Member
Since the decision of the Court of Appeal that an indemnity of costs and expenses for derivative
action from the company will be made to the member if the derivative action is in the company’s
interest, the expenses facing a member or shareholder who contemplates bringing a derivative action
have been reduced. Though, the rules which govern the circumstances in which a derivative action
will be available to a member remain strict.57 An order in a minority shareholders action directing the
company to indemnify the plaintiffs as to costs should not normally be made ex parte and that the
company should be joined as a party to such an application. The company would be at liberty to
place all the evidence at its disposal in determining as to whether an order as regards costs should
be made. The Court would consider whether an independent Board of directors would, in the
circumstances, have authorised an action on behalf of the company58 and the action is for the benefit
of the members or shareholders.59
[s 2.313] Doctrine of clean hands
The derivative action is subject to the doctrine of clean hands. Since the derivative action is
discretionary, the court will not permit a member to bring it unless he comes with clean hands. The
court is entitled to look at the conduct of the plaintiff to satisfy itself that the plaintiff is a proper person
to bring the action. A member who has acquiesced, participated or knowingly benefited from the
wrong done to the company, the court would not permit it.60
Where the plaintiff was regarded as the puppet of outsiders whose interests were opposed to those
of the company, the court did not permit derivative action.61 The action of a member who purchased
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the shares for the very purpose of remedying the wrong being perpetrated on the company is not
tainted with disability. The plaintiff need not have been the member at the time when the wrong was
done to the company.62 But he must be a registered member at the time when he brings the action.63
The requirement of clean hands does not apply to the personal action by the member.64
[s 2.314] Shareholders’ Rights in two capacities
A person by becoming a Member of a company has certain rights which can be divided into (1)
“Membership Rights” or “Corporate Membership Rights” and (2) Personal Rights.
(1)Corporate Membership Rights
A person by becoming a member of a company enters into a contract with the company as also with
all other shareholders of the company. Under this binding contract a shareholder or member agrees
to accept inter alia the decisions of majority members provided such decisions are bona fide and
according to the Articles of Association of the company and the Law. The rights which can be altered
by such majority decisions are called “Membership Rights” or “Corporate Membership Rights”.65
(2)Personal or Individual Rights
A shareholder or member by virtue of the contract as also of law acquires certain other rights as well.
These are his personal rights or individual rights and cannot be modified or altered without his
consent.
The decisions explaining and enunciating these rights are given below.
(1)Action for breach of Corporate Membership Rights—Class rights or Membership rights
When a membership right is infringed, an action can be brought by a member as a representative of

the class of shareholders who are aggrieved. In such an action the plaintiff represents himself and
other shareholders excepting the wrong-doers. If charges are against the directors and particular
members in such a suit they should be made defendants. In such actions the company may be made
a defendant. In Foss v Harbottle66 it is implied that where the matter complained of is one that cannot
be rectified, because the persons against whom relief is sought control the company, the
shareholders complaining are permitted to bring an action in their own names on behalf of
shareholders other than the offending majority. This principle has been practically followed in Satya
Charan v Rameshwar.67
In Mozley v Alston it has been laid down that such an action can be brought to restrain the company
or its directors from doing an act or acting upon a resolution which is illegal or ultra vires the
company. Such action against the wrong-doers and the company would lie if the act complained of is
unfair or oppressive. In some exceptional cases where justice cannot be done without allowing such
an action to be brought, the Court would allow such a representative suit being filed.68
In Burland v Earle69 and Edwards v Halliwell70 the same principle has been laid down that where the
persons against whom relief is sought themselves hold and control the majority of the shares and will
not permit an action to be brought in the name of the company, a member may bring an action for
himself and on behalf of other members against wrong-doers of the company.71
Where the persons against whom relief is sought hold and control the majority of the shares or are
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able to manipulate their position to ensure that the majority will not permit a claim to be brought, the
shareholders complaining may bring an action in their own names and on behalf of others.72 Such
action will be maintainable when the acts complained of are of a fraudulent character or amount to
breach of duty by directors and majority shareholders to the detriment of the company and benefit of
the directors even though no fraud is alleged.73
Suit by a Member
A suit by a member for himself and on behalf of other members against the wrong-doers of the
company was held to be maintainable where there were illegal return of capital,74 or purchase of
shares,75 or in a case where dividend was paid out of capital,76 or for a year other than for which the
annual general meeting was held,77 majority members wanted to benefit themselves at the cost of the
minority,78 vendors holding majority shares in the company made a fraudulent sale to the company,79
company refused to ask a director to refund illegal gains made by him,80 majority members obtained
control by wrongful acts,81 articles altered to expropriate the rights of minority,82 resolution claimed to
have been passed but in fact not passed,83 proxy fraudulently shut out,84 where proper resolution not
passed,85 and where fraud was committed on the minority or the majority power was abused.86
Civil Suit
Civil Courts may exercise Jurisdiction: (1) Where no special remedy is provided in the 1956 Act, (2)
Where act complained of is a fraud on the minority, (3) Where act complained of is illegal or ultra
vires the company, (4) Ordinary Resolution passed instead of Special Resolution, (5) Where justice
demands, e.g., misfeasance and (6) Violation of individual membership rights.
Wrongful use of company’s name as plaintiff
Where a shareholder brings an action using the name of the company as the plaintiff or one of the
plaintiffs but neither the directors nor the majority shareholders come forward to support such an
action, the action will not fail but the court will strike name of company as a plaintiff. Where a
company has been joined as a plaintiff without proper authority an application may be made to strike
out the name of the company. An objection as to the user of the name of the company by the plaintiff
cannot be raised as a defence but should be on a motion to stay the action. The judge should deal
with the application as a preliminary matter and not allow the action to proceed without determining
the application. The normal practice upon a motion to strike out the company’s name is for the court
to adjourn, whilst ordering that a meeting of the shareholders be held to see if the company supports
the litigation. If it does not, the motion will succeed and the solicitor who commenced the proceedings
without authority of the company will be personally liable for the defendants’ costs. When there was
no conclusive evidence showing that the plaintiff was not authorised to institute the suit. The Articles
conferred sufficient powers on the plaintiff to maintain the suit. Accordingly, no general meeting could
be held to deprive the directors of their powers under the Articles.87
In such a case where the company is improperly impleaded as a plaintiff, the court at its discretion
may direct the solicitor on record to pay costs of the company or order that the costs may come out of
the company’s assets.88
The mere wrongful addition of the company as plaintiff is merely an irregularity for which the suit will
not fail and the court may order that the name of the company improperly joined as plaintiff be struck
out and the company may be added as a defendant.89 The court should not insist upon a rigid
pleading.90
(2)Enforcement of Personal rights of a Member
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A shareholder or member is entitled to take action in his individual name for infringement of his
individual or personal rights. The decisions illustrating this are given below.
(a)Contractual rights
A member by virtue of the contract with the company and other members is entitled: to have his
name on the register of members,91 to vote at the meeting of members,92 to receive dividends when
declared,93 to exercise the rights conferred by the articles, such as pre-emption rights,94 and return of
capital on winding up or on reduction of share capital of the company.95
(b)Contractual or otherwise
As a member he has certain other rights which may or may not arise out of contract. In exercise of
such rights he is entitled : to bring an action to restrain the company from
doing an ultra vires act,1 to attend and take part in the proceedings of meetings of the company,2 and
to move amendments.3
(c)Statutory rights
Under the provisions of the Companies Act a member is entitled: to transfer his shares,4 not to have
his financial obligations increased,5 to inspect documents and registers of the company and have
copy of certain documents,6 to have share certificates,7 to appoint proxies,8 and many other rights.9
Apart from these Memorandum and Articles of company may confer some further rights on a
member. A Member is entitled to see that the company does not take away his individual rights by
wrongfully passing a resolution or altering the memorandum or articles or doing an act contrary to the
provisions of the Companies Act.
A member is entitled to see that the company complies with the provisions of the relevant Acts, does
not commit offence or illegal acts and conducts its business in accordance with the provisions of the
Act, the Memorandum and Articles of Association. A member is entitled to restrain a person who is
improperly acting as a director; he may restrain a company from holding a meeting of which no
proper notice has been given; and if meeting has been held to ask for a declaration that the
resolutions passed at the meeting are nullity because of some irregularity or fraud such as the
wrongful refusal by the chairman to put the resolution to a poll. However, a member is not entitled to
take action in his individual name if the infringement of the right is a corporate membership right.
[s 2.315] Civil Courts when may exercise Jurisdiction
Civil Courts may exercise Jurisdiction: (1) Where no special remedy is provided in the 1956 Act, (2)
Where act complained of is a fraud on the minority, (3) Where act complained of is illegal or ultra
vires the company, (4) Ordinary Resolution passed instead of Special Resolution, (5) Where justice
demands, e.g., misfeasance, and (6) Violation of individual membership rights.
[s 2.316] Individual and Corporate Rights not mutually exclusive
Where the same transaction infringes both individual and corporate membership rights, one
composite action can be brought.10 The individual membership rights include the maintenance of his
rights and privileges appertaining to that status. He can insist on the strict observance of the
provisions of the memorandum and articles which cannot be waived by a majority of shareholders. A
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shareholder has, however, no individual membership right to have the annual accounts of the
company amended.11 His individual membership rights enable him that his vote should be recorded.12
Where an act of the company such as reduction of capital requires confirmation or sanction of the
Court, in the exercise of his individual membership right a shareholder is entitled to be heard in the
proceeding in order to oppose the reduction.13
[s 2.317] Practice and Procedure
A shareholder or member may sue in his own name if his individual or personal rights are infringed.
In such an action the wrong-doer and the company should be made defendants.14
The dividing line between personal and corporate rights is very thin and the court will probably be
inclined to treat a right as a “personal right” only if he has a “special interest” distinct from the general
interest which other members have in the company complying with the terms and conditions of the
Act, the Memorandum and the Articles of Association. As the dividing line between a member’s
corporate right and individual right is very hard to draw, a member may sue as plaintiff “for self and all
other members of the named company except those who are defendants” and making the company
and known wrong-doers by name defendants to the suit.
[s 2.318] Rule in Foss v Harbottle not to be applied mechanically
Fraud, manipulation, stratagem, device, breach of fiduciary duties and negligence are well-
established exceptions to the principle of Foss v Harbottle. However, a mechanical and automatic
application of Foss v Harbottle15 rule to Indian situations, Indian conditions and Indian corporate
realities would be improper and misleading. The principle, in the countries of its origin, owes its
genesis to the established factual foundation of shareholder power and majority shareholder power
centring around private individual enterprises and involving a large number of small shareholders, is
vastly different from the ground realities in our country. Here the modern Indian corporate entity is not
the multiple contributions of small individual investors but a predominantly and indeed
overwhelmingly State-supported funding structure at all stages by receiving substantial funding up to
80%. or more from financial institutions which are entirely State controlled or represent substantial
State interest and, thus, their shareholding may be small but it is these financial institutions which
provide entire funds for the continuous existence and corporate activities. If we apply mechanically
the Foss v Harbottle rule, it would amount to giving weightage to that majority of the shareholding
having notionally holding more percentage of shares and the financial institutions which may own a
small percentage of shares though having contributed 80%. or more in terms of the finances to such
companies. It is these financial institutions which have really provided the finance for the company’s
existence and, therefore, to exclude them or to render them voiceless on an application of the
principles of Foss v Harbottle, would be unjust and impracticable. Therefore, the principle of Foss v
Harbottle, cannot be applied mechanically without taking into consideration the ground realities of the
corporate sector in India.16
[s 2.319] Arbitration
The right to file a petition for relief in cases of oppression and mismanagement under sections 397
and 398 of the 1956 Act, arising out of commercial relationship between a shareholder and the
company, is “action” which can be relegated to the arbitration under sections 8 and 45 of the
Arbitration and Conciliation Act, 1996 (26 of 1996).17
[s 2.320] Restrictions on voting rights of Members
The powers that shareholders or members enjoy cannot be exercised against the interest of the
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company, against the public interest or public policy or fraudulently or to take undue advantage of the
position of being the majority or controlling shareholders. In some American cases agreements
among shareholders have been annulled on some or other of the grounds mentioned. Shareholders
cannot by agreements change the voting powers in respect of their shares except following the
procedure as laid down by law. An agreement between two groups of shareholders prior to
incorporation that one group holding one-half of the shares would nominate three out of five Directors
was held void as being against public policy.18 Agreements which seek to induce the voter to concur
in a decision affecting the rights of others, to obtain advantages for himself or for some other person
such as securing employment as an officer for a salary are void.19 Purchase of proxy is against public
policy and use of votes purchased may be restrained.20
Agreement among the shareholders to vote as a unit for the election of directors to gain control of the
management may be valid depending upon the purpose, effect and tendency.21 However, contracts
by non-shareholders to influence directors of a company to elect a person to an executive position of
the company is valid but not a contract by shareholders to elect dummy directors who will maintain a
certain person in the employment of the company.22 Similarly an agreement to restrict the exercise of
discretionary powers of the directors is contrary to public policy and as such void.23
[s 2.321] Expulsion of Member
It cannot be denied that there are some members who by creating various kinds of trouble for the
management of the company try to wrest undue advantage for themselves. The company should
evolve suitable methods to deal with this black-mailing type of members but not by way of expulsion.
Even if Articles authorise the directors to expel a member under certain circumstances such powers
must be exercised bona fide and in the general interest of the company. So far as the property right is
concerned the company should arrange that the expelled member gets appropriate price for his
shares. The principle involved may be found by analogy from the Supreme Court decision.24
A power to expel a member upon terms to get rid of a member as shareholder is a power that might
be resorted in the Articles of Association. The amendment of the Articles to provide for compulsory
transfer of the shares against the wishes of some of the existing members of the company was held
permissible. The Articles of Association of company are in the nature of a contract. The rights and
liabilities of the members of a company are regulated by the Articles of Association. A person on
becoming the member of the company agrees to be bound by such a contract. Alteration of the
Articles of Association is permitted under section 31 of the 1956 Act. Section 31(2) of the 1956 Act
declares that the alteration so made shall be as valid as if originally contained in the Articles of
Association subject, of course, to the provisions of the 1956 Act.25
[s 2.321.1] Department’s View— Expulsion of Member
“A case has come to the notice of the Central Government where a public limited company amended
its Articles of Association by including a clause by a special resolution passed at the Extraordinary
General Meeting of the company empowering the Board of directors of the company to expel a
member in a case where the Board is prima facie of the view that activities or conduct of the member
is detrimental to the interests of the company or that by reason of his continuance as a member, it
would be prejudicial to the future of the company. The question whether such an amendment of the
Articles of Association of a company is valid has been under consideration of the Department. After
considering the scheme of the Companies Act, the Department is of the view that amendment of
Articles of Association of a company providing for expulsion of a member by the management is
opposed to the fundamental principles of the companies’ jurisprudence and is ultra vires of the
company. Such a provision is repugnant to the various provisions in the Companies Act pertaining to
the rights of a member in a public limited company and cuts across the scheme of the Act as it has
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the effect of rendering nugatory the very powers of the Central Government under section 111 [the
CLB now the Tribunal(NCLT) under section 111 and new section 111A which now makes the shares
of a Public Company freely transferable] of the Companies Act, 1956 and the powers of the Court
[now the Tribunal (NCLT)] under Sections 107 and 395 of the Act and is, therefore, void by the
operation of the provisions of Section 9 of the Companies Act, 1956. The Articles of Association is a
contract between the company and its members setting out the rights of members inter se under the
contract and expulsion of a member is not only a violation of this contract but it is also opposed to the
principles of natural justice. Moreover, under section 23 of the Indian Contract Act, 1872 (9 of 1872),
any agreement which is contrary to any law or opposed to public policy would be deemed to be
unlawful and void. The Supreme Court in the case of Bajaj Auto Ltd v N.K. Firodia, (1971) : 41 COMP
CASES 1 (SC) : AIR 1971 SC 321 has laid down the law as to the conditions on the basis of which
directors could refuse a person to be admitted as a member of the company. The principles laid down
by the Supreme Court in this case, even though pertain to the refusal of a company to the admission
of a person as a member of the company, are applicable even with greater force to a case of
expulsion of an existing member. As under Article 141 of the Constitution of India the law declared by
the Supreme Court is binding on all courts within the territory of India, any provision pertaining to the
expulsion of member by the management of a company which is against the law as laid down by the
Supreme Court will be illegal and ultra vires. In the light of the aforesaid position, it is clarified that
assumption by the Board of directors of a company of any power to expel a member by amending its
Articles of Association is illegal and void.” [Circular No. 32/75, dt. 1-11-1975 : Govt. of India
[s 2.322] Notes on Circular
The Department’s view does not give due weight to the contractual aspect of the Articles of
Association. If the right of expulsion of a member has been obtained in accordance with the
procedure laid down by law and agreement, it can only be set aside by the court on proof of mala fide
exercise of power by the majority shareholders or the Board of directors. The Department has not
taken into account the factual aspect of the matter, namely, there are people owning very small
number of shares in large number of companies, who attend general meetings only to wrest undue
advantage for themselves. The Department’s circular will encourage such dishonest shareholders
and hamper the proper and smooth management of the affairs of many companies unless they
accede to the unreasonable demands of such members. Undoubtedly the company has power to
expel a member in appropriate situation for the paramount interest of the company, of course, on
arranging payment of adequate price for the shares held by such a member. If any allegation of
collusion or mala fide is made, let the Court, the Central Government or the Company Law Board
[now the Tribunal] decide about this and give appropriate relief. In Bajaj Auto Ltd’s case the Supreme
Court by implication has approved that the directors could refuse registration of transfer of shares on
just and proper consideration, acting bona fide, in the paramount interest of the company and general
interest of the shareholders as fair and sensible men. A member is liable to be expelled if these tests
are satisfied. If there is no corrupt motive for such expulsion, it cannot be assailed. A member has his
individual and corporate rights but these rights are to be exercised bona fide, as a sensible person
and not for oblique or collateral purposes or for obtaining extra benefits from the resources of the
company which no other shareholder gets. A shareholder is not entitled to any benefits except those
which are equally available to other shareholders similarly situated.
[s 2.323] Members Rights—Articles of Guarantee Company—Expulsion
Section 29 of the 1956 Act does not prevent a company from including any additional matters in its
Articles in so far as they are not inconsistent with the provisions contained in the Form in any of the
Tables including Table ‘C’, ‘D’ or ‘E’ to the 1956 Act adopted by the company. A company limited by
Guarantee maintained that the Articles also provided for matters other than those indicated in Table
‘C’ not inconsistent with the Act. The Articles relating to a Stock Exchange confer powers for
disciplining Members including expulsion of Members incurring disqualification. Such a provision is
not contrary to the provisions of the 1956 Act and can be enforced. In case of a company limited by
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Guarantee a provision in the Articles for expulsion of a Member was not inconsistent with the
requirements or provisions of the 1956 Act. None of the Articles in Table ‘C’ or section 29, proviso of
the 1956 Act prohibits the suspension or expulsion of any Member and a Stock Exchange company
can be formed as a normal company and registered as such under the 1956 Act and when so
registered the Stock Exchange is subject not only to the provisions of 1956 Act but also to the
Regulatory framework of the Securities Contracts (Regulations) Act, 1956. The Government of India
in a letter to all Stock Exchanges has expressed its opinion that it is not permissible for a Member of
Stock Exchange to become a Managing Director of a company or Partner in a Firm carrying on any
other business.26
[s 2.324] Articles of Club—Voting rights only to Club Members—Stand Members not given
voting rights cannot challenge Articles or seek winding up
Where the Race Club was having different categories of Members. Articles of the Club gave voting
rights only to the Club Members. Stand Members were not given voting rights. Single judge admitted
the winding up petition on just and equitable ground under section 433(f) of the 1956 Act. On appeal,
the Division Bench held that Stand Members were not entitled to challenge the Articles or seek to
have company wound up. Judicial discretion must be exercised in admitting winding up petition. No
prima facie ground for winding up was made out. The winding up petition was dismissed. An order of
admission of winding up petition has serious civil consequences and would have to be followed by an
Advertisement and therefore an appeal under section 483 of the 1956 Act [now sections 10FB to
10GF] would lie. Winding up under just and equitable clause is the remedy of last resort.27
[s 2.325] Shares of Public Companies freely transferable [Section 111A of the Companies Act,
1956 ]
Section 111A of the 1956 Act now makes the shares of Public Companies freely transferable and
registration can be refused only for “sufficient cause”, on grounds specified and subject to restrictions
in section 111A of the 1956 Act. Rectification of register on transfer can be allowed only on the
grounds specified in section 111A of the 1956 Act. Section 111 of the 1956 Act, which earlier applied
to both Private as well as Public Companies, now applies only to Private Companies.
[s 2.326] Section 25-Company
The Supreme Court decision in Bajaj Auto Ltd v N.K. Firodia, (1971) : 41 COMP CASES 1 (SC) : AIR
1971 SC 321 regarding expulsion of a shareholder of a public limited company and Circular No. 32 of
1975 dealing with expulsion of a shareholder of a public limited company is not applicable to Clubs,
Associations, etc., incorporated under section 25 of the Act. Where the Articles of Association of the
Madras Cricket Club conferred power on the club to suspend a member for a limited period. The
Article was approved by the Regional Director. Held, the wisdom or otherwise of the bye-law of a
private club is not a matter for consideration in a writ petition under Article 226 of the Constitution of
India.28
[s 2.327] Rights of members of defunct company
Any member of the company may apply within 20 years for restoration of the name of a company
which has been struck out by the Registrar of Companies. In the interest of the members and
creditors of the company, the Court may direct restoration of the name of the company in the
Register of Companies. The rights and liabilities of the company are not affected by the striking out of
its name from the Register of Companies. After the name is restored it shall be deemed as if the
company was on the register all the time.29
S. 2 (56): Memorandum.—“memorandum” means the memorandum of association of a company as

originally framed or as altered from time to time in pursuance of any previous company law or of this
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Act;
NOTES
as follows:
This definition of memorandum is a reproduction of the definition which was proposed in the
The 2013 Act definition is a verbatim reproduction of section 2(28) of the 1956 Act. Section 2(56) of
the 2013 Act is to be read with section 4, which section contains the particulars of a memorandum.
The 2013 Act has altered the contents to be covered in the objects clause of a memorandum. Unlike
the 1956 Act where the memorandum of a company contained the main objects and other objects,
the objects clause of the memorandum of a company incorporated under the 2013 Act will have to be
divided into two categories – objects for which the company is proposed to be formed, and any
matter considered necessary in furtherance thereof.
Further, section 6 stipulates that the 2013 Act shall at all times override the memorandum and any
provisions in the memorandum that are repugnant to the provisions in the 2013 Act are void.
See detailed commentary under section 4 of the 2013 Act.
Memorandum [Section 2(28)].—Memorandum means the memorandum of association of a

company as originally framed or as altered from time to time in pursuance of any previous companies
law or of this Act. The term includes the original memorandum as registered or as altered from time to
time. The Companies Act, 1956 provision
NOTES
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“The definition has been brought into line with the definition of ‘articles’ by referring to alterations
made under the previous companies laws as well as this Act.” [Clause 22 of the Companies Bill, 1953
(46 of 1953)].
In the case of a company limited by shares it must contain the name of the company with “limited” as
the last word, the State in which the company’s registered office is to be situate, objects of the
company, a statement that the liability of the company’s members is limited though the liability of the
directors may be made unlimited and the amount of share capital with which the company proposes
to be registered and division thereof of a fixed amount. Each of the subscribers to the memorandum
must write opposite his name the number of shares he would take. Strictly speaking a minor cannot
be a subscriber to the memorandum as he cannot enter into a contract. The memorandum needs to
be carefully drafted in as much as the company and the directors cannot do anything beyond the
scope of the memorandum except that incidental to the business of the company.30
S. 2 (57): “Net Worth”.—“net worth” means the aggregate value of the paid-up share capital and all
reserves created out of the profits and securities premium account, after deducting the aggregate
value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off,
as per the audited balance sheet, but does not include reserves created out of revaluation of assets,
write-back of depreciation and amalgamation;
NOTES
12-09-2013 and the corresponding provision is section 2(29A) of the 1956 Act.
as follows:
[s 2.333] Analysis of the Provision
This definition of net worth is a reproduction of the definition which was proposed in the Companies
Bill, 2011.
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The Report of the Companies Law Committee in February 2016 has recommended certain changes
or improvements to the definition of net worth, among others. According to the Committee report,
section 2 (57) of the 2013 Act defines the term “net worth” and specifies various amounts that are to
be taken into consideration while calculating it. In short, the net worth of a company represents its
intrinsic value. However, the Committee noticed that the definition does not include the phrase “debit
or credit balance of the profit and loss amount”. In this regard, the Committee recommended for the
phrase “debit or credit balance of the profit and loss account” to be included in the definition.
31[(29A).“net worth” means the sum total of the paid-up capital and free reserves after deducting the
provisions or expenses as may be prescribed. The Companies Act, 1956 provision
Explanation.—For the purposes of this clause, “free reserves” means all reserves created out of the
profits and share premium account but does not include reserves created out of revaluation of assets,
write back of depreciation provisions and amalgamation;]
NOTES
Clause (29A) proposes to define ‘net worth’ which means the sum total of the paid-up capital and free reserves. For the
purposes of this clause, ‘free reserves’ means all reserves created out of the profits and share premium account but
does not include reserves created out of revaluation of assets, write back of depreciation provisions and
amalgamation. [Clause 2 of the Companies (Amendment) Bill, 2001 (80 of 2001)].
This definition is relevant for sections 424C and 424J of the 1956 Act relating to revival, rehabilitation
and winding up of Sick Industrial Companies.
S. 2(58): Notification.—“notification” means a notification published in the Official Gazette and the
expression “notify” shall be construed accordingly;
NOTES
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Section 2(58) of the 2013 Act was notified vide Notes on Clause S.O. 2754(E) and has been in effect
from 12-09-2013 and there is no corresponding provision under the 1956 Act.
as follows:
The language of the Companies Bill, 2011 has been retained for this definition. It has been in effect
since 12 September 2013, having been notified via S.O. 2754(E).
Notifications determine the date of commencement of provisions and Rules in the 2013 Act. They
may also be used to amend Schedules.
See, sections 1(3), 467 and 469 of the 2013 Act.
S. 2 (59): “Officer”.—“officer” includes any director, manager or key managerial personnel or any
person in accordance with whose directions or instructions the Board of Directors or any one or more
of the directors is or are accustomed to act;
NOTES
[s 2.338] Legislative History:
as follows:
Clause 2. — This clause corresponds to section 2 of the Companies Act, 1956 and defines various
This definition of Officer is a reproduction of the definition which was proposed in the Companies Bill,
2011. The term “key managerial personnel” has been newly added to the definition as the
corresponding provision in the 1956 Act i.e., section 2 (30) never mentioned such a term. However,
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the term “key managerial personnel” has been separately defined in section 2 (51) of the 2013 Act.
See Notes under section 2 (51) and section 203 of the 2013 Act for “key managerial personnel”.
The term “officer” is also defined specifically in the Explanations to sections 336 and 339 of the 2013
Act as including any person in accordance with whose directions or instructions the directors of the
company have been accustomed to act.
The term “officer” under the 2013 Act includes a chief financial officer as defined in section 2(19) of
the 2013 Act and it will also include a chief executive officer as defined under section 2(18) of the
2013 Act if the said CEO is designated as a key managerial personnel under section 203(1) of the
2013 Act. In the 2013 Act, there is no concept of “shadow director”, which was earlier contained in
section 2(13) of the 1956 Act. However, for the purpose of compliance of the provisions of the 2013
Act the concept of “shadow director” is used by extending the meaning of the terms “officer” and
“officer in default” to include any person in accordance with whose directions or instructions the
Board or any director is accustomed to act.
Officer [Section 2(30)].—“officer” includes any director, manager or secretary or any person in
accordance with whose directions or instructions the Board of directors or any one or more of the
directors is or are accustomed to act. The Companies Act, 1956 provision
NOTES
substitution of this clause as follows:
“This clause, inter alia, seeks to omit (the references to the expression ‘managing agent, secretaries and treasurers’)
as they have become redundant after the abolition of the system of managing agent, secretaries and treasurers by Act
17 of 1969.” [Clause 2 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
Legislative History of Clause (30) of section 2 which was earlier substituted by the Companies
(Amendment) Act, 1960 is given below.
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substitution thus:
The amendment is consequential on the amendment proposed to definition of ‘secretary’ in section 2(45). (See para 20
of the Report.) [Clause 2(g) of the Companies (Amendment) Bill, 1959 (37 of 1959)].
this clause as under:
As recommended in para 24 of Part II of the Report of the Commission of Inquiry on the Administration of Dalmia-Jain
Companies (hereinafter referred to as the Commission’s Report), it is proposed to expand the definition of ‘Officer’ so
as to bring within its ambit any person in accordance with whose instructions the Board or any of the directors of a
company is accustomed to act. This is designed to counter the trend whereby dummy directors are appointed on
Boards of companies to implement policies of a dubious nature, while masterminds mainly instrumental in evolving
these policies remain in the background. [Clause 3(ii) of the Companies (Second Amendment) Bill, 1964 (64 of 1964)].
[s 2.341] Commission’s Report
The recommendations contained in paras 20 to 24 of the Report of the Commission of Inquiry on the
Administration of Dalmia-Jain Companies (Vivian Bose Commission) are reproduced below:
“Dummy Directors.—20. Various cases have come to the notice of the Commission in the course of its investigation
where dummy directors were put on the Boards of large companies. These directors were persons occupying
subservient and minor positions in the various companies in the group. The extent of this can be noticed when steno-
typists, typists and personal secretaries were made directors of large companies. The Commission is not canvassing a
case against the appointment of directors who may be employees of companies, or for a prohibition against such
practice. It is concerned only with persons in subservient positions, being placed on the Board of directors, merely to
carry out the dictates and wishes of others having the controlling interest and remaining in the background, particularly
when malpractices were involved. The concept of ‘deemed’ directors has already been introduced in the Companies
Act, 1956, though in a few sections only, by using the following expression:—
• ‘persons in accordance with whose directions or instructions the Board of directors of a company is
accustomed to act.’
This expression has been used in the Act mainly with a view to impose effective restrictions on some special activities
of directors and managing agents [system of managing agency has been abolished see Section 324A] as in sections
295, 369, 370 etc. The expression has also been introduced in Sections 162 and 538 with the object of casting on
persons, who fall within the description, the responsibilities attached to directors under these provisions. The Act has
rightly cast these responsibilities on persons who, though exercising full control over the affairs of a company, but by
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concealing their identity behind their dummies, otherwise escape the responsibilities attached to the office of a director.
Time and again we have seen how the master-minds behind the malpractices kept in the background although they
had planned and directed the strategy, but left the implementation only to the subordinates, who were thereby exposed
to all the risks inherent in the adoption of such malpractices.
21. The expression used in the existing provisions of the Act to cover ‘deemed’ directors appears, in our opinion, to
have a limited scope, because a person will fall within this description only if the ‘Board of directors’, which under
section 252(3) means the directors collectively, is accustomed to act in accordance with the directions. Thus, if a
person acts through the majority of nominee directors on the Board, but not all of them are his nominees, it would
appear that he may escape the mischief of the said provisions. Furthermore, the question as to whether a person is
acting in accordance with the directions or instructions of another or not, being a question of fact, it may not often be
easy to prove this in respect of either all or even the majority of the directors on the Board.
22. It may be mentioned in this connection that the expression used in the different sections of the Companies Act to
cover ‘deemed’ directors appears to have been adopted from the English Act, with the modification that it refers to the
‘Board of directors’ instead of ‘directors’ as referred to in the English Act. The Bhabha Committee of 1952 suggested
the use of the word ‘directors’ only and the reference to the word ‘directors’ instead of ‘Board of directors’ in the
description may be preferable, if the enlargement of the penal provisions of the Act to in the ‘deemed’ directors is to be
effective.
23. The Jenkins Committee in suggesting that every company should have at least two directors, considered this
problem, and the following is an extract from para 25 of their Report:—
• Employees are sometimes now appointed as second members and we recognise that, if our proposal is
adopted, some employees may be pressed in future to accept appointment as second directors without being
informed of the responsibilities which this involves. This risk should, in our view, be accepted: the remedy is a
wider realisation of the fact that the office of director carries responsibilities as well as prestige. To reduce the
difficulties of enforcement we suggest that the Act should provide that the first two subscribers to the
memorandum of association shall be deemed to be directors unless and until the company notifies the
Registrar of the names of at least two directors
24. However, some kind of legislative measure may be necessary in this country and it is therefore recommended
that—the definition of ‘officer’ contained in section 2(30) should be expanded by the adding of a sub-clause (d) to
include (as an officer) a person in accordance with whose directions or instructions the directors of a company or any
of them are accustomed to act.” [Commission’s Report : paras 20 to 24].
[s 2.342] Daphtary-Sastri Committee Recommendations
The recommendations of the Daphtary-Sastri Committee are reproduced below:
“Dummy Directors.—The position of directors in relation to the shareholders has been likened to that of a trustee in
relation to the beneficiary. Directors are generally under an obligation to see that the company’s assets are in a proper
state of investment and monies of the company are spent only for purposes which are reasonably incidental to and
within the reasonable scope of carrying on the business of the company. They should therefore take active and
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immediate steps to prevent any misappropriation or breach of trust on the part of their co-directors. It goes without
saying that a director has positive duties to perform in order to safeguard the interests of the shareholders. A director
who is a mere puppet in the hands of another remaining in the background cannot effectively take any action in that
regard. The report of the Commission of Inquiry discloses a very sorry state of affairs in regard to the companies which
were under investigation. Paid employees and young and inexperienced relatives were all on the Board of Directors,
whereas a person who was not on the Board wielded authority over them, staying in the background and retaining
effective control over the assets and activities of the company. These persons, when it came to fixing responsibility,
pleaded helplessness and pointed to the person who controlled their actions and called themselves variously as
nominee directors or benamidar directors or dummy directors, remaining on the Board only to carry out the directions
of that other person. Some of these persons were not even aware of the full implications of what they were directed to
do and they were mere stooges for the malpractices of the mastermind behind them.
No legislative measure can provide complete safeguard against such clandestine wielding of control over companies.
The Companies Act, 1956 has attempted to cast directors’ responsibilities on persons who conceal their identities
behind dummies but retain full control over the affairs by including within the meaning of director ‘a person in
accordance with whose directions or instructions the Board of directors of a company is accustomed to act’ in sections
102, 303, 304, 307, 308, 369, 370, 538 etc. The state of affairs in the companies under investigation shows that this
provision is not enough. A provision requiring each and every director to file a declaration through the company with
the Registrar, in all cases where he holds the shares on behalf of another, to disclose thereby the person for whose
benefit he holds them, might provide some safeguard. A further drastic step may also be considered, and that is to
impose a duty on every director to disclose by a declaration the person whose directions he is obliged to carry out and
by whom his voting is likely to be controlled, if that other person is not on the Board of directors. The concept of
deemed directors must, therefore, be enlarged so as to include ‘persons in accordance with whose directions or
instructions the Board of directors or any one or some of them is or are accustomed to act’, in order that the provisions
may be effective, and a corresponding amendment should be made in the definition of ‘officer’ in section 2(30).”
[Daphtary-Sastri Committee Report : Relevant paras].
[s 2.342.1] Department’s View— When a person is deemed to be an ‘Officer’
“Whether or not a person would come within the scope of term ‘Officer’ as contemplated in section 2(30) of the
Companies Act, 1956 would depend on the facts and circumstances of each particular case and the relevant
provisions of the Companies Act, 1956. Thus, if in respect of discharge of any particular duty imposed by the Act any
person occupies a position of responsibility in a company, he will be deemed to be an ‘Officer’ in relation to that duty
and answerable as such. In this connection, attention is also invited to the definition of Officer who is in default in
section 2(31) read with section 5 of the Act.” [Letter No. 8/65/2(20)/63-PR, dt. 7-10-1963 : Govt. of India publication,
[s 2.343] Position of Officer
Section 2(30) of the 1956 Act gives an inclusive definition of the expression officer and elaborates
that it includes any director, manager or secretary or any person in accordance with whose directions
or instructions the Board of directors or any one or more of the directors is or are accustomed to act.
Persons who are regularly employed as part of their business or occupation in conducting the affairs
of the company may be officers of the company. Officer means a person under a contract of service;
a servant of special status holding an appointment to an office which carries with it an authority to
give directions to other servants. The term is wide enough and would include the secretary,
accountant and cashier.32
A director is expressly included in the definition of officer. It may include past directors. The term ‘any
person’ should be read ejusdem generis and cannot, therefore, include a person who has no
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business connection with the company directly or indirectly. The term shall not include a friend of a
director, his guru or his wife though the director may be accustomed to act in accordance with their
directions.33
A marketing manager can be treated as an officer of the company and entitled to seek protection
under section 633 of the 1956 Act.34 The liquidator is an officer of the company.35 The term may
include assistant secretaries and branch managers.36
The definition is inclusive, therefore, illustrative and not exhaustive and may include an adviser to a
company.37 Section 2(30) of the 1956 Act does not exclude officials, authorised agents, sectional
manager, assistant secretary, etc. An auditor may be an officer and may seek for indemnity but
where an auditor is retained to conduct and carry out an audit function without appointment as an
auditor he will not be an officer.38
[section 2(13) of 1956 Act], Deemed Director [section 307(10) of the 1956 Act], Officer of a company
[section 2(30) of the 1956 Act] including an auditor, Director or employee of Public Financial
Institutions defined in section 4A of the 1956 Act, Relative of connected persons [section 6 and
regulations 2(h)(viii) and 2(i)].
[s 2.344.1] Officer—Producer Company [Section 581A(g) of the Companies Act, 1956 ]
The term “Officer” in relation to Producer Companies includes any Director or Chief Executive or
Secretary or any person in accordance with whose directions or instructions part or whole of the
business of the Producer Company is carried on.
S. 2 (60): “Officer who is in default”.—“officer who is in default”, for the purpose of any provision in
this Act which enacts that an officer of the company who is in default shall be liable to any penalty or
punishment by way of imprisonment, fine or otherwise, means any of the following officers of a
company, namely:—
(i) whole-time director;
(ii) key managerial personnel;
(iii) where there is no key managerial personnel, such director or directors as specified
by the Board in this behalf and who has or have given his or their consent in
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writing to the Board to such specification, or all the directors, if no director is so

specified;
(iv) any person who, under the immediate authority of the Board or any key
managerial personnel, is charged with any responsibility including maintenance,
filing or distribution of accounts or records, authorises, actively participates in,
knowingly permits, or knowingly fails to take active steps to prevent, any default;
(v) any person in accordance with whose advice, directions or instructions the Board
of Directors of the company is accustomed to act, other than a person who gives
advice to the Board in a professional capacity;
(vi) every director, in respect of a contravention of any of the provisions of this Act,
who is aware of such contravention by virtue of the receipt by him of any
proceedings of the Board or participation in such proceedings without objecting to
the same, or where such contravention had taken place with his consent or
connivance;
(vii) in respect of the issue or transfer of any shares of a company, the share transfer
agents, registrars and merchant bankers to the issue or transfer;
NOTES
12-09-2013 and the corresponding provision is section 2(31) r.w.s. 5 of the 1956 Act.
as follows:
Clause 2. — This clause corresponds to section 2 of the Companies Act, 1956 and defines various expressions used
in the Bill.
This definition of Officer is a reproduction of the definition which was proposed in the Companies Bill,
2011. Section 2(60) of the 2013 Act is a broader definition as compared to Section 5 of the 1956 Act
which also defines ‘officer in default’. The definition has brought about new inclusions i.e., share
transfer agents, registrars and merchant bankers, as officers in default with regard to issue or transfer
of shares of a company.
The J.J Irani Committee while realising the need for a clear regime for identification of the officer in
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default suggested that companies of certain types have CEOs/CFOs/Company Secretaries on a

mandatory basis. It was suggested that the liability of such individuals as also other officers of the
company in default has to be provided for by the 1956 Act. The J.J Irani Committee also placed equal
importance on the role of qualified professionals such as the accountant, the auditor, lawyer,
company secretary providing corporate advice and suggested that such individuals should be also be
held liable for wrong doing if it can be established that they had not specifically advised against
actions or behaviour violative of the law.
The J.J Irani Committee further recommended that with regard to criminal liability the rules should
provide for the following:
(i) “directors should be liable where they authorize, actively participate in, knowingly permit, or knowingly fail to
take active steps to prevent (including monitoring failures where appropriate) the default:
(ii) Managing Director/Whole Time Directors/CEO /CFO/Company Secretary should be liable on the same
conditions, where Board has properly charged them with the relevant function;
(iii) Any person other than a Managing Director/Whole Time Director/CEO/CFO/Company Secretary (whether or
not employed by the company) who under the immediate authority of the Board/Managing Director/Whole
Time Director/CEO/CFO/Company Secretary, is charged with certain functions including maintenance, filing
or distribution of accounts or records should also be liable where he authorizes, actively participates in,
knowingly permits, or knowingly fails to take active steps, to prevent the default.
(iv) these definitions should be drafted so as to cover de facto directors, secretaries and managers:
(v) consideration will also need to be given on a case by case basis to the applicability of offences to receivers,
administrators and liquidators.
In case of (iii) above, the fact that someone further up the chain of command, is liable would not relieve the delegatee
of liability.”
The Report of the Companies Law Committee published in February 2016, while making
recommendations with regard to Sub-clause (vi) of section 2 (60) of the 2013 Act, deliberated on the
concern raised that the mere receipt of the proceedings of a board ought not to make a director liable
for any contravention, unless he had also attended the board meeting. The Committee was of the
opinion that imposing such responsibility would have the effect of deterring individuals from taking up
positions of directorships. However, it was felt that diluting the requirements of this Section would not
be appropriate, as a Director should raise an issue of concern based on the agenda or proceedings
received by him, irrespective of whether he attends the meeting; and that it might make it convenient
for directors to skip inconvenient meetings and raise the defence of not having attended the meeting
to escape liability. The Committee felt that sufficient defences were already provided for Independent
and Non-Executive Directors under section 149(12) of the 2013 Act and as such no amendment was
required in section 2(60). The Committee also recommended that the circular dt. 29th July, 2011,
issued under the 1956 Act, conveyed important guidelines to field offices and may be reissued, taking
into account the changes in 2013 Act.
The Standing Committee of Finance in their 57th Report (2011–2012) on the Companies Bill, 2011
made a few recommendations to the Ministry of Corporate Affairs regarding the definition of ‘Officer
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in default’, specifically with regard to Sub-clause (iv) and (vi) of section 60. According to the
suggestion of the Committee, in section 2 (60) (iv), the person charged with the responsibility should
have also given consent. Section 2 (60) (iv) states that any person, under the immediate authority of
the Board of Directors or any key managerial personnel of the company, who is charged with any
responsibility including maintenance, filing or distribution of accounts or records, authorises or
actively participates in or knowingly permits or knowingly fails to take active steps to prevent any
default, may fall under the definition of ‘Officer who is in default’. However, the Committee sought to
establish the requirement of consent as well. The Ministry of Corporate Affairs, while rejecting this
suggestion, stated that bringing in the element of ‘consent’ will provide a loophole to enable many
persons in serious default to escape their liability.
The Standing Committee of Finance in their 57th Report (2011–2012) on the Companies Bill, 2011
also suggested that Sub-clause (vi) of section 60 which states that merely by receipt by a director of
proceedings of a board meeting would make a director officer in default, is a draconian provision and
would prevent credible people getting onto company boards. Hence, it was suggested that this
should be rectified. However, in this regard as well the Ministry of Corporate Affairs stated that it can
be observed from the said sub-clause (vi) that the provision does not make a director an ‘officer in
default’ only/merely on receipt of proceeding of Board meeting. The provisions would apply when the
concerned director was aware of any contravention (through receipt of board proceedings) and who
does not object to the same or if the contravention had taken place with his consent or connivance.
According to the Ministry of Corporate Affairs, the clause has been appreciated in context of immunity
for a director who either was genuinely unaware about any contravention or who did not consent or
connived for any such contravention. Therefore, the Ministry of Corporate Affairs suggested that this
provision may be retained as proposed in the Companies Bill.
Key managerial personnel, as defined in the 2013 Act, are also covered under the term ‘officers in
default’. As per section 203 of the 2013 Act, companies belonging to such classes as may be
prescribed will have to appoint whole time key managerial personnel like managing director or CEO
or manager, or company secretary and chief financial officer. Rule 8 of the Companies (Appointment
and Remuneration of Managerial Personnel) Rules, 2014* specifies that listed companies and
companies having paid capital of Rs 10 crores or more have to appoint key managerial personnel.
According to rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel)
Rules, 2014, a company is also required to have a company secretary if the paid up capital is Rs 5
Crores or more.
Officer who is in default [Section 2(31)].—Officer who is in default, in relation to any provision
referred to in section 5, has the meaning specified in that section. The Companies Act, 1956
provision
39[Section 5. Meaning of “officer who is in default”.—For the purpose of any provision in this Act
which enacts that an officer of the company who is in default shall be liable to any punishment or
penalty, whether by way of imprisonment, fine or otherwise, the expression “officer who is in default”
means all the following officers of the company, namely:— The Companies Act, 1956 provision
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•
(a) the managing director or managing directors;
(b) the whole-time director or whole-time directors;
(c) the manager;
(d) the secretary;
(e) any person in accordance with whose directions or instructions the Board of
directors of the company is accustomed to act;
(f) any person charged by the Board with the responsibility of complying with that
provision:
• Provided that the person so charged has given his consent in this behalf to the
Board;
(g) where any company does not have any of the officers specified in clauses (a) to
(c), any director or directors who may be specified by the Board in this behalf or
where no director is so specified, all the directors:
• Provided that where the Board exercises any power under clause (f) or clause (g),
it shall, within thirty days of the exercise of such powers, file with the Registrar a
return in the prescribed form.]
NOTES
Sections 2(31) and 5 of the 1956 Act corresponds to section 2(60) of the 2013 Act.
English Act, 1948 : Section 440(2) English Act, 1985 : Section 730(5)
THE COMPANIES (AMENDMENT) ACT, 1988 (31 OF 1988).—The Notes on clauses explained the substituted section
as follows:
“This clause revises the definition of ‘officer in default’ so that officers and directors, who are in charge of management
or who have been charged with the responsibility of complying with any of the provisions of the Act are held
responsible for any contravention of the Act.” [Clause 3 of the Companies (Amendment) Bill, 1987 (32 of 1987)].
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The section originally proposed by the Companies (Amendment) Bill, 1987 was further modified by
Notice of Amendments moved in the Rajya Sabha on 27-04-1988. The salient features of the
changes are as follows:
The proposal relating to “officer who is in default” is sought to be amended further so that if the Board
of directors does not specify any director(s), all the directors will be deemed as “officers in default”.
Further, the person charged with the responsibility by the Board will be an officer in default, if that
person has given his consent to the Board, in that behalf.
[s 2.348] Officer who is in default
For the purpose of any provision of the 1956 Act which enacts that an officer of the company in
default shall be liable to any punishment or penalty, by way of imprisonment, fine or otherwise, the
expression “officer who is in default” means all the following officers of the company:
(a) Managing Director(s); (b) Whole-time Director(s); (c) Manager; (d) the secretary; (e) any person in
accordance with whose directions or instructions the Board of directors of the company is
accustomed to act; (f) any person charged by the Board with the responsibility of complying with that
provision provided he has given his consent in this behalf to the Board; and (g) where any company
does not have any of the officers specified in clauses (a) to (c), any director(s) specified by the Board
or where no director is so specified, all the directors.
The aim is that the persons in charge of the management or charged with the responsibility of
complying with any of the provisions of the Act are held responsible for any contravention of the 1956
Act as explained below.
[s 2.349] Managerial personnel [Section 5(a) to (c) of the Companies Act, 1956]
Clauses (a) to (c) of section 5 of the 1956 Act specify (a) Managing Director(s); (b) Whole-time
Director(s); and (c) Manager.
[s 2.350] Certain companies to have Managerial personnel
Every public company, or a private company which is a subsidiary of a public company, having a
prescribed paid up share capital [Rs 5 Crores or more (w.e.f. 18 September 1990) vide rule 10A of
the Companies (Central Governments’) General Rules and Forms, 1956*
[s 2.351] Question of fact
Section 5 of the 1956 Act contemplates the managing director, whole-time director and the manager
responsible. It is only where persons specified in clauses (a), (b) and (c) of section 5 of the 1956 Act
do not exist in a company that the directors can be made responsible. This by itself is a question of
fact as to whether the managing director or whole-time director or manager exists so as to exclude
the directors of the company from being considered “as officer who is in default”. This can be decided
only after evidence before the trial court and complaint cannot be quashed.40
[s 2.352] Chairman or President
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The designation of a person as Chairman cannot be considered as not falling within the definition of
“officer who is in default” unless it is so provided by the memorandum and articles of the company
and/or by agreement entered into with him as to what are his duties.41
[s 2.353] Default during tenure in office
The Officer in default means the default during his tenure in office. Where defaults are committed,
e.g., in regard to accounts before the officer joined the company he is not liable to be prosecuted for
the default. A managing director appointed with effect from 16 September 1992 could not be termed
as officer in default for offences under sections 209, 211 and 370 of the 1956 Act, relating to periods
up to 31 March 1992.42
[s 2.354] Retirement or resignation
A managing director, director, manager or secretary would come under the definition of an officer in
default even after the retirement. If it is not so held any managing director, director, manager or
secretary would escape the provisions of sections 159 and 220 of the 1956 Act by simply tendering
their resignation as the office bearer of the company. This would defeat the provisions of sections
159 and 220 of the 1956 Act. The trial court, however, must consider the question whether after
retirement of a managing director, director or secretary of a company, the records of the company
would be available to him or her for filing a return.43
However, where a director resigned his office, the resignation was accepted and the change was
effected by filing Form No. 32 to the ROC prior to the date of default. The director was held not an
officer in default.44
Form 32 is not conclusive as to the date of resignation. Where the Director showed
contemporaneous documents in support of his resignation, the date shown in the resignation letter
was taken as the date of resignation and he was held not liable for offences committed after that
date. The prosecution for dishonour of cheques under the Negotiable Instruments Act was quashed.45
[s 2.355] Secretary [Section 5(d) of the Companies Act, 1956]
Clause (d) of section 5 specifies the Secretary. The secretary is primarily responsible for compliances
with the provisions of the Companies and has therefore been specifically included in the persons who
may be held responsible for any contravention of the 1956 Act.
Every company having prescribed paid-up share capital [Rs 2 crores (w.e.f. 11 June 2002)† ] to have
a whole-time secretary. Further, where the Board of directors of such company comprises only two
directors, neither of them shall be the secretary. [s. 383A(1) of the 1956 Act]
[s 2.356] Person in whose directions Board is accustomed to act [Section 5(e) of the
Any person in accordance with whose directions or instructions the Board of directors of the company
is accustomed to act has been included in the expression “officer who is in default” under section 5(e)
of the 1956 Act as also in definition of Officer in section 2(30) of the 1956 Act.
[s 2.357] Person charged by Board with responsibility of complying [Section 5(f) of the
Companies Act, 1956 ]
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As per clause (f) of section 5 any person charged by the Board of Directors with the responsibility of
complying with that provision shall be officer in default, provided he has given his consent in this
behalf to the Board. Where the Board of Directors exercises any power under clause (f), it shall,
within 30 days, file with the Registrar a return in the prescribed form. [Proviso after section 5(g) of the
1956 Act].
Where a person is charged with the responsibility of complying with the provision, he must give
consent for the same. Different persons may be charged with the responsibility of complying with
different provisions of the 1956 Act. To give effect to this aspect a return has to be filed with the
Registrar of Companies within 30 days of the Board resolution.
In the absence of any such specific charge or delegation of responsibility to any person, which may
include an officer or director, Managing Director(s), Whole-time Director(s), Manager, the Secretary,
etc., explained above and in their absence the Director(s) [clause (g)], will be treated as an “officer
who is in default”.
[s 2.358] Director(s) [Section 5(g) of the Companies Act, 1956]
Where the company does not have any of the officers, i.e., managerial personnel, specified in
clauses (a) to (c), any Director or Directors who may be specified by the Board of directors in this
behalf or where no Director is so specified, all the Directors shall be officers in default. [Clause (g)].
Where the Board of directors exercises any power under clause (g), it shall, within 30 days of the
exercise of such powers, file with the Registrar a return in the prescribed form. [Proviso after section
5(g) of the 1956 Act].
[s 2.359] Digital Signature Certificates (DSCs)
Directors of the company required to sign company Documents, Authorised Signatories and
Professionals have to procure Digital Signature Certificate (DSC).
See Details on applying for DSCs on MCA website www.mca.gov.in.
[s 2.360] Directors in default only when there is no managerial personnel
Directors are officers in default only where the company does not have managing director, whole-
time director or manager. Criminal liability of ordinary directors would arise only if the company has
no managing director or whole time director or manager and where particular directors are not
specified to be liable by the company.46
Where the company had Managing Director, it was he who was the officer in default and liable for
prosecution along with the company for failure to inform the Registrar of change in situation of
registered office under section 146 of the 1956 Act. The other Directors were not liable for
prosecution as per amended section 5. However, for false information in Form 18, the director who
furnished form containing false information was liable to be proceeded against under section 628 of
the 1956 Act.47
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Where managing director died during pendency of the proceedings. The widow of the managing
director who was also a director during the relevant period was impleaded in his place. Held, it was
permissible. Since whereabouts of the other director could not be traced, the Registrar impleaded the
petitioner as the available director. There was not a question of picking out the petitioner to proceed
against.48
[s 2.360.1] Department’s View— Prosecution against ordinary Directors only when there is
no managerial personnel
“The issue relating to correct interpretation of “officer who is in default”, as per provision of section 5 of the Companies
Act, 1956, has been considered by the Department in the light of the judgment of the Hon’ble Rajasthan High Court in
Ravindra Narayan v ROC, (1994) : 81 COMP CASES 925 (Raj.). The Department is of the view that this judgment has
correctly interpreted the provisions of section 5 as substituted by Act 31 of 1988. It may, therefore, please be ensured
that where the penal provisions provide for punishment of “officers in default”, prosecution be filed against the
Managing Director(s), Whole-time Director(s) and Manager, apart from the Secretary, if any, and the company and only
in those cases where there is no such managerial personnel (i.e., Managing Director/Whole-time Director/Manager),
prosecution be filed against all ordinary Directors, apart from the Secretary, if any, and the company.” [Circular No.
6/94, dt. 24-6-1994].
[s 2.361] Mens rea not required to be proved
Prior to substitution of section 5 by the Companies (Amendment) Act, 1988 (31 of 1988), for
prosecution of officers for offences under various sections covered by section 5, i.e., where the words
“officer who is in default” has been used, mens rea was required to be proved. The onus was on the
prosecution. Under section 5 substituted by Act 31 of 1988 mens rea is now not required to be
proved unless the words “knowingly” and “wilfully” are used.
The term “officer who is in default” prior to substitution by the Companies (Amendment) Act, 1988
meant an officer of the company, who knowingly and wilfully authorised or permitted such defaults.
An officer was liable if he was knowingly guilty of default. He was liable for other person’s default only
if he permitted or authorised such default knowingly and at the same time wilfully.49
[s 2.362] Statutory offences requiring no mens rea
Section 5 of the 1956 Act, substituted in 1988, brings the definition of “officer who is in default” at par
with contravention of statutory offences requiring no mens rea. Under section 5 mens rea is now not
required to be proved unless the words “knowingly” and “wilfully” are used in that section.
Even prior to substitution of this section 5, under which no mens rea is now necessary, it was held
that the offence under section 614A(2) was really a statutory offence requiring no mens rea. The
offence was established ipso factoon proof of contravention as in the case of the company in
offences under sections 162(1), 168, 220(3), etc., of the 1956 Act. The remedy available in a bona
fide case was to take proper steps in time by applying to the court for extension of the time
mentioning the genuine difficulties. No such steps having been taken, it was held that the accused
directors had not complied with the mandatory provisions of section 614A(2) of the 1956 Act.50
The 1956 Act specifically excluded mens rea as a constituent element of the offence under certain
sections. In certain other offences under the Act, different considerations applied, e.g., offences to
which section 5 prior to substitution in 1988 was applicable, where mens rea had not been excluded.
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In statutory offences, i.e., where mere “failure” to comply with the statutory provisions concerned is
made punishable, it is a clear indication that mens rea is ruled out.51
[s 2.363] Offences or defaults covered by Section 5 of the Companies Act, 1956
Section 5 defines the expression “officer who is in default” only for the purpose of such provisions of
the 1956 Act which specifically enact that officer of the company who is in default shall be liable to
any punishment or penalty by way of imprisonment, fine or otherwise.
In offences or defaults under such sections the officers defined in section 5 of the 1956 Act shall be
“officer in default”. Now in such cases, i.e., where relevant section of the 1956 Act makes “officer who
is in default” punishable for offence, e.g., sections 162(1), 168, 210, 220(3), etc., under amended
section 5, mens rea shall not be required to be proved like contravention of statutory offences unless
that section uses the words “knowingly” and “wilfully” and requires mens rea to be established.
[s 2.364] Offences or defaults not covered by Section 5
Where the provisions of the 1956 Act do not use the words “officer in default”, the penalty and
punishment shall be governed by the language of those provisions.
If such other provision, not covered by section 5 of the 1956 Act, uses the words “wilfully” or
“knowingly”, requiring mens rea or guilty knowledge for offence or default for punishing the person,
company or officer, the prosecution has to prove mens rea or guilty knowledge.
[s 2.365] Onus or burden of proof
The onus in such cases is on the prosecution to show that a default has been committed with
knowledge. Once this onus is discharged by the prosecution the burden shifts on to the person,
company or officer to prove that the default was due to circumstances beyond his control.
Decisions prior to substitution of section 5 in 1988 on mens rea dealt with above shall still be
applicable to offences under such other provisions.
[s 2.366] Sections requiring mens rea to be established
Some sections which require mens rea to be established for an offence are as follows.
Section 207 of the 1956 Act makes every director of the company punishable for the offence, i.e.,
default or failure to pay dividend within 30 days only if he is knowingly a party to the default.
Therefore mens rea is required to be established for an offence under that section.52
For instance, for imprisonment under sections 209(5), 210(5), 211(7) of the 1956 Act mens rea is
required to be established by the prosecution as these sections make the person liable for
imprisonment only for wilful default.
It must be noted that under section 5 as substituted by Companies (Amendment) Act, 1988, as
already explained hereinbefore, where any section makes officers in default liable for the offence and
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words such as “knowingly” or “wilfully” are not used, mens rea is now not required to be proved.
[s 2.367] Juristic person cannot be prosecuted for offences requiring mens rea
The offences under sections 420, 467, 471 and 477A of the Indian Penal Code, 1860 read with
section 120B of the Indian Penal Code, 1860 (45 of 1860), are all offences having mens rea as one
of the essential ingredients thereof. The accused committing the offences must have a guilty mind
and as such a juristic person such as a body corporate cannot be prosecuted for the said offences.53
[s 2.368] Default
The term “default” means not doing what is reasonable under the circumstances, not doing anything
which ought to be done having regard to the position which a person occupies towards the other
persons interested in the transactions.54
[s 2.369] Wilful default
“Wilful default” means an act or omission to do an act. It is “wilful” where the person who acts or omits
to act knows what he is doing and intends to do what he is doing. In case of breach of duty it will be
considered wilful if it arises out of being recklessly careless even though there may not be knowledge
or intent.55 If the person neglects or the default arises from the voluntary acts of the parties and not
from the pressure of external circumstances over which they could have no control, the neglect or
default is wilful.56 When prima facie case is made out, it is not a defence to a prosecution that the
default was due to circumstances beyond the control of the officer concerned. This fact will be
examined at the trial upon evidence.57
[s 2.370] Offences against Act cognizable only on complaint [Section 621 of the Companies
Act, 1956]
Offences against the 1956 Act (1 of 1956) are cognizable only on written complaint by the Registrar,
a Shareholder or the Central Government. This does not apply to a prosecution by a company of any
of its officers. The Court may take cognizance of offences relating to issue and transfer of securities
and non-payment of dividend on a written complaint by the SEBI. [section 621(1), proviso of the 1956
Act]
[s 2.371] Composition of certain offences [Section 621A of the Companies Act, 1956]
Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), certain
offences punishable under the 1956 Act (whether committed by a company or any officer thereof)
may be compounded by the Central Government under section 621A on payment or credit of
prescribed sum.
[s 2.372] Complaint to state “officer who is in default”
Although, as per section 5 of the 1956 Act as substituted in 1988 the expression “officer who is in
default” means all the officers specified in clauses (a) to (g) of section 5 of the 1956 Act and the
decisions given above show that whether the managing director or whole-time director or manager
exists so as to exclude the directors from being considered “as officer who is in default” is a question
of fact and can be decided only after evidence before the trial court and complaint cannot be
quashed. See decisions under Question of Fact in earlier paragraphs.
In decisions under old section, it has been held that it is incumbent on the prosecution to fix the
liability with respect to the particular “officer in default” and there should be a specific averment to that
effect in the complaint. If all the directors are liable for every default then the expression “officer who
is in default” becomes redundant and meaningless. In such a case the complaint may be bad and the
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proceedings may be liable to be quashed.58
Complaints were filed against a company and its directors for violation of section 233B of the 1956
Act. The directors filed a petition under section 482 Cr. P.C. for quashing of the complaints. The
complaints alleged that in spite of reminders the directors failed to apply to the Central Government
for appointment of a cost auditor and allowed the default to continue and as such they were officers
in default. These allegations were sufficient to sustain the complaints. Whether the complaints would
succeed ultimately or not was a matter of proof. The petition of the directors was dismissed.59
[s 2.373] Directors/Officers in default—Averments in Complaint
On a complaint filed by the Registrar of Companies (ROC) for the offence under section 162 of the
1956 Act, for failure to file the Annual Returns by the company as required under sections 159 and
161 of the 1956 Act the petitioner filed a petition under Section 482 of the Code of Criminal
Procedure, 1973 (2 of 1974) to quash the criminal proceedings, contending that there were no
averments that the accused was the Whole-time Director (WTD) or Managing Director (MD) and it
could not be said that he was officer in default of the company under section 5 of the 1956 Act and he
had resigned from the post of the Director. Dismissing the petition, it was held that the offence had
been committed prior to the alleged resignation and therefore the petitioner could not take the
defence of resignation as Director. It was specifically stated in the complaint that accused were the
Directors/Officers in default of the company with all relevant files to which the complaint related for
non-filing of Annual Returns. The proceedings could not therefore be quashed.60
[s 2.374] Mis-statements in Prospectus—Directors as Officer in default
Where a specific averment had been made in the Complaint that all the Directors were responsible
for the mis-statements in the prospectus which induced the public to subscribe to equity shares of the
company. The petitioner had not taken a separate stand in the reply to the show-cause notice that he
was not the Officer in default within the meaning of section 5 of the 1956 Act. Therefore, there was no
merit in the contention that he was not liable for any lapses on the part of the Managing Director of
the company who was looking after its affairs.61
[s 2.375] Contravention by and impleading company
In offences by a company it is not necessary, although it is better to implead the company also as an
accused, the offence must be committed by the company, i.e., before a person in charge or an officer
of a company is held guilty in that capacity it must be established that there has been a contravention
by the company.62
[s 2.375.1] Department’s View— Prosecution against Directors only when there is no

managerial personnel
See Circular 6/94, dt. 24-06-1994.
[s 2.376] Court with respect to offences [Section 2(11)(b) of the Companies Act, 1956]
The Court with respect to any offence against the 1956 Act (1 of 1956) means the Court of a
Magistrate of the First Class or, as the case may be, a Presidency Magistrate, having jurisdiction to
try such offence.
[s 2.377] Jurisdiction
Offence committed under section 113 of the 1956 Act for failure to deliver share certificates to the
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transferee within the prescribed time in the name of the complainant can be tried by the Magistrate
having jurisdiction and it cannot be contended that the Company Court or the Company Law Board
(CLB) [amended to the Tribunal (NCLT)] shall have the jurisdiction.63
[s 2.378] Cause of action
The cause of action for the offences punishable under sections 39(2), 113(2), 207 and 219(4) of the
1956 Act for failure to deliver documents or furnishing the copies of Memorandum and Articles of
Association, Share Certificates, Dividend Warrants or Balance Sheets, etc., within the prescribed
time, read with section 53, would arise where the registered office of the company is situated. Such
proceedings are to be entertained only by the Court having jurisdiction over the registered office of
the company.64
[s 2.379] Limitation
The limitation for initiation of proceedings for offences under the 1956 Act had not been prescribed
under the Act itself, hence the general law, in the instant case, section 469 of the Code of Criminal
Procedure, 1973 stood attracted. On the available material, the question of limitation was a mixed
question of law and fact which had to be considered by the trial court, in which the petitioners could
also contend whether “person aggrieved” must be construed in a larger sense of the department as a
whole, and whether the offence in question was a complete or continuing offence. The meaning of
“officer who is in default” in the instant prosecution had to be based on section 5 of the 1956 Act, as it
stood prior to 15 July 1988, when mens rea was essential. Merely because the exact word
“knowingly” found in section 5 of the 1956 Act, as it existed earlier, had not been quoted in the
complaint, did not mean that mens rea had not been alleged.65
[s 2.380] Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992
Jurisdiction in case of notified persons stands transferred to the Special Court having exclusive
jurisdiction under section 9A of the Special Court (Trial of Offences Relating to Transactions in
Securities) Act, 1992 (27 of 1992).66
[s 2.381] Private Company
The provisions of section 5 of the 1956 Act apply to a company. This section is thus applicable to all
the companies under the 1956 Act and shall apply to both public and private companies.
[s 2.382] Relief under Section 633 of the Companies Act, 1956
In any proceeding [section 633(1) of the 1956 Act] or apprehended proceeding [section 633(2) of the
1956 Act] for negligence, default, breach of duty, misfeasance or breach of trust against an officer of
a company, it appears to the Court [section 633(1) of the 1956 Act] or the High Court [section 633(2)
of the 1956 Act] that he is or may be liable in respect of the negligence, default, breach of duty,
misfeasance or breach of trust, but that he has acted honestly and reasonably, and having regard to
all the circumstances of the case, including those connected with his appointment, he ought fairly to
be excused, the Court may relieve him, either wholly or partly, from his liability on such terms as it
may think fit. Provided that in a criminal proceeding under section 633(1) of the 1956 Act the Court
cannot grant relief from any civil liability which may attach to an officer in respect of such negligence,
default, breach of duty, misfeasance or breach of trust.
The powers of the court to grant relief under section 633 of the 1956 Act should be used sparingly.
The officers of the company cannot claim relief as of right. Where the Central Excise seized Books of
Accounts but supplied xerox copies but the company failed to lay Balance Sheet and Profit and Loss
Account at the Annual General Meeting and to file the same before the Registrar of Companies, it
was held that the Directors responsible did not act honestly and reasonably and were not entitled to
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any relief against apprehended proceedings.67
[s 2.383] Legal Proceedings
[s 2.384] Compliance Certificate—Prosecution or Show Cause Notices
[s 2.385] Companies (Compliance Certificate) Rules, 2001
Every company not required to employ a whole-time Secretary under sub-section (1) of section 383A
of the 1956 Act and having a paid-up share capital of Rs 10 lakh or more shall obtain a Compliance
Certificate from a Secretary in whole-time practice.
Certificate shall be attached with Board’s Report under section 217 of the 1956 Act and laid by the
“31. A list of prosecution initiated against or show-cause notices received by the company for alleged offences under
the Act and also the fines and penalties or any other punishment imposed on the company in such cases is attached.”
[Para 31 of Form of Compliance Certificate appended to the Companies (Compliance Certificate)

Rules, 2001 : See Full Text under section 383A of the 1956 Act].
Certificate to be issued in terms of the newly inserted proviso to sub-section (1) of section 383A of
Check-List for issue of Compliance Certificate
Prosecution or Show Cause Notices.—“Check whether:
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(i) the company has been issued any show cause notice by the ROC for non-compliance of any of the provisions
of the Act; if so, verify the explanations given by the company while assessing enormity of the violations in
question;
(ii) the notices of prosecution/show cause have been placed before the Board;
(iii) the company has received any prosecution notice;
(iv) any inspection or investigation has been ordered under the Act and if so, assess the status at the time of
issuing the Compliance Certificate;
(v) any fines and penalties or any other punishment was imposed on the company;
(vi) any order has been issued under the Act for compounding of the offences; if so check whether the company
has complied with the orders passed by the concerned authorities.”
[s 2.387] Secretarial Practice and Check List
Section 5. Check whether: (1) the company has (a) Managing Director(s), (b) Whole-time Director(s)
or (c) Manager? every public company or private company subsidiary of a public company having
prescribed paid up share capital [Rs 5 crores or more (w.e.f. 18 September 1990) vide Rule 10A* ]
shall have a managing or whole-time director or manager [s. 269(1) of the 1956 Act], (2) if the
company does not have managerial personnel, a Board resolution passed specifying Director(s) in
this behalf [Clause (g)]? if so, a Return in e-Form 1AA* filed by the company with the Registrar within
30 days? where no Director is so specified, all the Directors shall be officers in default, (3) the
company has a Secretary [Clause 5(d)]?every company having prescribed paid-up share capital [Rs.
2 crores (w.e.f. 11-6-2002)†] shall have a whole-time secretary [s. 383A(1) of the 1956 Act], (4) a
Board resolution passed to charge a person with the responsibility of complying with the
provision(s)[Clause 5(f)]? If so, a Return in e-Form 1AA* filed by the company with the Registrar
within 30 days accompanied by the Consent given to the Board by the person concerned in Form
lAB*? (5) where such Consent has been revoked or withdrawn a Return in e-Form 1AC* filed by the
company with the Registrar within 30 days? (6) provisions of other relevant Acts taken care of and
compliances ensured?
The documents involved are: (1) Minutes of Board Meeting, (2) Annual Report (3) Return in e-Form
1AA, (3) Consent of person in Form 1B, (4) Letter revoking or withdrawing Consent, (5) Return in e-
Form 1AC (6) Correspondence under various other relevant Acts [explained in Notes hereinafter].
[s 2.388] Offences by company under other Acts
Section 5 explained above applies only to the offences against the 1956 Act. Thus, wherever relevant
s. of the 1956 Act makes “officer who is in default” liable for default this expression shall have the
meaning assigned in section 5 of the 1956 Act. Where the provisions of the 1956 Act do not use
“officer in default”, the penalty and punishment shall be governed by the language of those
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provisions.
However, in case of offences by companies under various other Acts, the company, officers or
persons liable to be proceeded or punished shall be governed by penal and other relevant provisions
of such other Acts. Generally, for offences by companies under various Acts following persons are
liable to be proceeded or punished.
[s 2.389] Vicarious liability of Directors
Since the company is a legal abstraction without a real mind of its own, it is those who in fact control
and determine the management of the company, who are held vicariously liable for commission of
statutory offences. The directors of the company are, therefore, rightly called upon to answer the
charge, being the directing mind of the company.68
[s 2.390] Person/Director in charge or responsible
In case of offences by companies under various Acts persons/directors in charge of, responsible or
nominated for the purpose of compliance with the legal formalities under that Act would be liable to
be proceeded or punished and not the other directors.
The vicarious liability of a person/director of a company for being prosecuted for an offence
committed under various Acts, e.g., the Drugs and Cosmetics Act, 1940 (23 of 1940), the Essential
Commodities Act, 1955 (10 of 1955), etc., by a company arises if at the material time he was in
charge of and was also responsible to the company for the conduct of its business. Simply because a
person is a director of the company it does not necessarily mean that he fulfils the above
requirements so as to make him liable. Conversely, without being a director a person can be in
charge of and responsible to the company for the conduct of its business. The directors cannot ipso
facto be prosecuted. They must be shown to be in charge of and responsible to the company for the
conduct of its business.69
[s 2.391] Nominated Person/Director
Where the nominated directors and nobody else controlled the management of the company, the
nominated Directors and the nominating Company could be prosecuted for violation of the provisions
of the Prevention of Food Adulteration Act, 1954 (37 of 1954).70
In a case where it could be proved that nobody was in charge of the affairs of the company at any
material time the company could be prosecuted.71
[s 2.392] Mens rea not essential in public welfare offences
For strict statutory offences, e.g., under the Factories Act, 1948, Economic laws, Industry, Food
adulteration, Prevention of pollution, etc., establishment of mens rea is not an essential ingredient.
Such offences are generally known as public welfare offences. Penalty for strict statutory offences
follows actus reus, mens rea being irrelevant.72
See detailed Notes under specific Acts hereinafter.
[s 2.393] Defence
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Proviso to relevant provisions under various Acts engrafts an exception in the case of any such
person if he were to prove that the offence was committed without his knowledge or that he exercised
all due diligence to prevent the commission of such offence. Proviso shifts the burden on the
delinquent officer or servant of the company responsible for the commission of the offence. The
burden is on him to prove that he did not know of the offence or connive in it or that he had exercised
all due diligence to prevent the commission of such offence.73
[s 2.394] Cases on offences under various other Acts
Having explained the meaning of “officers who is in default” under section 5 of the 1956 Act for
offences against the 1956 Act and general principles applicable in case of default by companies
under various other Acts, now specific cases on offences by companies and directors or persons
liable under various other Acts are given below.
[s 2.395] Consumer Protection Act
A company as also the person in charge are both liable to be prosecuted for not obeying the
directions of a Consumer Forum. The corporate veil may be lifted to identify the persons responsible
for statutory offences referred in section 27 of the Consumer Protection Act, 1986 (68 of 1986).74
[s 2.396] Dishonour of cheques by company
Under section 141 of the Negotiable Instruments Act, 1881 (26 of 1881) for dishonour of cheque by a
company under section 138, every person who at the time the offence was committed was in charge
of and responsible to, the company for the conduct of its business, the company and if the offence
has been committed with the consent or connivance of, or is attributable to, any neglect on the part
of, any director, manager, secretary or other officer of the company, such director, manager,
secretary or other officer shall be liable to be proceeded against and punished accordingly. The
person in charge shall not be liable to punishment if he proves that the offence was committed
without his knowledge, or he had exercised all due diligence to prevent the commission of such
offence.
[s 2.397] Managing Director
Managing Director or Manager from the very nature of their duties are vicariously liable of an offence
under section 138/141 of the Negotiable Instruments Act. Directors cannot ipso facto be prosecuted.
They must be shown to be in charge of and responsible to the company for the conduct of its
business.75
[s 2.398] Directors—Vicarious Liability
A vicarious liability on the part of a Director must be pleaded and proved. It cannot be a subject-
matter of mere inference.76
The Indian Penal Code, 1860 (45 of 1860) does not contain any provision for attaching vicarious
liability on the part of the Managing Director or the Directors of the company when the accused is the
company. Statutes indisputably must contain provision fixing such vicarious liabilities. Even for the
said purpose, it is obligatory on the part of the complainant to make requisite allegations which would
attract the provisions constituting vicarious liability. Where the Bank was a body corporate, vicarious
liability of the Managing Director and Directors would arise provided a provision existed in that behalf
in the Statute. Throughout the complaint petition for defamatory statement in Prospectus of the Bank
against the borrower, no allegation had been made as against any of the respondents that they had
any thing to deal with personally either in discharge of their statutory or official duty. No personal or
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vicarious liability could be fixed on the Managing Director and Directors.77
[s 2.399] Director who signs cheque
A Director who signs or authorises the signing of a cheque which was dishonoured can be
prosecuted alone even without prosecution of company. But it is to be shown that the Director was in
charge of and responsible for the conduct of its business at the time the offence was committed.
Although the words of section 141(1) of the Negotiable Instruments Act, 1881 (26 of 1881) need not
be incorporated in a complaint as magic words, the substance of the allegations read as a whole
should fulfil the requirements of its ingredients. The Directors are entitled to show that the company
has not committed the offence. A disputed question of fact can be decided at the trial, the prosecution
cannot be quashed.78
[s 2.400] Stop payment of cheque
Even if a cheque is dishonoured because of “stop payment” instruction by the drawer to the bank, it
amounts to dishonour of cheque under section 138 of the Negotiable Instruments Act, 1881 (26 of
1881), even where he has requested payee not to present the cheque.79
[s 2.401] Account closed
Dishonoured of cheque on the ground “account closed” amounts to dishonour and section 138 is
attracted.80
[s 2.402] Notice of Dishonour of Cheque
Notice of demand in case of dishonour of cheque is required to be given to the drawer. Notice issued
to the Director alone and not to the company may be sufficient. Notice is not required to be issued to
each and every director or officer who is sought to be prosecuted. The notice given to a company
through its Managing Director could be sufficient. Offence is complete on failure by the drawer to pay
after the notice. Deposit of sum due under cheque in the course of proceedings in court will not
absolve the drawer.81
[s 2.403] Complaint against Director
Where no director or person was mentioned in the complaint by name issue of process was held to
be not valid.82
Where there were no averments in the complaint as to how the directors were liable for offence.
There was no prima facie averment or material available to attribute consent or connivance. The
proceedings against the petitioners were quashed.83
[s 2.404] Post-dated cheque
Post-dated cheque is deemed to be drawn on the date it bears. Six months’ validity period runs from
the date on the cheque.84
[s 2.405] Acquittal
The High Court on appeal must consider reasons given by the Trial Court for acquittal and cannot
reverse the order of acquittal on new grounds.85
[s 2.406] Resignation by director
The questions whether the director had resigned office, whether the resignation was accepted by the
Board of directors and when the particulars of change were filed (Form No. 32) with the Registrar of
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Companies are all matters to be determined at the trial and prosecution cannot be quashed.86
[s 2.407] Writ
In a writ by a Director against whom prosecutions were pending in various courts on the ground that
he was unable to attend in all the courts and he was not participating in the company’s affairs. Held,
the contention could be taken as a defence in prosecution but was not a ground to quash
prosecutions. Trial courts were directed to grant exemption from personal appearance upon certain
conditions.87
[s 2.408] Nominee Director
As per section 141(1), second proviso, of the Negotiable Instruments Act, 1881 inserted (w.e.f. 6-02-
2003) a director nominated by the Central or State Government or a financial corporation owned or
controlled by the Central or State Government shall not be liable for prosecution under this chapter.
[s 2.409] Sick Industrial Companies
Prosecution for dishonour of cheque for offence completed before suspension of legal proceedings
under the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) is not barred.88
[s 2.410] Complaint by company
A complaint by company for dishonour of cheques may be filed by a manager, director, managing
director or principal officer. A company is a juristic person, a legal entity. In the normal course, it is
managed by manager, director, managing director or principal officers. Explanation to section 141 of
the Negotiable Instruments Act, 1881 expressly recognizes the right of such persons and executives
to represent the interest of legal entity, like corporate body, company, etc. No special and express
authorisation is required for initiating any legal proceedings under section 138 of the Negotiable
Instruments Act, 1881.89
[s 2.411] Essential Commodities Act
In offences by a company under the Essential Commodities Act, 1955 (10 of 1955) and Contract
Labour (Regulation and Abolition) Act, 1970 (37 of 1970) it has been held that, (1) it is the person in
charge of and responsible for the conduct of business of the company who is liable for the offence,
(2) it is not necessary, although it is better to implead the company also as an accused, (3) the
offence must be committed by the company, i.e., before a person in charge or an officer of a
company is held guilty in that capacity it must be established that there has been a contravention by
the company.90
[s 2.412] Employees’ Provident Funds Act
Under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952) it was
held that the definition of “managing director” in section 2(26) of the 1956 Act, could not be read into
section 14A of the Employees’ Provident Funds Act to say that it was the “managing director” who is
in charge of and responsible for the conduct of the business of the company, for, under section
14A(1) of the EPF Act, the liability does not go with the designation, but it goes with the charge of and
responsibility to the company in the person in the matter of the conduct of business of the company.91
[s 2.413] Offences and Prosecution—EPF Act—Directors’ liability
The company failed to pay its contribution to Employees’ Provident Fund (EPF). The records of the
Registrar of Companies (ROC) showed that the accused Director ceased to be Director before the
Company defaulted the Payment of Contribution (EPF). Form No. 32 of the Companies (Central
Govt.’s) General Rules and Forms, 1956* filed with and issued by the Registrar of Companies (ROC)
is a public document and therefore admissible in evidence under section 74 of the Indian Evidence
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Act, 1872 (1 of 1872). The accused was not in overall charge of the company. The Director was
entitled to the proceedings against him to be quashed. The Limitation for filing the complaint for
failure to pay contribution is three years. Complaint was filed more than three years after the period
for which there was default. The prosecution was liable to be quashed.92
[s 2.414] Employees’ State Insurance Act
Under the Employees’ State Insurance Act, 1948 (34 of 1948), the person in charge of and
responsible to the company for the conduct of its business at the time offence was committed, can be
prosecuted without the company being prosecuted. Managing Director cannot contend that he was
not in charge of or responsible for the conduct of its business. He has to adduce positive evidence to
prove that he was not in charge of or responsible for the conduct of the business of the company
during relevant time. The question whether Director will come within the ambit of the principal
employer or person in charge of or responsible for the conduct of the business of the company, is a
matter of evidence.93 Where a company itself owns the factory and is also the employer of its
employees, the directors of the company are not personally liable to pay contributions under the ESI
Act, 1948 as they do not come within definition of section 2(17)(i) defining “principal employer”. The
directors of the company are also not liable to be punished for the offence of criminal breach of trust
under section 405 of the Indian Penal Code, 1860.18601
[s 2.415] Directors not personally liable for ESI or Wages of companys
Liability of the company can be enforced against the directors only when the Act or Statute
specifically so authorises. Where a company itself owns the factory and is also the employer of its
employees, the Directors of the company cannot be made personally liable to pay the wages due
under the Payment of Wages Act, 1936 (4 of 1936) or ESI contributions under the Employees’ State
Insurance Act, 1948 (34 of 1948) as they do not come within definition of “principal employer” in
section 2 of the said Acts. The directors of the company are also not liable to be punished for the
offence of criminal breach of trust under section 405 of the Indian Penal Code, 1860.2
[s 2.416] Factories Act
In the case of a company, which owns a factory, the company can nominate only a director as
occupier of the factory for the purposes of the Factories Act, 1948 (63 of 1948). The company cannot
nominate any other officer or employee to be the occupier. Discretion given to the Inspector of
Factories can be exercised only when the director has not been identified or nominated by the
company as occupier, treating any one of the directors as the deemed occupier of the factory, for
prosecution and punishment in case of any breach or contravention of the provisions of the Factories
Act or for offences committed under the Act.3
In case of a Government Company, however, the factory is effectively and really owned by the
Government and person appointed to manage the affairs of the company is the occupier and not the
directors of the company.4
[s 2.417] Income-tax Act
Section 278B(1) of the Income-tax Act, 1961 (43 of 1961), which deals with the vicarious liability of
the Directors, etc., says that where an offence under the Act is committed by a company, every
person who, at the time of commission of the offence was in charge of and responsible to the
company for the conduct of the business of the company as well as the company shall be deemed to
be guilty of the offence and liable to be proceeded against.5
[s 2.418] Sentence of imprisonment and fine
For failure to deduct and pay tax (TDS), false verification of return, etc., prosecution lies for violation
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of the provisions of the Income-tax Act, 1961 against the company as also against the officer
responsible. For offences punishable mandatorily with imprisonment and fine, the company being
corporate entity or juristic person can be prosecuted and punished with fine. Sentence of
imprisonment and fine can be imposed on persons in charge of and responsible to company for
conduct of the business of the company.6
[s 2.419] FEMA—Company—Offences and Prosecution—Imprisonment and fine
A company can be prosecuted and punished for an offence under section 56(1)(i) of the Foreign
Exchange Regulation Act, 1973 (46 of 1973) (FERA) [now the FEMA, 1999], even though
imprisonment for a term of not less than 6 Months is compulsory. The legislative intent to prosecute
Corporate Bodies for the offence committed by them is clear and explicit and the statute never
intended to exonerate them from being prosecuted. It is sheer violence to commonsense that the
Legislature intended to punish Corporate Bodies for minor and silly offences and extended immunity
of prosecution for major and grave economic crimes. As a company cannot be sentenced to
imprisonment the Court cannot impose that punishment, but when imprisonment and fine is the
prescribed punishment the Court can impose the punishment of fine which can be enforced against
the company. Such discretion is to be read into section 56 so far as a juristic person is concerned.
Even for offences under section 56(1)(ii) of the Foreign Exchange Regulation Act, 1973 (FERA) [now
the FEMA, 1999], a company can be prosecuted when the amount involved is less than Rs 1 lakh
and there is no mandatory sentence of imprisonment and the prescribed punishment is imprisonment
for a term which may extend to 3 years or with fine or with both. The object of the amendment of the
section was to have more stringent provisions and not to give immunity to Corporate Bodies from
prosecution for serious offences.7
Under section 56 of the Foreign Exchange Regulation Act, 1973 an offender can be given
punishment of imprisonment or fine. The Court should take recourse to the principle of interpretation
as may be necessary. In order to make the statute workable the Court should have recourse to such
principles of interpretation as may be necessary. When a company is tried for commission of an
offence a Judgment of Conviction may be passed against it but having regard to the fact that it is a
juristic person no punishment of mandatory imprisonment can be imposed. Even if the company
cannot be punished, it does not mean that the other person referred to under sub-sections (1) and (2)
of section 68 of the FERA cannot also be punished.8
The Foreign Exchange Regulation Act, 1973 (46 of 1973) (FERA) has been repealed and the
Appellate Board constituted under section 52(1) of the FERA, 1973 has been dissolved. [vide section
49(1) of the FEMA, 1999 (42 of 1999)].
The Foreign Exchange Management Act, 1999 (42 of 1999) (w.e.f. 1 June 2000) has been enacted to
consolidate and amend the law relating to Foreign Exchange with the objective of facilitating external
trade and payments and for promoting the orderly development and maintenance of foreign
exchange market in India.
[s 2.420] Penalty—Export Obligation—Director, liability of
Penalty was imposed on a Company and its Directors for failure to comply with export obligations
under the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992). The appeal against
the order was also dismissed. On a writ petition, setting aside the order imposing penalty, it was held
that individual liability of Directors was not proved. A Director is not liable unless it is shown as to how
and to what extent the particular Director is liable. Section 5 of the 1956 Act (1 of 1956) was not
applicable as it dealt with defaults under the 1956 Act only and not under any other Statute. In order
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to sustain the imposition of punishment on an Individual Director it was incumbent on the respondent
to assert the existence of a duty or obligation on one or all the Directors of the defaulting company
and failure to fulfil it. The show cause notice did not mention the grounds on which individual liability
was sought to be fastened on the Director. The order was set aside.9
[s 2.421] MRTP Act [ now the Competition Act]
Where the complaint clearly mentioned that the petitioners were being prosecuted as they were held
vicariously liable for the offence committed by the company. If the company was not prosecuted or
punished, the petitioners, under section 53 of the Monopolies and Restrictive Trade Practices Act,
1969 (54 of 1969) could not be held liable.10
[s 2.422] Pollution (Prevention and Control) Acts
In an offence by a company under the Water (Prevention and Control of Pollution) Act, 1974 (6 of
1974), the Chairman, Vice-chairman, Managing Director and members of the Board of Directors
could be prosecuted as having been in charge of and responsible to the company, for the business of
the industrial unit owned by the company and could be deemed to be guilty of the offence. The
technical flaw that the company has not been impleaded and only industrial unit owned by the
company was impleaded as respondent was not incurable and could not be allowed to defeat the
prosecution.11
[s 2.423] Prevention of Food Adulteration Act
If an offence is committed by a company under the Prevention of Food Adulteration Act, 1954 (37 of
1954), the person nominated under section 17(2) to be in charge of and responsible to the company
for the conduct of its business shall be proceeded against unless it is shown that the offence was
committed with the consent/connivance/negligence of any other director, manager, secretary or
officer of the company in which case the said person can also be proceeded against and punished. It
is only where no person has been nominated under section 17(2) of the PFA Act that every person
who at that time was in charge of and responsible can be proceeded against and punished. Even in
such cases the proviso offers a defence that accused can prove his innocence by showing that the
offence was committed without his knowledge and notwithstanding the exercise of due diligence to
prevent it.12
[s 2.424] Unlawful Activities (Prevention) Act
The company owning tea estates in Assam allegedly paid money to militant organisation ULFA. The
officers of the company sought anticipatory bail against the offences. It was held that it was not a
case of unlawful activity under section 13 of the Unlawful Activities (Prevention) Act, 1967 (37 of
1967) and no offence was made out under sections 120B, 121, 121A and 122 of the Indian Penal
Code, 1860. Prima facie case was made out under section 10 of the Unlawful Activities (Prevention)
Act, 1967 and the offence was bailable. The question of granting anticipatory bail under section 438
of the Code of Criminal Procedure, 1973 (2 of 1974) did not arise as a direction under that section
could be issued only in respect of a non-bailable offence.13
[s 2.425] Interpretation and Construction of Penal provisions
The principles governing interpretation and construction of penal provisions are as follows.
[s 2.426] Penal provisions to be strictly construed
The penal provision must be strictly construed in the first place. Secondly, there is no vicarious
liability in criminal law unless the statute takes that also within its fold. Where section 10 of the
Essential Commodities Act, 1955 (10 of 1955) did not make all the partners liable for the offence
whether they do business or not. It would be a travesty of justice to prosecute all the partners and ask
them to prove that the offence was committed without their knowledge. The requisite condition was
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that the partner was responsible for carrying on the business and was during the relevant time in
charge of the business. In the absence of any such proof, no partner could be convicted.14
[s 2.427] Object of the legislation
The rule of strict interpretation of penal statutes in favour of an accused is not of rigid or universal
application. It must be considered along with other well established rules of interpretation. When it is
seen that the scheme and object of the statute are likely to be defeated by the strict interpretation,
courts must endeavour to resort to that interpretation which furthers the object of the legislation. It is
well recognised that a statutory provision must be construed, if possible, to avoid absurdity and
mischief.15 Though penal statutes are to be strictly construed they are not to be construed so strictly
as to defeat the obvious intention of the Legislature. The intention of the Legislature is to be collected
from the words they employ. Where there is no ambiguity in the words, there is no room for
construction.16
[s 2.428] Purposive construction
It has been emphasised that even though the provisions of section 630 of the 1956 Act are penal in
nature, the object of the provision is required to be given a purposive interpretation so as not to choke
the beneficent provision. The courts are, therefore, obliged to place a broader, liberal and purposeful
construction on the provisions of section 630 of the 1956 Act in furtherance of the object and purpose
of the legislation and construe it in a wider sense to effectuate the intendment of the provision.17
While construing the provisions of section 138 of the Negotiable Instruments Act, 1881 (26 of 1881),
the Supreme Court observed that even though section 138 is a penal statute, it is the duty of the
court to interpret it consistent with the legislative intent and purpose so as to suppress the mischief
and advance the remedy.18
[s 2.429] Two views possible
It is a well settled rule of construction of penal statutes that if two views are possible and reasonable
constructions can be put upon a penal provision, the court must lean towards that construction which
exempts the subject from penalty rather than the one which imposes penalty.19 It is one of the settled
principles of interpretation of statutes that, when two interpretations are possible of a penal provision,
that which is less onerous to the accused should be preferred.20
[s 2.430] Not permissible to give extended meaning
Where the words of the section are very clear it is unnecessary to consider whether it embodies any
principle and whether that principle is consistent with the principle as embodied in certain other
sections which are differently worded. In interpreting a penal provision it is not permissible to give an
extended meaning to the plain words of the section on the ground that a principle recognised in
respect of certain other provisions of law requires that this section should be interpreted in the same
way.21
[s 2(61)] Official Liquidator.—Official Liquidator means an Official Liquidator appointed under sub-section (1) of
section 359;
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NOTES
as follows:
the Bill.
Section 2 (61) of the Companies Act, 2013 makes a reference to section 359 in relation to the
appointment of an official liquidator. Under section 359, the Central Government has the power to
appoint as many official liquidators as it may consider necessary to discharge the function of official
liquidators.
See detailed commentary under sections 275 and 359 of the Companies Act, 2013.
[s 2(62)]: One Person Company.—“one person company” means a company which has only one person as a
member;
NOTES
as follows:
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the Bill.
The language of the provision is the same as that of the Companies Bill, 2011.
Only a natural person can be the one member of a one person company. The 2013 Act introduced
the concept to India.
The Report on Company Law, 2005, had first recommended that one person companies be legally
recognised. The Committee was of the view that technological sophistications allowed people to
contribute without having to form associations and that such people should not be denied the benefit
of a corporate entity. The Committee had also made the following recommendations:
(i) A one person company may be registered as a private company and may have atleast one
director;
(ii) There must be adequate legal safeguards in case of death or disability of the sole member
and there must be provisions for the appointment of a nominee director. The nominee director
is to manage the affairs of the company following any demise or disability until the shares
pass to the legal heirs and
(ii) Letters “OPC” to be suffixed with the name of One Person Companies to distinguish it from
other companies.
See, notes on sections 122 and 193 of the Companies Act, 2013.
[s 2 (63)]: Ordinary or Special Resolution.—“ordinary or special resolution” means an ordinary resolution, or as the
case may be, special resolution referred to in section 114;
NOTES
12-09-2013 and the corresponding provision is section 189 of the 1956 Act.
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as follows:
This definition of ordinary or special resolution is a reproduction of the definition which was proposed
in the Companies Bill, 2011.
Section 2(63) of the 2013 Act makes a reference to section 114 of the Companies Act, 2013 for the
purposes of defining ordinary and special resolution. Under section 114 of the 2013 Act, a resolution
may be classified as an ordinary resolution if it is passed by virtue of the votes cast in favour of the
resolution exceeding the votes cast against the resolution. In other words, a resolution passed by a
simple majority of members entitled to vote and voting, constitutes an ordinary resolution.
Under section 114 of the 2013 Act, a special resolution is said to be passed when (i) the intention to
pass a special resolution is duly notified to shareholders in a notice calling for a general meeting and
(ii) the votes cast in favour of the resolution are not less than three times the number of voted cast
against the resolution.
See detailed commentary under section 114 of the 2013 Act.
[s 189] Ordinary and special resolutions.—(1) A resolution shall be an ordinary resolution when at a general
meeting of which the notice required under this Act has been duly given, the votes cast (whether on a show of hands,
or on a poll, as the case may be,) in favour of the resolution (including the casting vote, if any, of the chairman) by
members who, being entitled so to do, vote in person, or where proxies are allowed, by proxy, exceed the votes, if any,
cast against the resolution by members so entitled and voting. The Companies Act, 1956 provision
(2) A resolution shall be a special resolution when—
(a) the intention to propose the resolution as a special resolution has been duly specified in the notice calling the
general meeting or other intimation given to the members of the resolution;
(b) the notice required under this Act has been duly given of the general meeting; and
(c) the votes cast in favour of the resolution (whether on a show of hands, or on a poll, as the case may be,) by
members who, being entitled so to do, vote in person, or where proxies are allowed, by proxy, are not less
than three times the number of the votes, if any, cast against the resolution by members so entitled and
voting.
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NOTES
English Act, 1985 : Sections 378, 381A-381C
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on clauses explained the provisions of this section as
follows:
See section 81 of the Indian Act and section 141 of the English Act and para 78 of the Company Law Committee’s
Report, and also pages 250 and 251 of the Report. [Clause 181 of the Companies Bill, 1953 (46 of 1953)].
The Indian Companies Act, 1913 (Act No. 7 of 1913), envisages three types of resolutions at a general meeting—an
ordinary resolution, a special resolution and an extraordinary resolution. The purposes for which an extraordinary
resolution is required under the Act are amongst others (a) to remove a director (section 86G), (b) to wind up a
company voluntarily when it cannot continue in business by reason of its liabilities (section 203), (c) to sanction an
arrangement between a company and its creditors (section 215), and (d) to sanction certain acts to be done by the
liquidator in voluntary winding up. We see no reason why the extraordinary resolutions in these cases cannot be
replaced by special resolutions. In our view, company meetings will be rendered much simpler by the abolition of
extraordinary resolutions, and their replacement by special resolutions, except where we have recommended an
ordinary resolution, wherever the present Act provides for the former. Also in view of the fact that a uniform notice
period of 21 days has been recommended for all resolutions, there is no purpose now in providing for extraordinary
resolutions. We, therefore, propose that the appropriate provisions of the Act should be amended accordingly.
We further recommend that twenty-one days’ notice should be given of all resolutions to be passed at a general
meeting—ordinary or special. The extension of the period of notice from 14 to 21 days is necessary to enable
shareholders to combine and canvass for proxies if they so desire. The present period of fourteen days is too short for
all the processes that are involved before the shareholders can canvass opinion in favour of or against a particular
resolution proposed to be considered at any meeting of the company. Following the provisions of section 142 of the
English Companies Act, 1948, we also suggest that in certain cases, which we have indicated in the Annexure of our
Report and in the Addendum attached to it, a ‘special notice’ as defined in this section should be required. A ‘special
notice’ of a resolution to be moved at a meeting of a company requires that the intention to move the resolution should
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be given to the company not less than twenty-eight days before the meeting at which it is moved and the company
must give its members notice of any such resolution at the same time and in the same manner as it gives notice of the
meeting, or if that is not practicable, shall give them notice by advertisement in a newspaper having an appropriate
circulation or in any other mode allowed by the articles, not less than twenty-one days before the meeting. Under the
English Act, a special notice is required in the case of a resolution to remove a director (s. 184) or to dispense with a
director’s age limit (section 185), or to propose the appointment of an auditor other than the retiring auditor (s. 160).
[Report : para 78].
[s 2.438] Ordinary Resolution [Section 189(1) of the Companies Act, 1956]
An Ordinary Resolution is a motion which was put to vote and, of the valid votes cast at the meeting,
more than 50% has been cast in favour of the motion. The votes cast include the casting vote of the
Chairman, if any. The majority is of those members and proxies who are present and use their votes
either on a show of hands or on a poll.
Business declared by the Act or the Articles to be transacted by a “Resolution” will mean an Ordinary
Resolution unless the context otherwise requires. Wherever an Ordinary Resolution is to be passed,
it will be sufficient to specify in the notice convening the meeting the nature of the business proposed
to be transacted.
[2.439] Articles to the contrary invalid
An Article which provides that a Special Resolution would be required to transact any business which
is required by the Act to be transacted by Ordinary Resolution would be invalid.22
[s 2.440] Amendment to Ordinary Resolution
Amendment to an Ordinary Resolution is permissible if such amendment is within the scope of the
notice of the meeting. Where the notice states that a resolution would be moved “with or without
amendments”, any amendment to such a resolution can be made at the meeting. Where the notice
does not mention that the resolution would be passed “with or without amendments”, an amendment
is only permissible if such amendment is not more onerous than the resolution originally proposed.23
[s 2.441] Special Resolution [Sub-section (2) of the Companies Act, 1956]
A Special Resolution must satisfy following three conditions:
(a) The intention to propose the resolution as a Special Resolution has been mentioned in the
notice of the meeting or in any intimation given to the members.
(b) A proper notice convening the General Meeting has been duly given to the members.
(c) The votes cast in favour of the resolution are not less than three times the votes cast against
the resolution. Such votes may be by show of hands or by poll and by members or proxies
present and voting having the right to do so. The question of the casting vote does not arise
in case of a Special Resolution.
As for example, 20 members are present in person and by proxy, 5 of them vote against the
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particular resolution and 15 votes in favour of the resolution. The resolution is carried as 15 are three
times the 5 votes cast against the resolution. If 6 votes were cast against the Special Resolution
would not have been passed. If only 2 votes were cast in favour of the resolution and none against,
then, the Special Resolution would have been passed and passed unanimously.
[s 2.442] Amendment to Special Resolution
Amendment to Special Resolution is not permitted. Even if the notice mentions that the proposed
resolution would be passed “with or without amendments”, no amendment can be validly made at the
meeting unless the required notice of such amendment has been given.24 But, if the amendment to a
Special Resolution has been set out in the notice convening the meeting, the Special Resolution can
be passed with the amendment.25
In view of section 189(2)(a) that the “intention to propose the resolution as a Special Resolution has
been duly specified in the notice calling the general meeting or other intimation given to the members
of the resolution” read with section 190 of the 1956 Act it appears that if the Articles so provide an
amendment may be moved of which notice setting out the wordings of the proposed amendment to
the proposed Special Resolution has been given. It is now generally accepted that minor
amendments are permissible even where no notice of such amendment has been given.
[s 2.443] Notices of, and Amendment to Special Resolution
The notice must identify the intended Special Resolution by specifying either the text or the entire
substance of the Special Resolution. Nothing is achieved by the addition of the words such as “with
such amendments and alterations as shall be determined at such meeting”. A resolution would be a
Special Resolution even though (1) it departs in some respects from the text of the Special
Resolution set out in the Notice by correcting grammatical or clerical errors or by reducing the words
to more formal language, or (2) it is reduced into the form of a new text, which was not included in the
notice. In either case there must not be any departure from the substance. The substance must be
identical to that set out in the notice. In this limited sense, amendment to Special Resolution may be
put to and voted on at a meeting. Where notice is accompanied by circulars, all these should be
treated as one document.26
[s 2.443] Notice not specifying Special Resolution invalid
If the notice does not specify the Special Resolution to be taken the resolution would be invalid.27
The expression of intention in the notice under section 189(2)(a) of the 1956 Act should be
sufficiently specific so as to effectively inform each member of the company of the actual resolution
sought to be passed in the general meeting. The notice must be frank, open, clear and satisfactory. If
it is not, the notice is bad and the Special Resolution vitiated and cannot be acted upon.28
[s 2.444] Removal of Managing Director, defective Notice
Disputes arose between the members of a family company. By a resolution of the Board Meeting
held by the appellant’s brother and his mother, the appellant was removed from the post of Managing
Director. The Board of directors resolved to delete Article 74 of the Articles of Association by which
the appellant was appointed as Managing Director of the Company, which formed no part of the
notice of holding Extraordinary General Meeting (EGM). The Special Resolution was passed on the
basis of such defective Notice. If the notice does not specify the Special Resolution to be taken the
resolution would be invalid. The expression of intention in the notice under section 189(2)(a) of the
1956 Act should be sufficiently specific so as to effectively inform each member of the company of
the actual Resolution sought to be passed in the General Meeting. The notice must be frank, open,
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clear and satisfactory. If it is not, the notice is bad and the Special Resolution vitiated and cannot be
acted upon. It was held that such defective Special Resolution cannot effect the deletion of Article 74
of the Articles of Association, it was invalid and the removal of appellant as Managing Director was
invalid.29
[s 2.445] Voting Rights [Sections 85 to 89 of the Companies Act, 1956]
Sections 85 to 89 of the 1956 Act provided that a company should not issue shares other than
ordinary and preference shares and the voting right of each equity share shall be in proportion to the
share of a member in the paid-up equity capital of the company.
[s 2.446] Equity shares with Differential Voting Rights [Section 86 of the Companies Act,
1956]
Now Equity shares with differential rights as to dividend, voting or otherwise in accordance with the
prescribed conditions and Rules, viz., the Companies (Issue of Share Capital with Differential Voting
Rights) Rules, 2001, are permissible.
See section 86(a)(ii) of the 1956 Act as substituted by the Companies (Amendment) Act, 2000 (53 of
2000). Section 88 “Prohibition of issue of shares with disproportionate rights” has consequently been
omitted by the Companies (Amendment) Act, 2000 (53 of 2000) (w.e.f. 13-12-2000).
[s 2.447] Alteration of Articles—Special Resolution [Sections 31 and 189 of the Companies

Act, 1956]
For an alteration of the Articles of Association of the company, three conditions have to be fulfilled,
namely, (i) Notice specifying the intention to propose the Resolution as an Extraordinary (Special)
Resolution must be given; (ii) the Resolution must be passed by 75% of members present; and (iii)
not less than 21 days’ notice of the meeting must be duly given. All these pre-conditions are
cumulative and mandatory. The said notice must specify the intention of proposing an Extraordinary
(Special) Resolution, it must be sufficiently specific, frank, open and clear. Notice of the meeting was
not served on all the members and further, there was deletion of an Article and forming part of the
notice. The Resolution could not be given effect to.30
[s 2.448] Company Petition—Service of Notice [Sections 53, 108 and 189 of the Companies
Act, 1956]
Service of notice must be personal service. Sufficient proof has to be shown that notice was duly
served personally. There was an entry in the local delivery book acknowledged to have been
received by personal assistant of the addressee concerned. It was further stated that the said notice
was sent by a peon. No evidence was produced that the letter was served to the addressee. The
Court held that there was no service done. It was contended that proper documents were not
executed for Transfer of the shares. The company, however, produced documents that the transfer
was approved by the Board of Directors and Annual Returns were filed showing such transfer, and
such transfer of the shares was admitted in counter-affidavit filed on behalf of transferor and
transferor received the consideration. The transfer was valid.31
[s 2.449] Transfer of Shares—Alteration of Articles—Notice Special Resolution
The shares are transferable. An agreement between the shareholders for transfer of shares is
maintainable and the company need not be a party to such agreement. A Resolution passed by the
Board of Directors of the company indicated that the Transfer Deeds were duly approved. In this case
presumption is that the transfers of shares were properly executed and such transfer is valid even
though the price should be determined at a later date. For alteration of the Articles of the company
Notice period is 21 days. Notice specifying the intention to pass Special Resolution by requisite
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majority is required. Deletion of any particular Article providing that certain shareholder shall be a
permanent Managing Director of the company was held not valid as the said Notice did not specify
the intention of altering the said Article. Despatch of such notice of convening the meeting of Board of
Directors of the company was not proved, Despatch Register did not contain details of such
despatch. As such, the said meeting was not validly held and the Resolutions passed were of no
effect. The Minute Book must be properly maintained and would be sufficient evidence of
proceedings of such meeting. Annual Return has to contain full particulars mandatorily required.32
[s 2.450] Amalgamation—Reduction of capital—Special Resolution
An application was made for approval of amalgamation, compromise and arrangement scheme. The
SEBI (SEBI) intervened objecting to making any order. The purpose of the SEBI was to protect the
interests of the small investors. The SEBI could not establish that its intervention was necessary for
the limited purpose. No ground was made out for postponement of the Amalgamation proceedings.
This transaction was not prima facie sufficient for enquiry to be made by the SEBI. The scheme was
in the interests of the Investors. Enquiry by SEBI is not a ground to withhold sanction of the Scheme
of Amalgamation under the 1956 Act. The Court [the Tribunal (NCLT)] will not sit in judgement over
the decision of the requisite majority of shareholders and creditors. Further, the objection of the
Central Government was that procedure for change of name of the amalgamated company was not
followed. In case of increased authorised capital by merger of authorised capital of two companies
the Court [the Tribunal (NCLT)] has the power to pass suitable orders. There was no drastic change
in the financial position of either of the two companies which could be the ground for rejecting the
scheme as undesirable. The decision on merger was found to be commercially sound decision and
the amalgamation would be in the interests of shareholders of the Transferor Holding Company and
the Transferee Subsidiary Company. As a result of the Amalgamation there was reduction of paid up
share capital but there was no outgo of funds, nor change of assets and no adverse effect on the
creditors. The Special Resolution was passed and there was no objection despite notice of meeting
being published in newspapers. The Scheme of Amalgamation of group companies was sanctioned.
The reduction of paid up share capital was confirmed.33
[s 2.451] Proposer and seconder of amendment not essential
Unless the Articles so provide amendments need not be seconded. The Chairman may put the
question without its being either proposed or seconded by anybody.34
[s 2.452] Meeting and Notice
See Notes on Statutory Meeting [section 165 of the Companies Act, 1956], Annual General Meeting
[section 166 of the 1956 Act], Extraordinary General Meeting [section 169 of the 1956 Act], Sections
171 to 186 of the 1956 Act containing provisions for Notice, Explanatory Statement, Quorum, Voting
by show of hands, Chairman, Manner of Taking Poll, etc., [section 170 of the 1956 Act], Resolutions
requiring special notice [section 190 of the 1956 Act].
[s 2.453] Notice shorter than 21 days [Section 171(2) of the Companies Act, 1956]
In case of (i) AGM, if all the members entitled to attend and vote at the meeting consent and (ii)
Statutory Meeting and EGM, (a) if members holding not less than 95% of the paid up share capital or
(b) in company not having share capital members having not less than 95% of voting rights
exercisable at meeting consent, the meeting may be convened even by shorter than 21 days’ notice.
[s 2.454] Consent of Members
Such consent may be before the meeting is held or after the resolutions were passed. Consent of the
shareholders or members obtained subsequent to the meeting would be sufficient to validate the
resolutions.35
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See detailed Notes on Consent by shareholders for shorter notice and Form of Consent under
Government of India publication, Clarifications and Circulars on Company Law, 1977 Edition, page
84.
[s 2.455] Resolutions to be put to vote separately
If the Articles or Act so provide or any member requires each resolution has to be put to vote
separately one by one. Generally the Chairman will take up the items on the agenda one by one,
allow discussion on the same, and put it to vote and declare the result thereof.
[s 2(64)]: Paid up share capital.—Paid up share capital or share capital paid up means such aggregate amount of
money credited as paid-up as is equivalent to the amount received as paid-up in respect of shares issued and also
includes any amount credited as paid-up in respect of shares of the company, but does not include any other amount
received in respect of such shares, by whatever name called.
NOTES
as follows:
the Bill.
The Companies Act, 2013 contains an expanded definition of paid up share capital when compared
with the 1956 Act. The term paid up share capital can be taken to mean the amount of issued share
capital of a company that has been taken up by shareholders by making a payment of the
consideration in cash or kind for the shares issued to them. It is worthwhile to note that “capital
credited as paid up” would include a bonus issue where no consideration is received by the company
but is deemed to be credited to the company’s paid up capital. However, share application money
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that is received before allotment, will not be considered to be a part of the paid up share capital.
Section 60 of the Companies Act, 2013 provides that where a company’s notice, advertisement or
other publication, letter, bill head or letter paper contains a statement of the authorised capital, there
must be a statement in an equally prominent position and in an equally conspicuous character of the
amount of subscribed and paid-up capital.
The Companies Act, 1956 provision
Paid-up Capital [Sec 2(32)].—Paid-up capital or capital paid up includes capital credited as paid up.
NOTES
[s 2.458] Analysis
See Notes under Publication of authorised, subscribed and paid-up capital [section 148] and Form of
balance sheet [Schedule VI].
[s 2(65)]: Postal Ballot.—“postal ballot” means voting by post or through any electronic mode;
NOTES
12-09-2013 and the corresponding provision is section 192A of the 1956 Act.
as follows:
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the Bill.
This definition of postal ballot is a reproduction of the definition which was proposed in the
Section 2(65) of the Companies Act, 2013 expressly recognises voting by any electronic mode as a
part of the term “postal ballot”. Voting through electronic means has been provided for in section 108
of the 2013 Act. Rule 20 of the Companies (Management and Administration) Rules, 2014 provides
the procedure to be followed for voting through electronic means and Rule 22 lays down the
procedure to be adopted for conducting business through postal ballot.
36[s 192A] Passing of resolutions by postal ballot.—(1) Notwithstanding anything contained in the foregoing
provisions of this Act, a listed public company may, and in the case of resolutions relating to such business as the
Central Government may, by notification, declare to be conducted only by postal ballot, shall, get any resolution
passed by means of a postal ballot, instead of transacting the business in general meeting of the company. The
(2) Where a company decides to pass any resolution by resorting to postal ballot, it shall send a notice to all the
shareholders, along with a draft resolution explaining the reasons therefor, and requesting them to send their assent or
dissent in writing on a postal ballot within a period of 30 days from the date of posting of the letter.
(3) The notice shall be sent by registered post acknowledgement due, or by any other method as may be prescribed by
the Central Government in this behalf, and shall include with the notice, a postage pre-paid envelope for facilitating the
communication of the assent or dissent of the shareholder to the resolution within the said period.
(4) If a resolution is assented to by a requisite majority of the shareholders by means of postal ballot, it shall be
deemed to have been duly passed at a general meeting convened in that behalf.
(5) If a shareholder sends under sub-section (2) his assent or dissent in writing on a postal ballot and thereafter any
person fraudulently defaces or destroys the ballot paper or declaration of identity of the shareholder, such person shall
be punishable with imprisonment for a term which may extend to six months or with fine or with both.
(6) If a default is made in complying with sub-sections (1) to (4), the company and every officer of the company, who is
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in default shall be punishable with fine which may extend to Rs 50,000 in respect of each such default.
Explanation.—For the purposes of this section, “postal ballot” includes voting by electronic mode.]
NOTES
Section 192A of the 1956 Act corresponds to section 2(65) of the 2013 Act.
This clause seeks to insert new section 192A in the Act containing provisions for passing of resolutions by postal ballot.
[Clause 75 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
[s 2.462] Postal Ballot, Listed Public Companies [Sub-section (1)]
A Listed Public Company may get any Resolution passed by means of Postal Ballot instead of at a
General Meeting. The Resolutions that shall necessarily be passed by Postal Ballot shall be such as
may be notified by the Central Government.
[s 2.463] Companies (Passing of the Resolution by Postal Ballot) Rules, 2001
In exercise of the powers conferred by section 192A read with section 642(1)(a) and (b) of the 1956
Act (1 of 1956), the Central Government has made the Companies (Passing of the Resolution by
Postal Ballot) Rules, 2001.
[s 2.464] Resolutions that shall be passed by Postal Ballot
As per rule 4 of the Companies (Passing of the Resolution by Postal Ballot) Rules, 2001, List of
Businesses in which the Resolutions shall be passed through Postal Ballot is as follows:
(a) Alteration in the Object Clause of Memorandum;
(b) Alteration of Articles of Associations in relation to insertion of provisions defining Private

Company;
(c) Buy-back of own shares by the company under sub-section (1) of section 77A of the 1956
Act;
(d) Issue of Shares with Differential Voting Rights as to voting or dividend or otherwise under
sub-clause (ii) of clause (a) of section 86 of the 1956 Act;
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(e) Change in Place of Registered Office outside local limits of any city, town or village as
specified in sub-section (2) of section 146 of the 1956 Act;
(f) Sale of whole or substantially the whole of Undertaking of a Company as specified under sub-
clause (a) of sub-section (1) of section 293 of the 1956 Act;
(g) Giving Loans or extending Guarantee or providing Security in excess of the limit prescribed
under sub-section (1) of section 372A of the 1956 Act;
(h) Election of a Director under the proviso to sub-section (1) of section 252 of the 1956 Act;
(i) [Omitted];
(j) Variation in the Rights attached to a Class of Shares or Debentures or other Securities as
specified under section 106 of the 1956 Act.
See also Notes under section 189 and respective sections of the 1956 Act.
[s 2.465] Procedure for conducting Business through Postal Ballot
Rule 5 of the Companies (Passing of the Resolution by Postal Ballot) Rules, 2001 prescribes the
procedure to be followed for conducting Business through Postal Ballot.
[s 2.465.1] Department’s View— Section 192A of the Companies Act, 1956—Section 80 of the
Companies (Amendment) Act, 2000 enforced
The Government has issued a Notification enforcing section 80 of the Companies (Amendment) Act, 2000, relating to
passing of resolution by postal ballot by shareholders with effect from June 15, 2000. In this connection, the
Companies (Passing of Resolution by Postal Ballot) Rules, 2001, has already been notified in the Gazette of India on
10-05-2001.
Postal ballot resolution shall apply to alteration in the object clause of the memorandum, articles of association, buy-
back of own shares, change in place of registered office, sale of the whole or substantially the whole of the undertaking
of a company, giving loans or extending guarantee or providing security in excess of the limit, election of director,
power to compromise or make arrangement with creditors and members [since omitted], variation in the rights attached
to class of shares or debentures or other securities. [PIB Press Release, New Delhi, dt. 19-6-2001 : (2001) 106 Comp.
Cas. (St.) 22].
[s 2.466] Companies (Passing of the Resolution by Postal Ballot) Rules, 2001—Clarification

regarding
“Section 192A(1) of the Companies Act, 1956 was inserted by the Companies (Amendment) Act, 2000, which came
into force with effect from 13th December, 2000. The provisions of the section give all listed companies an option of
passing shareholder’s resolution through postal ballot. Further, they are necessarily required to get certain businesses
as notified by the Central Government, vide Notification No. G.S.R. 337(E), dt. 10th May, 2001 [see Rule 4 of the
Companies (Passing of the Resolution by Postal Ballot) Rules, 2001 (printed above)] to be passed through postal
ballot.
The Companies (Passing of the Resolution by Postal Ballot) Rules, 2001, which were notified on 10th May, 2001,
mention transactions to be transacted through postal ballot. Pursuant to section 2 of the Companies (Amendment) Act,
2000, a Notification No. S.O. 523(E), dt. 15th June, 2001, was published indicating the date from which the provisions
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of section 192A shall come into force, i.e., 15th June, 2001.
The Department has received a number of queries from the professionals, Chamber of Commerce and Industry,
corporate sectors, etc., on the above subject. The points raised have been carefully examined and the Department’s
views thereon are indicated below:—
1. The Companies (Passing of the Resolution by Postal Ballot) Rules, 2001, read with section 192A shall apply
to notices calling meetings of the shareholders approved by the Board of directors after 15 June, 2001.
2. According to the provisions of section 192A, it is not mandatory for the company to release an advertisement
giving the date of completion of despatch of postal ballots. However, as a measure of good corporate
governance companies in their own interest may release an advertisement for publishing the date of
completion of despatch of postal ballots. [now see Rule 2A—Method for sending notice (printed below in
Notes under sub-section (3) of section 192A].
3. A specimen postal ballot form and items to be included in the calendar of events for conducting voting through
postal ballot are enclosed for the use and convenience of the companies. The concerned companies must
ensure that the postal ballots are serially numbered and have distinguishing water marks in order to avoid
printing of any duplicate ballot papers.
4. The companies are required to specify the last date by which the postal ballot must be received by the
company keeping in view the provisions contained in Rule 5(f) of the Companies (Passing of the Resolution
by Postal Ballot) Rules, 2001, and the instructions at serial number 5 of the Specimen Postal Ballot Form.
5. It is clarified that voting right on postal ballot shall be in proportion to the shareholders share of the paid up
equity share capital of the company.
6. The company secretary along with one of the functional directors should be made responsible for the entire
postal ballot process by means of an appropriate Board resolution. The resolution should be passed in the
Board meeting in which notice required to be sent to the shareholder under section 192A(2) is approved by
the Board. A copy of the Board resolution should be despatched along with item to be included in the
calendar of events within one week of passing of the Board resolution to the concerned Registrar of
Companies for information.
7. A query has been raised whether the Companies (Passing of Resolution by Postal Ballot) Rules, 2001, is
applicable only in respect of list of businesses as notified under Rule 4 of the said Rules. It is hereby clarified
that the Central Government may at any time include or delete the items to be transacted through postal
ballot, therefore, the procedure as specified in the Rules has to be followed for any business to be transacted
through postal ballot.
8. A query has also been raised whether passing of all resolution in respect of ordinary and special business
other than those covered under Rule 4 of the said Rules can be treated as sufficient compliance with
provisions of section 166 of the Companies Act, 1956, and also whether the company is required to convene
a general meeting in case the resolutions are to be passed through postal ballot. While the companies are
required to hold annual general meetings which is a mandatory requirement under section 166 of the
Companies Act, 1956, it is hereby clarified that any listed company which intends to transact such businesses
as notified under Rule 4 of the said Rules has to do so only in the general meeting along with other ordinary
businesses and special business, if any. The companies are required to send notice only in respect of item to
be transacted through postal ballot well in advance so that the reply is received from the shareholders before
the date of the general meeting. This will enable the scrutinizer to be in a position to make an entry in the
appropriate register maintained for the purpose and make it available to the Chairman of the general meeting
who shall declare the results in the general meeting. The date of passing of the resolution will be the date of
the general meeting.
9. The Department is separately taking the following actions for amending the Companies (Passing of the
Resolution by Postal Ballot) Rules, 2001:
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(i) Insert new Rule 2A [Method for sending notice],
(ii) In Rule 4, the word “may” is proposed to be substituted by the word “shall”.
[Not reproduced—See Companies (Passing of the Resolution by Postal Ballot) Amendment Rules,
2001].
XYZ LTD
Registered Office … … … … … … … … … … … … … … … … … … … … … … … … … … … … …
………
Postal Ballot Form
1. Name(s) of shareholder(s) (in block letters) : … … … … … … … … … … … … …
• (including joint holders, if any) … … … … … … … … … … … … … . … … … … … … … …

……………
2. Registered address of the sole/first named :
• shareholder
3. Registered folio No./DP ID No./Client :
• ID No.†
• (†Applicable to investors holding shares
• in dematerialised form)
4. Number of shares held :
5. I/We hereby exercise my/our vote in respect of the ordinary/special resolution to be passed
through postal ballot for the business stated in the notice of the company by sending my/our
assent or dissent to the said resolution by placing the tick (š) mark at the appropriate box
below.
Item No. No. of shares

I/We assent to the resolution
I/We dissent to the resolution
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Place :
Date :
…………………………………………
(Signature of the shareholder)
Instructions
1. A member desiring to exercise vote by postal ballot may complete this Postal Ballot Form and
send it to the company in the attached self-addressed envelope. Postage will be borne and
paid by the company. However, envelopes containing postal ballots, if sent by courier at the
expenses of the registered shareholder will also be accepted.
2. The self-addressed envelope bears the address of the scrutineer appointed by the Board of
directors of the company.
3. This Form should be completed and signed by the shareholder. In the case of joint holding,
this Form should be completed and signed (as per the specimen signature registered with the
company) by the first named shareholder and in his absence, by the next named shareholder.
4. Unsigned Postal Ballot Form will be rejected.
5. Duly completed Postal Ballot Form should reach the company not later than the close of
working hours on … … … … … … … … … (day) … … … … … … … … … … (date). Postal
Ballot Form received after this date will be strictly treated as if the reply from the member has
not been received.
6. Voting rights shall be reckoned on the paid up value of shares registered in the name of the
shareholders on the date of despatch of the notice.
Items to be included in the calendar of events
1. Date of despatch of notice of meeting in which the business as notified by the Central
Government will also be transacted through postal ballot.
2. Date of completion of despatch of notice along with postal ballot.
3. Date of appointment of scrutinizer.
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4. Date on which consent given by the scrutineer to act as scrutineer.
5. Last date for receiving postal ballot papers by scrutineer.
6. Date of signing of the minutes book by the chairman in which the results of ballot is recorded.
7. Date of returning the ballot papers, register required to be maintained by the scrutineer under
Rule 5(e) of the Companies (Passing of the Resolutions by Postal Ballot) Rules, 2001, and
other related papers to the chairman by the scrutinizer.
8. Date of Board resolution authorising one of the functional directors and the secretary to be
responsible for the entire poll process.
9. Date of handing over the ballot papers to the designated authority.” [General Circular No. 16,
dt. 24-07-2001 : Addressed to All Regional Directors, All Registrars of Companies and All
Official Liquidators : (2001) 106 Comp. Cas. (St.) 271].
[s 2.467] Alteration of Memorandum—Shifting of Registered Office from one State to

another—Special Resolution by Postal Ballot [Sections 17 and 192A of the Companies Act,
1956]
Where the Special Resolution to shift the Registered Office of the Company from one State to
another pursuant to section 17 of the 1956 Act has been approved by 99.99%. votes by the
shareholders of the company through Postal Ballot as required by section 192A of the 1956 Act. The
shareholders by 99.99%. affirmative votes confirmed that it would be in the interest of the company
that the Registered Office be shifted from State of Maharashtra to State of Tamil Nadu. In these
circumstances, the objections of the ex-employees/executives/supervisory staff had to be considered
accordingly. Their main apprehension appeared to be that the shifting of the Registered Office might
prejudice their cases in the Labour Court. As by an Affidavit the Company gave an undertaking to
comply with the directions of the Labour Court, the apprehension of the employees no longer
survived. Accordingly, the Alteration in the Memorandum of Association of the petitioner-company as
approved by Special Resolution by the shareholders of the company through Postal Ballot was
confirmed as set forth in the Schedule forming part of this order, subject to the condition that the
company shall ensure compliance with the directions of the Labour Court in cases filed by the ex-
employees/executives/supervisory staff thus: “Resolved that pursuant to the provisions of section 17
of the 1956 Act, Clause II of the Memorandum of Association be altered by the substitution of the
words “State of Tamil Nadu” in place of the words “State of Maharashtra”. Further resolved that
Clause II of the Memorandum of Association shall be read as under: “The Registered Office of the
company shall be situated in the State of Tamil Nadu.” Let a copy of this order be sent to all
objectors”.37
See detailed Notes under sections 17, 17A, 146 and 192A 1956 Act.
[s 2.468] Notice and Draft Resolution [Sub-section (2)]
Section 192A(2) of the 1956 Act provides that the company shall send Notice to all the shareholders
with a Draft Resolution to be passed by Postal Ballot explaining the reasons therefor and requesting
the shareholder to send his assent or dissent in writing on a Postal Ballot. Such assent or dissent
shall be sent within 30 days from the date of posting of the letter by the company.
[s 2.469] Consent, assent or dissent received after 30 days
As per rule 5(f) of the Companies (Passing of the Resolution by Postal Ballot) Rules, 2001 the
consent or otherwise received after 30 days from the date of issue of notice shall be treated as if
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reply from the member has not been received.
[s 2.470] Service of Notice [Sub-section (3)]
The company shall send the notice by registered post with acknowledgement due, i.e., Registered
A.D., or by any other method prescribed by the Central Government. The notice shall contain a
Postage Pre-paid Envelope so that the necessary assent or dissent of the concerned shareholder to
the said resolution can be sent within the prescribed period.
[s 2.471] Method for sending Notice
As per rule 2A of the Companies (Passing of the Resolution by Postal Ballot) Rules, 2001 (a) the
company may issue notices either,—(i) under registered post acknowledgment due; or (ii) under
certificate of posting; and (b) with an advertisement published in a leading English newspaper and in
one vernacular newspaper circulating in the State in which the registered office of the company is
situated, about having despatched the ballot papers.
[s 2.472] Requisite Majority [Sub-section (4)]
If a resolution is assented to by a requisite majority of the shareholders by such postal ballot, it shall
be deemed to have been duly passed at a general meeting of the company.
[s 2.473] Ordinary and Special Resolution [Section 189 of the Companies Act, 1956]
See detailed Notes on Ordinary and Special Resolutions and Section-wise List of Businesses or
Matters requiring sanction of the shareholders or members by Ordinary Resolutions and Special
Resolutions under section 189(1) and (2) of the Companies Act, 1956.
[s 2.474] Manipulation or Defacement [Sub-section (5)]
If the shareholder’s assent or dissent on the postal ballot is fraudulently defaced or destroyed or
tampered with, the person responsible for such defacement shall be punishable with imprisonment
upto 6 months or with fine or with both.
[s 2.475] Penalty [Sub-section (6)]
For default in complying with sub-sections (1) to (4), the company and every officer of the company
who is in default shall be punishable with fine upto Rs 50,000 in respect of each such default.
See also Notes under sections 5, 621 and 621A of the Companies Act, 1956.
[s 2.476] Electronic Mode [ Explanation ]
For the purposes of this section “postal ballot” will include voting by electronic mode or methods.
[s 2.478] Secretarial Standard-2 (SS-2) on General Meetings
See detailed Notes on “Secretarial Standard-2 (SS-2) on General Meetings” issued by the Institute of
Company Secretaries of India (ICSI) and “ICSI Guidance Note on General Meetings” at the end of
See detailed Notes and Requirements of General Meetings and Proceedings, Notice, Quorum,
Resolutions, Minute Book, etc., under sections 165 to 197 of the Companies Act, 1956.
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ICSI Guidance Note explains Secretarial Standards (SS-2) on General Meetings and facilitates Model
Forms, Resolutions, Notices, Demand for Poll, Minutes of the Proceedings of General Meetings, etc.,
[s 2.479] ICSI Guidance Note on Passing of Resolutions by Postal Ballot
The ICSI Guidance Note on General Meetings does not deal with passing of Resolutions through
voting by Postal Ballot, in respect of which a separate Guidance Note has been issued by the ICSI in
September, 2002 which, inter alia, provides for:
1. Introduction.—1.1 The concept of obtaining the consent of the Members of a company by voting by Postal Ballot
has been introduced in the 1956 Act by the Companies (Amendment) Act, 2000, by inserting a new section 192A in the
1956 Act. The Central Government notified Rules, known as the Companies (Passing of the Resolution by Postal
Ballot) Rules, 2001 on 10th May, 2001 and these Rules came into effect from 15th June, 2001, being the date on
which the said section also came into force. Thereafter, the Central Government issued a General Circular No.
16/2001, dt. 24th July 2001 [printed above] setting out its views on various points raised in connection with the concept
of Postal Ballot. The Companies (Passing of the Resolution by Postal Ballot) (Amendment) Rules, 2001, which came
into force from 11th October 2001, have clarified several issues arising out of the Rules. The aforesaid Section, Rules
and Circular form the basis for this Guidance Note.
1.2 In terms of section 192A of the Companies Act, 1956, every Listed Public Company should, in the case of such
items of business as are declared by the Central Government to be conducted only by Postal Ballot, and may, in
respect of any other item of business as may be decided by the Board, obtain the approval of its Members to the
Ordinary or Special Resolution in respect thereof, by means of voting by Postal Ballot instead of transacting the
relevant items of business at General Meetings of the company. Such a Resolution, if assented to by the requisite
majority of the shareholders by means of Postal Ballot, shall be deemed to have been duly passed at a General
Meeting convened in that behalf.
1.3 Voting at General Meetings of companies has always been the most valuable and fundamental mechanism by
which shareholders accept or reject proposals of the Board of Directors. The concept of Postal Ballot is a unique
provision which gives shareholders the right to vote on items of business of a corporate body without actually attending
its General Meetings either personally or through their proxies/representatives. The Department related Parliamentary
Standing Committee on Home Affairs, in its 64th Report on the Companies (Second Amendment) Bill, 1999, had stated
that the experience of several decades has shown that most of the shareholders who reside in far-flung areas are
unable to attend Annual or Extraordinary General Meetings. The concept of Postal Ballot provides an opportunity even
to such shareholders to take part in the decision making process. This concept was also recommended by the Working
Group set up by Government to propose a new Bill to re-enact the Companies Act, 1956, and also by the
Kumarmangalam Birla Committee on Corporate Governance. The facility now provided to all shareholders, regardless
of their location or their ability to be physically present at an appointed day and place, to approve or reject a proposal of
the Board and to vote on items of business, is a further step to encourage corporate democracy and to promote good
corporate governance.
1.4 The process of voting by Postal Ballot as envisaged in section 192A is, therefore, in substitution of and not in
addition to the usual process of putting a Resolution to the vote of the Members at a General Meeting duly convened
for this purpose. Hence, notwithstanding any interpretation of the Rules, Circulars or Clarifications issued in this behalf,
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in respect of a Resolution required to be passed through voting by Postal Ballot, a company is not required to convene
a General Meeting of the Members.
1.5 However, a company is required to hold an Annual General Meeting, every year, as this is a mandatory
requirement under section 166 of the Act.
Paragraphs 2 to 15 of Guidance Note.—Paragraphs 2 to 15 of the ICSI Guidance Note on Passing of Resolutions by

Postal Ballot provide for:
Definitions [Para 2]. Items of Business to be transacted through Postal Ballot [Para 3]. Board Meeting [Para 4].
Notice of Resolution [Para 5]. To whom to be sent [Para 5.1]. Contents [Para 5.2]. Despatch [Para 5.3]. Advertisement
[Para 5.4]. Issue of Duplicate Notice and Postal Ballot Form [Para 5.5]. Voting Rights [Para 6].
Postal Ballots [Para 7]. Form of Ballot [Para 7.1]. Executing the Ballot [Para 7.2]. Deposit of Ballots [Para 7.3].
Scrutiny of Postal Ballots [Para 8]. Tally of Postal Ballot Forms received [Para 8.1]. Valid postal ballot forms [Para 8.2].
Invalid postal ballot forms [Para 8.3]. Maintenance of Record by Scrutinizer [Para 9]. Scrutinizer’s Report [Para 10].
Declaration of Result [Para 11].
Rescinding the Resolution [Para 12]. Modification to the Resolution [Para 13]. Preservation and Custody of Postal
Ballot Forms [Para 14].
Filing with the Registrar of Companies [Para 15].
Annexures A to H of Guidance Note
Annexures A to H of the ICSI Guidance Note on Passing of Resolutions by Postal Ballot provide
Specimen or Model Forms for Passing of Resolutions by Postal Ballot :
Board Resolution [Annexure A]. Notice [Annexure B]. Advertisement [Annexure C]. Postal Ballot
Form [Annexure D]. Scrutinizer’s Report [Annexure E]. Result of Postal Ballot [Annexure F]. Minutes
[Annexure G]. Time-Frame [Annexure H].
[s 2.480] Compliance Certificate—Passing of Resolutions by Postal Ballot
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[s 2.480.2] ICSI Guidance Note on Compliance Certificate
[s 2.480.3] Check-List for other Compliances
Besides 33 paras of Form of Compliance, the ICSI Guidance Note on Compliance Certificate requires
a Practising Company Secretary (PCS) to check certain other Compliances and enumerates under
caption 2 Statutory Meeting/Class Meetings as follows:
(d) Passing of Resolutions by Postal Ballot under section 192 A by a Listed Company.—Check whether :
(i) the company has passed any Resolution by resorting to Postal Ballot;
(ii) the company has passed the Resolution only by Postal Ballot in respect of following business as declared by
the Central Government to be conducted by means of a Postal Ballot:
— alteration in the object clause of Memorandum;
— alteration of Articles of Association in relation to insertion of provisions defining private company;
— buy-back of own shares by the company under sub-section (1) of section 77A;
— issue of shares with differential voting rights as to voting or dividend or otherwise under sub-clause (ii) of
clause (a) of section 86;
— change in place of registered office outside local limits of any city, town or village as specified in sub-section
(2) of section 146;
— sale of whole or substantially the whole of undertaking of a company as specified under sub-clause (a) of sub-
section (1) of section 293;
— giving loans or extending guarantee or providing security in excess of the limit prescribed under sub-section
(1) of section 372A;
— election of a director under proviso to sub-section (1) of section 252 of the Act;
— variation in the rights attached to a class of shares or debentures or other securities as specified under section
106;
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(iii) the company had sent a notice to all the shareholders:
(a) by registered post acknowledgment due or under certificate of posting and has published an
advertisement in a leading English Newspaper and in one vernacular Newspaper circulating in the State
in which the registered office of the company is situated, about having despatched the ballot papers;
(b) along with a draft resolution explaining the reasons therefor and requesting them to send their assent or
dissent in writing on a postal ballot within a period of thirty days from the date of posting of the letter;
(c) along with a postage pre-paid envelope for facilitating the communication of assent or dissent of the
shareholder to the resolution within the said period.
(iv) the appointment of Scrutinizer is in order i.e. w.r.t. Board Resolution;
(v) Postal Ballot papers from the shareholders were received within thirty days from the date of issue of Notice;
(vi) the Board Resolution making the Company Secretary and one of the functional Director responsible for the
entire Postal Ballot process was delivered to ROC within one week of passing such Resolution;
(vii) the company has sent the notice of resolution to be passed by Postal Ballot by Registered post
Acknowledgement Due or under Certificate of Posting;
(viii) the Resolution was passed without modification;
(ix) the Resolution passed was assented to by the requisite majority; and
(x) the Register of Postal Ballot, Postal Ballot Forms and other documents were maintained and preserved till the
Resolution was given effect to.
India (ICSI), Second Edition, August 2003, pages 84–85].
2001, ICSI Guidance Note on Compliance Certificate, e.g. Scope and Specimen of Compliance
See detailed Notes, Form and Procedure under respective Sections.
[s 2.481] Secretarial Standard-4 (SS-4) on Registers and Records
The Council of the Institute of Company Secretaries of India (ICSI) has issued “Secretarial Standard-
4 (SS-4) on Registers and Records” in October, 2005.
[s 2.481.1] Secretarial Standards
Relevant paras of ICSI “Secretarial Standard-4 (SS-4) on Registers and Records”containing

Standard in bold type and other important matters are reproduced below.
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“16. Register of Postal Ballot
16.1 Maintenance.—16.1.1 Every company which is required to or which proposes to get any Resolution passed
through Postal Ballot should maintain a separate Register for each Postal Ballot to record the assent or dissent
received through postal ballot.
The register should be maintained by the Scrutinizer appointed by the Board.
Only those postal ballots which reached the scrutinizer within 30 days from the date of posting of the notice should be
considered. If duplicate notice and postal ballot forms have been issued to any member, the aforesaid time limit is to
be reckoned from the date of posting of the original notice alongwith draft resolution and not from the date of issue of
duplicate notice alongwith draft resolution and duplicate postal ballot form.
Proper record should be maintained for issue of duplicate postal ballots, as it is only the duplicates which will be
considered while ascertaining the result of postal ballot.
16.1.2 The register should contain the following particulars in respect of each postal ballot received: serial number
given by the Scrutinizer; date of receipt of postal ballot form; name, folio number/client ID number of the member;
number of shares held; number of votes in favour; number of votes against; number of invalid votes and reasons
therefor.
A postal ballot form which is otherwise complete in all respects and is lodged within the prescribed time limit but is
undated should be considered valid. Any comment or observation made by the member on the postal ballot form, apart
from the vote exercised by him, should not be considered for determining the validity of the postal ballot form.
16.1.3 Entries in the register should be made immediately after the opening of postal ballots.
16.1.4 Separate folios should be maintained for each Resolution passed through postal ballot.
16.1.5 The register should be kept at the registered office of the company after the Scrutinizer has submitted his report.
16.2 Inspection.—16.2.1 The register, postal ballot forms and all other related records are not available for inspection.
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16.3 Authentication.—16.3.1 All postal ballot forms should be authenticated by the Scrutinizer.
16.3.2 Entries in the register should be authenticated by the Scrutinizer.
16.4 Preservation.—16.4.1 The register, postal ballot forms and all other related records should be kept in the safe
custody of the Scrutinizer till the Chairman signs the Minutes Book in which the result of the voting by postal ballot is
recorded.
16.4.2 The Secretary of the company, Managing Director or Whole-time Director or the Director so authorised and the
Scrutinizer should make adequate arrangements for safe custody of the Register and proof of dispatch of Notices and
all envelopes received by post or by hand, until the Scrutinizer submits his report to the Chairman.
16.4.3 The Scrutinizer should return the postal ballot forms and any related documents or records to the designated
person of the company for safekeeping until the resolution has been implemented.
16.4.4 The Scrutinizer’s report and office copies of the notices should be preserved in good order until the resolution
has been implemented or for a period of 10 years, whichever is later.”
[Secretarial Standard-4 (SS-4) on Registers and Records, Issued by the Institute of Company
Secretaries of India (ICSI), October, 2005, para 16, pages 43 to 45 : the ICSI website
http://www.icsi.edu : See Fuller Text in Notes under section 163 of the Companies Act, 1956].
See detailed Notes under sections 163, 192A and 383A of the Companies Act, 1956.
[s 2.482] Accounting and Auditing Practices
Salient Sections of the 1956 Act on General Meetings for Chartered Accountants are:
[s 2.483] General Meetings, Resolutions and Minutes [Sections 166 to 197 of the Companies
Act, 1956]
Annual General Meeting [section 166 of the 1956 Act]. Calling of Extraordinary General Meeting on
Requisition [section 169 of the 1956 Act]. Length of Notice for Calling meeting [section 171 of the
1956 Act]. Explanatory Statement to be annexed to Notice [section 173 of the 1956 Act]. Quorum for
Meeting [section 174 of the 1956 Act]. Proxies [section 176 of the 1956 Act]. Representation of
corporations at meeting of companies and of creditors [section 187 of the 1956 Act]. Ordinary and
Special Resolutions [section 189 of the 1956 Act]. Resolutions requiring Special Notice [section 190
of the 1956 Act]. Requirement and procedure for Passing of Resolution by Postal Ballot [section
192A of the 1956 Act]. Minutes of proceedings of General, Board and other Meetings [section 193 of
the 1956 Act] and Publication of reports of proceedings [section 197 of the 1956 Act] of the 1956 Act.
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See detailed Notes and Extracts from Statement on Auditing Practices and Chartered Accountants
Ready Referencer under sections 166 to 197 of the 1956 Act.
[s 2 (66)]: Prescribed.—Prescribed means prescribed by rules made under this Act
NOTES
as follows:
in the Bill.
This definition of prescribed is a reproduction of the definition which was proposed in the Companies
Bill, 2011.
Under the 2013 Act, the Central Government has been vested with powers to make all rules under
the Act, including rules relating to winding up.38 Under the 1956 Act, the both the Central Government
and the Supreme Court in consultation with the Tribunal were empowered to prescribe rules relating
to winding up.
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Prescribed [S 2(33)].—“Prescribed” means, as respects the provisions of this Act relating to the winding up of
companies except sub-section (5) of section 503, [sub-section (3) of section 550, section 552 and sub-section (3) of
section 555], prescribed by rules made by the Supreme Court in consultation with [The Tribunal], and as respects the
other provisions of this Act including sub-section (5) of section 503, [sub-section (3) of section 550, section 552 and
sub-section (3) of section 555], prescribed by rules made by the Central Government.
NOTES
The Supreme Court in consultation with the High Courts [the Tribunal (NCLT) constituted under
section 10FB] may prescribe by rules the procedure for winding up of companies under the
provisions of the 1956 Act except sections 503(5), 550(3), 552 and 555(3).
The Central Government has been given power to make rules in respect of all other matters including
also in respect of winding up under sections 503(5), 550(3), 552 and 555(3) of the 1956 Act.
NOTES
THE COMPANIES (AMENDMENT) ACT, 1960 (65 OF 1960) - The Notes on clauses explained the amendments as
follows:
So as to accord with the correct constitutional position the changes proposed will firstly take away from the Supreme
Court, and vest in the Central Government, the power to make rules in relation to withdrawal and payment into the
public account of India of moneys handled by the Official Liquidator and secondly, vest in the Supreme Court, rather
than in the Central Government, the power to frame rules for inspection of books and papers of the company, while in
the custody of the Official Liquidator, as liquidation in such cases will be under the supervision of the Court and should
appropriately be subject to uniform rules framed by the Supreme Court. (See para 21 of the Report.)” [Clause 2(h) of
the Companies (Amendment) Bill, 1959 (37 of 1959)]. The Companies (Amendment) Act, 1960 has been repealed by
the Repealing and Amending Act, 2016.
“The definition of the word ‘prescribed’ in section 2(33), as it now stands, appears to vest in the Supreme Court of India
powers of rule-making which include matters falling outside its jurisdiction. In the absence of Parliamentary legislation,
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Article 283(1) of the Constitution vests the rule-making power in the President with reference to deposits into or
withdrawals from the public account of India, or monies realised by the Official Liquidator. Consequently, the Supreme
Court cannot be empowered to frame rules in respect of the above matter as section 2(33) read with section 552
purports to do. Under section 555(3) of the Act, the Liquidator in the winding up of a company, is required to furnish to
the officer authorised by the Central Government a statement in the prescribed form, giving particulars relating to
monies deposited in the Companies’ Liquidation Account, in the public account of India, in the Reserve Bank. For this
purpose, the Central Government has appointed the Registrars of Companies as ‘officers’ to whom the said statement
is to be furnished. Under section 555(7)(b) of the Act, the Central Government is empowered to make an order for
payment of the amount due to any claimant on a certificate by the Liquidator or on other materials. The power to
prescribe the form of the statements to be made by the Liquidator to the officer appointed by the Central Government
under section 555(3) should appropriately vest in the Central Government and not in the Supreme Court. On the other
hand, as we have suggested in paras 187 and 204 infra, the power to prescribe rules for the inspection of the books
and papers of a company in liquidation, at present exercisable by the Central Government under section 549, could
appropriately be vested in the Supreme Court. For these reasons, section 2(33) and section 643 would have to be
amended by taking away the power of the Supreme Court to frame rules in respect of matters provided for in sections
552 and 555(3) of the Act and vesting it with power to make rules as respects the matter provided for in section 549 of
the Companies Act, 1956. [Report : para 21].
[s 2.487] Rules
Prescribed means prescribed by the Rules. In exercise of the powers conferred by section 642 of the
1956 Act, the Central Government has, inter alia, made the Companies (Central Government’s)
General Rules and Forms, 1956.39 The Supreme Court has in exercise of powers conferred by
section 643 [now conferred on the Central Government by the Companies (Second Amendment) Act,
2002 (11 of 2003)] made the Companies (Court) Rules, 1959. See detailed Notes under sections 642
and 643 of the 1956 Act.
[s 2 (67)]: Previous Company Law.—Previous company law means any of the laws specified below:—
(i) Acts relating to companies in force before the Indian Companies Act, 1866;
(ii) the Indian Companies Act, 1866;
(iii) the Indian Companies Act, 1882;
(iv) the Indian Companies Act, 1913;
(v) the Registration of Transferred Companies Ordinance, 1942;
(vi) the Companies Act, 1956; and

(vii) any law corresponding to any of the aforesaid Acts or the Ordinances and in force—
(A) in the merged territories or in a Part B State (other than the State of Jammu and
Kashmir), or any part thereof, before the extension thereto of the Indian Companies Act,
1913; or
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(B) in the State of Jammu and Kashmir, or any part thereof, before the commencement of the
Jammu and Kashmir (Extension of Laws) Act, 1956, in so far as banking, insurance and
financial corporations are concerned, and before the commencement of the Central Laws
(Extension to Jammu and Kashmir) Act, 1968, in so far as other corporations are
concerned;
(viii) the Portuguese Commercial Code, in so far as it relates to sociedades anonimas; and
(ix) the Registration of Companies (Sikkim) Act, 1961
NOTES
as follows:
the Bill.
This definition of previous company law is a reproduction of the definition which was proposed in the
The only addition to this is that it also incorporates the 1956 Act under previous company law.
Previous Companies Law [S 2(34)] - Previous companies law means any of the laws specified in clause (ii) of sub-
section (1) of section 3.
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NOTES
The relevant extract of the section is reproduced below:
… (ii) “existing company” means a company formed and registered under any of the previous companies laws
specified below : - (a) any Act or Acts relating to companies in force before the Indian Companies Act, 1866 (10 of
1866), and repealed by that Act; (b) the Indian Companies Act, 1866 (10 of 1866); (c) the Indian Companies Act, 1882
(6 of 1882); (d) the Indian Companies Act, 1913 (7 of 1913); (e) the Registration of Transferred Companies Ordinance,
1942 (54 of 1942); and (f) any law corresponding to any of the Acts or the Ordinance aforesaid and in force - (1) in the
merged territories or in a Part B States (other than the State of Jammu and Kashmir), or any part thereof, before the
extension thereto of the Indian Companies Act, 1913 (7 of 1913); or (2) in the State of Jammu and Kashmir, or any part
thereof, before the commencement of the Jammu and Kashmir (Extension of Laws) Act, 1956 (62 of 1956), insofar as
banking, insurance and financial corporations are concerned, and before the commencement of the Central Laws
(Extension to Jammu & Kashmir) Act, 1968 (25 of 1968), insofar as other corporations are concerned; and (g) the
Portuguese Commercial Code, insofar as it relates to “sociedades anonimas”; (iii) “private company” 1 [means a
company which has a minimum paid-up capital of one lakh rupees or such higher paid-up capital as may be
prescribed, and by is articles, -] (a) restricts the right to transfer its shares, if any; (b) limits the number of its members
to fifty not including - (i) persons who are in the employment of the company; and (ii) persons who, having been
formerly in the employment of the company, were members of the company while in that employment and have
continued to be members after the employment ceased; and (c) prohibits any invitation to the public to subscribe for
any shares in, or debentures of, the company; 2 [(d) prohibits any invitation or acceptance of deposits from persons
other than its members, directors or their relatives:] Provided that where two or more persons hold one or more shares
in a company jointly, they shall, for the purposes of this definition, be treated as a single member; 3 [(iv) “public
company” means a company which - (a) is not a private company; (b) has a minimum paid-up capital of five lakh
rupees or such higher paid-up capital, as may be prescribed; (c) is a private company which is a subsidiary of a
company which is not a private company.] (2) Unless the context otherwise requires, the following companies shall not
be included within the scope of any of the expressions defined in clauses (i) to (iv) of sub-section (1), and such
companies shall be deemed, for the purposes of this Act, to have been formed and registered outside India : (a) a
company the registered office whereof is in Burma, Aden or Pakistan and which immediately before the separation of
that country from India was a company as defined in clause (i) of sub-section (1); (b) [Omitted by the J&K (Extension of
Laws) Act, 1956]
[s 2 (68)]: Private company.—“private company” means a company having a minimum paid-up share capital 40[* * *]
as may be prescribed, and which by its articles,—
(i) restricts the right to transfer its shares;
(ii) except in case of One Person Company, limits the number of its members to two hundred:
Provided that where two or more persons hold one or more shares in a company jointly, they shall, for
the purposes of this clause, be treated as a single member:
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(A) persons who are in the employment of the company; and
(B) persons who, having been formerly in the employment of the company, were members of the company
while in that employment and have continued to be members after the employment ceased,
shall not be included in the number of members; and
(iii) prohibits any invitation to the public to subscribe for any securities of the company;
NOTES
12-09-2013 and the corresponding provision is section 3(1)(iii) of the 1956 Act.
as follows:
the Bill.
This definition of “private company” is a reproduction of the definition which was proposed in the
Companies Bill, 2011. The 2005 JJ Irani Committee had recommended that private companies and
small companies be provided with greater flexibility and freedom of operation while enabling
compliance at low cost. The Committee had also recommended that simpler dispute resolution
procedures be evolved, which however, was not tabled in the Companies Act, 2011. It was observed
by the JJ Irani Committee as follows:
Private companies represent a different set of relationships in terms of ownership, risk and reward as compared to
public companies. Since private companies do not access capital markets, they require less rigorous protection for
their shareholders. They however represent an important organizational form for conduct of business. Therefore there
is a case for lighter regulatory overhang over private companies. The existing law provides for certain relaxations to
private companies on account of their nature. We are of the view that this approach should be continued and amplified
where appropriate.
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The 2013 Act has made certain modifications to the definition of a private company. The changes
brought about by the 2013 Act are:
(i) The maximum number of members permissible in a private company has been increased
from 50 (fifty) to 200 (two hundred).
(ii) The 2013 Act introduces the concept of a One Person Company as a private company.
(iii) The requirement of minimum paid-up capital of a company has been done away with,
although the Government still has the power to prescribe the amount of minimum paid-up
share capital, as it may feel necessary from time to time.
(iv) The restriction on a private company inviting or accepting deposits other than from members,
relatives or directors has been omitted from the definition, although the position in law
remains the same. Acceptance of deposits by a private company is regulated under sections
73 to 76 of the Companies Act, 2013 and the (Acceptance of Deposits) Rules, 2014 along
with their notifications.41
(v) The 2013 Act has also amended the prohibition on a private company making an invitation to
the public to subscribe to shares or debentures in the company. The restriction has been
extended to any kind of security that may be issued by the company, as defined in the
Securities Contract (Regulation) Act, 1957.
[s 2.492] Restrictions on all shareholders
The restrictions as to transfer of shares in Articles of a private company must be made applicable in
respect of all the shareholders. There cannot be any discrimination.
[s 2.493] Restrictions on transfer in Articles to be binding
Restrictions contained only in the Articles of Association of a private company are binding. Additional
restrictions on the member’s right to transfer his shares contrary to the articles of the company,
contained in an agreement between the members, shall not be binding on the shareholders or the
company.
[s 2.494] Employees and former employees
The above limit on members as may be prescribed shall be not including—(i) persons who are in the
employment of the company, and (ii) persons who, formerly in the employment, were members of the
company while in that employment and have continued to be members after the employment ceased.
[s 2.495] Joint shareholders [Proviso to Section 2(68)(iii) of the Companies Act, 2013]
For the purposes of this definition, joint-shareholders shall be treated as a single member. The joint
shareholders are therefore counted as one member. This s. corresponds to section 3(1)(iii) of the
1956 Act.
[s 2.496] Section 2(68)(iii) of the Companies Act, 2013
Sub-clause (c) of clause (iii) of sub- section (1) of section 3 provides that a private company must by
its Articles prohibit any invitation to the public to subscribe for any securities of, the company. This
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section corresponds to section 3(1)(iii)(c) of the 1956 Act.
[s 2.497] Private company ceasing to be private [Section 14 of the Companies Act, 2013]
If a private company, alters its articles in a manner that they no longer include the restrictions and
limitations under section 2(68) of the 2013 Act, it shall cease to be a private company.
See detailed Notes under sections 14 of the 2013 Act. This corresponds to section 43 and 44 of the
1956 Act.
[s 2.498] Certificate with Annual Return by a Private Company [Sections 92 of the Companies
Act, 2013]
Every private company having a share capital shall file with the Registrar of Companies an Annual
Return in the prescribed form.
See Notes under section 92 and Rule 11 of the Companies (Management and Administration) Rules,
2014.42
[s 2.499] Exemptions to private companies under the Companies Act, 2013
Unlike the 1956 Act, in which relaxations for private companies were inbuilt in the 1956 Act itself, the
2013 Act has introduced certain relaxations to private companies through Notification F No. 1/1/2014-
CL.V, released on 05-06-201543. The following are the relaxations introduced for private companies:
1. Related parties.—Sub-clause (viii) of clause (76) of section 2 of the 2013 Act, which states
that a holding, subsidiary or an associate company will be a related party of a company, will
not apply to a private company.
2. Shares with differential voting rights.—A private company may issues shares with
differential voting rights, provided that the memorandum of association and articles of the
company expressly exclude the applicability of sections 43 and 47 of the 2013 Act.
3. Further issue of share capital.—A private company may fix more restrictive time periods
than is specified in section 62 of the 2013 Act, if consent of 99% of members is received.
[Section 62(1)(i) and section 62(2) of the 2013 Act]
4. Employee Stock Option.—A private company need not pass a special resolution, but only
an ordinary resolution to amend its employee stock option scheme, as required under section
62(1)(b) of the 2013 Act.
5. Restrictions on a company for purchase of its shares.—The restrictions provided in

section 67 of the 2013 Act would not apply to a private company provided it satisfies the
criteria laid down in the notification.
6. Acceptance of deposits from public.—The prohibitions contained in section 73 of the 2013

Act for acceptance of deposits from members by a private company monies not exceeding
100% of its paid-up share capital and free reserves, and the company is required to file the
details of the monies so received with the RoC is not applicable.
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7. Management and Administration.—The provisions of sections 101 to 107 and section 109
of the 2013 Act can be excluded if the Sections may provide, or the Sections are excluded by
the Articles of a company.
8. Resolutions to be filed.—A private company is exempted from filing resolutions as required

under section 117(3)(g) of the 2013 Act, for resolutions passed for matters under section 179
of the 2013 Act.
9. Qualifications of Auditors.—Section 141(3)(g) of the 2013 Act will not apply to a private
company, subject to satisfaction of the criteria mentioned in the 05-06-2015 Notification.
10. Appointment and qualification of Directors.—Section 160 (Right of persons other than
retiring directors to stand for directorship) of the 2013 Act and section 162 (Appointment of
additional directors, alternate director and nominee director) of the 2013 Act do not apply to
private companies.
11. Meetings of Board and its powers.—Section 180 (Restrictions on powers of Board) of the
2013 Act does not apply to a private company.
12. Disclosure of interest by director.—A director of a private company will be entitled to

participate in the meeting after disclosure of interest under section 184(2) of the 2013 Act.
13. Loan to Directors.—The provisions of section 185 of the 2013 Act do not apply to a private
company, subject to satisfaction of the criteria laid down for a private company under the
Notification.
14. Related party transactions.—The provisions of section 188(1) of the 2013 Act, whereby
consent of the Board of Directors is required for certain related party transactions, will not be
applicable to a private company.
15. Appointment of managing director, whole-time director or manager.—Sections 196(4)

and (5) are not applicable to private companies.
In terms of [Notification No. G.S.R. 464E dt. 5 June 2015 44], there are several provisions of the 2013
Act that do not apply to private companies; or, if they do, subject to such exceptions, modifications
and adaptations are therein specified. A full list of such exemptions, as well as any relevant
exceptions, modifications and adaptations, is set out below; a private company while complying with
such exceptions, modifications and adaptations must ensure that the interests of their shareholders
are protected.
[S 3(1)(iii)] “private company” 45[means a company which has a minimum paid-up capital of one lakh rupees or such
higher paid-up capital as may be prescribed, and by its articles,—]
(a) restricts the right to transfer its shares, if any;
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(b) limits the number of its members to fifty not including—
(i) persons who are in the employment of the company, and
(ii) persons who, having been formerly in the employment of the company, were members of the company
while in that employment and have continued to be members after the employment ceased; and
(c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company;
46[(d) prohibits any invitation or acceptance of deposits from persons other than its members, directors or
their relatives:]
Provided that where two or more persons hold one or more shares in a company jointly, they shall, for
the purposes of this definition, be treated as a single member;
NOTES
Section 3(1)(iii) of the 1956 Act corresponds to section 2(68) of the 2013 Act.
English Act, 1948 : Section 455Companies Act, 1913 : sections 2, 2A
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on clauses explained this provision as follows:
This combines clauses (2), (7), (13) and (13A) of sub-section (1) of section 2 and section 2A of the existing Act. The
Acts enumerated in clause 3(1)(ii) are previous companies laws. Proviso (i) to section 2A of the existing Act has
become spent and has therefore been omitted. [Clause 3 of the Companies Bill, 1953 (46 of 1953)].
THE COMPANIES (AMENDMENT) ACT, 2000 (53 OF 2000)47.—The Notes on clauses explained as follows:
This clause seeks to amend section 3 of the Act so as to provide for a minimum paid up capital of one lakh rupees for
private companies and a minimum paid up capital of five lakhs rupees for public companies or such higher paid up
capital as may be prescribed and also to provide that no private company shall invite or accept deposits from persons
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other than its members, directors or their relatives. [Clause 3 of the Companies (Second Amendment) Bill, 1999 (139
of 1999)].
[s 2.501] Private Company [Section 3(1)(iii)]
Section 3(1)(iii) as amended by the Companies (Amendment) Act, 2000 (w.e.f. 13-12-2000) defines
the private company to mean a company which has a minimum paid-up capital of Rs 1 lakh or such
higher sum as may be prescribed, and by its Articles (a) restricts the right to transfer its shares, (b)
limits the number of its members to 50 not including—(i) persons in the employment of the company,
and (ii) persons former employee-members continuing to be members, (c) prohibits invitation to the
public to subscribe for shares in, or debentures of, the company, and (d) prohibits invitation or
acceptance of deposits from persons other than its members, directors or their relatives. As per
proviso joint shareholders are for the purposes of this definition treated as a single member.
[s 2.502] Minimum paid-up capital of Private Company
Section 3(1)(iii) as amended (w.e.f. 13-12-2000) provides that a private company shall have a
minimum paid-up capital of Rs 1 lakh or such higher paid-up capital as may be prescribed.
[s 2.503] Four Restrictions in Articles of a Private Company [Section 3(1)(iii)(a) to (d) of the
A private company is a “close corporation”, its members are connected by bonds of kinship and
friendship and the intrusion of an outsider as a member is undesirable unless he is a persona grata to
the existing members.
The Articles of Association of a private company, for this reason, must contain four restrictions,
enumerated in section 3(1)(iii) (a) to (d) of the Act, as amended by the Companies (Amendment) Act,
2000, as explained below.
[s 2.504] Restriction on the Right to Transfer Shares [Section 3(1)(iii)(a) of the Companies
Act, 1956]
Sub-clause (a) of clause (iii) of sub- section (1) of section 3 provides that a private company must by
its Articles restrict the right to transfer its shares, if any.
Restrictions on all shareholders
The restrictions as to transfer of shares in Articles of a private company must be made applicable in
respect of all the shareholders. There cannot be any discrimination.
[s 2.505] Restrictions on transfer of shares
Sections 108-111 of the 1956 Act shall not affect the right of a private company under its Articles to
enforce the restrictions regarding transfer of shares of the private company. [section 111(13) of the
1956 Act]. Section 111 of the 1956 Act [Power to refuse registration and appeal against refusal]
applies to private companies [section 111(14) of the 1956 Act].
[s 2.506] Restrictions on transfer in Articles to be binding
Restrictions contained only in the Articles of Association of a private company are binding. Additional
company. In spite of such an agreement the company can transfer the shares at the request of a
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member.48 Where the Articles of association of a private company prohibited the transfer of shares
without previous sanction of the directors, there should be a written resolution of the Board of
Directors passed at the meeting of the Board and such previous sanction should precede the handing
over of the shares.49 The shares of a private company are not “marketable security” as defined in
section 2(h) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956). A contract for sale and
purchase of shares in a private company is thus not governed by the provisions of the Securities
Contracts (Regulation) Act, 1956.50
Transfer of shares of a private company must be in strict compliance with the Articles of Association
of the private company, failing which the transfer will be liable to be set aside. Transfer of shares in
violation of Articles of a private company is not permissible. Where Articles permitted transfer to
outsiders only where no member was willing to purchase, in case of pledge of shares to supplier as
security for payment for goods without any notice to the members, the Board of Directors were right
in refusing to transfer the shares in his name.51
Where Articles of a private company prohibited transfer of shares to non-members, the court auction
does not remove this prohibition and the Board of Directors shall be entitled under Articles to refuse
to register the shares to a non-member.52
[s 2.507] Articles cannot prohibit transfer
The Articles of Association of the private company can impose restrictions and regulate the transfer
but cannot prohibit transfer. But, a restriction that gives a right of pre-emption is a valid restriction and
does not amount to prohibition.53 Where absolute discretion is given to the Board of Directors to
refuse sanction for transfer, disapproval must be personal to particular transferee. Absolute ban on
transfer to corporate bodies would not be valid.54
See also Notes under sections 82, 108 and 111 under the Companies Act, 1956.
[s 2.508] Private Company—Transfers of Shares
Shares are movable property and are transferable. As far as Private Companies are concerned, the
Articles of Association restrict the shareholder’s right to Transfer shares and prohibit any invitations to
the public to subscribe for any shares in, or debentures of, the company. Subject to this restriction, a
holder of shares in a Private Company may agree to sell his shares to a person of his choice. Such
Agreements are specifically enforceable under section 10 of the Specific Relief Act, 1963 (47 of
1963). An agreement may provide for future fixation of the price of the shares. Such a price may be
fixed by a third party or by the parties themselves and such an agreement is valid. The transfer of
shares by one shareholder in favour of another is valid if it complied with the provisions of the Articles
of Association of the Company and the conditions of the Board Resolution. Where the Board
Resolution showed that the Transfer Deeds were placed before the Board for approval, it would be
presumed that the transfers were duly executed and mandatory requirements were satisfied. The
price of the shares may be determined later. It would not render the transfers void.55
[s 2.509] Pre-emptive rights
Restriction by the Articles of a private company on sale of shares to strangers so long as other
members are willing to buy them at a price prescribed by the Articles, in exercise of pre-emptive right
under the Articles, is a valid restriction in a private company. The private company has the right to
enforce the pre-emptive provisions in the Articles.56
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[s 2.510] Civil Suit
Right of pre-emption available to the members of the family has to be agitated in civil court. This
cannot be done in writ petitions as it is a question of fact which requires evidence to be adduced
before any finding is given thereon.57
[s 2.511] Valuation of shares
Articles may specify the mode of valuation. In case of application for relief in cases of oppression or
mismanagement under sections 397, 398 and 402 of the Companies Act, 1956, the Court [the
Company Law Board (the Tribunal)] (now the NCLT) may fix the price of shares of private company
and may make an order as it thinks fit.58
Where the company registered the shares in names of the purchasers, the Articles provided that the
valuation shall be final and binding on the members. This cannot prevent a member whose shares
are subject to valuation from challenging the validity of the valuation especially when the error
appears on the valuation itself.59
[s 2.512] Joint-holders
A notice of sale of shares given to the joint-holder, whose name first appears on the register is
binding on other joint-holders. The Calcutta High Court has held that the restriction usually contained
in a private company’s Articles on transfer of shares to outsiders is not an absolute restriction and a
bona fide purchaser for consideration is entitled to have his name entered in the Register.60
[s 2.513] Legal representatives
Pre-emptive rights contained in a private company’s Articles can be exercised in case of voluntary
transfer of shares as also in case of succession of such shares on the death of a member. The
Articles are binding on the representative of a deceased member. Where pre-emptive clause in
Articles permitted transfer of the shares by a member to his relatives, the representative could
transfer the shares to the widow of the deceased member.61 On the death of a member, the person,
who inherits or gets shares under a Will, first offers the shares to the company, if he intends to
dispose them off.62
[s 2.514] Mortgagees
Restrictions on the right of transfer or pre-emption in Articles of a private company shall be binding on
mortgagees and even on the company itself if it claims lien on the shares under its Articles.63
[s 2.515] Equitable interest
The pre-emption provisions in Articles apply only when a member proposes to sell or transfer the
legal title in his shares, i.e., the owner of the shares sufficiently evinces a desire to transfer the legal
interest in his shares and not where he merely creates an equitable interest.64
[s 2.516] Refusal to record transfer
The company does not lose the right of refusing to register a transfer or transmission by reason of its
failure to do so within 2 months.65
[s 2.517] Restriction on the Number of Members [Section 3(1)(iii)(b) of the Companies Act,
1956]
Sub-clause (b) of clause (iii) of sub- section (1) of section 3 provides that a private company must by
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its Articles limit the number of its members to 50.
[s 2.518] Employees and former employees
The above limit of 50 members shall be not including—(i) persons who are in the employment of the
company, and (ii) persons who, formerly in the employment, were members of the company while in
that employment and have continued to be members after the employment ceased.
In counting the number of members all employees who obtained shares during their employment
would be excluded. Such employee shareholders may remain employees of the company or they
may have left the employment of the company but have continued to be members and retained their
shareholdings.
[s 2.519] Director not employee
A director is not an employee for this purpose. He will be counted as a member.66
[s 2.520] Joint shareholders [Proviso to Section 3(1)(iii) of the Companies Act, 1956]
For the purposes of this definition, joint-shareholders shall be treated as a single member. The joint
shareholders are therefore counted as one member.
Where Articles of a private company, containing usual pre-emption clause, provided that no
shareholder will be entitled to transfer his shares except to other shareholders of the company, the
transfer of shares to one of several joint-holders shall be permissible. Joint-holders of shares are also
shareholders of the company. They are treated as one member only for the purpose of proviso to
section 3(1)(iii). The joint-holders are entitled to register themselves separately but at the same time
the directors may refuse to do so, if it contravenes the provisions of the Act and is likely to endanger
its remaining private company, i.e., it would result in increasing its total number of members beyond
the maximum limit of 50.67
[s 2.521] Company not a single member
A private company may have a shareholder, which is a private company or a public company. A
shareholder which is a private company or a public company should be treated not as one member
but as many members as there are shareholders in the company holding the shares.
To illustrate, if X Co. Pvt. Ltd. has 50 members and it holds one share in Y Co. Pvt. Ltd. which has 10
shareholders then Y Co. Pvt. Ltd. will be deemed to have 9 plus 50, i.e., 59 members.
Private Companies enjoy certain Privileges and Exemptions (enumerated later), principally on the
ground that they are family concerns in which the public is not directly interested. The main object of
giving certain privileges to a private company was that it would operate as a family business, a
partnership on a small scale and without taking advantage of public money.
[s 2.522] Debenture-holders not members
Though the number of shareholders or members in a private company cannot exceed 50, there is no
restriction on the number of debenture-holders so long as they are not members.
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However, section 3(1)(iii)(c) prohibits invitation to the public to subscribe for shares in, or debentures
of, the company as explained below.
[s 2.523] Restriction on issue of Prospectus [Section 3(1)(iii)(c) of the Companies Act, 1956]
Sub-clause (c) of clause (iii) of sub- section (1) of section 3 provides that a private company must by
its Articles prohibit any invitation to the public to subscribe for any shares in, or debentures of, the
company.
See detailed Notes on Meaning of Invitation to public or Construction of references to offering shares
or debentures to the public under section 67 of the 1956 Act.
[s 2.523.1] Department’s View— Private placement of equity shares : Renunciation of rights

by a private company prohibited under section 3(1)(iii)(c)
It has come to the notice of the Government that some companies utilise the services of brokers and other
intermediaries for private placement of equity shares, out of promotors’ quota or otherwise, insert advertisements in the
print media and also mass-mail literature/material/brochures superscribed by the caption “Confidential/For private
circulation only”. It is also noticed that the rights of renunciation are floated in the market by the companies themselves,
charging unofficial premia from the investing public. Under section 67(3) of the Companies Act, 1956, no offer or
invitation shall be treated as made to the public, only if the same can be regarded, in all the circumstances—
(a) as not being calculated to result, directly or indirectly, in the shares or debentures becoming available for
subscription or purchase by persons other than those receiving the offer or invitation; or
(b) otherwise as being a domestic concern of the persons making and receiving the offer or invitation.
In the context of the above provisions of law, such offers cannot be treated as private placement and provisions
relating to prospectus under the Companies Act, 1956, are applicable. The companies concerned, their promoters and
their intermediaries are hereby warned that making of so-called private placement of shares or collecting unofficial
premia without recording the same in the books of account of the company, are serious contraventions of the
Companies Act and will invite penal action under the Act by the Government. It may be noted that marketing of rights
of renunciation by a private company is prohibited under section 3(1)(iii)(c) of the Companies Act, 1956, as it cannot
make any invitation to the public to subscribe for its shares. [Clarification F. No. 17/6/92-CL-V, dt, 6-07-1992 :
Chartered Secretary, August 1992, page 719 : (1992) 75 Comp. Cas. (St.) 25].
The Companies Amendment Act, 2000, through its first proviso clarified that any offer or issue of
shares to above 50 members will be a public offer.
[s 2.524] Restriction on acceptance of Deposits [Section 3(1)(iii)(d) of the Companies Act,

1956]
A private company must by its Articles prohibit invitation or acceptance of deposits from persons
other than its members, directors or their relatives.
Acceptance of deposits from persons approached individually or by private letters will not be hit by
this section. Acceptance of deposits or renewals of deposits on the basis of personal negotiations will
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not be within the purview of this section. There should be an invitation by advertisement just like
public issue of shares and debentures inviting deposits or renewal thereof to attract the provisions of
this section.
Section 3(1)(iii)(d) as amended by the Companies (Amendment) Act, 2000 prohibits a private
company from inviting or accepting deposits from persons other than its members, directors or
relatives. A company cannot be incorporated as a private company after the Amendment unless its
Articles provide for this prohibition. However, the absence of such a prohibition in the Articles of an
existing private company cannot ipso facto change its character into a public company.68
For provisions relating to Invitation and Acceptance of Deposits see Notes under sections 58A and
58B of the 1956 Act.
[s 2.525] Privileges and Exemptions to a Private Company (not being a subsidiary of a public
company)
A Private Company is entitled to several privileges and exemptions conferred on private companies
by or under the 1956 Act. These are enumerated below. See detailed Notes under respective
sections.
(1) Two or more persons, but not exceeding 50, may form a private company. [sections 12(1) and
3(1)(iii)].
(2) A private company may allot shares without issuing a prospectus or statement in lieu of
prospectus. [section 70(3) of the 1956 Act]
(3) It can give financial assistance for purchase of its shares or its holding company’s shares. [section
77(2) of the 1956 Act]
(4) Further issue of shares need not be offered to the existing shareholders. [section 81(3)(a) of the
1956 Act]
(5) A private company may issue not only equity and preference shares but also deferred shares or
any other kind of shares. It may issue shares with disproportionate voting rights. The restrictions
relating to the nature of shares and the voting rights attached to them applicable to public companies
do not apply to a private company. [sections 85–89 vide section 90(2) of the 1956 Act]
(6) Sections 108, 109, 110 and 111 of the 1956 Act shall not affect the right of a private company
under its Articles to enforce the restrictions regarding transfer of shares of the private company.
[section 111(13) of the 1956 Act]
(7) The provisions relating to share warrants are not applicable to a private company. [sections 114
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and 115 of the 1956 Act]
(8) As soon as the Certificate of Incorporation is received, a private company may commence
business. The restrictions contained in section 149 of the 1956 Act to the commencement of
business will not apply to a private company. The provisions of section 149(2A) do not apply to a
private company. [s. 149(7) of the 1956 Act]
(9) A private company need not hold a statutory meeting or file a statutory report with the Registrar.
(10) A private company may exclude the provisions of the Act relating to general meetings and can
make its own provisions by its Articles. The length of notice for a general meeting may be shorter or
longer than 21 days, the manner of service of notice, the election of Chairman, proxies, manner of
taking votes, restriction on the exercise of votes, demand of polls and taking of polls may be different
from the provisions of the Act. [sections 171–186 vide section 170(1)(ii) of the 1956 Act]
(11) The restrictions about the remuneration of the managerial personnel and the limit of 11% of the
net profits do not apply to a private company. [section 198(1) of the 1956 Act]
(12) The restriction that a body corporate cannot be appointed to any office or place of profits for
more than 5 years does not apply to a private company. [section 204(6) of the 1956 Act]
(13) The profit and loss account of a private company filed with the Registrar cannot be inspected by
the public. Only a member of the company is entitled to inspect or obtain copies of the profit and loss
account. [section 220(1)(a) of the 1956 Act]
(14) A private company may have only two directors, whereas a public company must have at least
three directors. [section 252(2) of the 1956 Act]
(15) The restrictions regarding appointment and reappointment of directors, and the provisions
relating to retirement of directors by rotation do not apply to a private company. The directors in a
private company need not retire by rotation. [sections 255 and 256 of the 1956 Act]
(16) The special notice required to be given by a person seeking election to the post of a director is
not necessary. [section 257(2) of the 1956 Act]
(17) To increase the number of directors beyond 12 or the maximum mentioned in the Articles of
Association the approval of the Central Government is not necessary. [section 259 of the 1956 Act].
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(18) The provisions relating to the mode of appointment to casual vacancies in the Board of
Directors, the duration of such appointment, the provisions requiring that each director should be
appointed by a separate resolution, the requirement that the consent of each candidate for
directorship should be filed with the Registrar and provisions relating to proportional representation
for the appointment of directors do not apply to a private company. [sections 262–265 of the
(19) The restrictions on the appointment or advertisement for appointment of director do not apply to
a private company. [section 266(5) of the Companies Act, 1956]
(20) For the appointment or reappointment or amending the terms and conditions relating to
managing or whole-time director no approval of the Central Government is necessary. [sections 268
and 269(2) of the Companies Act, 1956]
(21) A director need not hold the share qualification, he need not acquire qualification shares within
two months, he need not file a declaration of share qualification with the Registrar. [sections 270 and
272 vide section 273 of the Companies Act, 1956]
(22) The Act has provided certain disqualifications for the appointment of director. A private company
may add to such disqualifications. [section 274(3) of the Companies Act, 1956]
(23) The restriction that no person shall be a director of more than 20 companies, does not include
directorships held in a private company which is neither a subsidiary nor a holding company of a
public company. [sections 275–277 vide section 278 of the Companies Act, 1956]
(24) A private company may provide by its Articles of Association that the office of a director shall be
vacated on any ground in addition to those mentioned in section 283(1). [section 283(3) of the
Companies Act, 1956].
(25) A private company may exclude the provisions of the Act relating to Board meetings and can
make its own provisions by its Articles. [sections 285–290 read with sections 171–186 vide section
170(1)(ii) of the 1956 Act]
(26) The restrictions on the powers of the Board of Directors as regards (a) sale, lease or disposal of
the undertaking of the company; (b) restrictions to remit or give time for repayment of a debt due by
director; (c) investment of the amount received by the company as compensation for compulsory
acquisition of its assets; (d) borrowing money exceeding paid-up capital and free reserves of the
company; or (e) contribution to charitable and other funds exceeding Rs 50,000 or 5%. of net profits,
do not apply. [section 293(1) of the Companies Act, 1956]
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(27) The restriction that without the approval of the Central Government a company cannot make any
loan to a director or give any guarantee or provide any security in connection with a loan does not
apply. [section 295(2) of the Companies Act, 1956]
(28) The restriction that a director interested in a particular resolution should not participate in the
meeting of the Board of Directors or should not vote at such a resolution does not apply. Age of
directors, etc., need not be entered in the Register of Directors. [sections 300(2) and 303(1)(a) of the
1956 Act]
(29) The restriction that the directors cannot be paid remuneration exceeding 3% of the net profits or
the provision that any increase in the remuneration of a director, managing director, or whole-time
director will require the Central Government’s permission is not applicable to a private company.
[sections 309(9), 310 and 311 of the 1956 Act]
(30) The restriction that a Managing Director cannot be a managing director of more than two
companies does not apply to a private company. A private company can appoint a managing director
for more than 5 years at a time. [sections 316(1) and 317(4) of the Companies Act, 1956]
(31) The provisions relating to determination of net profits (section 349) and ascertainment of
depreciation (section 350) do not apply to a private company. [section 355 of the Companies Act,
1956]
(32) The provisions relating to inter-corporate loans and investments, e.g., any loan made, any
guarantee given or any security provided or any investment made, do not apply to a private company,
unless it is a subsidiary of a public company. [section 372A(8)(a)(iii) of the 1956 Act]. Earlier sections
370(2)(iv) and 372(14) have been replaced by new section 372A inserted by the Companies
(Amendment) Act, 1999 (21 of 1999)
(33) The provisions restricting the appointment of a manager and limiting his remuneration to 5%. of
the net profits and subjecting him to provisions of sections 269, 310, 311, 312 and 317 of the 1956
Act will not apply to a private company. [sections 386–388 vide section 388A]
(34) The powers of the Company Law Board [now the Tribunal] to prevent any change in the Board of
directors a company cannot be exercised in relation to a private company. [section 409(3) of the
(35) The provisions that a manager or other agent who enters into a contract on behalf of the
company in which contract the company is an undisclosed principal shall make a memorandum in
writing of the terms of the contract will not apply to a private company. [section 416(1) of the
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The above privileges and exemptions to private companies have been annotated in Notes under
relevant Sections under separate caption Private Company.
See detailed Notes under respective sections.
[s 2.526] Certificate with Annual Return by a Private Company [Sections 3(1)(iii) and Section
161 of the Companies Act, 1956]
Every private company having a share capital shall file with the Registrar of Companies along with
the annual return a certificate signed by the signatories of the return, stating also, (i) that the
company has not, since the date of the annual general meeting with reference to which the last return
was submitted, or in the case of a first return, since the date of the incorporation of the company,
issued any invitation to the public to subscribe for any shares or debentures of the company, and (ii)
that, where the annual return discloses the fact that the number of members of the company exceeds
50, the excess consists wholly of persons who under sub-clause (b) of clause (iii) of sub- section (1)
of section 3 are not to be included in reckoning the number of 50. [Section 161(2)(b) of the 1956 Act].
[s 2.527] Consequences of default in complying Section 3(1)(iii) [Section 43 of the Companies

Act, 1956]
Where default is made by a private company in complying with any of the provisions of section
3(1)(iii), the company shall cease to be entitled to the privileges and exemptions conferred on private
companies by or under this Act, and the provisions of the Act shall apply to the company as if it were
not a private company. However, the Company Law Board69 has power to grant relief from such
consequences on an application by the company or any other person interested on such terms and
conditions as the Company Law Board thinks just and expedient. [Section 43 of the 1956 Act].
[s 2.528] Amalgamation
Where the Central Government objected to a sanction being granted to a scheme of amalgamation
on the ground that due to amalgamation the number of members of the private transferee-company
would exceed 50 and the transferee company would become a public company. The objection was
raised that this cannot be done. Rejecting the objection the Court [now the Tribunal] held that it was
for the amalgamated company to take steps in accordance with the provisions of the Act after such
amalgamation.70
[s 2.529] Private Body carrying on Public Functions
The Rajasthan High Court, following the decision of the Supreme Court in Federal Bank Ltd v Sagar
Thomas,71 and Andi Mukta Sadguru Shree Muktajee Vandas Swami Suvarna Jayanti Mahotsav
Smarak Trust v V.R. Rudani, has observed that when a private body exercises its public functions
even if it is not a State, the aggrieved person has a remedy not only under the ordinary law but also
under the Constitution, by way of a writ petition under Article 226.72
A private company which is a subsidiary of a public company will be deemed to be a public company.
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See Notes under section 3 (Public Company).
[s 2.530] Trading in Shares of a Private Company
The assesse claimed that it was in the business activity of trading in the shares of a private company.
Such a business activity, was, per se, invalid, as shares of a private limited company could not be
traded over a stock exchange.
[s 2.531] Resolutions converting a Private Company into a Public Company
It has been held by a a Division Bench of the Supreme Court73, where a company has passed
resolutions converting itself and Form 23 has been filed with the RoC, and a statement in lieu of
prospectus was filed, the company converts itself into a public company with immediate effect,
without having to wait for any decision to be rendered by the Registrar of Companies,
74[s 2(69)] Promoter.—“promoter” means a person—
(a) who has been named as such in a prospectus or is identified by the company in the annual return referred to
in section 92; or
(b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or
otherwise; or
(c) in accordance with whose advice, directions or instructions the Board of Directors of the company is
accustomed to act:
Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional
capacity;
NOTES
in effect from 12-09-2013 and the corresponding provision is Explanation (a) to section 62(6) of the
as follows:
the Bill.
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This newly introduced clause exhaustively defines the term “promoter”. While it is easy to identify a
person as a promoter in terms of sub clause (a) as it covers a factual aspect, to identify a person as a
promoter in terms of sub clauses (b) and (c), the same has to be established with adequate material.
This definition has not covered a situation when a company is promoted by one or more body
corporates.
Section 62(6)(a) of the Companies Act, 1956 defined the term “promoter” for the purpose of fixing
liability under section 62 which provided for civil liability for mis-statements in prospectus. The
definition of promoter under section 62 of the 1956 Act was restricted to a person who was party to
the preparation of the prospectus or portion thereof containing any untrue statement and also
includes an exclusion as provided in section 62(6)(a) of the 1956 Act. The expression “promoter” has
not been defined in the 1956 Act. The definition in sub-section (6) of section 62 of the 1956 Act is
restricted to and is meant for the purposes of civil liability for mis-statement in prospectus only.
Reference is made in section 62 of the Companies Act, 1956 to a person who is named as a
promoter in the annual return.
Promoter group is also defined in the SEBI (ICDR) Regulations, 2009. Definition of “control” as given
in section 2(27) of the 2013 Act is similar to the definition under SEBI (SAST) Regulations, 2011 and
this term would include a person acting in concert with any other person and hence would cover
“promoter group” as defined in the SEBI (ICDR) Regulations. This has a bearing on compliance of
section 93 of the 2013 Act which requires change in shareholding of the promoter group to be
disclosed to the Registrar from time to time.
[s 2.534] Allied Legislation [s 2.534.1] Definition of Promoters and Promoters Group
SEBI (ICDR) Regulations, 2009.—Regulation 2(1)(za) of the said Regulations gives an inclusive
definition which is reproduced below:
“promoter” includes:
(i) the person or persons who are in control of the issuer;
(ii) the person or persons who are instrumental in the formulation of a plan or programme pursuant to which
specified securities are offered to public;
(iii) the person or persons named in the offer document as promoters:
Provided that a director or officer of the issuer or a person, if acting as such merely in his professional
capacity, shall not be deemed as a promoter:
Provided further that a financial institution, scheduled bank, 75[foreign portfolio investor other than
Category III foreign portfolio investor] and mutual fund shall not be deemed to be a promoter merely by
virtue of the fact that 10%. or more of the equity share capital of the issuer is held by such person;
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Provided further that such financial institution, scheduled bank and 76[foreign portfolio investor other than
Category III foreign portfolio investor] shall be treated as promoter for the subsidiaries or companies
promoted by them or for the mutual fund sponsored by them;
[s 2.535] Meaning of Promoter group
Regulation 2(1)(zb) of the said Regulations also gives an inclusive definition of promoter group which
is reproduced below:
“promoter group” shall include—
(i) the promoter;
(ii) an immediate relative of the promoter (i.e. any spouse of that person, or any parent, brother, sister or child of
the person or of the spouse); and
(iii) in case promoter is a body corporate—
(A) a subsidiary or holding company of such body corporate;
(B) any body corporate in which the promoter holds 10% or more of the equity share capital or which holds
10% or more of the equity share capital of the promoter;
(C) any body corporate in which a group of individuals or companies or combinations thereof who holds 20%
or more of the equity share capital in that company also holds 20% or more of the equity share capital of
the issuer company; and
(iv) in case the promoter is an individual,—
(A) any body corporate in which 10% or more of the equity share capital is held by the promoter or an
immediate relative of the promoter or a firm or Hindu Undivided Family(HUF) in which the promoter or
any one or more of his immediate relative is a member;
(B) any body corporate in which a body corporate as provided in (A) above holds 10% or more of the equity
share capital;
(C) any HUF or firm in which the aggregate shareholding of the promoter and his immediate relatives is
equal to or more than 10% of the total; and
(v) all persons whose shareholding is aggregated for the purpose of disclosing in the prospectus under the
heading “shareholding of the promoter group”.
Provided that a financial institution, scheduled bank, 77[foreign portfolio investor other than Category III foreign portfolio
investor] and mutual fund shall not be deemed to be promoter group merely by virtue of the fact that 10% or more of
the equity share capital of the issuer is held by such person :
Provided further that such financial institution, scheduled bank and 78[foreign portfolio investor other than Category III
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foreign portfolio investor] shall be treated as promoter group for the subsidiaries or companies promoted by them or for
the mutual fund sponsored by them.
Meaning of promoter group for the subsidiaries or companies promoted by them or for the mutual
fund sponsored by them. The definition of the word promoter group for the subsidiaries or companies
promoted by them or for the mutual fund sponsored by them has the same meaning as in the SEBI
(Issue of Capital and Disclosure Requirements) Regulations, 2009 and includes a member of the
promoter group;
[SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 1997 has been replaced by SEBI
(Substantial Acquisition of Shares & Takeovers) Regulations, 2011 vide Notification No. LAD-
NRO/GN/ 2011-12/24/30181, dt. 23-09-2011]
[s 2.536] Position of promoters
In Weavers Mills Ltd v Balkis Ammal, AIR 1969 Mad. 462, Madras High Court held as follows: As to the exact legal
status of promoters, the statutory provisions, both in England and in this country, are silent in most part except for a
couple of sections in the Specific Relief Act, both old and new one. It appears that a promoter is neither an agent nor a
trustee of the company under incorporation but certain fiduciary duties have been imposed on him both under the
English Companies Act, 1948 (now 1985) and the Indian Companies Act, 1956. He is not an agent because there is no
principal and he is not a trustee as there is no cestui-que-trust. It is on this ground that the doctrine of ratification by the
company was regarded as inapplicable to the actual promoter vis-a-vis the company under incorporation. See also
Omnium Electric Palaces Ltd v Baine.79
[s 2 (70)]: Prospectus.—“Prospectus” means any document described or issued as a prospectus and includes a red
herring prospectus referred to in section 32 or shelf prospectus referred to in section 31 or any notice, circular,
advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a
body corporate.
NOTES
1956.
as follows:
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the Bill.
This definition of prospectus is a reproduction of the definition which was proposed in the Companies
Bill, 2011.
The definition of the term under the 2013 Act corresponds to section 2(36) of the 1956 Act with
specific mention herein that a red herring prospectus (section 32 of the 2013 Act) and shelf
prospectus (section 31 of the 2013 Act) are also covered under this definition.
Please see detailed Notes under sections 26, 31 and 32 of the Companies Act, 2013.
[s 2.539] Offer or invitation to public
The test of a Prospectus is whether the document invites deposits or offers to buy securities from the
public.
“Public” is a general term. No particular numbers are prescribed. Anything from two to infinity may
serve; perhaps even one, if he is intended to be the first of a series of subscribers, but makes further
proceedings needless by himself subscribing the whole. The point is that the offer is such as to be
open to anyone who brings his money and applies in due form whether the prospectus was
addressed to him on behalf of the company or not.80
[s 2.540] Matters to be stated in Prospectus
For the matters to be stated and reports to be set out in prospectus see section 26 of the 2013 Act.
See detailed Notes under Prospectus.
See also Abridged prospectus [section 2(1)]. Rule 58(1) of the SEBI (Issue of Capital and Disclosure
Requirements) Regulations provides that an abridged prospectus shall contain the disclosures of the
memorandum prescribed under sub- section (3) of section 56 of the 1956 Act and additional
disclosures as specified in Pt D of Schedule VIII of SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2009. The disclosures set out in section 56(3) of the 1956 Act have been
correspondingly set out in section 26(1) of the 2013 Act.
[s 2.541] Vetting of Prospectus/Offer Document by SEBI
The draft prospectus and the offer document is required to be vetted by the SEBI before issue to see
that the same is in compliance with the requirements of the 2013 Act and the SEBI(Issue of Capital
and Disclosure Requirements) Guidelines, 2009. See detailed Notes under section 26 and the SEBI
Guidelines.
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Prospectus [s 2(36)]: Prospectus” means [any document described or issued as a prospectus and includes any]
notice, circular, advertisement or other document [inviting deposits from the public or] inviting offers from the public for
the subscription or purchase of any shares in, or debentures of, a body corporate.
NOTES
This is based on the definition found in the English Act [section 455(1)]. The words ‘but shall not include any trade
advertisement which shows on the face of it that a formal prospectus has been prepared and filed’, which occur in the
definition in the existing Indian Act have been omitted as suggested in para 27 of the Company Law Committee’s
Report. [Clause 2(30) of the Companies Bill, 1953 (46 of 1953)].
In the definition of ‘prospectus’, we have included trade advertisements, which were in our view erroneously excluded
by the Indian Companies (Amendment) Act, 1936. [Report : para 27].
“The amendment is purely clarificatory. (See para 22 of the Report.)” [Clause 2(i) of the Companies (Amendment) Bill,
1959 (37 of 1959)]. The Companies (Amendment) Act, 1960 has been repealed by the Repealing and Amending Act,
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2016.
The recommendations the Companies Act Amendment Committee, 1957 are reproduced below:
The definition of ‘prospectus’ taken from the English Act is not happy inasmuch as a ‘prospectus’ is defined as
meaning ‘any prospectus, notice, etc.’ What is meant is probably that any document, described as a prospectus, has to
be regarded as a prospectus within the meaning of the Act. If so, ‘prospectus’ might be defined as meaning ‘any
document described or issued as a prospectus or any notice, circular, advertisement or other document inviting offers
from the public for the subscription or purchase of any shares in, or debentures of, a body corporate.’ The definition
includes a newspaper advertisement. It has been pointed out that advertisement charges for the insertion in a
newspaper of a prospectus with full statutory particulars are inordinately heavy in the case of companies with a modest
capital and that a newspaper advertisement of the fact of the floatation of a company should be excluded from the
definition of ‘prospectus’. Sections 56 to 65 of the Companies Act, 1956 (1 of 1956) contain stringent provisions
regarding the contents of prospectuses but section 66 of the Companies Act provides that where any prospectus is
published as a newspaper advertisement, it shall not be necessary in the advertisement to specify the contents of the
memorandum or certain other particulars referred to in the section. There is no reason to exclude newspaper
advertisements from the definition of ‘prospectus’ if there is an invitation to the public to subscribe for shares or
debentures. A mere announcement in a newspaper about the formation of a company or of the fact of the publication
of a prospectus by the company in connection with the issue of shares or debentures without any invitation to the
public to subscribe need not be included in the definition of prospectus provided the place where a copy of the
prospectus may be obtained is stated in the announcement. [Report : para 22].
follows:
This amendment is consequential to the insertion of sections 58A and 58B regarding deposits invited by companies
from the public. [Clause 2(iv) of the Companies (Amendment) Bill, 1972 (72 of 1972)].
[s 2.543] Offer or invitation to public
The test of a Prospectus is whether the document invites deposits or offers to buy shares or
debentures from the public.
[s 2.544] Vetting of Prospectus/Offer Document by SEBI
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The office of the Controller of Capital Issues (CCI) has been replaced by the SEBI (SEBI). Now
instead of consent of CCI the draft prospectus and the offer document is required to be vetted by the
SEBI before issue to see that the same is in compliance with the requirements of the 1956 Act and
the SEBI Guidelines. See detailed Notes under sections 55A and 56 of the 1956 Act.
[s 2 (71)]: Public Company.—“public company” means a company which— (a) is not a private company; (b) has a
minimum paid-up share capital82 [***], as may be prescribed: Provided that a company which is a subsidiary of a
company, not being a private company, shall be deemed to be public company for the purposes of this Act even where
such subsidiary company continues to be a private company in its articles;
NOTES
12-09-2013 and the corresponding provision is section 2(37) and 3(1)(iv) of the 1956 Act.
as follows:
the Bill.
This definition of “public company” is a reproduction of the definition which was proposed in the
Companies Bill, 2011. The JJ Irani Committee had recommended that issue a certificate of
commencement of business is not necessary even for a public company the amount of capital is to
be paid up immediately after registration. This recommendation was not codified in law.
The 2013 Act section corresponds to section 3(1)(iv) of the 1956 Act. Through the Companies
(Amendment) Act 2015, the minimum paid-up capital of Rs 5 Lakh has been omitted. The
requirement of minimum paid-up capital has been done away with for both private and public
companies, although the Central Government retains the power to prescribe the minimum paid-up
capital.
Further, the 2013 Act clarifies in the proviso that a deemed public company will be a public company
even if the Articles of the company provide otherwise.
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In terms of Notification No. G.S.R. 464E dt. 5th June 2015, there are several provisions of the 2013
Act that do not apply to private companies; or, if they do, subject to such exceptions, modifications
and adaptations are therein specified. Public companies are, however, beyond the pale of such
exemptions or exceptions and must comply with all the said provisions.
83[S 3(1)(iv)] “public company” means a company which—
(b) has a minimum paid-up capital of Rs 5 lakh or such higher paid-up capital, as may be prescribed;
(c) is a private company which is a subsidiary of a company which is not a private company.]
NOTES
[s 2.547] Public Company [Section 3(1)(iv) of the Companies Act, 1956]
Section 3(1)(iv) as substituted by the Companies (Amendment) Act, 2000 (53 of 2000) with effect
from 13-12-2000 defines that the public company means a company which—(a) is not a private
company, (b) has a minimum paid-up capital of Rs 5 lakhs or such higher paid-up capital as may be
prescribed, and (c) is a private company which is a subsidiary of a company which is not a private
company. These sub-clauses are explained below.
[s 2.548] Company which is not a Private Company [Section 3(1)(iv)(a) of the Companies Act,
1956]
Sub-clause (a) of clause (iv) of sub- section (1) of section 3 provides that public company means a
company which is not a private company.
Meaning of Private Company [section 3(1)(iii)] has already been explained in preceding paragraphs.
As already explained, the Articles of a private company must contain four restrictions enumerated in
section 3(1)(iii) (a) to (d). Thus, if the articles do not contain these restrictions, it will be a public
company. Under the 2013 Act, a private company needs to contain the three restrictions as
mentioned above, it will be a private company.
[s 2.549] Minimum paid-up capital of Public Company [Section 3(1)(iv)(b) of the Companies
Act, 1956]
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A public company shall have a minimum paid-up capital of Rs 5 lakhs or such higher paid-up capital
as may be prescribed. The requirement of a minimum paid-up capital has been omitted in the 2013
Act through the Companies (Amendment) Act, 2015.
[s 2.550] Private company subsidiary of a company which is not a private company [Section
3(1)(iv)(c) of the Companies Act, 1956]
Sub-clause (c) of clause (iv) of sub-section (1) of section 3 as substituted (w.e.f. 13-12-2000)
provides that a private company which is a subsidiary of a company which is not a private company
shall be a public company. The 2013 Act also clarifies that such company will be a deemed public
company even if the articles of the company provide that it is a private company.
[s 2.551] Basic characteristics and Advantages of Private Company becoming or treated as

Public Company [Sections 3(1)(iv) and 43 of the Companies Act, 1956]
A Private Company (a) which makes default in complying with section 3(1)(iii) [Sections 3(1)(iv) and
43 of the 1956 Act], (b) which is a subsidiary of a company which is not a private company [section
3(1)(iv) of the 1956 Act ], or (c) which has altered its Articles which no longer include four restrictions
under section 3(1)(iii) [section 44 of the 1956 Act] ceases, becomes or is treated as a public
company.
Such a private company is deprived of many of the privileges and exemptions of a private company
and cannot claim the privileges and exemptions enumerated hereinbefore excepting privileges under
sections 12(1), 70, 81, 149, 165, 179, 220, 252 and 266 of the 1956 Act explained below as
enumerated in section 43A of the 1956 Act. Such provision has not been provided in the 2013 Act.
(i) Its Articles of Association may include restrictions specified in section 3(1)(iii). See Notes under
Private Company. [section 3(1)(iii) of the 1956 Act]
(ii) The number of its members may be below seven. [section 12(1) of the 1956 Act]
(iii) It may allot shares without issuing a prospectus or statement in lieu of prospectus. [section 70(3)
of the 1956 Act]
(iv) It cannot give the right of renunciation while issuing right shares [section 81(3)(a) of the 1956 Act]
(v) As soon as the Certificate of Incorporation is received, it may commence business. The
restrictions in section 149 to the commencement of business and section 149(2A) will not apply to it.
(vi) It need not hold a statutory meeting or file a statutory report with the Registrar. [section 165(10) of
the 1956 Act]
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(vii) Restriction on demand of polls and taking of polls may be different. [section 179(1)(b) of the 1956
Act]
(viii) Its profit and loss account when filed with the Registrar of Companies may not be open to
inspection by the public if the Central Government so directs in the public interest. [section 220(1)(a)
of the 1956 Act]
(ix) It may have only two directors, whereas a public company must have at least three directors.
(x) The restrictions on the appointment or advertisement for appointment of director do not apply to a
private company. [section 266(5) of the 1956 Act]
And when the necessary conditions do not obtain, it may go back into its old corporate shell and
function once again as a private company with all the rights, privileges and exemptions applicable to
private companies, after observing the formalities required for conversion of a public company into a
private company.
See detailed Notes under sections 43 and 44 of the 1956 Act.
[s 2.552] Conversion of a Private Company into Public Company, and Public Company into
Private Company
Section 14 of the 2013 Act provides that a company, subject to the provisions of the 2013 Act and the
conditions contained in its memorandum, may pass a special resolution for alteration of its articles
having the effect of conversion of the company from a private company to a public company, or a
public company to a private company. When a private company alters its articles to not contain the
restrictions for a private company, it shall cease to be a private company. Every public company
converting itself into a private company shall not take effect unless the Tribunal passes an order
authorizing such conversion84.
[s 2.553] Private Company—Subsidiary of Public Company—Treated as Public Company in

terms of fiction of Section 3(1)(iv)(c) in relation to other provisions of Act but not with
reference to its Basic Characteristics—Basic Characteristics of Private Company in terms of
Section 3(1)(iii) will continue to govern
The basic characteristics of a Private Company in terms of section 3(1)(iii) of the 1956 Act do not get
altered just because “Private Company is a subsidiary of a Public Company in view of the fiction in
terms of section 3(1)(iv)(c) of the 1956 Act that it is a public company. May be it is a public company
in relation to other provisions of the 1956 Act but not with reference to its basic characteristics. In
terms of that s., a company is a private company when its Articles restrict the right of transfer of
shares, restrict its membership to 50 (other than employee shareholders) and prohibits invitation to
public to subscribe to its shares. Therefore, all the provisions in the Articles to maintain the basic
characteristics of a private company in terms of section 3(1)(iii) of the 1956 Act will continue to govern
the affairs of the company even though it is a subsidiary of a public company. One of the basic
characteristics of a private company in terms of that section is restriction on the right to transfer and
the same will apply even if a Private Company is a subsidiary of a Public Company. In the instant
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case, it was contended that since at the time of transfer of shares, the Private Company was a
subsidiary of the sixth respondent, in terms of section 3(1)(iv)(c) of the 1956 Act, the company was a
Public Company and therefore, its shares were freely transferable in terms of section 111A of the
1956 Act. Rejecting this contention, it was held that since transfer of shares of a Private Company
has to be strictly in accordance with Articles, the company should always follow the terms of the
applicable Articles in respect of any transfer.85
See also Notes under sections 87, 111, 111A, 286, 300, 397 and 398 of the 1956 Act.
[s 2.554] Conversion of Private Company into Public Company and vice versa
See Notes under sections 31 and 44 of the 1956 Act.
[S 2(72)]: Public Financial Institution.—Public financial institution means-
(i) the Life Insurance Corporation of India, established under section 3 of the Life Insurance Corporation Act,
1956;
(ii) the Infrastructure Development Finance Company Limited, referred to in clause (vi) of sub-section (1) of
section 4A of the Companies Act, 1956 so repealed under section 465 of this Act;
(iii) specified company referred to in the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002;
(iv) institutions notified by the Central Government under sub-section (2) of section 4A of the Companies Act,
1956 so repealed under section 465 of this Act;
(v) such other institution as may be notified by the Central Government in consultation with the Reserve Bank of
India:
Provided that no institution shall be so notified unless—
(A) it has been established or constituted by or under any Central or State Act; or
(B) not less than fifty-one per cent. of the paid-up share capital is held or controlled by the Central
Government or by any State Government or Governments or partly by the Central Government and
partly by one or more State Governments
NOTES
12-09-2013 and the corresponding provision is section 2(4-A) of the 1956 Act.
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as follows:
This definition of public financial institution is a reproduction of the definition which was proposed in
the Companies Bill, 2011.
The Companies Bill, 1997 had proposed shifting of this concept to PFI (Obligations as to Fidelity and
Secrecy) Act, 1983. The JJ Irani Committee had concurred with this view, and observed as follows:
There is no reason why a relaxed framework in respect of corporate governance should be provided to such
institutions through exemptions in provisions of company law. Such institutions should be put through similar
requirements of financial and management prudence as other Fis. Therefore, the Committee does not see any reason
why the special regime for Public Financial Institutions provided under the Companies Act, 1956, should continue.
Under sub-clause (v) of section 2(72) of the 2013 Act, the Central Government may specify any
institution as a public financial institution for the purposes of the 2013 Act, on fulfillment of prescribed
conditions under the said section.86 An institution will have to be constituted by or under a Central or
State Act, or not less than 51% of the paid-up share capital will have to be held by the Central
Government/State Government (s)/ Central Government together with one or more State
Government(s).
Section 2(72) specifically provides that the institutions notified by the Central Government under
section 4-A(2) of the 1956 Act as public financial institutions will continue to be public financial
institutions under the 2013 Act.
See Notes below for list of notified public financial institutions.
87[S4A] Public financial institutions.—(1) Each of the financial institutions specified in this sub-section shall be
regarded, for the purposes of this Act, as a public financial institution, namely:— The Companies Act, 1956 provision
(i) the Industrial Credit and Investment Corporation of India Ltd, a company formed and registered under the
Indian Companies Act, 1913 (7 of 1913);
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(ii) the Industrial Finance Corporation of India, established under section 3 of the Industrial Finance
(iii) the Industrial Development Bank of India, established under section 3 of the Industrial Development
Bank of India Act, 1964 (18 of 1964);
(iv) the Life Insurance Corporation of India, established under section 3 of the Life Insurance Corporation
Act, 1956 (31 of 1956);
(v) the Unit Trust of India, established under section 3 of the Unit Trust of India Act, 1963 (52 of 1963);
88[(vi) the Infrastructure Development Finance Company Ltd, a company formed and registered under
this Act;]
• 89[(vii) ***]
(2) Subject to the provisions of sub-section (1), the Central Government may, by notification in the Official Gazette,
specify such other institution as it may think fit to be a public financial institution:
Provided that no institution shall be so specified unless—
(i) it has been established or constituted by or under any Central Act, or
(ii) not less than 51%. of the paid-up share capital of such institution is held or controlled by the Central
Government.]
NOTES
THE COMPANIES (AMENDMENT) ACT, 1974 (41 OF 1974).—The Notes on clauses explained this provision as
follows:
“This clause introduces a new section, viz., section 4A, defining ‘public financial institution’.” [Clause 3 of the
THE COMPANIES (AMENDMENT) ACT, 1999 (21 OF 1999).—The Statement of Objects and Reasons explained the
“(a) to declare Infrastructure Development Finance Company Ltd as a public financial institution;” [Extracts from
Statement of Objects and Reasons appended to the Companies (Amendment) Bill, 1998 (174 of 1998)]. See Full Text
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in Notes under section 1. The Companies (Amendment) Act, 1999 has been repealed by the Repealing and Amending
Act, 2016.
THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 (54 OF
2002).—The Notes on clauses explained as follows:
“This clause seeks to amend the Companies Act, 1956 in the manner specified in the Schedule.” [Clause 41 of the
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Bill, 2002 (53 of 2002)].
The Statement of Objects and Reasons explained the reasons for insertion of clause (vii) of sub-
section (1) as follows:
“(f) declaration of any securitisation company or reconstruction company registered with the Reserve Bank of India as
a public financial institution for the purpose of section 4A of the Companies Act, 1956.”
The Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004 (00 of
2004).—Clause (vii) of sub-section (1) has been omitted (w.r.e.f. 11-11-2004).
[s 2.558] Public Financial Institutions [Section 4A(1)(i) to (vii) of the Companies Act, 1956]
For the purposes of the 1956 Act certain institutions have been specified as public financial
institutions. The institutions specified under sub- section (1) of section 4A as public financial
institutions are as follows:
(i) the Industrial Credit and Investment Corporation of India Ltd, formed and registered under the
Indian Companies Act, 1913 (7 of 1913);
(ii) the Industrial Finance Corporation of India, established under section 3 of the Industrial
Finance Corporation Act, 1948 (15 of 1948);
(iii) the Industrial Development Bank of India, established under section 3 of the Industrial
Development Bank of India Act, 1964 (18 of 1964);
(iv) the Life Insurance Corporation of India, established under section 3 of the Life Insurance
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(v) the Unit Trust of India, established under section 3 of the Unit Trust of India Act, 1963 (52 of
1963);
(vi) the Infrastructure Development Finance Company Ltd, a company formed and registered
under this Act.
In addition to above public financial institutions specified under section 4(1), the Central Government
has notified public financial institutions under section 4A(2).
[s 2.559] Powers of the Central Government [Section 4A(2) of the Companies Act, 1956]
The Central Government has been given power to specify any institution established by a Central Act
or any institution in which not less than 51%. of the share-capital is held or controlled by the Central
Government as a public financial institution.
Earlier the powers and functions of the Central Government under section 4A(2) had been delegated
to the Company Law Board vide Notification No. G.S.R. 443(E), dt. 18-10-1972, this notification has
since been rescinded by Notification No. G.S.R. 287(E), dt. 31-05-1991. For details see Notes under
sections 10E and 637of the 1956 Act.
[s 2.560] Criteria for eligibility as public financial institution
Vide Circular F No. 3/3/2010/CL.V, dt. 02-06-2011, the MCA has specified the following additional
criteria that a public financial institution must fulfill in order to be eligible for notification as a public
financial institution.
(a) A company or corporation should be established under a special Act or the companies Act
being Central Act;
(b) Main business of the company should be industrial/infrastructural financing;
(c) The company must be in existence for at least 3 years and their financial statement should
show that their income from industrial/ infrastructural financing exceeds 50% of their income;
(d) The net-worth of the company should be Rs 1,000 crore;
(e) Company is registered as Infrastructure Finance Company (IFC) with RBI or as an Housing
Finance Company (HFC) with National Housing Bank;
(f) In the case of CPSUs/SPSUs, no restriction shall apply with respect to financing specific
sector(s) and net-worth.
[s 2.561] Public Financial Institutions specified under Section 4A(2) of the Companies Act,
1956.— Notification No. S.O. 1329, dated 8-05-1978
“In exercise of the powers conferred by sub-section (2) of section 4A of the Companies Act, 1956 (1 of 1956), the
Central Government hereby specifies the following institutions to be public financial institutions, namely:—
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90[(1) Industrial Reconstruction Bank of India established under the Industrial Reconstruction
Bank of India Act, 1984 (62 of 1984).]
(2) General Insurance Corporation of India established under the General Insurance Business
(Nationalisation) Act, 1972 (57 of 1972).
(3) National Insurance Company Ltd, formed and registered under the Companies Act, 1956 (1
of 1956).
(4) New India Assurance Company Ltd, formed and registered under the Companies Act, 1956
(1 of 1956).
(5) Oriental Fire and General Insurance Company Ltd, formed and registered under the
Companies Act, 1956 (1 of 1956).
(6) United Fire and General Insurance Company Ltd, formed and registered under the
Companies Act, 1956 (1 of 1956).
91[(7) Shipping Credit and Investment Company of India Ltd, formed and registered under the
Companies Act, 1956 (1 of 1956).]
92[(8) Tourism Finance Corporation of India Ltd, formed and registered under the Companies
Act, 1956 (1 of 1956).]
93[(9) IFCI Venture Capital Funds Ltd, formed and registered under the Companies Act, 1956 (1
of 1956).]
94[(10)Technology Development and Information Company of India Ltd, formed and registered
under the Companies Act, 1956 (1 of 1956).]
95[(11)Power Finance Corporation Ltd, formed and registered under the Companies Act, 1956 (1
of 1956).]
96[(12)National Housing Bank, established under the National Housing Bank Act, 1987 (53 of
1987).]
97[(13)Small Industries Development Bank of India, established under the Small Industries
Development Bank of India Act, 1989 (39 of 1989).]
98[(14)Rural Electrification Corporation Ltd, formed and registered under the Companies Act,
1956 (1 of 1956).]
99[(15)Indian Railway Finance Corporation Ltd, formed and registered under the Companies Act,
1956 (1 of 1956).]
100[(16) Industrial Finance Corporation of India Ltd, formed and registered under the
Companies Act, 1956 (1 of 1956).]
101[(17) Andhra Pradesh State Financial Corporation.
(18)Assam Financial Corporation.
(19)Bihar State Financial Corporation.
(20)Delhi Financial Corporation.
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(21)Gujarat State Financial Corporation.
(22)Haryana Financial Corporation.
(23)Himachal Pradesh Financial Corporation.
(24)Jammu and Kashmir State Financial Corporation.
(25)Karnataka State Financial Corporation.
(26)Kerala Financial Corporation.
(27)Madhya Pradesh Financial Corporation.
(28)Maharashtra State Financial Corporation.
(29)Orissa State Financial Corporation.
(30)Punjab Financial Corporation.
(31)Rajasthan Financial Corporation.
1[(32) Tamil Nadu Industrial Investment Corporation Ltd.]
(33)Uttar Pradesh Financial Corporation.
(34)West Bengal Financial Corporation.]
2[(35) Indian Renewable Energy Development Agency Ltd.]
3[(36) North Eastern Development Finance Corporation Ltd.]
4[(37) Housing and Urban Development Corporation Ltd.]
5[(38) Export-Import Bank of India.]
6[(39) National Bank for Agriculture and Rural Development (NABARD).]
7[(40) National Co-operative Development Corporation (NCDC).]
8[(41) National Dairy Development Board.
(42)Pradeshiya Industrial and Investment Corporation of U.P. Ltd.
(43)Rajasthan State Industrial Development and Investment Corporation Ltd.
9[(44) SICOM Ltd.]
(45)West Bengal Industrial Development Corporation Ltd.
(46)Tamil Nadu Industrial Development Corporation Ltd.
10[(47)Punjab State Industrial Development Corporation Ltd. (PSIDC).]
11[(48)EDC Ltd.
(49)Tamil Nadu Power Finance and Infrastructure Development Corporation Ltd.]”
12[(50)Tamil Nadu Urban Finance and Infrastructure Development Corporation Ltd.
13(51) Kerala State Power and Infrastructure Finance Corporation Ltd.]
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14(52) Jammu and Kashmir Development Financial Corporation Ltd.
[s 2.562] Conversion of debentures or loans into shares by public financial institutions

[Section 94A(2) of the Companies Act, 1956]
Where, in pursuance of an option attached to debentures issued or loans raised by the company, any
public financial institution proposes to convert such debentures or loans into shares in the company,
the Central Government may, on the application of such public financial institution, direct that the
conditions contained in the memorandum of such company shall stand altered and the nominal share
capital of such company shall stand increased.
[s 2.563] Restrictions on acquisition and transfer of shares [Section 108F of the Companies
Act, 1956]
Nothing contained in section 108A [except sub- section (2) thereof] shall apply to the transfer of any
share to, and nothing in section 108B or section 108C or section 108D shall apply to the transfer of
any share by any financial institution.
See detailed Notes under sections 94A and 108A-108I of the 1956 Act.
[s 2.564] Debt Recovery Tribunal
Section 2(h) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993)
defines financial institution as (i) a public financial institution within the meaning of section 4A of the
1956 Act; and (ii) such other institution as the Central Government may, having regard to its business
activity and the area of its operation in India, by notification specify. The Unit Trust of India
established under section 3 of the Unit Trust of India Act, 1963, is a public financial institution under
section 4A(1) of the 1956 Act. Therefore, it has the right to bring the claim for adjudication before the
Tribunal.15
[s 2.565] Unit Trust of India (UTI) and Administrator of specified undertaking
Section 4A of the 1956 Act provides that each of the Financial Institutions specified in sub-section (1)
shall be regarded for the purpose of this Act, as a Public Financial Institution. The Financial
Institutions specified included the “Unit Trust of India” (UTI) established under section 3 of the Unit
Trust of India Act, 1963 (52 of 1963). By operation of section 18 of the Unit Trust of India (Transfer of
Undertaking and Repeal) Act, 2002 (58 of 2002), “Unit Trust of India” (UTI) is substituted by the
“specified company” or “administrator of the specified undertaking”, as the case may be. Thus, the
“specified company” and the “administrator of the specified undertaking” must be deemed to be
Financial Institutions specified in sub- section (1) of section 4A of the 1956 Act. Section 2(h) of the
Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) (the DRT Act)
defines “Financial Institution” to mean a Public Financial Institution within the meaning of section 4A
of the 1956 Act. Consequently, by reason of the deemed amendment of section 4A of the 1956 Act
the “specified company” and the “administrator of the specified undertaking” come within the
definition of Financial Institutions as defined under section 2(h) of the DRT Act, 1993.16
[s 2.566] State Financial Corporation—Recovery of Loans
The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) been enacted
for expeditious adjudication and recovery of debts due to Banks and Financial Institutions. However,
in view of section 1(4) of that Act, it does not apply when the amount of debt is less then Rs 10 lakhs.
Section 2(d), (e), (h) define the words “Bank”, “Banking Company” and “Financial Institution”. State
Financial Corporation is neither a Bank nor a Banking Company. Under section 2(h)(i) the Financial
Institution has been defined to mean a Public Financial Institution within the meaning of section 4A of
the 1956 Act (1 of 1956). The State Financial Corporation is also not a financial institution within the
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meaning of this section. Section 2(h)(ii) of the 1993 Act includes such other institution as financial
institution that the Central Government may by notification specify. The Central Government has
specified the State Financial Corporation under section 2(h)(ii) of the 1993 Act by Notification, dt. 28-
03-1995. This means the State Financial Corporation is a financial institution within the meaning of
the 1993 Act. The debt was more than Rs 10 lakhs and the 1993 Act was applicable for recovery of
this debt.17
[section 2(13) of the 1956 Act], Deemed Director [section 307(10) of the 1956 Act], Officer of a
company [section 2(30) of the 1956 Act] including an auditor, Director or employee of Public Financial
Institutions defined in section 4A of the 1956 Act, Relative of connected persons [section 6 of
the1956 Act and Regulations 2(h)(viii) and 2(i) of the SEBI (Prohibition of Insider Trading)
Regulations, 1992].
See detailed Notes under section 55A of the 1956 Act.
[s 2.568] Amalgamation—Banking Company and Financial Institutions
The term “body corporate” in section 2(7) of the 1956 Act is wider than the expression “company” and
is used in several sections of the Act to denote not only a company incorporated in India, but also a
Foreign Company. It includes a Corporation formed under any Special Law of India or a Foreign
Country, except as expressly excluded by the definition. It includes all Public Financial Institutions
mentioned in section 4A of the 1956 Act as well as the Nationalised Banks incorporated under
section 3(4) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of
1970) and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980).
However, it excludes a body corporate, which is not a company under the Act, and which is specified
by the Central Government in the notification in the Official Gazette. In other words, it includes a body
corporate other than those which the Central Government may by notification in the Official Gazette
specify. In the instant case, it was held that Vijaya Bank squarely falls within the aforesaid definition
of the term body corporate. The Transferee Company, a Banking Company, was a Body Corporate
and Holding Company of the Transferor Company, i.e., the Subsidiary Company, a company under
the 1956 Act. Holding Company was, therefore, a company for the purpose of section 394 of the
1956 Act. Since the scheme of transfer would not affect the rights of the members or creditors of the
Transferee Company as between themselves and the company. There being no reorganisation of the
Share Capital of the Transferor Company, there was no need for the Transferee Company to file an
application and a petition under sections 392 to 394 of the 1956 Act.18
See detailed Notes under sections 2(7), 4, 4A and 391 to 394 of the 1956 Act.
[S 2 (73)]: Recognised Stock Exchange.—Recognised stock exchange means a recognised stock exchange as
defined in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956;
NOTES
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Section 2(73) of the 2013 Act was notified vide S.O. 2754(E) and has been in effect from 12-09-2013
and the corresponding provision is section 2(39) of the 1956 Act.
the Bill.
The definition of recognized stock exchange in the 2013 Act is different from the definition in the 1956
Act. Under the 1956 Act, the Central Government had the power to notify in the official gazette, stock
exchanges both within and outside India as recognized stock exchanges. The power of the Central
Government to recognise a stock exchange has been delegated to and is exercisable by SEBI.
[Press Note, dt. 13-09-1994 issued by the Department of Economic Affairs]. However under the 2013
Act, the scope of recognized stock exchanges has been restricted to those that are recognized under
the Securities Contracts (Regulation) Act, 1956. The Central Government no longer has the power to
notify stock exchanges situated outside India as recognized stock exchanges.
Recognised Stock Exchange [S 2(39)].—Recognised stock exchange means, in relation to any provision of this Act
in which it occurs, a stock exchange, whether in or outside India, which is notified by the Central Government in the
Official Gazette as a recognised stock exchange for the purposes of that provision.
NOTES
[s 2.571] Notification No. G.S.R. 1060(E), dated 21-12-198919 Recognised Stock Exchanges
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“In pursuance of clause (39) of section 2 of the Companies Act, 1956 (1 of 1956), and in supersession of the
Notifications of the Government of India in the late Ministry of Law (Department of Company Affairs) G.S.R. 466, dt. the
21st March, 1966 and G.S.R. 1157, dt. the 16th July, 1966 on the subject, the Company Law Board hereby notifies, for
the purposes of the provisions of clause (b) of sub-section (5) of section 56, section 73, sub-sections (1A) and (1B) of
section 108, clause (c) of sub-section (1) of section 149, sub-section (1) of section 161, clause (iv) of proviso (b) to
sub-section (1) of section 219 and sub-section (5) of section 603 of the Companies Act, 1956 and clause 8 of Pt III of
Schedule VI to the said Act, the following stock exchanges as recognised stock exchanges, namely:—
1. Stock Exchange, Bombay.
2. Calcutta Stock Exchange Association Ltd., Calcutta.
3. Madras Stock Exchange Ltd., Madras.
4. The Stock Exchange, Ahmedabad.
5. The Delhi Stock Exchange Association Ltd., New Delhi.
6. Madhya Pradesh Stock Exchange, Indore.
7. Bangalore Stock Exchange Ltd., Bangalore.
8. The Hyderabad Stock Exchange Ltd., Hyderabad.
9. Cochin Stock Exchange Ltd., Ernakulam.
10. The Uttar Pradesh Stock Exchange Association Ltd., Kanpur.
11. Pune Stock Exchange Association Ltd., Pune.
12. The Ludhiana Stock Exchange Association Ltd., Ludhiana.
13. The Gauhati Stock Exchange Association Ltd., Gauhati.
14. Kanara Stock Exchange Ltd., Mangalore.
15. Magadh Stock Exchange Association, Patna.
16. Jaipur Stock Exchange Ltd., Jaipur.
17. Bhubaneswar Stock Exchange Association Ltd., Bhubaneswar.
18. Saurashtra Kutch Stock Exchange Ltd., Rajkot.”
20[19. Vadodara Stock Exchange Ltd., Vadodara.]
21[20. OTC Exchange of India, Bombay.]
22[21. Coimbatore Stock Exchange Ltd., Coimbatore.]
23[22. NSE of India Ltd.]
[s 2.572] Power of the Central Government
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Earlier the powers and functions of the Central Government under section 2(39) had been delegated
to the Company Law Board vide Notification No. G.S.R. 443(E), dt. 18-10-1972, this notification has
since been rescinded by Notification No. G.S.R. 287(E), dt. 31-05-1991. For details see Notes under
sections 10E and 637 of the 1956 Act.
[s 2.573] Writ
A Stock Exchange is a “State or other authority” under Article 12 of the Constitution of India. It would
be amenable to writ jurisdiction under Article 226 where it is shown that it is performing a
statutory/public duty cast on it under the statute, rules and bye-laws giving rise to an obligation which
it owes to the aggrieved party and which has been breached in some manner. It would, depend upon
the facts and circumstances of each case and existence of alternative remedy.24
A writ cannot be issued to cancel the registration of the company under the 1956 Act or the
commencement certificate issued to it under section 149 of the 1956 Act. Writ can be issued against
a stock exchange if at all only after recognition is granted to the stock exchange under the Securities
Contracts (Regulation) Act, 1956 (42 of 1956).25
[s 2.574] Stock Exchanges recognised under Section 4 of SCRA
See Notes under section 4 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956). Provisions
of the SCRA have been annotated in Notes under relevant Sections.
[s 2.575] Notifications under Sections 3 and 4 of the Securities Contracts (Regulation) Act,
1956
The Hyderabad Securities and Enterprises Ltd (erstwhile Hyderabad Stock Exchange), Coimbatore
Stock Exchange Ltd, Saurashtra Kutch Stock Exchange Ltd, Mangalore Stock Exchange, Inter-
Connected Stock Exchange of India Ltd, Cochin Stock Exchange Ltd, Bangalore Stock Exchange
Ltd, Ludhiana Stock exchange Ltd, Gauhati Stock Exchange Ltd, Bhubaneswar Stock Exchange Ltd,
Jaipur Stock Exchange Ltd, OTC Exchange of India, Pune Stock Exchange Ltd, Madras Stock
Exchange Ltd, U.P. Stock Exchange Ltd, Madhya Pradesh Stock Exchange Ltd and Vadodara Stock
Exchange Ltd have been granted exit by SEBI vide orders dt. 25 January 2013, 3 April 2013, 5 April
2013, 3 March 2014, 8 December 2014, 23 December 2014, 26 December 2014, 30 December 2014,
27 January 2015, 9 February 2015, 23 March 2015, 31 March 2015, 13 April 2015, 14 May 2015, 9
June 2015 and 9 November 2015 respectively.
The current list of recognized stock exchanges include:
Sl. No. Name of Recognised Stock Valid Upto

Exchange
1. Ahmedabad Stock Exchange Ltd. Permanent
2. Calcutta Stock Exchange Ltd. Permanent
3. Delhi Stock Exchange Ltd. Permanent
4. Metropolitan Stock Exchange of India 15 September 2016

Ltd.
5. NSE of India Ltd. Permanent
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[s 2.576] Corporatisation and Demutualisation of Stock Exchanges
The Securities Contracts (Regulation) Act, 1956 (42 of 1956) as amended by the Securities Laws
(Amendment) Act, 2004 (1 of 2005) (w.r.e.f. 12-10-2004), inter alia, provides for:
“Corporatisation” [s 2(aa) of SCRA].—“Corporatisation” means the succession of a Recognised Stock Exchange,

being a body of individuals or a society registered under the Societies Registration Act, 1860 (21 of 1860), by another
stock exchange, being a company incorporated for the purpose of assisting, regulating or controlling the business of
buying, selling or dealing in securities carried on by such individuals or society.
“Demutualisation” [s2(ab) of SCRA].—“Demutualisation” means the segregation of ownership and management

from the trading rights of the members of a Recognised Stock Exchange in accordance with a Scheme approved by
the SEBI (SEBI).
Scheme for Corporatisation or Demutualisation [s 2(ga)].—“Scheme” means a scheme for Corporatisation or

Demutualisation of a Recognised Stock Exchange which may provide for—
(i) the issue of shares for a lawful consideration and provision of trading rights in lieu of membership cards of
members of a recognised stock exchange;
(ii) the restrictions on voting rights;
(iii) the transfer of property, business, assets, rights, liabilities, recognitions, contracts of the recognised stock
exchange, legal proceedings by, or against, the recognised stock exchange, whether in the name of the
recognised stock exchange or any trustee or otherwise and any permission given to, or by, the recognised
stock exchange;
(iv) the transfer of employees of a recognised stock exchange to another recognised stock exchange;
(v) any other matter required for the purpose of, or in connection with, the corporatisation or demutualisation, as
the case may be, of the recognised stock exchange.
Stock Exchange [s 2(j) of SCRA].—“Stock exchange” means—
(a) any body of individuals, whether incorporated or not, constituted before corporatisation and demutualisation
under sections 4A and 4B, or
(b) a body corporate incorporated under the Companies Act, 1956 (1 of 1956), whether under a scheme of
corporatisation and demutualisation or otherwise,
• for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities.
Corporatisation and demutualisation of stock exchanges [s 4A].—On and from the appointed date, all Recognised
Stock Exchanges (if not corporatised and demutualised before the appointed date) shall be corporatised and
demutualised in accordance with the provisions contained in section 4B:
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Provided that the Securities and Exchange Board of India may, if it is satisfied that any recognised stock exchange was
prevented by sufficient cause from being corporatised and demutualised on or after the appointed date, specify another
appointed date in respect of that recognised stock exchange and such recognised stock exchange may continue as
such before such appointed date.
Explanation.—For the purposes of this section, “appointed date” means the date which the Securities and Exchange
Board of India may, by notification in the Official Gazette, appoint and different appointed dates may be appointed for
different recognised stock exchanges.
Procedure for corporatisation and demutualisation [Section 4B].—(1) All recognised stock exchanges referred to
in section s.4A shall, within such time as may be specified by the Securities and Exchange Board of India (SEBI),
submit a scheme for corporatisation and demutualisation for its approval:
Provided that the Securities and Exchange Board of India, may, by notification in the Official Gazette, specify name of
the recognised stock exchange, which had already been corporatised and demutualised, and such stock exchange
shall not be required to submit the scheme under this section.
(2) On receipt of the scheme referred to in sub-section (1), the Securities and Exchange Board of India may, after
making such enquiry as may be necessary in this behalf and obtaining such further information, if any, as it may
require and if it is satisfied that it would be in the interest of the trade and also in the public interest, approve the
scheme with or without modification.
(3) No scheme under sub-section (2) shall be approved by the Securities and Exchange Board of India if the issue of
shares for a lawful consideration or provision of trading rights in lieu of membership card of the members of a
recognised stock exchange or payment of dividends to members have been proposed out of any reserves or assets of
that stock exchange.
(4) Where the scheme is approved under sub-section (2), the scheme so approved shall be published immediately
by—
(a) the Securities and Exchange Board of India in the Official Gazette;
(b) the recognised stock exchange in such two daily newspapers circulating in India, as may be specified by the
Securities and Exchange Board of India,
and upon such publication, notwithstanding anything to the contrary contained in this Act or any other law for the time
being in force or any agreement, award, judgment, decree or other instrument for the time being in force, the scheme
shall have effect and be binding on all persons and authorities including all members, creditors, depositors and
employees of the recognised stock exchange and on all persons having any contract, right, power, obligation or liability
with, against, over, to, or in connection with, the recognised stock exchange or its members.
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(5) Where the Securities and Exchange Board of India is satisfied that it would not be in the interest of the trade and
also in the public interest to approve the scheme under sub-section (2), it may, by an order, reject the scheme and
such order of rejection shall be published by it in the Official Gazette:
Provided that the Securities and Exchange Board of India shall give a reasonable opportunity of being heard to all the
persons concerned and the recognised stock exchange concerned before passing an order rejecting the scheme.
(6) The Securities and Exchange Board of India may, while approving the scheme under sub-section (2), by an order in
writing, restrict—
(a) the voting rights of the shareholders who are also stock brokers of the recognised stock exchange;
(b) the right of shareholders or a stock broker of the recognised stock exchange to appoint the representatives on
the governing Board of the stock exchange;
(c) the maximum number of representatives of the stock brokers of the recognised stock exchange to be
appointed on the governing Board of the recognised stock exchange, which shall not exceed one-fourth of
the total strength of the governing Board.
(7) The order made under sub-section (6) shall be published in the Official Gazette and on the publication thereof, the
order shall, notwithstanding anything to the contrary contained in the Companies Act, 1956 (1 of 1956), or any other
law for the time being in force, have full effect.
(8) Every recognised stock exchange, in respect of which the scheme for corporatisation or demutualisation has been
approved under sub-section (2), shall, either by fresh issue of equity shares to the public or in any other manner as
may be specified by the Regulations made by the Securities and Exchange Board of India, ensure that at least fifty-one
per cent of its equity share capital is held, within twelve months from the date of publication of the order under sub-
section (7), by the public other than shareholders having trading rights:
Provided that the Securities and Exchange Board of India may, on sufficient cause being shown to it and in the public
interest, extend the said period by another 12 months.
[s 2.577] Stock Exchanges (Corporatisation and Demutualisation) Schemes
The Stock Exchanges (Corporatisation and Demutualisation) Schemes issued as Order under
section 4B(6) and 4B(7) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) as amended
by the Securities Laws (Amendment) Act, 2004 (1 of 2005) (w.r.e.f. 12-10-2004) vide Notifications are
enumerated below:
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(1) Delhi Stock Exchange Association Ltd. (Demutualisation) Scheme, 2005 [Notification No.
S.O. 1198(E), dt. 29-08-2005, published in the Gazette of India, Extraordinary, No. 899, Part
II, Section 3(ii), page 8, dt. 29-08-2005 : (2005) 127 Comp. Cas. (St.) 3].
(2) Calcutta Stock Exchange Association Ltd (Demutualisation) Scheme, 2005 [Notification No.
(3) Madras Stock Exchange Ltd (Corporatisation and Demutualisation) Scheme, 2005
[Notification No. S.O. 1200(E), dt. 29-08-2005, published in the Gazette of India,
Extraordinary, No. 901, Part II, Section 3(ii), page 9, dt. 29-08-2005 : (2005) 127 Comp. Cas.
(St.) 12].
(4) Madhya Pradesh Stock Exchange (Corporatisation and Demutualisation) Scheme, 2005
Extraordinary, No. 902, Part II, Section 3(ii), page 10, dt. 29-08-2005 : (2005) 127 Comp.
Cas. (St.) 18].
(5) Pune Stock Exchange Ltd (Corporatisation and Demutualisation) Scheme, 2005 [Notification
No. S.O. 1202(E), dt. 29-08-2005, published in the Gazette of India, Extraordinary, No. 903,
Part II, Section 3(ii), page 9, dt. 29-08-2005 : (2005) 127 Comp. Cas. (St.) 25].
(6) Uttar Pradesh Stock Exchange Association Ltd (Demutualisation) Scheme, 2005 [Notification
(7) Gauhati Stock Exchange Ltd (Corporatisation and Demutualisation) Scheme, 2005
(St.) 55].
(8) Bangalore Stock Exchange Ltd (Demutualisation) Scheme, 2005 [Notification No. S.O.
1205(E), dt., published in the Gazette of India, Extraordinary, No. 906, Part II, Section 3(ii),
page 8, dt. : (2005) 127 Comp. Cas. (St.) 60].
(9) Hyderabad Stock Exchange Ltd (Corporatisation and Demutualisation) Scheme, 2005
[Notification No. S.O. 1206(E), dt., published in the Gazette of India, Extraordinary, No. 907,
Part II, Section 3(ii), page 8 : (2005) 127 Comp. Cas. (St.) 66].
• [Recognition has been withdrawn vide Notification No. S.O. 1573(E), dt., published in the
Gazette of India, Extraordinary, No. 1143, Part II, Section 3(ii) : (2007) 139 Comp. Cas. (St.)
30].
(10)Cochin Stock Exchange Ltd (Demutualisation) Scheme, 2005 [Notification No. S.O. 1207(E),
dt., published in the Gazette of India, Extraordinary, No. 908, Part II, Section 3(ii), page 8, dt.
: (2005) 127 Comp. Cas. (St.) 71].
(11)Vadodara Stock Exchange Ltd (Corporatisation and Demutualisation) Scheme, 2005

(St.) 102].
(12)Jaipur Stock Exchange Ltd (Corporatisation and Demutualisation) Scheme, 2005 [Notification
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(13)Magadh Stock Exchange Association (Corporatisation and Demutualisation) Scheme, 2005

Extraordinary, No. 984, Part II, Section 3(ii), page 10 : (2005) 127 Comp. Cas. (St.) 113].
(14)Ludhiana Stock Exchange Association Ltd (Demutualisation) Scheme, 2005 [Notification No.
(15)Saurashtra Kutch Stock Exchange Ltd (Corporatisation and Demutualisation) Scheme, 2005
(16)Bhubaneswar Stock Exchange (Corporatisation and Demutualisation) Scheme, 2005

(St.) 96].
(17)Inter-connected Stock Exchange of India Ltd (Corporatisation and Demutualisation) Scheme,

2005 [Notification No. S.O. 1320(E), dt. 15-09-2005, published in the Gazette of India,
(18)Ahmedabad Stock Exchange (Corporatisation and Demutualisation) Scheme, 2005

Extraordinary, No. 989, Part II, Section 3(ii), page 12, dt. 15-09-2005 : (2005) 128 Comp.
Cas. (St.) 8].
(19)Metropolitan Stock Exchange of India Ltd.
(20)NSE of India Ltd.
Notification under [s 4B(1)] of the SCRA—OTC Exchange of India need not submit a scheme
for its corporatisation and demutualisation
“Whereas OTC Exchange of India having its registered office at 92, Maker Towers, “F”, Cuffe Parade, Mumbai-400
005, has vide its letters No. 0285/05/MD/76, dt. January 31, 2005, No. 1749/05/MD, dt. August 11, 2005 and No.
1811/05/MD/125, dt. August 23, 2005, represented to the SEBI that it is an already corporatised and demutualised
stock exchange and has confirmed that it shall not change its current corporatised and demutualised structure.
Now, therefore, the SEBI hereby specifies, under the proviso to sub-section (1) of section 4B of the Securities
Contracts (Regulation) Act, 1956, that the OTC Exchange of India, which had already been corporatised and
demutualised, shall not be required to submit a scheme for its corporatisation and demutualisation, subject to the
following conditions:—
(1) The OTC Exchange of India shall not change its current corporatised and demutualised
structure, without prior approval of the SEBI; and
(2) The OTC Exchange of India shall comply with further conditions as may be imposed by the
SEBI in this regard from time to time.” [Notification No. S.O. 1313(E) (F. No.
SEBI/MRD/49395/2005, dt. 15-09-2005, published in the Gazette of India, Extraordinary, No.
981, Part II, section 3(ii), dt. 15-09-2005 : (2005) 127 Comp. Cas. (St.) 89].
[s 2.578] Withdrawal of recognition [Section 5(2)]
Where the Recognised Stock Exchange has not been corporatised or demutualised or it fails to
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submit the scheme referred to in sub-section (1) of section 4B within the specified time therefore or
the scheme has been rejected by the SEBI under sub- section (5) of section 4B, the recognition
granted to such stock exchange under section 4, shall, notwithstanding anything to the contrary
contained in this Act, stand withdrawn and the Central Government shall publish, by notification in the
Official Gazette, such withdrawal of recognition.
See also Proviso to section 5(2) of the SCRA, 1956.
[s 2.579] Clearing corporation [Section 8A]
(1) A recognised stock exchange may, with the prior approval of the SEBI, transfer the duties and
functions of a clearing house to a clearing corporation, being a company incorporated under the 1956
Act (1 of 1956), for the purpose of—
(a) the periodical settlement of contracts and differences thereunder;
(b) the delivery of, and payment for, securities;
(c) any other matter incidental to, or connected with, such transfer.
Every clearing corporation shall make its bye-laws and submit it to the SEBI for its approval [Sub-
section (2)], SEBI shall grant its approval [Sub- section (3)], Certain provisions of the SCRA shall
apply to the Clearing Corporation as they apply to a Recognised Stock Exchange [Sub- section (4)].
See also Notes on the SCRA, 1956, Powers of SEBI and Listing of Securities under sections 55A
and 73 of the 1956 Act in this Book.
[s 2.580] Appointed dates for Stock Exchanges by SEBI
“Whereas, in exercise of the powers conferred upon the SEBI (SEBI) under section 4B of the Securities Contracts
(Regulation) Act, 1956 (SCRA), SEBI had approved and published the Scheme of Corporatisation and Demutualisation
for the undermentioned Stock Exchanges on 29 August 2005.
And, whereas, the under mentioned Stock Exchanges have ensured compliance with the requirements of section 4B(8)
of the SCRA on the dates of confirmation mentioned below and have completed Corporatisation and Demutualisation
by this date:
Sl. No. Name of Stock Exchanges Date of confirmation

1. The Uttar Pradesh Stock Exchange 21 August 2007
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Association Ltd.
2. Madras Stock Exchange Ltd. 25 August 2007
3. Cochin Stock Exchange Ltd. 25 August 2007
4. Bangalore Stock Exchange Ltd. 27 August 2007
5. The Gauhati Stock Exchange Ltd. 27 August 2007
6. The Calcutta Stock Exchange 28 August 2007

Association Ltd.
7. The Delhi Stock Exchange Association 28 August 2007

Ltd.
Now, therefore, in exercise of the powers conferred by section 4A of the SCRA, SEBI hereby appoints the
aforementioned dates as appointed date in respect of the abovementioned stock exchanges.” [Notification No.
SEBI/MRD/DSA/104459/2007, dt. 24-09-2007, published in the Gazette of India, Extraordinary, No. 189, Part III,
Section 4 : (2007) 139 Comp. Cas. (St.) 32].
[s 2.581] Appointed dates for Stock Exchanges by SEBI
“Whereas, in exercise of the powers conferred upon the SEBI (SEBI) under section 4B of the Securities Contracts
(Regulation) Act, 1956 (SCRA), SEBI had approved and published the Scheme of Corporatisation and Demutualisation
for the undermentioned Stock Exchanges on 15 September 2005.
And, whereas, the under mentioned Stock Exchanges have ensured compliance with the requirements of section 4B(8)
of the SCRA on the dates of confirmation mentioned below and have completed Corporatisation and Demutualisation
by this date:

1. Ahmedabad Stock Exchange Ltd. 8 September 2007
2. Ludhiana Stock Exchange Ltd. 10 September 2007
3. Jaipur Stock Exchange Ltd. 12 September 2007
4. Bhubaneswar Stock Exchange Ltd. 12 September 2007
5. Inter-connected Stock Exchange of India 13 September 2007

Ltd.
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6. Vadodara Stock Exchange Ltd. 13 September 2007
Now, therefore, in exercise of the powers conferred by section 4A of the SCRA, SEBI hereby appoints the
aforementioned dates as appointed date in respect of the abovementioned stock exchanges.” [Notification No.
SEBI/MRD/DSA/105441/2007, dt. 9-10-2007, published in the Gazette of India, Extraordinary, No. 202, Part III, Section
4 : (2007) 139 Comp. Cas. (St.) 70].
[s 2.582] List of SCR Act, Rules, Regulations
See List of SCR Act, Rules, Regulations, Listing Agreement Form in Notes under section 73 of the
1956 Act. See also Notes under section 40 of the 2013 Act.
[s 2.583] Powers of SEBI
Powers of the Central Government have been delegated/conferred on the SEBI vide Notifications
under section 29A of the Securities Contracts (Regulation) Act, 1956 and the Securities Contracts
(Regulation) Rules, 1957 as amended by the Securities Contracts (Regulation) Amendment Rules,
1996.
See detailed Notes and List of SEBI Act, Rules, Regulations and Guidelines under section 55A of the
1956 Act—Powers of SEBI. See also Notes under section 24 of the 2013 Act.
[s 2.584] Injunction
A recognised stock exchange was granted injunction against a company carrying on business as
parallel stock exchange.26
[s 2.584.1] Department’s View— Securities Contracts (Regulation) Rules, 1957—

Amendments relating to Government (SEBI) nominees on the governing bodies of recognised
stock exchanges
“The Government have published today (26-10-1994), a notification in the Gazette of India, Extraordinary, for
amending rule 10 of the Securities Contracts (Regulation) Rules, 1957 (SCR Rules).
Rule 10 of the SCR Rules provides that the Government may nominate one or more persons not exceeding three in
number, as member or members of the governing body of every recognised stock exchange. Such member or
members enjoy the same status and powers as other members of the governing body. At present, the Government
nominees generally consist of officers from the Ministry of Finance, Securities and Exchange Board of India (SEBI) and
the Department of Company Affairs.
The need for the Government nominees on the governing bodies of stock exchanges has been reviewed in the context
of strengthening the regulatory role and powers of SEBI over the stock market. It is the intention of the Government
that SEBI should have the required powers under the SCR Rules to nominate up to three members on the governing
body of every recognised stock exchange, instead of the present practice of the Government making such
nominations. Accordingly, as a consequence of the amendment to rule 10 of the SCR Rules given effect from today
(26-10-1994), SEBI has been empowered to nominate persons of its choice as SEBI nominees in the governing bodies
of every recognised stock exchange. It is envisaged that the system of SEBI nominees would enable SEBI to
participate in the management of stock exchanges and to regulate the stock market in a more effective manner.”
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[Press Note, dt. 26-10-1994, Issued by the Department of Economic Affairs, Ministry of Finance, New Delhi : Chartered
Secretary, December 1994, page 1143 : (1994) 81 Comp. Cas. (St.) 179].
[s 2.585] Amendment relating to Corporate Membership in Stock Exchanges
“The Government have published today (12-10-1994), a notification in the Gazette of India, Extraordinary, for
amending sub-clause (iii) in clause (4A) of rule 8 of the Securities Contracts (Regulation) Rules, 1957 (SCR Rules).
Clause (4A) of rule 8 of the SCR Rules provides that a company as defined in the Companies Act, 1956, is eligible to
become a member of a stock exchange if certain conditions are satisfied. One of the conditions as contained in sub-
clause (iii) is that a majority of the directors of a stock broking company are its shareholders and not less than 40%. of
the paid-up equity capital of the company is held by these directors themselves or by the body corporate appointing
them as directors on the Board of the company. This condition has been found to be an onerous requirement and
difficult to comply with by widely-held stock broking companies. Besides, experience has shown that such a condition
is not conducive to encouraging the establishment of professionally managed stock broking companies.
Accordingly, the Government have amended clause (4A) of rule 8 of the SCR Rules by omitting sub-clause (iii). It is
expected that this amendment will encourage the growth of corporate membership in stock exchanges, induce greater
professionalisation and thereby ensure better services to the investing public.” [Press Note, dt. 12-10-1994 : Chartered
Secretary, December 1994, page 1041 : (1994) 81 Comp. Cas. (St.) 177].
[s 2.586] Joint venture stock-broking companies to have non-Indian citizens on their Board of
directors
“The Govt. have published today (7-11-1994), a notification in the Gazette of India, Extraordinary, for amending clause
(4A) in rule 8 of the Securities Contracts (Regulation) Rules, 1957 (SCR Rules), in order to allow joint venture stock-
broking companies to have non-Indian citizens on their Board of directors.
The Government have been actively encouraging the corporatisation of stock-broking firms with a view to facilitating
the modernisation and development of the stock market and raising the capital base of stock-broking companies. In
accordance with this policy, the Government have permitted, on a selective basis, joint ventures in stock-broking with
overseas companies. Such joint ventures need the flexibility of having non-Indian citizens on their Board of directors.
While this is possible in all other financial services, it was possible in the case of stock-broking companies only with the
specific permission of the Government in each case. This special restrictive feature is being eliminated by amendment
of clause (4A) of rule 8 to allow non-Indian citizens including NRIs to become directors of stock-broking companies
incorporated in India which are members of stock exchanges in India. Any director of such a company can also
continue as such even if at some stage he ceases to be a citizen of India.
It is expected that this amendment will facilitate the entry of professionally qualified foreign citizens, including non-
resident Indians, as directors of Indian stock-broking companies, thereby leading to globally accepted stock-broking
practices and research, greater competitiveness in the stock-broking business and the provision of better services to
the investing public.” [Press Note, dt. 7-11-1994, Issued by the Department of Economic Affairs, Ministry of Finance,
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New Delhi : Chartered Secretary, December 1994, page 1142 : (1994) 81 Comp. Cas. (St.) 178].
[s 2.587] Exemption to Stock Exchanges under Section 45NC of the RBI Act
“The Reserve Bank of India, on being satisfied that it is necessary so to do, in exercise of its powers conferred under
section 45NC of the Reserve Bank of India Act, 1934 (2 of 1934), hereby declares that,—
(1) the provisions of sections 45-IA, 45-IB, 45-IC, 45MB and section 45MC of the RBI Act, 1934 (2 of 1934), shall not
apply to any non-banking financial company—
(a) [not reproduced];
(b) being a stock exchange, recognised under section 4 of the Securities Contracts (Regulation) Act, 1956 (42 of
1956); and
(c) doing the business of a stock-broker or sub-broker holding a valid certificate of registration obtained under
section 12 of the SEBI Act, 1992 (15 of 1992).” [Extracts from Notification No. 99/ED(JRP)/97, dt. 6-03-1997,
published in the Gazette of India, Part III, Section 4, page 2113, dt. 5-07-1997 : (1997) 90 Comp. Cas. (St.)
541]
[S 2 (74)]: Register of Companies.—“register of companies” means the register of companies

maintained by the Registrar on paper or in any electronic mode under this Act;
NOTES
as follows:
the Bill.
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The register is important for entering details of the company during incorporation and subsequently, if
there are alterations.
See, Notes on Chapter XVIII.
[S 2 (75)]: Registrar.—Registrar means a Registrar, an Additional Registrar, a Joint Registrar, a Deputy Registrar or
an Assistant Registrar, having the duty of registering companies and discharging various functions under this Act.
NOTES
THE COMPANIES ACT, 2013, the Notes on Clauses to the Companies Bill, 2011 explained as follows:
the Bill.
This definition of registrar is a reproduction of the definition which was proposed in the Companies
Bill, 2011.
This amended definition under section 2(75) of the 2013 Act makes registrar as one of the most
important functionaries in administering the various provisions of 2013 Act. In the earlier 1956 Act,
the main function of the Registrar was to register companies. Other functions of the registrar were not
mentioned in the definition of the term.
The central government appoints registrar for the registration of companies and discharging various
functions under section 396(2) of the 2013 Act.27 The role of registrar is all pervasive, commencing
from registration to winding up. The Central Government has established a Central Registration
Centre for under its power under section 396 (2) of the 2013 Act.28
See Notes under sections 396–404 [Chapter XXIV of the 2013 Act - Registration Offices and Officers
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and Fees]
Registrar [Section 2(40)].—Registrar means a Registrar, or an Additional Registrar, a Joint Registrar, a Deputy
Registrar or an Assistant Registrar, having the duty of registering companies under the Companies Act, 1956. The
NOTES
As per section 2(40) of the 1956 Act,
See Notes under sections 609–614A.of the 1956 Act [Part XII of the Act—Registration Offices and
Officers and Fees] and Offences against Act to be cognizable only on complaint by Registrar,
shareholder or Government [section 621 of the 1956 Act].
Section 2 (76): Related Parties.—“related party”, with reference to a company, means—
(i) a director or his relative;

(ii) a key managerial personnel or his relative;
(iii) a firm, in which a director, manager or his relative is a partner;
(iv) a private company in which a director or manager is a member or director;
(v) a public company in which a director or manager is a director or holds along with his relatives, more than 2%.
of its paid-up share capital;
(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in
accordance with the advice, directions or instructions of a director or manager;
(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act: Provided
that nothing in sub-clauses (vi) and
(viii) shall apply to the advice, directions or instructions given in a professional capacity; (viii) any company which
is—
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(A) a holding, subsidiary or an associate company of such company; or
(B) a subsidiary of a holding company to which it is also a subsidiary;
(ix) such other person as may be prescribed
NOTES
as follows:
the Bill.
The Dr. Irani Committee Report on Company Law, 2004, had recommended that the law should
impose duties on all directors to disclose to the company, the contracts in which such director might
have an interest. Such transactions should only take place if the Board of Directors approve and in
some cases, and be contingent upon approval of the shareholders in other cases. It further
recommended that the details of transactions of a company with its associate companies,
subsidiaries and holding companies are to be placed before the Board through the Audit Committee,
if there is such a committee. If any such transaction is not in the ordinary course or not on an arm’s
length basis, then management justification must be provided. The Committee concluded by noting
that there was no necessity for government approvals for any of the abovementioned transactions.
The Committee recommended that the law impose a duty on every director to disclose to the
company all arrangements that the director has or proposes to have with any other company. The
Report recommended that specifics of such disclosures needs mention in the Act and are to be made
to the Board of Directors at a meeting where the matter regarding such related party is to be
discussed. The interested directors were to abstain from such meetings. Further, the company is to
maintain a register recording all transactions above a specified threshold in respect of arrangements
where directors are interested and such register should be kept at the registered office of the
company and open to inspection by all members.
The Standing Committee Report, 2009–10 recommended that “director” and “key managerial
personnel” be included in the definition. The Ministry of Corporate Affairs accepted the
recommendation.
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The Standing Committee Report, 2011–12 recommended that reference to “a director” in the section
be replaced with “a majority of directors” or “the Board of Directors”. This recommendation was based
on the observation that influence over one director would generally be insufficient to affect decisions
of the company. The Ministry of Corporate Affairs declined on the ground that there needed to be all
possible protection against diversion of funds.
While the definition is new, the 1956 Act did cover the concept in section 297. An interested director
would not constitute quorum in the 1956 Act while section 174(3) of the 2013 Act, a director will not
be counted for the constitution of quorum if he or she is interested in any way as stated by section
184(2) of the 2013 Act. section 188 of the 2013 Act does not allow any contract or arrangement to be
entered into unless the consent of the Board has been expressed via a resolution. There are also
instances which the central government may prescribe, where a special resolution is necessary to
proceed with an arrangement or a contract. Further, the interested director shall not vote in such a
special resolution.
The definition of related party is not consistent throughout. Rule 2(1)(e) of the Companies (Meetings
of Board and Its Powers) Rules, 201429 defines related party as a director or key managerial
personnel of the holding company or their relatives with reference to a company. This definition,
therefore, excludes a large part of who are covered under the 2013 Act.
The definition does not mention body corporates. As a consequence, associate companies and
foreign subsidiaries will not be counted. If there are separate agreements between the entity
qualifying as a related party and two companies, then the provision will not be attracted. The Report
of the Companies law Committee, February 2016 noted the use of “company” and not “body
corporate”. The implication that companies incorporated outside India would not be covered under
the provision was unintentional and recommended that it be rectified at the soonest.
There was some concern as to if all persons who are considered related parties will necessarily be
barred from voting on every matter concerning the company. General Circular No. 30/2014, bearing
No. 1/33/2013/CL-Pt, dt. 17-07-2014 clarified that a related party will be determined in the context of
a contract or arrangement.
The central government has issued multiple clarifications regarding the provision. S.O. 1820(E)
substituted “and holds” in place of “or holds”. This means that one is a related party only if he is a
director, holding whether by himself or along with his relatives, more than 2% of the paid up share
capital of the second company, which must also be a public company. The central government also
inserted “or his relative” after “manager” vide S.O. 1894(E) and clarified in Rule 3 of Companies
(Specifications of Definitions Details) Rules, 201430 that for the purposes of sub clause (ix) of the
definition, a director or key managerial personnel of the holding company or his or her relatives shall
also be deemed related parties.
Section 2(76) of the 2013 Act needs to be read in conjunction with sections 2(49), 167(1)(c) and (d),
174(3), 183(4), 184(2) and 188 of the 2013 Act and rule 15 of the Companies (Meetings of the Board
and its Powers) Rules, 2014.31
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See notes under section 188 of the 2013 Act.
In terms of Notification No. G.S.R. 464(E), dt. 5th June 2015, the scope of the definition of “related
party”, as regards a private company, does not – importantly – encompass any company which is its
holding, subsidiary or an associate company; or a subsidiary of a holding company to which it is also
a subsidiary. Furthermore, in a private company by virtue of the same notification, any of its members
who are related parties are entitled to vote on any resolution to approve any contract or arrangement
that may be entered into by the private company concerned with such related party. Such related
parties cannot vote on such resolutions in companies that are not private companies.
These exemptions have a significant ramification on what constitutes or is covered by the term
“related party” for private companies; as well as the scope of its application. It is also important to
remember that this exception to the scope of coverage of who or what is a “related party”, and the
extent of its operation, is by way of executive action and not an inherent statutory position on the face
of the legislation. In other words, were the government to repeal or modify the said Notification in this
behalf, the width of what gets covered in the term “related party” may well be either narrowed or
expanded depending on such executive action and, indeed, the question then will be open,
depending on the terms of any future notification, whether any such modification or repeal will be
prospective or not.
[s 2 (77)]: Relative.—Relative with reference to any person, means anyone who is a related to another, if—
(i) they are members of a Hindu Undivided Family;
(ii) they are husband and wife; or
(iii) one person is related to the other in such manner as may be prescribed.
NOTES
12-09-2013 and the corresponding provision is sections 2(41) and 6 of the 1956 Act.
as follows:
the Bill.
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The definition in the 2013 Act is a reproduction of the definition proposed in the Companies Bill, 2011.
The Committee had recommended that the definition of relative in the Bill be brought in line with the
definition of relative in SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011, viz.:
“Immediate Relative: means any spouse of a person, and includes parent, brother, sister or child of
such person or of the spouse.”
The Central Government has the power to prescribe the relationship which will fall under section
2(77) of the 2013 Act. The 2013 Act has a shorter list of relatives in comparison to the 1956 Act. In
comparison to the earlier list of 22 relatives under Schedule I-A of the 1956 Act, as per Rule 4 of the
Companies (Specification of definition details) Rules 2014,32 there are only 8 relatives covered under
section 2(77) of the 2013 Act apart from husband and wife and members of a Hindu Undivided
Family. The 8 relatives prescribed are:
(1) Father:
• Provided that the term “Father” includes step-father.
(2) Mother:
• Provided that the term “Mother” includes the step-mother.
(3) Son:
• Provided that the term “Son” includes the step-son.
(4) Son’s wife.
(5) Daughter.
(6) Daughter’s husband.
(7) Brother:
• Provided that the term “Brother” includes the step-brother;
(8) Sister:
• Provided that the term “Sister” includes the step-sister.
The list of relatives prescribed is in line with the definition proposed by the Committee with 1 (one)
addition – the spouse of the child.
The definition of relative is relevant as the definition of “related party” under section 2(76) of the 2013
Act refers to “relative” at various places. Further, the term “relative” has been used in various places
in the Act, including in the provision relating to “interested director”.
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See Notes under section 2(49) and section 2 (76) of the 2013 Act.
Relative [s 2(41)].—Relative means, with reference to any person, any one who is related to such person in any of the
ways specified in section 6, and no others.
NOTES
See detailed Notes under section 6.
[s 6] Meaning of “relative”.—A person shall be deemed to be a relative of another if, and only if,—
(a) they are members of a Hindu undivided family; or
(b) they are husband and wife; or
(c) the one is related to the other in the manner indicated in Schedule I-A.
NOTES
English Act, 1948 : Section 455(2)
English Act, 1985 : Section 741(2)
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THE COMPANIES (AMENDMENT) ACT, 1960 (65 OF 1960).—The Notes on clauses explained the reasons for the
substitution of this section as follows:
The redraft of section 6 is based on the recommendation contained in para 26 of the Report so that in order to make it
practicable for the officers of a company to comply with the provisions of the several sections in which the expression
‘relative’ occurs, very remote relationships may be excluded from the purview of the definition.” [Clause 4 of the
Companies (Amendment) Bill, 1959 (37 of 1959)].The Companies (Amendment) Act, 1960 has been repealed by the
“Section 6 contains a definition of the expression ‘relative’, occurring in various contexts in the Act as, for example,
sections 2(3) and (4), 295, 297, 314, 354 to 360 etc. About 67, or according to another calculation, 81 persons
standing in different degrees of relationship would come within the definition and it is highly inconvenient and in many
cases, impracticable, for the director of a company to ascertain the different firms or companies in which any of the
enumerated relatives is a partner or managing agent or director. Various suggestions were put forward, one of them
being that section 6 should be omitted altogether and another to the effect that the words ‘whether by legitimate or
illegitimate descent or by adoption and whether by full blood or half blood’ should be deleted. Any change in the
definition of ‘relative’ would affect the ambit and scope of several other important provisions of the Act referred to
above. The omission of section 6 from the Act would, besides requiring the amendment of many other sections, run
counter to the fundamental policy of the legislature in enacting those provisions. In this connection, it must be
remembered that the practice of resorting to benami transactions in the names of relatives is prevalent in certain
sections of the mercantile community and that this practice is often resorted to for concealing the identity or interest of
the person standing to gain by questionable transactions. Having given our consideration to the objections put forward
by various interests we think that a simpler and narrower definition of ‘relative’ should be substituted for the existing
definition. Section 6 might run thus:—
‘Two persons shall be deemed to be ‘relatives’ if and only if:—
(a) they are members of a Hindu undivided family; or
(b) they are husband and wife; or
(c) the one or the spouse of the one is related to the other or the spouse of the other as parent and child, grand-
parent and grand-child, or brother and sister; or
(d) the one is related to the other directly (and not by marriage only) as uncle or aunt, nephew or niece.’
Since the Mitakshara, the Dayabagha, the Marumakhathayam and the Aliyasanthana are all parts of the Hindu Law,
though some of them are based on custom, specific reference to the different systems of Hindu law in this context
would appear to be unnecessary. The section might be simplified as stated above. The revised definition suggested
above would cut down the number of ‘relatives’ by more than half. The reference to relationship by adoption and
illegitimate descent is out of place in a section which does not deal with the general law of inheritance and may be
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omitted. [Report : para 26].
Relative [Section 6 of the Companies Act, 1956]
The list of relatives is based on reasonable classification and to serve a public purpose. A person
shall be deemed to be a relative of another if, and only if, they are—(a) members of a Hindu
undivided family; or (b) husband and wife; or (c) one is related to other in the manner indicated in
Schedule I-A.
This definition of “relative” is important so far as the provisions of sections 2(3), 2(4), 204A, 294AA,
295, 297, 314 and 370(1B) [now 372A] of the 1956 Act, etc., are concerned. List of relatives indicated
in Schedule I-A of the Act is given hereinafter.
See detailed Notes under respective Sections and Schedule I-A.
[s 2.597] HUF
The members of an HUF means all the members including females.
[s 2.597.1] Department’s View— Hindu undivided family means the entire undivided family
In reply to a query:
“Section 6 has now been amended. According to this section, the term “relative” includes members of a Hindu
undivided family (HUF). Does the family refer to the coparcenary alone or the entire undivided Family?
The Department of Company Affairs has given its opinion that: “A Hindu undivided family includes and is not confined
to coparcenary.” [Clarification F. No. 8/16(1)/61-PR : Govt. of India publication Clarifications and Circulars on Company
Law, 1977 Edition, page 4].
[s 2.598] List of relatives [Schedule I-A]
Under Schedule I-A of the 1956 Act, the list of relatives is as under:
1. Father. 12. Son’s daughter.
2. Mother (including step-mother). 13. Son’s daughter’s husband.
3. Son (including step-son). 14. Daughter’s husband.
4. Son’s wife. 15. Daughter’s son.
5. Daughter (including step-daughter). 16. Daughter’s son’s wife.
6. Father’s father. 17. Daughter’s daughter.
7. Father’s mother. 18. Daughter’s daughter’s husband.
8. Mother’s mother. 19. Brother (including step-brother).
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9. Mother’s father. 20. Brother’s wife.
10. Son’s son. 21. Sister (including step-sister).
11. Son’s son’s wife. 22. Sister’s husband.
[s 2.599] Benami Transactions (Prohibition) Act
The Benami Transactions (Prohibition) Act, 1988 (45 of 1988) now prohibits benami transactions.
See detailed Notes under section 68B of the 1956 Act.
As per regulation 2(c), (g) and (h) of the SEBI (Prohibition of Insider Trading) Regulations, 1992,
[section 2(13)], Deemed Director [section 307(10)], Officer of a company [section 2(30)] including an
auditor, Director or employee of Public Financial Institutions defined in section 4A, Relative of
connected persons [section 6 of the 1956 Act and regulations 2(h)(viii) and 2(i) of the SEBI
(Prohibition of Insider Trading) Regulations, 1992].
See detailed Notes under section 55A of the 1956 Act.
33[s 2(78)] Remuneration: “remuneration” means any money or its equivalent given or passed to any person for
services rendered by him and includes perquisites as defined under the Income-tax Act, 1961 (43 of 1961);
NOTES
12-09-2013 and the corresponding provision is Explanation to section 198 of the 1956 Act
as follows:
the Bill.
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The definition in section 2(78) of the 2013 Act is a shortened form of the definition in Explanation to
section 198 of the 1956 Act which was an inclusive definition while the present definition under the
2013 Act clearly specifies as to what the term means and what it includes.
See Notes under section 197 of the 2013 Act.
[s 2 (79)]: Schedule.—Schedule means a Schedule annexed to this Act
NOTES
as follows:
the Bill.
This definition of schedule is a reproduction of the definition which was proposed in the Companies
Bill, 2011.
The 2013 Act has seven Schedules.
See Notes under Schedules I to VII.
Schedule [Section 2(42)].—Schedule means a Schedule annexed to the Companies Act, 1956 (1 of 1956). The
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NOTES
See Notes under Schedules I to XV.
S. 2 (80): Scheduled Bank.—Scheduled bank means the scheduled bank as defined in clause (e) of section 2 of the
Reserve Bank of India Act, 1934 (2 of 1934).
NOTES
as follows:
the Bill.
This definition of scheduled bank is a reproduction of the definition which was proposed in the
The expression “scheduled bank” refers to a bank included in the Second Schedule to the Reserve
Bank of India, 1934.*34
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Scheduled Bank [s 2(43)].—Scheduled Bank has the same meaning as in the Reserve Bank of
India Act, 1934 (2 of 1934).
NOTES
As per section 2(e) of the Reserve Bank of India Act, 1934 “scheduled bank” means a bank included
in the Second Schedule to the Reserve Bank of India Act, 1934.35
[s 2 (81)]: Securities.—Securities means the securities as defined in clause (h) of section 2 of the Securities Contracts
(Regulation) Act, 1956 (42 of 1956).
NOTES
12-09-2013 and the corresponding provision is section 2(45AA) of the 1956 Act.
as follows:
the Bill.
This definition of securities is a reproduction of the definition which was proposed in the Companies
Bill, 2011.
The term “hybrids” has been omitted from this new definition under the 2013 Act. The term
“securities” has been defined in the 2013 Act in terms of its definition solely as contained in section
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2(h) of the SCR Act 1956.
Securities [s 2(45AA)].—Securities means securities as defined in clause (h) of section 2 of the Securities Contracts
(Regulation) Act, 1956 (42 of 1956), and includes hybrids.
NOTES
Section 2(45AA) of the 1956 Act corresponds to section 2(81) of the 2013 Act.
This clause has been inserted by the Companies (Amendment) Act, 2000 (53 of 2000). The
Companies (Amendment) Act, 2000 has been repealed by the Repealing and Amending Act, 2016.
The inclusion of the term hybrids was based on the recommendation of Working Group for facilitating
companies to introduce new financial instruments in the capital market. The working group explained
the term “hybrid” as “an omnibus term that allows the combination of securities including their
derivatives and options”. “Hybrids” means any security which has the character of more than one
type of security, including their derivatives”. This particular definition was defined in clause (19A)
inserted by Companies Amendment Act, 2000.36
[s 2.610] Section 2(45AA) and Section 2(12) of the Companies Act, 1956
The definition of “securities” in section 2(h) of the Securities Contracts (Regulation) Act, 1956 has
been incorporated in section 2(45AA) of the 1956 Act. Therefore, section 2(12) is to be read with
section 2(45AA). Once the definition in SCRA is incorporated by reference it is taken as cut and
paste or written with ink and pen in the 1956 Act. No further reference is required to be made to the
SCRA to determine the scope and ambit of expressions “debenture” and “securities”. The term
“debenture” in section 439(2) has to carry the meaning assigned to it in section 2(12) of the Act and
would include “any securities” which in turn in view of the definition of “securities” incorporated by
reference under section 2(45AA) of the Act would include beneficial right or interest in debentures or
securities. Further, securities for the purposes of the Companies Act need not only be those
marketable in India.37
[s 2.611] Shares of private company
Shares of a private company cannot be sold in the market or, in other words, they cannot be said to
be marketable and cannot, therefore, be said to fall within the definition of “securities” as a
“marketable security” as defined in clause (h) of section 2 of the SCR Act, 1956. A contract for sale
and purchase of shares in a private company is thus not governed by the provisions of the Securities
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Contracts (Regulation) Act, 1956 (42 of 1956).38
[s 2 (82)]: Securities and Exchange Board.—Securities and Exchange Board” means the Securities and Exchange
Board of India established under section 3 of the SEBI Act, 1992 Securities and Exchange Board of India(15 of 1992).
NOTES
12-09-2013 and the corresponding provision is section 2(45B) of the 1956 Act.
as follows:
the Bill.
This definition of securities and exchange board is a reproduction of the definition which was
proposed in the Companies Bill, 2011.
In SEBI (SEBI) Act, Section 3 refers to establishment of a Board called the SEBI which shall be a
body corporate having perpetual succession with its head office in Mumbai. SEBI has been conferred
with powers to administer certain provisions of the 2013 Act in respect of listed companies or those
which intend to get their securities listed by making its own regulations.
SEBI [s 2(45B)] - SEBI (SEBI) means the SEBI established under section 3 of the SEBI Act, 1992 (15 of 1992)39
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NOTES
Section 2(45B) of the 1956 Act corresponds to section 2(82) of the 2013 Act.
This clause was inserted by the Depositories Act, 1996 (22 of 1996) with retrospective effect from
20-09-1995.
[s 2.614] Powers of SEBI
Section 55A of the 1956 Act inserted by the Companies (Amendment) Act, 2000 (w.e.f. 13-12-2000)40
provides that the provisions contained in sections 55 to 58, 59 to 81 (including sections 68A, 77A and
80A), 108, 109, 110, 112, 113, 116, 117, 118, 119, 120, 121, 122, 206, 206A and 207 of the 1956
Act, so far as they relate to issue and transfer of securities and non-payment of dividend shall in case
of—(a) listed public companies; (b) public companies which intend to get their securities listed on any
recognized stock exchange in India, be administered by the SEBI (SEBI); and (c) in any other case,
by the Central Government.
All residuary powers including the matters relating to prospectus, statement in lieu of prospectus,
return of allotment, issue of shares and redemption of irredeemable preference shares shall be
exercised by the Central Government, the Company Law Board [now the Tribunal] or the Registrar of
Companies. [Section 55A, Explanation].
[s 2.615] SEBI Act, Rules, Regulations and Guidelines
The SEBI Act, Rules, Regulations and Guidelines have been annotated or referred to in Notes under
relevant Sections. See detailed Notes and List of SEBI Act, Rules, Regulations and Guidelines under
section 55A of the 1956 Act.
[s 2 (83)]: Serious Fraud Investigation Office. “Serious Fraud Investigation Office” means the office referred to in
section 211;
NOTES
as follows:
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the Bill.
The office had been set up under the Department of Company Affairs to investigate white collar
crimes by Resolution 45011/16/2003-Admn I dt. 02-07-2003. However, the 1956 Act makes no
reference to the office.
The language of the provision remains unaltered from the Companies Bill, 2011.
The Central Government had to authorise investigations for the office. sections 211 and 212 of the
2013 Act elaborate on the powers of the Serious Fraud Investigation Office. However, the Sections
are clear about the requirement of the Central Government initiating the involvement of the office.
See, sections 208, 211 and 212 of the 1956 Act.
[s 2(84)]: Share.—Share means a share in the share capital of a company and includes stock.
NOTES
as follows:
the Bill.
This definition of share is a reproduction of the definition which was proposed in the Companies Bill,
2011.
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The distinction between stocks and shares in certain circumstances under the 1956 Act has been
done away with and stocks and shares are subject to the same treatment under the 2013 Act.
Share [s 2(46)].—Share means share in the share capital of a company, and includes stock except where a distinction
between stock and shares is expressed or implied.
NOTES
[s 2.619] Position of a shareholder
A share in a company is to be regarded as the interest of the shareholder in the company measured,
for the purpose of liability and dividend, by a sum of money, but consisting of a series of mutual
covenants entered into by all the shareholders inter se in accordance with the provisions of the 1956
Act, Memorandum and Articles of Association and made up of various rights.41
A share is a right to a specified amount of the share capital of a company carrying with it certain
rights and liabilities while the company is a going concern and in its winding up. A shareholder who
buys shares does not buy any interest in the property of the company which is a juristic person
entirely distinct from the shareholders. The true position of a shareholder in a company is that on
buying shares an investor becomes entitled to participate in the profits of the company if and when
the company declares, subject to the articles of association, that the profits or any portion thereof
should be distributed by way of dividends among the shareholders. He has undoubtedly a further
right to participate in the assets of the company which would be left over after winding up. The shares
or other interest of any member in a company are personal estate transferable in the manner
provided by its articles, and are not of the nature of real estate. The undertaking of the company is
something different from the totality of shareholdings. It is the company which owns the property and
not the shareholders. The shareholders are not in the eye of the law part-owners of the undertaking.
The shareholders in a company are not partners inter se.42
See detailed Notes under Definition of Member [section 41 of the 1956 Act], Separate Entity and
Lifting of Corporate Veil [sections 12 and 34 of the 1956 Act], Nature of Shares [section 82 of the
1956 Act], Kinds of Share Capital [s. 86 of the 1956 Act], Share in Surplus on Winding-up [section
511 of the 1956 Act].
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[s 2.620] Share an interest measured by sum of money
Under the 1956 Act shares can be issued for cash or against transfer of property. The Act also places
no restriction upon a company issuing shares for a consideration which exceeds the par value of the
shares. A share is not a sum of money: it represents an interest measured by a sum of money and
made up of diverse rights contained in the contract evidenced by the Articles of the company. In the
absence of any restriction in the law against the issue of shares otherwise than for cash, when
shares are issued for consideration other than cash the value of the assets transferred in excess of
the par value of shares issued would be regarded as premium for purposes of our system of law.43
See also Notes under sections 75 and 78 of the 1956 Act.
[s 2.621] Rights of shareholder

of dividends; (iv) to apply to the Court [the Company Law Board (the Tribunal)] for relief in the case of
oppression; (v) to apply to the Court [the Company Law Board (the Tribunal)] for relief in the case of
mismanagement; (vi) to apply to the Court [the Company Law Board(the Tribunal)] for winding up of
the company; and (vii) to share in the surplus on winding up. A share is transferable but while a
transfer may be effective between transferor and transferee from the date of transfer, the transfer is
truly complete and the transferee becomes a shareholder in the true and full sense of the term, with
all the rights of a shareholder, only when the transfer is registered in the company’s register.44
See detailed Notes under relevant Sections, e.g., Separate Legal Entity and Lifting of Corporate Veil
[sections 12 and 34 of the 1956 Act], Definition of Member [section 41 of the 1956 Act], Allotment of
Shares [sections 69, 70 and 75 of the 1956 Act], Nature of Shares [section 82 of the 1956 Act], Kinds
of Share Capital [section 86 of the 1956 Act], Transfer of Shares [sections 111 and 111A of the 1956
Act], Dividends [section 205 of the 1956 Act], Acquisition of Shares of Dissenting Shareholders
[section 395 of the 1956 Act], Application for Relief in Cases of Oppression [section 397 of the 1956
Act], Application for Relief in Cases of Mismanagement [section 398 of the 1956 Act], Application for
Winding-up of the Company [sections 439 and 484 of the 1956 Act] and Share in Surplus on
Winding-up [section 511 of the 1956 Act].
[s 2.622] Bonus shares
However, ordinary shareholders become owners of the bonus shares from the date of resolution. It is
erroneous to hold that a share cannot be held to have been issued to a person until a share
certificate is given to him.45
[s 2.623] Share capital
“Share”, as defined in the 1956 Act and as understood in company law, means share in the capital of
a company. It is a tangible property. The words “capital” and “share capital” are synonymous. It may
mean the nominal or the authorised capital, the issued capital or the paid-up capital; and the meaning
depends on the context in which that term is used. A company having share capital is a company
registered with a nominal or authorised capital, which is divided into shares of a fixed amount. Where
a company has no authorised capital, it cannot be said to be a company limited by shares, but is a
company limited by guarantee as mentioned in section 12(2)(b) of the Act. Therefore, an application
under sections 397 and 398 of the 1956 Act can only be made by requisite number of members.46
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[s 2.624] Shares not goods before allotment
Shares are not goods before allotment. Applicant for shares is not a consumer. Raising of share
capital by a company is not a trading activity. The issue of shares or debentures does not come
under the Consumer Protection Act, 1986 (68 of 1986) or the MRTP Act, 1969 (54 of 1969) [now the
Competition Act, 2002 (12 of 2003)].47
[s (87)]: Subsidiary Company.—“subsidiary company” or “subsidiary”, in relation to any other company (that is to say
the holding company), means a company in which the holding company—
(ii) exercises or controls more than one-half of the total share capital either at its own or together with one or more
of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries
beyond such numbers as may be prescribed.
Explanation.— For the purposes of this clause,—
(a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to
in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;
(b) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if
that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or
a majority of the directors;
(c) the expression “company” includes any body corporate;
(d) “layer” in relation to a holding company means its subsidiary or subsidiaries;
NOTES
been in effect from 12-09-2013 and this section corresponds to sections 2(19) and 2(47) r.w.s. 4 of
the 1956 Act.
in the Bill.
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Explanation (d) was notified on 26-03-2014 and has been in effect from 01-04-2014. This definition of
subsidiary company is a reproduction of the definition which was proposed in the Companies Bill,
2011
[s 2.626] Analysis of the Definition A. Control over composition of Board of Directors

[Section 2(87)(i)) and Explanation (b) of the Companies Act, 2013]
This corresponds to section 4(i) of the 1956 Act. Explanation (b) provides that one company shall be
deemed to be controlled by another company if the other company, by some powers exercisable by
it, if it can appoint or remove all or a majority of its directors.
The 1956 Act also elucidated the meaning of “control of Board of Directors” by way of an illustration
to section 4, namely, that the company exercising control should satisfy one of the following
conditions:
(i) that a person cannot be appointed thereto without the exercise in his favour by that other
company of such a power as aforesaid;
(ii) that a person’s appointment thereto follows necessarily from his appointment as director, [***]
or manager of, or to any other office or employment in, that other company; or
(iii) that the directorship is held by an individual nominated by that other company or a subsidiary
thereof.
The 2013 Act has omitted this Illustration to determine the meaning of control over Board of
Directors. Thus, the only determinants for evaluating whether a company controls the composition of
the Board of Directors of its subsidiary company under this sub-clause, is whether a majority or all of
the directors have been appointed or can be appointed by the holding company.
B. Exercises or controls more than one-half of the total share capital of the company
[Section 2(87)(ii) of the Companies Act, 2013]
Under the 1956 Act, one of the criteria for a company to be classified as a subsidiary of another
company was that the holding company should hold more than 50% of the equity share capital of the
subsidiary company. Under the 2013 Act, this criteria has been modified and has been made
broader. If more than 50% of the “total share capital” of a company is held by another company then
the former company is considered to be a subsidiary of the latter company. Rule 2(1)(r) of the
Companies (Specification of Definitions Details) Rules, 201448 defines “total share capital”, for the
purposes of Clause (87) of section 2, to mean the aggregate of the: (i) paid-up equity share capital;
and (ii) convertible preference share capital.
As a result, for determining the total share capital for this section, the percentage of convertible
preference share capital held by the holding company is also considered under the 2013Act and not
just the equity share capital, which is unlike the 1956 Act. This departure from the 1956 Act widens
the scope of companies that may fall within the ambit of a subsidiary company of another company.
Further ambiguity in Clause 2(87)(ii) stems from the wording “exercise” of total share capital. It is not
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clear what “exercise of share capital” of a company would mean. The 1956 Act contained the
language exercise or control of “total voting power”.
The 2016 Company Law Committee had pointed out the following problems with the wording “total
share capital in this Clause, in its Report:
“a company in which the preference share capital was greater than its equity share capital, could become a subsidiary
of an entity that holds the preference shares, even though it might not have control, or any voting rights in such a
company. Further, inclusion of the preference share capital in the total share capital could create confusion about
ownership of the company. Further, such companies could be shown as subsidiaries, but would not be considered for
consolidation purposes, as per the applicable Accounting Standards. It was pointed out that it was problematic to treat
preference shares on par with equity shares, and this could also affect raising of funds for several industries, especially
infrastructure and allied sectors. The Committee also felt that there were sufficient checks in the Act to address matters
relating to control over a company. In order to address the practical problems, the Committee recommended that the
term “total share capital” be replaced with the term ‘total voting power’, as equity share capital should be the basis for
determining holding/subsidiary status. Consequential changes in the Rules may also be required.49
The Companies (Amendment) Bill 2016 has proposed to amend this Clause by substituting “total
share capital” with “total voting power”, to revert to the language used in the sub-clause in the 1956
Act.
C. Body Corporates (Explanation (c))
Explanation (c) in Clause 2(87) provides that a company “for the purpose of this Clause” includes a
body corporate. In the absence of such a definition being provided in Clause 2(46), it is taken that the
section intended only for subsidiary companies to be covered under this Explanation. The effect of
this Explanation is that unlike the 1956 Act, under the 2013 Act a foreign company cannot have an
Indian owned subsidiary. This is unlikely in its very nature that the Legislature had envisaged such a
scenario. The absence of a specification in Clause 2(46) that it is to be read with Clause 2(87) is
another contributing factor to the confusion. As Clause 2(87) only provides the definition of a
“subsidiary company”, it is to be read that the explanation would only extend to a subsidiary
company.
The 2016 Company Law Committee had recommended that this clarification also be inserted in
Clause 2(46). The Companies (Amendment) Bill, 2016 has proposed that this explanation also be
inserted in Clause 2(46) of the 2013 Act.
D. Status of the Subsidiary of a Foreign Company 1. Position under the Companies Act,
1956
Section 3 of the 1956 Act provided that a private company that is a subsidiary of a public company
would be construed as a public company. Section 4(5) of the 1956 Act clarified that the term
“company” included any body corporate. Since the definition of a body corporate included a company
incorporated outside India, namely, a foreign company, the scope of section 3 was broad enough to
cover subsidiaries of foreign companies as well. However, the ambit of section 3 was curtailed by
section 4(7), which provided that a private company that was a subsidiary of a foreign company
would be deemed to be a subsidiary of a public company if:
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(i) the foreign company would be a public company had it been incorporated in India; and
(ii) the entire share capital of the subsidiary is not held by the foreign company alone or the
foreign company together with other body corporates.
Hence, the position under the 1956 Act was that a private company that was a subsidiary of a foreign
company could retain its private company status if its share capital was held entirely by body
corporates.
2. Position under the Companies Act, 2013
It is pertinent to note that the 2013 Act does not have any provision that corresponds to the deeming
provision covered under section 4(7) of the 1956 Act. The proviso to section 2(71) (public company)
of the 2013 Act provides that a subsidiary of a company, not being a private company, will be
deemed to be a public company even if its articles of association provide otherwise. Considering that
section 2(87) provides that a subsidiary only for this limited clause includes a body corporate, it
appears to mean that since the term “body corporate” does not extend to a public company, a private
company that was a subsidiary of a foreign company will not be deemed to be a public company and
may continue with its status as a private company.
The ambiguity surrounding the status of a private company that is a subsidiary of a foreign company
was discussed in a clarification issued by the Ministry of Corporate Affairs (MCA) in June, 2014 which
provided as follows:
The matter has been examined in the Ministry in the light of sections 2(68), 2(71) and 2(87) of the New Act and it is
clarified that there is no bar in the new Act for a company incorporated outside India to incorporate a subsidiary either
as a public company or a private company. An existing company, being a subsidiary of a company incorporated
outside India, registered under the Companies Act, 1956, either as a private company or a public company by virtue of
section 4(7) of that Act, will continue as a private company or public company, as the case may be, without any change
in the incorporation status of such company.
The above clarification supports the proposition that Indian private companies that are subsidiaries of
foreign companies, do not become (nor are they deemed to be) public companies for purposes of the
2013 Act.
The Companies (Amendment) Bill, 2016 proposes to change the above mentioned position
significantly by reversing the proposition to state that all Indian private companies that are
subsidiaries of overseas bodies corporate and are not private companies are deemed public
companies under Indian law.
The Companies (Amendment) Bill, 2016 seeks to insert an explanation in section 2(46) of the 2013
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Act, which defines a “holding company”. This explanation will specify that: “for the purposes of this
clause, the expression “company” includes any body corporate”. Reading the proposed insertion with
the main section 2(46), the conclusion is inescapable that a “holding company” would include a
company, both India incorporated or an overseas incorporated entity, of which such companies are
subsidiary companies.
The February 2016 Report of the Companies Law Committee (in Para 1.11 of Part I) seeks to explain
this proposed insertion as the correction of a “minor anomaly”. The Committee states that as section
2(87), Explanation “c”, defining a “subsidiary company” has language clarifying that the expression
“company” includes an overseas incorporated body corporate, similar language needs to be inserted
into the definition of a “holding company”. As a result, a company incorporated outside India could be
considered to be the “holding company” of another company in India, for the purposes of the 2013
Companies Act. This position is further strengthened by the view of the Committee (in Para 1.18 of
Part I) that a private company subsidiary of a public company needs to be regulated in the same
manner as a public company.
Consequently, from the position that an India incorporated private company subsidiary of an
overseas body corporate is untouched by the deeming provision of public companies, the situation is
all set to change, to make the public company deeming provision apply to all overseas holding
situations, but only where the foreign body corporate is “not a private company”.
See Notes under section 4(5) of the 1956 Act for position under the 1956 Act.
E. Layers of subsidiaries [ Explanation (c) ]
The 1956 Act provided vide the Illustration to section 4(1) that further subsidiaries of subsidiary
companies would also be considered subsidiaries of the holding company. The 2013 Act stipulates
for a holding company of a subsidiary company to also be the holding company of the subsidiary
company of the subsidiary, thus restricting the number of layers of subsidiary companies that a
holding company is allowed to have, to two. This provision has not been notified as on date, and the
2016 Company Law Committee had recommended that this restriction on number of layers of a
subsidiary be removed. This Explanation has been proposed to be omitted through the Companies
(Amendment) Bill, 2016.
Holding Company [s 2(19)].—Holding company means a holding company within the meaning of section 4. The
Subsidiary Company [s 2(47)].—Subsidiary company or subsidiary means a subsidiary company within the meaning
of section 4. The Companies Act, 1956 provision
[s 4] Meaning of “holding company” and “subsidiary”.—(1) For the purposes of this Act, a company shall, subject
to the provisions of sub-section (3), be deemed to be a subsidiary of another if, but only if,— The Companies Act,
1956 provision
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(a) that other controls the composition of its Board of directors; or
50[(b) that other—
(i) where the first-mentioned company is an existing company in respect of which the holders of preference
shares issued before the commencement of this Act have the same voting rights in all respects as the
holders of equity shares, exercises or controls more than half of the total voting power of such company;
(ii) where the first-mentioned company is any other company, holds more than half in nominal value of its
equity share capital; or]
(c) the first-mentioned company is a subsidiary of any company which is that other’s subsidiary.
Illustration
Company B is a subsidiary of Company A, and Company C is a subsidiary of Company B. Company

C is a subsidiary of Company A, by virtue of clause (c) above. If Company D is a subsidiary of
Company C, Company D will be a subsidiary of Company B and consequently also of Company A, by
virtue of clause (c) above; and so on.
(2) For the purposes of sub-section (1), the composition of a company’s Board of directors shall be
deemed to be controlled by another company if, but only if, that other company by the exercise of
some power exercisable by it at its discretion without the consent or concurrence of any other
persons, can appoint or remove the holders of all or a majority of the directorships; but for the
purposes of this provision that other company shall be deemed to have power to appoint to a
directorship with respect to which any of the following conditions is satisfied, that is to say—
(a) that a person cannot be appointed thereto without the exercise in his favour by that other
company of such a power as aforesaid;
(b) that a person’s appointment thereto follows necessarily from his appointment as director,
51[***] or manager of, or to any other office or employment in, that other company; or
52[(c) that the directorship is held by an individual nominated by that other company or a
subsidiary thereof.]
(3) In determining whether one company is a subsidiary of another—
(a) any shares held or power exercisable by that other company in a fiduciary capacity shall be
treated as not held or exercisable by it;
(b) subject to the provisions of clauses (c) and (d), any shares held or power exercisable—
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(i) by any person as a nominee for that other company (except where that other is
concerned only in a fiduciary capacity); or
(ii) by, or by a nominee for, a subsidiary of that other company, not being a subsidiary which
is concerned only in a fiduciary capacity;
• shall be treated as held or exercisable by that other company;

(c) any shares held or power exercisable by any person by virtue of the provisions of any
debentures of the first-mentioned company or of a trust deed for securing any issue of such
debentures shall be disregarded;
(d) any shares held or power exercisable by, or by a nominee for, that other or its subsidiary [not
being held or exercisable as mentioned in clause (c)] shall be treated as not held or
exercisable by that other, if the ordinary business of that other or its subsidiary, as the case
may be, includes the lending of money and the shares are held or the power is exercisable as
aforesaid by way of security only for the purposes of a transaction entered into in the ordinary
course of that business.
(4) For the purposes of this Act, a company shall be deemed to be the holding company of another if,
but only if, that other is its subsidiary.
(5) In this section, the expression “company” includes any body corporate, and the expression “equity
share capital” has the same meaning as in sub-section (2) of section 85.
(6) In the case of a body corporate which is incorporated in a country outside India, a subsidiary or
holding company of the body corporate under the law of such country shall be deemed to be a
subsidiary or holding company of the body corporate within the meaning and for the purposes of this
Act also, whether the requirements of this section are fulfilled or not.
53[(7)A private company, being a subsidiary of a body corporate incorporated outside India, which, if
incorporated in India, would be a public company within the meaning of this Act, shall be deemed for
the purposes of this Act to be a subsidiary of a public company if the entire share capital in that
private company is not held by that body corporate whether alone or together with one or more other
bodies corporate incorporated outside India.]
NOTES
Section 2(19), 2(47) r.w.s. 4 of the 1956 Act corresponds to section 2(87) of the 2013 Act.
English Act, 1985 : Sections 736, 736A, 736B, 744
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As suggested by the Company Law Committee (paragraph 27), the definitions are based on those found in section 154
of the English Act. The illustration has been added so as to bring out clearly the intention underlying sub-clause (1)(c).
A few minor drafting improvements have also been effected. [Clause 4 of the Companies Bill, 1953 (46 of 1953)].
The Company Law Committee recommended thus: “We have entirely recast the definitions of subsidiary and holding
companies and replaced the existing definitions in section 2 of the Act by the provisions of section 154 of the English
Companies Act, 1948. The effect of this new definition would be that company A would be deemed to be a subsidiary
of company B, if one of the following conditions applies:
(i) company B is both a member of company A and controls the composition of the Board of
directors, or
(ii) company B holds more than half of company A’s equity share capital in nominal value, or
(iii) company A is a subsidiary of any subsidiary of company B.
As a corollary, a company is defined as a holding company of another, when that other company fulfils the above
conditions so as to make it a subsidiary of the first. It will be noted that a company under the new definition, may be the
subsidiary of another even though it is not a company within the meaning of the Act.” [para 27].
The Companies (Amendment) Act, 1960 (65 of 1960).—The Notes on clauses explained the amendments as follows:
“The amendments seek to remove certain drafting defects—(i) in clause (b) of sub-section (1) of section 4 in that the
holders of preference shares issued before the commencement of the Act which may carry the same voting rights as
equity share are not covered by it, though such voting rights are preserved under section 90; and (ii) in clause (c) of
sub-section (2) of section 4 which is inconsistent with section 253 which prohibits a body corporate from being
appointed as a director of a company. (See para 25 of the Report).
It is proposed to place a private company registered in India, which is a subsidiary of a foreign public company, at par
with an Indian private company which is a subsidiary of a public company registered in India. An exemption is
proposed to be provided in the case of a private company registered in India which is a wholly owned subsidiary of a
public company incorporated outside India.” [Clause 3 of the Companies (Amendment) Bill, 1959 (37 of 1959)].
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“24. According to competent legal opinion obtained by the management of some companies, a private company
registered as such in India, which is a subsidiary of a public company incorporated outside India, cannot be deemed to
be a subsidiary of a public company within the meaning of the Act. According to this opinion, the expression “private
company which is a subsidiary of a public company” occurring in the Act should be taken to mean a private company
which is a subsidiary of a public company registered under the Act and not to include a private company registered in
India which is a subsidiary of a foreign company, described as a “body corporate” in the Act. It was pointed out that
there are private companies registered in India which are subsidiaries of foreign companies and which have been
doing business on a large scale. Logically, it would be difficult to justify a discrimination between “Indian” subsidiaries
of Indian public companies and “Indian” subsidiaries of foreign public companies. Indian subsidiaries of foreign public
companies need not, if they are private companies, file their profit and loss account with the Registrar [vide section
220(1)(b)]. They would not also be subject to the ceiling on managerial remuneration imposed by section 198 or the
separate ceilings in respect of different classes of managerial personnel under sections 309, 348, 381 and 387. Even
under the law of the country of incorporation of the holding company, some of these privileges might not be available to
private companies of this type. It was presumably not intended by the legislature that private companies which are
subsidiaries of foreign bodies corporate, should find themselves in a privileged position vis-a-vis private companies
which are subsidiaries of Indian public companies. So far as we can ascertain, there are about 100 such private
companies which are Indian subsidiaries of foreign bodies corporate which, if they were incorporated in India, would be
public companies. The capital of the majority of these private companies is said to be wholly owned by the foreign
bodies corporate. It has been represented to us that to render such private companies at this stage subject to the
provisions of section 198 et al is bound, in the long run, to inhibit foreign investment in this country through the medium
of an Indian subsidiary and might also give rise to some measure of disinvestment by existing foreign companies. It is
said that, in the present world-wide shortage of development capital, the restrictions on management remuneration
(which are not generally found in the capital-exporting countries themselves) will tend to drive capital away from India,
other things being equal.
Bearing in mind the prime purpose of the Companies Act, viz., the protection of the interests of the shareholder,
subject always to the overriding requirements of public policy, a distinction might be drawn between private companies
which are wholly-owned subsidiaries of foreign bodies corporate and other private companies which are subsidiaries of
foreign bodies corporate but in which a portion of the capital is nevertheless held by Indian nationals or companies. In
the first type of cases, it has been argued that the management, having no shareholding interest, is, in fact, effectively
supervised in regard to remuneration and otherwise by the parent company abroad and is subject to any restrictions
which the foreign legislature may care to impose and that there is no necessity for the Indian Legislature to concern
itself with the matter. But this argument is by no means decisive in view of the fact that the business operations are
carried on and profits are earned in India by the subsidiaries and that there is, therefore, a sufficient economic and
territorial connection justifying regulation by Parliament. So far as the second type of company is concerned, however,
it must be conceded that the company being incorporated in India and Indian capital being in some degree involved,
there is no reason for any difference in treatment for the purposes of the Act between such a company and a company
which is a subsidiary of an Indian public company.
We, therefore, recommend that in the case of private companies, which are subsidiaries of foreign bodies corporate,
but in which some part of the capital is beneficially held by Indian nationals or Indian companies, a provision should be
inserted in section 4 to make it clear that such private companies will be treated as subsidiaries of public companies for
all the purposes of the Act. As regards the treatment of private companies, the entire share capital of which is owned
by one or more foreign bodies corporate, it is a matter of economic and financial policy for Government to decide,
having regard to the position of foreign investments in this country generally, whether or not such private companies
should continue, as at present, to remain outside the restrictions imposed on private companies which are subsidiaries
of Indian public companies or whether they should henceforth be made subject to these restrictions. If an alteration of
law in this respect is considered desirable, a provision should be inserted in section 4 to the effect that “a private
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company, which is registered in India and which is a subsidiary of a foreign public company, shall be deemed to be a
subsidiary of a public company for all the purposes of this Act”.
25. There are a few drafting defects in the definition of a “subsidiary” in section 4. There are “existing” companies
where preference shareholders have the same voting rights as equity shareholders. Section 90 preserves such rights.
In such cases it is possible that the equity shares of a company may be held by one company and the preference
shares by another and the preference shares might exceed the equity shares in voting strength. In such cases, it may
be inappropriate to treat the company as a subsidiary of both the companies. To avoid this difficulty, section 4(1)(b)
might be amended by adding the following words at the end of the clause after the words “share-capital”:—
“or, in the case of existing companies, with equity and preference share holders having the same voting rights, that
other holds more than half of its total voting power.”
Section 4(2)(c) refers to a directorship of one company being held by another company or its subsidiary. Section 253
prohibits a body corporate from being appointed as a director of a company. Section 4(2)(c) should be recast as
follows:—
“(c) that the directorship is held by an individual nominated by that other company or by a subsidiary thereof.” ” [Report
: paras 24 and 25].
The Joint Committee made further changes and observed as under:
“The amendments made in the clause are clarificatory in nature. The Committee consider it unnecessary to treat an
Indian private company, the entire share capital of which is held by one or more bodies corporate incorporated outside
India, as a private company which is a subsidiary of a public company for the purposes of the Act.” [Report : para 16].
THE COMPANIES (AMENDMENT) ACT, 2000 (53 OF 2000)54.—The Notes on clauses explained the amendments as
follows:
This clause seeks to omit the expression ‘managing agent, secretaries and treasurers’ in clause (b) of sub-section (2)
of section 4 of the Act which is of consequential nature.
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[s 2.628] Object
The importance of the existence of the relationship of holding and subsidiary companies lies mainly in
preserving operational identity, shareholders’ control over each of the companies, and in the
obligation to attach subsidiary’s Balance Sheet, Profit and Loss Account, Directors’ and Auditors’
Reports and a Statement showing holding company’s interest in the subsidiary company, to the
Balance Sheet of the holding company.
[s 2.629] Subsidiary [Sub-section (1)]
As per sub-section (1), for the purposes of this Act, a company is deemed to be a subsidiary
company of another if the other—
(a) controls the composition of its Board of directors; or
(b) holds, (i) in case of existing companies having preference shares with voting rights, more
than half of the total voting power of such company and (ii) in other cases, holds more than
half in nominal value of its equity share capital; or
(c) it is a subsidiary of another company which itself is a subsidiary of a third company. [See also
Illustration to section 4(1)(c)].
Clauses (a) to (c) of sub-section (1) of section 4 are explained below.
[s 2.630] Controls composition of Board of Directors [Section 4(1)(a) of the Companies Act,
1956]
This requirement is established only if the other company has discretionary power to appoint or
remove the holders of all or majority of the directorships.
[s 2.631] Power to Appoint when Deemed to Exist
The Act states three circumstances in which the requisite power to appoint is considered or deemed
to exist, e.g., (a) a person cannot be appointed without exercise in his favour by that other company
of such power, (b) a person’s appointment follows necessarily from his appointment as director, or
manager of, or to any other office or employment in, that other company, or (c) the directorship is
held by an individual nominated by that other company or a subsidiary thereof. [section 4(2)]. This
Illustration has been omitted in the 2013 Act.
[s 2.632] Investment by holding company in subsidiary
Where by an agreement a company was given full and absolute right to appoint 5 directors in another
company. That other company altered its Articles providing that right and establishing the relationship
of holding company and subsidiary. Thereafter the first company acquired large number of shares
making it holding company of the other. The alteration of the Articles by the subsidiary was not
contrary to the provisions of sections 255, 256 and 257 nor the holding company violated the
provision of section 9 of the Act inasmuch section 372(14)(d) [now section 372A(8)] of the
Companies Act, 1956 excluded the application of section 372(4) to investments by a holding
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company in its subsidiary.55
[s 2.633] Appointment of additional directors
Appointment of additional directors under section 260 is limited in point of time to the date of the next
Annual General Meeting of the company. But, there would still be control in the matter of composition
of the Board of directors for the period up to the next annual general meeting and, therefore, it is
possible for the relationship of a holding company and subsidiary company to subsist during that
time. When a holding company invests in a subsidiary it is protected by section 372(14) [now section
372A(8)] of the 1956 Act and no prosecution lies under that section.56
[s 2.634] Board controlled subsidiaries
Section 372(14)(d) was substituted by the Companies (Amendment) Act, 1988 to plug the above
loophole. It provided that exemption from Government approval as regards investment by a holding
company in its subsidiary ought to be permitted only in the case of genuine subsidiaries controlled by
shareholding and not in the case of Board controlled subsidiaries.
[s 2.635] Inter-corporate loans and investments
Sections 370 and 372 have been replaced by a new section, viz., Inter-corporate loans and
investments [s. 372A] by the Companies (Amendment) Act, 1999 (21 of 1999) (w.r.e.f. 31-10-1998).
[s 2.636] Nominee Director
A company which is controlled by a Nominee of the Board of Directors of another company becomes
a subsidiary of another company.57
[s 2.637] Holds more than half equity share capital [Section (4)(1)(b) of the Companies Act,
1956]
In the case of the second condition, the holding company must hold more than half in nominal value
of its equity share capital. In the second type of cases, where more than half the nominal value of the
equity share capital is held by another company, then by virtue of such holding that other company
becomes a holding company and the one whose shares are so held becomes a subsidiary company.
[s 2.638] Existing companies
Clause (i) providing that it holds in case of existing companies having preference shares with voting
rights, more than half of the total voting power is now redundant. [See Notes under section 90 of the
1956 Act].
Department’s View— Section 4(1)(b) — Manner of reckoning “half in nominal value of equity
capital”
[s 2.639] In reply to a query
“If a part of the share capital of a company is fully paid and part partly paid, how should the ‘half in nominal value of
equity capital’ mentioned in the section be reckoned?” the Department is of the view: “The ‘nominal value of equity
capital’ is a fixed figure at any point of time and readily ascertainable. It is unrelated to the amount paid up on the
equity shares. The words ‘nominal share capital’ in Schedule X of the Companies Act, 1956 indicate the ‘authorised
capital’. The words ‘nominal value of equity capital’ in section 4 may be interpreted to mean the face value of the equity
capital which has been subscribed.” [Clarification F. No. 2/25/161-PR : Govt. of India publication, Clarifications and
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[s 2.640] Control or Controlling Interest
It is established that the expression “control” in relation to a company means the power by the
exercise of voting rights to carry a resolution at a general meeting of the company.58 The 2013 Act
has introduced a definition for “Control” in section 2(27).
The holding of a large majority of voting power in a company is in general sufficient to constitute a
controlling interest; it is not necessary to hold such proportion of the shares as would secure the
passing of a resolution for which a special majority is required.59Voting rights does not mean effective
voting rights. In terms of section 87(1)(b) the voting rights are to be on the basis of share in the paid
up capital.60
In this section, the expression “company” includes any body corporate, and the expression “equity
share capital” has the same meaning as in sub-section (2) of section 85 of the 1956 Act. [section
4(5)].See also Notes under section 85 of the 1956 Act.
[s 2.641] Subsidiary of subsidiary [Section 4(1)(c) of the Companies Act, 1956]
Clause (c) of sub-section (1) of section 4 further provides that a company is deemed to be a
subsidiary company of another if it is a subsidiary of another company which itself is a subsidiary of a
third company. This third case envisaged by section 4(1) provides that a subsidiary company of a
holding company may be a holding company in relation to another company.
[s 2.642] Exceptions
These conditions of the relationship between the holding and subsidiary companies are subject to the
provisions relating to shares held in fiduciary capacity or by nominees or under debenture trust-deed
or under power of appointment exercisable by the potential holding company. [See section 4(3)(a) to
(d) of the 1956 Act]
[s 2.643] Subsidiary cannot be member of its Holding Company [Section 42 of the Companies
Act, 1956]
The separate operational identity of the holding company and of the subsidiary company are to be
maintained. The shareholders’ right of control over subsidiary company or the holding company, as
the case may be, should be preserved. With these objects in view it has been provided that a
subsidiary or its nominee cannot be a member of its holding company except as personal
representative or as trustee provided that neither a subsidiary nor the holding company is beneficially
interested under the trust apart from an interest by way of security in the ordinary course of business
which includes the lending of money. A holding company therefore cannot allot shares to its
subsidiary. This provision does not prevent a subsidiary company, which was a member of the
holding company at the time of the commencement of the Act, from continuing to be a member, but
the right to vote at meetings of the holding company is withheld.
[s 2.644] Holding Company [Section 4(4) of the Companies Act, 1956]
For the purposes of the 1956 Act, a company shall be deemed to be the holding company of another
if, but only if, that other company is its subsidiary.
[s 2.645] Company includes body corporate [Section 4(5) of the Companies Act, 1956]
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In this s., the expression “company” includes any body corporate.
The term body corporate is wider than the term “company” and includes a foreign company. But it
does not include a corporation sole, a co-operative society, a society registered under the Societies
Registration Act, 1860 and a Public Trustee, etc.
[s 2.646] Foreign Company [Section 4(6) of the Companies Act, 1956]
A company which is subsidiary or holding company of foreign company or body corporate

incorporated outside India under the law of such country shall be deemed to be a subsidiary or
holding company for the purposes of this Act even if it does not fulfil the requirements of section 4.
See Special provisions for foreign companies: Part XI—Companies Incorporated Outside India, viz.,
Provisions as to Establishment of Place of business in India [sections 591–602] and Prospectuses
[Sections 603–608].
[s 2.647] Private company subsidiary of Foreign Company [Section 4(7) of the Companies
Act, 1956]
A private company which is a subsidiary of a body corporate incorporated outside India, which, if
incorporated in India, would be a public company within the meaning of this Act, shall be deemed to
be a subsidiary of a public company unless the entire share capital in that private company is held by
foreign bodies corporate. Please see Notes under the 2013 Act portion above for the position under
the 2013 Act.
[s 2.648] Chain of subsidiary—holding relationship where holding companies are not Indian
companies
It seems that in determining a subsidiary-holding company relationship under section 4(7) of the Act,
one should trace the ownership structure of any given company and examine the applicability of the
other provisions of section 4 back to its ultimate parent/holding company. Suppose A is a subsidiary
of B (an overseas company) [as per section 4(1)(b)(ii)], which, in turn, is subsidiary of C (an overseas
company) (as per section 4(1)(b)(ii), and, therefore, A would be regarded as a subsidiary of C [as per
section 4(1)(c)].
[s 2.649] Shares held as Nominee
If any shares are held beneficially on behalf of a foreign company by any individual acting as a
nominee for that foreign company, they would be considered [as per section 4(3)(b)(i)] as part of the
shareholding of that foreign company both the individual and the foreign company should in terms of
section 187C make certain disclosures to the company.
[s 2.650] Joint Shareholding
If a small fraction of shareholding in a private company is held by a foreign body corporate jointly with
an individual/Indian company, such shareholding be considered as part of the shareholding of the
foreign company for the purposes of section 4(7).
[s 2.651] Impact of Section 3(1)(iv) of the Companies Act, 1956
A private subsidiary of a foreign public company which is deemed to be a subsidiary of a public

company under section 4(7) will not become a “public company” under section 3(i)(iv).
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The definition of “company” in section 3, which deals with the criteria for identifying companies as
private or public, differs from that in section 4, which deals with the criteria for identifying holding-
subsidiary relationship among companies. The term “company” has been defined (or explained) in
the Act at three places viz. section 2(10), section 3(1)(i), and section 4(5). There is no conflict
between the definition under section 2(10) and section 3(1)(i); as section 2(10) states that “company
means a company as defined in section 3”; and section 3 clearly states that company means a
“Company formed and registered under the Act.” Section 4(5) is the third place where the term
“company”, for the limited purpose of section 4, includes any body corporate.
Section 4(7) deals with the status of the private company registered in India and cannot affect the
status of the body corporate incorporated overseas in the definitional sense. The definition of “public
company” in section 3(1)(iv) necessarily means that such a company has to be a company
incorporated in India.
[s 2.651.1] Department’s view.— Section 4(7) “private” status to Indian private companies
where foreign body corporates hold 100%. shares automatic. Exemption not required after
amendment of section 43A
“The Registrar of NCT of Delhi and Haryana has sought a clarification on the applicability of section 43A(2A) on the
erstwhile deemed public companies [when section 43A was in operation prior to the Companies (Amendment) Act,
2000, which came into force with effect from 13th December, 2000], to those public companies which are subsidiaries
of foreign body corporates. The matter has been examined in the Department.
2. After amendment of the erstwhile section 43A, since the provisions of section 4 of the Companies Act are
independent, a private company, being a subsidiary of a foreign body corporate, which, if incorporated in India, would
not be a public company. As such, these deemed public companies are entitled to revert back to their initial status of
private limited companies as the effect of section 43A has been nullified by the amendment referred to.
3. Section 4(7) of the Act was an exemption available to Indian private companies when foreign body corporates were
holding 100%. share in them to retain their “private” status. After amendment of section 43A, such exemption is not
required. Therefore, applications under section 43A(2A) shall be dealt with independent of section 4(7) of the Act. The
legal position in the above circumstances would be that a private company would be the subsidiary of another private
limited company even if the holding company happens to be a foreign body corporate and these companies do not
need the exemption provided in section 4(7) of the Act. Therefore, the private company status of such companies is a
statutory one, and takes effect automatically. All that the company is required to do is to make an application to the
Registrar that the company has become a private company and thereupon the Registrar shall substitute the words
“private limited” in lieu of the words “public limited”.
4. Since no time limit has been prescribed in the statute for the companies to revert back, the Department has already
issued a Departmental Circular No. 3 of 2002, dated 24th July 2002 (F. No. 17/4/2002-CL-V) [printed under section
43A(2A)], wherein it has been clarified that those companies which do not approach the Registrar of Companies
seeking reversion back to private company status, are deemed to have chosen to remain as public companies.
5. In the circumstances, it is hereby clarified, that in cases falling in the above paragraphs, the Registrar is required to
make the necessary corrections in the certificate of incorporation within four weeks as from the date of receipt of
application from the company as provided in section 43A(2A) of the Companies Act, 1956.” [General Circular No. 23 of
2002, dated 30-9-2002 (F. No. 17/26/2002-CL-V) : (2002) 112 Comp. Cas. (St.) 118].
Section 43A of the Companies Act, 1956 [Deemed public company] except sub-section (2A) is not
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applicable (w.e.f. 13 December 2000) [vide section 43(11)].
[s 2.652] Private Company subsidiary of a Public Company
A Private Company is entitled to several privileges and exemptions conferred on the private
companies by or under the 1956 Act. A Private Company which is a subsidiary of a public company
or which is a subsidiary of a company which is not a private company is treated for all practical
purposes as a public company and loses almost all the privileges and exemptions that a private
company enjoys under the 1956 Act.
[s 2.653] Subsidiary not Agent
A company whose shares are controlled by another company is not by reason only of that to be
described as agent.61 A holding company and a subsidiary are two separate legal entities,62 even
though almost all the shares in the subsidiary are held by the holding company.63
Where a creditor of another group company objected to the shifting of situation clause of its
memorandum of association on the ground that a group company of the petitioner owed it money.
Held, though the company belonged to the same group, under law, the group companies were two
different entities.64Where under the articles of association of two companies under the same group
the director was authorised to enter into and execute all contracts. The agreement between two
group companies could be signed by the single director.65
[s 2.654] Lifting the veil of Holding company and its subsidiary
The corporate veil may be lifted where associated companies are inextricably connected as to be, in
reality, part of one concern.66A holding company and its subsidiary are separate legal entities. But, for
certain purposes, affairs of a subsidiary have been treated by the Acts as affairs of the holding
company. It is true that occasionally the corporate veil of a company is pierced through in order to
find out the substance but that is only where it is permitted by a statute or in exceptional cases of
fraud.67It is well-settled that, in a suitable case, the court can lift the corporate veil where the
companies share the relationship of a holding company and a subsidiary company and also to pay
regard to the economic realities behind the legal facade.68
The horizon of the doctrine of lifting of the corporate veil is expanding. It can be lifted even at the
invitation of the company itself.69Contemporary trend shows that the lifting of the corporate veil is
permissible whenever public interest so demands. The courts have been pragmatic in their approach
in unveiling companies, especially the subsidiary companies to see their real face in the interests of
justice.70 The modern tendency is, where there is identity and community of interest between
companies in the group, especially where they are related as holding company and wholly owned
subsidiary or subsidiaries, to ignore their separate legal entity and look instead at the economic entity
of the whole group tearing of the corporate veil.71
Merely by becoming a wholly owned subsidiary of another company, the company will not be deemed
to be directly/indirectly financed or the company’s operations becoming substantially controlled by
any other person or body of persons.72
For piercing the veil of incorporation, mere ownership and control is not a sufficient ground.73 It
should be established that the control and impropriety resulted in depriving the complainants of their
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legal rights.
In Balwant Rai v UOI,74 where the subsidiary company was responsible for facilitation of services
from workmen to the holding company, even though the Memorandum and Articles of Association of
the subsidiary company provided that the subsidiary shall wholly-owned subsidiary of the holding
company, its share capital shall be held by the holding company and/or its nominees; the holding
company controls the composition of the Board of Directors of the subsidiary, including the power to
remove any such director or even the Chairman of the Board. Further, the holding company has the
right to issue directions to the subsidiary company which the latter is bound to comply with. The
Supreme Court held that even in such a case, it cannot be said that the subsidiary is merely a veil
between the workmen and the holding company.
[s 2.655] Industries (Development and Regulation) Act
For registration as small scale industry under the Industries (Development and Regulation) Act, 1951
(65 of 1951) it was a condition that the undertaking should not be a subsidiary of or owned or
controlled by another undertaking. Where a director in one company was also a director in another
company. Held, the director does not own the company. The legal entity of the company is distinct
and separate from its directors. To say that one undertaking of a company is a subsidiary of the
other, a definite finding must be recorded that the Board of directors of one were controlling the
other.75
[s 2.656] Proprietary interest
Where the holding company and its fully owned subsidiary had same directors and the subsidiary
company had a legal title to a property and the holding company was carrying on business on that
property, it was held that on the compulsory acquisition of the property by the local authority the
holding company should be treated as the owner of the property and therefore be entitled to
compensation under the law. The contention of the local authority that the holding company was only
a licensee and was not entitled to compensation was negatived.76
[s 2.657] Trade mark used by subsidiary
A Holding Company exercises supervision and control over the quality of goods produced by its
subsidiary. The use of a Trade Mark by the subsidiary is to be regarded as a use by the Holding
Company. There is a connection between the goods and the owner of Trade Mark within the meaning
of the provisions of the Trade and Merchandise Marks Act, 1958 (43 of 1958).77
[s 2.658] Tender submitted by subsidiary company
Where the bid submitted by a subsidiary company, in response to a tender, quoting the experience,
qualifications and annual turnover of its foreign holding company, was challenged as arbitrary and in
violation of rule of law, the High Court of Andhra Pradesh and Telangana held that78:
A company incorporated under the Companies Act having past experience may undergo reorganisation as a result of
merger or amalgamation with another company which may have no such past experience and the tender is submitted
in the name of the reorganised company. It could not be the purport of the requirement about experience that the
experience of the company which has merged into the reorganised company cannot be taken into consideration
because the tender has not been submitted in its name and has been submitted in the name of the reorganised
company which does not have experience in its name.
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[s 2.659] Company whether subsidiary—Principles of natural justice
The question as to whether the petitioner-company was a subsidiary of another company has to be
undertaken in the context of the provisions of section 4 of the 1956 Act and not merely on the basis of
one of the directors being common to both the companies. The petitioner-company was blacklisted in
respect of dealings with the Government by order of the Court considering it to be a subsidiary of
another company, as one of the directors of the petitioner-company was also a director of the other
blacklisted company. In a writ petition the petitioner-company contended that the company was not a
subsidiary of the other company in terms of section 4 of the 1956 Act, and the company was not
provided with an opportunity to deny that it was a subsidiary of the other company. Allowing the writ
petition, it was held that the question of blacklisting a company is a serious one and it is well-settled
that before any person or company is blacklisted in respect of dealings with the Government, that
person or company must be provided with an opportunity of hearing. As the orders were passed
without serving any notice on the petitioner-company and without providing it an opportunity of
hearing, the orders in question were to be set aside for want of following the principles of natural
justice.79
[s 2.660] De-subsidiarisation
Where directors of investment company took collective corporate decision for de-subsidiarisation by
sale of shares in subsidiary held by holding company. De-subsidiarisation was final. Holding
company had no locus standi to challenge independent status of delinked company.80
[s 2.661] Transfer of shares among subsidiaries
A contract for supply of goods provided that the contract could be terminated if the “controlling
shareholding” of either parties was transferred to “new ownership”. New ownership refers to a
company which was not under the control of either of the parties. The shares were transferred to the
person who was controlling one of the parties both before and after the transfer. This change of the
ownership did not entitle the party to terminate the contract.81
[s 2.662] Financial year of subsidiary and holding companies [Section 212 of the Companies
Act, 1956]
The Balance Sheet and Financial Statements of the subsidiary should be according to the provisions
of the respective Companies Act. It should end at the close of the financial year of the subsidiary
company if it coincides with the financial year of the holding company. If it does not coincide then the
balance sheet should be as at the end of the financial year of the subsidiary last before that of the
holding company. The subsidiary company’s financial year must end within 6 months preceding the
end of the financial year of the holding company.
[s 2.663] Accounts
Section 42 of the 1956 Act prohibits allotment of shares of the holding company to a subsidiary.
Section 213 confers powers on the Central Government to extend financial year of the subsidiary so
that it ends with that of its holding company. Section 214 provides for inspection of subsidiary
company’s books of accounts. Under the provisions of section 235 its affairs may be investigated.
Section 42 of the 1956 Act (1 of 1956) prohibits allotment of Shares of the Holding Company to a
Subsidiary Company.
The importance relationship of Holding Company and Subsidiary Companies lies in preserving
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operational identity, shareholders’ control over each of the companies and in the obligation to attach
Subsidiary’s Balance Sheet, Profit and Loss Account, Directors’ and Auditors’ Reports and a
Statement showing Holding Company’s interest in the Subsidiary Company, to the Balance Sheet of
the Holding Company.
[s 2.664] Separate legal entities
Holding companies and subsidiaries can be considered as single economic entity and consolidated
balance sheet is the accounting relationship between the holding company and subsidiary company,
which shows the status of the entire business enterprises. Shares of stock in the subsidiary company
are held as assets on the books of the parent company and can be issued as collateral for additional
debt financing. Holding company and subsidiary company are, however, considered as separate
legal entities, and subsidiary is allowed decentralized management.82
[s 2.665] Carry-forward losses (The Income-tax Act, 1961)
Section 79 of the Income-tax Act, 1961 stipulates that where there has been any change in the
shareholding in the previous year of any company, no loss incurred in that year shall be carried
forward and set off against the income of the previous year, unless the shares of the company
carrying not less than 51% of the voting power were beneficially held by persons who beneficially
held shares of the company carrying not less than 51% of the voting power. The requirement as per
section 79 is that 51% of the voting power should be beneficially held by persons who held beneficial
shares of the company carrying not less than 51% of the voting power on the last day of the year or
years in which the loss was incurred. Where the Board of Directors of the subsidiary company was
controlled by the holding company, and hence the voting power of the subsidiary company controlled
by the holding company and hence such voting power is beneficially held by the holding company,
the subsidiary company was entitled to set off its losses.83
[s 2.666] Companies (Accounting Standards) Rules, 2006
Committee on Accounting Standards has made the Companies (Accounting Standards) Rules,
200684 (w.e.f. 7 December 2006) vide Notification No. G.S.R. 739(E), dated 7 December 2006,
published in the Gazette of India, Extraordinary, No. 582, Part II, section 3(i), page 217 : (2007) 135
Comp. Cas. (St.) 73.
[s 2.667] Consolidated Financial Statements [(AS) 21]
See also Relevant Accounting Standards issued by the Institute of Chartered Accountants of India
(ICAI):
Accounting Standard (AS) 21, “Consolidated Financial Statements” (Issued 2001) and Accounting
Standard (AS) 23, “Accounting for Investments in Associates in Consolidated Financial Statements”
(Issued 2001), etc.
Accounting Standard (AS) 21, “Consolidated Financial Statements”, issued by the Council of the
Institute of Chartered Accountants of India, came into effect in respect of Accounting Periods
commencing on or after 1 April 2001.
An enterprise that presents consolidated financial statements should prepare and present these
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statements in accordance with this Standard.
[s 2.668] GAAP—Consolidated Financial Statements
Accounting and Financial Reporting Standards and Pronouncements under the Indian GAAP (AS),
Companies (Accounting Standards) Rules, 2006, Accounting Standards (AS), Guidance Notes, etc.,
of the ICAI, the International GAAP (IAS/IFRS) of the IASB, the English GAAP (FRS) of ICAEW and
the US GAAP (FAS) of the FASB, etc., are as follows:
[s 2.668.1] Indian GAAP
The Companies (Accounting Standards) Rules, 2006 and Consolidated Financial Statements [AS 21]
of the ICAI.
Interpretation of the term “Near Future” (Re. AS 21, AS 23 and AS 27) [ASI 8]. Notes to the
Consolidated Financial Statements (Re. AS 21) [ASI 15]. Definition of “Control” (Re. AS 21) [ASI
24].Exclusion of a subsidiary from consolidation (Re. AS 21) [ASI 25].Accounting for taxes on income
in the consolidated financial statements (Re. AS 21) [ASI 26].Disclosure of parent’s/venturer’s shares
in post-acquisition reserves of a subsidiary/jointly controlled entity (Re. AS 21 and AS 27) [ASI 28].
Accounts of Holding Company and Subsidiary [Sections 212–214].—See also relevant provisions of
the 1956 Act (1 of 1956), viz., Balance sheet of holding company to include certain particulars as to
its subsidiaries [section 212], Financial year of holding company and subsidiary [section 213] and
Rights of holding company’s representatives and members [section 214].
[2.668.2] International GAAP
Consolidated and Separate Financial Statements [IAS 27].
[2.668.3] English GAAP
Accounting for Subsidiary Undertakings [FRS 2].
[2.668.4] US GAAP
Consolidated Financial Statements [ARB 51]. Consolidation of All Majority-Owned Subsidiaries—An

amendment of ARB No. 51, with related amendments of APB Opinion No. 18 and ARB No. 43,
Chapter 12 [FAS 94].
See detailed Notes and Lists of Pronouncements under the Indian GAAP, International GAAP,
English GAAP and US GAAP under section 211(3C).
[s 2.669] Accounting Practices
See detailed Notes on Accounting Provisions under sections 209 to 223 and the Companies
(Accounting Standards) Rules, 2006,85 ICAI Accounting Standards (AS), Accounting Standards
Interpretations (ASI), Guidance Notes on Accounting, Authority Attached to Documents Issued by the
Institute of Chartered Accountants of India (ICAI) under section 211(3C) and Schedule VI.
[s 2.670] Auditing Practices
See detailed Notes on the Auditing Provisions under sections 224 to 233B and ICAI Auditing and
Assurance Standards (AAS), Statements and Guidance Notes on Auditing and Authority Attached to
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Documents Issued by the Institute of Chartered Accountants of India (ICAI) under section 227.
[s 2.671] Compliance Certificate—Holding Company and Subsidiary Company
[s 2.672] Companies (Compliance Certificate) Rules, 2001
Certificate shall be attached with Board’s Report under section 217 of the Act and laid by the
[s 2.674] Check-List for issue of Compliance Certificate
Check-List for issue of Compliance Certificate as contained in ICSI Guidance Note on Compliance
Certificate, on, inter alia, requires a PCS to check as follows:
[s 2.675] Check-List for other Compliances
a Practising Company Secretary (PCS) to check certain Sundry Items (General). Relevant
paragraphs on Holding Company and Subsidiary Company are reproduced below.
(c) Holding Company and Subsidiary Company
Check whether:
(i) if during the year the company has become a “Holding Company” or “Subsidiary Company”
under section 4 and where the financial year of the subsidiary does not coincide with that of
the holding company there should not have been a gap in excess of six months between the
financial year of the holding and subsidiary company;
(ii) in such cases the Balance Sheet of Holding Company include certain particulars as to its
Subsidiaries as required under section 212;
(iii) where the Holding Company was unable to obtain the required information from its
Subsidiaries check whether a report in writing to that effect was attached to the Balance
sheet of the Holding Company;
(iv) any exemption was obtained from the Central Government and if so whether the directions
given by the Central Government were complied with.”
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(j) Membership of Holding Company
Check whether:
(i) the company is a Member of a company which is its Holding Company;
(ii) the company which is a Member of its Holding Company has been allotted any shares or
acquired further shares after it became a Subsidiary as such allotment or transfer is void.”
See detailed Notes under Sections 4, 42 and 212 of the 1956 Act.
(b) In case of a Private Company which is a Subsidiary of a Public Company
Check whether the company has a minimum paid-up capital of one lakh rupees or such higher paid
up capital, as may be prescribed. In case of existing company, check that it has enhanced its paid up
capital as required within two years from the commencement of the Companies (Amendment) Act,
2000, i.e., 13-12-2000.”
See detailed Notes on Status of Company under section 3of the 1956 Act.
[s 2.676] Inter-corporate loans and investments [Section 372A(8) of the Companies Act, 1956]
Clauses (d) and (e) of sub-section (8) of section 372A, which has been inserted by the Companies
(Amendment) Act, 1999 (21 of 1999) (w.r.e.f. 31-10-1998) in place of section 370, to permit the
companies to make inter-corporate investments and loans subject to fulfilment of certain conditions
without prior approval of the Central Government, provide that section 372A does not apply,—(d) to
any guarantee given or any security provided by a holding company in respect of loan made to its
wholly owned subsidiary; or (e) to acquisition by a holding company, by way of subscription,
purchases or otherwise, the securities of its wholly owned subsidiary. Section 186 of the 2013 Act
corresponds to section 372A of the 1956 Act.
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In case of amalgamation of 100% subsidiary with holding company, the holding company need not
call separate meetings or make separate application to the Tribunal for sanction. Under section
394(4) “transferee company” does not include any company other than a company within the
meaning of the 1956 Act although “transferor company” includes a body corporate. Section 394
would have to be read harmoniously with section 4 of the Act which defines “holding company” and
“subsidiary company” so as to give effect to the object and scheme of the Act.86
See also Notes under sections 391 to 394 of the 1956 Act.
[s 2.678] Stamp duty
Stamp duty has been remitted on instruments evidencing transfers of property between companies
limited by shares (i) where at least 90%. of the issued share capital of the transferee company is in
the beneficial ownership of the transferor company; or (ii) where the transfer takes place between a
parent company and a subsidiary company one of which is the beneficial owner of not less than 90%.
of the issued share capital of the other; or (iii) where the transfer takes place between two subsidiary
companies of each of which not less than 90%. of the share capital is in the beneficial ownership of a
common parent company. Provided that in each case a certificate is obtained by the parties from the
officer appointed in this behalf by the local Government concerned that the conditions have been
fulfilled. The remission of stamp duty is in respect of duty chargeable under Article 23 and Article 62
of the Indian Stamp Act, 1899. [Notification No. 1, dated 16-01-1937 under section 9 of the Indian
Stamp Act, 1899 (2 of 1899)].
See also Local Amendments by the States.
[s 2(85)]: Small Company.—‘‘small company’’ means a company, other than a public company,—
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed
which shall not be more than five crore rupees; or
(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher
amount as may be prescribed which shall not be more than twenty crore rupees:
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act;
NOTES
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Section 2(85) of the 2013 Act was notified on 12-09-2013 vide Notification S.O. 902(E) and has been
in effect from 01-04-2014 and there is no corresponding provision under the 1956 Act.
as follows:
the Bill.
The language of the provision is the same as the Companies Bill, 2011.
The Report on Company Law, 2005 had noted that the small companies, while contributing to the
economy, needed to be flexible. Thus, while subjecting them to the most essential regulations was
important, they should be exempt when possible. This idea necessitated a small company needing a
definition in the 2013 Act. There is some confusion caused by the definition, which uses the turnover
of a company to classify it as a small company. Given that the turnover of a company is not uniform
and may differ greatly from year to year, a company may be a small company in one year and not so
in another. However, it is possible to argue that if a company does have a certain turnover, then there
is no reason to not bring it under greater compliance standards only because it may not have the
same turnover in the following year.
The Proviso to clause (ii) in the s. exempts the application of three categories of companies. While
sub-clause (B) and (C) exempts the application of the clause based on the nature of the companies,
sub-clause (A) refers to a relationship of shareholding. The distinction between the two is important,
as it is possible to alter the relationship mentioned in sub-clause (A), thereby taking an entity out of
the exemption afforded by the Proviso.
[s 2(86)]: Subscribed Capital.—“subscribed capital” means such part of the capital which is for the time being
subscribed by the members of a company;
NOTES
been in effect from 12-09-2013 and there is no corresponding provision under the 1956 Act.
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as follows:
the Bill.
The language of the section is the same as the Companies Bill, 2011
Only a part of the authorised capital of the company, defined in section 2(8) of the 2013 Act, will be
issued by the company as issued capital, defined in section 2(50), of the Act. That part of the issued
capital when subscribed to is the subscribed capital.
See, Notes on sections 2(8), 2(15), 2(50), 2(64) and 62 of the 1956 Act.
87[s
2(87)] “subsidiary company” or “subsidiary”, in relation to any other company (that is to say the holding
company), means a company in which the holding company—
(ii) exercises or controls more than one-half of the total share capital either at its own or together with one or more
of its subsidiary companies:]
Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries
beyond such numbers as may be prescribed.
88[Explanation.—For the purposes of this clause,—
(a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to
in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;
(b) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if
that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or
a majority of the directors;
(c) the expression “company” includes any body corporate;]
89[(d) “layer” in relation to a holding company means its subsidiary or subsidiaries;]
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NOTES
been in effect from 12-09-2013 and corresponds to sections 2(47) and 4 of the 1956 Act.
as follows:
the Bill.
The SEBI (Issue of Sweat Equity) Regulations, 2002 is also relevant to this definition. Those
regulations deal with what constitutes “sweat equity” in line with the 2013 Act as well as the
guidelines and rules governing their issuance and their rights and obligations.
S 2(88)]: Sweat Equity Shares.—Sweat equity shares means such equity shares as are issued by a company to its
directors or employees at a discount or for consideration, other than cash, for providing their know-how or making
available rights in the nature of intellectual property rights or value additions, by whatever name called.
NOTES
been in effect from 12-09-2013 and the corresponding provision is section 79A of the 1956 Act.
as follows:
the Bill.
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This definition of sweat equity shares is a reproduction of the definition which was proposed in the
The definition of sweat equity shares under the 2013 Act is a reproduction of Explanation II to section
79A(1) of the 1956 Act. A company will also have to comply with rule 8 of the Companies (Share
Capital and Debentures) Rules, 201490 which provides for compliances to be followed for issuance of
sweat equity shares as well as the disclosure to be made in the director’s report and the register to
be maintained.
See also detailed Notes under section 54 of the 2013 Act.
Issue of Sweat Equity Shares [s 79A].—(1) Notwithstanding anything contained in section 79, a company may issue
sweat equity shares of a class of shares already issued if the following conditions are fulfilled, namely:—
(a) the issue of sweat equity shares is authorised by a special resolution passed by the company in the general
meeting;
(b) the resolution specifies the number of shares, current market price, consideration, if any, and the class or
classes of directors or employees to whom such equity shares are to be issued;
(c) not less than one year has, at the date of the issue, elapsed since the date on which the company was entitled
to commence business;
(d) the sweat equity shares of a company, whose equity shares are listed on a recognised stock exchange, are
issued in accordance with the regulations made by the SEBI in this behalf:
Provided that in the case of a company whose equity shares are not listed on any recognised stock exchange, the
sweat equity shares are issued in accordance with the guidelines as may be prescribed.
Explanation I.–For the purposes of this sub-section, the expression “a company” means the company incorporated,
formed and registered under this Act and includes its subsidiary company incorporated in a country outside India.
Explanation II.–For the purposes of this Act, the expression “sweat equity shares” means equity shares issued by the
company to employees or directors at a discount or for consideration other than cash for providing know-how or
making available rights in the nature of intellectual property rights or value additions, by whatever name called.
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(2) All the limitations, restrictions and provisions relating to equity shares shall be applicable to such sweat equity
shares issued under sub-section (1).
NOTES
THE COMPANIES (AMENDMENT) ACT, 1999 (21 OF 1999).—The Statement of Objects and Reasons explained the
reasons for insertion of this section as follows: “(e) to provide for issue of sweat equity subject to
fulfillment of certain conditions;”. [Extracts from Statement of Objects and Reasons appended to the
[s 2.688] Issue of Sweat Equity Shares [Sub-section (1)]
Notwithstanding anything contained in section 79, a company may issue sweat equity shares of a
class of shares already issued, if the following conditions are fulfilled: (a) Issue of Sweat Equity
Shares is authorised by a Special Resolution; (b) Resolution specifies number of shares, current
market price, consideration, if any, and class(es) of directors or employees to whom such shares are
to be issued; (c) One year has elapsed since the date on which the company was entitled to
commence business; (d) Sweat Equity Shares are issued in accordance with the Regulations made
by the SEBI in the case of a company whose equity shares are listed on a Recognised Stock
Exchange, and in accordance with the guidelines as may be prescribed in the case of any other
company.
[s 2.689] Filing
A copy of the Special Resolution has to be filed with the Registrar of Companies in Form 2391 of the
Companies (Central Government’s) General Rules and Forms, 1956 within 30 days. [section 192].
[s 2.690] Sweat Equity Shares of Unlisted Company [Sub-Section (1)(d), Proviso]
Sweat Equity Shares of a company whose equity shares are not listed on any Recognised Stock
Exchange are to be issued in accordance with Guidelines as may be prescribed.
[s 2.690.1] Company [Sub-section (1) , Explanation I]
For purposes of this section, the term company means a company incorporated, formed and
registered under the Indian law and includes its subsidiary incorporated in a foreign country.
[2s 2.690.2] Sweat Equity Shares [Sub-section (1) , Explanation II]
This term means equity shares issued by the company to employees or directors at a discount or for
consideration other than cash for providing know-how, intellectual property rights or value additions.
[s 2.691] Provisions of Equity Shares to apply [Sub-section (2)]
All the provisions, limitations and restrictions relating to Equity Shares shall be applicable to Sweat
Equity Shares issued under section 79A(1).
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However, the restrictions under section 79 will not apply to the issue of Sweat Equity Shares in view
of non-obstante clause in section 79A.
[s 2.691.1] Department’s View— Companies (Amendment) Act, 1999
“As you are aware, the Companies Act, 1956, has recently been amended through the Companies (Amendment) Act,
1999 (No. 21 of 1999). A copy of the Amendment Act is enclosed for your information and guidance.
The salient features of this Amendment Act are the following:
Companies have been enabled to issue “sweat equity”—i.e., shares issued at a discount or for consideration other
than cash—for providing know-how or making available rights in the nature of intellectual property rights or value
additions. [section 79A].” [Extracts from Circular No. 3 of 1999 (F. No. 3/1/99-CL-V), dated 4-5-1999 : (1999) 97 Comp.
Cas. (St.) 91]. See Full Text in Notes under section 77A of the 1956 Act.
[s 2.692] Powers of SEBI [Section 55A of the Companies Act, 1956]
As per section 55A of the 1956 Act, powers under section 79A
The definition is a conceptual one – in that it provides for the ceiling of the total number of votes
which may be cast in regard to any matter on a poll at a meeting of a company, if all the members of
such a company (or their proxies having the right to vote on such matter) are present at the meeting
and indeed, do cast their votes.
Two important points may be noted: firstly, the definition provides for the determination of the total
voting power on a poll at a members’ meeting and not one where votes are cast by a show of hand.
Secondly, other provisions of the 2013 Act will still apply to determine whether a particular member or
his proxy can, indeed, vote on the concerned matter. For instance, in a public company currently, a
member who is a “related party” cannot vote on the resolution to approve any related party contract
or arrangement to be entered into by the company; and, so, consequently, his vote will not count
towards the determination of the total voting power in terms of this definition.
Furthermore, the provision does not make a distinction as to whether the concerned member or proxy
votes in favour of the resolution or not, for purposes of determining the total voting power.
[s 2(89)] : Total Voting Power.—Total voting power in relation to any matter, means the total number of votes which
may be cast in regard to that matter on a poll at a meeting of a company if all the members thereof or their proxies
having a right to vote on that matter are present at the meeting and cast their votes.
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NOTES
been in effect from 12-09-2013 and the corresponding provision is section 2(48) of the 1956 Act.
as follows:
the Bill.
This definition of total voting power, except for the reference to proxies, is a reproduction of the
definition which was proposed in the Companies Bill, 2011.
See also detailed Notes under section 2(11) of the 2013 Act.
The definition of total voting power in the 2013 Act does not extend to body corporates, as was the
case in the 1956 Act.
Total voting power [s 2(48)].—“Total voting power in regard to any matter relating to a body corporate, means the
total number of votes which may be cast in regard to that matter on a poll at a meeting of such body, if all the members
thereof and all other persons, if any, having a right to vote on that matter are present at the meeting, and cast their
votes.”
NOTES
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This has to be determined with reference to a particular matter in respect of which votes may be cast
at a general meeting on a poll. In a meeting where preference shareholders are also present but they
have no right to vote, the total voting power will not include the votes of preference shareholders.
Similarly, in a class meeting, the vote of that particular class only will be taken into account. In the
same meeting, the total voting power may vary from matter to matter. As regards the first item on the
agenda, the total voting power may be the voting strength of equity shareholders. But as regards the
second item on the agenda, the total voting power may include the votes of the equity shareholders
and the votes of the preference shareholders.
See detailed Notes under sections 87, 106, 391 and 395 of the 1956 Act.
[s 2.695] Inter-Connection
For interconnection under section 2(g) of the MRTP Act, 1969 (54 of 1969) [now the Competition Act,
2002 (12 of 2003)], the total voting power must correspond to the total equity shares and the
proportionate voting power held by the bodies corporate must correspond to the proportionate shares
held.92
[s 2(90)]: Tribunal.—Tribunal means the National Company Law Tribunal constituted under Section 408.
NOTES
been in effect from 12-09-2013 and the corresponding provision is section 2(49A) of the 1956 Act.
as follows:
the Bill.
This definition of tribunal is a reproduction of the definition which was proposed in the Companies Bill,
2011.
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Companies (Second Amendment) Act, 2002 inserted various provisions in the 1956 Act relating to
the establishment of a NCLT and conferring it with various powers. The constitutional validity of the
NCLT was challenged but was subsequently affirmed by the Supreme Court.93 On the constitution of
the Tribunal, it will have jurisdiction on overall matters which earlier vested with the Company Law
Board, High Courts, and the Board for Industrial and Financial Reconstruction. Civil Courts will not
have any jurisdiction in respect of any matter which the Tribunal or Appellate Tribunal is empowered
to determine under the 2013 Act or any other law. However, matters arising out of the 2013 Act but
which are not within the jurisdiction of the Tribunal or Appellate Tribunal may be subject to the
jurisdiction of Civil Courts.
Tribunal [s 2(49A)].—The Tribunal means the NCLT (NCLT) constituted under sub-section (1) of
section 10FB. The Companies Act, 1956 provision
NOTES
THE COMPANIES (SECOND AMENDMENT) ACT, 2002 (11 OF 2003).—The Notes on clauses explained this clause as
follows:
“Clause (49A) proposes to define “Tribunal” which means the NCLT constituted under the proposed sub-section (1) of
section 10FB.” [Clause 2 of the Companies (Amendment) Bill, 2001 (80 of 2001)].
Sections 2(49A) and 10FB of the 1956 Act have been inserted by the Companies (Second
Amendment) Act, 2002 (w.e.f. 1-04-2003). The Companies (Second Amendment) Act, 2002 has
been repealed by the Repealing and Amending (Second) Act, 2015.
The NCLT is set up or constituted under section 10FB of the 1956 Act by a Notification. As per
section 10FA of the 1956 Act, the Company Law Board (CLB) shall stand dissolved on constitution of
the NCLT.
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From the date of constitution of the NCLT under section 10FB of the 1956 Act, the powers and
jurisdiction hitherto vested in and exercised by various bodies, viz., the CLB, the Board for Industrial
and Financial Reconstruction (BIFR), the Appellate Authority for Industrial and Financial
Reconstruction (AAIFR) or High Courts under various sections of the 1956 Act would be consolidated
and entrusted to the NCLT.
See detailed Notes under Part IB—NCLT [sections 10FB to 10FP of the 1956 Act]. See also Notes
under Appellate Tribunal [section 2(1B) of the 1956 Act] and Part IC—Appellate Tribunal [sections
10FQ-10GF of the 1956 Act].
See detailed Notes on Jurisdiction of Courts, CLB and the NCLT under sections 10, 10E, 10FA and
10FB of the 1956 Act.
[s 2(91)]: Turnover.—“turnover” means the aggregate value of the realisation of amount made from the sale, supply or
distribution of goods or on account of services rendered, or both, by the company during a financial year;
NOTES
as follows:
the Bill.
The language of the Companies Bill, 2011 has been retained.
The definition hinges on the realisation of amounts made from sale supply or distribution. There is
scope for confusion as the realisation is contingent on the method of maintenance of accounts; a
cash basis would allow the realisations for the sale, supply or distribution to be in a relatively short
time frame. However, if the accrual method is followed, then the realisation might not be in the same
year. There can be some clarity if the section is read with the guidance note on Tax Audit issued by
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the Institute of Chartered Accountants of India, which mentions what may be counted and what may
not when calculating turnover.
[s 2(92)]: Unlimited Company.—Unlimited Company means a company not having any limit on the liability of its
members.
NOTES
Section 2(92) of the 2013 Act corresponds to section 12(2)(c) of the 1956 Act.
from 12-09-2013.
as follows:
the Bill.
[s 2.703] Analysis of 2013 Section
This definition of unlimited company is a reproduction of the definition which was proposed in the
This section is a reproduction of the definition in the 1956 Act.
The concept of an “unlimited” company may appear alien to the company law. One of the key
objectives of the company law is to provide for one of the benefits of incorporation or registration of
companies, namely, limited liability of its members. So, an “unlimited” company is closer to a
partnership firm than any limited liability company. However, if one were to consider the company law
as a framework legislation to enable different entities to be established on the basis of the free will
and contract of their members, then even an “unlimited” company can and must be permitted if its
members so desire and if such a company otherwise satisfies the requirements of the applicable law.
An “unlimited” company is seen as beneficial in some cases (for instance in, but not limited to,
infrastructure projects) where the concept of unlimited liability of the members of the company
(continuing the same example, i.e., the developer promoters of such company) is attractive to lenders
especially, to secure their interests, amongst other facets, as to the type of security interest or
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collateral such lenders seek.
Mode of forming incorporated company [Section (12)].—(2) Such a company may be either - (c) a company not
having any limit on the liability of its members (in this Act termed “an unlimited company”).
[s 2(93)]: Voting Right.—“voting right” means the right of a member of a company to vote in any meeting of the
company or by means of postal ballot;
NOTES
as follows:
the Bill.
The definition remains unchanged from the Companies Bill, 2011.
The definition of “postal ballot” includes voting through any electronic mode. Rule 20 of the
Companies (Management and Administration) Rules, 201494 has detailed requirements for voting
through electronic means. The Rule was amended by the Companies (Amendment and Notification)
Rules, 2015 vide Notification G.S.R. 207(E) dated 19-03-2015.
See, Notes on sections 43 and 47 of the 2013 Act.
[s 2(94)]: Whole Time Director.—Whole-time director includes a director in the whole-time employment of the
company.
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NOTES
been in effect from 12-09-2013 and the corresponding provision is Explanation to section 269 of the
1956 Act.
as follows:
the Bill.
This definition of whole time director is a reproduction of the definition which was proposed in the
A whole time director is a whole time employee. He is also one of the key managerial personnel in
terms of section 2(51) of the 2013 Act.
Appointment of managing or whole-time director or manager to require Government approval only in certain
cases (Section 269).—Explanation: In this section “appointment” includes re-appointment and “whole-time director”
includes a director in the whole-time employment of the company. The Companies Act, 1956 provision
NOTES
Explanation to section 269 of the 1956 Act corresponds to section 2(94) of the 2013 Act.
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95[s2(94A)] Winding up.—“winding up” means winding up under this Act or liquidation under the Insolvency and
Bankruptcy Code, 2016, as applicable.
NOTES
This is an insertion made and necessitated by the Insolvency and Bankruptcy Code, 2016, notified by
the Notification dated 1-10-2016.
[s 2.708] Analysis of the definition
That Code must be read together with the 2013 Act, in order to obtain a consolidated overview of the
law relating to insolvency and bankruptcy.
The 2013 Act treats the concept of winding-up of companies on the basis, amongst other grounds, of
their inability to repay debts. That concept of insolvency is crystallized in the 2013 Act’s provisions
relating to winding-up of companies. Liquidation including as to personal insolvency is governed by
the Code, as applicable.
[s 2(95)]: Words and Expressions Not Defined.—words and expressions used and not defined in this Act but
defined in the Securities Contracts (Regulation) Act, 1956 or the SEBI Act, 1992 Securities and Exchange Board of
Indiaor the Depositories Act, 1996 shall have the meanings respectively assigned to them in those Acts;
NOTES
been in effect from 12-09-2013 and the corresponding provision section 2A of the 1956 Act.
as follows:
the Bill.
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The section retains the language of the Companies Bill, 2011.
While the 1956 Act did include the Depositories Act, 1966 in section 2A and section 2(31A) stated
that “option in securities” would have the same meaning as in the Securities Contract (Regulation)
Act, 1956, the Act of 2013 includes the Securities Contract (Regulation) Act generally, without
reference to any particular section. Definitions in the SEBI Act, 1992 will also apply when reading the
2013 Act.
1 Corresponds to section 2 of the Companies Act, 1956.
2 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section 2(1) of the
3 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to section 211(3C) of the
4 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section 2(1A) of the
5 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section 2(1B) of the
7 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013. For clarification regarding holding of
shares in a fiduciary capacity by associate company, see MCA General Circular No. 24/2014, dt. 25-06-2014.
8 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014.
9 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013.
11 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to sections 2(6) and
252(3) of the Companies Act, 1956.
14 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to section 209(1) of the Companies
Act, 1956.
15 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to sections 2(9) and 8
of the Companies Act, 1956.
17 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section 124 of the
18 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section 33(2),
Explanation of the Companies Act, 1956.
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3 of the Companies Act, 1956.
12(2)(b) of the Companies Act, 1956.
12(2)(a) of the Companies Act, 1956.
24 Substituted by the Insolvency and Bankruptcy Code, 2016, section 255 & 11th Schedule. Prior to substitution, clause
(23) stood as under:-
“(23) “Company Liquidator”, in so far as it relates to the winding up of a company, means a person appointed by—
(a) the Tribunal in case of winding up by the Tribunal; or
(b) the company or creditors in case of voluntary winding up,
as a Company Liquidator from a panel of professionals maintained by the Central Government under sub-section (2) of section
275;”.
1956 Act. See Notification dt. 05-06-2015, regarding exemptions to ccompanies formed with charitable objects, etc.
under section 462 of the 2013 Act.
26 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section 2(45-A) of
the Companies Act, 1956.
30 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to sections 2(11),
2(14), 10 and 622 of the Companies Act, 1956.
31 Enforced vide S.O. 1795(E) dt. 18 May 2016, w.e.f. 18 May 2016.
34 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to section 58-A, Explanation of the
36 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section 2(12-B) of
38 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section 2 (14-A) of
Act, 1956.
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45 Until the NCLT is constituted under section 408, the Board of Company Law Administration to exercise the jurisdiction,
powers, authority and functions [see the Companies (Removal of Difficulties) Third Order, 2014, vide S.O. 1429(E), dt.
02-06-2014].
Act, 1956.
47 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to sections 2(29-A),
Explanation and 372-A, Explanation (b) of the Companies Act, 1956.
50 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to sections 2(19),
2(47) and 4 of the Companies Act, 1956.
53 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section 300(1) of
57 Enforced vide S.O. 2754(E) dt. 12-9-2013, w.e.f. 12 September 2013 and corresponds to section 2(24) of the
v.
63 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section (30) of the
64 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to sections 2(31), 5
and 7 of the Companies Act, 1956.
69 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section 192A of the
3(1)(ii) of the Companies Act, 1956.
3 of the Companies Act, 1956. For Clarification on the Notification, see MCA General Circular No. 15/2013 dt. 13-09-
2013, for the text of Notification refer Appendix 64. For clarification relating to incorporation of a company i.e. company
incorporated outside India, see MCA General Circular No. 23/2014, dt. 25-06-2014, for the text of Circular refer
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Appendix 64. See also Notification dt. 05-06-2015, regarding exemptions to companies formed with charitable objects,
etc. under section 462 of the 2013 Act. For the text of notification refer Appendix 62.
73 The words “of Rs 1 lakh or such higher paid-up share capital” omitted by the Companies (Amendment) Act, 2015, (21
of 2015), section 2(i) (w.e.f. 29-05-2015).
74 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section 62(6)(a) of
3 of the Companies Act, 1956. For clarification relating to incorporation of a company i.e. company incorporated outside
India, see MCA General Circular No. 23/2014, dt. 25-06-2014, for the text of circular refer Appendix 64. See also
Notification dt. 05-06-2015, regarding exemptions to companies formed with charitable objects, etc. under section 462
of the 2013 Act. For the text of Notification refer Appendix 62
77 The words “of Rs 5 lakh or such higher paid-up capital,” omitted by the Companies (Amendment) Act, 2015 (21 of
2015), section 2(ii) (w.e.f. 29-5-2015).
78 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section 4A of the
81 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to Section 2(40) of the
83 Inserted by the Companies (Removal of Difficulties) Sixth Order, 2014 vide S.O. 1894(E), dt. 24-07-2014. For the text
of Removal Order refer Appendix 49.
84 See Companies 1st (Removal of Difficulties) Order, 2014 for clarification.
85 Substituted for the words “or holds” by the Companies (Removal of Difficulties) Fifth Order, 2014 vide S.O.1820(E), dt.
09-07-2014. For the text of Removal Order refer Appendix 48.
86 See Notification dt. 05-06-2015, regarding exemptions to Private Companies under section 462 of the Companies Act,
2013. For the text of Notification refer Appendix 62.
87 Rule 3 of the Companies (Specification of definition details) Rules, 2014. For the text of Rules refer Appendix 2.
88 Companies Act, 1956.

89 Rule 4 of the Companies (Specification of definition details) Rules, 2014. For the text of Rules refer Appendix 2.
90 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section 198,
93 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section 2(45-AA) of
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94 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section 2(45-B) of
98 Substituted for the word “or” by the Companies (Removal of Difficulties) Order, 2015 vide S.O. 504(E), dt. 13-02-2015,
for the word “or”. For the text of Order refer Appendix 51.
4 of the Companies Act, 1956. For Clarification with regard to holding of shares or exercising power in a fiduciary
capacity, see MCA General Circular No. 20/2013 dt. 27-12-2013. For clarification relating to incorporation of a company
i.e. company incorporated outside India, see MCA General Circular No. 23/2014, dt. 25-06-2014.
4 Enforced vide S.O. 902(E) dt. 26-30-2014, w.e.f. 1 April 2014.
5 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section 79-A(I),
Explanation II of the 1956 Act.
Companies Act, 1956
9 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section 12(2)(c) of
the 1956 Act.
11 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to Explanation to
12 Inserted by the Insolvency and Bankruptcy Code, 2016, section 255 and 11th Schedule.
13 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to sections 2(31-A)
and 2-A of the 1956 Act.
14 S.S. Rajakumar v Perfect Castings Pvt Ltd, (1968) 38 COMP CASES 187 (Mad.) : (1968) 1 Comp. LJ 41 (Mad.). See
detailed Notes under section 28 of the 1956 Act.
15 Holmes v Keyes, (1959) ChD 199 : (1958) 2 All ER 129 (CA) : (1958) 2 WLR 772 : (1958) 102 SJ 329 (CA); Re, Hartley
Baird Ltd, (1955)ChD 143 : (1954) 3 All ER 695 : (1954) 3 WLR 964; Rayfield v Hands, (1960) ChD 1 : (1958) 2 All ER
194 : (1958) 2 WLR 851. See detailed Notes under sections 26–31, 36 and Schedule I.
16 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013. For clarification regarding holding of
shares in a fiduciary capacity by associate company, see MCA General Circular No. 24/2014, dt. 25-06-2014.
17 Black’s Law Dictionary, West, Garner, 2009, 9th Edn.
18 In Re, Moschip Semiconductor Technology Ltd, (2004) 120 COMP CASES 108 (AP). See also Notes under section
394(4) of the 1956 Act.
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19 Board of Trustees v State of Delhi, AIR 1962 SC 458 : (1962) Supp. 1 SCR 156; Star Tile Works Ltd v N. Govindan &
Co, AIR 1959 Ker. 254.
20 Salim Akbarali Nanji v UOI, (2003) 113 COMP CASES 141 (Bom.) (DB). See also Notes under sections 35, 565, 566
and 581A to 581ZT of the Companies Act, 1956.
21 Association for Democratic Reforms v UOI, [ (2014)3Comp LJ 41(Del)]
22 In Re, Vibank Housing Finance Ltd, (2006) 130 COMP CASES 705 (Karn.).
23 In Re., Essar Shipping Ports and Logistics Ltd, [2009 149CompCas417(Guj)]
1956 Act.
25 Section 2(67): “previous company law” means any of the laws specified below:—
(i) Acts relating to companies in force before the Indian Companies Act, 1866;
(ii) the Indian Companies Act, 1866;
(iii) the Indian Companies Act, 1882;
(iv) the Indian Companies Act, 1913;
(v) the Registration of Transferred Companies Ordinance, 1942;
(vi) the Companies Act, 1956; and
(vii) any law corresponding to any of the aforesaid Acts or the Ordinances and in force— (A) in the merged territories
or in a Part B State (other than the State of Jammu and Kashmir), or any part thereof, before the extension thereto
of the Indian Companies Act, 1913; or (B) in the State of Jammu and Kashmir, or any part thereof, before the
commencement of the Jammu and Kashmir (Extension of Laws) Act, 1956, in so far as banking, insurance and
financial corporations are concerned, and before the commencement of the Central Laws (Extension to Jammu
and Kashmir) Act, 1968, in so far as other corporations are concerned;
(viii) the Portuguese Commercial Code, in so far as it relates to sociedades anonimas; and
(ix) the Registration of Companies (Sikkim) Act, 1961;
26 Please see Notes under the 1956 Act for position therein.
27 Substituted by the Jammu and Kashmir (Extension of Laws) Act, 1956 (62 of 1956), section 2 and Schedule (w.e.f. 1-
11-1956).
28 Inserted by the Central Laws (Extension to Jammu and Kashmir) Act, 1968 (25 of 1968), section 2 and Sch. (w.e.f. 15-
8-1968).
29 Inserted by Goa, Daman and Diu (Laws) No. 2 Regulation, 1963 (11 of 1963), section 9.
30 The words “Carta Lei of the 11th April, 1901” omitted by Act 52 of 1964, section 3 and Sch II (w.e.f. 29-12-1964).
31 The words “means a company which, by its articles,—” substituted by the Companies (Amendment) Act, 2000 (53 of
2000), section 3 (w.e.f. 13-12-2000).
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32 Sub-clause (d) inserted by the Companies (Amendment) Act, 2000 (53 of 2000), section 3 (w.e.f. 13-12-2000).
33 Clause (iv) substituted by the Companies (Amendment) Act, 2000 (53 of 2000), section 3 (w.e.f. 13-12-2000), prior to
its substitution it stood as under :
“(iv) “Public company” means a company which is not a private company.”
34 Omitted by Act LXII of 1956, section 2 and Schedule (w.e.f. 1-11-1956).
35 Sub-sections (3), (4), (5) and (6) inserted by the Companies (Amendment) Act, 2000 (53 of 2000), section 3 (w.e.f. 13-
12-2000).
36 Re, Telesound India Ltd, (1983) 53 COMP CASES 926 (Delhi). See detailed Notes under section 390 to 394.
37 Re, Rivers Steam Navigation Co Ltd, (1967) 2 Comp. LJ 106 (Cal.) : 71 Cal WN 854; Inland Steam Navigation Workers’
Union v Rivers Steam Navigation Co Ltd, (1968) 38 COMP CASES 99 (Cal.) (DB) : 71 Cal WN 897. See detailed Notes
under Sections 34, 391, 394 and 617.
38 North East Finance Corporation Ltd v UOI, (2000) 101 COMP CASES 373 (Sikkim) (DB).
39 Mangilal v Krishnaji Rao Pawar, AIR 1971 SC 1943; Heavy Engineering Mazdoor Union v State of Bihar, (1969) 39
COMP CASES 905 (SC) : AIR 1970 SC 82 : (1969) 2 Comp. LJ 273 (SC); Motipur Zamindari Co Ltd v State of Bihar,
AIR 1953 SC 320. For an elaborate discussion see Notes under sections 3, 34 and 617 of the 1956 Act.
40 Rustom Cavasjee Cooper v UOI, (1970) 40 COMP CASES 325 (SC) : AIR 1970 SC 564 : (1970) 3 SCR 530 : (1970) 1
Comp. LJ 244 (SC); Indo-China Steam Navigation Co Ltd v Jasjit Singh, (1964) 34 COMP CASES 435 (SC) : AIR 1964
SC 1140. See detailed Notes under section 34 of the Companies Act, 1956.
41 LIC v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370; CIT v Sri Meenakshi Mills Ltd, AIR 1967 SC
819 : (1967) 63 ITR 609 (SC) : (1967) 1 SCR 934. See detailed Notes on Lifting the corporate veil under section 34 of
42 Salomon v Salomon & Co Ltd, (1897) AC 22 : (1895–99) All ER Rep. 33 : 66 LJ Ch. 35 : 75 LT 426 : 45 WR 193 : 13
TLR 46 : 41 SJ 63 (HL). See detailed Notes under section 34 of the 1956 Act.
43 Subra Mukherjee v Bharat Coking Coal Ltd, (2000) 101 COMP CASES 257 (SC); New Horizons Ltd v UOI, (1997) 89
COMP CASES 849 (SC). See detailed Notes under section 34 of the 1956 Act.
44 Ram Prasad v State of Punjab, AIR 1966 SC 1607. For matters requiring sanction of shareholders by Ordinary
Resolution and Special Resolution see Notes under section 189.
45 Punjab National Bank v Lakshmi Industrial and Trading Co Pvt Ltd, (2002) 111 COMP CASES 109 (All.) (DB). See also
Notes under sections 34 and 291.
46 T.M. Devassy v Periyar Latex Pvt Ltd, (1994) 81 COMP CASES 560 (Ker.); Maluk Mohamed v Capital Stock Exchange
Kerala Ltd, (1991) 72 COMP CASES 333 (Ker.). See also Notes under sections 10, 12 and 617.
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47 Bhagwandas J. Patel v Deputy CIT, (1999) 97 COMP CASES 213 (Guj.) (DB); Khaders International Construction Ltd v
CIT, (1998) 91 COMP CASES 432 (Ker.); K.V. Reddy v Asst. CIT, (1998) 93 COMP CASES 287 (AP) (DB); Gurudas
Hazra v P.K. Chowdhury, (2002) 109 COMP CASES 530 (Cal.). See detailed Notes under section 34 of the Companies
Act, 1956.
48 Dipak Dutta v.UOI, (2004) 121 COMP CASES 516 (Cal.).
49 Kailash Prasad Modi v Chief General Manager, Orissa Telecommunication, (1995) 82 COMP CASES 626 (Orissa)
(DB) : AIR 1994 Orissa 98 (DB).
50 Kenya Airways v Jinibai B. Kheshwala, (1999) 96 COMP CASES 140 (Bom.) (DB). See detailed Notes under section
51 Bangalore City Cooperative Housing Society Ltd v State of Karnataka, Civil Appeal Nos, 7425–26 of 2002 dated 02-02-
2012 SC.
52 Basanti Cotton Mills (1998) Pvt Ltd and Gopal Navinbhai Dave v Nirendranath Kar, [2012] 116 SCL 613 (CAL.).
53 Jayalakshmi v Nair Service Society, Co Appeal No, 9 of 2010, dated 07-09-2010 Kerala HC.
54 Karnataka Bank Ltd v State of A.P., (2008) INSC 61.
55 Ramji Veeri Patel v Revenue Divisional Officer, 2012 (1) All WC 7 (SC).
* See the Companies (Accounting Standards) Rules, 2006 in Appendix 74.
* For the text of Rules refer Appendix 74.
* For the text of Notification refer Appendix 62.
* See the Companies (Appointment and Qualifications of Secretary) Rules, 1988 in Appendix 66.
56 Joint Stock Discount Co v Brown, (1869) LR 8 Eq. 381 : 17 WR 1037; Re, Maidstone Buildings Provisions Ltd, (1971) 3
All ER 363 : (1971) 1 WLR 1085 : (1971) 115 SJ 464. See also Notes under sections 383A and 543 of the Companies
Act, 1956.
57 Re, State of Wyoming Syndicate, (1901) 2 ChD 431 : 70 LJ Ch. 727 : 84 LT 868; Re Haycraft Gold Reduction and
Mining Co Ltd, (1900) 2 ChD 230 : 69 LJ Ch. 497 : 83 LT 166 : 16 Tax LR 350. See detailed Notes under section 383A
of the 1956 Act.
58 Hooper v Kerr, Stuart & Co Ltd, (1900) 83 LT 729 : 17 TLR 162 : 45 SJ 139. See also Notes under section 169 of the
1956 Act.
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59 Re Indo-China Steam Navigation Co, (1917) 2 ChD 100 : (1916–17) All ER Rep. 793 : 86 LJ Ch. 723 : 117 LT 212.
60 Chida Mines Ltd v Anderson, (1905) 22 TLR 27; Bishop v Balkis Consolidated Co Ltd, (1890) 25 QBD 512 : 59 LJ QB
565 : 63 LT 601 : 39 WR 99 : 6 TLR 450 (CA); Re Zinotty Properties Ltd, (1984) 3 All ER 754 : (1984) 1 WLR 1249 :
(1984) 128 SJ 783 : (1984) BCLC 375.
61 Barnett, Hoares & Co v South London Tramways Co, (1887) 18 QBD 815 : 56 LJ QB 452 : 57 LT 436 : 35 WR 640 : 3
TLR 611 (CA).
62 Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd, (1971) 2 QB 711 : (1971) 3 All ER 16 : (1971)
3 WLR 440 : (1971) 115 SJ 483 (CA), per Lord Denning M.R.
63 Lloyd v Grace Smith & Co, (1912) AC 716 : (1911–13) All ER Rep. 51 : 81 LJ KB 1140 : 107 LT 531 : 28 TLR 547 : 56
SJ 723 (HL). See also Notes under section 84 of the 1956 Act.
64 Mair v Himalaya Tea Co, (1865) LR 1 Eq. 411 : 13 LT 586 : 14 WR 165. See also Bainbridge v Smith, (1889) 41 ChD.
462 : 60 LT 879 : 37 WR 594 : 5 TLR 375 (CA).
65 Bainbridge v Smith, (1889) 41 ChD. 462 : 60 LT 879 : 37 WR 594 : 5 TLR 375 (CA). See also Notes under section 270
of the 1956 Act.
66 Green v Wright, (1876) 1 CPD 591. See also Notes under section 383A of the 1956 Act.
67 Re, African Asscn. & Allen, (1910) 1 KB 396 : 79 LJ KB 259 : 102 LT 129 : 26 Tax LR 234.
68 Amor v Fearon, (1839) 9 A.&E. 548 : 8 LJ QB 95; Pearce v Foster, (1886) 17 QBD 536 : 55 LJ QB 306 : 54 LT 664 : 34
WR 602; Boston Deep Sea Fishing and Ice Co v Ansell, (1888) 39 ChD. 339 : (1886–90) All ER Rep. 65 : 59 LT 345 :
WR Dig. 117 (CA); Harmer v Cornelius, (1858) 5 CB (NS) 236 : 28 LJ CP 85 : 6 WR 749; Addis v Gramophone Co,
(1909) AC 488 : 78 LJ KB 1122 : 101 LT 466. See also Notes under sections 383A and 543 of the Companies Act,
1956.
69 Merryweather v Moore, (1892) 2 ChD 518 : 61 LJ Ch. 505 : 66 LT 719 : 40 WR 540; Robb v Green, (1895) 2 QB 315.
70 Daimler Co Ltd v Continental Tyre and Rubber Co (Great Britain) Ltd, (1916) 2 AC 307 : (1916–17) All ER Rep. 191 :
85 LJ KB 1333 : 114 LT 1049 (HL).
71 Turner Morrison & Co Ltd v Hungerford Investment Trust Ltd, (1972) 42 COMP CASES 512 (SC) : AIR 1972 SC 1311 :
(1972) 3 SCR 711. See also Notes under section 383A of the 1956 Act.
72 Mohan Lal Mittal v Universal Wires Ltd, (1983) 53 COMP CASES 36 (Cal.); Whitechurch (George) Ltd v Cavanagh,
(1902) AC 117 : (1900–03) All ER Rep. Ext. 1488 : 71 LJ KB 400 : 85 LT 349 : 17 Tax LR 746 : 50 WR 218 (HL). See
also Notes under section 398 of the Companies Act, 1956.
73 Madurai Mills Co Ltd v CIT, (1969) 39 COMP CASES 946 (Mad.) : (1969) 74 ITR 623 (Mad.) affirmed in CIT v Madurai
Mills Co Ltd, (1973) 89 ITR 45 (SC) : AIR 1973 SC 1357.
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74 Re Navjivan Mills Co Ltd, (1972) 42 COMP CASES 265 (Guj.).
75 Alote Estate v R.B. Seth Hiralal Kalyanmal Kasliwal, (1970) 40 COMP CASES 1116 (SC) : AIR 1971 SC 920 : (1970) 2
Comp LJ 179 (SC).
76 Re Rajdhani Grains and Jaggery Exchange Ltd, (1983) 54 COMP CASES 166 (Delhi); Re, Vasant Investment
Corporation Ltd, (1982) 52 COMP CASES 139 (Bom.); National Steel and General Mills v Official Liquidator, (1990) 69
COMP CASES 416 (Delhi) (DB).
77 Vassant Holiday Homes Pvt Ltd v Madan V. Prabhu, (2003) 116 COMP CASES 172 (Bom.) (DB).
78 B. Nagalakshmi v Mannargudi Transports Pvt Ltd, (1968) 38 COMP CASES 147 (Mad.) : AIR 1968 Mad. 317. See also
79 Ram Govind Misra v Allahabad Theatres Pvt Ltd, (1989) 66 COMP CASES 358 (All.).
80 Chloro Controls (India) Pvt Ltd v Severn Trent Water Purification Inc, (2006) 131 COMP CASES 501 (Bom.) (DB). See
also Notes under sections 41, 108 and 439(4)(b).
81 In Re, National Transports and General Co Pvt Ltd, (1990) 69 COMP CASES 791 (P&H).
82 Gulzari Lal Bhargava v Official Receiver-cum-Official Liquidator, (1972) 42 COMP CASES 401 (Delhi). See also Notes
under section 461.
83 Shivalik Chit Fund and Machine Tools Pvt Ltd v Agricultural Industries, (1997) 89 COMP CASES 62 (HP). See also
84 Enforced vide Notification S.O. 2754(E) dt. 12-09-2013, w.e.f. 12-09-2013.
85 Coastal Roadways Ltd v Kanoi Plantation Pvt Ltd, (2006) 132 COMP CASES 503 (Cal.) (KALYAN JYOTI SENGUPTA, J.).
86 K. Sreenivasa Raov.H. Gangadhar, (2007) 138 COMP CASES 555 (AP) (DB).
87 Chief Controlling Revenue Authority v Manager, State Bank of Mysore, (1989) 65 COMP CASES 427 (Kar.) (FB). See
detailed Notes under sections 117, 118 and 119 of the 1956 Act.
88 Knightsbridge Estates Trust Ltd v Byrne, (1940) AC 613 : (1940) 2 All ER 401 : 109 LJ Ch. 200 : 162 LT 388 (HL). See
detailed Notes under sections 117 and 120 of the 1956 Act.
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89 Levy v Abercorris Slate and Slab Co, (1887) 37 ChD. 260 : (1886–90) All ER Rep. 509 : 57 LJ Ch. 202 : 58 LT 218.
90 Re, Rayner, (1904) 1 Ch. 176 : 73 LJ Ch. 111 : 89 LT 381.
91 Lemon v Austin Friars Investment Trust Ltd, (1926) ChD 1 : (1925) All ER Rep. 255 (CA) : 95 LJ Ch. 97 : 133 LT 790 :
41 Tax LR 629 : 69 SJ 762 (CA).
92 Essar Steel Ltd v Gramercy Emerging Market Fund, (2003) 116 COMP CASES 248 (Guj.) (DB). See also Notes under
sections 2(45AA), 439 and 483 of the 1956 Act.
93 Compagnie Generale de Bellegarde, Re, Campbell’s Case, (1876) 4 ChD 470 : 35 LT 900; See also Webb v
Shropshire Railways Co, (1893) 3 ChD 307 : 63 LJ Ch. 80 : 69 LT 533 (CA); Re Anglo-Danubian Steam Navigation and
Colliery Co, (1875) LR 20 Eq. 339 : 44 LJ Ch. 502 : 33 LT 118 : 23 WR 783.
94 Moseley v Koffyfontein Mines Ltd, (1904) 2 ChD 108 : 73 LJ Ch. 569 : 91 LT 266 (CA). See also Notes under sections
79, 81, 117 and 129 of the Companies Act, 1956.
95 Unit Trust of India v Om Prakash Berlia, (1983) 54 COMP CASES 723 (Bom.) (DB).
96 Murray v Herring, (1908) 2 ChD 493 : (1908) WN 153. See sections 117 to 123 of the Companies Act, 1956.
97 Re Siel Ltd, (2004) 122 COMP CASES 536 (Delhi); Re Florence Land and Public Works Co, (1878) 10 ChD 530 : 48 LJ
Ch. 137 : 39 LT 589 : 27 WR 236 (CA); Illingworth v Houldsworth, (1904) AC 355 : 73 LJ Ch. 739 : 91 LT 602 : 53 WR
113 (HL). See detailed Notes under sections 117 and 124. See also Notes under sections 2(45AA), 391 and Schedule
VI of the Companies Act, 1956.
98 Re Spiral Globe Ltd, (1902) 1 ChD 396 : 71 LJ Ch. 128 : 85 LT 778 : 50 WR 187.
99 R.D. Goyal v Reliance Industries Ltd, (2003) 113 COMP CASES 1 (SC); Morgan Stanley Mutual Fund v Kartick Das,
(1994) 81 COMP CASES 318 (SC). See also Notes under sections 2(46), 55A, 69, 81 and 117 of the Companies Act,
1956.
1 Canadian Land Reclaiming and Colonising Co., Re, Coventry and Dixon’s Case, (1880) 14 ChD 660 : 42 LT 559 : 28
WR 775 (CA). See also Notes under section 543 of the 1956 Act.
2 Re Faure Electric Accumulator Co, (1888) 40 ChD 141 : 58 LJ Ch. 48 : 59 LT 918. See also Ferguson v Wilson, (1866)
LR 2 Ch. 77 : 36 LJ Ch. 67 : 15 LT 230 and Gramophone and Typewriter Ltd v Stanley, (1908) 2 KB 89 : (1908–10) All
ER Rep. 833 : 77 LJ KB 834 : 99 LT 39 : 24 TLR 480 (CA). See also Notes under sections 34 and 543 of the 1956 Act.
3 Wincham Shipbuilding, Boiler and Salt Co., Re, Poole, Jackson and Whyte’s Case, (1878) 9 ChD 322 : 48 LJ Ch. 48 :
38 LT 659 : 26 WR 823 (CA).
4 K.R. Kothandaraman v CIT, AIR 1967 Mad. 143 : (1966) 62 ITR 348 (Mad.); S. Gururaja Rao v State of Karnataka,
(1979) 49 COMP CASES 468 (Kar.). See also Notes under sections 252, 285, 291 and 309.
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5 Ashbury Railway Carriage and Iron Co Ltd v Riche, (1875) LR 7 HL 653 : (1874–80) All ER Rep. Ext. 2219 : 44 LJ Ex.
185 : 33 LT 450 : 24 WR 794 (HL).
6 Narasimha Ayyangar v Official Assignee of Madras, AIR 1931 Mad. 58; Kathiawar Trading Co v Virchand Dipchand,
(1894) ILR 18 Bom. 119.
7 Parker v McKenna, (1874) 10 Ch. App. 96 : 44 LJ Ch. 425 : 31 LT 739 : 23 WR 271.
8 Maharashtra Power Development Corp Ltd v Dabhol Power Co, (2004) 120 COMP CASES 560 (Bom.) (DB). See
detailed Notes under sections 260, 262, Schedule I, Table A, regulations 72, 75 and Table E of the 1956 Act.
9 Secretary of State for Trade and Industry v Deverell, (2000) 2 All ER 365 : (2000) 2 WLR 90 : (2002) 111 COMP
CASES 303 (CA).
10 Re, Hydrodam (Corby) Ltd, (1994) 2 BCLC 180 (ChD).
11 Dale and Carrington Invt. Pvt Ltd v P.K. Prathapan, (2004) 122 COMP CASES 161 (SC); Boulting v Association of
Cinematograph, Television and Allied Technicians, (1963) 2 QB 606 : (1963) 1 All ER 716 : (1963) 2 WLR 529 : (1963)
33 COMP CASES 475 (CA). See also Notes under sections 2(26), 26, 81, 111, 397 and 398 of the 1956 Act.
12 “electronic record” means data, record or data generated, image or sound stored, received or sent in an electronic form
or micro film or computer generated micro fiche.
13 Available at http://www.sebi.gov.in/cms/sebi_data/commondocs/sebimindtree_p.pdf, last accessed in November 2016.
* for the text of Rules refer Appendix 20.
14 Please see rule 3 of the Companies (Registration Offices and Fees) Rules, 2014, for the text refer Appendix 20.
15 For instance, section 68 of the 2013 Act includes securities premium within the meaning of the term Free Reserves.
* For the text of Notification refer Appendix 62.
16 Guru Gobinda Basu v Sankari Prasad Ghosal, (1963) 33 COMP CASES 1132 (SC) : AIR 1964 SC 254 : (1964) 4 SCR
311 : (1964) 1 Comp. LJ 87 (SC). See detailed Notes under relevant sections 617 to 620.
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17 In Re, Rivers Steam Navigation Co Ltd, (1967) 2 Comp. LJ 106 (Cal.) : 71 CWN 854.
18 Sunil Kumar Debnath v Mining & Allied Machinery Corpn. Ltd, (1968) 38 COMP CASES 652 (Cal.) (DB) : 72 Cal WN
144 : AIR 1968 Cal 322 (DB); Abani Bhusan Biswas v Hindusthan Cables Ltd, (1968) 38 COMP CASES 528 (Cal.) : 72
Cal WN 410; Malik Ram v Hindusthan Cables Ltd, (1968) 38 COMP CASES 500 (Cal.) : 72 Cal WN 398.
19 Praga Tools Corpn v C.V. Imanual, (1969) 39 COMP CASES 889 (SC) : AIR 1969 SC 1306 : (1970) 1 Comp. LJ 50
(SC).
20 Heavy Engineering Mazdoor Union v State of Bihar, (1969) 39 COMP CASES 905 (SC) : AIR 1970 SC 82; State
Trading Corpn. of India Ltd v CTO, (1963) 33 COMP CASES 1057 (SC) : AIR 1963 SC 1811 : (1963) 2 Comp. LJ 234
(SC); Steel Authority of India Ltd v Shri Ambica Mills Ltd, (1998) 92 COMP CASES 120 (SC); Electronics Corpn. of
India Ltd v Govt. of A.P., (1999) 97 COMP CASES 470 (SC). See detailed Notes under section 34.
21 Companies Law Committee Report, February 2016.
22 Inserted by the Companies (Amendment) Act, 1960 (65 of 1960), section 97.
23 Substituted by the Companies (Amendment) Act, 1960 (65 of 1960), section 107, for “consists solely in his being a
director of such company and the holder of not more than shares of such number or value therein as is requisite to
qualify him for appointment as a director thereof, he having been nominated as such director by the company referred
to in sub-section (1)”.
24 Substituted by the Companies (Amendment) Act, 2000 (53 of 2000), section 145 (w.e.f. 13-12-2000), for “Rs 5,000”.
25 C. Sundararaja Pillai v Sakthi Talkies (Dindigul) Ltd, (1967) 37 COMP CASES 463 (Mad.).
26 Narayandas Shreeram Somani v Sangli Bank Ltd, (1965) 35 COMP CASES 596 (SC) : AIR 1966 SC 170. But see
Firestone Tyre and Rubber Co v Synthetics and Chemicals Ltd, (1971) 41 COMP CASES 377 (Bom.). See also Notes
under sections 291, 293, 294, 299 and 314 of the 1956 Act.
27 Needle Industries (India) Ltd v Needle Industries Newey (India) Holding Ltd, (1981) 51 COMP CASES 743 (SC) : AIR
1981 SC 1298 : (1981) 3 SCR 698. See also Notes under sections 2(13), 269, 283, 291 to 293, 299, 397, 398 and 543
of the 1956 Act.
28 Dr. T.N. Raghunath v Lake Side Medical Centre Pvt Ltd, (2007) : 137 COMP CASES 741 (CLB).
29 Hill Crest Realty Sdn. Bhd v Hotel Queen Road Pvt Ltd, (2006) : 133 COMP CASES 742 (CLB); Hotel Queen Road Pvt
Ltd v Hill Crest Realty Sdn. Bhd, (2006) 130 COMP CASES 59 (Delhi).
30 In Re, Kelly and Henderson Pvt Ltd, (1980) 50 COMP CASES 646 (Bom.). See also Notes under sections 291–293,
299, 397, 398 and 543.
31 ICICI Ltd v Parasrampuria Synthetics Ltd, (1998) 92 COMP CASES 238 (Delhi). See also Notes under sections 41, 283
and 299.
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32 The words “(not being the managing agent)” omitted as redundant (w.e.f. 3-4-1970).
33 Woodhouse v Walsall Metropolitan Borough Council, (1994) 1 BCLC 435. See detailed Notes under section 5 of the
1956 Act.
34 CIT v Alagappa Textiles (Cochin) Ltd, (1979) 49 COMP CASES 947 (SC) : AIR 1980 SC 235 : (1979) 120 ITR 480
(SC). See also Notes under section 384.
35 Ferruccio Sias v Jai Manga Ram Mukhi, (1998) 93 COMP CASES 750 (Delhi). See also Notes under sections 2(26)
36 Sand Plast (India) Ltd v I.T.C. Bhadrachalam Finance and Investment Ltd, (2002) 111 COMP CASES 471 (Raj.) (DB).
See also Notes under sections 433, 434, 439 of the 1956 Act and rules 6, 18 and 21 of the Companies (Court) Rules,
1959. For the text of Rules refer Appendix 65.
* See the Companies (Central Government’s) General Rules and Forms, 1956 in Appendix 73.
* * For the text of Rules refer Appendix 73.
‡ See the Scheme for Filing of Statutory Documents and Other Transactions by Companies in Electronic Mode (w.e.f. 27
October 2006) in Notes under section 610B as inserted by the Companies (Amendment) Act, 2006 (23 of 2006) (w.e.f.
16-9-2006).
37 Substituted by Act 65 of 1960, section 2, for “any powers of management”.
39 Wasava Tyresv.Printers (Mysore) Ltd, (2007) 139 COMP CASES 446 (Karn.).
40 Ram Prashad v CIT, (1972) 42 COMP CASES 544 (SC) : AIR 1973 SC 637 : 86 ITR 122 (SC).
41 Sishu Ranjan Dutta v Bhola Nath Paper House Ltd, (1983) 53 COMP CASES 883 (Cal.).
42 Major General Shanta Shamsher Jung Bahadur Rana v Kamani Bros. Pvt Ltd, (1959) 29 COMP CASES 501 (Bom.) :
AIR 1959 Bom 201.
43 Official Liquidator v Shri Krishna Prasad Singh, (1969) 1 Comp. LJ 327 (Pat.); Boulting v Association of Cinematograph,
Television and Allied Technicians, (1963) 2 QB 606 : (1963) 1 All ER 716 : (1963) 2 WLR 529 : (1963) 33 COMP
CASES 475 (CA).
44 In Re, Shri Ambica Mills Ltd, (1986) 59 COMP CASES 368 (Guj.). See also Notes under sections 2(13), 2(30) and 101
of the 1956 Act.
45 G. Subba Rao v Rasmi Die-Castings Ltd, (1998) 93 COMP CASES 797 (AP); Freeman and Lockyer v Buckhurst Park
Properties (Mangal) Ltd, (1964) 2 QB 480 : (1964) 1 All ER 630 : (1964) 2 WLR 618 : (1964) 34 COMP CASES 405
(CA). See also Notes under sections 290 and 293 of the 1956 Act.
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46 Employees’ State Insurance Corporation v Apex Engineering Pvt Ltd, (1998) 1 Comp. LJ 10; Happy Home Builders
(Karnataka) Pvt Ltd v Delite Enterprises, (1994) 13 CLA 405 (Kar.).
47 CIT v B.P. Dalmia, (1994) 3 Comp. LJ 268 (Cal.) : (1994) 207 ITR 267 (Cal.); CIT v M.S.P. Rajes, (1993) : 77 COMP
CASES 402 (Kar.) : (1993) 202 ITR 646 (Kar.).
48 Maruti Ltd v Pan India Plastic Pvt Ltd, (1995) 83 COMP CASES 888 (P&H).
49 Pandurang Camotim Sancoalcar v Suresh Prabhakar Prabhu, (2003) 113 COMP CASES 600 (Bom.). See detailed
50 Oriental Metal Pressing Works Pvt Ltd v Bhaskar Kashinath Thakoor, (1961) 31 COMP CASES 143 (SC) : AIR 1961
SC 573. See also Notes under sections 255 and 312 of the 1956 Act.
51 AES OPGC Holding (Mauritius) v Orissa Power Generation Corp Ltd, (2005) 125 COMP CASES 299 (CLB); Shaw
(John) & Sons (Salford) Ltd v Shaw, (1935) 2 KB 113 : (1935) All ER Rep. 456 : (1935) 5 COMP CASES 369 (CA).
52 Howrah Trading Co Ltd v CIT, (1959) 29 COMP CASES 282 (SC) : AIR 1959 SC 775 : (1959) 36 ITR 215 (SC) : (1959)
Supp. 2 SCR 448. See detailed Notes under section 41 of the 1956 Act.
53 Shri Balaji Textile Mills Pvt Ltd v Ashok Kavle, (1989) 66 COMP CASES 654 (Kar.) (DB). See also Notes under
sections 41 and 399 of the 1956 Act.
54 World Wide Agencies Pvt Ltd v Mrs. Margaret T. Desor, (1990) 67 COMP CASES 607 (SC). See also Notes under
sections 41, 109, 397 and 398 of the 1956 Act.
55 Substituted by the Companies (Amendment) Act, 1960 (65 of 1960), section 13, for “agrees”.
56 Inserted by the Depositories Act, 1996 (22 of 1996), section 30 and Sch. (w.r.e.f. 20-09-1995).
57 Balkrishan Gupta v Swadeshi Polytex Ltd, (1985) 58 COMP CASES 563 (SC) : AIR 1985 SC 520. See also Notes
under sections 41(2), 87 and 169.
58 Collector of Moradabad v Equity Insurance Co Ltd, AIR 1948 Oudh 197; J.H. Chandler & Co v H.I. Philips, AIR 1926 All
550; Babulal v Narain Sugar and General Mills Ltd, (1958) 28 COMP CASES 155 (Punj.). See also under section 432.
59 U.P. Oil Mills Co Ltd v Jamna Prasad, (1933) 3 COMP CASES 256 (All.) : AIR 1933 All 334; Official Liquidator v
Suleman Bhai Kachhi, AIR 1955 MB 166 (DB). See also Notes under Schedule I, Table A, regulation 31.
60 Re, Lurgan’s (Lord) Case, (1902) 1ChD 707 : 71 LJ Ch. 323 : 86 LT 291. See also Notes under sections 12 and 15.
61 Sonardih Coal Co v Paramanand, (1928) 26 All LJ 347 : 108 IC 451.
62 Alexander v Automatic Telephone Co, (1900) 2 ChD 56 : (1900–03) All ER Rep. Ext. 1755 : 69 LJ Ch. 428 : 82 LT 400
(CA). See also Notes under sections 12 and 543.
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Supp. 2 SCR 448; R. Mathalone v Bombay Life Assurance Co Ltd, (1954) 24 COMP CASES 1 (SC) : AIR 1953 SC 385
: 1954 SCR 117; Clariant International Ltd v SEBI, (2004) 122 COMP CASES 112 (SC). See also Notes under sections
2(27), 110 and Schedule I, Table A, regulation 19.
64 Vijay Kumar Narang v Prakash Coach Builders Pvt Ltd, (2005) 128 COMP CASES 976 (CLB) in the context of section
41(2) of the 1956 Act.
65 Balkrishan Gupta v Swadeshi Polytex Ltd, (1985) 58 COMP CASES 563 (SC) : AIR 1985 SC 520; Lalithamba Bai v
Harrisons Malayalam Ltd, (1988) 63 COMP CASES 662 (Ker.) on appeal (1997) 13 SCL 175 (Ker.) (DB). See detailed
Notes under Rights of a Member or Shareholder hereinafter. See also Notes under sections 87, 108, 150 and 169 of
the 1956 Act.
66 Kumaran Potty v Venad Pharmaceuticals & Chemicals Ltd, (1989) 65 COMP CASES 246 (Ker.). See also Notes under
sections 72, 110, 111 and 111A of the 1956 Act.
67 Ram Kishan v Kanwar Papers Pvt Ltd, (1990) 69 COMP CASES 209 (HP). See also Notes under sections 111 and 433
of the 1956 Act.
68 Indglonal Investment and Finance Ltd v Rajasthan Breweries Ltd, (2001) 107 COMP CASES 525 (CLB). See detailed
Notes under section 111A.
69 Ratnesh H. Bagga v Central Circuit Cine Association, (2005) 128 COMP CASES 370 (CLB).
70 Shri Balaji Textile Mills Pvt Ltd v Ashok Kavle, (1989) 66 COMP CASES 654 (Kar.) (DB). See also Notes under
sections 2(27), 150, 164 and 397–399 of the 1956 Act.
71 Master Gautam R. Padival (Minor) v Karnataka Theatres Ltd, (2000) 100 COMP CASES 124 (CLB). See detailed Notes
under Minors can be Member through Guardian hereinafter.
72 H.H. Manabendra Shah v Official Liquidator, (1977) 47 COMP CASES 356 (Delhi). See also Notes under sections 69,
72, 150, 164 and 467 of the 1956 Act.
73 Chloro Controls (India) Pvt Ltd v Severn Trent Water Purification Inc, (2006) 131 COMP CASES 501 (Bom.) (DB). See
also Notes under sections 108, 428 and 439(4)(b) of the 1956 Act.
: 1954 SCR 117; Balkrishan Gupta v Swadeshi Polytex Ltd, (1985) 58 COMP CASES 563 (SC) : AIR 1985 SC 520.
See also Notes under Persons agreeing in writing to become Members earlier and Blank Transfers later. See also
Notes under sections 2(27), 87, 110, 150, 169 and Schedule I, Table A, regulation 19 of the 1956 Act.
75 L.I.C. v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370. See also Notes under Rights of a Member
or Shareholder in earlier paragraphs. See also Notes under sections 2(46), 34, 108, 111, 111A, 169, 206, 397, 433 and
617 of the 1956 Act.
76 Bajaj Auto Ltd v N.K. Firodia, (1971) 41 COMP CASES 1 (SC) : AIR 1971 SC 321. See also Notes under sns 108, 111
and 111A of the 1956 Act.
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77 Killick Nixon Ltd v Bank of India, (1985) 57 COMP CASES 831 (Bom.) (DB).
78 Prafulla Kumar Rout v Orient Engg. Works Pvt Ltd, (1986) 60 COMP CASES 65 (Orissa).
Supp. 2 SCR 448. See also Notes under Membership by Transfer of Shares hereinbefore. See detailed Notes under
under sections 108 and Schedule I, Table A, regulation 19 of the 1956 Act.
81 Rahul Subodh Windoors Ltd v A.K. Menon, (1999) 96 COMP CASES 597 (SC). For jurisdiction of Special Court under
the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 (27 of 1992) see Notes under
82 Clariant International Ltd v SEBI (SEBI), (2004) 122 COMP CASES 112 (SC) : AIR 2004 SC 4236 : (2004) 8 SCC 524 :
(2005) 4 Comp. LJ 52 (SC).
83 Nutech Agro Ltd v Ch. Mohan Rao, (2002) 111 COMP CASES 75 (AP).
84 Dinesh Kumar Jhunjhunwala v.Karur Vysya Bank Ltd, (2007) 140 COMP CASES 229 (Mad.).
85 James v Buena Ventura Nitrate Grounds Syndicate Ltd, (1896) 1 ChD 456 : (1895–99) All ER Rep. Ext. 1968 : 65 LJ
Ch. 284 : 74 LT 1 (CA). See also Notes under section 109 of the 1956 Act.
86 Smt. Kamalabai v Vithal Prasad Co Pvt Ltd, (1993) 77 COMP CASES 231 (Kar.); Narinder Kumar Sehgal v Leader
Valves Ltd, (1993) 77 COMP CASES 393 (CLB); Kailashnarayan Bhangadia v VST Industries Ltd, (1998) 93 COMP
CASES 470 (CLB). See detailed Notes under sections 108, 109, 110 and 111 of the 1956 Act.
87 Indian Chemical Products Ltd v State of Orissa, (1966) 36 COMP CASES 592 (SC) : AIR 1967 SC 253 : (1966) Supp.
SCR 436 : (1966) 2 Comp. LJ 63 (SC); Nazamunnessa Begum v Vidya Sagar Cotton Mills Ltd, (1963) 33 COMP
CASES 36 (Cal.) : AIR 1962 Cal 380. See also Notes under sections 108, 109, 111 and Schedule I, Table A,
regulations 25–28 of the 1956 Act.
88 World Wide Agencies Pvt Ltd v Mrs. Margaret T. Desor, (1990) 67 COMP CASES 607 (SC) : AIR 1990 SC 737. See
also Notes under sections 2(27), 41(2), 109, 397 and 398 of the 1956 Act.
89 Narandas Manmohandas v Indian Mfg. Co Ltd, AIR 1953 Bom 433. See also Notes under section 270.
90 Jarnail Singh v Bakshi Singh, (1960) 30 COMP CASES 192 (Punj.) : AIR 1960 Punj. 455.
91 Re, Exchange Travels (Holdings) Ltd, (1991) BCLC 728.
* See the Foreign Exchange Management Act, 1999 (42 of 1999) in Appendix 171.
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92 LIC v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370; Dale and Carrington Invt. Pvt Ltd v P.K.
Prathapan, (2004) 122 COMP CASES 161 (SC). See also Notes under Membership by Transfer of Shares
hereinbefore and Notes under sections 2(46), 34, 111, 111A, 169 and 617 of the 1956 Act.
93 Kumar Malavalli v CRCW Search Technologies Pvt Ltd, (2004) 118 COMP CASES 618 (CLB). See also Notes under
sections 111 and 111A of the 1956 Act.
94 Mohori Bibi v Dharamadas Ghosh, (1903) ILR 30 Cal. 539 (PC) : (1903) 30 IA 114 (PC). See also Notes under
95 Barned’s Banking Co., Re Peel’s Case, (1867) 2 Ch. App. 674 : 36 LJ Ch. 757; Re, Nassau Phosphate Co, (1876) 2
ChD 610 : 45 LJ Ch. 584 : 24 WR 692; Re Laxon & Co (No. 2), (1892) 3 ChD 555 : 61 LJ Ch. 667 : 67 LT 85 : 40 WR
621.
96 Dewan Singh v Minerva Films Ltd, (1958) 28 COMP CASES 191 (Punj.); Dewan Singh v Minerva Films Ltd, (1959) 29
COMP CASES 263 : AIR 1959 Punj. 106; R. Balaraman v Buckingham and Carnatic Co Ltd, (1969)1 Comp. LJ 82
(CLB). But see Palaniappa v Pasupati Bank, AIR 1942 Mad. 470 : (1942) 1 Mad LJ 425. See also Notes under section
69 of the 1956 Act.
1 Master Gautam R. Padival (Minor) v Karnataka Theatres Ltd, (2000) 100 COMP CASES 124 (CLB). See also Notes
under sections 9, 111A and 153 of the 1956 Act.
2 Mohori Bibi v Dharamadas Ghosh, (1903) ILR 30 Cal. 539 (PC) : (1903) 30 IA 114 (PC); Steinberg v Scala (Leeds) Ltd,
(1923) 2 ChD 452 (CA) : 92 LJ KB 944 : 129 LT 624 (CA). See also Notes under sections 12 and 69 of the 1956 Act.
3 R. Balaraman v Buckingham and Carnatic Co Ltd, (1969) 1 Comp. LJ 82 (CLB).
hereinbefore and under sections 9, 111A and 153 of the 1956 Act.
* See also Letter No. 8/18(41)/63-PR, dated 31-03-1964 printed after this Circular.
† In view of section 8(1) of the Hindu Minority and Guardianship Act, 1956 (32 of 1956), a guardian can agree in writing
on behalf of a minor to become a member of a company; Master Gautam R. Padival (Minor) v Karnataka Theatres Ltd,
(2000) 100 COMP CASES 124 (CLB).
5 Cork and Bandon Railway Co v Cazenove, (1847) 10 QB 935 : 11 Jur. 802 : 116 ER 355; Lumsden’s Case, (1868) LR
4 Ch. App. 31; Re, Yeoland Consols Ltd (No. 2), (1888) 58 LT 922. See detailed Notes under section 69.
6 Capper’s Case, (1868) LR 3 ChD 458 : 16 WR 1002.; Re, Hercules Insurance Co, (1872) LR 13 Eq. 566 : 41 LJ Ch.
580.
7 Gooch’s Case, (1872) 8 Ch. App. 266. See also Notes under section 69 of the 1956 Act.
8 Re, Symon’s Case, (1870) 5 Ch. App. 298 : 39 LJ Ch. 461. See also Notes under section 536 of the 1956 Act.
9 Anil Gupta v Delhi Cloth and General Mills Co Ltd, (1983) 54 COMP CASES 301 (Delhi). See also Notes under section
111A of the 1956 Act.
under sections 42, 87, 169 and 408 of the 1956 Act.
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11 In Re, Amrit Banaspati Co Ltd, (1995) 83 COMP CASES 789 (CLB). See also Notes under sections 11, 12 and 150 of
the 1956 Act.
12 Re, Vagliano Anthracite Collieries Ltd, (1910) WN 187 : 79 LJ Ch. 769 : 103 LT 211; Sadler v Whiteman, (1910) 1 KB
868; Glory Paper Mills Co, Re, Dunster’s Case, (1894) 3 ChD 473 : 63 LJ Ch. 885 : 71 LT 528 : 43 WR 164 : 10 TLR
669 : 38 SJ 694 (CA). See also Notes under sections 11, 12 and 150 of the 1956 Act.
13 In Re, Amrit Banaspati Co Ltd, (1995) 83 COMP CASES 789 (CLB).

14 Vickers Systems International Ltd v Mahesh P. Keswani, (1992) 73 COMP CASES 317 (CLB). See also Notes under
under sections 41(2), 87 and 169 of the 1956 Act.
16 R. Mathalone v Bombay Life Assurance Co Ltd, (1954) 24 COMP CASES 1 (SC) : AIR 1953 SC 385 : 1954 SCR 117.
See also Notes under sections 81, 82, 108 and 150 of the 1956 Act.
17 In Re, Vasant Investment Corporation Ltd, (1982) 52 COMP CASES 139 (Bom.); National Steel & General Mills v
Official Liquidator, (1990) 69 COMP CASES 416 (Delhi) (DB). See also Notes under sections 100, 391 and 536 of the
1956 Act.
18 In Re, Rajdhani Grains and Jaggery Exchange Ltd, (1983) 54 COMP CASES 166 (Delhi). See also Notes under
sections 391, 428, 430, 442, 467, 469 and 511 of the 1956 Act.
19 J.P. Srivastava and Sons Pvt Ltd v Gwalior Sugar Co Ltd, (2004) 122 COMP CASES 696 (SC). See detailed Notes
under sections 153, 397 and 398 of the 1956 Act.
20 J.P. Srivastava and Sons Pvt Ltd v Gwalior Sugar Co Ltd, (2004) 122 COMP CASES 696 (SC) : (2004) 7 Supreme
794 : (2004) 9 JT 507 (SC) (Mrs. Ruma Pal and Arun Kumar, JJ.).
21 Balkrishan Gupta v Swadeshi Polytex Ltd, (1985) 58 COMP CASES 563 (SC) : AIR 1985 SC 520. See detailed Notes
under Membership by Transfer, Receiver, etc., in earlier paragraphs.
22 Balkrishan Gupta v Swadeshi Polytex Ltd, (1985) 58 COMP CASES 563 (SC) : AIR 1985 SC 520. See fuller discussion
in earlier paragraphs and Notes under section 169 of the 1956 Act.
23 All India Bank Officers’ Confederation v Dhanalakshmi Bank Ltd, (1997) : 90 COMP CASES 225 (CLB).
24 Morgan v Gray, (1953) ChD 83 : (1953) 1 All ER 213 : (1953) 2 WLR 140. See also Notes under sections 45, 69, 177
25 Birch v Sullivan, (1958) 1 All ER 56 : (1957) 1 WLR 1247 : (1957) 101 SJ 974. See also Notes under sections 10 and
69 of the 1956 Act.
26 Re, South London Fish Market Co, (1888) 39 ChD 324 : 60 LT 68 : 37 WR 3 (CA).
27 Mrs. Bacha F. Guzdar v CIT, (1955) 25 COMP CASES 1 (SC) : AIR 1955 SC 74 : (1955) 27 ITR 1 (SC) : (1955) 1 SCR
876; Borland’s Trustee v Steel Bros. & Co Ltd, (1901) 1 ChD 279 : 70 LJ Ch. 51; Charanjit Lal Chowdhury v UOI,
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(1951) : 21 COMP CASES 33 (SC) : AIR 1951 SC 41 : 1950 SCR 869; Shyamlal Purohit v Jagannath Ray, (1970) : 40
COMP CASES 138 (Cal.) (DB) : AIR 1969 Cal 424; Purna Investment Ltd v Bank of India Ltd, (1984) 55 COMP CASES
737 (Cal.) (DB); Lalithamba Bai v Harrisons Malayalam Ltd, (1988) 63 COMP CASES 662 (Ker.). See also Notes under
sections 2(46), 11, 34 and 82 of the 1956 Act.
Tax LR 46 : 41 SJ 63 (HL). See detailed Notes under section 34 of the 1956 Act.
29 LIC v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370; Tata Engineering and Locomotive Co Ltd v
State of Bihar, (1964) 34 COMP CASES 458 (SC) : AIR 1965 SC 40 : (1964) 6 SCR 885; New Horizons Ltd v UOI,
(1997) 89 COMP CASES 849 (SC). See detailed Notes under section 34 of the 1956 Act.
30 POW Services Ltd v Clare, (1995) 2 BCLC 435.
31 N. Satyaprasad Rao v V.L.N. Sastry, (1988) 64 COMP CASES 492 (AP). See also Notes under sections 2(27), 111A,
150, 397 and 398 of the 1956 Act.
32 L.I.C. v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370. See also Notes under Membership by
Transfer of Shares and other relevant discussions in this section and Notes under sections 2(46), 34, 108, 111, 169,
397, 433 and 617 of the 1956 Act.
under other relevant discussions in this section and Notes under sections 2(27), 87, 110, 169, 408 and Schedule I,
Table A, regulation 19 of the 1956 Act.
: 1954 SCR 117. See detailed Notes under Membership by Transfer and Blank Transfer in earlier paragraphs.
35 National Steel & General Mills v Official Liquidator, (1990) 69 COMP CASES 416 (Delhi) (DB). See also Notes under
sections 150, 391, 428, 446(2) and 457 of the 1956 Act. See also Notes under Official Liquidator in earlier paragraphs.
36 Santosh Mani v New Delhi Young Mens Christian Association, (1995) CLA 178 (Delhi).
37 Worldwide Agencies Pvt Ltd v Mrs. Margaret T. Desor, (1990) 67 COMP CASES 607 (SC) : AIR 1990 SC 737; Arjun
Tukaram Shetgaonkar v Smt. Urmila Vaikunth Desai, (2001) : 105 COMP CASES 722 (Bom.). See detailed Notes
under Membership by Transmission of Shares hereinbefore. See also Notes under sections 2(27), 10, 108 and 398 of
the 1956 Act.
38 Tata Engg. and Locomotive Co Ltd v State of Bihar, (1964) 34 COMP CASES 458 (SC) : AIR 1965 SC 40 : (1964) 6
SCR 885. See detailed Notes under section 34 of the 1956 Act.
39 BSN (UK) Ltd v Janardan Mohandas Rajan Pillai, (1996) 86 COMP CASES 371 (Bom.). See also Notes under sections
10, 34, 153, 153B, 187C and 399 of the 1956 Act.
40 Order 29, Rule 1 and Order 6, Rule 14 of the Code of Civil Procedure, 1908 (5 of 1908); Foss v Harbottle, (1843) 2
Hare 461 : (1843) 67 ER 189; Mozley v Alston, (1847) : 1 Ph. 790 : 16 LJ Ch. 217; MacDougall v Gardiner (No, 2),
(1875) 1 ChD. 13 : 45 LJ Ch. 27 : 33 LT 521 (CA). See detailed Notes hereinafter. See also Notes under sections 10,
10FB and 34 of the 1956 Act.
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41 Hindustan Petroleum Corp Ltd v Sardar Chand, (1991) 71 COMP CASES 257 (P&H). See detailed Notes under
42 John Shaw & Sons (Salford) Ltd v Shaw, (1935) 2 KB 113 : (1935) All ER Rep. 456 (CA); Marshall’s Valve Gear Co Ltd
v Manning, Wardle & Co Ltd, (1909) 1 Ch. 267 : 78 LJ Ch. 46 : 100 LT 65; Scott v Scott, (1943) WN 16 : (1943) 1 All
ER 582.
43 Regal (Hastings) Ltd v Gulliver, (1942) 1 All ER 378 (HL) : (1967) 2 AC 134n. See also Notes under section 383A of the
1956 Act.
44 Marshall’s Valve Gear Co Ltd v Manning, Wardle & Co Ltd, (1909) : 1 ChD 267 : 78 LJ Ch. 46 : 100 LT 65; Alexander
Ward & Co Ltd v Samyang Navigation Co Ltd, (1975) 2 All ER 424 : (1975) 1 WLR 673 (HL). See also Notes under
45 Mosely v Koffyfontein Mines Ltd, (1911) 1 ChD 73 : 80 LJ Ch. 111 : 103 LT 516 (CA); Pender v Lushington, (1877) 6
ChD. 70 : 46 LJ Ch. 317 : 25 WR Dig. 64; Foster v Foster, (1916) : 1 ChD 532 : (1916–17) All ER Rep. 856 : 85 LJ Ch.
305. See detailed Notes hereinafter and Notes under section 10 of the 1956 Act.
46 Ferruccio Sias v Jai Manga Ram Mukhi, (1998) 93 COMP CASES 750 (Delhi); Nibro Ltd v National Insurance Co Ltd,
(1991) 70 COMP CASES 388 (Delhi); P.S. Offshore Inter Land Services Pvt Ltd v Bombay Offshore Suppliers and
Services Ltd, (1992) 75 COMP CASES 583 (Bom.). See detailed Notes under sections 10, 34, 291, 293, 397 and 398
of the 1956 Act.
47 Danish Mercantile Co Ltd v Beaumont, (1951) ChD 680 : (1951) 1 All ER 925 (CA); Alexander Ward & Co Ltd v
Samyang Navigation Co Ltd, (1975) 2 All ER 424 (HL) : (1975) 1 WLR 673 : (1975) 2 Lloyd’s Rep. 1 (HL). See also
Notes under sections 10, 13 and 293 of the 1956 Act.
48 Foss v Harbottle, (1843) 2 Hare 461 : (1843) 67 ER 189. See also Notes under section 10—Jurisdiction of Courts.
49 Mozley v Alston, (1847) 1 Ph. 790 : 16 LJ Ch. 217; MacDougall v Gardiner (No, 2), (1875) 1 ChD. 13 : 45 LJ Ch. 27 : 33
LT 521 (CA).
50 Edwards v Halliwell, (1950) WN 537 : (1950) 2 All ER 1064 : 94 SJ 803 (CA).
51 Watts v Midland Bank plc, (1986) BCLC 15.
52 Fargo Ltd v Godfroy, (1986) 3 All ER 279 : (1986) 1 WLR 1134 : (1986) BCLC 370. See detailed Notes under sections
53 Avanthi Explosives Pvt Ltd v Principal Subordinate Judge, (1987) : 62 COMP CASES 301 (AP); Dr. T.M. Paul v City
Hospital (Pvt.) Ltd, (1999) 97 COMP CASES 216 (Ker.) (DB); Edwards v Halliwell, (1950) WN 537 : (1950) 2 All ER
1064 : 94 SJ 803 (CA); Cook v Deeks, (1916) 1 AC 554 : 85 LJ PC 161 : 114 LT 636 (PC); Heyting v Dupont, (1964) 2
All ER 273 : (1964) 1 WLR 843 : 108 SJ 277 (CA); Hodgson v National and Local Government Officers Association,
(1972) 1 All ER 15 : (1972) 1 WLR 130. See also Notes under sections 10, 13 and 283 of the 1956 Act.
54 Estmanco (Kilner House) Ltd v Greater London Council, (1982) 1 All ER 437 : (1982) 1 WLR 2 : (1981) 125 SJ 790;
Prudential Assurance Co Ltd v Newman Industries Ltd (No, 2), (1982) ChD 204 (CA) : (1982) 1 All ER 354 : (1982) 2
WLR 31 (CA). See detailed Notes hereinafter and Notes under sections 10, 399 and 408 of the 1956 Act.
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55 Wallersteiner v Moir (No, 2), (1975) QB 373 : (1975) 1 All ER 849 : (1975) 2 WLR 389 (CA); Nurcombe v Nurcombe,
(1985) 1 All ER 65 : (1985) 1 WLR 370 : (1984) BCLC 557 (CA); Giles v Rhind, (2002) 4 All ER 977. See also Notes
56 Prudential Assurance Co Ltd v Newman Industries Ltd (No, 2), (1982) ChD 204 (CA) : (1982) 1 All ER 354 : (1982) 2
WLR 31 (CA). See also Notes under sections 399 and 408 of the 1956 Act.
57 Wallersteiner v Moir (No, 2), (1975) QB 373 : (1975) 1 All ER 849 : (1975) 2 WLR 389 : (1975) 119 SJ 97 (CA). See
also Notes under section 398 of the 1956 Act.
58 Smith v Croft (No, 2), (1987) 3 All ER 909 : (1987) 3 WLR 405 : (1987) BCLC 206; Jaybird Group Ltd v Greenwood,
(1986) BCLC 319. See also Notes under section 398 of the 1956 Act.
59 Watts v Midland Bank plc, (1986) BCLC 15.
60 Towers v African Tug Co, (1904) 1 ChD 558 : (1904) 73 LJ Ch. 395 : 90 LT 298 (CA); Nurcombe v Nurcombe, (1985) 1
All ER 65 : (1985) 1 WLR 370 : (1984) BCLC 557 (CA). See detailed Notes under section 399 of the 1956 Act.
61 Forrest v Manchester, Sheffield and Lincoln Railway Co, (1861) 5 De G.F.&J 126; Robson v Dodds, (1869) LR 8 Eq.
301; Whitwam v Watkin, (1898) 78 LT 188.
62 Seaton v Grant, (1867) LR 2 Ch. App. 459; Bloxam v Metropolitan Rly. Co, (1868) 3 Ch. App. 337 : 18 LT 41 : 16 WR
490.
63 Birch v Sullivan, (1958) 1 All ER 56 : (1957) 1 WLR 1247 : (1957) 101 SJ 974; BSN (UK) Ltd v Janardan Mohandas
Rajan Pillai, (1996) 86 COMP CASES 371 (Bom.). See detailed Notes hereinbefore and Notes under section 10—
64 Mosely v Koffyfontein Mines Ltd, (1911) 1 ChD 73 : 80 LJ Ch. 111 : 103 LT 516 (CA)affirmed in Koffyfontein Mines Ltd
v Mosely, (1911) AC 409 : 80 LJ Ch. 668 : 105 LT 115 (HL).
65 Section 36; Hanuman Prasad Gupta v Hiralal, (1970) : 40 COMP CASES 1058 (SC) : AIR 1971 SC 206 : (1970) 2
Comp. LJ 195 (SC); Naresh Chandra Sanyal v Calcutta Stock Exchange Association Ltd, (1971) : 41 COMP CASES 51
(SC) : AIR 1971 SC 422; V.B. Rangaraj v V.B. Gopalakrishnan, (1992) : 73 COMP CASES 201 (SC) : AIR 1992 SC
453; Beattie v E & F Beattie Ltd, (1938) ChD 708 : 3 All ER 214 : 107 LJ Ch. 333 (CA). See detailed Notes under
66 Foss v Harbottle, (1843) 2 Hare 461 : (1843) 67 ER 189. See also Notes under section 10 of the 1956 Act.
67 Dr. Satya Charan Law v Rameshwar Prosad Bajoria, (1950) 20 COMP CASES 39 (FC) : AIR 1950 FC 133.
68 Mozley v Alston, (1847) 1 Ph. 790 : 16 LJ Ch. 217.
69 Burland v Earle, (1902) AC 83 : (1900–03) All ER Rep. Ext. 1452 : 71 LJ PC 1.
70 Edwards v Halliwell, (1950) WN 537 : (1950) 2 All ER 1064 : 94 SJ 803 (CA).
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71 Avanthi Explosives Pvt Ltd v Principal Subordinate Judge, (1987) 62 COMP CASES 301 (AP). See detailed Notes in
earlier paragraphs and Notes under section 10 of the 1956 Act.
WLR 31 (CA); Baillie v Oriental Telephone and Electric Co Ltd, (1915) 1 ChD 503 : 84 LJ Ch. 409 : 112 LT 569 (CA).
See also Notes in earlier paragraphs and Notes under sections 10 and 399 of the 1956 Act.
73 Daniels v Daniels, (1978) ChD 406 : (1978) 2 All ER 89 : (1978) 2 WLR 73; Burland v Earle, (1902) AC 83 : (1900–03)
All ER Rep. Ext. 1452 : 71 LJ PC 1. See also Notes under section 10 of the 1956 Act.
74 Holmes v Newcastle-upon-Tyne Freehold Abattoir Co, (1875) 1 ChD. 682 : 45 LJ Ch. 38 : 24 WR 505. See also Notes
75 Hope v International Financial Society, (1876) 4 ChD. 327 : 46 LJ Ch. 200 (CA).
76 MacDougall v Jersey Imperial Hotel Co, (1864) 2 H.&M. 528; Towers v African Tug Co, (1904) 1 ChD 558 (CA) :
(1904–07) All ER Rep. Ext. 1583 (CA) : 73 LJ Ch. 395 : 90 LT 298 (CA). See also Notes under sections 205 and 399 of
the 1956 Act.
77 Biswanath Prasad Khaitan v New Central Jute Mills Co Ltd, (1961) 31 COMP CASES 125 (Cal.) : 64 Cal WN 970;
Raghunandan Neotia v Swadeshi Cloth Dealers Ltd, (1964) 34 COMP CASES 570 (Cal.) : AIR 1964 Cal 347 : 68 Cal
WN 302. See also Notes under section 10 of the 1956 Act.
78 Vadilal v Manecklal, (1925) ILR 49 Bom. 291; Menier v Hooper’s Telegraph Works, (1874) 9 Ch. App. 350 : 43 LJ Ch.
330 : 30 LT 209; Alexander v Automatic Telephone Co, (1900) 2 ChD 56 : (1900–03) All ER Rep. Ext. 1755 : 69 LJ Ch.
428 : 82 LT 400 (CA); Cook v Deeks, (1916) 1 AC 554 : 85 LJ PC 161 : 114 LT 636 (PC); Spokes v Grosvenor Hotel
Co, (1897) 2 QB 124 : 66 LJ QB 572 : 76 LT 679 (CA).
79 Mason v Harris, (1879) 11 ChD. 97 : 48 LJ Ch. 589 : 40 LT 644 : 27 WR 699 (CA).
80 Cockburn v Newbridge, Sanitary Steam Laundry Co & Llewellyn, (1915) 1 IR 237 (CA).
81 Atwool v Merryweather, (1867) LR 5 Eq. 464n : 37 LJ Ch. 35.
82 Brown v British Abrasive Wheel Co Ltd, (1919 1 ChD 290 : (1918–19) All ER Rep. 308 : 88 LJ Ch. 143 : 120 LT 529.
83 Dhakeshwari Cotton Mills v Neelkamal Chakravarti, AIR 1937 Cal 645 : 41 Cal WN 1137.
84 Star Tile Works Ltd v N. Govindan & Co, AIR 1959 Ker. 254.
85 Ramakishendas Dhanuka v Satya Charan Law, (1950) 20 COMP CASES 133 (PC) : 77 IA 128 : AIR 1950 PC 81.
86 Estmanco (Kilner House) Ltd v Greater London Council, (1982) 1 All ER 437 : (1982) 1 WLR 2 : (1981) 125 SJ 790.
See fuller discussion in Notes under section 399 of the 1956 Act.
87 Murarka Paint and Varnish Works Pvt Ltd v Mohanlal Murarka, (1961) 31 COMP CASES 301 (Cal.) : AIR 1961 Cal 251
: 65 Cal WN 32; Russian Commercial and Industrial Bank v Comptoir d’Escompte de Mulhouse, (1925) AC 112 : (1924)
All ER Rep. 381 : 93 LJ KB 1098 (HL); Danish Mercantile Co Ltd v Beaumont, (1951) ChD 680 : (1951) 1 All ER 925
(CA); Marshall’s Valve Gear Co Ltd v Manning, Wardle & Co Ltd, (1909) 1 ChD 267 : 78 LJ Ch. 46 : 100 LT 65; Airways
Ltd v Bowen and Reid, (1985) BCLC 355 (CA). See also Notes hereinbefore and under sections 10, 13 and 293 of the
1956 Act.
88 Newbiggin-by-the-Sea Gas Co v Armstrong, (1879) 13 ChD. 310 : 49 LJ Ch. 231 (CA); John Shaw & Sons (Salford)
Ltd v Shaw, (1935) 2 KB 113 : (1935) All ER Rep. 456 : 104 LJ KB 549 : 153 LT 245 (CA).
89 Order 1, Rules 9 and 10 of the Code of Civil Procedure, 1908 (5 of 1908). See also Notes under sections 10 and 34 of
the 1956 Act.
90 Murlidhar Chatterjee v International Film Co Ltd, AIR 1943 PC 34 : 70 IA 1 (PC).
91 Re, British Sugar Refining Co, (1857) 3 K&J 408 : 26 LJ Ch. 369 : 5 WR 379.
92 Pender v Lushington, (1877) 6 ChD. 70 : 46 LJ Ch. 317 : 25 WR Dig. 64; Edwards v Halliwell, (1950) WN 537 : (1950)
2 All ER 1064 : 94 SJ 803 (CA). See detailed Notes hereinbefore and Notes under section 10 of the 1956 Act.
93 Wood v Odessa Waterworks Co, (1889) 42 ChD. 636 : 58 LJ Ch. 628 : 37 WR 733.
94 Rayfield v Hands, (1960) ChD 1 : (1958) 2 All ER 194 : (1958) 2 WLR 851.
95 Griffith v Paget, (1877) 5 ChD. 894 : 46 LJ Ch. 493 : 25 WR 523.
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1 Simpson v Westminster Palace Hotel Co, (1860) 8 HL Cas. 712 : 2 LT 707 (HL); Hoole v Great Western Rly. Co,
(1867) 3 Ch. App. 262 : 17 LT 453 : 16 WR 260; Hutton v West Cork Rly. Co, (1883) 23 ChD. 654 : 52 LJ Ch. 689 : 49
LT 420 (CA). See also Notes under section 13 of the 1956 Act.
2 Wall v London and Northern Assets Corporation, (1898) 2 ChD 469 : 67 LJ Ch. 596 (CA).
3 Henderson v Bank of Australasia, (1890) 45 ChD. 330 : 59 LJ Ch. 794 (CA).
4 Sections 108–112; Smith, Knight & Co., Re, Weston’s Case, (1868) 4 Ch. App. 20 : 38 LJ Ch. 49 : 19 LT 337. See
detailed Notes under Membership by Transfer in earlier paragraphs.
5 Section 38; Hole v Garnsey, (1930) AC 472 : (1930) All ER Rep. 568 : 99 LJ Ch. 243 (HL).
6 Sections 39, 196, 219, etc. See detailed Notes under section 39 of the 1956 Act.
7 Section 113 of the 1956 Act.
9 L.I.C. v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370; Balkrishan Gupta v Swadeshi Polytex
Ltd, (1985) 58 COMP CASES 563 (SC) : AIR 1985 SC 520. See detailed Notes under Rights of a Member or
Shareholder in earlier paragraphs.
WLR 31 (CA). See also Notes under sections 10 and 399 of the 1956 Act.
11 Edwards v Halliwell, (1950) WN 537 : (1950) 2 All ER 1064 : 94 SJ 803 (CA); Salmon v Quin and Axtens Ltd, (1909)
AC 442 : 78 LJ Ch. 506 : 100 LT 820 (HL).
12 Pender v Lushington, (1877) 6 ChD. 70 : 46 LJ Ch. 317 : 25 WR Dig. 64.
13 Scottish Insurance Corpn v Wilsons and Clyde Coal Co, (1949) AC 462 : (1949) 1 All ER 1068 : (1949) LJR 1190 : 65
TLR 354 (HL). See also Notes under section 100 of the 1956 Act.
14 Mozley v Alston, (1847) 1 Ph. 790 : 16 LJ Ch. 217; Jhajharia Bros v Sholapur Spg. & Wvg. Co Ltd, AIR 1941 Cal 174 :
(1941) ILR 1 Cal. 30 followed in ILR (1970) 2 Cal. 147; Ferguson v Wilson, (1866) LR 2 ChD 77 : 36 LJ Ch. 67 : 15 LT
230. See also Notes under section 10.
15 Foss v Harbottle, (1843) 2 Hare 461 : (1843) 67 ER 189. See also Notes under section 10 of the 1956 Act.
16 ICICI Ltd v Parasrampuria Synthetics Ltd, (1998) 92 COMP CASES 238 (Delhi).
17 Bhadresh Kantilal Shah v Magotteaux International, (2002) 111 COMP CASES 220 (CLB). See also Notes under
sections 9, 10E, 10FB, 397 and 398 of the 1956 Act.
18 Morel v Hege, 130 Ga. 825 : 61 SE 487 : 14 Ann. Cas. 935.
19 Guernsey v Cock, 120 Mass. 510.
20 Marcht v Merchants Mortgage and Credit Co, 22 Del. Ch. 74.
21 Manson v Curtis, 223 NY 313 : 119 NE 559; Smith v Sanfrancisco N.E. Railway Co, 115 Cali. 584.
22 Re, Williams Fredericks, 187 LA 987.
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23 West v Comden, 135 US 507.
24 Bajaj Auto Ltd v N.K. Firodia, (1971) 41 COMP CASES 1 (SC) : AIR 1971 SC 321. See also Notes under sections 82,
108, 111 and 111A of the 1956 Act.
25 Gothami Solvent Oils Ltd v Smt. Mallina Bharathi Rao, (2001) 105 COMP CASES 710 (AP); Naresh Chandra Sanyal v
Calcutta Stock Exchange Association Ltd, (1971) 41 COMP CASES 51 (SC) : AIR 1971 SC 422; Sidebottom v
Kershaw, Leese & Co Ltd, (1920) 1 ChD 154 : 89 LJ Ch. 113 (CA). See also Notes under sections 26, 31 and 108 of
the 1956 Act.
26 Madras Stock Exchange Ltd v S.S.R. Rajkumar, (2003) 116 COMP CASES 214 (Mad.) (DB).
27 Bangalore Turf Club Ltd v N. Sundaraswamy, (2005) 124 COMP CASES 373 (Kar.) (DB).
28 K. Leela Kumar v Govt of India, (2002) 108 COMP CASES 610 (Mad.) (DB). See detailed Notes under sections 25.
29 Purushottamdass v Registrar of Cos, (1986) 60 COMP CASES 154 (Bom.). See detailed Notes under section 560(6).
(1972) 3 SCR 711. See detailed Notes under section 13 of the 1956 Act.
31 Inserted by the Companies (Second Amendment) Act, 2002 (11 of 2003), section 2 [w.e.f. 1-4-2003 vide Notification
No. S.O. 344(E), dated 31-3-2003, published in the Gazette of India, Extraordinary, No. 290, Pt II, Section 3(ii) : (2003)
114 COMP CASES (St.) 237].
32 Official Liquidator v P.C. Dhadda, (1980) 50 COMP CASES 175 (Raj.). See also Notes under sections 446, 458A and
33 Poomuli Manakkal Anujan Nambudiripad v Official Liquidator, (1979) 49 COMP CASES 81 (Ker.); Devinder Kishore
Mehra v Official Liquidator, (1980) 50 COMP CASES 699 (Delhi) (DB); Jute and Gunny Brokers Ltd v UOI, (1962) 32
COMP CASES 845 (SC) : AIR 1961 SC 1214. See also Notes under sections 52, 451 and 454 of the 1956 Act.
34 Ravinder Kumar Sangal v Auto Lamps Ltd, (1984) 55 COMP CASES 742 (Delhi).
35 Official Liquidator v Registrar of Cos, (1978) 48 COMP CASES 120 (Guj.); Prahallad Bai Lath v ROC, (1979) 49 COMP
CASES 317 (Orissa). See also Notes under section 63 of the 1956 Act.
36 Suryanarayana v Vijaya Commercial Bank Ltd, AIR 1958 AP 756; Re, Hanuman Bank Ltd, (1964) 34 COMP CASES
640 (Mad.) (DB).
37 T.S. Satyanath v J. Thomas & Co, (1985) 57 COMP CASES 648 (Cal.). See also Notes under section 630. For position
of professional advisers see Notes under section 7 of the 1956 Act.
38 Mutual Reinsurance Co Ltd v Post Marwick Mitchell & Co, (1997) 1 BCLC 1. See also Notes under sections 201 and
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* For the Text of Rules refer Appendix 16.
39 Substituted by the Companies (Amendment) Act, 1988 (31 of 1988), section 3 (w.e.f 15-7-1988).
40 Herdilia Unimers Ltd v Smt. Renu Jain, (1998) 92 COMP CASES 841 (Raj.); Pravin Jha v State of U.P, (2001) 106
COMP CASES 554 (All.). See also Notes under sections 113, 149, 159, 162, 165 and 220 of the 1956 Act.
41 Herdilia Unimers Ltd v Smt. Renu Jain, (1998) 92 COMP CASES 841 (Raj.).
42 C.V. Siva Prasad v Registrar of Cos, (1997) 88 COMP CASES 420 (AP).
43 Anita Chadha v Registrar of Cos, (1999) 96 COMP CASES 265 (Delhi). See also Notes under sections 159, 162 and
44 Jayes R. Mor v State of Gujarat, (2002) 109 COMP CASES 232 (Guj.). See detailed Notes under section 220 of the
1956 Act.
45 Pandurang Camotim Sancoalcar v Suresh Prabhakar Prabhu, (2003) 113 COMP CASES 600 (Bom.). See also Notes
under section 303(2) of the 1956 Act.
† See the Companies (Appointment and Qualifications of Secretary) Rules, 1988 in Appendix 66.
46 Ravindra Narayan v Registrar of Cos, (1994) 81 COMP CASES 925 (Raj.); Herdilia Unimers Ltd v Smt. Renu Jain,
(1998) 92 COMP CASES 841 (Raj.); Smt. G. Vijayalakshmi v SEBI, (2000) 100 COMP CASES 726 (AP); S.C. Bhatia v
P.C. Wadhawa, (1998) 92 COMP CASES 511 (P&H). See also Notes under sections 73, 113, 159, 162, 220 and 621.
47 Vijay Kumar Gupta v Registrar of Cos, (2004) 118 COMP CASES 604 (HP). See also Notes under sections 146 and
48 K. Seethalakshmi v Registrar of Cos, (2001) 103 COMP CASES 532 (Mad.). See also Notes under sections 159, 162
49 Madan Gopal Dey v State, (1969) 39 COMP CASES 119 (Cal.) : AIR 1968 Cal 79; Ajit Kumar Sarkar v Asst. ROC,
(1979) 49 COMP CASES 909 (Cal.); V.M. Thomas v ROC, (1980) 50 COMP CASES 247 (Ker.); Ramacast Ltd v Asst.
ROC, (1988) 63 COMP CASES 805 (Cal.); H. Nanjundiah v V. Govindan, ROC, (1986) 59 COMP CASES 356 (Bom.);
Asst. ROC v Southern Machinery Works Ltd, (1986) 59 COMP CASES 670 (Mad.); S.P. Punj v ROC, (1991) 71 COMP
CASES 509 (Delhi); Bachraj Baid v State of W.B, (1992) 74 COMP CASES 809 (Cal.); ROC v Bipini Behari Nayak,
(1995) 83 COMP CASES 95 (Orissa); ROC v Bipini Behari Nayak, (1996) 86 COMP CASES 641 (Orissa). See detailed
Notes under sections 58A, 159, 161, 162, 168, 210, 220 and 633 of the 1956 Act.
50 Gopal Khaitan v State, (1969) 39 COMP CASES 150 (Cal.) : AIR 1969 Cal 132 : 73 Cal WN 22. See also Notes under
section 614A and 633 of the 1956 Act.
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51 Sukhbir Saran Bhatnagar v Registrar of Cos, (1972) 42 COMP CASES 408 (Delhi). See also Notes under section 633
of the 1956 Act.
52 Consolidated Pneumatic Tool Co (I) Ltd v Addl. Registrar of Cos, (1989) 65 COMP CASES 259 (Bom.). See detailed
Notes under sections 205A and 207 of the 1956 Act.
53 A.K. Khosla v T.S. Venkatesan, (1994) 80 COMP CASES 81 (Cal.). See also Notes sections 5, 293, 621 and 629A of
the 1956 Act.
54 Re, Young and Harston’s Contract, (1886) 31 ChD. 168 : 53 LT 837.
55 Re, City Equitable Fire Insurance Co, (1925) ChD 407 : (1924) All ER Rep. 485 : 94 LJ Ch. 445 : 68 Accountant LR 53
(CA). See also Notes under sections 119, 133, 168, 210 and 227 of the 1956 Act.
56 Elliott v Turner, (1843) 13 Sim. 477. See also Notes under section 169 of the 1956 Act.
57 Bachraj Baid v State of W.B, (1992) 74 COMP CASES 809 (Cal.).
58 Ajit Kumar Sarkar v Asstt. Registrar of Cos, (1979) 49 COMP CASES 909 (Cal.); Bipin Behari Nayak v ROC, (1988) 63
COMP CASES 271 (Orissa); ROC v Bipini Behari Nayak, (1995) 83 COMP CASES 95 (Orissa); Registrar of Cos v
Bipini Behari Nayak, (1996) 86 COMP CASES 641 (Orissa). See also Notes under sections 159, 162 and 220 of the
1956 Act.
59 Bimal Kumar Nopany v Registrar of Cos, (1990) 68 COMP CASES 567 (AP). See also Notes under section 233B of the
1956 Act.
60 Dantuluri Ranga Devi v Registrar of Cos, (2007) 135 COMP CASES 599 (AP).
61 I.B. Rao v Registrar of Cos, (2007) 137 COMP CASES 469 (AP).
62 Anil Hada v Indian Acrylic Ltd, (2000) 99 COMP CASES 36 (SC); Sheoratan Agarwal v State of M.P, AIR 1984 SC
1824 : (1984) 4 SCC 352; Rama Bhushanam v Registrar of Cos, (2002) 112 COMP CASES 238 (AP). See also Notes
under section 58A of the 1956 Act.
63 Bank of Rajasthan Ltd v State of Bihar, (2002) 108 COMP CASES 556 (Patna) : (2000) 26 SCL 1 (Patna). See also
Notes under sections 2(11), 10, 10E, 10FB and 113 of the 1956 Act.
64 H.V. Jayaram v ICICI Ltd, (2000) 99 COMP CASES 341 (SC) : AIR 2000 SC 579; Hanuman Prasad Gupta v Hiralal,
(1970) 40 COMP CASES 1058 (SC) : AIR 1971 SC 206 : (1970) 2 Comp. LJ 195 (SC); Karnataka Bank Ltd v B.
Suresh, (2001) 105 COMP CASES 110 (Kar.).
65 First Leasing Co of India Ltd v Addl. ROC, (1997) 89 COMP CASES 635 (Mad.). See also Notes under sections 10,
269A, 297, 621 and 629A of the 1956 Act.
66 Canara Bank v Nuclear Power Corp of India Ltd, (1995) 84 COMP CASES 70 (SC); Harshad S. Mehta v State of
Maharashtra, (2001) 107 COMP CASES 365 (SC). See detailed Notes under section 10—Jurisdiction of Courts.
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67 In Re, S. Pandit, (1990) 68 COMP CASES 129 (Bom.). See detailed Notes under sections 210, 220 and 633 of the
1956 Act.
† See the Companies (Appointment and Qualifications of Secretary) Rules, 1988 in Appendix 66.
68 J.K. Industries Ltd v Chief Inspector of Factories and Boilers, (1997) 88 COMP CASES 285 (SC); Tesco Supermarkets
Ltd v Nattrass, (1972) AC 153 : (1971) 2 All ER 127 : (1971) 2 WLR 1166 : (1971) 115 SJ 285 (HL); Lennard’s Carrying
Co Ltd v Asiatic Petroleum Co Ltd, (1915) AC 705 : 84 LJ KB 1281 : 113 LT 195 (HL); M.C. Mehta v UOI, (1986) 2 SCC
325. See detailed Notes under the Factories Act, 1948 hereinafter. See also Notes under section 34 of the 1956 Act.
69 State of Haryana v Brij Lal Mittal, (1998) 93 COMP CASES 329 (SC) : AIR 1998 SC 2327; Municipal Corp of Delhi v
Ram Kishan Rohtagi, AIR 1983 SC 67; Sham Sunder v State of Haryana, (1990) 67 COMP CASES 1 (SC) : AIR 1989
SC 1982; V.B.C. Exports Pvt Ltd v Commander S.D. Baijal, (1998) 91 COMP CASES 63 (SC); D.K. Jhaver v State of
Punjab, (1996) 87 COMP CASES 236 (P&H); L.P. Mittal v State of N.C.T. of Delhi, (2000) 100 COMP CASES 737
(Delhi); R. Guruswamy v Sree Balaji Cotton Industries, (2002) 112 COMP CASES 338 (Kar.). See also Interpretation
and Construction of Penal provisions in later paragraphs.
70 R. Banerjee v H.D. Dubey, (1992) 75 COMP CASES 722 (SC).
71 Hindustan Chemicals Industries v State of Punjab, (1997) 88 COMP CASES 794 (P&H).
72 J.K. Industries Ltd v Chief Inspector of Factories and Boilers, (1997) 88 COMP CASES 285 (SC); R.S. Joshi v Ajit Mills
Ltd, AIR 1977 SC 2279.
73 U.P. Pollution Control Board v Modi Distillery, (1988) 63 COMP CASES 77 (SC); R. Banerjee v H.D. Dubey, (1992) 75
COMP CASES 722 (SC). See detailed Notes under the Pollution (Prevention and Control) Acts and Prevention of Food
Adulteration Act in later paragraphs.
74 Ravi Kant v National Consumer Disputes Redressal Commission, (1997) 89 COMP CASES 471 (Delhi) (DB); Delhi
Development Authority v Skipper Construction Co Pvt Ltd, (1997) 89 COMP CASES 362 (SC). See also Notes under
75 FMI Investments Pvt Ltd v State, (2000) 99 COMP CASES 17 (Delhi); State of Haryana v Brij Lal Mittal, (1998) 93
COMP CASES 329 (SC) : AIR 1998 SC 2327; Credential Finance Ltd v State of Maharashtra, (2001) 105 COMP
CASES 864 (Bom.); Rachana Flour Mills Pvt Ltd v Lalchand Bhanagadiya, (1987) 62 COMP CASES 15 (AP). See
detailed Notes on Vicarious liability of Directors in earlier paragraphs.
76 K. Srikanth Singh v North East Securities Ltd, (2007) 140 COMP CASES 444 (SC).
77 Maksud Saiyed v State of Gujarat, (2007) 140 COMP CASES 590 (SC).
78 Anil Hada v Indian Acrylic Ltd, (2000) 99 COMP CASES 36 (SC); Sheoratan Agarwal v State of M.P, AIR 1984 SC
1824 : (1984) 4 SCC 352; K.P.G. Nair v Jindal Menthol India Ltd, (2001) 104 COMP CASES 290 (SC); M. Arumugam v
Upasana Finance Ltd, (2001) 105 COMP CASES 103 (Mad.); Avon Industries Ltd v Integrated Finance Co Ltd, (2001)
105 COMP CASES 259 (AP); Sadhu Ram Singla v State, (2002) 111 COMP CASES 52 (Delhi); Renewable Energy
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Systems Ltd v State, (2002) 111 COMP CASES 786 (AP); Smt. Neeta Bhalla v S.M.S. Pharmaceuticals Ltd, (2002) 111
COMP CASES 793 (AP).
79 Modi Cements Ltd v Kuchil Kumar Nandi, (1998) 92 COMP CASES 88 (SC); Goaplast Pvt Ltd v Chico Ursula D’Souza,
(2003) 114 COMP CASES 644 (SC).
80 NEPC Micon Ltd v Magma Leasing Ltd, (1999) 96 COMP CASES 822 (SC).
81 Rajneesh Aggarwal v Amit J. Bhalla, (2001) 104 COMP CASES 332 (SC); Bilakchand Gyanchand Co v A.
Chinnaswami, (1999) 98 COMP CASES 573 (SC); K. Pannir Selvam v M.M.T.C. Ltd, (2000) 99 COMP CASES 94
(AP); Suman Sethi v Ajay K. Churiwal, (2000) 100 COMP CASES 444 (SC); Urjit Singh v State of Punjab, (2002) 112
COMP CASES 183 (P&H); C.C. Alavi Haji v Palapetty Muhammed, (2007) 137 COMP CASES 692 (SC); Sarav
Investment and Financial Consultants Pvt Ltd, v. Llyods Register of Shipping Indian Office Staff Provident Fund, (2007)
140 COMP CASES 381 (SC); Rahul Builders v Arihant Fertilizers and Chemicals Ltd, (2007) 140 COMP CASES 600
(SC).
82 Charanjit Singh v D.B. Merchant Banking Services Ltd, (2001) 105 COMP CASES 299 (Delhi).
83 Balakrishnan, Unity Drugs Centre v Jaison P.V, (2004) 122 COMP CASES 820 (Ker.).
84 Anil Kumar Sawhney v Gulshan Rai, (1994) 79 COMP CASES 150 (SC); Gummadi Industries Ltd v Khushroo F.
Engineer, (1999) 98 COMP CASES 296 (Mad.).
85 C. Antony v K.G. Raghavan Nair, (2002) 112 COMP CASES 611 (SC); John K. John v Tom Varghese, (2007) 140
86 Mrs. Asanammal Kasim v Ceat Financial Services Ltd, (2002) 112 COMP CASES 287 (AP); Smt. P.
Sudhavenkatalakshmi v Sree Chakra Cotton Co, (2002) 112 COMP CASES 60 (AP); S.B. Shankar v Amman Steel
Corp, (2002) 110 COMP CASES 50 (Mad.).
87 V.K. Jain v UOI, (2000) 100 COMP CASES 827 (SC).
88 BSI Ltd v Gift Holdings Pvt Ltd, (2000) 100 COMP CASES 436 (SC); Kusum Ingots and Alloys Ltd v Pennar Peterson
Securities Ltd, (2000) 100 COMP CASES 755 (SC).
89 Standard Chartered Bank v Ravi Bhandari, (2002) 111 COMP CASES 544 (Delhi); Gajanand Agarwal v Sharma
Traders Industries Pvt Ltd, (2002) 109 COMP CASES 909 (AP); Shakthi Concrete Industries Ltd v Valuable Steels
(India) Ltd, (2000) 100 COMP CASES 429 (Mad.). See also United Bank of India v Naresh Kumar, (1997) 90 COMP
CASES 329 (SC) : AIR 1997 SC 3 under Suit by public Corporations in Notes under section 10 of the 1956 Act.
90 Sheoratan Agarwal v State of M.P, AIR 1984 SC 1824 : (1984) 4 SCC 352; Madanlal Agarwalla v State, (1989) 65
COMP CASES 237 (Cal.) (DB); Vidya Wati v State, (1990) 69 COMP CASES 813 (Delhi); Naresh Kumar v State of
Bihar, (1991) 70 COMP CASES 358 (Patna); Smt. Peelamedu Rajeswary Ramkrishna v B.N. Misra, (1972) 42 COMP
CASES 489 (Orissa).
91 S. Rajagopalachari v Bellary Spg. & Wvg. Co Ltd, (1997) 90 COMP CASES 485 (Kar.).
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92 R. Dhandayuthapani v C.R. Kaleel, (2004) 118 COMP CASES 167 (Mad.).
93 Employees’ State Insurance Corp v K.A. Vijayan, (2000) 99 COMP CASES 31 (Ker.); Employees’ State Insurance Corp
v Apex Engg. Pvt Ltd, (1998) 1 Comp. LJ 10 (SC); Siddharth Kejriwal v Employees’ State Insurance Corpn., (1997) 90
COMP CASES 496 (Kar.).
1 Employees’ State Insurance Corpn v S.K. Aggarwal, (1998) : 94 COMP CAS 75 (SC).
2 P.C. Agarwala v Payment of Wages Inspector, (2005) : 127 COMP CAS 787 (SC); Employees’ State Insurance
Corporation v S.K. Aggarwal, (1998) : 94 COMP CAS 75 (SC) : (1998) 6 SCC 288; Employees’ State Insurance
Corporation v Gurdial Singh, (1991) Supp. 1 SCC 204.
3 J.K. Industries Ltd v Chief Inspector of Factories and Boilers, (1997) : 88 COMP CAS 285 (SC). See also Notes under
Vicarious liability of Directors and Mens rea hereinbefore.
4 Indian Oil Corporation Ltd v Chief Inspector of Factories, (1998) : 94 COMP CAS 64 (SC) : AIR 1998 SC 2456. See
also Notes under section 617 of the Companies Act, 1956.
5 S.C. Gupta v State, (2002) : 112 COMP CAS 121 (Delhi).
6 M.V. Javali v Mahajan Borewell and Co, (1998) : 91 COMP CAS 708 (SC) : (1998) 230 ITR 1 (SC); M.R. Pratap v V.M.
Muthukrishnan, ITO, (1992) 74 COMP CAS 400 (SC) : (1992) 196 ITR 1 (SC) : AIR 1994 SC 674. See detailed Notes
under sections 34 and 621 of the Companies Act, 1956.
7 Standard Chartered Bank v Directorate of Enforcement, (2005) : 125 COMP CAS 513 (SC) : (2005) 4 Comp LJ 464
(SC).
8 ANZ Grindlays Bank Ltd v Directorate of Enforcement, (2005) : 123 COMP CAS 1 (SC) : (2005) 3 Comp LJ 302 (SC) :
(2004) 6 SCC 531.
9 Krishan Kumar Bangur v Director General of Foreign Trade, (2006) : 133 COMP CAS 83 (Delhi).
10 M.L. Lakhotia v State, (1989) : 66 COMP CAS 118 (Delhi). See also Notes under section 34 of the 1956 Act.
11 U.P. Pollution Control Board v Modi Distillery, (1988) : 63 COMP CAS 77 (SC); U.P. Pollution Control Board v Mohan
Meakins Ltd, (2000) : 101 COMP CAS 278 (SC); Haryana State Board for Prevention and Control of Water Pollution v
Bharat Carpets Ltd, (1995) : 84 COMP CAS 681 (P&H) (DB); Woodhouse v Walsall Metropolitan Borough Council,
(1994) 1 BCLC 435.
12 R. Banerjee v H.D. Dubey, (1992) : 75 COMP CAS 722 (SC).
13 R.K. Krishna Kumar v State of Assam, (1998) : 92 COMP CAS 14 (SC).
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14 Sham Sunder v State of Haryana, (1990) : 67 COMP CAS 1 (SC) : AIR 1989 SC 1982; TMT. Thangalakshmi v ITO,
(1994) : 79 COMP CAS 246 (Mad.) : (1994) 205 ITR 176 (Mad.). See also Notes under Vicarious liability of Directors in
earlier paragraphs. See sections 621 to 631 for provisions of the 1956 Act, relating to Offences and Penalties.
15 S.K.D. Lakshmanan Fireworks Industries v K.V. Sivarama Krishnan, (1995) : 84 COMP CAS 447 (Ker.) (FB). See also
Literal Construction in Notes under section 1 of the 1956 Act.
16 Thomas Varghese v P. Jerome, (1993) : 76 COMP CAS 380 (Ker.). See detailed Notes on Principles of Interpretation
and Construction under section 1 of the 1956 Act.
17 Smt. Abhilash Vinodkumar Jain v Cox and Kings (India) Ltd, (1995) : 84 COMP CAS 28 (SC); Atul Mathur v Atul Kalra,
(1990) : 68 COMP CAS 324 (SC). See detailed Notes under section 630. See sections 621 to 631 of the 1956 Act for
provisions relating to Offences and Penalties.
18 NEPC Micon Ltd v Magma Leasing Ltd, (1999) : 96 COMP CAS 822 (SC).
19 Tolaram Relumal v State of Bombay, AIR 1954 SC 496 : 1955 SCR 158.
20 N.C. Kumaresan v Ameerappa, (1992) : 74 COMP CAS 848 (Ker.); Grindlays Bank P.L.C. v UOI, (2001) : 106 COMP
CAS 1 (Cal.).
21 State of Andhra Pradesh v Andhra Provincial Potteries Ltd, (1973) : 43 COMP CAS 514 (SC) : AIR 1973 SC 2429. See
detailed Notes under section 220 of the 1956 Act which was amended in 1977 in view of different view taken by the
Supreme Court in State of Bom v Bandhan Ram Bhandani, (1961) : 31 COMP CAS 1 (SC) : AIR 1961 SC 186 : (1961)
1 SCR 801.
22 Ayre v Skelsey’s Adamant Cement Co Ltd, (1905) 21 Tax LR 464 (CA).
23 Torbock v Lord Westbury, (1902) : 2 Ch. 871 : 71 LJ ChD 845 : 87 LT 165 : 51 WR 133; MacConnell v E. Prill & Co Ltd,
(1916) : 2 ChD 57 : 85 LJ ChD 674 : 115 LT 71.
24 MacConnell v E. Prill & Co Ltd, (1916) : 2 ChD 57 : 85 LJ ChD 674 : 115 LT 71; Re Moorgate Mercantile Holdings Ltd.,
(1980) 1 All ER 40 : (1980) 1 WLR 227.
25 Torbock v Lord Westbury, (1902) : 2 ChD 871 : 71 LJ ChD 845 : 87 LT 165 : 51 WR 133.
26 Re, Moorgate Mercantile Holdings Ltd., (1980) 1 All ER 40 : (1980) 1 WLR 227.
27 V.G. Balasundaram v New Theatres Carnatic Talkies Pvt Ltd, (1993) : 77 COMP CAS 324 (Mad.). See also Notes
under sections 169 and 173 of the Companies Act, 1956.
28 M.S. Madhusoodhanan v Kerala Kaumudi Pvt Ltd, (2003) : 117 COMP CAS 19 (SC).
29 M.S. Madhusoodhanan v Kerala Kaumudi Pvt Ltd, (2003) : 117 COMP CAS 19 (SC) : AIR 2004 SC 909 : (2003) 4
Comp LJ 185 (SC) : (2003) 6 Supreme 49 (SC) : (2003) 6 JT 560 (SC).
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33 Re Jaypee Cement Ltd., (2004) 122 COMP CAS 854 (All.): (2004) 2 Comp LJ 105 (All.).
34 Re Horbury Bridge Coal, Iron and Waggon Co, (1879) 11 ChD 109 : 48 LJ Chapter 341 (CA); Berar Trading Co Ltd v
Gajanan Gopalrao Dixit, (1972) : 42 COMP CAS 48 (Bom.).
35 Re Parikh Engineering and Body Building Co Ltd., (1975) 45 COMP CAS 157 (Pat.); Re, Self-help Private Industrial
Estate Pvt Ltd, (1972) 42 COMP CAS 605 (Mad.). See detailed Notes under sections 17 and 171 of the 1956 Act.
36 Inserted by the Companies (Amendment) Act, 2000 (53 of 2000), section 80 [(w.e.f. 15-6-2001) vide Notification No.
G.S.R. 523(E), dated 15-6-2001 : Gazette of India, Extraordinary, No. 394, Pt II, Section 3(ii), dated 15-6-2001 : (2001)
106 COMP CAS (St.) 23].
37 Re Automobile Products of India Ltd., (2005) 127 COMP CAS 941 (CLB).
38 Section 468 empowers the Central Government to make rules under the Companies Act, 2013.
39 For the text of Rules refer Appendix 73.
40 The words “of Rs 1 lakh or such higher paid-up share capital” omitted by the Companies (Amendment) Act, 2015, (21
of 2015), section 2(i) (w.e.f. 29-05-2015).
41 Please see Acceptance of Deposits Rules, 2014 with subsequent amendments.
43 For text of notification, see Appendix 62.
44 For the text of Notification refer Appendix 62.
45 Substituted by the Companies (Amendment) Act, 2000 (53 of 2000), section 3 (w.e.f. 13-12-2000), for the words
“means a company which, by its articles,—”.
46 Inserted by the Companies (Amendment) Act, 2000 (53 of 2000), section 3 (w.e.f. 13-12-2000).
47 The Companies (Amendment) Act, 2000 has been repealed by the Repealing and Amending Act, 2016.
48 V.B. Rangaraj v V.B. Gopalakrishnan, (1992) : 73 COMP CAS 201 (SC) : AIR 1992 SC 453. See detailed Notes under
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49 John Tinson & Co Pvt Ltd v Mrs. Surjeet Malhan, (1997) : 88 COMP CAS 750 (SC) : AIR 1997 SC 1411. See detailed
Notes under sections 108 and 111 of the 1956 Act.
50 Dahiben Umedbhai Patel v Norman James Hamilton, (1985) : 57 COMP CAS 700 (Bom.) (DB).
51 Satyanarayana Rathi v Annamalaiar Textiles Pvt Ltd, (1999) : 95 COMP CAS 386 (CLB); Cruickshank Co Ltd v
Stridewell Leather Pvt Ltd, (1996) : 86 COMP CAS 439 (CLB). See detailed Notes under sections 82 and 111 of the
52 S.A. Padmanabha Rao v Union Theatres Pvt Ltd, (2002) : 108 COMP CAS 108 (Kar.).
53 Ontario Jockey Club v McBridge, (1927) AC 916 (PC) : AIR 1928 PC 291; Chiranji Lal v Mahabir Dhelia, AIR 1966
Assam 48. See also Notes under sections 82 and 108 of the Companies Act, 1956.
54 Master Silk Mills Pvt Ltd v Dharamdas Hargovandas Mehta, (1980) : 50 COMP CAS 365 (Guj.) (DB). See also Notes
under section 108 of the Companies Act, 1956.
55 M.S. Madhusoodhanan v Kerala Kaumudi Pvt Ltd, (2003) : 117 COMP CAS 19 (SC) : (2003) 4 Comp LJ 185 (SC) (Mrs.
Ruma Pal and B.N. Srikrishna JJ.).
56 Lyle and Scott Ltd v Scott’s Trustees, (1959) AC 763 : (1959) 2 All ER 661 : (1959) 3 WLR 133 : (1959) 103 SJ 507 :
(1960) 30 Comp Cas 30 (HL).
57 D. Sasidharan v SIPCOT, (1992) : 73 COMP CAS 44 (Mad.).
58 Rakhra Sports Pvt Ltd v Khraitilal Rakhra, (1993) : 76 COMP CAS 545 (Kar.) (DB); Re, Bird Precision Bellows Ltd,
(1986) ChD 658 : (1985) 3 All ER 523 : (1986) 2 WLR 158 : (1986) 130 SJ 51 : (1985) BCLC 493 (CA). See also Notes
59 Dr. Mrs. Banoo J. Coyajee v Shanta Genevieve Pommeret Parulekar, (1995) : 84 COMP CAS 534 (Bom.) (DB); Mihir
Chakraborty v Multi Tech Computers Pvt Ltd, (2001) : 106 COMP CAS 150 (Delhi); M. Jones v R.R. Jones, (1971) 1
WLR 840 : (1971) : 41 COMP CAS 955 (ChD). See also Notes under sections 81, 108, 111, 172 and 286.
60 Babulal Madhavji Varma v New Standard Coal Co Pvt Ltd, (1967) : 37 COMP CAS 446 (Cal.) : 71 Cal WN 333. See
also Notes under sections 26, 111, 397, 398 and 402 of the 1956 Act.
61 Re, New Cedos Engineering Co Ltd, (1994) 1 BCLC 797 (ChD); Stothers v William Steward (Holdings) Ltd, (1994) 2
BCLC 266. See also Notes under section 108 of the 1956 Act.
62 Roberts v Letter “T” Estates Ltd, (1961) AC 795 : (1961) 3 WLR 176 : 105 SJ 525 (PC) : (1962) 32 COMP CAS 80
(PC).
63 Hunter v Hunter, (1936) AC 222 : 105 LJ ChD 97 : 154 LT 513 (HL); Champagne Perrier-Jouet S.A. v H.H. Finch Ltd,
(1982) 3 All ER 713 : (1982) 1 WLR 1359.
64 Safeguard Industrial Investments Ltd v National Westminster Bank Ltd, (1982) 1 All ER 449 : (1982) 1 WLR 589 :
(1982) 126 SJ 205 (CA). See also Notes under section 108 of the 1956 Act.
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65 Shailesh Prabhudas Mehta v Calico Dyeing and Printing Mills Ltd, (1994) : 80 COMP CAS 64 (SC). See detailed Notes
66 Anderson v James Sutherland (Peterhead) Ltd, (1941) SC [Scottish] 203; Trussed Steel Concrete Co Ltd v Green,
(1946) : 1 ChD 115 : 115 LJ ChD 123 : 174 LT 122.
67 Jarnail Singh v Bakshi Singh, (1960) : 30 COMP CAS 192 (Punj.) : AIR 1960 Punj. 455. See also Notes under section
36 of the 1956 Act.
68 G. Venkitapathy v Prakathi Spinners Pvt Ltd, (2003) : 115 COMP CAS 443 (CLB).
69 The Companies Amendment Act, 2002 has been repealed by the Repealing and Amending Act, 2016.
70 Re Winfield Agro Services Pvt Ltd, (1996) 86 COMP CAS 587 (AP). See also Notes under sections 43 and 391 of the
1956 Act.
71 Federal Bank Ltd v Sagar Thomas, AIR 2003 SC 4325.
72 Gopal Prasad Varshney v Bank of Rajasthan Ltd, 2005(2)WLC382
73 Ram Parshotram Mittal v Hillcrest Realty Sdn. Bhd, AIR 2009 SC 2859.
74 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section 62(6)(a) of
the 1956 Act, 1956.
75 Substituted for the words “foreign institutional investor” by the SEBI (Foreign Portfolio Investors) Regulations, 2014 vide
SEBI Notification No. LADNRO/GN/2013-14/36/12, dt. 07 January 2014.
76 Subs. for the words “foreign institutional investor” by the SEBI (Foreign Portfolio Investors) Regulations, 2014 vide SEBI
Notification No. LADNRO/GN/2013-14/36/12, dated 07 January 2014.
77 Subs. for the words “foreign institutional investor” by the SEBI (Foreign Portfolio Investors) Regulations, 2014 vide
SEBI Notification No. LADNRO/ GN/2013-14/36/12, dated 07 January 2014.
78 Subs. for the words “foreign institutional investor” by the SEBI (Foreign Portfolio Investors) Regulations, 2014 vide
SEBI Notification No. LADNRO/ GN/2013-14/36/12, dated 07 January 2014.
79 . See also Omnium Electric Palaces Ltd v Baines, (1914) 1 ChD 332 (CA).
80 Nash v Lynde, (1929) AC 158 : 98 LJ KB 127 : 140 LT 146 : 45 TLR 42 (HL). See detailed Notes under sections 55, 56
and 67.
81 Nash v Lynde, (1929) AC 158 : 98 LJ KB 127 : 140 LT 146 : 45 Tax LR 42 (HL). See detailed Notes under sections 55,
82 Words of “five lakh rupees or higher” omitted by the Companies (Amendment) Act, 2015.
83 Substituted by the Companies (Amendment) Act, 2000 (53 of 2000), section 3 (w.e.f. 13-12-2000). Prior to substitution
the clause stood as under:
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“(iv) “public company” means a company which is not a private company.”

84 Second Proviso to section 14 of the 2013 Act.
85 Hillcrest Realty Sdn. Bhd v Hotel Queen Road Pvt Ltd, (2006) : 133 Comp. Cas. 742 (CLB).
86 An institution will also have to comply with the conditions laid down in MCA Circular F No. 3/3/2010/CL.V dated June
02, 2011, and reproduced below,
88 Inserted by the Companies (Amendment) Act, 1999 (21 of 1999), section 2 (w.r.e.f. 31-10-1998).
89 Omitted by the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004 (30 of 2004)
(w.r.e.f. 11-11-2004). Prior to omission clause (vii) which was earlier inserted by the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002), section 41 and Sch. (w.r.e.f. 21-06-
2002) stood as under:
“(vii) the securitisation company or reconstruction company which has obtained a certificate of registration under sub-
section (4) of section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (54 of 2002).”
90 Substituted by Notification No. S.O. 2901, dated 9 October 1987, published in the Gazette of India, Pt II, Section 3(iii),
p 3705, dated 24-10-1987 : (1988) 63 COMP CAS (St.) 177.
91 Inserted by Notification No. S.O. 330, dated 21 Feburary 1988, published in the Gazette of India, Part II, Section 3(iii).
92 Inserted by Notification No. S.O. 7(E), dated 3 January 1990 : Gazette of India, Extry., Part II, Section 3(ii) : Chartered
Secretary, February 1990, p 140 : (1990) 68 COMP CAS (St.) 34.
93 Substituted by Notification No. S.O. 322(E), dated 25-3-2003, published in the Gazette of India, Extraordinary, No. 270,
Part II, Section 3(ii), dated 25 March 2003 : (2003) 114 COMP CAS (St.) 237, for “(9) Risk Capital and Technology
Finance Corporation Ltd, formed and registered under the Companies Act, 1956 (1 of 1956)” which was earlier inserted
by Notification No. S.O. 238(E), dated 20-3-1990, published in the Gazette of India, Extraordinary, No. 156, Part II,
Section 3(ii), dated 20-3-1990 : (1990) 68 COMP CAS (St.) 144.
94 Inserted by Notification No. S.O. 321(E), dated 12 April 1990, published in the Gazette of India, Extry., No. 203, Part II,
Section 3(ii), dated 12-4-1990 : (1991) 70 COMP CAS (St.) 27.
95 Inserted by Notification No. S.O. 674(E), dated 31 August 1990, Gazette of India, Extry., Part II, Section 3(ii) :
Chartered Secretary, October 1990, p 877 : (1990) 69 COMP CAS (St.) 50.
96 Inserted by Notification No. S.O. 484(E), dated 26 July 1991, published in the Gazette of India, Extraordinary, No. 417,
Part II, Section 3(ii) : (1991) 72 COMP CAS (St.) 193.
97 Inserted by Notification No. S.O. 812(E), dated 2 December 1991, published in the Gazette of India, Extraordinary, No.
701, Part II, Section 3(ii) : (1992) 73 COMP CAS (St.) 57.
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98 Inserted by Notification No. S.O. 128(E), dated 11 Feburary 1992, published in the Gazette of India, Extraordinary, No.
99 Inserted by Notification No. S.O. 765(E), dated 8 October 1993, published in the Gazette of India, Extraordinary, No.
100 Inserted by Notification No. S.O. 98(E), dated 15 Feburary 1995, published in the Gazette of India, Extraordinary, Part
II, Section 3(ii) : (1995) 82 COMP CAS (St.) 269.
101 Inserted by Notification No. S.O. 247(E), dated 28 March 1995, published in the Gazette of India, Extraordinary, Part II,
Section 3(ii) : (1995) 84 COMP CAS (St.) 169.
1 Substituted by Notification No. S.O. 859(E), dated 27 October 1995, published in the Gazette of India, Extraordinary,
No. 603, Part II, Section 3(ii) : (1996) 85 COMP CAS (St.) 185.
3 Inserted by Notification No. S.O. 529(E), dated 23 July 1996, published in the Gazette of India, Extraordinary, No. 427,
4 Inserted by Notification No. S.O. 857(E), dated 9 December 1996, published in the Gazette of India, Extraordinary, No.
5 Inserted by Notification No. S.O. 433(E), dated 14 June 1999, published in the Gazette of India, Extraordinary, No.
6 Inserted by Notification No. S.O. 440(E), dated 17 April 2002, published in the Gazette of India, Extraordinary, No. 368,
7 Inserted by Notification No. S.O. 518(E), dated 9 May 2003, published in the Gazette of India, Extraordinary, No. 426,
8 Inserted by Notification No. S.O. 219(E), dated 23 February 2004, published in the Gazette of India, Extraordinary, No.
9 Substituted by Notification No. S.O. 544(E), dated 30 April 2004 published in the Gazette of India, Extraordinary, No.
419, Part II, Section 3(ii), for “State Industrial Development Corporation of Maharashtra Ltd” : (2004) 121 COMP CAS
(St.) 3.
11 Inserted by Notification No. S.O. 20(E), dated 9 January 2007, published in the Gazette of India, Extraordinary, No. 20,
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Page 357 of 361
12 Added by Notification No. S.O. 1583(E), dated 20 September 2007, published in the Gazette of India, Extraordinary,
No. 1151, Part II, Section 3(ii), dated 21-09-2007 : (2007) 139 COMP CAS (St.) 31 : Chartered Secretary, October
2007, p 1409.
13 Subs. by Notification No. S.O. 200(E), dated 29 Novermber 2007 : (2007) 80 SCL (St.) 115.
14 Added by Notification No. S.O. 298(E), dated 12 February 2006 : (2008) 82 SCL (St.) 41.
15 G.V. Films Ltd v Unit Trust of India, (2000) : 100 COMP CAS 257 (Mad.) (DB).
16 Southern Petrochemicals Industries Corp Ltd v Administrator of Specified Undertaking of Unit Trust of India, (2007) :
135 COMP CAS 474 (SC).
17 Suresh Chandra Gupta v Collector, Kanpur Nagar, (2006) : 133 COMP CAS 440 (All.) (FB).
18 In Re, Vibank Housing Finance Ltd, (2006) 130 COMP CAS 705 (Karn.).
19 Published in the Gazette of India, Extraordinary, No. 640, Part II, Section 3(i), dated 21 December 1989 : (1990) 67
COMP CAS (St.) 341 : Chartered Secretary, January 1990, p 61.
20 Added by Notification No. S.O. 406(E), dated 24 May 1990, published in the Gazette of India, Extraordinary, Part II,
Section 3(ii), dated 24 May 1990 : (1990) 68 COMP CAS (St.) 88 : Chartered Secretary, July 1990, p 602.
21 Added by Notification No. S.O. 343(E), dated 31 May 1993, published in the Gazette of India, Extraordinary, No. 313,
Part II, Section 3(ii), dated 31 May 1993 : (1993) 77 COMP CAS (St.) 787 : Chartered Secretary, July 1993, p 724.
22 Added by Notification No. S.O. 174(E), dated 15 February 1994 : Gazette of India, Extraordinary, No. 78, Part II,
Section 3(ii), dated 15 February 1994 : (1994) 80 COMP CAS (St.) 97 .
23 Added by Notification No. S.O. 638(E), dated 14 July 1995 : Gazette of India, Extraordinary, Part II, Section 3(ii), dated
14 July 1995 : (1995) 84 COMP CAS (St.) 49.
24 C. Mackertich Ltd v Custodian, (2002) : 108 COMP CAS 811 (Cal.); Rajendra Rathor v M.P. Stock Exchange, (2000) :
102 COMP CAS 300 (MP) (DB) See detailed Notes under section 29.
25 Maluk Mohamed v Capital Stock Exchange Kerala Ltd, (1991) : 72 Comp. Cas. 333 (Ker.); Coimbatore Texcity Share
Brokers Assciation v UOI, (1993) : 77 Comp. Cas. 29 (Mad.) (DB). See also Notes under sections 12, 33 and 149 of the
1956 Act.
26 C.P. Radhakrishnan v Cochin Stock Exchange Ltd, (1994) : 80 Comp. Cas. 247 (Ker.).
27 . See Rules 4 and 5 of the Companies (Management and Administration) Rules, 2015 in Appendix 9.
28 . See Notification dated January 22, 2016 issued by the MCA.
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Page 358 of 361
33 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section 198,
34 See the Reserve Bank of India Act, 1934 (2 of 1934), Second Schedule containing up-to-date List of Scheduled Banks
in Appendix 189.
35 See the Reserve Bank of India Act, 1934 (2 of 1934), Second Schedule containing up-to-date List of Scheduled Banks
in Appendix 189. [duplicated above]
37 Essar Steel Ltd v Gramercy Emerging Market Fund, (2003) : 116 Comp. Cas. 248 (Guj.) (DB); Re, Siel Ltd., (2004) 122
Comp. Cas. 536 (Delhi). See detailed Notes under section 2(12) of the 1956 Act.
38 Dahiben Umedbhai Patel v Norman James Hamilton, (1985) : 57 COMP CAS 700 (Bom.) (DB); Rye v Rye, (1962) AC
496 (HL); Hunter v Hunter, (1936) AC 222 : 105 LJ Ch. 97 : 154 LT 513 (HL); R. Mathalone v Bombay Life Assurance
Co Ltd, (1954) : 24 COMP CAS 1 (SC) : AIR 1953 SC 385 : 1954 SCR 117. See also Notes under sections 3 and 108
of the 1956 Act.
39 See the SEBI Act, 1992 (15 of 1992) in Appendix 101.

41 . Borland’s Trustee v Steel Bros. & Co Ltd, (1901) : 1 ChD 279 : 70 LJ ChD 51 : 49 WR 120 : 17 TLR 45. See also
42 . Mrs. Bacha F. Guzdar v CIT, (1955) : 25 COMP CAS 1 (SC) : AIR 1955 SC 74 : (1955) 27 ITR 1 (SC) : (1955) 1 SCR
876; Charanjit Lal Chowdhury v UOI, (1951) : 21 COMP CAS 33 (SC) : AIR 1951 SC 41 : 1950 SCR 869; H.C. Shastri
v Dolphin Canpack Pvt Ltd, (1998) : 93 COMP CAS 201 (Delhi). See detailed Notes under sections 34, 41 and 82 of
the 1956 Act.
43 . CIT v Standard Vacuum Oil Co, AIR 1966 SC 1393 : (1966) 59 ITR 685 (SC). See detailed Notes under sections 75
44 . L.I.C. v Escorts Ltd, (1986) : 59 COMP CAS 548 (SC) : AIR 1986 SC 1370. See detailed Notes under sections 34, 41,
111, 111A, 169, 173 and 617 of the 1956 Act.
45 . Shree Gopal Paper Mills Ltd v CIT, AIR 1970 SC 1750 : (1970) 77 ITR 543 (SC). See also Notes under sections 84,
205 and 206A of the 1956 Act.
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Page 359 of 361
46 . In Re, S.N.D.P. Yogam, Quilon, (1970) 40 COMP CAS 60 (Ker.). See also Notes under sections 12, 13, 69, 70, 86,
397, 398 and 399 of the 1956 Act.
47 . Morgan Stanley Mutual Fund v Kartick Das, (1994) : 81 COMP CAS 318 (SC); R.D. Goyal v Reliance Industries Ltd,
(2003) : 113 COMP CAS 1 (SC). See also Notes under sections 2(12), 10, 55A, 69 and 81 of the 1956 Act.
48 Notified under the powers conferred by sub-clause (ix) of Clause (76), sub-clause (iii) of Clause (77) of section 2, read
with sub-section (1) and (2) of section 469 of the 2013 Act for the text of Rules refer Appendix 2.
49 Companies Law Committee Report, February 2016.
50 Substituted by the Companies (Amendment) Act, 1960 (65 of 1960), section 3. Prior to substitution the clause stood as
under:
“(b) that other holds more than half in nominal value of its equity share capital; or”.
51 The words “managing agent, secretaries and treasurers” omitted by the Companies (Amendment) Act, 2000 (53 of
2000), section 4 (w.e.f. 13-12-2000). The system of managing agency had already been abolished vide section 324A of
the Companies Act, 1956 (1 of 1956), as inserted by the Companies (Amendment) Act, 1969 (17 of 1969), section 4
(w.e.f. 3-4-1970).
52 Substituted by the Companies (Amendment) Act, 1960 (65 of 1960), section 3. Prior to substitution the clause stood as
under:
“(c) that the directorship is held by that other company itself or by a subsidiary of it.”

55 Oriental Industrial Investment Corp Ltd v UOI, (1981) : 51 COMP CAS 487 (Delhi) (DB). See also Notes under sections
9, 255, 257, 372 and 372A of the 1956 Act.
56 M. Velayudhan v Registrar of Cos, (1980) : 50 COM CAS 33 (Ker.). See also Notes under sections 260, 372 and 372A
of the 1956 Act.
57 Fatima Tile Works v Sudarsan Trading Co Ltd, (1992) : 74 COMP CAS 423 (Mad.).
58 IRC v Harton Coal Co Ltd, (1960) ChD 563 : (1960) 3 All ER 48 : (1961) 43 ITR 541 (ChD).
59 British American Tobacco Co Ltd v IRC, (1943) AC 335 (HL) : (1943) 1 All ER 13 (HL) : (1943) : 13 COMP CAS 123
(HL) : (1943) 11 ITR (Suppl.) 29 (HL). See also Notes under sections 34 and 406 of the 1956 Act.
60 Smt. Namita Gupta v Cachar Native Joint Stock Co Ltd, (1999) : 98 Comp. Cas. 655 (CLB); Cachar Native Joint Stock
Co Ltd v Smt. Namita Gupta, (2004) : 122 COMP CAS 1 (Gauhati). See also Notes under sections 10F, 87, 89, 111A,
179, 257, 397 and 398 of the 1956 Act.
61 English Serving Cotton Co v IRC, (1947)1 All ER 679.
62 Turner Morrison & Co Ltd v Hungerford Investment Trust Ltd, (1972) : 42 COMP CAS 512 (SC) : AIR 1972 SC 1311 :
(1972) 3 SCR 711; Alembic Glass Industries Ltd v CCE, (2002) : 112 COMP CAS 379 (SC). See detailed Notes under
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Page 360 of 361
63 Spencer & Co Ltd v CWT, (1969) : 39 COMP CAS 212 (Mad.) : AIR 1969 Mad. 359.
64 In Re, Deutsche Babcock Power Systems Ltd., (1999) 97 COMP CAS 341 (CLB). See also Notes under sections 17
65 Mohta Alloy and Steel Works v Mohta Finance and Leasing Co Ltd, (1997) : 89 COMP CAS 227 (Delhi). See also
Notes under section 34 and 46 of the 1956 Act.
66 L.I.C. v Escorts Ltd, (1986) : 59 COMP CAS 548 (SC) : AIR 1986 SC 1370. See detailed Notes on Lifting the corporate
veil—Holding company and its subsidiary under section 34 of the 1956 Act.
67 L.I.C. v Hari Das Mundhra, (1966) : 36 COMP CAS 371 (All.) (DB); Spencer & Co Ltd v CWT, (1969) : 39 COMP CAS
212 (Mad.) : AIR 1969 Mad. 359 : (1969) 72 ITR 33 (Mad.).
68 Tata Engineering and Locomotive Co Ltd v State of Bihar, (1964) : 34 COMP CAS 458 (SC) : AIR 1965 SC 40 : (1964)
6 SCR 885. See detailed Notes under section 34 of the 1956 Act.
69 State of U.P. v Renusagar Power Co, (1991) : 70 COMP CAS 127 (SC) : AIR 1988 SC 1737; D.H.N. Food Distributors
Ltd v London Borough of Tower Hamlets, (1976) 3 All ER 462 : (1976) 1 WLR 852 : 120 SJ 215 (CA). See detailed
70 U.K. Mehra v UOI, (1997) : 88 COMP CAS 213 (Delhi) (DB).
71 Hackbridge-Hewittic and Easun Ltd v G.E.C. Distribution Transformers Ltd, (1992) : 74 COMP CAS 543 (Mad.) (DB);
ICI v E.C. Commission, (1972) 11 CMLR 557.
72 . Gotan Lime Stone Khanij Udyog Pvt Ltd v. the State of Rajasthan, 2015 (3) WLN 236 (Raj.)
73 . Balwant Rai v Air India Ltd, AIR 2015 SC 375.
74 . Ibid.
75 Inalsa Ltd v UOI, (1996) : 87 COMP CAS 599 (Delhi).
76 D.H.N. Food Distributors Ltd v London Borough of Tower Hamlets, (1976) 3 All ER 462 : (1976) 1 WLR 852 : 120 SJ
215 (CA). See also Notes under sections 12 and 34 of the 1956 Act.
77 Fatima Tile Works v Sudarsan Trading Co Ltd, (1992) : 74 COMP CAS 423 (Mad.).
78 . Prasad - Sushee Jnt. Venture v Singareni Collieries Co Ltd, M.D., Khammam and Ors, 2016 (1) Andh LD 447.
79 Whale Stationery Products Ltd v UOI, (2007) : 140 COMP CAS 478 (Delhi).
80 B.D.A. Breweries and Distilleries Ltd v Cruickshank and Co Ltd, (1996) : 85 COMP CAS 325 (Bom.).
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Page 361 of 361
81 Ringway Road Making v Adbruf Ltd, (1998) 2 BCLC 625.
82 . Vodafone International Holdings v UOI, (2012) 6 SCC 613.
83 AMCO Power Systems v Income Tax Officer and ITO v AMCO Power Systems, 2010 (3) ITR (Trib) 775 (Bangalore).
84 See the Companies (Accounting Standards) Rules, 2006 in Appendix 74.
86 In Re, Andhra Bank Housing Finance Ltd., (2004) 118 Comp. Cas. 295 (AP); Re, Jaypee Cement Ltd., (2004) 122
COMP CAS 854 (All.). See also Notes under sections 391 and 394 of the 1956 Act.
87 Enforced vide S.O. 2754(E) dt. 12-9-2013, w.e.f. 12-9-2013 and corresponds to sections 2(47) and 4 of the Companies
Act, 1956. For Clarification with regard to holding of shares or exercising power in a fiduciary capacity, see MCA
General Circular No. 20/2013 dt. 27-12-2013. For clarification relating to incorporation of a company i.e. company
incorporated outside India, see MCA General Circular No. 23/2014, dt. 25-6-2014.
88 Enforced vide S.O. 2754(E) dt. 12-9-2013, w.e.f. 12-9-2013.
91 See the Companies (Central Government’s) General Rules and Forms, 1956 in Appendix 73.
92 . Bajaj Tempo Ltd v Unit Trust of India, (1992) : 73 Comp. Cas. 451 (CLB). The MRTP Act, 1969 (54 of 1969) has since
been repealed. Now see the Competition Act, 2002 (12 of 2003). See also Notes under section 111A of the 1956 Act.
93 . UOI v R Gandhi, (2010) 100 SCL 142.
95 Inserted by the Insolvency and Bankruptcy Code, 2016, section 255 & Eleventh Schedule.
End of Document
Mr. Laghir1 Rabari

1 Enforced vide S.O. 902(E) dt. 26-3-2014, w.e.f. 1-4-2014 and corresponds
to section 12 of the 1956 Act. [s 3] Formation of company.—
Company Law > CHAPTER II INCORPORATION OF COMPANY AND MATTERS INCIDENTAL
THERETO
CHAPTER II INCORPORATION OF COMPANY AND MATTERS

INCIDENTAL THERETO
1 [s 3] Formation of company.—
(1) A company may be formed for any lawful purpose by—

(a) seven or more persons, where the company to be formed is to be a public company;
(b) two or more persons, where the company to be formed is to be a private company; or
(c) one person, where the company to be formed is to be One Person Company2 that is to
say, a private company,
by subscribing their names or his name to a memorandum and complying with the
requirements of this Act in respect of registration:
Provided that the memorandum of One Person Company shall indicate the name of the other
person,3 with his prior written consent in the prescribed form,4 who shall, in the event of the
subscriber’s death or his incapacity to contract become the member of the company and the
written consent of such person shall also be filed with the Registrar at the time of
incorporation of the One Person Company along with its memorandum and articles:
Provided further that such other person may withdraw his consent in such manner as may be
prescribed:5
Provided also that the member of One Person Company may at any time change the name of
such other person by giving notice in such manner as may be prescribed:6
Provided also that it shall be the duty of the member of One Person Company to intimate the
company the change, if any, in the name of the other person nominated by him by indicating
in the memorandum or otherwise within such time and in such manner as may be prescribed,7
and the company shall intimate the Registrar any such change within such time and in such
manner as may be prescribed:8
Provided also that any such change in the name of the person shall not be deemed to be an
alteration of the memorandum.
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Page 2 of 13
1 Enforced vide S.O. 902(E) dt. 26-3-2014, w.e.f. 1-4-2014 and corresponds to section 12 of the 1956 Act. [s
(2) A company formed under sub-section (1) may be either—

(a) a company limited by shares; or
(b) a company limited by guarantee; or
(c) an unlimited company.
NOTES
This section deals with the manner of formation of a company and corresponds to section 12 of the
1956 Act.
Section 3 of the 2013 Act was notified through Notification S.O. 902(E) dated 26-03-2014 with effect
from 1 April 2014.
as follows:
This clause corresponds to section 12 of the Companies Act, 1956 and seeks to provide minimum number of persons
to form a public or private (including One Person Company) (OPC) for any lawful purpose, by subscribing their names
to the memorandum. Memorandum of OPC shall indicate the name of a person who shall become member, in the
event of death of the single member. However, the other person whose name would reflect in the Memorandum of
OPC shall be required to give prior written consent in this regard. He shall have the right to withdraw his consent. It
shall be duty of the member of the OPC to intimate the Registrar any change in name of person already mentioned in
Memorandum. The companies formed under this clause may be limited by shares or limited by guarantee or an
unlimited company. [Clause 3 of the Companies Bill, 2011].
[s 3.2] Committee Reports
The introduction of One Person Company was based on the recommendation of the J. J. Irani
Committee set up by the Ministry of Company Affairs vide Order dated 2 December 2004 (Irani
Committee). The Irani Committee observed the following with respect to One Person Companies:
6. With increasing use of information technology and computers, emergence of the service sector, it is time that the
entrepreneurial capabilities of the people are given an outlet for participation in economic activity. Such economic
activity may take place through the creation of an economic person in the form of a company. Yet it would not be
reasonable to expect that every entrepreneur who is capable of developing his ideas and participating in the market
place should do it through an association of persons. We feel that it is possible for individuals to operate in the
economic domain and contribute effectively. To facilitate this, the Committee recommends that the law should
recognize the formation of a single person economic entity in the form of “One Person Company”. Such an entity may
be provided with a simpler regime through exemptions so that the single entrepreneur is not compelled to fritter away
his time, energy and resources on procedural matters.
Mr. Laghir1 Rabari

Page 3 of 13
6.1 The concept of “One Person Company” may be introduced in the Act with following characteristics:
(a) OPC may be registered as a private Company with one member and may also have at least one director;
(b) Adequate safeguards in case of death/disability of the sole person should be provided through appointment of
another individual as Nominee Director. On the demise of the original director, the nominee director will
manage the affairs of the company till the date of transmission of shares to legal heirs of the demised
member.
(c) Letters “OPC” to be suffixed with the name of One Person Companies to distinguish it from other companies.
An OPC is an entirely new concept introduced under the 2013 Act. Section 2(62) of the 2013 Act
defines OPC as a company which has only one person as a member. An OPC is a private company.
Only a natural person i.e., an individual who is a citizen and resident of India can be a member of an
OPC or can subscribe to its memorandum. For this purpose, resident in India shall mean a person
who has stayed in India for at least 182 days during the immediately preceding one calendar year.
The 2013 Act provides certain exemptions from compliances to OPCs. These are (i) OPCs can hold
just 2 meetings of the Board as against 4 for other companies, (ii) no requirement to attach cash flow
statements as part of its financials and (iii) not required to hold annual general meetings. OPCs
cannot be incorporated as or converted to companies registered under section 8 of the 2013 Act.
Also, an OPC cannot be voluntarily converted into any other type of company for a period of two
years post incorporation, except where the paid capital crosses the threshold of INR 50 lacs or its
average annual turnover during the relevant period exceeds Rs 2 crores.
[s 12] Mode of forming incorporated company.—(1) Any seven or more persons, or where the company to be
formed will be a private company, any two or more persons, associated for any lawful purpose may, by subscribing
their names to a memorandum of association and otherwise complying with the requirements of this Act in respect of
registration, form an incorporated company, with or without limited liability. The Companies Act, 1956 provision
(2) Such a company may be either—
(a) a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the
shares respectively held by them (in this Act termed “a company limited by shares”);
(b) a company having the liability of its members limited by the memorandum to such amount as the members
may respectively undertake by the memorandum to contribute to the assets of the company in the event of its
being wound up (in this Act termed “a company limited by guarantee”); or
(c) a company not having any limit on the liability of its members (in this Act termed “an unlimited company”).
Mr. Laghir1 Rabari

Page 4 of 13
NOTES
Section 12 of the 1956 Act corresponds to section 3 of the 2013 Act.
[s 3.3] Persons
A company is an unnatural juristic association of persons registered under the 2013 Act or any
previous company law.
The term “Person” has not been defined under the 2013 Act. The General Clauses Act, 1897 defines
a person to include any company or association or body of individuals, whether incorporated or not. It
is not necessary for persons agreeing to become members of a company to be natural persons;
however, such person should be a separate juristic person. For instance, a partnership is merely an
association of persons for carrying on the business of partnership and in law the firm name is a
compendious method of describing the partners. A partnership firm is not a separate legal person
and accordingly cannot be a member of a company. The partners may, however, be registered as
joint-holders of shares. Similarly, a Hindu undivided family (HUF) cannot as such enter into a contract
with other person or persons. But the Karta of an HUF or adult coparceners as individuals can
become members. In contrast, a company is a separate juristic person distinct from the shareholders,
and can, therefore subscribe to the memorandum of association of another company in its name. The
position of shareholders in a company is thus not analogous to that of partners inter se.9 In such a
case, the memorandum may be signed by a director or any other duly authorised agent on behalf of
the company under its common seal.
A person subscribing to the memorandum of association of a company enters into an implied

agreement to become a member of the company. Therefore, “person” will not include infant, an
undischarged bankrupt, a lunatic, an alien enemy and any other person disqualified by law, or not
competent, to enter into a contract.
In English law, an infant subscriber may be counted to make up the essential minimum of
subscribers. But under the Indian law, if the Registrar is aware of such fact, he should refuse to
register the company as a minor cannot enter into such a contract. But, where one of the subscribers
is a minor and the certificate of incorporation is issued the company would be duly constituted, the
certificate of incorporation being conclusive that the provisions of the Act had been complied with.
See Practice Notes and Department’s views hereinafter.
[s 3.4] Subscribing their names to a Memorandum
The memorandum should be signed by each subscriber, in the presence of at least one witness who
should attest the signature of the subscriber. The subscribers should write in their own handwriting in
addition to their signatures, their names, father/husband’s name, occupation, address and number of
shares subscribed (if applicable) in the memorandum. Likewise, the witness should write his name,
parentage, occupation and address in his own handwriting. It is, however, not necessary that there
should be separate witness to attest the signature of each of the subscribers. Even one person can
be an attesting witness to the signatures of all the subscribers. The memorandum must be properly
Mr. Laghir1 Rabari

Page 5 of 13
stamped before the signatures of the subscribers are affixed to it. [See Notes under section 7]. In the
case of a company limited by shares, the subscribers to the memorandum must also state that they
agree to take the number of shares respectively shown against their names in the memorandum.
Every subscriber to the memorandum must take at least one share.
According to section 3(56) of the General Clauses Act, 1897 (10 of 1897), the word “sign” includes
“mark”. Hence, an illiterate subscriber can give his thumb impression or mark which should, however,
be described as such by the scribe or person writing for him.
A person whose signature appears in documents but not in the declaration in the memorandum as
signatory to it is not a subscriber and the certificate of incorporation under section 7 will not cures this
defect.10
[s 3.5] Practice NOTES
The Institute of Company Secretaries of India (ICSI) has in a publication* enunciated the meaning of
“persons” and the mode of subscription of the Memorandum of Association as follows.
[s 3.6] Subscription clause
Under section 12, the Memorandum of Association is required to be subscribed by atleast two
persons in the case of a private company and atleast seven persons in the case of a public company
who are desirous of being formed into a company. In the context of the 2013 Act and an OPC, an
individual resident Indian citizen can subscribe to the Memorandum of Association and be formed
into a private company. The Memorandum of Association of an OPC must also state the name of one
other person (also to be a resident Indian citizen) who shall become the member of the OPC in case
of the death of the subscriber or his incapacity to contract. A consent of such person will have to be
filed with the Registrar of Companies, along with the Memorandum of Association.
The section, however, does not prescribe any qualification for persons who can so subscribe to a
memorandum. As the word “person” includes both natural as well as legal persons, the memorandum
can be subscribed by an individual, a non-citizen and a legal person such as a company. This of
course does not apply in the case of an OPC, since only natural persons, i.e., individuals can
subscribe to the memorandum.
An individual cannot become a member of or a nominee of more than one OPC at a time. That said,
there is no restriction on an individual to be a member in an OPC and a nominee in another at the
same time. However, if by virtue of being a nominee such individual becomes a member of an OPC
while being a member of another OPC, he will have one hundred and 80 days to give up the
membership and comply with the requirement of limiting his membership to a single OPC.
A person, who is not capable of entering into a contract, cannot subscribe to the memorandum as it
involves a contract of association. Unless the law provides otherwise, any person who is sui juris, i.e.,
capable of entering into a contract on his own, can subscribe to the memorandum. The Judicial
Committee of the Privy Council in the leading case Mohori Bibi v Dharamadas Ghosh11 held that in
India a contract by a minor is ab initio void. A subscriber to the memorandum of association of a
company enters into an implied agreement to become a member of the company by acceptance of
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Page 6 of 13
the number of shares of the company written against his name. Since a minor cannot enter into a
contract, it follows that he cannot subscribe his name to the memorandum of association of a
company [vide Department of Company Affairs’ Circular No. 312(43)-CL-III/63, dated 30-09-1963
(reproduced hereinafter)]. This circular further clarifies that a minor may hold shares in a company
through his guardian in the manner, and subject to the conditions, stated therein. A person who is a
non-resident or a foreigner can also subscribe to the memorandum.
A company can be validly incorporated under the Act even though all the subscribers to its
memorandum are non-resident or foreigners. The company would, however, be regarded as an
Indian company. But in case of a non-resident or a foreigner subscribing to the memorandum of
association of the company, necessary compliance with the Foreign Exchange Management Act,
1999 (42 of 1999)]† would be necessary including in sectors where there are either caps on Foreign
Direct Investments (FDI) or FDI is allowed with government approval, approval of the Foreign
Exchange Promotion Board (FIPB) will have to be obtained.
If the subscriber is a body corporate, the memorandum may be signed by a director, officer or an
employee duly authorised by the board of directors of the body corporate and where the subscriber is
a limited liability partnership, it shall be signed by a partner of the LLP duly authorised by a resolution
passed by all the partners of the LLP. Provided however that the person so authorised should not
himself be a subscriber to the memorandum. A company can subscribe to the memorandum of
association of another company only if it is entitled to do so under its articles of association. Where a
company subscribing to the memorandum of association of another company is a public company,
then, care should be taken to ensure that such subscription is in consonance with the provisions of
section 186. Section 186 lays down regulatory provisions regarding purchase by company of shares,
etc. of other bodies corporate.
As regards subscription of the memorandum of association by the Central Government or the State
Government, this will be done only in the name of the President of India or the Governor of the State
concerned. [See section 2(45)]
It is not necessary that subscriber to a memorandum should have any personal beneficial interests in
the shares subscribed by them. It is, therefore, possible that all the subscribers may subscribe for
and on behalf of, one person and themselves have no personal beneficial interest in the shares so
subscribed by them. In the case of Salomon vs Salomon & Co., it was held that the subscribers to the
memorandum are not required to be independent or unconnected, or that they or any one of them
should take a substantial interest in the undertaking, or that they should have a mind and will of their
own or that there should be anything like a balance of power in the constitution of the company.
A company can be validly incorporated under the Act even though all the subscribers to its
memorandum are non-resident or foreigners. The company would, however, be regarded as an
Indian company. The provisions of the Foreign Exchange Management Act, 1999 and regulations
issued under it will have to be complied in case of a non-resident or a foreigner subscribing to the
memorandum of association of the company.
In the case of a company limited by shares, the subscribers to the memorandum must also state that
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they agree to take the number of shares respectively shown against their names in the
memorandum. Every subscriber to the memorandum must take at least one share. [See Notes under
section 4].
The memorandum should be signed by each subscriber, in the presence of at least one witness who
should attest the signature of the subscriber. Each subscriber should also write opposite to his name
the number of shares he takes. The subscribers should write in their own handwriting in addition to
their signatures, their names, father/husband’s name, occupation, address and number of shares
subscribed in the memorandum. Likewise, the witness should write his name, parentage, occupation
and address in his own handwriting. It is, however, not necessary that there should be separate
witness to attest the signature of each of the subscribers. Even one person can be an attesting
witness to the signatures of all the subscribers. The memorandum must be properly stamped before
the signatures of the subscribers are affixed to it.
See detailed Notes on Membership of a company, definition of “Member” and Who can be a Member,
e.g., Subscribers to Memorandum as Members, Minor cannot be a subscriber, Minors can be
Member through Guardian, Company as Member, Firm cannot be a Member, HUF can be a Member
through Karta, Public office, President or Governor as Member, Non-Residents, Trust, Societies,
Trade Union and Co-operative Societies, etc., as Members under section 2(55).
[s 3.7] Department’s View— Minor cannot subscribe his name to the memorandum of
association
“A subscriber to the memorandum of association of a company enters into an implied agreement to become a member
of the company by acceptance of the number of shares of the company written against his name. Since a minor cannot
enter into contract, it follows that he cannot subscribe his name to the memorandum of association of a company.”
[Extracts from Circular No. 312(43)-CL-III/63, dated 30-09-1963 : Govt. of India publication, Clarifications and Circulars
on Company Law, 1977 Edition, page 21 : See Full Text in Notes under section 2(55)].
See detailed Notes and Department’s views under section 2(55).
[s 3.8] A partnership firm cannot be a member of a company
“A firm, not being a person cannot be registered as a member of a company except where the company is licenced
under section 25 of the 1956 Act. Companies which have firms registered as shareholders should be advised to take
steps to rectify the position within a specified time. In case the irregularity persists, despite a warning, necessary action
can be taken under section 150(2) of the 1956 Act.” [Circular No. 4/72, dated 09-03-1972 : Govt. of India publication,
[s 3.9] Memorandum of Association and any amendments thereto may be signed by

constituted attorneys
“It has been brought to the notice of the Company Law Board that some Registrars of Companies have been insisting
that the Memorandum of Association of a company and any amendment thereto should be signed by the subscribers
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themselves and not through their constituted attorneys and that this is causing some practical difficulties, especially
where some of the subscribers to the memorandum are foreign parties who may be collaborating with Indian
promoters. The matter has been carefully examined by the Company Law Board and it has been decided that when it
is not possible for a company, it may be signed on his behalf by an agent if the latter is authorised by a power of
attorney to do so. The same course may also be followed in respect of any amendment to the memorandum or articles
which it may be found necessary to make as a result of any suggestions in this behalf made by the Registrar
concerned after the scrutiny of the memorandum and articles presented to him for registration. In this connection,
attention is also invited to the last sentence of para 2 of the former Department of Company Law Administration’s
Circular letter No. 8/15/58, dated 01-09-1958 wherein it was stated that “An agent may sign the memorandum on
behalf of a subscriber if he is authorised by a power of attorney to do so.” [CLB Circular No. 128/HCC/64, dated 27-07-
1964 : Govt. of India publication, Clarifications and Circulars on Company Law, 1977 Edition, page 7].
[s 3.10] Payment
Signatories to memorandum of association need not pay for the shares till call is made unless the
memorandum provides otherwise.12
The signatory cannot rescind the contract to take shares.13 He need not have beneficial interest in the
shares, he may be a nominee.14
[s 3.11] Lawful purpose
Section 3(1) of the 2013 Act, provides that the persons must associate for any lawful purpose. It
means a purpose not forbidden by law or contrary to public policy. If one of the objects is unlawful,
the purpose is not lawful.15
A right is given to every person to form a limited concern and so long as there is nothing unlawful or
illegal in the objects of the association, that right cannot be denied to him. The fact that the company
is calculated to affect the future interests of its workers would not nullify it. The essence of a validly
incorporated company is that it should consist of a particular number of persons and that it should be
associated for a lawful purpose. Unless the purpose appears to be unlawful ex facie or is
transparently illegal or prohibited by any statute it cannot be regarded as an unlawful purpose. The
question of the motive that induced the founders of a company is unrelated to the scope of section 12
of the 1956 Act, as it is not a field of enquiry which the section recognises as legitimate.16
The Registrar’s certificate of incorporation is not conclusive as to the fact that the objects of the
company are lawful.17
[s 3.12] Liability [Section 12(2)] of the Companies Act, 1956
A company formed or incorporated under the, 1956 Act may be (a) a company limited by shares, (b)
a company limited by guarantee and (c) an unlimited company.
The extent of liability is indicated in the Memorandum of Association of the company.
Where the liability is limited, such liability cannot become unlimited even though the foreign law,
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where the company has a business, makes it so.18A member’s liability cannot be increased without
his consent except in cases of clubs where the rate of subscription may be increased.19
[s 3.13] Other requirements of Act in respect of registration
As already explained, section 12 provides that two or more persons, subscribers or signatories to
memorandum may form a private company. Any seven or more persons may form a public company.
In an OPC any single individual can subscribe to its memorandum as its sole shareholder/ member.
They must associate for a lawful purpose, with or without limited liability, and comply with the
requirements of the 1956 Act in respect of registration.
The other requirements of the Act in respect of registration are as follows.
Section 12(1) specifies the minimum number of persons. Section 3(1)(iii) of the 1956 Act defines
Private Company to mean a company which has a minimum paid-up capital of Rs 1 lakh or such
higher sum as may be prescribed, and by its Articles (a) Restricts the right to transfer its shares, (b)
Limits the number of Members to 50(c) Prohibits invitation to public to subscribe for shares in, or
debentures of, the company, and (d) Prohibits invitation or acceptance of deposits from persons other
than its members, directors or their relatives. Joint holders of shares are treated as a single member.
[s 3.15] Public Company
Section 3(1)(iv) of the 1956, as substituted by the Companies (Amendment) Act, 2000, defines that
Public Company means a company which—(a) is not a private company, (b) has a minimum paid-up
capital of Rs 5 lakhs or such higher paid-up capital as may be prescribed, and (c) is a private
company which is a subsidiary of a company which is not a private company.
[s 3.16] Registrar must register
The Registrar must register the company if the legal formalities have been complied with.20
[s 3.17] Writ
A writ cannot be issued to cancel the registration of the company or the commencement certificate
issued to it under section 149.21If a company is born, the method to get it extinguished is not by
assailing its incorporation. The only course open to any one aggrieved by the constitution of company
is to get rid of it by resorting to winding up proceedings. It is not as if such persons are without
remedy.22
[s 3.18] Legal Entity
On incorporation the company becomes a legal person having a separate existence from its
members.23 Wholly owned subsidiaries having no separate business operations and the holding
company may be treated in law as one entity.24
See detailed Notes under section 34 of the 1956 Act —Effect of registration.
[s 3.19] Company not a citizen
A company is not a citizen of India under the Constitution and does not enjoy fundamental rights
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guaranteed by Article 19 of the Constitution of India.25
See detailed Notes under section 34.
[s 3.20] Nationality
It will be decided by the place of its incorporation. A company incorporated in India will be an Indian
company even though its members are foreigners. Incorporation is the nationality of the company
and it may have nationality different from its shareholders. A company having all foreign shareholders
may be incorporated in India and in that case the company will be an Indian company. Similarly a
company may be incorporated in England having shareholders who are all Indian citizens and the
company will be a foreign company.26The nationality of the company does not change by its
becoming an enemy company.27
[s 3.21] Domicile
Similarly the domicile of the company registered in India will be India and that will remain so
throughout the company’s existence and it cannot be changed. A Company’s domicile is the place of
its registration, and it retains that domicile so long it exists.28 When a company acquires enemy
character, it will be subject to the law of the place where it was registered.29
[s 3.22] Residence
A company resides, at the place where the real business is carried on, that is, the place of central
management and control.30
A company can have only one nationality and one domicile but may have several residences at the
same time depending upon the circumstances. Income-tax law provides that a company is ordinarily
resident where the actual management of the company is carried on,31 even though it ought to be
managed elsewhere according to its Memorandum and Articles of Association32 and it may have dual
residence.33 A company cannot either be present in India or absent from India.34
[s 3.23] Enemy character
A company registered in India may be an alien enemy if its control is in the hands of alien enemies.
The number of alien enemy shareholders is important in ascertaining the status of the company. The
enemy or neutral character of a company in times of war will be determined by reference to the
natural persons who are members or persons really in control.35
Where, the directors and majority of the shareholders of a company were English. The company’s
rubber estate in an enemy territory was managed by a manager. It was held that merely doing
business in enemy territory did not make the company an alien enemy.36 An English company which
had become an enemy company and its directors in enemy territory entered into contract with
another enemy, the contract was held to be invalid on the ground that on the outbreak of war the
authority of the English company terminated automatically.37
[s 3.24] Situs of shares
The situs of the shares is the registered office of the company. The directors of an English company
resided in Holland, held meetings and carried out administrative work there. In an action by a
German shareholder domiciled in Germany, it was held that the shares were situate in England.38
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The statutory books and documents are also to be kept at the registered office of the company.39
[s 3.25] Company can be a Trustee
It is well-settled that a company can act as a trustee. Sections 11 and 12 show that a company need
not always be formed to carry on a business with a view to making profit. Therefore, so long as the
company has pursued the main objects for which it was incorporated, the fact that it has not earned
profit would not be relevant for winding up the company under section 433(c) of the 1956 Act, on the
ground that it has failed to commence business or has suspended its business40
1 Enforced vide S.O. 902(E) dt. 26-3-2014, w.e.f. 1-4-2014 and corresponds to section 12 of the 1956 Act.
2 Rule 3 of the Companies (Incorporation) Rules, 2014. For the text of Rules refer Appendix 3.
3 Rule 4(2) and Form No. INC. 2 of the Companies (Incorporation) Rules, 2014. For the text of Rules refer Appendix 3.
5 Rule 4(3) of the Companies (Incorporation) Rules, 2014. For the text of Rules refer Appendix 3.
8 Rule 4(5) proviso and Form No. INC. 4 of the Companies (Incorporation) Rules, 2014. For the text of Rules refer
Appendix 3.
9 Mrs. Bacha F. Guzdar v CIT, (1955) 25 COMP CASES 1 (SC) : AIR 1955 SC 74 : (1955) 27 ITR 1 (SC) : (1955) 1 SCR
876. See also Notes under sections 2(46), 11, 34 and 41 of the 1956 Act.
10 Sri Arthanari Transport Pvt Ltd v K.P. Swami Goundar, (1965) 35 COMP CASES 930 (Mad.) : AIR 1966 Mad. 231 :
(1965) 2 Comp. LJ 266 : (1965) 2 Mad LJ 504.
* Reproduced from Incorporation of a Company—Guidelines, published by the Institute of Company Secretaries of India
(ICSI), Second Edition, August 1981, pp 80–81.
11 MohoriBibi v Dharamadas Ghosh, (1903) ILR 30 Cal. 539 (PC) : (1903) 30 IA 114 (PC). See also Notes under sections
† See the Foreign Exchange Management Act, 1999 (42 of 1999) in Appendix 171.
12 Alexander v Automatic Telephone Co, (1900) 2 ChD 56 : (1900–03) All ER Rep. Ext. 1755 : 69 LJ Ch. 428 : 82 LT 400 :
48 WR 546 (CA). See also Notes under section 4, 2(55), 49 of the 2013 Act and 543 of the 1956 Act.
13 Re, Lurgan’s (Lord) Case, (1902) 1 ChD 707 : 71 LJ Ch. 323 : 86 LT 291. See also Notes under sections 15 and 41 of
the 1956 Act.
Tax LR 46 : 41 SJ 63 (HL); Booth v Helliwell, (1914) 3 KB 252 : 83 LJ KB 1548 : 111 LT 542 : 30 TLR 529 (DC). See
detailed Notes under section 34 of the 1956 Act.
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15 Pioneer Mutual Benefit and Friend-in-Need Society Ltd v Assistant Registrar of Joint Stock Cos, (1933) 3 COMP
CASES 37 (Mad.) : AIR 1933 Mad. 129; Universal Mutual Aid and Poor Houses Association Ltd v A.D. Thoppa Naidu,
(1932) 2 COMP CASES 515 (Mad.) : AIR 1933 Mad. 16. See also Notes under sections 31, 32 and 433 of the 1956
Act.
16 T.V. Krishna v Andhra Prabha Pvt Ltd, (1960) 30 COMP CASES 437 (AP) (DB) : AIR 1960 AP 123 (DB); Salomon v
Salomon & Co Ltd, (1897) AC 22 (HL) : (1895–99) All ER Rep. 33 (HL) : 66 LJ Ch. 35 (HL). See detailed Notes under
17 Bowman v Secular Society Ltd, (1917) AC 406 : (1916–17) All ER Rep. 1 : 86 LJ Ch. 568 : 117 LT 161 : 33 Tax LR 376
: 61 SJ 478 (HL); Performing Right Society Ltd v London Theatre of Varieties Ltd, (1922) 2 KB 433 (CA) affirmed in
(1924) AC 1 : 93 LJ KB 33 : 130 LT 450 : 40 Tax LR 52 (HL). See also Notes under sections 31 and 35 of the 1956 Act.
18 Risdon Iron and Locomotive Works v Furness, (1906) 1 KB 49 : 75 LJ KB 83 : 93 LT 687 : 54 WR 324 : 22 Tax LR 45 :
50 SJ 42 (CA). See also Notes under section 13 of the 1956 Act.
19 Edwards v Halliwell, (1950) WN 537 : (1950) 2 All ER 1064 : 94 SJ 803 (CA). See also Notes under sections 38 and 41
of the 1956 Act.
20 T.V. Krishna v Andhra Prabha Pvt Ltd, (1960) 30 COMP CASES 437 (AP) (DB) : AIR 1960 AP 123 (DB). See also
earlier para “Lawful purpose”. See detailed Notes under section 33 of the 1956 Act.
21 Maluk Mohamed v Capital Stock Exchange Kerala Ltd, (1991) 72 COMP CASES 333 (Ker.).See also Notes under
Salomon & Co Ltd, (1897) AC 22 : (1895–99) All ER Rep. 33 : 66 LJ Ch. 35 (HL). See also earlier para “Lawful
purpose”. See detailed Notes under section 33.
23 Section 34; Salomon v Salomon & Co Ltd, (1897) AC 22 : (1895–99) All ER Rep. 33 : 66 LJ Ch. 35 : 75 LT 426 : 45 WR
193 : 13 TLR 46 : 41 SJ 63 (HL); State Trading Corporation of India Ltd v CTO, (1963)33 COMP CASES 1057 (SC) :
AIR 1963 SC 1811 : (1964) 4 SCR 99; Mrs. Bacha F. Guzdar v CIT, (1955) 25 COMP CASES 1 (SC) : AIR 1955 SC 74
: (1955) 27 ITR 1 (SC) : (1955) 1 SCR 876. See detailed Notes under section 34—Effect of registration.
215 (CA). See detailed Notes under sections 4 and 34 under Lifting of corporate veil.
25 State Trading Corpn.of India Ltd v CTO, (1963) 33 COMP CASES 1057 (SC) : AIR 1963 SC 1811 : (1963) 2 Comp. LJ
234 (SC); Tata Engineering and Locomotive Co Ltd v State of Bihar, (1964) 34 COMP CASES 458 (SC) : AIR 1965 SC
40 : (1964) 6 SCR 885.
26 Re General Co for Promotion of Land Credit, (1871) LR 5 HL 176 : 40 LJ Ch. 655 : 24 LT 641; Janson v Driefontein
Consolidated Mines Ltd, (1902) AC 484 : (1900–03) All ER Rep. 426 : 71 LJ KB 857 : 87 LT 372 : 51 WR 142 : 18 Tax
LR 796 (HL); Gramophone and Typewriter Ltd v Stanley, (1908) 2 KB 89 : (1908–10) All ER Rep. 833 : 77 LJ KB 834 :
99 LT 39 : 24 TLR 480 (CA); Kuenigl v Donnersmarck, (1955) 1 QB 515 : (1955) 1 All ER 46 : (1955) 2 WLR 82. See
also Notes under sections 34 and 591 of the 1956 Act.
27 Hilckes, Re ex p. Muhesa Rubber Plantations, (1917) 1 KB 48 : 86 LJ KB 204 : 115 LT 490.
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28 Gasque v I.R.C, (1940) 2 KB 80 : 109 LJ KB 769 : 56 Tax LR 683.
29 Kuenigl v Donnersmarck, (1955) 1 QB 515 : (1955) 1 All ER 46 : (1955) 2 WLR 82. See also Notes under section 34 of
the 1956 Act.
30 De Beers Consolidated Mines Ltd v Howe, (1906) AC 455 (HL). See also Notes under section 34 of the 1956 Act.
31 Section 6(3)(ii) of the Income-tax Act, 1961 (43 of 1961); Union Corp Ltd v IRC, (1953) AC 482 : (1953) 1 All ER 729 :
(1953) 2 WLR 615 : (1953) 97 SJ 206 (HL); Unit Construction Co Ltd v Bullock, (1960) AC 351 (HL) : (1959) 3 All ER
831 (HL) : (1959) 3 WLR 1022 (HL) : (1959) 103 SJ 1027 (HL).
32 Unit Construction Co Ltd v Bullock, (1960) AC 351 (HL) : (1959) 3 All ER 831 (HL) : (1959) 3 WLR 1022 (HL) : (1959)
103 SJ 1027 (HL).
33 Swedish Central Railway Co v Thompson, (1925) AC 495 : (1924) All ER Rep. 710 : 94 LJ KB 527 : 133 LT 97 (HL);
Narottam and Pereira Ltd v CIT, (1953) 23 ITR 454 (Bom.).
(1972) 3 SCR 711. See also Notes under section 13 of the 1956 Act.
85 LJ KB 1333 : 114 LT 1049 (HL). See also Notes under relevant discussions in sections 34 and 146 of the 1956 Act.
37 Kuenigl v Donnersmarck, (1955) 1 QB 515 : (1955) 1 All ER 46 : (1955) 2 WLR 82.
38 Baelz v Public Trustee, (1926) ChD 863 : 95 LJ Ch. 400 : 135 LT 763 : 42 TLR 696.
39 See Notes under sections 146 and 209 of the 1956 Act.
40 B. Ramachandra Adityan v Educational Trustee Co Pvt Ltd, (2003) 113 COMP CASES 334 (Mad.).See also Notes
End of Document
Mr. Laghir1 Rabari

41 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and
corresponds to sections 13, 14 and 20 of the Companies Act, 1956. See
Notification No. G.S.R. 463(E),dt. 5 June 2015, regarding exemptions to
Government Companies under section 462 of the 2013 Act. For the text of
Notification refer Appendix 63. [S 4] Memorandum.—
THERETO

INCIDENTAL THERETO
41 [S 4] Memorandum.—
(1) The memorandum of a company shall state—

42(a) the name of the company with the last word “Limited” in the case of a public limited
company, or the last words “Private Limited” in the case of a private limited company:
Provided that nothing in this clause shall apply to a company registered under section
8;
(b) the State in which the registered office of the company is to be situated;
43[(c) the objects for which the company is proposed to be incorporated and any matter
considered necessary in furtherance thereof;
(d) the liability of members of the company, whether limited or unlimited, and also state,—
(i) in the case of a company limited by shares, that liability of its members is limited to
the amount unpaid, if any, on the shares held by them; and
(ii) in the case of a company limited by guarantee, the amount up to which each member
undertakes to contribute—
(A) to the assets of the company in the event of its being wound-up while he is a
member or within one year after he ceases to be a member, for payment of the
debts and liabilities of the company or of such debts and liabilities as may have
been contracted before he ceases to be a member, as the case may be; and
(B) to the costs, charges and expenses of winding-up and for adjustment of the rights
of the contributories among themselves;
(e) in the case of a company having a share capital,—
(i) the amount of share capital with which the company is to be registered and the
division thereof into shares of a fixed amount and the number of shares which the
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41 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to sections 13, 14 and
20 of the Companies Act, 1956. See Notification No. ....
subscribers to the memorandum agree to subscribe which shall not be less than one
share; and
(ii) the number of shares each subscriber to the memorandum intends to take, indicated
opposite his name;
(f) in the case of One Person Company, the name of the person who, in the event of death of
the subscriber, shall become the member of the company.
(2) The name stated in the memorandum shall not—
(a) be identical with or resemble too nearly to the name of an existing company registered
under this Act or any previous company law; or
(b) be such that its use by the company—
(i) will constitute an offence under any law for the time being in force; or
(ii) is undesirable44 in the opinion of the Central Government.45
(3) Without prejudice to the provisions of sub-section (2), a company shall not be registered with
a name which contains—
(a) any word or expression which is likely to give the impression that the company is in any
way connected with, or having the patronage of, the Central Government, any State
Government, or any local authority, corporation or body constituted by the Central
Government or any State Government under any law for the time being in force; or
(b) such word or expression, as may be prescribed,46 unless the previous approval of the
Central Government has been obtained for the use of any such word or expression.
(4) A person may make an application, in such form and manner and accompanied by such fee,
as may be prescribed,47 to the Registrar for the reservation of a name set out in the
application48 as—
(a) the name of the proposed company; or
(b) the name to which the company proposes to change its name.
(5)
(i) Upon receipt of an application under sub-section (4), the Registrar may, on the basis of
information and documents furnished along with the application, reserve the name for a
period of sixty days from the date of the application
49(ii) Where after reservation of name under clause (i), it is found that name was applied
by furnishing wrong or incorrect information, then,—
(a) if the company has not been incorporated, the reserved name shall be cancelled and
the person making application under sub-section (4) shall be liable to a penalty which
may extend to one lakh rupees;
(b) if the company has been incorporated, the Registrar may, after giving the company an
opportunity of being heard—
(i) either direct the company to change its name within a period of three months, after
passing an ordinary resolution;
(ii) take action for striking off the name of the company from the register of
companies; or
(iii) make a petition for winding up of the company.
(6) The memorandum of a company shall be in respective forms specified in Tables A, B, C, D
and E in Schedule I as may be applicable to such company.50
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(7) Any provision in the memorandum or articles, in the case of a company limited by guarantee
and not having a share capital, purporting to give any person a right to participate in the
divisible profits of the company otherwise than as a member, shall be void.
NOTES
Section 4 of the 2013 Act was notified vide Notification SO 902(E) and has been in effect from 01-
04-2014 Section 4 of the 2013 Act corresponds to sections 13, 14 and 20 of the 1956 Act
as follows:
Clause 4.—This clause corresponds to sections 13, 14 and 20 of the Companies Act, 1956 and seeks to provide for
the requirements with respect to memorandum of a company. The memorandum shall mention the name of a
company, State in which the registered office of the company is to be situated, objects for which the company is
proposed to be incorporated, liability of members, etc. The memorandum of a company shall be in respective forms as
per Tables A, B, C, D and E specified in Schedule I. Any provision in memorandum or articles of a company not having
share capital shall not give any right to participate in the divisible profits otherwise than as member of the company.
[s 4.2] Analysis of Section 4 of the Companies Act, 2013
The memorandum of association is one of the two constitutional documents of a company. While
section 3 deals with the incorporation of companies and subscription of name of members to the
memorandum, section 4 of the 2013 Act provides for the constituents of the memorandum.
[s 4.3] Constituents of the Memorandum of Association [s 4.3.1] Name of the company
Section 4(1)(a) of the 2013 Act provides that the name of the company must be mentioned in the
memorandum. Depending on the kind of company that it is, the name of the company must be
mentioned with the last word “Ltd” in case of a public limited company or with the last words “Pvt Ltd”
in case of a Pvt Ltd company.
The provision of section 4(1) (a) shall not be applicable in case of company registered under section
8 of the 2013 Act.
[s 4.3.2] Registered office of the company
The memorandum must mention the State in which the registered office of the company is situated.
[s 4.3.3] Objects of the company
The memorandum of a company is also required to contain the objects for which the company is
proposed to be incorporated. Section 4 of the 2013 Act specifies main objects and ancillary objects
separately. In addition to the main objects of the company, any other matter that is considered
necessary to further the main object must also be mentioned.
The matters under ancillary category are not independent objects and cannot be entered upon by the
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company independent of the main objects for which the company is proposed to be incorporated.
These matters (objects/powers) cannot widen the scope of main objects and are incidental or
ancillary to the objects of the company can be pursued only to the extent they are necessary for the
attainment of the main objects stated in the Memorandum of Association.
[s 4.3.4] Liability of members of the company
The liability clause of the memorandum is required to mention the extent of liability of its members,
whether it is limited or unlimited. The memorandum of a limited company must also mention that:
(i) The liability of members of a company limited by shares is limited to the amount unpaid on
the shares held by them. This implies that in the event of winding up, the liability of members
of the company shall be restricted to the amount that is unpaid on the shares held by them.
(ii) The liability of members of a company limited by guarantee is limited to the amount up to
which each member undertakes to contribute (a) to the assets of the company in the event of
the company being wound up while he is a member or within one year after he ceases to be a
member for payment of the debts and liabilities of the company or of such debts and liabilities
as may have been contracted before he ceases to be a member, as the case may be; and (b)
to the costs, charges and expenses of winding-up and for adjustment of the rights of the
contributories among themselves.
[s 4.3.5] Authorised capital of the company
A company having a share capital is required to mention the following details:
(i) The amount of share capital with which the company is registered, which is the authorised
capital or nominal capital of the company.
(ii) Section 2(8) of the 2013 Act defines Authorised Capital or nominal capital as such capital as
is authorized by the memorandum of a company to be the maximum amount of share capital.
(iii) The division of the authorized capital into shares of a fixed amount.
(iv) The number of shares that each subscriber to the memorandum agrees to subscribe, which
shall not be less than one.
(v) The number of shares each subscriber intends to take mentioned against his/her name.
[s 4.4] Membership of a One Person Company
A One Person Company must state the name of the person who shall become the member of the
company in the event of the death of the subscriber to the memorandum.
[s 4.4.1] Name Clause
The 2013 Act prescribes certain restrictions on the name of a company that is registered under it.
Section 4(2) and 4(3) read along with rule 8 of the Companies (Incorporation) Rules, 2014* contains
the statutory requirement in regard to naming a company.
Under section 4(2) of the Companies Act, 2013, the name of company that is mentioned in the
Memorandum should not be identical with or resemble too nearly to the name of an existing company
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that is registered under the 2013 Act or any of previous company law statutes. Another condition that
the name of the company mentioned in the Memorandum must meet is that (i) its use by the
company will not constitute an offence under any law for the time being in force; or (ii) its use by the
company is not undesirable in the opinion of the Central Government. The power of the Central
Government has been delegated to the Registrar of Companies vide Notification SO 1353(E), dated
21-05-2014.**
The Ministry of Corporate affairs has also clarified through Circular 29/2014 dated 11-7-14 that while
allotting names to Companies or Ltd Liability Partnerships, the Registrar must ensure that the names
are not in contravention of the provisions of the Emblems and Names (Prevention of Improper Use)
Act, 1950.
What will be construed as undesirable is provided in rule 8(1) and 8(2) of the Companies
(Incorporation) Rules, 2014.
Rule 8(1) of the Companies (Incorporation) Rules, 2014 provides a list of differences that will be
disregarded while determining whether a proposed name is identical to the name of another existing
company. Some of the differences enumerated in the Rule are extracted below:
(i) Plural version of any of the words appearing in the name

(ii) Words like Private, Pvt, Pvt., (P) or Ltd, Ltd, Ltd., or LLP, Ltd Liability Partnership.
(iii) Use of different tense or number of the same word does not distinguish one name from
another.
(iv) Misspelled words, whether intentionally misspelled or not, do not conflict with the similar,
properly spelled words.
Rule 8(2) of the Companies (Incorporation) Rules, 2014 enumerates the conditions under which the
name of a company shall be considered as undesirable. These include,
(i) If the name attracts the provisions of section 3 of Emblems and Names (Prevention of
Improper Use) Act, 1950.
(ii) If the name includes any word or words which are offensive to any section of the people.
(iii) If the proposed name is identical with or too nearly resembles the name of a limited liability
partnership.
(iv) If the proposed name contains the words “British India.”
Section 4(3) of the 2013 Act provides that subject to the conditions prescribed in section 4(2) of the
2013 Act, a company shall not be registered with a name that contains:
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(i) Any word or expression which is likely to give an impression that the company is in any way
connected with or has the patronage of the Central Government, any State Government, or
any local authority, corporation, or body constituted by the Central Government or any State
Government under any law for the time being in force; or
(ii) Any such words or expressions that are prescribed under rule 8 of the Companies
(Incorporation) Rules, 2014.*
A company may be registered with a name that contains any of the above mentioned words or
expressions provided it takes prior approval from the Central Government in this regard.
Rule 8(6) of the Companies (Incorporation) Rules, 2014 provides a list of words, which either by
themselves or in combinations therefore must not be used in the name of the company either in
English or in any other language conveying the same meaning unless previous approval has been
obtained from the Central Government. Words such as Board, Commission, Rashtrapati, and Union
are included in this list.
In this regard it will be important to take note of the clarification issued by the MCA vide General
Circular 26/2014, dated 27-6-2014; through which the use of the word “Commodity Exchange” may
be allowed only when a “No Objection Certificate” from the Forward Markets Commission is provided
by the applicant. This requirement shall apply to companies that have been registered with the words
“Commodity Exchange” prior to the date of the circular.
[s 4.5] Reservation of name
Section 4(4) of the companies Act, 2013 provides for the reservation of name of the company and
allows a person to apply to the Registrar of Companies to reserve the name that is set out in the
application in this regard.
The name may be reserved either at the time of incorporation of company or at the time of change in
the name of an existing company.
Rule 9 of the Companies (Incorporation) Rules, 2014 provides that the application for reservation of
name is to be made in Form INC 1 along with the fee prescribed in the Companies (Registration
Offices and Fees) Rules, 2014.** Rule 9 has been amended by the Companies (Incorporation)
Amendment Rules, 2016 to include that the application for reservation of name may be approved or
rejected by the Registrar, Central Registration Centre.
Where the company is applying for the incorporation under the Integrated Process for Incorporation
under rule 36 of the Companies (Incorporation) Rules, 2014,* the provisions of rule 9 shall not apply.
[s 4.6] Name to be reserved for 60 days
Section 4(5) (i) of the Companies Act, 2013 provides that once the application is made under section
4(4) of the 2013 Act for the reservation of name, the Registrar may upon scrutiny of the information
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and documents submitted in this regard along with the application in Form INC 1 reserve the name
for a term of 60 days from the date of application.
This provision shall not apply where the company has applied for incorporation under the Integrated
Process for Incorporation. Rule 36(2) of the Companies (Incorporation) Rules, 2014 provides that the
promoter or applicant shall propose only one name in e-Form INC 29.
As per section 4(5) (ii) of the 2013 Act where after reservation of the name, it is found that the
application was made by furnishing wrong or incorrect information then the following consequences
shall follow:
(i) Where the company has not been incorporated – the reserved name shall be cancelled and
the person who made the application under section 4(4) will be liable to pay penalty that may
extend to one lakh rupees.
(ii) Where the company has been incorporated –after giving an opportunity of being heard the
Registrar may:
(a) Either direct the company to change its name within three months after passing an
ordinary resolution; or
(b) Strike off the name of the company from the Register of Companies; or
(c) Make a petition for winding up the company
[s 4.7] Form of Memorandum
Section 4(6) of the 2013 Act provides that the memorandum shall be in the forms in Schedule I. This
is a mandatory requirement.
Schedule I contains the specified forms in which the memorandum must be prepared. Different forms
are provided for different kinds of companies.
(i) Table A is applicable to a company limited by shares;
(ii) Table B is applicable to a company limited by guarantee and not having share capital;
(iii) Table C is applicable to a company limited by guarantee and having a share capital;
(iv) Table D is applicable to an unlimited company and not having share capital; and
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(v) Table E is applicable to an unlimited company and having share capital.
A separate form is prescribed for the Memorandum of Association of a company licensed under
However, where the company is applying for incorporation under the Integrated Process for
Incorporation, rule 36(5) of the Companies (Incorporation) Rules, 2014* provides that the company
may prepare its Memorandum as per the template in Form INC-30.
[s 4.8] Member’s right alone to participate in divisible profits of company [Section 4(7) of the
Provisions of the memorandum and articles of the company shall be void to the extent to which it
purports to give a person otherwise than as a member the right to participate in the divisible profits of
a company which is limited by guarantee and has no share capital.
A member is defined under section 2 (55) of the Companies Act, 2013 and means –
(A) A subscriber to the memorandum of association of the company who is deemed to have
agreed to become a member and whose name will be registered in the register of members.
(B) Every other person who agrees in writing to become a member and whose name is entered
in the register of members.
(C) Every person holding shares of the company and whose name is registered as a beneficial
owner in the records of a depository.
A member can hold either preference or equity share capital.
Memorandum being ultra vires, the provisions under the Companies (Amendment) Bill 2016, has
done away with the concept of memorandum being ultra vires, as the bill provides that a company
may engage itself in any lawful activity or pursue object(s), as per the law in India. See also Notes on
section 13 of the 1956 Act, and the concept of “memorandum being ultra vires” in context of section
13 of the 1956 Act
[s 13] Requirements with respect to memorandum.—(1) The memorandum of every company shall state— The
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(a) the name of the company with “Limited” as the last word of the name in the case of a public limited company,
and with “Private Limited” as the last words of the name in the case of a private limited company;
(b) the State in which the registered office of the company is to be situate; 51[***]
52[(c) in the case of a company in existence immediately before the commencement of the Companies
(Amendment) Act, 1965 (31 of 1965), the objects of the company;
(d) in the case of a company formed after such commencement,—
(i) the main objects of the company to be pursued by the company on its incorporation and objects
incidental or ancillary to the attainment of the main objects;
(ii) other objects of the company not included in sub-clause (i); and
(e) in the case of companies (other than trading corporations), with objects not confined to one State, the States
to whose territories the objects extend.]
(2) The memorandum of a company limited by shares or by guarantee shall also state that the liability of its members is
limited.
(3) The memorandum of a company limited by guarantee shall also state that each member undertakes to contribute to
the assets of the company in the event of its being wound up while he is a member or within one year after he ceases
to be a member, for payment of the debts and liabilities of the company, or of such debts and liabilities of the company
as may have been contracted before he ceases to be a member, as the case may be, and of the costs, charges and
expenses of winding up, and for adjustment of the rights of the contributories among themselves, such amount as may
be required, not exceeding a specified amount.
(4) In the case of a company having a share capital—
(a) unless the company is an unlimited company, the memorandum shall also state the amount of share capital
with which the company is to be registered and the division thereof into shares of a fixed amount;
(b) no subscriber of the memorandum shall take less than one share; and
(c) each subscriber of the memorandum shall write opposite to his name the number of shares he takes.
NOTES
[s 4.9] Legislative History.
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on Clauses explained this provision as follows:
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“This section combines sections 6, 7 and 8 of the existing Act. Cf section 2 of the English Act.” [Clause 11 of the
The Joint Committee made certain changes and observed:
The Committee are of the view that the name of a company should indicate whether it is a private or a public company.
It has been accordingly provided that the name of every private company should end with the words ‘Private Limited’.
[Report : para 13].
This clause seeks to implement the recommendation of the Daphtary-Sastri Committee based on the observations
contained in paragraphs 2 to 5 of the Commission’s Report. The purpose of the amendment is to provide for clear
definitions of the main and the subsidiary objects of a company in its Memorandum of Association. [Clause 5 of the
Companies (Second Amendment) Bill, 1964 (64 of 1964)].
2016.
The relevant observations in paras 2 to 5 of the Commission of Inquiry on the Administration of

Dalmia-Jain Companies (Vivian Bose Commission) are reproduced below:
Objects Clause of the Memorandum of Association.—2. It is a matter of common knowledge that it is customary to
make the objects and purposes of a company’s memorandum as wide as possible in order to obviate applications to
the Court when some new venture is contemplated. No objections can normally be taken to make the objects as wide
in scope as possible; but at the same time, this practice holds out ample opportunities for participating in activities
which are neither the main activities nor are ancillary thereto, but are very remote in character, and far removed from
the principal and ancillary objects for which a company has been incorporated.
3. In case of a public company, which was before the Commission, it was incorporated primarily for the purpose of
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carrying on an Airline business, although it transpired that there was never any serious intention to do such business.
The reason for the floating of this company in that form was that, at the particular time, airline business was very much
in the public eye and there was a big demand for shares in such companies. It is significant that though the ostensible
main business was given prominence in the Memorandum, the activities which the company intended to pursue, viz.,
business in all types of surplus motor vehicles and spare parts left by the American fighting forces in India at the
conclusion of the war, were mentioned in an omnibus, clause that spoke of humbler kinds of conveyance like ‘vehicles
of all kinds’ along with ‘cycles, carriages and perambulators’. No one could have imagined by a simple statement in the
Memorandum that the main business was that of dealing in motor vehicles and spare parts involving an outlay of
almost Rupees 6 Crores, and the principal business was merely to be a small side show with an investment of about
Rupees 22 lakhs only. Although in the prospectus for the issue of capital amounting to Rupees 320 lakhs it was
disclosed that the company would be dealing in surplus vehicles and spare parts, ‘applications with full amount for
about three crores’ had already been received, according to a statement in the Prospectus.
4. Several Committees have so far approached, from different points of view, the subject of the contents of the
Memorandum of Association, particularly the objects of a company stated therein. The Expert Committee on Company
Law, generally known as the Bhabha Committee, considered the question of imposing certain restrictions on the wide
power taken by companies in their Memoranda to carry on every conceivable business, and though the Committee
fully appreciated the necessity of restrictions, it was unable to evolve a practical method to distinguish between the two
types of businesses and to recommend the basis of an effective legal provision. The Committee however preferred to
rely on the responsible judgement of the management and the periodical vigilance of the shareholders. However, the
‘vigilance’ of the shareholders would ordinarily come into the picture when the company seeks to amend its objects
clause, and rarely in cases of utilizing wide powers taken in the Memorandum to participate in some other activity.
5. In recent times, there have been instances where companies have gone in for diversification and diversified their
activities into lines other than the principal object or objects ancillary thereto. We are not necessarily condemning
diversification as such, and feel that this tendency may largely be due to the system of inter-corporate taxation of
dividends. In countries where inter-corporate taxation does not exist, the tendency for a group is to form separate
subsidiary companies under the main holding company; but this would prove to be far too expensive from the tax point
of view in this country owing to dividends being taxed at each stage of its corporate travel.
6. Nevertheless, we think that the shareholders should have some say in the matter, and it is, therefore, recommended
that—
(i) The Companies Act, 1956 (1 of 1956) should be suitably amended to provide that every company shall clearly
state its purposes and objects under two separate categories, viz.,
(a) the principal and ancillary objects which the company intends at the time of its incorporation to pursue;
and
(b) all other objects which are separate from the principal and ancillary ones mentioned in item (a) above.
(ii) A provision should be made in the Act to the effect that a company shall not engage itself in any activities
coming within the scope of Clause (b) unless such activities are sanctioned by a special resolution of the
company in general meeting. [Commission’s Report : paras 2 to 6].
[s 4.11] Recommendations of Daphtary-Sastri Committee.
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The recommendations of the Daphtary-Sastri Committee based on observations contained in paras 2

to 5 of the Commission’s Report are reproduced below:
Statement of objects: Section 13(1)(c) of the Companies Act, 1956, hereinafter referred to as ‘The Act’, requires the
objects of a company to be stated in its memorandum of association. The memorandum states what shall be the
powers of the company and the objects to the attainment of which the powers could be exercised. The objects
specified in the memorandum give a measure of protection to the subscribers to the share capital and persons dealing
with the company, and are intended to indicate plainly and unambiguously the purposes for which the funds of the
company can be used or the field of business within which the company’s activities have to be confined. It is well
settled that an act which is beyond the powers of a company as specified in the memorandum is ultra vires. Further, a
change in the memorandum involves the observance of certain formalities including an application to the court for
approval in cases falling within section 17 of the Act. It has, therefore, become normal to specify objects having a wide
scope and variety, and in an anxiety to avoid acts of directors being declared ultra vires, a multitude of objects are
specified without any distinction being made between the objects and the powers. The principal or real object often
gets buried beneath a mass of words and a multitude of other objects and powers brought indiscriminately into the
memorandum. Disapproval has been expressed of this tendency but no attempt has so far been made to correct it
[See Cotman v. Brougham, (1918) AC 514 (HL)].
The report of the Commission of Inquiry discloses the case of a company, Dalmia Jain Airways Ltd., floated ostensibly
for the purposes of carrying on air transport business. But even from its very inception the promoters had never
intended that the huge sum of over 319 lakhs raised by public subscription towards the share capital should be utilised
for such business. They had only intended to form a private company for carrying on a totally unrelated adventure,
namely, purchasing surplus motor vehicles and spare parts and machinery left by U.S.A. and the American forces at
the conclusion of the last War, and reconditioning the vehicles and selling them at a profit. The attempt was to run a
skeleton air transport as a make-believe show. The memorandum of association of the company included an omnibus
clause that gave power to the company to deal in vehicles of all kinds, and which even specified cycles, carriages and
perambulators. The public was misled by the name of the company which incorporated its main object. The
prominence given to the ostensible object made the public believe that the company would really conduct the business
of air transport. The memorandum having comprehended within its scope the dealing in motor vehicles and spare
parts, the persons in control, without reference to the shareholders and even to the Controller of Capital Issues who
had authorised the issue of the share capital, were able to divert the funds so obtained into the surplus motor vehicles
and spare parts business. Though its funds were freely utilised for acquiring the surplus motor vehicles and spare
parts, the public company did not get the profits from the deal. The profits went to the private company which entered
into the contract for the purchase and the public company suffered a huge loss in the result. The remedy does not lie
merely in making provision for separating the principal objects from other objects. For even then it is possible to include
under the head ‘principal objects’ a variety of objects not necessarily having any connection with one another nor
reflecting the real intention of the promoters. At the same time, any safeguards provided in this direction should not
hamper legitimate corporate activity. Further statutory provision should be made, therefore, whereby even at the initial
stage, the shareholders have an opportunity to inform themselves of the principal industrial or business activity the
company would embark upon. The promoters, the signatories to the memorandum and the first directors of a company
should be required to obtain the approval of the company in general meeting by a special resolution, of the decision of
the directors regarding the activities the company shall engage in, in the first instance. Thereafter sanction of the
company in general meeting by special resolution should also be obtained, if the directors later on propose to engage
in new activities. Every such resolution shall be incorporated in all copies of the memorandum of the company.
Provision should be made in the Capital Issues (Control) Act [now the SEBI Act] for informing the Controller of the
starting of a fresh business enterprise in accordance with the special resolutions. A copy of the special resolutions
enlarging the business of the company should be furnished to the ROC of the State.
As the name of the company also influences indirectly the public who apply for allotment of shares, the ROC should be
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empowered to scrutinise carefully the objects specified in the memorandum to see whether the name of the company
properly reflects those objects and is not likely to mislead the public. Registration of a company should be withheld until
the Registrar is satisfied on this head.
Provision should be made in the Act imposing an obligation on the promoters of a public company to include in
newspaper advertisements announcing the floatation of the company, a statement calling attention of the public to the
specific objects to which the activities of the company will be confined at the first instance, and to publish equally
prominent advertisements as and when the company proposes to embark upon any other business enterprise.
[Daphtary Sastri Committee Report : relevant paras of recommendations].
The Joint Committee made further changes and recommended as follows:
It was represented to the Committee that if the existing companies were also to be required to re-draft their objects
clauses, then that would require the passing of special resolution under the Act, which would involve tremendous time
and effort not commensurate with the results intended. The Committee, therefore, feel that this clause should be
amended to provide that the provisions of existing clause (c) of section 13 of the Act should continue to apply to
companies in existence immediately before the commencement of the Companies (Amendment) Act 1965, and the
provisions of the proposed new clause requiring the division of objects into (i) main objects and objects ancillary
thereto and (ii) other objects should apply only to new companies. The clause has been amended accordingly. [Report
: para 13].
For the Statement of Objects and Reasons appended to the aforesaid Bills see Legislative History in
[s 4.12] Memorandum [Section 2(28) of the Companies Act, 1956]
Memorandum means the Memorandum of Association of a company as originally framed or as

altered from time to time in pursuance of any previous company law or of this Act. The term includes
the original Memorandum as registered or as altered from time to time. Corresponding provision of
the 2013 Act is section 2(56), which similarly defines a memorandum.
Thus, the term Memorandum of Association of a Company refers to the Memorandum as originally
registered or as altered from time to time.
Section 13 of the 1956 Act (1 of 1956) lays down the Requirements with respect to Memorandum
[section 13].
[s 4.13] Constitution or Charter of the Company
The Memorandum of Association of a company is the constitution or charter of the company defining
its objects. Its purpose is to enable the shareholders, creditors and those dealing with the company to
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know what is the company’s permitted range of enterprise.53
[s 4.14] Requirements with respect to Memorandum [Section 13 of the Companies Act, 1956]
Section 13 of the 1956 Act (1 of 1956) provides that the Memorandum of Association of every
company shall state—
(1)(a) The Name of the Company. In the case of a Company Ltd by Shares the Memorandum of
Association must contain the name of the company with “Ltd” as the last word in the case of a
Public Company and with “Pvt Ltd” as the last word in the case of a Private Company.
(b) The State in which the Registered Office of the Company will be situated. The Memorandum
of Association must contain the name of the State in which the company’s Registered Office
is to be situate.
(c) Section 13(1)(c) of the 1956 Act pertains to the Objects clause of the Company in the case of
a company in existence prior to the commencement of the Companies (Amendment) Act,
1965 (31 of 1965) (w.e.f. 15-10-1965).
(d) Section 13(d)(i) and (ii) of the 1956 Act as substituted by the Companies (Amendment) Act,
1965 (31 of 1965) requires a Company incorporated after (15-10-1965) to state Objects of the
Company as follows:
(i) The Main Objects of the Company and Objects incidental or ancillary to the attainment of
the main objects, and (ii) Other Objects of the Company.
(e) In case of Companies (other than Trading Corporations) the Memorandum must also mention
the States to which the objects extend.
(2) In the case of a Company Ltd by Shares or by Guarantee, the Memorandum must state that the
Liability of the Members is limited.
Section 13(2) of the 1956 Act provides that in the case of a Company having a Share Capital or a
Guarantee Company the Memorandum of Association shall also contain a Statement that the liability
of the Company’s Members is limited.
(3) Undertaking by Members in a Guarantee Company, and
(4) In case of a Company having a Share Capital—(a) Unless the company is an unlimited company,
the amount of Share Capital and its division;
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(b) No Subscriber of the Memorandum shall take less than one share; and
(c) Each Subscriber of the Memorandum shall write opposite to his name the number of shares
he takes.
Strictly speaking, a Minor cannot be a subscriber to the Memorandum of Association as he cannot

enter into a contract.
See detailed Notes on Subscription Clause under section 12.
The Memorandum needs to be carefully drafted inasmuch as the company and the directors cannot
do anything beyond the scope of the Memorandum except those incidental to the business of the
company.54
Detailed Notes on various Clauses in the Memorandum of Association pursuant to the Requirements
of section 13 of the 1956 Act are given below.
See also Notes under sections 12, 14 to 19 and 33 to 40 of the 1956 Act.
[s 4.15] Name Clause [Section 13(1)(a) of the Companies Act, 1956]
The Memorandum of Association of every Public Ltd Company shall state the name of the company
with “Ltd” as the last word of the name, and in case of a Pvt Ltd Company with “Pvt Ltd” as the last
words of the name.
[s 4.16] Names of Companies
See detailed Notes, Guidelines, Form and Procedure, e-Forms, e-Filing on provisions with respect to
Names of Companies and Search facilities, e.g., Check Company Name on the Ministry of Corporate
Affairs (MCA) website http://www.mca.gov.in under sections 20 to 25.
[s 4.17] Government Company
Section 13 of the 1956 Act shall apply to a Government Company with the following modification: “In
clause (a) of sub-section (1) of section 13 of the 1956 Act, the words “in the case of a public limited
company, and with ‘Pvt Ltd’ as the last words of the name in the case of a ‘Pvt Ltd Company’” shall
be omitted.” [Notification No. G.S.R. 1234, dated 30-12-1958 : Government of India publication,
See detailed Notes under sections 617 to 620 of the 1956 Act.
[s 4.18] Registered Office or Situation Clause [Section 13(1)(b) of the Companies Act, 1956]
The Memorandum of Association of every company shall mention the State in which the Registered
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Office of the company will be situated.
The exact Address of Registered Office need not be given in the Memorandum of Association. This
may be given at the time of or within 30 days of incorporation by filing e-Form No. 18 with the
Registrar of Companies (ROC).
See detailed Notes, Form and Procedure under sections 12, 33 and 146 of the 1956 Act.
The situs of the shares is the registered office of the company. The statutory books and documents
are also to be kept at the registered office of the company.
See detailed Notes under sections 12, 146 and 209 of the 1956 Act.
[s 4.19] Objects Clause—Existing Companies [Section 13(1)(c) of the Companies Act, 1956]
A company in existence before the Companies (Amendment) Act, 1965 could retain its earlier objects
clause, i.e., it need not segregate its objects into main objects and other objects.
[s 4.20] Objects Clause (w.e.f. 1 October 1965) [Section 13(1)(d)(i) and (ii) of the Companies
Act, 1956]
An Objects Clause should be in every Company’s Memorandum of Association.
Every Company incorporated or formed after 1 October 1965 must state separately the Objects in
three categories as required by substituted sub-clauses (i) and (ii) of clause (d) of sub-section (1) of
The Memorandum of Association of every Company shall state separately:
(i) the Main Objects of the Company to be pursued by the company on its incorporation and the
Objects incidental or ancillary to the attainment of the main objects, and (ii) other objects of the
company not included in sub-clause (i).
[s 4.21] Purpose of division of Objects Clause
The purpose of this division of the Objects Clause in the Memorandum of Association as required by
section 13(1)(d)(i) and (ii) of the 1956 Act after 1 October 1965 is to enable the shareholders and
others interested to have a clear idea of the Main objects and Other objects.
Section 149 of the 1956 Act further requires that whenever a Public Company commences any new
business falling in the third category or group, i.e., Other Objects as stated in section 13(1)(d)(ii)
above, sanction of the shareholders by a Special Resolution shall be obtained.
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These two provisions thus seek to afford an opportunity to shareholders to know for what purposes
their money would be utilised.
See Legislative History of the Companies (Amendment) Act, 1965 hereinabove. See detailed Notes
under sections 13 and 149 of the 1956 Act.
Under the 2013 Act, this difference has been removed as there is no provision for stating Other
objects in the memorandum.
[s 4.22] Powers necessary to carry out objects
The objects clause may be as wide as the promoters want it to be. However, it should state the main
and other objects of the company and not the powers necessary to carry out the objects.
[s 4.23] “Carrying on business”
The objects clause does not conclusively prove that the activities of the company amount to “carrying
on business”.55
See detailed Notes on Incidental or ancillary Objects, Other Objects, Commencement of new
business, implied powers, etc., hereinafter.
[s 4.24] Non-Trading Companies [Sub-section (1)(e)]
In the case of non-trading companies, with objects not confined to one State, the objects clause shall
also mention the States to whose territories the objects extend.
[s 4.25] Department’s View— Arrangement of objects clause
“The Department of Company Affairs is of the view that having regard to the provisions of sub-section (l)(d) of section
13 of the Companies Act, 1956, the objects clause of the Memorandum of Association of a company should be split up
as follows:
(a) Main objects to be pursued on its incorporation;
(b) Objects incidental or ancillary to the attainment of the objects specified in (a) above; and
(c) Other objects not indicated in (a) and (b) above.
Such an arrangement, it is felt, would be in line with section 13(1)(d) of the Companies Act, 1956 and at the same time
make clear that clause (d)(i) of the said sub-section included (i) objects other than main objects and also (ii) objects
incidental or ancillary thereto.” [Company News & Notes, dated 1 January 1968 : Govt. of India publication,
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[s 4.26] Streamlining the working of Registrars of Companies—Report of the Review

Committee
The Department vide Circular No. 1 of 1995, dated 16-02-1995 directed the Registrars of Companies
(ROCs) to implement certain recommendations of the Review Committee to study the working of
offices of the ROCs with a view to streamline and simplify procedures involved in dealing with
documents and for reduction in the number of documents filed by the companies.
Relevant extracts from the Circular are reproduced below:
New registration : (v) There are divergent practices in the offices of ROCs as to the number of clauses/objects that can
be allowed under ‘Main objects’ to be pursued by the company on its incorporation vide section 13(1)(d)(i) of the
Companies Act, 1956. ROCs are advised to follow the general principle that in case of object oriented names like
Hindustan Sugar Limited, the main object should constitute only that object (like sugar in case of Hindustan Sugar
Ltd.), while in case of non-object oriented names (like Tata Sons Limited), there should be no restriction as to the
number of main objects. Similar should be the approach in case of companies having names with general expressions
like ‘Industries/Enterprises’, etc., without prefixing the nature of industry or enterprise. In either case, it may be ensured
that objects specified in the memorandum of association are those specified against column No. 5 of Form 1A.
[Extracts from Circular No. 1 of 1995 (F. No. 14/6/94-CL-V), dated 16-02-1995 : (1995) 82 COMP CASES (St.) 261].
See Full Text of the Circular under section 609.
[s 4.26.1] Inclusion of items and activities in the Objects Clause of Memorandum and Articles
of Association of a company
“As you are aware section 13 of the Companies Act, 1956 was amended by the Companies (Amendment) Act, 1965 so
as to require the companies to specify clearly the main objects of the company to be pursued by the company on its
incorporation and objects incidental or ancillary to the attainment of the main objects and other objects of the company
not included as main objects or objects incidental or ancillary to the main objects. It has been, however, observed that
while companies comply with these broad outlines in their memorandum of association, cases are not rare where a
very large number of items and activities are being included in the objects clause. It was noticed that in one case as
many as 106 sub-clauses were found included.
It was also noticed in the same case that though the main object of the company was to buy, acquire, hold and deal
etc. in shares, stocks, debentures and other securities, it was found that the company had not carried on any such
business activity and was in fact dealing with plastics and chemicals. The later item of activity was perhaps covered by
items under ‘other objects’.
The matter has been examined in the Department and it is felt that it is necessary for the companies incorporated
under the Companies Act, 1956 to have clearly defined the spheres of business activities and promoters of companies
should be persuaded at the time of incorporation of companies to have a few reasonably well defined and clear objects
under the main objects clause and a limited number of ‘other objects’ which should be consistent with the intended or
proposed activities of the company and within the financial capability of the company as determined by its capital
structure.
I am directed to bring the above views of the Department to all the Registrars of Companies with a request to ensure
that the above broad outlines are kept in mind while registering companies under the Companies Act, 1956. They
should also ensure that the companies carry on only the business that they are allowed to carry on under their
Memorandum of Association and transgression in this behalf should be taken up with the companies for corrective
action as soon as it comes to notice.” [Circular Letter No. 8/15(13)/82-CL-V, dated 22-12-1982].
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[s 4.27] Companies with the main objects of conducting Prize Chit Business
“The objects clauses of the Memorandum of Association of Companies may be scrutinized carefully before their
incorporation to see that there is no clause therein which is repugnant to the provisions of the Prize Chits and Money
Circulation Scheme (Banning) Act, 1978 (43 of 1978).” [Circular No. 3/79 (F. No. 14/20/79-CL-V), dated 16-11-1979].
Further letter addressed to the Registrars of Companies states thus:
“In continuation of this Department’s Circular No. 3/79, dated the 16th November, 1979 [printed above] on the above
subject, I am directed to enclose a copy of the letter No. 464/Leg.-13A/82-83, dated the 9th August, 1982 of the
Reserve Bank of India [printed below] and to say that the suggestion made therein may be kept in view while
registering companies with the main objects of conducting Prize Chit Business.” [Circular Letter No. 14/20/79-CL-V,
dated 20-09-1982].
“We invite a reference to D.O. Letter No. DNBC 322/Leg.-13A/79-80, dated the 6th August 1979. It is observed that
despite the Govt. Circular No. 14/20/79-CL-V (Administration Circular No. 3/79) [printed above] to all the Registrars of
Companies, incorporation of companies with the main objects of conducting prize chit business continues unabated
especially in Delhi. We enclose a statement showing the names of 54 such companies and the relevant clause in their
Memorandum of Association which is repugnant to the provisions of the Prize Chits and Money Circulation Schemes
(Banning) Act, 1978. A few such companies have filed writ petitions in the High Courts at Calcutta and Agartala
(Bench) contending, inter alia, that the Registrar of Companies has not objected at the time of registration to the type of
business they proposed to carry on and hence they were carrying on lawful business. In the circumstances we once
again request you to instruct all the Registrars of Companies (except in the State of Jammu & Kashmir) to exercise
caution while registering such companies.” [RBI Letter No. DNBC 464/Leg.-13A/82-83, dated 09-08-1982].
[s 4.28] Scrutiny or vetting of Memorandum
The promoters of the company may get the Memorandum and Articles of Association of the proposed
company vetted from the Registrar of Companies and if required get the same approved from the
SEBI before they are presented to the ROC for registration.
[s 4.28.1] Department’s View— Scrutiny of the draft Memorandum and Articles by Registrar
“A suggestion has been made to the Company Law Board that it would be helpful to promoters if the Registrar of
Companies could scrutinise and approve the draft Memorandum and Articles of a proposed company before they are
presented to him for registration. Though it may not be possible for Registrars of Companies to accept a definite
commitment in this regard, the Board is of the view that the Registrars should to the extent possible offer their help and
advice to those who may approach them in drawing up the Memorandum and Articles. This would be specially
desirable in cases where promoters have no prior experience of company promotion. All the Registrars of Companies
are advised to take necessary action accordingly.” [Circular No. 128/HCC/64, dated 27-07-1964 : Govt. of India
[s 4.29] Memorandum to be approved by SEBI
Where the Memorandum and Articles of Association are required to be approved by SEBI, the
Registrars of Companies shall not register the company under the Companies Act, 1956, without the
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Memorandum and Articles of Association being approved by SEBI.
[s 4.30] Independent Objects
Where the objects of a company are mentioned in a series of paragraphs in the Memorandum and it
also states that each object should be treated as an independent object, full effect has to be given to
each object.56
See detailed Notes on Interpretation of Memorandum, Doctrine of ultra vires, Implied powers, Ultra
vires acts and Ratification, Doctrine of constructive notice and Officers’ acts, etc., after remaining
clauses of Memorandum hereinafter.
[s 4.31] Liability Clause [Section 13(2) of the Companies Act, 1956]
A company formed or incorporated under the Companies Act, 1956 may be (a) a company limited by
shares, (b) a company limited by guarantee, or (c) an unlimited company. [section 12(2) of the 1956
Act].
The extent of liability is indicated in the Memorandum of Association. The Memorandum of a

company limited by shares or by guarantee shall specifically state that the liability of its members is
limited. A company limited by guarantee should also indicate the amount that a member may be
called upon to pay in case the company is wound up. See Guarantee Clause below.
A member’s liability cannot be increased without his consent except in cases of clubs where the rate
of subscription may be increased.57
[s 4.32] Guarantee Clause [Sub-section (3)]
The Memorandum of a company limited by guarantee shall also state the maximum amount that
each member undertakes to contribute to the assets of the company in the event of its being wound
up while he is a member or within one year after he ceases to be a member.
[s 4.33] Capital Clause [Section 13(4)(a) of the Companies Act, 1956]
In the case of a company limited by shares the Memorandum shall also state the amount of share
capital with which the company is to be registered and the division thereof into shares of a fixed
amount. Thus, the authorised or nominal share capital, the different kinds of shares and the nominal
value of each share should be stated in the Memorandum.
“Share”, as defined in the Companies Act, 1956 and as understood in company law, means share in
the capital of a company. It is a tangible property. The words “capital” and “share capital” are
synonymous. It may mean the nominal or the authorised capital, the issued capital or the paid-up
capital; and the meaning depends in the context in which that term is used. A company having share
capital is a company registered with a nominal or authorised capital, which is divided into shares of a
fixed amount. Where a company has no authorised capital, it cannot be said to be a company limited
by shares, but is a company limited by guarantee as mentioned in section 12(2)(b) of the1956 Act.
Therefore, an application under sections 397 and 398 of the 1956 Act can only be made by requisite
number of members.58
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Provisions as to the nature of the shares and the rights to be attached to them are more properly to
be made in the Articles.59In changing global scenario, the concept of multi-currency capital
companies has been recognised in English law. Fixed amount in such a case may be stated in
different currencies for different classes.60
[s 4.34] Subscription or Association Clause [Section 13(4)(b) and (c) of the Companies Act,
1956]
In the case of a company having a share capital, (1) Every subscriber of the Memorandum shall take
at least one share and (2) Each subscriber of the Memorandum shall write opposite to his name the
number of shares he takes. Where this was not done the person whose name was mentioned as
subscriber was held not to be a subscriber.61
As explained under section 12, a public company must have seven or more subscribers and a private
company must have two or more but not exceeding 50 subscribers (200 under the 2013 Act). The
persons who can be subscribers or signatories to the Memorandum of Association and the mode of
subscription has also been explained.
See detailed Notes on Subscription Clause under section 12 of the 1956 Act. See also Notes on
Signatures by Subscribers under section 15 of the 1956 Act.
[s 4.34.1] Department’s View— Streamlining the working of Registrars of Companies—

Report of the Review Committee
Registration of a new company : (ii) The Department, vide Circular No. 27/1/89/CL-III, dated 17-02-1989, advised the
ROCs to ensure that at the time of registration of a new company, the subscribers to the memorandum of association
should tally with the list of promotors/first directors stated in the application for availability of name, and in case one or
more of the promotors are not interested in participating in the promotion of a new company at a later stage, a ‘no
objection’ letter from such promotor(s) is made available to ROC. This circular was amended on 05-01-1990 (No. 1 of
1990) [reproduced in Notes under s.20], to the effect that ROCs should register the company only in case where the
promotors, as per the availability of name application, are also subscribers to the memorandum. On reconsideration, it
has now been decided, in partial modification of the above circular, that so long as there is at least one promotor
common, both in the name availability application and the subscription clause of the memorandum and articles of
association, and others have no objection, the company may be registered. [Extracts from Circular No. 1 of 1995 (F.
No. 14/6/94-CL-V), dated 16-02-1995 : (1995) 82 COMP CASES (St.) 261].
[s 4.35] Guidelines for registration of Asset Management Companies (AMCs)
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The following guidelines are issued in respect of registration of Asset Management Companies (AMCs), in consultation
with the SEBI:
(a) Approval of AMC by SEBI.—As per guidelines, AMC shall be authorised for business by SEBI on the basis of
certain criteria and the memorandum and articles of association of the AMC would have to be approved by
SEBI. Accordingly, you are advised not to register any company under the 1956 Act, without the
memorandum and articles of association being approved by SEBI.*
(b) Authorised capital of AMC.—The primary objective of setting up of an AMC is to manage the assets of the
mutual funds and other activities which it can carry out, such as, financial services consultancy which do not
conflict with the fund management activity and are only secondary and incidental. That being so, it may not
be practical to expect a company to be set up with a paid-up capital of Rs 5 crores to carry on only incidental
activities, without any assurance of its receiving an approval from SEBI to act also as an Asset Management
Company for a mutual fund. You should, therefore, not have any objection in registering an AMC if the
authorised capital of such a company is approved by SEBI.*
2. A copy of these guidelines may also be placed on the notice board of your office for general information. [Circular
No. 4 of 1992, dated 04-09-1992 to All Regional Directors and Registrars of Companies : (1992) 75 COMP CASES
(St.) 216].
[s 4.36] Interpretation of Memorandum
The Memorandum of Association is the constitution or charter of the company defining its objects. Its
purpose is to enable the shareholders, creditors and those dealing with the company to know what is
the company’s permitted range of enterprise.62
The Memorandum of Association must like any other document be construed according to accepted
principles applicable to the interpretation of all legal documents and no rigid canon of construction is
to be applied to such a document. Like any other document, it must be read fairly and its import
derived from a reasonable interpretation of the language which it employs.63 The intention with which
the directors put through the transaction is irrelevant in deciding whether the transaction is ultra vires.
The Memorandum has to be construed for this purpose.64
[s 4.37] Act to override Memorandum
Section 9 provides that save as otherwise expressly provided in the Act (a) the provisions of the 1956
Act shall override the memorandum, articles, agreements or resolutions, and (b) any provision
contained in the memorandum, articles, agreement or resolution shall, to the extent to which it is
repugnant to the provisions of the Act, become or be void.
The provisions of the Act will prevail in case there is a conflict between the Act and the company’s
Memorandum, Articles, resolutions or agreements.65
In view of this overriding provision, the Memorandum of Association of the company should be
carefully drafted.
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[s 4.38] Memorandum to override Articles
The Memorandum of Association has to be read together with the Articles of Association, where the
terms are ambiguous or silent. The Articles may explain the Memorandum, but cannot extend its
scope.66
See detailed Notes under sections 9, 13, 26 and 36 of the 1956 Act.
[s 4.39] Memorandum and Articles binding [Section 36(1) of the Companies Act, 1956]
Subject to the provisions of this Act, the Memorandum and Articles of Association bind the company
and members as if signed by the company and each member, and contain covenants to observe all
the provisions of the Memorandum and Articles.
[s 4.40] Incidental or ancillary
Acts “incidental or ancillary” or naturally conducive to the main object are those which have a
reasonably proximate connection with the object and some indirect or remote benefit, which the
company may obtain by doing an act not otherwise within the object clause, will not be permitted by
this extension. Where the primary object of the company was to carry on life insurance business, the
donation of company’s funds for the benefit of a trust for charitable purposes was not incidental to or
naturally conducive to that object. There was no discernible connection between the donation and the
objects of the company. The ultimate benefit which might result to the company in getting trained
personnel in insurance was too indirect to be regarded as incidental or naturally conducive to that
object 67
Where the petitioner-company was unable to carry on the business of setting up the electronic
industry, its main object. But, decided to carry out and diversify in the business of investment in
shares, the ancillary object. The company can carry out ancillary object. The act of acquiring shares
by the company for the purpose of investment was therefore not ultra vires. The registration of
transfer of shares could not be refused on this ground. The respondent-company was directed to
rectify the register and pay dividends and costs because the respondent-company refused to enter
the name of the petitioner in the register without sufficient cause.68
In construing the various clauses, the objects clauses should be construed independent of each other
so as to give full effect to each of them.69
See detailed Notes under Implied Powers hereinafter.
[s 4.41] Other objects of the company
Section 149(2A) of the 1956 Act requires that a company shall not commence any business falling
within the third group, i.e., other objects of the company, unless a special resolution has been passed
and a declaration in Form No. 20A of the Companies (Central Govt.’s) General Rules and Forms,
1956* has been filed with the Registrar of Companies.
[s 4.42] Commencement of new business
An existing company cannot commence new business hitherto not done without a Special Resolution
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of the shareholders and a new company will have its Memorandum of Association in conformity with
the provisions of section 13(1)(d) of the 1956 Act read with section 149.
Therefore, general or miscellaneous clauses in the Memorandum of Association such as “without

prejudice to the generality of the preceding objects” and “the several objects stated hereinabove are
independent objects” and “a paragraph shall not be in any way limited or restricted by reference to or
inference from the terms of any other paragraph” have lost their value to some extent.
Where the Memorandum of Association of the transferee company mentioned under “other objects”
the manufacture of “chemicals”, which was the business of the transferor company. The transferee
company followed the procedure and complied with the requirements of section 149(2A) of the1956
Act for shifting the clause under “other objects” to the “main objects” of its Memorandum of
Association. The objection of the Central Government that the transferee company had no power to
take up and carry on the business of the transferor company was overruled. The Court [now the
Tribunal] has jurisdiction to sanction a scheme of amalgamation under section 394 even if the
scheme contemplates a consequential alteration in the objects clause of the Memorandum of the
transferee company without complying with the procedure in section 17 of the 1956 Act.70
[s 4.44] Doctrine of ultra vires
Decisions on behalf of a company are taken by (a) the Board of directors or the shareholders or
members in general meeting or (b) by officers, agents or servants of the company. The Latin
expression ultra vires means acts undertaken beyond (ultra) the legal powers (vires) of persons
acting or purporting to act for and on behalf of the company.
As per the doctrine of ultra vires, (1) the acts beyond the Memorandum of Association of the
company are ultra vires the company. Such acts are absolutely void and cannot be ratified even if all
the shareholders agree, (2) the acts beyond the powers of directors only are ultra vires the directors
and may be ratified by an Ordinary Resolution at a general meeting and altering Articles of
Association of the company by Special Resolution, (3) the acts beyond the provisions of the Act
would be ultra vires the Companies Act and also entail penalty and prosecution, and(4) the acts
which are within the implied powers are not ultra vires.
[s 4.45] Doctrine abolished in English Law
The doctrine of ultra vires has been virtually abolished by the English Companies Act, 1985 as
amended by the English Companies Act, 1989 to bring the English Company law in conformity with
the European Community Directives. Provisions relating to Objects clauses in Memorandum of
Association under the English law and provisions virtually abolishing the doctrine of ultra vires under
English Law have been explained later.
The doctrine of ultra vires which is applicable under the Indian Company Law, Implied Powers, Ultra
vires acts and Ratification, etc., are enunciated below.
The provisions under the Companies (Amendment) Bill 2016, adopt these principles. Post the
amendment all companies will be able to carry out any legally permitted activity, and therefore the
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concept of ultra vires the memorandum will no longer be relevant in India.
[s 4.46] Implied Powers
A company has power to do all that is reasonably necessary for attaining its objects. The courts have
become increasingly ready to imply powers of this nature, i.e., powers which may be implied on a
construction of the powers expressed in the Memorandum of Association and are deemed to be intra
vires.
The words “and to do all such other things as are incidental or conducive to the attainment of the
above objects” will be taken to include such incidental or ancillary powers as are necessarily implied
in carrying out the main object.71Any trade or business which the directors bona fide believed could
be advantageously carried on by the company in connection with or as ancillary to its main business
was held to be intra vires the company under its memorandum of association even though it had no
objective connection with or relationship to the company’s main business72
Power to carry out an object, undoubtedly includes power to carry out what is incidental or conducive
to the attainment of that object, for such extension merely permits something to be done which is
connected with the objects to be attained, as being naturally, conducive thereto.73A company in
carrying on the trade for which it is constituted must be in a position to do all such things as may fairly
be regarded as incidental to or consequential upon that trade.74
Where the company had a general object to carry on business as bankers, capitalists, financiers,
concessionaires and merchants and generally to undertake and carry out all such obligations and
transactions as an individual capitalist may lawfully undertake and carry out, the partnership by the
company with a person which minimised his U.K. tax on earnings in the U.S.A. was held to be intra
vires.75 Charity cannot sit at the Boardroom table and there are to be no cakes and ale except for the
benefit of the company. An activity not bona fide designed to enhance financial prosperity of the
company would necessarily be ultra vires. A member is entitled to bring an action to restrain the
company from doing an ultra vires act.76
This did not necessarily ban charitable or political contributions, grant of pensions to retired
employees or research and education likely to lead to direct and substantial advantage to the
company while the company remained a going concern.77
A non-trading company will exercise only such powers as are necessary to enable it to discharge the
duties and fulfil the purposes for which it is constituted.78
A trading company has implied powers to borrow, give security, to sell or mortgage land, to appoint
and act by agents for purposes of its business. Such powers are incidental or properly to be inferred
from the powers expressed in the Memorandum of Association.79 Any step taken to augment the
working capital of the company will be incidental to the business of the company and conducive to
the attainment of its objects.80 Borrowing money is however not an independent activity but has to be
for some purpose. Where the defendant bank’s loan was for a purpose known by it to be ultra vires
and was tainted by unlawful purpose for which it was made. The debentures given as security for it
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were void.81
Payment to a retired secretary and member of a club by way of annuity, pension or gratuity is within
the powers of the club although under the Memorandum no dividend or loans are to be paid by way
of profit to its members.82
Where a company has power to purchase land, it is implied that it has power to let out or to sell the
land.83 Negotiation of the negotiable instruments is within the ordinary course of business of a
company, no special power is necessary.84 A chemical manufacturer may spend money on research
and education likely to lead to direct and substantial advantage to the company.85 A company can sell
its personal properties as incidental to the management of its business.86
Whatever is fairly incidental to these things which the legislature has authorised ought not to be held
ultra vires.87 Where a company is formed for working a patented machine, it is not ultra vires to
purchase the patent.88 A company empowered by its Memorandum of Association to assist in the
formation of other companies can buy shares of a railway company.89 A bona fide compromise of a
reasonable claim by payment of a sum of money out of the company’s capital is not ultra vires.90
See also Notes under Incidental or ancillary hereinbefore.
[s 4.47] Ultra vires acts and Ratification
A company is competent to carry out its objects specified in the Memorandum of Association and
cannot travel beyond the objects. Where a company does an act which is beyond the objects
mentioned in the Memorandum of Association of the company and is therefore ultra vires, no legal
relationship or effect ensues therefrom. Such an act is absolutely void and cannot be ratified even if
all the shareholders agree.91
A company cannot ratify anything which is outside the objects and powers of the company. Such an
act cannot be validated by the assent of a general meeting of the shareholders or by obtaining
judgment by consent or by estoppel. A contract or an act beyond the objects clause will be ultra vires
the company and would be void. Such an act cannot be ratified even by a unanimous resolution of all
the shareholders.92
Whether a transaction is ultra vires the company has to be decided on the basis of the facts
established and provisions of the Memorandum and not on the basis of any abstract rule. A company
may undertake the tax liability of another company in respect of the undistributed dividends kept back
for being used as a working capital.93
A transaction beyond the powers of the directors but within the company’s powers can be ratified by
resolution at a general meeting or by acquiescence.94
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In some cases the company may be estopped from denying the authority of the director or
chairman.95 A business transacted at an informal meeting may be ratified in a subsequent
properly convened meeting;1 a contract entered into by directors at a meeting irregularly constituted
may be ratified by another properly constituted Board meeting and even by an action by the company
to enforce the contract.2
An action brought without proper authority may be ratified. Where the company had no directors, two
individuals brought an action on the company’s behalf to recover debts without any authority, it was
held that the liquidator could ratify the action.3
The scope of the doctrine of ultra vires was narrowed in later English cases thus: (1) ultra vires
should be restricted to the question whether the company has acted within its capacity, (2) this
depended solely on the construction of its objects clause, (3) if it had acted within those objects and
the express and implied powers, the act was intra vires, whether or not it was done bona fide for the
benefit of the company and for a proper purpose, (4) an exercise of an express power could never be
ultra vires unless, perhaps, the power was not stated to be an independent object, and its exercise
was undertaken in pursuance of activity beyond its objects.4
Doctrine of ultra vires has virtually been abolished under the English Companies Act, 1985 as
amended by the English Companies Act, 1989. Under the English law ultra vires acts of directors
may now be ratified by a Special Resolution and directors may be absolved by another Special
Resolution. See detailed Notes later.
[s 4.48] Acts ultra vires the Directors
The acts beyond the powers of directors are ultra vires the directors and may be ratified by an
Ordinary Resolution at a general meeting and altering Articles of Association of the company by
Special Resolution. A transaction which is beyond the powers of the directors only may be ratified by
an Ordinary Resolution of a general meeting. To authorise the directors to do that act in future a
Special Resolution at a general meeting altering the Articles of Association of the company will be
necessary.5
Article of Association are internal regulations of a company and any act outside the provisions therein
would be irregular unless ratified by members. Such irregular act is wrongful and continuous act of
oppression and irrespective of laches the question of limitation does not arise to take action for such
irregular act.6
For acts beyond the powers of the company and acts beyond the authority of the directors see Notes
under section 293 of the 1956 Act. Doctrine of Constructive notice, Directors and Officers’ acts and
rule in Turquand’s case have been explained later.
[s 4.49] Acts ultra vires the Companies Act
A company cannot buy its own shares or advance money to a director to do so or accept surrender of
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shares involving reduction of shares.7 It is ultra vires of a company to issue unauthorised capital or
reduce or repay capital or issue shares at a discount without complying with the statutory
requirements.8 Payment of dividends out of capital,9 unreasonable remuneration paid for services
rendered, making payment for the benefit of a section of shareholders, paying costs of prosecution
for libel or suit not instituted by company (even though for the benefit of the company), avoidance of
provisions relieving liability of officers and auditors of company, etc., would be ultra vires.10
Acts beyond the provisions of the Act would be ultra vires the Companies Act and also entail penalty
and prosecution.
[s 4.50] Effect of ultra vires acts
Where a company does an act which is beyond the objects mentioned in the Memorandum and is
ultra vires, no legal relationship or effect ensues therefrom. Such an act is absolutely void and cannot
be ratified even if all the shareholders agree. If any money has been disbursed then the officers
responsible for such unlawful disbursement and not the company will be responsible.11
The directors who throw away the company’s money on ultra vires objects are personally liable to
make good the company’s loss.12 A contract or transaction which is ultra vires the company is not
binding on the company.13
But if property is acquired by ultra vires expenditure, the company’s right over it may be protected.14 If
the directors carry on a trade which is ultra vires the company, they cannot bind the company by the
contracts and the vendor cannot recover in respect of the goods supplied.15 A loan which is ultra vires
the company cannot be recovered. But if the loan was used in paying off a creditor of the company or
trading debts, then the lender may claim subrogation.16Neither the third party nor the company can
sue. The only remedy of either is to recover money or property paid or transferred under the void
transaction to the extent to which it was possible to trace it.17
A company can retain property and recover money although the transactions through which they
were acquired are ultra vires.18 There is no estoppel against a company when the act concerned is
ultra vires the company.19 A bona fide transaction with a company, impeachable on ground of being
ultra vires, will be set aside only on terms that both parties be restored to their original position.20
An ultra vires transaction creates no debt, legal or equitable, and upon winding up of the company
the contributories are not liable to pay such debts.21
When guarantee given by the company was ultra vires its Memorandum and no such power could be
spelt out from the Memorandum. Just as consent decree founded on the incompetency of an infant or
minor is void and a nullity. Likewise, a contract founded on the incompetency of the company is void
and a nullity. When a decree is void by reason of ultra vires, it can be successfully attacked in any
collateral proceedings. This rule is applicable with greater force in winding up proceedings where the
court’s [now the Tribunal’s] jurisdiction is of wider amplitude.22
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And an act of the company will not be ultra vires even though it may be a breach of statutory
provision, which makes the act voidable.23
[s 4.51] Injunction
A shareholder may restrain the company from acting ultra vires by an order or injunction from the
court. He can file a suit for setting aside a contract which has been unlawfully entered into by
it.24Where the act complained of is illegal or ultra vires the company a suit can be filed to restrain the
company or for declaration that the purported act is invalid.25
The rule of internal management as stated in Foss v Harbottle,26 does not apply to an act which is
ultra vires the company or illegal. A resolution which is ultra vires or illegal or is a fraud on the
minority or is not bona fide or for the benefit of the company as a whole or is intended to discriminate
between the majority shareholders and the minority shareholders is illegal and can be questioned by
a separate action in the Civil Court. The reason appears to be that if the minority were denied that
right, their grievance could never reach the Court because the wrongdoers themselves being in
control would not allow the company to take any action.27
[s 4.52] Recent Trend
The doctrine of ultra vires has been virtually abolished by the English Companies Act, 1985 as
amended by the English Companies Act, 1989 to bring the English law in conformity with the
European Community Directives.
Under the English Companies Act, 1985 as amended by the English Companies Act, 1989, which
has virtually abolished the doctrine of ultra vires in English Law, a single member of the company
may bring proceedings to restrain the doing of an act which but for sub-section (1) of section 35 of
the English Act, 1985 would be beyond the company’s capacity; but no such proceedings shall lie in
respect of an act done in fulfilment of a legal obligation arising from a previous act of the company.
[section 35(2) and proviso of the English Companies Act, 1985].
See detailed Notes hereinafter.
In India, this doctrine needs to be made in consonance with the European countries. To suit the
requirements of the business community the doctrine should be further modified so that all
transactions between the company and outsiders could be made binding on the company on the
principle of agency. The directors, officers and secretaries of the company who negotiate the
transactions on behalf of the company should be treated as duly authorised agents for that purpose
and acts by them within the actual scope of authority or by subsequent ratification or within the
apparent or ostensible scope of authority should bind the principal, i.e., the company. To have checks
on the directors and officers of the company, the principle of agency should be extended to make
them liable to the company for any transactions entered into by them which might transpire to be ultra
vires their company.28
The provisions of the English Companies Act, 1985 relating to Objects clauses in Memorandum of
Association as amended by the English Companies Act, 1989, virtually abolishing the Doctrine of
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ultra vires and Constructive notice, Constructive notice and Officers’ acts and rule in Turquand’s
case, etc., are explained below.
[s 4.53] Doctrine of constructive notice and Directors’ acts
As per Doctrine of constructive notice, which was established even before the doctrine of ultra vires,
any one dealing with a company is deemed to have notice of the contents of its “public documents”,
e.g., Memorandum and Articles of Association. A third party is thus deemed to have knowledge of the
contents of its objects clause.
Where the insolvent company’s stated objects were to manufacture dresses but it was making
veneered panels. The claims of the creditors were held to be ultra vires on a combination of actual
knowledge of the present nature of the business and constructive knowledge of objects clause.29
The result of constructive notice rule is that neither the third party nor the company can sue. The only
remedy of either is to recover money or property paid or transferred under the void transaction to the
extent it is possible to trace it.30
In case of acts ultra vires the directors or officers of the company beyond their authority, the effect of
the constructive notice rule was mitigated by refinement of normal agency principles in Royal British
Bank v Turquand.
[s 4.54] Rule in Royal British Bank v Turquand
Where under the company’s deed of settlement, the Board of Directors could borrow on bonds such
sums as from time to time should be authorised by a resolution of the company in general meeting. A
third party finding that the authority might be made complete by a resolution would have a right to
infer the fact of a resolution authorising that which on the face of the document appeared to be
legitimately done.31
As per rule in Turquand’s case also known as Doctrine of internal or indoor management although
third parties dealing with a company are deemed to have notice of the contents of its Memorandum
and Articles, they are not required to satisfy themselves that all the internal regulations set out therein
have been complied with. The rule in Turquand’s case does not help when the transaction is ultra
vires the company or beyond the company’s capacity.
[s 4.55] Persons dealing in good faith
The principle that a company may be assumed to have properly performed acts which are within its
Memorandum of Association is not an absolute and unqualified rule of law applicable in all
circumstances. This principle applies only in favour of persons dealing with the company in good
faith. The principle will not apply if it can be proved that the person dealing with the company knew of
the irregularity in the company’s procedures or he was put on enquiry but failed to make proper
enquiry. The transaction which was within the objects of the company or which was capable of being
performed as reasonably ancillary or incidental to the objects is not ultra vires merely because the
directors carried out the transaction for purposes which were not within the Memorandum of
Association. Where the directors are held out by the company as having ostensible authority to bind
the company to transactions which, expressly or impliedly, fell within the powers conferred by the
Memorandum of Association, a person dealing in good faith with the company is entitled to assume
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that the directors were properly exercising their powers for the purposes of the company and is
further entitled to hold the company to the transaction. Where a transaction is within the powers of
the company but in excess or in abuse of directors’ powers, the transaction may be set aside at the
instance of a shareholder but a party to the transaction having such knowledge cannot hold the
company to the transaction and may be accountable as a constructive trustee for any money or
property received by him from the company. However, where a third party’s money is obtained by an
agent’s unauthorised act and applied for the benefit of the principal, the principal is liable to restore
the money even though the third party knew the agent was not authorised to obtain or receive the
money.32
[s 4.56] Absence of good faith
A mere absence of good faith on the part of the person dealing with the company will be sufficient to
nullify the transaction.33
[s 4.57] Constructive notice—Officers’ acts binding on company
A representation signed on behalf of a limited company by a duly authorised agent acting within the
scope of his authority or by an officer or employee of the company acting in the course of his duties in
the business of the company constitutes a representation made by the company and signed by it.
The plaintiff’s claim, based on negligent misrepresentation, was for part of a syndicate loan organised
by the defendant, which was under a fiduciary duty to inform all participants in the syndicate,
including the plaintiff, if at any time it acquired knowledge that the security for the loan was
insufficient. The defendant’s continued failure to so inform members of the syndicate would constitute
a continuing breach of the defendant’s fiduciary duty which would prevent time from running until the
plaintiff discovered the concealment or could with reasonable diligence have discovered it.34
See also English decisions under Constructive notice and Officers’ acts under Doctrine of ultra vires
under English Law explained hereinafter.
[s 4.58] Doctrine of ultra vires under English Law
The Doctrine of ultra vires and the Doctrine of constructive notice have been virtually abolished by
the English Companies Act, 1985 as amended by the English Companies Act, 1989. To bring the
English Company law in conformity with the European Community Directives, the Great Britain
passed the European Communities Act, 1972. Section 9(1) of the European Communities Act, 1972,
later re-enacted as section 35 of the English Companies Act, 1985 modified the ultra vires doctrine as
follows.
(1) Objects clause
Section 2 of the English Companies Act, 1985 requires the objects of the company to be stated in its
Memorandum. Section 3A inserted by the English Companies Act, 1989 provides that a company
with the object to carry on business as a “general commercial company” may carry on any trade or
business whatsoever, and has the power to do all such things as are incidental or conducive to the
carrying on of any trade or business by it. The aim of section 3A is to simplify the objects clauses in
the Memorandum. As per section 4 of the 2013 Act, a company may alter the objects clause in its
memorandum by a special resolution. But, if an application is made under section 5 the alteration will
have effect in so far as it is confirmed by the court.
(2) Virtual abolition of ultra vires
Besides simplifying the objects clauses and making it easier to alter them as above, sections 35, 35A
and 35B have been substituted by the English Companies Act, 1989 for the original section 35 of the
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English Companies Act, 1985, which inter alia, provide as follows.
(a) The validity of an act done by a company shall not be called into question on the ground of
lack of capacity by reason of anything in the company’s Memorandum. [section 35(1)]. Thus,
the company or third party cannot invoke strict ultra vires.
(b) A single member of the company may bring proceedings to restrain the doing of an act which
but for sub-section (1) would be beyond the company’s capacity; but no such proceedings
shall lie in respect of an act done in fulfilment of a legal obligation arising from a previous act
of the company. [section 35(2) and proviso].
(c) It remains the duty of the directors to observe any limitation on their powers flowing from the
company’s Memorandum and action by the directors which, but for sub-section (1), would be
beyond the company’s capacity may only be ratified by the company by special resolution. A
resolution ratifying such action shall not affect any liability incurred by the directors or any
other person; relief from any such liability must be agreed to separately by special resolution.
[section 35(3)].
(d) An act by Directors which is within the company’s capacity but beyond the directors’ actual or
apparent authority can be ratified by an ordinary resolution.35
Section 35 virtually abolishes the doctrine of ultra vires in relation to third parties or the external
relations but, maintains the status quo between the company and its directors or internal relations.
The section affords protection to the third parties to the transaction. Section 35 enables the acts of
the directors and “other persons”, which formerly could not be ratified even by the unanimous
consent or resolution of the members,36 to escape liability if the act is ratified by a special resolution
and they are further absolved by a separate special resolution.
(3) Constructive notice and Officers’ acts
Four new sections have been inserted into the English Companies Act, 1985 by the English
Companies Act, 1989, viz., sections 35A, 35B, 711A and section 322A which, inter alia, provide as
follows.
(i) In favour of a person dealing with a company in good faith, the power of the Board of directors to
bind the company, or authorise others to do so, shall be deemed to be free of any limitations under
the company’s constitution. [section 35A(1)]
For this purpose—(a) a person “deals with” a company if he is a party to any transaction or other act
to which the company is a party; (b) a person shall not be regarded as acting in bad faith by reason
only of his knowing that an act is beyond the powers of the directors under the company’s
constitution; and (c) a person shall be deemed to have acted in good faith unless the contrary is
proved. [section 35A(2)]
(ii) A party to a transaction with a company is not bound to enquire as to whether it is permitted by the
company’s memorandum or as to any limitation on the powers of the Board of directors to bind the
company or authorise others to do so. [section 35B]
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(iii) A person shall not be taken to have notice of any matter merely because of its being disclosed in
any document kept by the registrar of companies (and thus available for inspection) or made
available by the company for inspection. [section 711A(1)]
This does not affect the question whether a person is affected by notice of any matter by reason of a
failure to make such inquiries as ought reasonably to be made. [section 711A(2)]
(iv) Where the transaction exceeds a limitation on the powers of the Board of directors under the
company’s constitution and the other parties, the transaction is voidable at the instance of the
company and, whether or not it is avoided, such parties and any director, who authorised the
transaction, knowing that it exceeded the Board’s powers, are liable to account to the company for
any gains they make and to indemnify the company against any loss it suffers. The transaction
ceases to be voidable in any of the four events provided in sub-section (5) of section 322A but this
does not affect the company’s right to be indemnified, unless the transaction is ratified by the
company in general meeting by ordinary or special resolution or otherwise as the case may require,
e.g., if the transaction exceeds the company’s capacity, it must be ratified under section 35(3) by a
special resolution and by an ordinary resolution if it is otherwise beyond the Board’s authority under
section 35A. [section 322A]
The foregoing provisions of the English Companies Act have abolished the Doctrine of constructive
notice explained hereinbefore.
As the Doctrine of constructive notice has now been abolished under the English law, the rule in
Turquand’s case is no longer of relevance to the third party dealing with the company through the
Board of directors. Hence, a third party, who has dealt with the company through its Board of
directors (de jure or de facto) or with someone authorised by the Board, will be protected so long as
he has acted in good faith.
As a result of the new sections in the English Act, 1985 as amended by the English Companies Act,
1989, if a transaction with a third party acting in good faith is effected on behalf of a company by the
Board of directors or by officer or agent authorised by the Board of directors, the transaction will bind
the company.
But, where third party’s dealings are with some officer or agent other than the Board normal agency
principles as refined in Royal British Bank v Turquand explained hereinbefore and later decisions
shall still be relevant as explained below.
When dealing with other officers of the company not so authorised by the Board of directors, the third
party is not necessarily protected merely because he acted in good faith and if there are suspicious
circumstances, he should, as under section 711A(2) of the English Act, make such inquiries as ought
reasonably to be made and he will be protected only if the suspicions of a reasonable person would
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be allayed by the answers to his inquiries.37
Board of directors for the purpose of foregoing new sections of the English Act means the persons
occupying the position of the Board whether or not they have been validly appointed. The Companies
Acts have long provided that the acts of a director are valid notwithstanding any defect that may
afterwards be discovered, in his appointment. It applies only when there has been a valid
appointment which has not been vacated and not where there has been “no appointment”.38
The minute book of the Board meeting which authorised the transaction, i.e., debenture issue was
held to be prima facie proof and directors were not permitted to say that no such meeting was ever
held.39
A person acting as the chief executive or managing director of the company will have the actual or
ostensible authority and his acts will bind the company.40
When there are persons conducting the affairs of the company in a manner which appears to be
perfectly consonant with the articles of association, those so dealing with them externally are not to
be affected by any irregularities which may take place in the internal management of the company.41
A manager or vice president of the company, if he does not have actual authority, will have ostensible
authority to undertake everyday transactions.42 Secretary of the company will similarly have such
authority in relation to administrative matters.43
As already suggested, the doctrine of ultra vires which is still applicable in India, needs to be made in
consonance with the English law and European countries and needs to be further modified on the
principle of agency.
The provisions under the Companies (Amendment) Bill, 2016, adopt these principles. Post the
amendment all companies will be able to carry out any legally permitted activity, and therefore the
concept of ultra vires the memorandum will no longer be relevant in India.
(4) Charitable companies
The English Companies Act, 1989 inserted new sections 30A, 30B and 30C in the English Charities
Act, 1960, to provide modifications of sections 4, 35, 35A and 322A of the English Companies Act,
1985 containing provisions relating to ultra vires in its applicability to charitable companies.
Para 15.1 of the Statement on Auditing Practices issued by the Institute of Chartered Accountants of
India (ICAI) enumerated Salient provisions of the Companies Act, 1956 (1 of 1956) concerning
Chartered Accountants and stated as follows.
[s 4.59.1] Compliance with the Companies Act
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The Companies Act lays down detailed provisions regarding various matters and casts an obligation
upon directors and officers of the company to carry out the requirements of the law. Generally
speaking, it is the duty of the directors and the management to ensure that the provisions of the
Companies Act have been complied with. However, where non-compliance with the provisions of the
Companies Act has a bearing upon the accounts and transactions of the company, the Auditor would
in the normal course of his inquiry become aware of the breaches of the Act and may have an
obligation to bring this to the attention of the shareholders. In order to facilitate the work of the
Auditors, a list of important Sections has been provided in the Statement.
The List of important Sections provided in the Statement, inter alia, enumerated section 13 of the
1956 Act as follows:
[s 4.59.2] Section 13 Requirements with respect to the Memorandum [Section 13 of the

This Section prescribes requirements with respect to the Memorandum of Association. In regard to
companies incorporated on or after 15 October 1965, a distinction has been made between main
objects and other objects. Attention is invited to the provisions of section 149 and in particular to sub-
section (2A) of the 1956 Act.
[See Statement on Auditing Practices, issued by the Institute of Chartered Accountants of India
(ICAI), Third Edition, 1977, para 15.1 : Reproduced in Handbook of Auditing Pronouncements,
Volume I—Compendium of Statements and Standards, published by the ICAI, Third Edition, 2005,
para 15.1, pages II-30 to 39].
[s 4.59.3] Authorised Capital—Auditor to examine Memorandum of Association
India (ICAI), inter alia, stated as follows:
In the case of Audit of a Company, the Auditor should examine the Memorandum of Association of
the company, the Minutes of the General Meeting and Office copy of the Return filed with the
Registrar of Companies (vide section 97 of the 1956 Act) to verify the amount of the Authorised
Capital as shown in the Balance sheet of the company.
[s 4.60] Producer Companies [Sections 581A-581ZT of the Companies Act, 1956]
A new Part IXA containing Chapters I to XII, sections 581A to 581ZT of the 1956 Act has been
inserted in the Companies Act, 1956 by the Companies (Amendment) Act, 2002 (1 of 2003) (w.e.f.
06-02-2003) facilitating formation of Co-operative business as Companies and to convert existing
business into companies on a voluntary basis. The aim is to provide Statutory and Regulatory
framework that creates the potential for producer-owned enterprises to compete with other
enterprises on a competitive footing with more liberal regulatory framework and certain privileges of a
Private Company.
See detailed Notes under sections 581A to 581ZT of the 1956 Act .
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[s 4.61] Objects of the Producer Company [Section 581B(1)(a) to (k) of the Companies Act,
1956]
Section 581B(1)(a) to (k) of the 1956 Act enumerate objects of the Producer Company which may be
related to all or any of the matters referred to therein.
The objects of the Producer Company enumerated in section 581B(1)(a) to (k) of the 1956 Act shall,
inter alia, be contained with additional matters required to be stated in the Memorandum of
Association of the Producer Company under section 581F of the 1956 Act.
[s 4.62] Memorandum of Association [Section 581F of the Companies Act, 1956]
The Memorandum of Association of a Producer Company shall contain the particulars specified in
section 581F(a) to (i) of the 1956 Act in addition to other matters.
[s 4.63] Formation of Co-operative business as Companies
The main object of Pt IXA comprising sections 581A to 581ZT of the 1956 Act is to facilitate the
formation of the Co-operative business as Companies and to convert the existing business into
Companies (w.e.f. 6 February 2003).
Chapter II of this new Part IXA of the 1956 Act contains relevant provisions for Incorporation of
Producer Companies, e.g.,
Formation of Producer Company and its registration [section 581C], Membership and voting rights of
Members of Producer Company [section 581D], Benefits to Members [section 581E], Memorandum
of Producer Company [section 581F], Articles of Association [section 581G], Amendment of
Memorandum [section 581H], Amendment of Articles [section 581-I], Option to inter-State co-
operative societies to become Producer Companies [section 581J], Effect of incorporation of
Producer Company [section 581K] etc., of the 1956 Act.
See detailed Notes under sections 581B to 581N of the 1956 Act.
S. 14. Form of memorandum.—The memorandum of association of a company shall be in such one of the Forms in
Tables B, C, D and E in Schedule I as may be applicable to the case of the company, or in a Form as near thereto as
circumstances admit. The Companies Act, 1956 provision
NOTES
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“This is based on section 151(1) of the Indian Act and section 454 of the English Act.” [Clause 595 of the Companies
Bill, 1953 (46 of 1953)]. The provisions which were proposed in the Bill to be enacted in section 595 were
recommended to be contained in this section 14 as this Part deals with the Memorandum of Association.
[s 4.65] Form of Memorandum
Memorandum of Association of a company shall be in Forms in Tables B, C, D and E in Schedule I,

as applicable, or as near thereto as circumstances admit. The Tables of Schedule I contain following
forms:
• Table B Memorandum of Association of a company limited by shares.
• Table C Memorandum and Articles of Association of a company limited by Guarantee and

not having a share capital.
• Table D Memorandum and Articles of Association of a company limited by Guarantee and

having a share capital.
• Table E Memorandum and Articles of Association of an unlimited company.
[s 4.66] Requirements with respect to Memorandum [Section 13 of the Companies Act, 1956]
The Memorandum of Association needs to be carefully drafted in as much as the company and the
directors cannot do anything beyond the scope of the Memorandum except those incidental to the
business of the company. See detailed Notes on Objects and other Clauses to be contained in the
Memorandum of Association under section 13 of the 1956 Act.
S. 20. Companies not to be registered with undesirable names.—(1) No company shall be registered by a name
which, in the opinion of the Central Government, is undesirable. The Companies Act, 1956 provision
44[(2)
Without prejudice to the generality of the foregoing power, a name which is identical with, or too nearly
resembles,—
(i) the name by which a company in existence has been previously registered, or
(ii) a registered trade mark, or a trade mark which is subject of an application for registration, of any other person
under the Trade Marks Act, 1999 (47 of 1999), may be deemed to be undesirable by the Central Government
within the meaning of sub-section (1).
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(3) The Central Government may, before deeming a name as undesirable under clause (ii) of sub-section (2), consult
the Registrar of Trade Marks.]
NOTES
Sub-clause (1) is based on section 17 of the English Act. It generalises the specific prohibitions contained in section
11(3) of the existing Act. Sub-clause (2) is based on the latter portion of section 11(1) of the existing Act. [Clause 17 of
the Companies Bill, 1953 (46 of 1953)].
OF 1999).—Sections 20 and 22 of the 1956 Act (1 of 1956) regarding

Companies not to be registered with undesirable names and Rectification of name of company have
been amended by the Trade Marks Act, 1999 (47 of 1999) (w.e.f. 15 September 2003).
[s 4.68] Companies with undesirable names not to be registered [Sub-section (1)]
No company shall be registered by a name which in the opinion of the Central Government is
undesirable.
[s 4.69] Undesirable Name [Sub-section (2)]
A name which is identical with, or too nearly resembles, (i) the name by which a company in
existence is already registered, or (ii) a registered trade mark, or a trade mark which is subject of an
application for registration, of any other person under the Trade Marks Act, 1999 (47 of 1999), may
be deemed to be undesirable within the meaning of sub-section (1).
[s 4.70] Consultation with the Registrar of Trade Marks [Sub-section (3)]
The Central Government may before deeming a name as undesirable under section 20(2) (ii) of the
1956 Act consults the Registrar of Trade Marks.
[s 4.70.1] Undesirable Names
This section forbids the use of an undesirable name by an incorporated company. Whether a name is
undesirable or not will be at the discretion of the Central Government, here the Registrar of
Companies. A name which is identical with the name of another existing company will be deemed to
be undesirable. Similarly, a name which resembles to a great extent with the name of another
existing company will be deemed undesirable. In selecting the name the promoters carry the
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responsibility for any confusion created in future.45
[s 4.71] Direction to change name
It is not open to the registering authority to register a company with a name similar to that of an
existing company or if it resembles closely, such names should be avoided. However, the Registrar
of Companies, while registering the company at the initial stage need not make a thorough
investigation. If such an issue is brought before the Registrar of Companies within the time stipulated
under section 22 of the 1956 Act, it is open to the Central Government to direct the later company to
change its name.46
[s 4.72] Name similar to defunct company
The Registrar cannot refuse registration of a company in a name which is similar to defunct company
for 10 years. Before making an order for obtaining a “No objection” letter from a company using a
name similar to the proposed name, the ROC should be satisfied that the existing company has been
lawfully registered and is entitled to transact its business in that name. In an appropriate case a writ
petition will lie against the order of the ROC.47
[s 4.73] No objection letter
A company was incorporated at Madras with the word “Kilburn” in its name with the permission or no
objection from a Calcutta based company. The Madras company floated two other companies with
name “Kilburn” and got them registered at Madras. Held, no objection or permission of the Calcutta
company did not extend to two other companies. The order for change of names of the two new
companies under section 22(1)(b) of the 1956 Act was therefore justified.48
Where the Registrar of Companies registered a company “Parag International (KNP) Pvt Ltd” in
violation of the provisions of section 20 of the Act, as clarified by the Department’s Circular which
stated that a company will not be allowed to be registered if it includes the name of a registered trade
mark unless the consent or no objection of the owner of the trade mark has been produced by the
promoters. The ROC was directed to take steps for cancellation of registration of the company,
permitting the company to apply for a change of name.49
[s 4.74] Right to use the Family or Surname
Where the petitioner-company “Hira Lal and Sons (Export) Pvt Ltd” was incorporated in the year
1973. The Registrar of Companies (ROC) allowed respondent-company to be incorporated with the
name “Hira Lall and Sons (I) Pvt Ltd” in July 2000. The petitioner filed a representation under section
22 of the 1956 Act and the Registrar of Companies (ROC) directed respondent-company to change
its name by suffixing “Anupam” being the name of its Director “Hira Lall and (Sons) (I) Anupam Pvt
Ltd”. On a writ petition, contending that name of the respondent-company was identical with that of
the petitioner-company. Dismissing the writ petition, it was held that under section 20(2) the name
which is identical with or too nearly resembles the name by which a company in existence has been
previously registered would be deemed to be undesirable by the Central Government within the
meaning of section 20(1). If it had been the case of an outsider using “Hira Lal and Sons” as prefix to
its name there might have been some substance in the contention of the petitioner. That was not so
as the petitioner-company as well as respondent-company were persons with common family roots.
From the No Objection Certificate (NOC), dated 10 September 2000 given by the Directors of the
petitioner-company it could be inferred that there was an oral understanding at the time of
incorporation of respondent-company for using the name of their grandfather “Hira Lall”. Moreover,
the petitioner-company was doing different business from respondent-company. Since Hira Lall was
the grandfather of the parties the right to use the family or surname could not be denied or treated as
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unauthorised. After the change of name of respondent-company to “Hira Lall and (Sons) (I) Anupam
Pvt Ltd” it would not come under the mischief of section 20(2) of the 1956 Act.50
[s 4.75] Misleading Name
A company should not be registered with a name which would mislead the public and cause harm to
them. In considering whether the name is misleading and harmful to public interest, the Court would
consider the expectations of the public from the company, and the probability of their spending their
moneys on such wrongful or misleading name.51 An individual likely to be deceived or confused or
aggrieved by misleading name may file a suit or apply for appropriate reliefs.52
[s 4.76] Remedies under Act and Tort
The remedies available in Law of Tort for the unauthorised use of business name and trade marks
and safeguards provided under the 1956 Act should operate in different fields.53
[s 4.77] Injunction
A Joint Venture Agreement provided that if the equity participation of the foreign company at any time
fell below 40% then the company would stop using the foreign company’s trade name. The foreign
company disposed off the equity shares. On an action the Court injuncted the Indian company from
using the foreign company’s trade name.54 The Court refused to issue an Order of Injunction for use
of its own name or name of a place or an ancestral name on a passing off action.55
See detailed Notes under Injunction and Passing off action after Department’s views, viz., Circulars,
Guiding Principles and Instructions for Availability of Names reproduced hereinafter. See also Notes
under section 22.
[s 4.78] Emblems and Names (Prevention of Improper Use) Act, 1950
The Emblems and Names (Prevention of Improper Use) Act, 1950 (12 of 1950) governs the choice of
a name. The Preamble states the aim of the Act thus: “An Act to prevent the improper use of certain
emblems and names for professional and commercial purposes”.
[s 4.78.1] Department’s View— Availability of Name—Instructions regarding
“Instruction No. 8 of the Guiding instructions circulated vide this Department’s letter No. 10(1)-RS/65, dated 27-11-
1965 [printed below], provides that a name in the category mentioned below will not generally be made available:—
If it attracts the provisions of the Emblems and Names (Prevention of Improper Use) Act, 1950 (12 of 1950), as
amended from time to time, i.e., use of improper names, prohibited under this Act.
2. It is observed from a communication received from the Department of Consumer Affairs that the above-said
instructions are not being followed scrupulously.
3. The ROCs are advised to take into account the provisions of the above-said Emblems and Names Act while making
names available to companies under the Companies Act, 1956.
4. All the ROCs are requested to adhere to the above instructions for strict compliance.” [General Circular No. 24 of
2001 (F. No. 5/46/2001-CL-V and F. No. 27/12/2001-CL-III), dated 21-11-2001 : (2001) 107 COMP CASES (St.) 486].
[s 4.79] Guiding Principles for Availability of Names
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Besides the Emblems and Names Act and Instructions [printed above], there are Circulars, Guiding
Principles and Instructions issued by the Department of Company Affairs, by which the Registrar of
Companies decides whether a particular Name is desirable or undesirable.
These Circulars, Guiding Principles and Instructions are reproduced below.
[s 4.79.1] Department’s View.— Guiding Instructions for Availability of Names
“The procedure for scrutinising the availability of names for new companies has recently been re-examined carefully in
this Department, having taken into account the difficulties experienced by some Registrars in following the instructions
given to them vide Letter No. 10(19)-RS/61, dated 05-05-1962. This Letter [No. 10(1)-RS/65, dated 27-11-1965],
together with the enclosed set of Instructions as revised, consolidates, and is in supersession of all the previous
instructions issued from time to time by this Department. An illustrative list of names considered to be undesirable
within the meaning of section 20 of the Companies Act, 1956 has also been given herewith. The guiding instructions
for deciding cases of making a name available for registration are given in Appendix ‘A’ to this letter. In addition to
these, the Registrars of Companies are requested to note the following general instructions also:
1. As the Registrars have hitherto been doing, they should refer only doubtful and hard cases where they might
find it difficult to take a decision, to the Research and Statistics Division at the Headquarters.
2. Where consultation with the Regional Director on the spot is possible, Registrars of Companies would take
advice before referring doubtful and hard cases to the Headquarters.
3. In order to find out the availability of names, the Registrars are advised to consult the All India Index Cards of
companies in their offices, if any kept up-to-date or the alphabetical list of companies contained in the
following publications issued by the Department:
(i) Annual Blue Book on Joint Stock Companies, Part II, 1958–59 and its supplementaries giving newly
registered companies upto March, 1964.*
(ii) All India lists of new company registrations maintained in the field offices from 1 April 1964 to date.
(iii) Fortnightly list of names made available to promoters by the Registrars, circulated from the Research
and Statistics Division.
(iv) List of foreign companies having a place of business in India.
4. The Registrars will prepare separate slips and not one consolidated list as per specimen given at Appendix ‘B’
in respect of each of the name allowed by them and send them in a bunch to the Research and Statistics
Division on the 1st and 16th of every month. A consolidated list of such new names allowed by the Registrars
of Companies will be drawn up here and it would then be circulated among the field offices for their ready
information, and use. The advantage of this arrangement is too obvious to need emphasis.
5. The Registrars of Companies may ask the promoters to suggest a panel of three to five names quite distinct
from each other for consideration.
6. The Registrars should adopt a polite attitude and persuade the Company promoters to suggest names
consistent with the guiding principles. They should explain the difficulties of the Administration in approving
names likely to create confusion in the minds of the public and harm the interests of the promoters.
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7. In case any of the names proposed by the promoters is not agreed to by the Registrars as available, it should
be open to them to follow up the matter by subsequent letters or application for the same fee within a
reasonable period which may normally be construed to mean three months from the date of rejection of the
name/names proposed.
8. The Registrars may permit the promoters to use the name of the firm in brackets after the duly approved name
as incorporating or successor to (name of the firm) in order to fulfil the desire of the promoters to retain the
goodwill of their business in cases where the names of firms seeking registration under the Companies Act is
considered as undesirable within the meaning of section 20.
9. Registrars should ascertain from the promoters if the proposed name/names were applied for to any other
Registrar of Companies and if so, with what result. In case there is some difference of opinion between the
two Registrars in making the name available, then the case may be referred to the Board for advice.
10. The name of a proposed company allowed by the Registrars to the promoters for registration under the
Companies Act should not be kept reserved for more than three months.
11. It is necessary that the ‘keywords’† of a proposed name/names are checked separately with the names of the
existing companies beginning with those ‘keywords’ so as to avoid any possibility of allowing a name with a
little re-arrangement of the same words of the existing company which may be said to be closely resembling
each other.
I may further add that although it is not possible to lay down any hard and fast rules for determining
whether a particular name or any two names too nearly resemble each other, each case, however,
will be decided on its merits. As already emphasised in the earlier circular letter of this Department on
the subject dated 05-05-1962, that the various criteria set out in the guiding principles at Appendix ‘A’
are not exhaustive but only illustrative of what is considered to be undesirable names under section
20 of the Companies Act and that, by the very nature of the subject all possible cases could not be
covered. It is, therefore, suggested that where the Registrars find that certain proposed names could
not be judged in the light of the instructions given above and give rise to doubt, the same may be
referred to the Research and Statistics Division at the Headquarters after availing of the help of the
Regional Director if available on the spot.
APPENDIX ‘A’
GUIDING INSTRUCTIONS FOR DECIDING CASES OF MAKING A NAME AVAILABLE FOR

REGISTRATION UNDER THE COMPANIES ACT, 1956
A name which falls within the categories mentioned below will not generally be made available:
1. If it is not in consonance with the principal objects of the company as set out in its memorandum of
association. This does not necessarily mean that every name should be indicative of its object, but when
there is some indication of business in the name then it should be in conformity with its objects.
2. If the Company/Companies’ main business is finance unless the name is indicative of that particular financial
activities, viz., Chit Funds/Investments/Loans etc.
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3. If it includes any word or words which are offensive to any section of the people.
4. If the proposed name is the exact Hindi translation of the name of an existing company in English especially
an existing company with a reputation.
5. If the proposed name has a close phonetic resemblance to the name of a company in existence for example:
J.K. Industries Ltd. Jay Kay Industries Ltd.
6. If the name is only a general one, like Cotton Textile Mills Ltd or Silk Manufacturing Ltd and not specific like
Calcutta Cotton Textiles Mills Ltd or Lakshmi Silk Manufacturing Company Ltd.
7. If it includes, the word ‘Co-operative’, ‘Sahakari’ or the equivalent of word ‘Co-operative’ in the regional
languages of the country.*
8. If it attracts the provisions of the Emblems and Names (Prevention of Improper Use) Act, 1950**, i.e., use of
improper names, prohibited under this Act.
9. If it connotes Government’s participation or patronage unless circumstances justify it, e.g., a name may be
deemed undesirable in certain context if it includes any of the words such as National, Union, Central,
Federal, Republic, President, Rashtrapathi, Small Scale Industries, Cottage Industries and Financial
Corporation etc.
10. If the proposed name contains the words ‘British India’.
11. If the proposed name implies association or connection with Embassy or Consulate which suggests
connection with local authorities such as Municipal, Panchayat, Delhi Development Authority or any other
body connected with the Union or the State Government.
12. If the proposed name is vague like D.J.M.O. Ltd or T.N.V.R. Pvt Ltd or S.S.R.P. Ltd.
13. If a proposed name implies association or connection with or patronage of a national hero or any person held
in high esteem or important personages who are occupying important positions in Government so long as
they continue to hold such positions.
14. If it resembles closely the popular or abbreviated descriptions of important companies like TISCO (Tata Iron &
Steel Co. Ltd), H.M.T. (Hindustan Machine Tools), I.C.I. (Imperial Chemical Industries), TEXMACO (Textile
Machinery Corporation), WIMCO (Western India Match Company), etc. In some cases, the first word or the
first few words may be the key words and care should be taken that they are not exploited. Such words
should not be allowed even though they have not been registered as trademarks.
†[14A. Where the existing companies are stated and found to be well-known in their respective fields by their
abbreviated names, these companies may be allowed to change their names by way of abbreviation with the
prior approval of the Regional Director concerned.]
15. If it is different from the name/names of the existing company/companies only to the extent of having the name
of a place within brackets before the word ‘Ltd’; For example, Indian Press (Delhi) Ltd should not be allowed
in view of the existence of the company named Indian Press Ltd.
• To this rule, however, frequent exceptions are made in the case of subsidiary and in the case of a company
carrying on local business and in other cases on their merits. As for an example, ‘Corner Garage (Delhi) Pvt
Ltd’ may be allowed notwithstanding that there is an existing company ‘Corner Garage Pvt Ltd’ at Calcutta.
So would be ‘Regent Cinema Ltd’ at Madras, if there is a company by the name Regent Cinema (Delhi) Ltd.
These names may also be allowed if they are in the same group or management.
16. If the proposed name includes common words like ‘Popular’ ‘General’ ‘Janta’, if they are in the same State
doing the same business But in case of companies in different business in the same State and in all cases
when the registered office of the company is in different States, the name might be allowed. For instance, if
there is ‘Popular Drug House Pvt Ltd’ existing another company by the name of ‘Popular Plastic Pvt Ltd’
should not be objected to.
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17. If it includes a name of a registered trade mark unless the consent of the owner of the trade mark has been
produced by the promoters. It may not be possible in all cases to check up the proposed name with the trade
mark, however, if the Registrars are in the know or some interested party/parties bring to their notice a trade
mark which is included in the proposed name then it should not be allowed unless a no-objection certificate is
obtained from the party who has registered the trade mark in its own name.‡
18. If a name is identical with or too nearly resembles the name by which a company in existence has been
previously registered.* [See few illustrations in Text hereinafter]. However, if a proposed company is to be
under the same management or in the same group and likes to have a closely resembling name to an
existing company under the same management or group with a view to have advantage of the goodwill
attached to the management or group name such a name may be allowed.
• Even in the case of unregistered companies or firms which have built up a reputation over a considerable
period, the principle (that if a name is identical with or too closely resembles the name by which a company
has been previously registered and is in existence, it should not be allowed) should be observed as far as
practicable. In view of the difficulty in checking up whether a proposed name is identical with or too nearly
resembling the name of an unregistered company or a firm of repute, it should at least be ensured that a
proposed name is not allowed if it is identical with or too nearly resembles the name of a firm within the
knowledge of the Registrar. The cases of foreign companies of repute should also be similarly treated even if
there are no branches of such companies in India.
• *A few illustrations of closely resembling names are given below for guidance. The names as proposed in
column 1 should not (normally) be made available in view of the companies in existence as shown in column
2.
Proposed name Existing company with too nearlyresembling names

(1) (2)
1. The National Steel Manufacturing Company Pvt Ltd National Steel Works.
2. Trade Corporation of India Ltd. State Trading Corporation of India Ltd.
3. Viswakarma Engineering Works Pvt Ltd Viswakarma Engineers (India) Pvt Ltd
4. India Land and Finance Ltd. Northern India Land & Finance Ltd.
5. Hindustan Chemicals & Fertilizers Ltd. Hindustan Fertilizers Ltd.
6. Ruby Engineering Ltd. Ruby Engineering Corporation Ltd.
7. Hind Finance Ltd. Jai Hind Finance Ltd.
8. Lakshmi Finance Ltd. New Laxmi Finance Ltd.
19. If it is identical with or too nearly resembles the names of a company in liquidation, since the name of a
company in liquidation is borne on the register till it is finally dissolved. A name which is identical with or too
closely resembles the name of a company dissolved as a result of liquidation proceedings should also not be
allowed for period of two years from the date of such dissolution since the dissolution of the company could
be declared void within the period aforesaid by an order of the court [now the Tribunal (NCLT)] under section
559 of the Act.
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• Further as a company which is dissolved in pursuance of action under section 560 of the Act can be revived
by an order of the Court [now the Tribunal (NCLT)] before the expiry of 20 years from the publication in the
Official Gazette of the company being so struck off, it is considered desirable to stop or conditionally allow the
registration of a proposed name which is identical with or too nearly resembling the name of such dissolved
company for a period indicated below.
• Since the period of 20 years as prescribed under the law is considered an unduly long period, the registration
of a proposed name which is identical with or too nearly resembles the name of a company dissolved in
pursuance of section 560 should not be allowed for a period of first five years only. During the next five years
such a proposed name may be allowed subject to the condition that in the event of the dissolved company
being restored to life by an order of the Court, the new company would have to change its name. After a
lapse of 10 years, names identical with or too nearly resembling those of the dissolved companies may be
allowed without any such condition.
20. If it is different from the name of an existing company merely by the addition of words like ‘New’, ‘Modern’,
‘Nav’, etc. Names such as New Bata Shoe Company, Nav Bharat Electronics, etc., should not be allowed.
Different combination of the same words also requires careful consideration. If there is a company in
existence by the name of ‘Builders and Contractors Ltd’ the name ‘Contractors and Builders Ltd’ should not
ordinarily be allowed.
21. If it includes words like ‘Bank’, ‘Banking’, ‘Investment’, ‘Insurance’* and ‘Trust’. These words may, however, be
allowed in cases where the circumstances justify it. In cases of banking companies, the Reserve Bank of
India should be consulted and its advice should be taken before a name is allowed for registration. The
purpose of such consultation is to prevent small banking companies from misleading the general public by
adopting the names of some well-established and leading banks functioning elsewhere than in India. In case
of differences of opinion with the Reserve Bank of India the matter should be referred to the Board for advice.
22. If the name includes the word ‘Industries’** or ‘Business’ unless the name is indicative of the business of the
proposed company for otherwise it serves as a lever for the company to diversify its activities.
23. If it includes proper name which is not a name or surname of a director—such names should not be allowed
except for valid reasons. For example, for sentimental reasons, sometimes the names of relatives such as
wife, son and daughter of the director may have to be allowed, provided one other word suggested makes the
name quite distinguishable.
24. If it is intended or likely to produce a misleading impression regarding the scope or scale of its activities which
would be beyond the resources at its disposal. For example, names like ‘Water Development Corporation of
India Pvt Ltd’, ‘Telefilm of India Pvt Ltd’, ‘All India Sales Organisation Ltd’, ‘Inter-continental Import & Export
Company Ltd’, etc., should not be allowed, when the authorised capital is to be only a few lacs, and the area
of operation limited to a State. Words like ‘International’, ‘Hindustan’, ‘India’, ‘Bharat’, ‘Continental’, ‘Asiatic’†
may be allowed only if the scope and scale of business of the proposed company justify the use of such
words. However, the words ‘Jai Hind’, ‘Jai Bharat’, ‘Nav Bharat’, ‘New India’, etc., included in the proposed
name need not stand the same test as ‘Hindustan’, ‘India’, etc. (as they do not give the same sense).
Similarly, the words ‘Bharat’, ‘India’, etc., if stated in the brackets, before the word ‘Ltd’ or ‘Pvt Ltd’ need not
stand the same test as the words ‘India’, etc., put at the beginning of the name. Also, the word ‘India’ or
‘Bharat’ in brackets before the word Ltd or Pvt Ltd does not necessarily mean that the company is an Indian
branch of some foreign company. Such as ‘Marsden Electricals (India) Pvt Ltd’.
25. If the proposed name includes the word ‘State’ along with the name of the State such as Kerala State
Company Ltd should not be allowed as it would give an impression of the Kerala State Government
participating in the share capital of the proposed company. However, if the name of a State only is included
without the addition of the word ‘State’ in the proposed name then it may be allowed as it is not likely to give
the impression that the company has the State Govt.’s interest in it.
26. If the proposed name includes the word ‘Corporation’, unless the company could be regarded as a big sized
company. However, the word ‘Corporation’ and ‘Company’ may be regarded as closely resembling for
purposes of allowing a new name. If for example, a company by the name of Rajasthan Finance Corporation
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already exists, Rajasthan Finance Company should be regarded as undesirable within the meaning of section
20 of the Act.
27. If the proposed name includes words like ‘French’, ‘British’, ‘German’, etc., unless the promoters satisfy that
there is some form of collaboration and connection with the foreigners of that particular company or place the
name of which is incorporated in the name. Thus, the name ‘German Tool Manufacturing Co. Ltd’ should not
be allowed unless the company has some connection with Germany.
28. Even where except for the first word all the other words of the proposed name are similar to those of an
existing company, the first word should be considered to be sufficient to distinguish it from the name of the
existing company. For example, ‘Oriental ……………………. Ltd’.
APPENDIX ‘B’
INFORMATION WITH REGARD TO THE PROPOSED NAME ALLOWED FOR REGISTRATION
1. Proposed name allowed …………………………………………………………
2. State in which allowed …………………………………………………………
3. Date on which allowed ………………………………………………………………” [Circular Letter No. 10(1)-

RS/65, dated 27-11-1965].
[s 4.80] Guidelines for use of key words as part of name
“With a view to maintain uniformity, the following guidelines may be followed in the use of key words, as part of name,
while making available the proposed names under sections 20 and 21 of the Companies Act, 1956:
Key words Required authorised capitalRs.

(1) Corporation 5 crores.
(2) International, Globe, Universal, Continental, Inter- 1 crore.

Continental, Asiatic, Asia, being the first word of the name.
(3) If any of the words at (2) above is used within the name 50 lakhs.
(with or without brackets).
(4) Hindustan, India, Bharat, being the first word of the name. 50 lakhs.
(5) If any of the words at (4) above is used within the name 5 lakhs.
(with or without brackets).
(6) Industries/Udyog. 1 crore
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Key words Required authorised capitalRs.

(7) Enterprises, Products, Business, Manufacturing. 10 lakhs.
2. These names with key words at Serial Nos. (6) and (7) may be considered when the company proposes to deal in
various business activities or the company is already carrying on various business activities (in the case of change of
name).” [Letter F. No. 27/1/87-CL-III, dated 13-3-1989 : Chartered Secretary, April 1989, page 279 : (1989) 65 COMP
CASES (St.) 536].
In view of above Circular, earlier Circular No. 16/74 (F. No. 27/9/74-CL-III), dated 27-8-1974
regarding availability of the word ‘Hindustan’ and ‘Corporation’ to the private sector big sized
companies, stands superseded.
[s 4.80.1] Changes in Guidelines for Availability of Names
“As ROCs are aware, this Department had issued exhaustive guidelines on avoiding undesirable names for companies
as mentioned in section 20 of the Companies Act, 1956, through Circular No. 10(19)-RS/61, dated May 5, 1962 [Letter
No. 10(1)-RS/65, dated 27-11-1965 (printed above) revised, consolidated and superseded all earlier circulars]. Further
guidelines were also issued through Circular No. 1 of 1990 (No. 1/1/90-CL-V : 27/1/89-CL-III), dated January 5, 1990
[printed later under Availability of Name].
2. In recent times, this Department has received a few references which needed further clarification. The following
guidelines/clarifications are accordingly issued.
3. Names starting with small letters/having small letters:
• 3.1. In the past the name-search for allowing names for companies used to be a manual search based on list
of names already in existence on a particular date, names made available by different ROCs (which used to
be circulated periodically) etc. The name search is no longer manual. It has become a computerised
operation in all ROC offices. In view of this, some of the old constraints (like alphabetical listing) which could
be a restrictive factor in the manual system do not exist under the present computerised system.
• 3.2. ROCs may therefore now allow names starting with small alphabets (like ‘i2 Technologies …… Ltd’ etc.),
as such names are being increasingly used by many companies in other countries. It should, however, be
ensured that the name starting with small alphabets does not have phonetic or visual resemblance to the
name of a company in existence.
4. Change of name by companies:
• 4.1 In recent times it appears that quite a few companies whose principal object was not computer software
and who had actually been involved in financing activities have changed their names to indicate as if they
were in the business of computer software. For this purpose they have included words like—‘Infosys;
Software; Systems; Infosystem; Computers; Cyber; Cyberspace etc.’ in their names.
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• 4.2. In order that investors are not misled by the strategy adopted by a few companies, ROCs are hereby
advised that in future they should allow change of name to companies to reflect the business of software only
if a substantial portion of their income (as reflected from their audited accounts or accounts certified by a
chartered accountant) is derived from software business. If this is not proved then such change of name
should not be allowed.
5. Companies in insurance sector:
• 5.1. It may be recalled that in Guideline No. 21 [See Guideline No. 21 of Circular Letter No. 10(1)-RS/65,
dated 27-11-1965 printed above] you have been advised not to allow the words ‘bank’, ‘banking’,
‘investment’, ‘insurance’, and ‘trust’ unless circumstances justify it. As you may be aware, the insurance
sector is likely to be opened for entry by private sector. The activities of the insurance sector would be
regulated by the Insurance Regulatory Authority which has already been set up.
• 5.2. In view of this, in partial modification of the above-mentioned guideline, it is hereby clarified that ROCs
may allow companies to be registered by them with the word ‘insurance’ or ‘risk corporation’ as part of the
name only after consulting the Reserve Bank of India and Insurance Regulatory Authority† (Jeevan Bharti
Building, Tower 1, Connaught Circus, New Delhi-110 001), as the case may be.
6. Use of generic names:
• 6.1. Guideline No. 5 [See Guideline No. 6 of Circular Letter No. 10(1)-RS/65, dated 27-11-1965 printed above]
relates to inadvisability of allowing companies to have only generic names without any other proper noun
preceding/succeeding it. Under this category would come the word ‘Y2K’ (i.e., Year 2000).
• 6.2. It may kindly be noted that this is a generic one and cannot be allowed for any company as a ‘standalone’
name.” [Circular No. 6 of 1999 (F. No. 5/35/98-CL-V), dated 13-05-1999 : (1999) 97 COMP CASES (St.) 94].
[s 4.80.2] Change of name by software companies made difficult
“The Registrars of Companies (ROCs) will allow change of name to companies to reflect the business of software only
if a substantial portion of their income is reflected in their audited accounts or accounts certified by a chartered
accountant is derived from software business. If this is not proved then such change of name would not be allowed.
This follows the decision of the Government that investors are not misled by the strategy adopted by a few companies
whose principal object was not computer software and who had actually been involved in financing activities. Such
companies have changed their names to indicate as if they were in the business of computer software. For this
purpose, such companies have included words like ‘Infosys, Software, Systems, Info-system, Computers, Cyber,
Cyberspace, etc.’ in their names only to dupe the gullible investors.” [PIB Press Release, dated 16 August 1999 :
(1999) 97 COMP CASES (St.) 102].
[s 4.80.3] Changes in company name availability starting with small alphabets
“The Registrars of Companies (ROCs) will now allow company name changes starting with small alphabets like ‘i2
Technologies …. Ltd’, etc., as such names are being used increasingly by many companies in other countries. It shall,
however, be ensured that the name starting with small alphabets does not have phonetic or visual resemblance to the
name of a company in existence.
In the past, the name-search for allowing names for companies used to be a manual search based on list of names
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already in existence on a particular date, names made available by different ROCs, which used to be circulated
periodically.
The name-search is no longer manual. It has become a computerised operation in all ROC offices. In view of this,
some of the old constraints like alphabetical listing, which would be a restrictive factor in the manual system, do not
exist under the present computerised system.” [PIB Press Release, New Delhi, dated 16 September 1999 : (1999) 98
COMP CASES (St.) 27].
[s 4.80.4] Registration of private insurance companies allowed
“The Registrars of Companies (ROCs) will, henceforth, allow companies to be registered by them under the
Companies Act, 1956, bearing the word ‘insurance’ or ‘risk corporation’ as part of name only after consulting the
Reserve Bank of India and Insurance Regulatory Authority, as the case may be.
The modification in the earlier decision of the Department of Company Affairs follows the likely opening up of insurance
sector in the private sector. The activities of the insurance sector would be regulated by the Insurance Regulatory
Authority which has already been set up.
Earlier, the Registrars of Companies had been advised not to allow registration of companies with the ‘bank’ ‘banking’
‘investment’ ‘insurance’ and the ‘trust’. In view of the setting up of the Insurance Regulatory Authority, the Department
of Company Affairs changed its guidelines for registration of insurance related companies in the private sector as well.”
[PIB Press Release, dated 20 August 1999 : (1999) 97 COMP CASES (St.) 103].
[s 4.80.5] Further Changes in Guidelines for Availability of Names
“Attention is invited to this Department’s Circular No. 6 of 1999 (5/35/98-CL-V), dated 13th May, 1999 [printed above],
in regard to allowability of names for entrepreneurs seeking to promote companies for providing insurance services. In
terms of the above circular such names were being given only after consulting the insurance regulatory authority until
now. Consequent on the coming into force of the Insurance Regulatory and Development Authority Act, 1999, with
effect from 19 April 2000, the Department has received a reference from the insurance regulatory authority advising
that the embargo on registration of names by new companies could be lifted. In view of this all ROCs are advised that
they may allow names with the word insurance/assurance or risk corporation as part of the name without any need to
consult the insurance regulatory authority. It is hereby clarified that such names can be allowed only to new companies
and not for change of name as existing companies are not allowed to carry on any insurance activity.” [Circular No. 5 of
2000 (F. No. 5/14/2000-CL-V), dated 30-06-2000 : (2000) 102 COMP CASES (St.) 49].
[s 4.80.6] Change in Name Availability Guidelines
“In partial modification of General Circular No. 5 of 2000, dated 30th June, 2000 [printed above], it is hereby further
clarified that since the Insurance Regulatory and Development Authority has notified the Insurance Regulatory and
Development Authority (Insurance Brokers) Regulations, 2002 permitting private sector companies to carry on the
insurance brokers’ business, the Registrars of Companies may permit change of name of existing companies on their
changing the objects to undertake the business of insurance brokers also.” [General Circular No. 19 (F. No. 5/6/2003-
CL-V), dated 25-04-2003 : (2003) 114 COMP CASES (St.) 269].
[s 4.81] Application for approval of Name
As per rule 4A* of the Companies (Central Government’s) General Rules and Forms, 1956 an
application for approval of the proposed name is to be made by the promoters of a company to the
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Registrar of Companies of the State in which the registered office of the proposed company is to be
situate in Form No. 1A* of the Companies (Central Govt.’s) General Rules and Forms, 1956 with a
fee of Rs 500. Fees must preferably be paid through Bank Draft or by deposit in cash at the office of
the Registrar [see rule 22*]. The Registrar of Companies will ordinarily inform within a period of seven
days of the receipt of the application whether the proposed name is available or not.
As per rule 4A* of the Companies (Central Govt.’s) General Rules and Forms, 1956, application for
approval of name is to be made by the promoters to the Registrar of Companies of the State in which
the registered office of the company is to be situate in e-Form No. 1A* along with a fee of Rs 500.
The Registrar of Companies will ordinarily inform within a period of seven days of the receipt of the
application whether the proposed name is available or not.
[s 4.82.1] Rule 4A substituted (w.e.f. 19-11-2007)
Rule 4A* of the Companies (Central Government’s) General Rules and Forms, 1956 has been
substituted by the Companies (Central Government’s) General Rules and Forms (Third Amendment)
Rules, 2007 vide Notification No. G.S.R. 720 (E), dated 16-11-2007, published in the Gazette of
India, Extraordinary, Pt II, section 3(i) (w.e.f. 19-11-2007) as follows:
[s 4.83] Rule 4A (w.e.f. 19 November 2007)
(1) The promoters of a company under a proposed name or a company seeking to change its name may make an
application to the Registrar of Companies of the State in which the Registered Office of the proposed company or of
the company to be or is situated.
(2) The application shall be in Form 1A [e-Form 1A] and be accompanied by a fee of Rs 500 only.
(3) The Registrar of Companies (ROC) shall cause to examine the application as to whether the changed name or the
name with which the proposed company is to be registered, as the case may be, is undesirable within the meaning of
section 20. In case the name is undesirable, he may reject the same or ask for resubmission of the application with
new names or calls for further information, ordinarily within three days of receipt of the application:
Provided that the applicants shall be given only upto two opportunities for re-submission of their proposal against the
fee paid in the first instance for name availability after the original application is filed. In the event the Registrar does
not find the proposals so submitted and resubmitted as fit for approval, he shall reject the application after the second
re-submission. However, the applicant will be at liberty to file fresh application along with prescribed fee.
(4) Where the Registrar of Companies informs the company or the promoters of the company that the changed name
or the name with which the proposed company is to be registered, as the case may be, is not undesirable, such name
shall be available for adoption by the said company or by the said promoters of the company for a period of 60 days
from the date the name is allowed:
Provided that if the name so allowed is not adopted on or before the expiry of the period of 60 days from the date it is
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allowed, the applicant may apply for extension for retention of such name for a further period of 30 days on payment of
50%. of the fee prescribed for the application at the initial stage:
Also provided that no further extension will be granted after expiry of 90 days from the date the name is allowed in the
first instance. The name allowed shall lapse after expiry of 60 or 90 days, as the case may be, from the date it is
allowed first:
Provided further that the name allowed by the Registrar of Companies (ROC) before the date of this Notification comes
into force, if not adopted, shall lapse after the expiry of a period of six months from the date on which the name was
initially allowed or renewed. However, in case the name has not been renewed earlier, the applicant on or before the
date of expiry, may apply for one time extension of such name for a further period of 30 days on payment of 50%. of
the fee prescribed for the application at the initial stage.
[s 4.84] Filing Fees
Filing fee of Rs 500 as prescribed in rule 4A of the Companies (Central Government’s) General Rules
and Forms, 1956 shall be payable along with e-Form 1A of the Companies (Central Govt.’s) General
Rules and Forms, 1956.*
[s 4.84.1] Application for availability of name
“I am directed to say that sub-rule (1) of rule 4A of the Companies (Central Government’s) General Rules and Forms,
1956, has been amended, vide Notification No. G.S.R. 697(E), dated September 20, 1994, raising the fee from Rs 100
to Rs 500 for making application for availability of name of a new company to the Registrar of Companies, with effect
from 1st November, 1994.” [Circular No. 10 of 1994 (F. No. 3/3/93-CL-V, dated 27-09-1994 : (1994) 81 COMP CASES
(St.) 160].
[s 4.84.2] Subscribers to Memorandum and Articles should tally with list of Promoters/first
Directors stated in Form No. 1A for Availability of Names
“I am directed to say that as per the application form for availability of names (Form No. 1A), prescribed under rule 4A
of the Companies (Central Government’s) General Rules and Forms, 1956, the promoters are, inter alia, required to
give the names and addresses of the prospective directors or promoters, as also the name(s) and address(es) of the
person(s) applying for availability of names. You are requested to advise your constituents to ensure that the
application form is filled up in all respects and the application is made by one or more amongst the promoters. The
Registrars of Companies have been advised to ensure at the time of registration of a new company that the
subscribers to the memorandum and articles of association tally with the list of promoters/first directors stated in the
application for availability of names and in case, one or more of the promoters are not interested in participating in the
promotion of a new company, at a later stage, a ‘No objection letter’ from such promoter(s) is made available to the
Registrar while submitting the documents for registration. The Registrars of Companies are also being advised to
dispose of applications for availability of names ordinarily within 14 days [now amended Rule provides for seven days
(Citizen’s Charter of DCA provides for three working days)] of the receipt of application and to correspond with the
applicant promoter(s), in this behalf.” [Circular No. 27/1/89-CL-III, dated 17-02-1989 : Chartered Secretary, March
1989, page 225 : (1989) 65 COMP CASES (St.) 575].
“I am directed to refer to this Department’s Circular No. 27/1/89-CL-III, dated 17th February, 1989 [printed above], on
the above subject, wherein you were requested to advise your constituents to ensure that the application form is
signed by one or more amongst the promoters and in case one or more of the promoters are thereafter no more
interested in participating in the promotion of the new company, a no objection letter from such promoter is made
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available to the Registrar of Companies at the time of registration of the new company. Instances came to the notice of
the Department that some promoters are pre-empting the names, which is not a healthy practice. It has, accordingly,
been decided that, in future, Registrars of Companies should register the company only in cases where the promoters,
as per availability of name application, are also the subscribers to the memorandum and articles of association of the
proposed company at the time of its registration. In case of any change in the name(s) amongst the subscribers, the
changed subscribers are advised to make fresh application for availability of name. The Registrar may, as per existing
procedure, allow the same name, if otherwise available, after three months from the date when the name was allowed
to the original promoter(s).” [Circular No. 1 of 1990 (F. No. 1/1/90-CL-V : 27/1/89-CL-III), dated 05-01-1990 : Chartered
Secretary, February 1990, page 139 : (1990) 67 COMP CASES (St.) 230].
[s 4.84.3] Streamlining the working of Registrars of Companies—Report of the Review

Committee
“Availability of names : (i) The Government has increased the application fee from Rs. 100 to Rs. 500 with effect from
November 1, 1994. In view of computerisation in this area in most of the offices, you are advised to make
arrangements for a computer terminal being available in your office for few hours on all working days to the promoters
or their representatives with a view to ascertain the availability of proposed names. ROC, Bangalore, has already
implemented this procedure with effect from November 1, 1994. This will ensure that the names applied for would be
made available promptly when an application for this purpose is made subsequently by the promoters.
(ii) The Department, vide Circular No. 27/1/89/CL-III, dated February 17, 1989 [printed above], advised the ROCs to
ensure that at the time of registration of a new company, the subscribers to the memorandum of association should
tally with the list of promotors/first directors stated in the application for availability of name, and in case one or more of
the promotors are not interested in participating in the promotion of a new company at a later stage, a ‘no objection’
letter from such promotor(s) is made available to ROC. This circular was amended on January 5, 1990 (No. 1 of 1990)
[printed above], to the effect that ROCs should register the company only in case where the promotors, as per the
availability of name application, are also subscribers to the memorandum. On reconsideration, it has now been
decided, in partial modification of the above circular, that so long as there is at least one promotor common, both in the
name availability application and the subscription clause of the memorandum and articles of association, and others
have no objection, the company may be registered. (iii) Presently, there is a restriction on the use of abbreviated
names (like ITC Limited) in case of existing companies requiring approval of the Regional Director concerned.
[Guideline No. 14A printed above]. No such approval of the Regional Director will now be necessary and ROCs may
take a final decision on such applications in the light of existing guidelines [printed in earlier paragraphs].
(iv) Rules are being separately amended to extend the validity period of availability of names from three to six months
and to make availability of names within seven days, instead of fourteen days as per existing Rules. However, the
ROCs where computer facility is available may endeavour that name availability applications are disposed of within
three working days after their receipt.
New registration : (v) There are divergent practices in the offices of ROCs as to the number of clauses/objects that can
be allowed under ‘Main objects’ to be pursued by the company on its incorporation vide section 13(1)(d)(i) of the
Companies Act, 1956. ROCs are advised to follow the general principle that in case of object oriented names like
Hindustan Sugar Limited, the main object should constitute only that object (like sugar in case of Hindustan Sugar Ltd),
while in case of non-object oriented names (like Tata Sons Limited), there should be no restriction as to the number of
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main objects. Similar should be the approach in case of companies having names with general expressions like
‘Industries/Enterprises’, etc., without prefixing the nature of industry or enterprise. In either case, it may be ensured that
objects specified in the memorandum of association are those specified against column No. 5 of Form 1A. [See also
Notes under Section 13].” [Extracts from Circular No. 1 of 1995 (F. No. 14/6/94-CL-V), dated 16-02-1995 : (1995) 82
[s 4.84.4] ROCs advised to be cautious while registering companies as Nidhis or Mutual

Funds
“The Registrars of Companies (ROCs) have been directed by the Department of Company Affairs not to allow
registration of names with words ‘mutual funds’ forming part of some Non-Banking Financial Companies
(NBFCs)/Nidhis under section 20 of the Companies Act, 1956, unless such companies are going to be incorporated
actually as mutual funds. ROCs have been informed that companies declared as nidhis and mutual benefits societies
under section 620A of the Companies Act are not mutual funds. Therefore, names with words ‘mutual funds’ forming
part thereof shall also not be allowed to companies proposed to be incorporated as ‘nidhi’ or ‘mutual benefit societies’.
It has come to the notice of the Department of Company Affairs that some NBFCs or nidhis have been registered with
words ‘mutual funds’ forming part of their names, although they are not actually mutual funds. This is likely to create
confusion in the minds of investors.
In the cases where NBFCs or nidhis have already been incorporated with words ‘mutual funds’ in their names, the
ROCs have been asked to get their names changed under section 21 of the Companies Act, 1956, within a reasonable
time of six months failing which, report would be sent to the Department of Company Affairs for initiating action for
withdrawal of notification issued in their favour under section 620A of the Companies Act, 1956.” [PIB Press Release,
New Delhi, dated 14-02-2000 : (2000) 99 COMP CASES (St.) 560].
Earlier the powers and functions of the Central Government under section 20 had been delegated to
the Company Law Board vide Notification No. G.S.R. 443(E), dated 18-10-1972, this notification has
since been rescinded by Notification No. G.S.R. 287(E), dated 31-05-1991. For details see Notes
under sections 10E and 637.
[s 4.86] Name Availability Guidelines, 2011 General Circular No. 45/2011, Dated 08-07-2011
In supersession of all the previous circulars and instructions issued by Ministry of Corporate Affairs
from time to time regarding name availability, the applicants and Registrar of Companies are advised
to adhere following guidelines while applying or approving a name:
1. As per provisions contained in section 20 of the Companies Act, 1956, no company is to be registered with
undesirable name. A proposed name is considered to be undesirable if it is identical with or too nearly resembling with:
(i) Name of a company in existence and names already approved by the Registrar of Companies;
(ii) Name of a LLP in existence or names already approved by Registrar of LLP; or
(iii) A registered trade-mark or a trade mark which is subject of an application for registration, of any other person
under the Trade Marks Act, 1999.
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2. While applying for a name in the prescribed e-form-1A, using Digital Signature Certificate (DSC), the applicant shall
be required to furnish a declaration to the effect that:
(i) he has used the search facilities available on the portal of the Ministry of Corporate Affairs (MCA) i.e.,
www.mca.gov. in/MCA21 for checking the resemblance of the proposed name(s) with the companies and
Limited Liability Partnerships (LLPs) respectively already registered or the names already approved.
(ii) the proposed name(s) is/are not infringing the registered trademarks or a trademark which is subject of an
application for registration, of any other person under the Trade Marks Act, 1999; (iii) the proposed name(s)
is/are not in violation of the provisions of Emblems and Names (Prevention of Improper Use) Act, 1950 as
amended from time to time;
(iv) the proposed name(s) is not such that its use by the company will constitute an offence under any law for the
time being in force.
(v) the proposed name is not offensive to any section of people, e.g., proposed name does not contain profanity
or words or phrases that are generally considered a slur against an ethnic group, religion, gender or heredity;
(vi) he has gone through all the prescribed guidelines, understood the meaning thereof and the proposed name(s)
is/are in conformity thereof;
(vii) he undertakes to be fully responsible for the consequences, in case the name is subsequently found to be in
contravention of the prescribed guidelines.
3. There is an option in the e-form 1A for certification by the practicing Chartered Accountants, Company Secretaries
and Cost Accountants, who will certify that he has used the search facilities available on the portal of the Ministry of
Corporate Affairs (MCA) i.e., www.mca.gov.in/MCA21 for checking the resemblance of the proposed name(s) with the
companies and Ltd Liability Partnerships (LLPs) respectively already registered or the names already approved and
the search report is attached with the application form. The professional will also certify that the proposed name is not
an undesirable
name under the provisions of section 20 of the Companies Act, 1956 and also is in conformity with Name Availability
Guidelines, 2011.
4(i) Where e-form 1A has been certified by the professional in the manner stated at ‘3’ above, the name will be made
available by the system online to the applicant without backend processing by the Registrar of Companies (ROC). This
facility is not available for applications for change of name of existing companies.
(ii) Where a name has been made available online on the basis of certification of practicing professional in the manner
stated above, if it is found later on that the name ought not to have been allowed under provisions of section 20 of the
Companies Act read with these Guidelines, the professional shall also be liable for penal action un provisions of the
Companies Act, 1956 in addition to the penal action under Regulations of respective professional Institutes.
(iii) Where e-form 1A has not been certified by the professional, the proposed name will be processed at the back end
office of ROC and availability or non availability of name will be communicated to the applicant.
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5. The name, if made available, is liable to be withdrawn anytime before registration of the company, if it is found later
on that the name ought not to have been allowed. However, ROC will pass a specific order giving reasons for
withdrawal of name, with an opportunity to the applicant of being heard, before withdrawal of such name.
6. The name, if made available to the applicant, shall be reserved for 60 days from the date of approval. If, the
proposed company has not been incorporated within such period, the name shall be lapsed and will be available for
other applicants.
7. Even after incorporation of the company, the Central Government has the power to direct the company to change
the name under section 22 of the Companies Act, 1956, if it comes to his notice or is brought to his notice through an
application that the name too nearly resembles that of another existing company or a registered trademark.
8. In determining whether a proposed name is identical with another, the following shall be disregarded:
(i) The words Private, Pvt, Pvt., (P), Ltd, Ltd, Ltd., LLP, Ltd Liability Partnership;
(ii) The words appearing at the end of the names—company, and company, co., co, corporation, corp, corpn,
corp.;
(iii) The plural version of any of the words appearing in the name;
(iv) The type and case of letters, spacing between letters and punctuation marks;
(v) Joining words together or separating the words, as this does not make a name distinguishable from a name
that uses the similar, separated or joined words. Such as Ram Nath Enterprises Pvt Ltd will be considered as
similar to Ramnath Enterprises Pvt Ltd;
(vi) The use of a different tense or number of the same word, as this does not distinguish one name from another.
Such as, Excellent Industries will be similar to Excellence Industries and similarly Teen Murti Exports Pvt Ltd
will be to Three Murti Exports Pvt Ltd;
(vii) Using different phonetic spellings or spelling variations, as this does not distinguish one name from another.
For example, J.K. Industries limited is existing then J and K Industries or Jay Kay Industries or J n K
Industries or J & K Industries will not be allowed. Similarly if a name contains numeric character like 3,
resemblance shall be checked with ‘Three’ also;
(viii) The addition of an internet related designation, such as COM, .NET, .EDU, .GOV, .ORG, .IN, as this does not
make a name distinguishable from another, even where (.) is written as ‘dot’;
(ix) The addition of words like New, Modern, Nav, Shri, Sri, Shree, Sree, Om, Jai, Sai, The, etc., as this does not
make a name distinguishable from an existing name such as New Bata Shoe Company, Nav Bharat
Electronic etc. Similarly, if it is different from the name of the existing company only to the extent of adding
the name of the place, the same shall not be allowed. For example, ‘Unique Marbles Delhi Ltd’ cannot be
allowed if ‘Unique Marbles Ltd’ is already existing; Such names may be allowed only if no objection from the
existing company by way of Board resolution is produced/submitted;
(x) Different combination of the same words, as this does not make a name distinguishable from an existing
name, e.g., if there is a company in existence by the name of “Builders and Contractors Ltd”, the name
“Contractors and Builders Ltd” should not be allowed;
(xi) Exact Hindi translation of the name of an existing company in English especially an existing company with a
reputation. For example, Hindustan Steel Industries Ltd will not be allowed if there exists a company with
name ‘Hindustan Ispat Udyog Ltd’;
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9. In addition to above, the user shall also adhere to following guidelines:
(i) It is not necessary that the proposed name should be indicative of the main object;
(ii) If the Company’s main business is finance, housing finance, chit fund, leasing, investments, securities or
combination thereof, such name shall not be allowed unless the name is indicative of such related financial
activities, viz., Chit Fund/ Investment/Loan, etc.;
(iii) If it includes the words indicative of a separate type of business constitution or legal person or any connotation
thereof, the same shall not be allowed. For eg: cooperative, sehkari, trust, LLP, partnership, society,
proprietor, HUF, firm, Inc., PLC, GmbH, SA, PTE, Sdn, AG etc.;
(iv) Abbreviated name such as ‘BERD limited’ or ‘23K limited’ cannot be given to a new company. However the
companies well known in their respective field by abbreviated names are allowed to change their names to
abbreviation of their existing name (for Delhi Cloth Mills limited to DCM Ltd, Hindustan Machine Tools limited
to HMT limited) after following the requirement of section 21 of the Companies Act, 1956 . Further, if the
name is only a general one like Cotton Textile Mills Ltd, or Silk Manufacturing Ltd, and not specific like
Calcutta Cotton Textiles Mills Ltd or Lakshmi Silk Manufacturing Company Ltd, the same shall not be
allowed;
(v) If the proposed name is identical to the name of a company dissolved as a result of liquidation proceeding
should not be allowed for a period of two years from the date of such dissolution since the dissolution of the
company could be declared void within the period aforesaid by an order of the Court under section 559 of the
Act. Moreover, if the proposed name is identical with the name of a company which is struck off in pursuance
of action under section 560 of the Act, then the same shall not be allowed before the expiry of 20 years from
the publication in the Official Gazette being so struck off since the company can be restored anytime within
such period by the competent authority;
(vi) If the proposed names include words such as ‘Insurance’, ‘Bank’, ‘Stock Exchange’, ‘Venture Capital’, ‘Asset
Management’, ‘Nidhi’, ‘Mutual fund’ etc., the name may be allowed with a declaration by the applicant that the
requirements mandated by the respective Act/ regulator, such as IRDA, RBI, SEBI, MCA etc. have been
complied with by the applicant;
(vii) If the proposed name includes the word “State”, the same shall be allowed only in case the company is a
government company. Also, if the proposed name is containing only the name of a continent, country, state,
city such as Asia limited, Germany Ltd, Haryana Ltd, Mysore Ltd, the same shall not be allowed;
(viii) If the proposed name contains any word or expression which is likely to give the impression that the company
is in any way connected with, or having the patronage of, the Central Government, any State Government, or
any local authority, corporation or body constituted by the Central or any State Government under any law for
the time in force, unless the previous approval of Central Government has been obtained for the use of any
such word or expression;
(ix) If a foreign company is incorporating its subsidiary company, then the original name of the holding company
as it is may be allowed with the addition of word India or name of any Indian state or city, if otherwise
available;
(x) Change of name shall not be allowed to a company which is defaulting in filing its due Annual Returns or
Balance Sheets or which has defaulted in repayment of matured deposits and debentures and/or interest
thereon;
10. These guidelines and revised e-form 1A are likely to be implemented with effect from 24 July 2011.
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11. This issues with the approval of competent authority.
[s 4.86.1] General Circular No. 48/2011, Dated 22-07-2011
In continuation of this Ministry’s earlier Circular No. 45 dated 8-7-2011 on the subject cited above, it
is stated as under:
The Name Availability Guidelines, 2011 and revised e-form 1A shall be implemented with effect from 24-07-2011.
A fee of Rs 1,000 shall be charged w.e.f. 24-07-2011 for making an application for availability of name in revised e-
form 1A as provided under Companies (Central Government’s) General Rules and Forms (Amendment) Rules, 2011
dated 14.07.2011.
[s 4.86.2] General Circular No. 7/2012, Dated 25-04-2012
Please refer to this Ministry’s earlier Circulars No. 45/2011, dated 08-07-2011 and 48/2011 dated 22-07-2011 on the
subject cited above. In this regard, I am directed to say that matter regarding availability of name by the system online
without backend process by the Registrar of Companies (ROC) on certification given by practising professionals in the
manner provided at Para 3 of the Circular No. 45/2011 dated 08-07-2011 has been re-examined in this Ministry and it
has been decided as under:—
(i) The facility of name approval through STP mode on certification by professional will continue to be available.
However, such names will be put to online check by the system for ascertaining similarity with trademarks. If
there is similarity of proposed name with any existing trademark, the work item will be transferred for
processing in non-STP mode.
(ii) All the names applications submitted in STP mode will be put for system check and if there is exact match of
any of the two words (other than the words Pvt Ltd/ limited) proposed in new company’s name with any
existing company’s name, then such name will also be processed in non-STP mode.
(iii) All the names approved in STP mode will be made available on the dash board of the concerned ROC for
immediate examination. Such STP approved names will not be available for filing of incorporation documents
up to:—
(a) 1900 hrs. of the same day, if the name through STP mode is approved by the system upto 1100 hrs. on
any working day.
(b) 1900 hrs. of the any next working day if the name is approved after 1100 hrs. on any working day or on
holiday/non-working day.
(iv) Name approval application in case of single word (other than words Pvt Ltd/limited) shall not be processed in
STP mode.
2. This circular shall be implemented w.e.f. 20-05-2012.
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3. All RDs/ROCs should take note of this circular and ensure its compliance, and discrepancies, if any, should be
brought to the notice of this Ministry immediately.
[s 4.87] Injunction
Any person affected by a proposed name may make an application to the Court for an injunction
restraining the Registrar and also the proposed company to use the name.56 In cases of objections
the Registrar may refuse to register a company if he is satisfied that registration of the company in
that name may cause injury to another person by diverting his customers or affecting his credit or
goodwill or may cause confusion or is likely to deceive the public.57
The above principles will not apply in cases where a company has already carried on business under
a particular name for a considerable time before registration.58
No objection can be raised when a private company is converted into a public company or vice versa.
A company is entitled to an injunction and ancillary relief restraining passing off by another person
name which the company has used for a considerable time and the company is further entitled to an
injunction against the defendant restraining it from allowing its name in a firm incorporating the word
‘exxon’ to remain on the Register of Companies because it would be unlawful and damaging to the
plaintiff to allow the name to remain on the Register of Companies. A company has no copyright to
any particular word in its name it uses but the company has right to prevent any other company to
use that word and to prevent the continuance of such word in the Register of Companies by an action
for passing off.59
See also recent decisions in earlier paragraphs under Undesirable Names.
[s 4.88] Commercial use of geographical names
The commercial use of geographical names is universally well known. An application was made
restraining an associate company from using the word “Manipal” in its name. The Court held that use
of a geographical name such as Manipal cannot be prevented even though it is similar to the name of
the existing company.60
[s 4.89] Passing off action
The jurisdiction of the Central Government under sections 20 and 22 of the 1956 Act and the
jurisdiction of the Civil Court operate in two different fields. A person is not entitled as of right to have
a company registered in a name which happens to be his own name. Passing off action lies for
improperly using the name of another company.61
Section 20 of the 1956 Act. (1) Select a few names having some connection with the main objects of
the proposed company, (2) check on computer terminal at the ROC office or from Company Directory
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on Department of Company Affairs website (www.dca.nic.in) to ascertain the availability of proposed

names, (3) the name should be in consonance with the Guiding Instructions, (4) indicate the names
in the application in order of preference, (5) Submit an application in e-Form No. 1A* of the
Companies (Central Govt.’s) General Rules and Forms, 1956 to the Registrar of Companies of the
State along with a fee of Rs 500, (6) the name should end with word ‘Ltd’ or ‘Pvt Ltd’ as the case may
be [section 13], (7) the Registrar shall ordinarily inform the promoters within seven days whether the
name is available or not, (8) if the name is available, the promoters should register the company
within a period of six months, (9) if, for any reason, any extension is required a fresh application in e-
Form No. 1A* along with the application fee will have to be lodged with the ROC, (10) if the name is
not available, a fresh application in e-Form No. 1A* should be filed along with a fee of Rs 500, (11) if
at least one promoter is common, both in the name availability application and the subscription
clause of the memorandum and articles of association, and others have no objection, the company
may be registered.
The documents involved are : (1) e-Form 1A, (2) Bank Draft, Postal Order, Cheque or Receipt for
cash deposited at the office of the Registrar of Companies, (3) Intimation from the Registrar of
Companies (4) Correspondence, if any.
41 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to sections 13, 14 and 20 of the
Companies Act, 1956. See Notification No. G.S.R. 463(E),dt. 5 June 2015, regarding exemptions to Government
Companies under section 462 of the 2013 Act. For the text of Notification refer Appendix 63.
42 In section 4, in sub-section (1), in clause (a) the words “in the case of a public limited company, or the last words ‘Pvt
Ltd’ in the case of a Pvt Ltd Company” shall be omitted.
43 Proposed to be substituted by the Companies (Amendment) Bill 2016, introduced in Lok Sabha on 15-03-2016, for the
following, “the objects for which the company is proposed to be incorporated and any matter considered necessary in
furtherance thereof”.
44 Rule 8 of the Companies (Incorporation) Rules, 2014. See MCA General Circular No. 29/2014, dt. 11-07-2014
regarding registration of names. For the text of Rules refer Appendix 3.
45 Power delegated to Registrar of Companies vide S.O. 1353(E), dt. 21 May 2014.
46 Rule 8 of the Companies (Incorporation) Rules, 2014. For clarification regarding use of the words “Commodity
Exchange” in a company, see MCA General Circular No. 26/2014, dt. 27-06-2014.
47 Rule 9 and Form No. INC. 1 of the Companies (Incorporation) Rules, 2014. For Clarification on one-time opportunity
for extension of period of reservation of name, see MCA General Circular Nos. 11/2014 dt. 12-05-2014 and 13/2014 dt.
23-05-2014.
48 Rule 36 and Form No. INC-29 of the Companies (Incorporation) Rules, 2014. For the text of Rules refer Appendix 3.
49 For extension of validity of reserved names, see MCA General Circular No. 31/2014, dt. 19-07-2014.
50 Rule 36(5) and Form No. INC-30 of the Companies (Incorporation) Rules, 2014. For the text of Rules refer Appendix 3.
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** For the text of Notification refer Appendix 63.
** For the text of Rules refer Appendix 20.
51 The word “and” omitted by Act 31 of 1965, section 5 (w.e.f. 15 October 1965).
52 Substituted by the Companies (Amendment) Act, 1965 (31 of 1965), section 5 (w.e.f. 15 October 1965).
53 Cotman v Brougham, (1918) AC 514 (HL) : (1918–19) All ER Rep. 265 (HL) : 87 LJ Ch. 379 : 119 LT 162 : 34 TLR 410
: 62 SJ 534 (HL). See detailed Notes on Interpretation of Memorandum, Doctrine of ultra vires, Implied powers, Ultra
vires acts and Ratification, Doctrine of constructive notice, Doctrine of ultra vires under English Law, etc., after Clauses
required to be stated in Memorandum explained hereinafter.
(1972) 3 SCR 711.
55 Lakshminarayan Ram Gopal and Son Ltd v Govt of Hyderabad, AIR 1954 SC 364 : 1955 SCR 393 : (1954) 25 ITR 449
(SC); Bengal and Assam Investors Ltd v CIT, AIR 1966 SC 1514 : (1966) 1 Comp. LJ 198 (SC) : (1966) 59 ITR 547
(SC) : (1966) 2 SCR 471.
56 V.M. Rao v Rajeswari Ramakrishnan, (1987) 61 COMP CASES 20 (Mad.) (DB) : (1986) 1 Comp. LJ 1 (Mad.) (DB);
Introductions Ltd v National Provincial Bank Ltd, (1970) ChD 199 : (1969) 1 All ER 887 : (1969) 2 WLR 791 (CA) :
(1969) 39 COMP CASES 919 (CA). See also Notes under sections 34, 97 and 398 of the 1956 Act.
57 Edwards v Halliwell, (1950) WN 537 : (1950) 2 All ER 1064 : 94 SJ 803 (CA). See also Notes under sections 12, 38 and
41 of the 1956 Act.
58 In Re, S.N.D.P. Yogam, Quilon, (1970) 40 COMP CASES 60 (Ker.). See also Notes under sections 2(46), 12, 69, 70,
86, 397, 398 and 399 of the 1956 Act.
59 Alexander Ewan Campbell v T.E. Rofe, AIR 1933 PC 39.
60 Re, Scandinavian Bank Group plc., (1987) 2 All ER 70 : 2 WLR 752 : (1987) BCLC 220.
61 Arthanari Transport Pvt Ltd v K.P. Swami Goundar, (1965) 35 COMP CASES 930 (Mad.) (DB). See detailed Notes
* For Constitution and management of Asset Management Companies see the SEBI (Mutual Funds) Regulations, 1996.
62 Cotman v Brougham, (1918) AC 514 (HL) : (1918–19) All ER Rep. 265 (HL) : 87 LJ Ch. 379 : 119 LT 162 : 34 Tax LR
410 : 62 SJ 534 (HL).
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63 Dr. A. Lakshmanaswami Mudaliar v L.I.C, (1963) 33 COMP CASES 420 (SC) : AIR 1963 SC 1185 : (1963) 1 Comp. LJ
248 (SC); Egyptian Salt and Soda Co Ltd v Port Said Salt Association Ltd, (1931) AC 677 (PC) : 100 LJ PC 147 : 145
LT 313 (PC) : AIR 1931 PC 182; Deuchar v Gas Light and Coke Co, (1925) AC 691 : (1925) All ER Rep. 720 : 94 LJ
Ch. 382 : 133 LT 565 : 41 TLR 563 (HL). See also Notes later under ultra vires and sections 26 and 36 of the 1956 Act.
64 Charterbridge Corp Ltd v Lloyd’s Bank Ltd, (1970) ChD 62 : (1969) 2 All ER 1185 : (1969) 3 WLR 122 : (1969) 2 Lloyd’s
Rep. 24 : (1969) 39 COMP CASES 824 (Ch.). See also discussion on ultra vires in subsequent paragraphs and Notes
65 Madanlal Fakirchand Dudhediya v Sri Changdeo Sugar Mills Ltd, (1962) 32 COMP CASES 604 (SC) : AIR 1962 SC
1543 : (1962) Supp. 3 SCR 973. See also Notes under sections 9 and 76 of the 1956 Act.
66 Dr. A. Lakshmanaswami Mudaliar v L.I.C. of India, (1963) 33 COMP CASES 420 (SC) : AIR 1963 SC 1185; Angostura
Bitters and Co Ltd v Kerr, (1933) AC 550 (PC) : 102 LJ PC 161 : (1934) 4 COMP CASES 1 (PC). See also Notes under
248 (SC); Tomkinson v South-Eastern Railway Co, (1887) 35 ChD. 675 : 56 LJ Ch. 932 : 56 LT 812. See also Notes
under Doctrine of ultra vires and Effect hereinafter and Notes under sections 26, 36 and 293A of the 1956 Act.
68 Ferrom Electronics Pvt Ltd v Vijaya Leasing Ltd, (2002) 109 COMP CASES 467 (Kar.) (DB). See also Notes under
sections 108, 111 and 111A of the 1956 Act.
69 V.M. Rao v Rajeswari Ramakrishnan, (1987) 61 COMP CASES 20 (Mad.) (DB) : (1986) 1 Comp. LJ 1 (Mad.) (DB); Re,
Akola Electric Supply Co Ltd, (1962) 32 COMP CASES 215 (Bom.) : AIR 1962 Bom 133; Anglo-Overseas Agencies Ltd
v Green, (1961) 1 QB 1 : (1960) 3 All ER 244 : (1960) 3 WLR 561 : (1961) 31 COMP CASES 38(QB). See also Notes
under earlier paragraph “Independent Objects”.
70 Re Rangkala Investments Ltd, (1997) 89 COMP CASES 754 (Guj.). See also Notes under sections 17, 149(2A) and
71 Attorney-General v Great Eastern Railway Co, (1880) 5 App. Cas. 473 : (1874–80) All ER Rep. Ext. 1459 : 49 LJ Ch.
545 : 42 LT 810 : 28 WR 769 (HL).
72 Bell Houses Ltd v City Wall Properties Ltd, (1966) 2 QB 656 : (1966) 2 All ER 674 (CA) : (1966) 2 WLR 1323 : 110 SJ
268 : (1966) 36 COMP CASES 779 (CA); H.A. Stephenson & Son Ltd v Gillanders, Arbuthnot & Co, (1931) 45 CLR 476
: 5 All LJ 326 : 38 ALR 49; American Home Assurance Co v Tjmond Properties Ltd, (1984) NZLR 452 : (1986) BCLC
181.
248 (SC). See also Notes in earlier paragraphs.
74 Egyptian Salt and Soda Co Ltd v Port Said Salt Association Ltd, (1931) AC 677 (PC) : 100 LJ PC 147 : 145 LT 313
(PC) : AIR 1931 PC 182.
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75 Newstead v Frost, (1980)1 All ER 363 : (1980) 1 WLR 135 : (1980) 124 SJ 116 (HL). See also Notes under section 11
of the 1956 Act.
76 Hutton v West Cork Rly. Co, (1883) 23 ChD. 654 : 52 LJ Ch. 689 : 49 LT 420 (CA). See Dr. A. Lakshmanaswami
Mudaliar v L.I.C, (1963) 33 COMP CASES 420 (SC) : AIR 1963 SC 1185 in earlier paragraph. See also Notes under
sections 41, 293A and 484 of the 1956 Act.
77 Evans v Brunner, Mond & Co, (1921) 1 ChD 359 : 90 LJ Ch. 294 : 124 LT 469 : 65 SJ 134; Re, Lee, Behrens & Co Ltd,
(1932) 2 ChD 46 : (1932) All ER Rep. 889 : 101 LJ Ch. 183. See also Notes under sections 46 and 293A as amended
by the Election and Other Related Laws (Amendment) Act, 2003 (46 of 2003).
78 Baroness Wenlock v River Dee Co, (1885) 10 App. Cas. 354 (HL).
79 Oakbank Oil Co v Crum, (1882) 8 App. Cas. 65 : 48 LT 537 : 31 WR Dig. 37 (HL); General Auction Estate and
Monetary Co v Smith, (1891) 3 ChD 432 : 60 LJ Ch. 723; Re, Kingsbury Collieries Ltd and Moore’s Contract, (1907) 2
ChD 259 : 76 LJ Ch. 469.
(1972) 3 SCR 711.
81 Introductions Ltd v National Provincial Bank Ltd, (1970) ChD 199 : (1969) 1 All ER 887 : (1969) 2 WLR 791 (CA) :
(1969) 39 COMP CASES 919 (CA).
82 Cyclists’ Touring Club v Hopkinson, (1910) 1 ChD 179 : 79 LJ Ch. 82 : 101 LT 848; Normandy v Ind, Coope & Co Ltd,
(1908) 1 ChD 84 : 77 LJ Ch. 82 : 97 LT 872; Parke v Daily News Ltd, (1962) ChD 927 : (1962) 2 All ER 929 : (1962) 3
WLR 566 : (1962) 32 COMP CASES 1060 (Ch.); Re W. & M. Roith Ltd, (1967) 1 All ER 427 : (1967) 1 WLR 432 :
(1966) 110 SJ 963. See also Notes under section 318 of the 1956 Act.
83 Gujarat Ginning and Mfg. Co v Motilal Hirabhai Spg. and Wvg. Co., AIR 1930 Bom 84.
84 Choonilal v Spence’s Hotel Co., (1868) 1 Beng LR (OS) 14. See also Notes under section 47 of the 1956 Act.
85 Evans v Brunner, Mond & Co, (1921) 1 ChD 359 : 90 LJ Ch. 294 : 124 LT 469 : 65 SJ 134.
86 Wall v London and Northern Assets Corp, (1898) 2 ChD 469 : 67 LJ Ch. 596 : 79 LT 249 : 47 WR 219 : 14 TLR 547
(CA).
87 Attorney-General v Great Eastern Railway Co, (1880) 5 App. Cas. 473 : (1874–80) All ER Rep. Ext. 1459 : 49 LJ Ch.
545 : 42 LT 810 : 28 WR 769 (HL). See also Notes under section 46 of the 1956 Act.
88 Leif Child’s Case, (1865) LR 1 Eq. 231.
89 International Contract Corporation’s Case, (1869) 20 LT 96.
90 Norwich Provident Insurance Society, Re, Bath’s Case, (1878) 8 ChD. 334 : 47 LJ Ch. 601 : 38 LT 267 : 26 WR 441
(CA); Re, Irish Provident Assurance Co., (1913) 1 IR 352 (CA).
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91 Dr. A. Lakshmanaswami Mudaliar v L.I.C, (1963) 33 COMP CASES 420 (SC) : AIR 1963 SC 1185; Re, Birkbeck
Permanent Benefit Building Society, (1912) 2 ChD 183 (CA).
185 (HL); Baroness Wenlock v River Dee Co, (1885) 10 App. Cas. 354 (HL); Towers v African Tug Co, (1904) 1 ChD
558 : (1904–07) All ER Rep. Ext. 1583 (CA) : 73 LJ Ch. 395 (CA); Trevor v Whitworth, (1887) 12 App. Cas. 409 :
(1886–90) All ER Rep. 46 : 57 LJ Ch. 28 (HL); Dr. A. Lakshmanaswami Mudaliar v L.I.C, (1963) 33 COMP CASES 420
(SC) : AIR 1963 SC 1185 . See also Notes under sections 46 and 290–293. Doctrine of ultra vires has virtually been
abolished under English Law as explained hereinafter.
(1972) 3 SCR 711.
94 Smt. Premila Devi v People’s Bank of Northern India Ltd, (1938) 4 All ER 337 : 82 SJ 1008 : AIR 1938 PC 284 : (1939)
9 COMP CASES 1 (PC); Bamford v Bamford, (1970) ChD 212 : (1969) 1 All ER 969 : (1969) 2 WLR 1107 : 113 SJ 123
: (1969) 39 COMP CASES 838 (CA).
95 IRC v Ufitec Group Ltd, (1977) 3 All ER 924 : (1977) Simon’s TC 363.
1 Briton Medical, General and Life Assurance Association v Jones, (1889) 61 LT 384.
2 Re Portuguese Consolidated Copper Mines Ltd, (1890) 45 ChD 16 (CA) : 63 LT 423 (CA) : 39 WR 25 (CA); Re, Land
Credit Co of Ireland, (1869) 4 ChD 460 : 39 LJ Ch. 27 : 20 LT 641.
3 Danish Mercantile Co Ltd v Beaumont, (1951) ChD 680 : (1951) 1 All ER 925 (CA); Ward (Alexander) & Co Ltd v
Samyang Navigation Co Ltd, (1975) 2 All ER 424 (HL) : (1975) 1 WLR 673 : (1975) 2 Lloyd’s Rep. 1 (HL). See also
4 Charterbridge Corporation Ltd v Lloyd’s Bank Ltd, (1970) ChD 62 : (1969) 2 All ER 1185 : (1969) 3 WLR 122 : (1969) 2
Lloyd’s Rep. 24 : (1969) 39 COMP CASES 824 (Ch.); Re Halt Garage Ltd, (1982) 3 All ER 1016; Re, Horsley and
Weight Ltd, (1982) ChD 442 : (1982) 3 All ER 1045 : (1982) 3 WLR 431 : (1982) 126 SJ 429 (CA); Rolled Steel
Products (Holdings) Ltd v British Steel Corpn, (1986) ChD 246 : (1985) 3 All ER 52 : (1985) 2 WLR 908 : (1984) 128 SJ
629 : (1984) BCLC 466 (CA). See also Notes under sections 46, 284 and 290 of the 1956 Act.
185 : 33 LT 450. See also Notes under sections 46. See provisions relating to Alteration of Articles by Special
Resolution [Section 31]. Doctrine of ultra vires virtually abolished under English Law, Doctrine of Constructive notice
and Directors and Officers’ acts and rule in Turquand’s case have been explained in later paragraphs.
6 B.V. Thirumalai v Best Vestures Trading Pvt Ltd, (2004) 4 Comp. LJ 519 (CLB). See detailed Notes on Oppression and
Mismanagement under sections 397–409 of the 1956 Act.
7 Trevor v Whitworth, (1887) 12 App. Cas. 409 : (1886–90) All ER Rep. 46 : 57 LJ Ch. 28 : 57 LT 457 : 36 WR 145 : 3
Tax LR 745 : 32 SJ 201 (HL); Re Irish Provident Assurance Co., (1913) 1 IR 352 (CA); Rowell v John Rowell & Sons
Ltd, (1912) 2 ChD 609 : 81 LJ Ch. 759 : 107 LT 374; sections 77, 100, 104 and 402. Now see also Power of company
to purchase its own securities [section 77A] and Prohibition for buy-back in certain circumstances [section 77B].
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8 Re Almada and Tirito Co.,(1888) 38 ChD 415 : 57 LJ Ch. 706 : 59 LT 159 : 36 WR 593 : 4 Tax LR 534 (CA); Hongkong
and China Gas Co Ltd v Glen, (1914) 1 ChD 527 : 83 LJ Ch. 561 : 110 LT 859. Such acts are ultra vires the Companies
Act and not Memorandum or objects clause. See also Notes under sections 79, 81 and 100 of the 1956 Act.
9 See Notes under section 205 of the 1956 Act.
10 See Notes under section 201 of the 1956 Act.
11 Dr. A. Lakshmanaswami Mudaliar v L.I.C, (1963) 33 COMP CASES 420 (SC) : AIR 1963 SC 1185; Re, Birkbeck
Permanent Benefit Building Society, (1912) 2 ChD 183 (CA). See also Notes under section 36 of the 1956 Act.
12 Aveling Barford Ltd v Perion Ltd, (1989) BCLC 626. Doctrine of ultra vires has virtually been abolished by the English
Companies Act, 1989. Under English law ultra vires acts of directors may now be ratified by a special resolution and
directors may be absolved by another special resolution. See Doctrine of ultra vires under English Law in later
paragraphs.
13 Re, European Society Arbitration Acts, (1878) 8 ChD 679 : 48 LJ Ch. 118 : 39 LT 136 (CA).
14 National Telephone Co v Constables of St. Peter Port, (1900) AC 317 (PC) : 69 LJ PC 74.
15 Re, Port Canning Co., (1871) 7 BLR 853.
16 Re, Harris Calculating Machine Co., (1914) 1 ChD 920 : 83 LJ Ch. 545 : 110 LT 997; Reversion Fund and Insurance Co
v Maison Cosway Ltd, (1913) 1 KB 364 : 82 LJ KB 512 (CA); Re, Airedale Co-operative Worsted Mfg. Society
Ltd,(1933) ChD 639 : 102 LJ Ch. 229 : 149 LT 92 : 49 TLR 265 : 77 SJ 267; Introductions Ltd v National Provincial
Bank Ltd, (1970) ChD 199 : (1969) 1 All ER 887 : (1969) 2 WLR 791 (CA) : (1969) 39 COMP CASES 919 (CA). See
also earlier paragraphs “Implied powers” and Notes under section 293 of the 1956 Act.
17 Sinclair v Brougham, (1914) AC 398 : (1914–15) All ER Rep. 622 : 83 LJ Ch. 465 (HL); Re, Diplock, Diplock v Wintle,
(1948) ChD 465 : (1948) 2 All ER 318affirmed sub nom Ministry of Health v Simpson, (1951) AC 251 : (1950) 2 All ER
1137 : 94 SJ 777 (HL); Agip (Africa) Ltd v Jackson, (1991) ChD 547 (CA). See also Notes under section 293. Doctrine
of ultra vires has been abolished under English Law as explained hereinafter.
18 Re, Birkbeck Permanent Benefit Building Society, (1912) 2 ChD 183 (CA); Great Eastern Rly. Co v Turner, (1872) 8
Ch. App. 149 : 42 LJ Ch. 83 : 21 WR 163; Blackburn Building Society v Cunliffe, Brooks & Co, (1884) 9 App. Cas. 857 :
(1881–85) All ER Rep. Ext. 1280 : 54 LJ Ch. 376 : 52 LT 225 (HL). See also Doctrine of ultra vires under English Law in
later paragraphs and Notes under section 293 of the 1956 Act.
19 Watson, ex parte, (1888) 21 QBD 301; Subaratnam v Official Liquidator, AIR 1943 Mad. 111.
20 Re, Irish Provident Assurance Co., (1913) 1 IR 352 (CA).
21 In Re, Madras Native Permanent Fund Ltd, AIR 1931 Mad. 792.
22 In Re, Steel Equipment and Construction Co Pvt Ltd, (1968) 38 COMP CASES 82 (Cal.) : (1967) 1 Comp. LJ 172
(Cal.); Great North-West Central Railway Co v Charlebois, (1899) AC 114 (PC) : 68 LJ PC 25 : 79 LT 35; Re, Jon
Beauforte (London) Ltd, (1953) ChD 131 : (1953) 1 All ER 634 : 2 WLR 465. See also Notes under section 434. Such
Mr. Laghir1 Rabari

Page 65 of 68
debts can now be proved under English law where the doctrine of ultra vires has been abolished as explained
hereinafter.
23 Finance and Issue Ltd v Canadian Produce Corpn. Ltd, (1905) 1 ChD 37 : 73 LJ Ch. 751 : 91 LT 685 : 53 WR 170 : 20
TLR 807.
24 Shalagram Jhajharia v National Coal Co Ltd, (1965) 35 COMP CASES 706 (Cal.) (DB) : (1965) 1 Comp. LJ 112 (Cal.)
(DB) : (1965) 69 Cal WN 369 (Cal.) (DB). See also Notes under sections 9, 10, 41, 173, 204, 294 and 314 of the 1956
Act.
25 Asansol Electric Supply Co Ltd v Chunilal Daw, AIR 1972 Cal 19 (DB) : 75 Cal WN 704 (DB). See also Notes under
26 Foss v Harbottle, (1843) 2 Hare 461. See also Notes under sections 10 and 41 of the 1956 Act.
27 Avanthi Explosives Pvt Ltd v Principal Subordinate Judge, (1987) 62 COMP CASES 301 (AP)Edwards v Halliwell,
(1950) WN 537 : (1950) 2 All ER 1064 : 94 SJ 803 (CA); Mozley v Alston, (1847) 1 Ph. 790 : 16 LJ Ch. 217; Burland v
Earle, (1902) AC 83 : (1900–03) All ER Rep. Ext. 1452 (PC) : 71 LJ PC 1. See detailed Notes under sections 10 and 41
of the 1956 Act.
28 Wattau v Fenwick, (1893) 2 QB 346. See decisions on ostensible authority in Notes under sections 293 and 383A of
the 1956 Act.
29 Re, Jon Beauforte (London) Ltd, (1953) ChD 131 : (1953) 1 All ER 634 : 2 WLR 465. Doctrine of ultra vires and
Doctrine of constructive notice have been virtually abolished under English law. See detailed Notes in later paragraphs.
See also Notes under sections 290–293 of the 1956 Act.
30 Sinclair v Brougham, (1914) AC 398 : (1914–15) All ER Rep. 622 : 83 LJ Ch. 465 : 111 LT 1 : 30 TLR 315 : 58 SJ 302
(HL).
31 Royal British Bank v Turquand, (1856) 6 E. & B. 327 : (1843–60) All ER Rep. 435 (Ex Ch.) : 25 LJ QB 317 : 2 Jur. NS
663 (Ex Ch.). See detailed Notes under section 293 of the 1956 Act. See also Notes in succeeding paragraphs under
Doctrine of ultra vires and Doctrine of constructive notice have been virtually abolished under English law.
32 Rolled Steel Products (Holdings) Ltd v British Steel Corpn, (1986) ChD 246 : (1985) 3 All ER 52 : (1985) 2 WLR 908 :
(1984) 128 SJ 629 : (1984) BCLC 466 (CA).
33 International Sales and Agencies Ltd v Marcus, (1982) 3 All ER 551 : (1982) 2 CMLR 46.
34 U.B.A.F. Ltd v European American Banking Corpn, (1984) QB 713 : (1984) 2 All ER 226 : (1984) 2 WLR 508 : (1984)
128 SJ 243 : (1984) 1 Lloyd’s Rep. 258 (CA).
35 Grant v UK Switchback Railways Co, (1888) 40 ChD. 135 : 58 LJ Ch. 211 : 60 LT 525 : 37 WR 312 : 5 Tax LR 92 (CA).
185 : 33 LT 450 : 24 WR 794 (HL). The decisions still holds good under the Indian Law. See Doctrine of ultra vires and
Ratification in earlier paragraphs.
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37 Underwood (A.L.) Ltd v Bank of Liverpool and Martins, (1924) 1 KB 775 : (1924) All ER Rep. 230 : 93 LJ KB 690 : 131
LT 271 (CA); Houghton & Co v Nothard, Lowe & Wills, (1927) 1 KB 48 (CA) affirmed in (1928) AC 1 : (1927) All ER
Rep. 97 : 97 LJ KB 76 : 138 LT 210 (HL). See also Rolled Steel Products (Holdings) Ltd v British Steel Corpn, (1986)
ChD 246 : (1985) 3 All ER 52 : (1985) 2 WLR 908 : (1984) BCLC 466 (CA) in earlier paragraphs.
38 Morris v Kanssen, (1946) AC 459 : (1946) 1 All ER 586 : 115 LJ Ch. 177 : 174 LT 353 (HL); Section 285 of the English
Companies Act, 1985. See also Notes under corresponding Indian provisions, viz., section 290 of the 1956 Act.
39 TCB Ltd v Gray, (1986) ChD 621 : (1986) 1 All ER 587 : (1986) BCLC 113. See also Smith v Henniker-Major & Co (A
firm), (2002) 3 WLR 1848 : (2003) 116 COMP CASES 359 (CA).
40 Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd, (1964) 2 QB 480 : (1964) 1 All ER 630 : (1964) 2
WLR 618 (CA); Hely-Hutchinson v Brayhead Ltd, (1968) 1 QB 549 : (1967) 3 All ER 98 : (1967) 3 WLR 1408 : (1968)
38 COMP CASES 228 (CA); Biggerstaff v Rowatt’s Wharf Ltd, (1896) 2 ChD 93 : (1895–99) All ER Rep. Ext. 1933 : 65
LJ Ch. 536 (CA); Clay Hill Brick and Tile Co Ltd v Rawlings, (1938) 4 All ER 100 : 159 LT 482 : 82 SJ 909. See also
Rama Corpn. Ltd v Proved Tin and General Investments Ltd, (1952) 2 QB 147 : (1952) 1 All ER 554 : (1952) 1 TLR 709
: 96 SJ 197. See Notes under sections 2(26), 267–269, 290 and 293 of the 1956 Act.
41 Mahony v East Holyford Mining Co, (1875) LR 7 HL 869 : (1874–80) All ER Rep. 427 : 33 LT 383 (HL). See also Notes
42 Armagas Ltd v Mundogas S.A, (1986) AC 717 (HL). See Notes under sections 2(24) and 384–388 of the 1956 Act.
43 Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd, (1971) 2 QB 711 : (1971) 3 All ER 16 :
(1971) 3 WLR 440 (CA). See detailed Notes under section 383A of the 1956 Act.
44 Sub-section (2) and (3) subs. for sub-section (2) by the Trade Marks Act, 1999 (47 of 1999), section 158 and Sch.
[(w.e.f. 15 September 2003) vide Notification No. S.O. 1048(E), dated 15 September 2003, published in the Gazette of
India, Extraordinary, No. 834, Part II, section 3(ii), dated 15 September 2003 : (2003) 117 COMP CASES (St.) 156].
45 Re, M. McCarthy & Co (Builders) Ltd (No. 2), (1976) 2 All ER 339.
46 Sidhvi Constructions (India) Pvt Ltd v Registrar of Cos, (1997) 90 COMP CASES 299 (AP); Sen and Pandit Electronics
Pvt Ltd v UOI, (2003) 115 COMP CASES 299 (Cal.). See detailed Notes under section 22 of the 1956 Act.
47 Executive Board of Methodist Church in India v UOI, (1985) 57 COMP CASES 443 (Bom.). See also Notes under
section 33. See revised Instructions on defunct companies in Circular Letter No. 10(1)-RS/65, dated 27-11-1965, para
19, printed hereinafter.
48 Kilburn Electricals Ltd v Regional Director, (2000) 99 COMP CASES 243 (Mad.). See also Notes under section 22 of
the 1956 Act.
49 Kothari Products Ltd v Registrar of Cos, (2001) 103 COMP CASES 841 (All.).
50 Hira Lal and Sons (Export) Pvt Ltd v UOI, (2005) 127 COMP CASES 904 (Delhi).
51 Association of Certified Public Accounts of Britain v Secretary of State for Trade and Industry, (1997) 2 BCLC 307.
52 British Diabetic Association v Diabetic Society Ltd, (1995) 4 All ER 812.
53 Montari Overseas Ltd v Montari Industries Ltd, (1996) 20 CLA 313 (Delhi) (DB) : (1996) PTC 16 (Delhi) (DB).
54 Baker Hughes Ltd v Hiroo Khushalani, (2000) 102 COMP CASES 203 (Delhi).
55 Kirloskar Pty Ltd v Kirloskar Dimensions Pvt Ltd, (1999) 96 COMP CASES 726 (Kar.); Manipal Housing Finance
Syndicate Ltd v Manipal Stock and Share Brokers Ltd, (1999) 98 COMP CASES 432 (Mad.). See detailed Notes under
Passing off action in later paragraphs. See also Notes under section 22 of the 1956 Act.
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* See revised edition of this book. See also Press Note No. 1, dated 14-03-2002 on Department of Company Affairs
Website (www.dca.nic.in) which facilitates search on “Company Directory”, Names approved by ROCs and in pipeline
for Registration of companies hereinafter.
† See also further Guidelines for use of key words as part of name, while making available the proposed names under
sections 20 and 21 of the Companies Act, 1956 contained in Letter F. No. 27/1/87-CL-III, dated 13-03-1989 reproduced
after this Circular.
* Now see sections 581A to 581ZT inserted in the Companies Act, 1956 by the Companies (Amendment) Act, 2002 (11
of 2003) facilitating formation and conversion of co-operative business as companies on a voluntary basis.
** See Notes under the Emblems and Names (Prevention of Improper Use) Act, 1950 and Circular No. 24 of 2001, dated
21 November 2001 printed in earlier paragraphs.
† Guideline No. 14A as replaced by Circular No. 4 of 1993 (F. No. 3/14/93-CL-V, dated 31-03-1993 : (1993) 77 COMP
CASES (St.) 723. The Circular also stated that the abbreviated name will be considered only in case of change of name
under section 21 of the Companies Act, 1956, with the prior approval of the Regional Director concerned and should
not be allowed for adoption by new companies. See also Circular No. 1 of 1995, dated 16-02-1995 [printed hereinafter]
which states that no such approval of the Regional Director is now necessary and ROCs may take a final decision on
such applications in the light of existing guidelines.
‡ Now sections 20 and 22 of the Companies Act, 1956 (1 of 1956) regarding Companies not to be registered with
undesirable names and Rectification of name of company have been amended by the Trade Marks Act, 1999 (47 of
1999) (w.e.f. 15 September 2003) as already explained.
* Guideline No. 21 relating to Companies in Insurance sector has been partially modified. See para 5 of Circular No. 6 of
1999, dated 13-05-1999 printed hereinafter.
* Guideline No. 21 relating to Companies in Insurance sector has been partially modified. See para 5 of Circular No. 6 of
1999, dated 13-05-1999 printed hereinafter.
** See also Additional guidelines printed after this Circular and Extracts from Circular No. 1 of 1995, dated 16-02-1995
printed under Application for approval of Names.
† See also further Instructions, e.g., Guidelines for use of key words as part of name, etc., issued by the Department of
Company Affairs/Company Law Board, reproduced after this Circular.
† ROCs may now allow Names with the word Insurance/Assurance or Risk Corporation to new companies without
consulting the Insurance Regulatory Authority. See Circular No. 5 of 2000, dated 30-06-2000, printed hereinafter.
56 Ewing v Buttercup Margarine Co Ltd, (1917) 2 ChD 1 : 86 LJ Ch. 441 : 117 LT 67 (CA); British Bata Shoe Co Ltd v
Czechoslavak Bata Co Ltd, (1946) 64 RPC 72; Sturtvant Engineering Co Ltd v Sturtevant Mill Co, (1936) 3 All ER 137.
57 R. v Registrar of Cos, (1912) 3 KB 23 : 81 LJ KB 914 (DC). See recent decisions under Undesirable Names
hereinbefore. See also Notes under sections 31, 32 and 33 of the 1956 Act.
58 Jay’s Ltd v Jacobi, (1933) 1 ChD 411 : 102 LJ Ch. 130 : 149 LT 90.
59 Exxon Corp v Exxon Insurance Consultants International Ltd, (1982) ChD 119 : (1981) 2 All ER 945 : (1981) 1 WLR
624.
60 Manipal Housing Finance Syndicate Ltd v Manipal Stock and Share Brokers Ltd, (1999) 98 COMP CASES 432 (Mad.).
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Page 68 of 68
61 K.G. Khosla Compressors Ltd v Khosla Extractions Ltd, AIR 1986 Del 181; Kirloskar Pty Ltd v Kirloskar Dimensions Pvt
Ltd, (1999) 96 COMP CASES 726 (Kar.). See also Kalpana Polytec India Ltd v UOI, (2001) 106 COMP CASES 558
(Cal.) (DB) in Notes under section 22 of the 1956 Act.
End of Document
Mr. Laghir1 Rabari

corresponds to sections 26, 27, 28 and 29 of the C 1956 Act. S. 5. Articles.—
THERETO

INCIDENTAL THERETO
62 S. 5. Articles.—
(1) The articles of a company shall contain the regulations for management of the company.
(2) The articles shall also contain such matters, as may be prescribed:63
Provided that nothing prescribed in this sub-section shall be deemed to prevent a

company from including such additional matters in its articles as may be considered
necessary for its management.
(3) The articles may contain provisions for entrenchment to the effect that specified provisions of
the articles may be altered only if conditions or procedures as that are more restrictive than
those applicable in the case of a special resolution, are met or complied with.
(4) The provisions for entrenchment referred to in sub-section (3) shall only be made either on
formation of a company, or by an amendment in the articles agreed to by all the members of
the company in the case of a private company and by a special resolution in the case of a
public company.
(5) Where the articles contain provisions for entrenchment, whether made on formation or by
amendment, the company shall give notice to the Registrar of such provisions in such form
and manner as may be prescribed.64
(6) The articles of a company shall be in respective forms specified in Tables, F, G, H, I and J in
Schedule I as may be applicable to such company.65
(7) A company may adopt all or any of the regulations contained in the model articles applicable
to such company.
(8) In case of any company, which is registered after the commencement of this Act, in so far as
the registered articles of such company do not exclude or modify the regulations contained in
the model articles applicable to such company, those regulations shall, so far as applicable,
be the regulations of that company in the same manner and to the extent as if they were
contained in the duly registered articles of the company.
(9) Nothing in this section shall apply to the articles of a company registered under any previous
company law unless amended under this Act.
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Page 2 of 17
62 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to sections 26, 27, 28
NOTES
Section 5 of the 2013 Act was enforced vide Notification S.O. 902(E) dated 26-03-2014, with effect
from 01-04-2014. Section 5 of the 2013 Act corresponds to sections 26, 27, 28 and 29 of the 1956
Act.
as follows:
Clause 5.— “This clause corresponds to sections 26, 27, 28 and 29 of the Companies Act, 1956 and seeks to provide
the contents and model of articles of association. The articles may contain an entrenchment provision also. Model
articles for different types of companies shall be as per Tables F, G, H, I and J in Schedule I.”
[s 5.2] Articles
Section 2(5) of the 2013 Act defines articles to mean the articles of association of a company as
originally framed or as altered from time to time or applied in pursuance of any previous company law
or of the 2013 Act. Similarly, under the 1956 Act, section 2(2) defines articles.
[s 5.3] Articles of a company shall contain
As per section 5, of the 2013 Act, the articles of a company shall contain the regulations for
management of the company [Sub-section (1), section 5 of the 2013 Act]. Further, the articles shall
contain such matters as may be prescribed (Sub-section (2) of section 5 of the 2013 Act). In this
regard, reference may be had to rule 11 of the Companies (Incorporation) Rules, 2014* which
provides that the model articles as prescribed in Table F, G, H, I and J of Schedule I may be adopted
by a company as may be applicable to the case of the company, either in totality or otherwise.
However, nothing contained in sub-section (2) of section 5 of the 2013 Act shall be deemed to
prevent a company from including such additional matters in its articles as may be considered
necessary for its management. A similar provision was made under section 29, 1956 Act vide its
proviso. Further, while under section 26 of the1956 Act, it was optional for a public company limited
by shares to register articles of association, under the 2013 Act, it is no longer an optional
requirement.
[s 5.4] Articles of a company may contain
Sub-section (3) of section 5 of the 2013 Act provides that articles of a company may contain
provisions for entrenchment. This is a new provision in the 2013 Act as the 1956 Act did not
recognize entrenchment provisions separately. An entrenchment provision is an article in the Articles
of association that identifies specific provisions of the articles which may be altered only if conditions
or procedures as that are more restrictive than those applicable in the case of a special resolution, as
specified therein, are met or complied with. There can be more than one entrenchment provision,
wherein there are different restrictions for altering different articles.
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[s 5.5] Manner of making provisions for entrenchment
As per sub-section (4) of section 5 of the 2013 Act, the provisions for entrenchment shall only be
made in the following manner:
1. In case of a private company either on formation of a company, or by an amendment in the

articles agreed to by all the members of the company.
2. In case of a public company either on formation of a company, or by an amendment in the

articles agreed to the members by a special resolution. Please refer section 5(4) on the
requirements of passing a special resolution.
Further, rule 10, Companies (Incorporation) Rules, 2014 provides that where the articles contain the
provisions for entrenchment, the company shall give notice to the Registrar of such provisions in the
prescribed form, along with the fee as provided in the Companies (Registration offices and fees)
Rules, 2014** at the time of incorporation of the company or in case of existing companies, the same
shall be filed in the prescribed form within 30 days from the date of entrenchment of the articles, as
the case may be, along with the fee as provided in the Companies (Registration Offices and Fees)
Rules, 2014.
[s 5.6] Model articles [Sub-sections (6) to (8) of Section 5 of the Companies Act, 2013]
The articles of a company shall be in respective the forms specified in Tables, F, G, H, I and J in
Schedule I, 2013 Act as may be applicable to such company:
Table F – Articles of Association of a company limited by shares.
Table G – Articles of Association of a company limited by guarantee and having a share capital.
Table H – Articles of Association of a company limited by guarantee and not having share capital.
Table I – Articles of Association of an unlimited company and having a share capital.
Table J – Articles of Association of an unlimited company and not having share capital.
Further, a company may adopt all or any of the regulations contained in the model articles applicable
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to such company [sub-section (7), section 5 of the 2013 Act]. Even rule 11 of the Companies
(Incorporation) Rules, 2014* provides that the model articles as prescribed in Schedule I may be
adopted by a company, either in totality or otherwise. Where the company has been registered after
the commencement of the 2013 Act, in so far as the registered articles of such company do not
exclude or modify the regulations contained in the model articles applicable to such company, those
regulations shall, so far as applicable, be the regulations of that company in the same manner and to
the extent as if they were contained in the duly registered articles of the company [sub-section (8),
section 5 of the 2013 Act].
For the form of articles under the 1956 Act, sections 27 to 30, 1956 Act and Schedule I to the 1956
Act containing model regulations in Tables A to F may be referred to.
As the Articles inconsistent with the provisions of the Act are void [section 9 of the 1956 Act and
section 6 of the 2013 Act], Model Regulations in relevant Tables in Schedule I should be carefully
studied while drafting Articles of Association of a company. That said, it is not mandatory for
companies to adopt the Model Regulations contained in Schedule 1 and companies can by expressly
stating in their articles any or all of the regulations specified therein.
[s 5.7] Company registered under any previous company law
Sub-section (9), section 5 of the 2013 Act provides that nothing in section 5 of the 2013 Act shall
apply to the articles of a company registered under any previous company law unless amended
under the 2013 Act Therefore, existing companies can continue to operate under the Articles that are
registered under the 1956 Act or any other previous Companies Act. That said, care must be taken
that if any article conflicts with or is contrary to the 2013 Act, such Article will no longer be effective.
S. 26. Articles prescribing regulations.—There may in the case of a public company limited by shares, and there
shall in the case of an unlimited company or a company limited by guarantee or a private company limited by shares,
be registered with the memorandum, articles of association signed by the subscribers of the memorandum, prescribing
regulations for the company. The Companies Act, 1956 provision
NOTES
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THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on clauses explained section 26 of the 1956 Act as
follows:
“This section corresponds to section 17(1) of the existing Act.” [Clause 22 of the Companies Bill, 1953 (46 of 1953)].
[s 5.8] Articles of public company limited by shares
Under section 26 of the 1956 Act, it is optional for a public company limited by shares to register
Articles of Association. If the public company limited by shares has articles of association, the same
should be registered along with the Memorandum of Association with the Registrar of Companies. If
the public company limited by shares does not have articles of association, then the Model Articles
given in Table ‘A’ of Schedule I to the 1956 Act (1 of 1956), will govern the company’s internal
management. Under the 2013 Act, the option given to public companies limited by shares has been
done away.
[s 5.9] Certain companies must have own Articles
Section 26 of the 1956 Act provides that a company with unlimited liability, a company limited by
Guarantee and a Private company limited by shares must have Articles of Association. This
document should be filed along with the Memorandum at the time of registration of the company. This
provision does not apply to a private company existing as on 1 April 1956. The 2013 Act does not
make any such distinction.
The interpretations/judicial decisions hereunder (Notes for sections 26 to 29 of the 1956 Act), while
made in light of the 1956 Act, are relevant for the analysis of section 5 of the 2013 Act, to the extent
applicable.
[s 5.10] Articles prescribe regulations for the company
Subject to the provisions of the 1956 Act, the company and its members are bound by the provisions
contained in the Articles of Association. The Articles regulate the internal management of the
company and define the powers of its officers. They also establish a contract between the company
and the members and between the members inter se.66
[s 5.11] Article of Association internal Regulations of a Company
Articles of Association are internal regulations of a company and any act outside the provisions
therein would be irregular unless ratified by members. Such irregular act is wrongful and continuous
act of oppression and irrespective of laches the question of limitation does not arise to take action for
such irregular act.67
[s 5.12] Articles a contract between company and members
It is well established that the Articles of Association constitute a contract between a company and its
members in respect of their ordinary rights as members.68The Articles of a company are its
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constituent document and are binding on the company and its directors.69
[s 5.13] Articles of Association—Contract binding subject to Act.
Subject to the provisions of the Companies Act, 1956, a Company and its Members are bound by the
terms and conditions of the Articles of Association. The Articles of Association regulate the internal
management of the company and powers of the officers concerned. It is a Contract entered into by
the Company with its Members and between the Members inter se, i.e., amongst the Members
themselves. The Articles or contract governs the ordinary rights and obligations incidental to the
Membership in the company. Further, the Articles of Association of the Company may confer special
voting rights on a preferential class of shares and also provide that any alteration in the Articles of
Association cannot be made without prior consent of a particular person. The Articles of Association
may provide that the Nominee Director of the holder of specified convertible preference shares must
be present to form a quorum. Provision may also be made that affirmative vote of the Director would
be essential for all important decisions including the appointment of Directors. In such cases the
appointment of Directors without such quorum and without the vote of the Nominee Director will be
invalid. Similarly, adoption of Annual Accounts without the affirmative Vote of the Nominee Directors
will also be invalid. A meeting of the Directors was held but could not transact any official business for
want of quorum. The meeting was adjourned on the very same day after some hours. The provision
that no notice for such adjourned meeting would be necessary will not be applicable and Adjourned
Meeting without notice would be invalid.70
[s 5.14] Articles of Private Company
As per section 36 of the 1956 Act (section 10 of the 2013 Act) the Memorandum and Articles of
Association when registered, bind the company and its members. Section 82 of the 1956 Act (section
44 of the 2013 Act) defines the nature of shares and states that shares or other interests of any
member in a company shall be movable property transferable in the manner provided by the articles.
The Articles of Association are the regulations of the company binding on the company and on its
shareholders and the share transfer is regulated by the articles of association. A restriction not
specified in the articles is, therefore, not binding either on the company or on the shareholders. The
private agreement between members of a private company (two brothers) imposing additional
restrictions on the member’s right to transfer his shares which were contrary to the provisions of
articles of the company were therefore held not binding either on the shareholders or on the
company.71
[s 5.15] Agreement not contrary to Articles binding
Where the basic agreement, i.e., Joint Venture Agreement provided that if the equity participation of
the foreign company at any time fell below 40% then the company would stop using the foreign
company’s trade name. The foreign company disposed off equity shares. On an action the Court
injuncted the Indian company from using the foreign company’s trade name. Held, it was not contrary
to the Articles and was binding on the Indian company.72
The Articles of Association of a Corporation or a Government company may provide that the Board of
directors will act subject to direction of the President of India73 or hold office at the pleasure of the
Governor.74
[s 5.17] Articles cannot override Memorandum
The Memorandum of Association has to be read together with the Articles of Association, where the
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terms are ambiguous or silent. The Articles may explain the Memorandum, but cannot extend its
scope.75
[s 5.18] Act to override Articles
According to section 9(b) of the 1956 Act (section 6(b) of the 2013 Act) the provisions contained in
Articles of Association of the company are void if these are repugnant to the provisions of the 1956
Act.
For instance, section 111A of the 1956 Act stipulates that the shares of a public company are freely
transferable. Therefore, any stipulation in the Articles of a public company contrary to the same,
putting fetters on the free transferability, would be hit by the provisions of section 9 of the 1956 Act.76
But, where the articles of the company provided for passing of a special resolution by company for
winding up in certain contingencies. It was held that the Article was not opposed to section 433(f) of
the 1956 Act and was not void under section 9 of the 1956 Act.77
[s 5.19] Articles repugnant to other Acts equally void
Provisions in the Articles of Association of a company repugnant to the provisions of other Acts, e.g.,
the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the SEBI Act, 1992 (15 of 1992), etc.,
would be equally void if the provisions of such Acts do not conflict with the provisions of the 1956 Act
or 2013. If any provision of the Articles or the Memorandum is contrary to any provisions of any law, it
will be void ab initio. Section 22A of the Securities Contracts (Regulation) Act, 1956 [section 111A of
the 1956 Act] provides for free transferability of shares of a public company and the Board of
directors can refuse registration of transfer of shares only on three specified grounds. Therefore, any
provision in the Articles which puts any restriction on the free transferability of shares of public
companies would be a negation of the expressed provisions of law and would be self-defeating.78
A general right of pre-emption in relation to shares of a public company is contrary of section 111A.79
This view is in contrary to the view taken by the Division bench of High Court later, wherein it was
held that any restriction on transfer of shares of a public company by way of an agreement between
the shareholders is enforceable unless the same is barred by the Articles.80 This position has now
been codified under the 2013 Act. The proviso to section 58(2) of the Companies Act provides that a
contract between two or more persons in respect of transfer of securities shall be enforceable as a
contract and the company does not have a right to restrict transfer of shares.
If the Article does not infringe or offend any specific provision of the Act, then it is valid. Articles of
Association of a Stock Exchange providing for cancellation of membership of a defaulting member
shall be intra vires the 1956 Act and the SEBI Act, 1992 and shall be valid.81
Approval of the Central Government or Issue of Certificate of Incorporation does not validate any
provision in the Memorandum or Articles of Association if the same is in conflict with statutory
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provisions.82
[s 5.20] Interpretation and construction of Articles
The Articles of Association of a company provides for the regulation for internal management of a
company of which each shareholder is attributed with notice. The Articles of Association of a
company is its Magna Carta. It is a business document and is to be interpreted strictly. Where the
Articles vested the right of management exclusively in the Managing Director, it is not open to
anybody to contend that there was an independent contract outside the Articles which contemplated
joint management.83
Articles should be construed as a business document so as to give them reasonable business

efficacy unless the language is against such construction.84
If the Articles of Association of a company is understood in a particular sense by members of the

company and they have acted upon such understanding the Court will give effect to such practice if it
is not contrary to any other Statute.85
It may be permissible for the Court to infer a term in the Articles of Association of a company purely
by way of constructional implication but it is not permissible to go further and imply a term from
extrinsic circumstances.86
[s 5.21] Articles and bye-laws how proved
Articles and bye-laws may be proved by production of the original or by other evidence.87 Section
610(3) of the 1956 Act [section 399(3) of the 2013 Act] pertains to admissibility of certified copies
from the Registrar of Companies (ROC) office in evidence as of equal validity with original document.
[s 5.22] Form and signature of Articles [Section 30 of the Companies Act, 1956]
Articles of Association shall be—(a) printed; (b) divided into paragraphs numbered consecutively; and
(c) signed by each subscriber. Under the 2013 Act, there is no directly corresponding provision.
[s 5.23] Producer Company—Articles to contain Regulations [Section 581G(3) of the

As provisions of Pt IXA, 1956 Act shall be applicable mutatis mutandis to a producer company in a
manner as if the 1956 Act has not been repealed; the discussion herein is relevant in light of the 2013
Act as well. Without prejudice to the generality of the provisions of section 581G(1) and (2) of the
1956 Act, the Articles of Producer Company shall, inter alia, contain the Regulations enumerated in
section 581G(3)(a) to (p) of the 1956 Act outlined below:
(a) qualifications for membership, (b) patronage and voting rights, (c) manner of constitution of the
Board of Directors subject to the provisions of section 581N(1), (d) of the 1956 Act, the election of the
Chairman, (e) withheld price determination and distribution, (f) disbursement of patronage bonus in
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cash or by issue of equity shares, or both, (g) the contribution to be shared and related matters
referred to in section 581ZI(2) of the 1956 Act, (h) issue of bonus shares out of general reserves as
set out in section 581ZJ of the 1956 Act, (i) allotment of equity shares, (j) the amount of reserves and
funds, (k) the credit, loans or advances to a Member, (l) right of Member to obtain information relating
to general business of the company, (m) distribution and disposal of funds in the event of dissolution
or liquidation of the Producer Company, (n) the authorisation for division, amalgamation, merger,
creation of subsidiaries and the entering into joint ventures and other matters connected therewith,
(o) laying of the Memorandum and Articles of the Producer Company before a Special General
Meeting to be held within 90 days of its Registration, (p) any other provision by Special Resolution of
Members.
S. 27. Regulations required in case of unlimited company, company limited by guarantee or private company
limited by shares.—(1) In the case of an unlimited company, the articles shall state the number of members with
which the company is to be registered and, if the company has a share capital, the amount of share capital with which
the company is to be registered. The Companies Act, 1956 provision
(2) In the case of a company limited by guarantee, the articles shall state the number of members with which the
company is to be registered.
(3) In the case of a private company having a share capital, the articles shall contain provisions relating to the matters
specified in sub-clauses (a), (b) and (c) of clause (iii) of sub-section (1) of section 3; and in the case of any other
private company, the articles shall contain provisions relating to the matters specified in the said sub-clauses (b) and
(c).
NOTES
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on clauses explained that section 27 of the 1956 Act
“corresponds to section 17(3) and (4) of the existing Act.” [Clause 23 of the Companies Bill, 1953 (46 of 1953)].
[s 5.25] Unlimited Company [Sub-section (1), Section 27 of the Companies Act, 1956]
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The Articles of an unlimited company shall state the number of members at the inception of the
company. Where such a company has a share capital, the amount of the authorised capital should
also be mentioned in the Articles.
[s 5.26] Company Ltd by Guarantee [Sub-section (2) of Section 27 of the Companies Act,
1956]
The Articles of a company limited by guarantee must state the number of members with which the
company is to be registered, i.e., members at the inception of the company.
[s 5.27] Increase in number of Members
In view of sections 27(2), 9, 31 and 97 of the 1956 Act increase in the number of members of a
company limited by guarantee calls for an amendment of the Articles of Association and can only be
done by a special resolution by the General Body. Where the Articles of Association of a company
limited by guarantee authorised the General Committee to reduce or increase the number of
members, it was held that the Articles were not valid. Article 2 of Table C of Schedule I of the 1956
Act does not authorise the Board of directors to usurp the functions of the company for the purpose of
increasing or decreasing the number of members. The Board of Directors did not have any right to
increase the number of members. Therefore, Article 2 of the Articles of Association of the Delhi and
District Cricket Association (DDCA) which authorised that the Board of directors might increase the
number of members with which the company was registered was held to be void. The petition was
not maintainable as the members affected were not made parties. Further, an earlier suit was settled
without obtaining leave of the Court for filing a fresh proceeding on the same issue and as such the
petition under section 155 [section 111A of the 1956 Act] was barred by the principle contained in
Order 23, rule 1 of the Code of Civil Procedure, 1908 (5 of 1908).88
[s 5.28] Private Company [Sub-section (3) of Section 27 of the Companies Act, 1956]
The Articles of private company must contain the restrictions enumerated in section 3(1) (iii) of the
1956 Act. A fourth restriction was incorporated; vide amendments by the Companies (Amendment)
Act, 2000. Under the 2013 Act, reference may be had to section 2(68), which defines a private
company and enumerates the restrictions that are imposed vide the articles.
The restriction contained in private company’s Articles on transfer of shares to outsiders cannot be an
absolute restriction and a bona fide purchaser for consideration is entitled to have his name entered
in the Register.89
S. 28. Adoption and application of Table A in the case of companies limited by shares.—(1) The articles of
association of a company limited by shares may adopt all or any of the regulations contained in Table A in Schedule I.
(2) In the case of any such company which is registered after the commencement of this Act, if articles are not
registered, or if articles are registered, in so far as the articles do not exclude or modify the regulations contained in
Table A aforesaid, those regulations shall, so far as applicable, be the regulations of the company in the same manner
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and to the same extent as if they were contained in duly registered articles.
NOTES
follows:
Sub-clause (1) gives effect to the Company Law Committee’s recommendation in para 34. All the regulations set out in
section 17(2) of the existing Act (in addition to some others which, according to the Company Law Committee, should
also be obligatory on all companies) have been embodied in the Bill. The latter portion of the first paragraph of section
17(2) and the two provisos have accordingly been omitted. Sub-clause (2) corresponds to section 18 of the existing
Act. [Clause 24 of the Companies Bill, 1953 (46 of 1953)].
Sub-section (2) of section 17 of the Act contains a list of the regulations in Table ‘A’ which must be adopted by all
companies incorporated under the Act. In paragraph 239 of our Report, we have commented on the regulations
contained in Table ‘A’ and have recommended the deletion of some of them and the conversion of some others into
compulsory regulations. We have further suggested that the compulsory regulations should be removed from Table ‘A’
and incorporated in the Act as substantive provisions. In view of this, we do not consider it necessary that the
compulsory regulations should again be enumerated in sub-section (2) of section 17. This sub-section should,
therefore, be suitably amended. [Report : para 34].
[s 5.30] Company limited by shares (a) A company registered after 1 April 1956.—
A public company limited by shares may not have any Articles. In such a case Table ‘A’ of Schedule I
to the 1956 Act will be applicable. If such a company has its Articles, it can exclude Table ‘A’ or
modify the regulations of Table ‘A’. But if the Articles do not expressly exclude or modify Table ‘A’
then the regulations of Table ‘A’ will apply if they are not inconsistent with the company’s own
Articles.90
(b) Registered prior to April , 1956.—
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Such a company may have its own Articles and in that case regulations contained in its Articles will
govern the company. But such Articles may provide that all the regulations of Table ‘A’ will apply or
that some of them only would apply. In absence of exclusion of Table A to 1913 Act expressly or by
implication the regulations will apply to such an existing company.91
[s 5.31] Articles of public company limited by shares
Section 28 of the 1956 Act provides that the Articles of Association of a company limited by shares
may adopt all or any of the Regulations contained in Table A in Schedule I to the Act.
It is optional for a public company limited by shares to have its own Articles of Association. If it has
articles, the same should be registered along with the Memorandum of Association with the Registrar
of Companies. If it does not have articles, then the Model Articles given in Table ‘A’ of Schedule I to
the 1956 Act, will govern the company’s internal management. Under section 5 of the 2013 Act, every
company is required to have articles of association.
[s 5.32] Model Articles [Table A of Schedule I to Companies Act, 1956]
Model Articles or Regulations contained in Table ‘A’ of Schedule I to the 1956 Act will apply to a
public company limited by shares, if they are not inconsistent with the company’s own Articles, if any.
The Court observed that
A conjoint reading of ss 9 & 28 of the Act makes it clear that the Regulations in table A of Schedule I to the Act would
be applicable to the extent they are not modified or excluded by the Articles of Association of the Company. Therefore,
in a situation where the Articles of Association are silent on a certain aspect pertaining to management of the
Company, such as transfer of shares by the legal representatives of a deceased member, the Regulations in table A of
Schedule I of the Act would be applicable.92
Under the 2013 Act, for a company limited by shares, the model articles are provided under Table F
of Schedule I to the 2013 Act.
[s 5.33] Interpretation [s 5.33.1] Remuneration of Director
Even if the Articles of Association of a company do not provide for payment of remuneration, the
provisions of Table ‘A’ may apply and a resolution by the general meeting sanctioning the payment
retrospectively is valid and the payment to the directors could not be said as unauthorised.93
[s 5.34] Lien
Regulation 9 of Table ‘A’ of Schedule I to the 1956 Act deals with procedure for exercise of right of
Lien. The proceedings in relation to the exercise of a lien of a company over its shares should be
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governed by the provisions of the 1956 Act and the Memorandum and Articles of Association of the
company framed under section 28 of the 1956 Act (1 of 1956) and not by the general provisions of
the Contract Act, 1872 (9 of 1872).94
S. 29. Form of articles in the case of other companies.—The articles of association of any company, not being a
company limited by shares, shall be in such one of the Forms in Tables C, D and E in Schedule I as may be applicable,
or in a Form as near thereto as circumstances admit: The Companies Act, 1956 provision
95[Provided that nothing in this section shall be deemed to prevent a company from including any additional matters in
its articles in so far as they are not inconsistent with the provisions contained in the Form in any of the Tables C, D and
E, adopted by the Company.]
NOTES
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on clauses explained thus:
“This is based on section 151(1) of the Indian Act and section 454 of the English Act.” [Clause 595 of the Companies
Bill, 1953 (46 of 1953)].
[s 5.36] The Companies (Amendment) Act, 1960 (65 of 1960)
The Notes on clauses explained the amendments in section 29 of the 1956 Act as follows:
The amendment seeks to make it permissible to a company, other than a company limited by shares, to include any
additional matters in its articles in so far as they are not inconsistent with the provisions contained in the Form in any of
the Tables C, D and E. [Clause 10 of the Companies (Amendment) Bill, 1959 (37 of 1959)].
[s 5.37] Articles of Companies other than limited by shares
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Under section 29 of the 1956 Act, such companies shall have Articles of Association in one of the
Forms in Table C, D or E of Schedule I to the Companies Act, 1956 or in a form near
to that. In adopting such a form the company may, however, incorporate some more matters in it.
This section is merely directory and not mandatory and the forms are intended as models.1
[s 5.38] Articles of Section 25 (1956 Act) -Company or Guarantee Company
Section 28 of the 1956 Act provides that the Articles of a company limited by shares may adopt all or
any of the regulations in Table A, Schedule I of the 1956 Act. In respect of other companies section
29 of the 1956 Act provides that the Articles shall be in one of the Forms in Tables C, D or E in
Schedule I of the 1956 Act as applicable or in a form near thereto. In case of companies registered
under section 25 of the 1956 Act, Table C is applicable. If Tables A and C are compared it becomes
apparent that there are material differences between the two. Where, the High Court disposed of the
matter by merely observing that no distinction can be made in the matter of transfer of shares or
other interest between a company limited by shares and a company limited by guarantee, the
Supreme Court set aside the order passed by the High Court and remitted the matter back to the
High Court for deciding the appeal afresh.2
[s 5.39] Articles of Association of Guarantee Company
Section 29 of the 1956 Act (section 5of the 2013 Act) does not prevent a company from including any
additional matters in its Articles in so far as they are not inconsistent with the provisions contained in
the Form in any of the Tables including Table ‘C’, ‘D’ or ‘E’ adopted by the company. A company
limited by Guarantee maintained that the Articles also provided for matters other than those indicated
in Table ‘C’ not inconsistent with the Act. The Articles relating to a Stock Exchange confer powers for
disciplining Members including expulsion of Members incurring disqualification. Such a provision is
not contrary to the provisions of the 1956 Act and can be enforced. In case of a company limited by
Guarantee a provision in the Articles for expulsion of a Member was not inconsistent with the
requirements or provisions of the 1956 Act. None of the Articles in Table ‘C’ or section 29, proviso of
the 1956 Act prohibits the suspension or expulsion of any Member and a Stock Exchange company
can be formed as a normal company and registered as such under the 1956 Act 1956 and when so
registered the Stock Exchange is subject not only to the provisions of Companies Act, 1956 but also
to the Regulatory framework of the Securities Contracts (Regulations) Act, 1956. The Government of
India in a letter to all Stock Exchanges has expressed its opinion that it is not permissible for a
Member of Stock Exchange to become a Managing Director of a company or Partner in a Firm
carrying on any other business3
[s 5.40] Overriding effect of Section 9 of the 1956 Act [Section 6 of the Companies Act, 2013]
While considering whether section 29 of the 1956 Act is subject to the overriding effect of section 9 of
the 1956 Act, the Court observed:
The Schedule of the Act is as much a part of the Statute, and as much an enactment, as any other part. The form
prescribed in the Statute therefore cannot be beyond other provisions of the Act unless specifically exempted. A plain
reading of section s. 9 commences with the term "Save as expressly provided in the Act… It enacts that provisions of
the Act have an overriding effect notwithstanding anything to the contrary contained in the memorandum or articles of a
company. A textual reading of section 29, in this respect does not enable companies conforming to the form prescribed
Mr. Laghir1 Rabari

Page 15 of 17
in Table C to contravene other parts of the Act. Even though section 29 permits “additional matters” that are not to be
repugnant to the provisions of the Form in Table C, such additional matters, cannot be inconsistent, with other express
provisions of the Act. Merely because express compliance with other parts of the Act by a company under s. 29 is not
prescribed, does not exclude such compliance. Section 9 in this respect is an umbrella provision governing all parts of
the Act, including the Schedule and unless specifically exempted by the Statute, a form in conformity with section 29
cannot be repugnant to any other part of the Statute to which it is otherwise subject to.4
62 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to sections 26, 27, 28 and 29 of the
C 1956 Act.
64 Rule 10 and Form No. INC. 7 or Form No. MGT. 14 of the Companies (Incorporation) Rules, 2014. For the text of
Rules refer Appendix 3.
65 Rule 36(5) and Form No. INC-31 of the Companies (Incorporation) Rules, 2014. For the text of Rules refer Appendix 3.
66 Naresh Chandra Sanyal v Calcutta Stock Exchange Association Ltd, (1971) 41 COMP CASES 51 (SC) : AIR 1971 SC
422.
67 B.V. Thirumalai v Best Vestures Trading Pvt Ltd, (2004) 4 Comp. LJ 519 (CLB).
68 Hanuman Prasad Gupta v Hiralal, (1970) 40 COMP CASES 1058 (SC) : AIR 1971 SC 206 : (1970) 2 Comp. LJ 195
(SC).
69 Dale and Carrington Invt. Pvt Ltd v P.K. Prathapan, (2004) 122 COMP CASES 161 (SC).
70 IL & FS Trust Co Ltd v Birla Perucchini Ltd, (2004) 121 COMP CASES 335 (Bom.).
71 V.B. Rangaraj v V.B. Gopalakrishnan, (1992) 73 COMP CASES 201 (SC) : AIR 1992 SC 453.
72 Baker Hughes Ltd v Hiroo Khushalani, (2000) 102 COMP CASES 203 (Delhi).
73 Fertilizer Corp of India Ltd v Workmen, AIR 1970 SC 867.
Mr. Laghir1 Rabari

Page 16 of 17
74 G. Karunakaran v State of Kerala, (1987) 61 COMP CASES 334 (Ker.).
75 Dr. A. Lakshmanaswami Mudaliar v LIC, (1963) 33 COMP CASES 420 (SC) : AIR 1963 SC 1185 : (1963) 1 Comp LJ
248 (SC).
76 Master Gautam R. Padival (Minor) v Karnataka Theatres Ltd, (2000) 100 COMP CASES 124 (CLB).
77 Ramakrishna Industries Pvt Ltd v P.R. Ramakrishnan, (1988) 64 COMP CASES 425 (Mad.) (DB).
78 Kinetic Engineering Ltd v Sadhana Gadia, (1992) 74 COMP CASES 82 (CLB); Co-op Central Bank Ltd v Additional
Industrial Tribunal, (1970) 40 COMP CASES 206 (SC) : AIR 1970 SC 245.
79 Western Maharashtra Development Corpn. Ltd v Bajaj Auto Ltd, [2010] 154 COMP CASES 593 (Bombay High Court)
80 Messer Holdings Ltd v Shyam Madanmohan Ruia, [2010] 159 COMP CASES 29 (Bombay High Court).
81 Rajendra Prasad Bagaria v Bhubaneswar Stock Exchange Association Ltd, (1999) 97 COMP CASES 182 (Orissa)
(DB).
82 Pramod Chopra v Apparel Export Promotion Council, (1984) 1 ILR 717 (Delhi).
83 S.S. Rajakumar v Perfect Castings Pvt Ltd, (1968) 38 COMP CASES 187 (Mad.).
84 Holmes v Keyes, (1959) ChD 199 : (1958) 2 All ER 129 (CA) : (1958) 2 WLR 772 : (1958) 102 SJ 329 (CA).
85 Sunil Dev v Delhi and District Cricket Association, (1994) 80 COMP CASES 174 (Delhi).
86 Bratton Seymore Co Ltd v Oxborough, (1992) BCLC 693 (CA).
87 R.K. Dalmia v Delhi Administration, (1962) 32 COMP CASES 699 (SC) : AIR 1962 SC 1821 : (1963) 1 SCR 253; Dr.
Indramani v W.R. Natu, AIR 1963 SC 274.
88 Dharam Pal Bhasin v B.N. Khanna, (1988) 64 COMP CASES 651 (Delhi).
89 Babulal Madhavji Varma v New Standard Coal Co Pvt Ltd, (1967) 37 COMP CASES 446 (Cal.) : 71 Cal WN 333.
90 J. Dalmia v CIT, (1964) 34 COMP CASES 668 (SC) : AIR 1964 SC 1866 : (1964) 53 ITR 83 (SC) : (1964) 2 Comp. LJ
69 (SC); Seth Mohanlal v Grain Chambers Ltd, (1968) 38 COMP CASES 543 (SC) : AIR 1968 SC 772 : (1968) 1
Comp. LJ 275 (SC).
91 Seth Mohanlal v Grain Chambers Ltd, (1968) 38 COMP CASES 543 (SC) : AIR 1968 SC 772 : (1968) 1 Comp. LJ 275
(SC).
Mr. Laghir1 Rabari

Page 17 of 17
92 M/s. S.M. Kannappa Automobiles Pvt Ltd No. 2 New Mental Hospital Road Bangalore - 560027 v. Bhupinder Rai Major
No. 26/14, Abshot Layout Sankey road, high grounds Bangalore - 560052 and Sudharshan Kumar Manchanda Major,
No. 40, Basappa Road Shanthinagar, Bangalore-560027 [2012] 172 Comp Cases 106 (Kar).
93 Sagar Automotives Pvt Ltd v CIT, (1984) 56 COMP CASES 141 (MP) (DB) : 148 ITR 492 (MP) (DB).
94 Khadija v P.K. Mohammed Pvt Ltd, (1985) 58 COMP CASES 543 (Ker.).
1 Gaiman v National Association for Mental Health, (1971) ChD 317 : (1970) 2 All ER 362 : (1970) 3 WLR 42 : (1971) 41
COMP CASES 929 (Ch.).
2 Narendera Kumar Agrawal v Smt. Saroj Maloo, (1996) 85 COMP CASES 172 (SC).
3 Madras Stock Exchange Ltd v S.S.R. Rajkumar, (2003) 116 COMP CASES 214 (Mad.) (DB).
4 S. Jagtaran Singh Anand v Chelmsford Club Ltd, 177 (2011) DLT 294.
End of Document
Mr. Laghir1 Rabari

5 Enforced vide Notification S.O. 902(E) dt. 26-03-2014, w.e.f. 01-04-2014
and corresponds to section 9 of the 1956 Act. S. 6. Act to override
memorandum, articles etc.—Save as otherwise expressly provided in this
Act—
THERETO

INCIDENTAL THERETO
5 S. 6. Act to override memorandum, articles etc.—Save as otherwise

expressly provided in this Act—
(a) the provisions of this Act shall have effect notwithstanding anything to the contrary contained
in the memorandum or articles of a company, or in any agreement executed by it, or in any
resolution passed by the company in general meeting or by its Board of Directors, whether
the same be registered, executed or passed, as the case may be, before or after the
commencement of this Act; and
(b) any provision contained in the memorandum, articles, agreement or resolution shall, to the
extent to which it is repugnant to the provisions of this Act, become or be void, as the case
may be.
NOTES
Section 6 of the 2013 Act was notified vide Notification SO 902(E) and has been in effect from 01-
04-2014. Section 6 of the 2013Act corresponds to section 9 of the 1956 Act.
as follows:
Clause 6.—This clause corresponds to section 9 of the Companies Act, 1956 and seeks to provide that the provisions
of this Act shall have overriding effect on provisions contained in memorandum and articles of the company
Section 6 of the 2013 Act is a verbatim reproduction of section 9 of the 1956 Act. The important
points covered are as under:
Mr. Laghir1 Rabari

Page 2 of 11
5 Enforced vide Notification S.O. 902(E) dt. 26-03-2014, w.e.f. 01-04-2014 and corresponds to section 9 of the
1956 Act. S. 6. Act to override memorandum, arti....
(a) It clarifies that while memorandum and articles are company’s prerogative and companies
can choose the rules that govern them, the Companies Act itself shall override the
memorandum and articles. Any article that contradicts the Companies Act shall be
considered as void per-se.
(b) The provisions of the 2013 Act shall apply for any agreement executed by the company or in
any resolution passed by the company in general meeting or by its Board of Directors,
whether the same is registered, executed or passed.
The 2013 Act is supreme and every company incorporated either under the 2013 Act or under any
previous company law has to function within the framework of the 2013 Act.
[s 6.2] Act to have overriding effect
This section provides that save as otherwise expressly provided in the Act (a) the provisions of the
2013 Act shall override the memorandum, articles, agreements or resolutions, and (b) any provision
contained in the memorandum, articles, agreement or resolution shall, to the extent to which it is
repugnant to the provisions of the Act, become or be void.
While the objects stated in the memorandum limit the company’s area of operation and powers
beyond which the company is not supposed to go, the Memorandum itself should not go beyond the
law. Section 6 precisely states this principle. This is nothing but a reiteration of the principle that
where a power is given by a statute to do a certain thing in a certain way, the thing must be done in
that way or not done at all. Other methods of performance are necessarily forbidden.6 The section
makes clear specifically with reference to the Act what is clear even otherwise, that no action, which
is contrary to the terms of the statute, can be sustained in law. When any action of a company is
contrary to the terms of the statute the principle of ultra vires would also come into play.7 The
provisions of the Act will prevail in case there is a conflict between the Act and the company’s
Memorandum, Articles, resolutions or agreements.8
[s 6.3] Act to override Articles
According to section 6 (b) provisions contained in Articles of Association of the company are void if
these are repugnant to the provisions of the 2013 Act. Decisions enunciating this are dealt with under
section 9 of the 1956 Act below.
The effect of section 6 of the 2013 Act is that in case of a conflict, the provisions of the Act shall have
overriding effect against the provisions of:
(a) the Memorandum,
(b) the Articles,
Mr. Laghir1 Rabari

Page 3 of 11
(c) an agreement executed by a company,
(d) a resolution passed at a general meeting of a company,
(e) a resolution passed at a Board meeting.
Any provision contained in the Memorandum, Articles, an agreement or a resolution, which is

contrary to the provisions of this Act, shall be repugnant to the provision of the Act. Such a repugnant
provision shall be void. This effect of the section shall be applicable even though the Memorandum,
Articles, agreement or resolution was registered, executed or passed before or after the
commencement of the Act.
While drafting Memorandum or Articles for incorporation of a company, care should be taken to
ensure that its every provision is consistent with the provisions of the Act and not opposed to any of
its provisions. Likewise, while drafting a resolution to be passed at a Board meeting or at a general
meeting, it should be made sure that it is consistent with the provisions of the Act and not opposed to
any of its provisions.
However, neither the Memorandum nor Articles of Association can authorise the company to do
anything which is contrary to the provisions of the 2013 Act. Any provision contained in the
Memorandum or Articles shall, to the extent to which it is repugnant to the provisions of the 2013 Act
is void.9
A clause in the Articles of Association providing special right to one shareholder regarding offer of
shares to specified entity was inserted pursuant to an agreement between some shareholders and
promoters. It being violative of provisions of section 81 of the 1956 Act10 was void and cannot be
relied on to restrain a company from issuing rights shares.11
S. 9. Act to override memorandum, articles, etc.—Save as otherwise expressly provided in the Act— The
(a) the provisions of this Act shall have effect notwithstanding anything to the contrary contained in the
memorandum or articles of a company, or in any agreement executed by it, or in any resolution passed by
the company in general meeting or by its Board of directors, whether the same be registered, executed or
passed, as the case may be, before or after the commencement of this Act; and
(b) any provision contained in the memorandum, articles, agreement or resolution aforesaid shall, to the extent to
which it is repugnant to the provisions of this Act, become or be void, as the case may be.
Mr. Laghir1 Rabari

Page 4 of 11
NOTES
THE COMPANIES ACT 1956 (1 OF 1956).—The Notes on clauses explained this section as follows:
This is intended to make it clear that the provisions of this Act will override the memorandum, articles, agreements
executed by the company, and resolutions passed in general meeting by the company and resolutions passed by the
directors of the company, unless it is expressly provided otherwise in the Act itself. This clause will apply whether the
memorandum or articles, agreements or resolutions, be before or after coming into operation of this Act. [Clause 7 of
Section 9 (a) and (b) of the 1956 Act, are the same as section 6 of the 2013 Act, In addition to the
decisions mentioned above, please see below for case law that enunciate the principle that the Act
would override the Memorandum and Articles.
[s 6.5] Memorandum of Association—Alteration
Section 17 of the 1956 Act provided the procedural framework before the Central Government (CG)
(prior to amendment by Companies (Second Amendment Act, this was by the Company Law Board).
which considers a petition for alteration of the Memorandum. The procedural framework is intended
to take care of the interests of the shareholders, creditors and every other person or class of persons
whose interest will be affected by the alteration. The various provisions under the Act provide an
opportunity to the members of the company to air their views with regard to the Alteration of the
Memorandum. When the CG is satisfied that the company has complied with the prescribed
procedure it is only appropriate to presume that the interests of the concerned parties are taken due
care of.
A Clause in the Agreement which had not been incorporated in the Memorandum of Association
relating to shifting of the Registered Office with mutual consent of the objector could not be forced on
the company. Such a Clause when incorporated in the Articles of Association would run against the
spirit of section 17 of the 1956 Act and consequently would become void by virtue of section 9 of the
1956 Act. Though the regulations did not prescribe that public notice shall be effected only after
passing a Special Resolution, yet in the spirit of the Regulations the public notice shall be effected
only after passing the Special Resolution. The objector had neither contended nor established that
any prejudice was caused to any interested person on account of defective publication. General
Meetings cannot be conducted at the dictates of a lone shareholder. The plea of loss of revenue to a
State was irrelevant for the purpose of section 17 of the 1956 Act. The defective publication was to
be condoned as the company gave public notice in two newspapers about the results of the Postal
Ballot and filing of the petition before the CLB under section 17 of the 1956 Act. The Alteration in the
Memorandum of Association of the company as approved by the Special Resolution passed by
Postal Ballot was confirmed subject to certain conditions.12
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Page 5 of 11
[s 6.6] Articles against voting rights [section 87(1)(b) of the Companies Act, 1956]
Articles providing for full voting rights in case of partly paid shares is against the provisions of section
87(1) (b) of the 1956 Act according to which the voting right on poll shall be in proportion to one’s
share of the paid up capital of the company. Under section 9, any provision in the Articles which is in
derogation of the provisions of the Act is void.13
[s 6.7] Articles against free transferability of shares [Section 111A of the Companies Act,
1956]
Section 111A of the 1956 Act stipulates that the shares of a public company are freely transferable
and any stipulation in the articles contrary to the same, putting fetters on the free transferability,
would be hit by the provisions of section 9 of the Act.14
A general right of pre-emption in relation to shares of a public company is contrary of section 111A15
This view is in contrary to the view taken by the Division bench of High Court later, wherein it was
held that any restriction on transfer of shares of a public company by way of an agreement between
the shareholders is enforceable unless the same is barred by the Articles.16
Where Articles provided that all transfer of shares shall be sanctioned only with the unanimous
decision of the directors, which provision is preserved by section 111(1) of the Act. Such a provision
being not inconsistent with any provision of the Act is outside the reach of section 9 of the Act. A
unanimous decision of the directors shall, therefore, be necessary for a valid sanction of any
transfer.17
[s 6.8] Articles against Special/Ordinary Resolution [Section 189 of the Companies Act, 1956]
An Article which provides that a Special Resolution would be required to transact any business which
is required by the Act to be transacted by Ordinary Resolution would be invalid.18
[s 6.9] Declaration of dividend at EGM [Sections 166 and 205 of the Companies Act, 1956]
Provision in the Articles for declaration of dividend at an Extraordinary General Meeting is void.19
[s 6.10] Authority to create a general reserve [Section 217 of the Companies Act, 1956]
Having regard to the language of section 217(1)(b) of the 1956 Act, the authority competent to create
a general reserve under the Act, is only the general body, though the general body acts on the
proposals made by the Board of directors. In view of section 9, no clause contained in Table A of
Schedule I to the 1956 Act [e.g., Model clause 87 of Table A], and no article contained in the Articles
of Association of any company can override the provisions contained in section 217 of the 1956 Act.20
[s 6.11] Articles against removal of directors [Section 284 of the Companies Act, 1956]
Section 9 provides that provisions of the Act would have effect, notwithstanding anything to the
contrary contained in the Articles of the company. While the shareholders have no power, apart from
that given in the statute or the articles, to intervene in the management of the company’s affairs,
section 284 of the 1956 Act was designed to enable them to control the directors by their removal.
The only exceptions are the directors appointed by the Central Government under section 408 of the
1956 Act, the life directors holding office on 1 April 1952 and the nominee directors of financial
institutions. Whereas per Articles of the company (i) a permanent director was to hold office for life
unless he voluntarily resigned and (ii) if a permanent director died the person nominated by him in his
lifetime should be a permanent director in place of the deceased director. He could nevertheless be
Mr. Laghir1 Rabari

Page 6 of 11
removed, if the requirements of section 284 of the 1956 Act and of a valid meeting had been satisfied
which applies to all companies, public and private.21
Section 9 provides that the provisions of the Act shall have an overriding effect on the Memorandum
or Articles of a company. Therefore, even where the Articles of the company make section 188 of the
1956 Act applicable to circulation of members’ resolutions, section 188 of the 1956 Act would not
apply to special notice under section 284 of the 1956 Act.22
[s 6.12] Articles cannot provide lesser quorum [Section 287 of the Companies Act, 1956]
Section 287(2) of the 1956 Act provides for a quorum of one-third of the total strength of the directors
or two directors, whichever is higher, but it does not forbid the company to fix a higher number of
directors to form a quorum. It provides the minimum number of directors. That means the company in
its Articles cannot provide a quorum of lesser number of directors than what is provided in section
287(2) of the 1956 Act. However, it can provide for a quorum of directors on the higher side.23
[s 6.13] Assignment of office by Director [Section 312 of the Companies Act, 1956]
Powers given by the Articles to the Managing Director to appoint any person to be a Managing
Director by Deed or Will is not hit by section 312 of the 1956 Act and is valid. In section 312 of the
1956 Act the word “assignment” does not mean “appointment”.24
[s 6.14] Articles against mismanagement or oppression [Sections 397-399 of the Companies

Act, 1956]
The shareholders of a company have a right to file a petition under section 397 or 398 of the 1956
Act, for relief against mismanagement or oppression if the provisions of section 399 are satisfied.
This right is a statutory right, which, by section 9 of the Act, cannot be ousted by a provision in the
Articles of Association of the company. An arbitration clause in the Articles of the company cannot
debar the Court’s [the Company Law Board’s (the Tribunal’s)] jurisdiction in the matter of a petition
under sections 397 and 398 of the 1956 Act.25
The provisions of the Arbitration and Conciliation Act, 1996 are not repugnant to the provisions of
section 9 of the 1956 Act. In view of the mandatory provisions of sections 8 and 45 of the Arbitration
and Conciliation Act, 1996 (26 of 1996), once the CLB [the Tribunal] is convinced that the matters
governed in a petition under sections 397/398 of the 1956 Act relate to or arise out of or in connection
with an arbitration agreement and that the reliefs appropriate to the facts of the case can be
determined/granted by an arbitrator, then, the CLB [the Tribunal] is bound to refer the matter to
arbitration.26
[s 6.16] Model Articles
As Articles inconsistent with the provisions of the Act are void [section 9], Model Regulations in
Tables in Schedule I of the 1956 Act should be carefully studied while drafting Articles of Association
of a company. These have also been annotated in Notes under relevant Sections.
See detailed Notes under: Articles of Association: Articles prescribing regulations [section 26],
Regulations required in case of unlimited company, company limited by guarantee or private
company limited by shares [section 27], Adoption and application of Table A in the case of
companies limited by shares [section 28], Form of articles in case of other companies [section 29],
Mr. Laghir1 Rabari

Page 7 of 11
Form and signature [section 30], Alteration of articles by special resolution [section 31], Schedule I
containing Model Regulations in Tables A to F and definition of Articles [section 2(2)].
The provisions of section 270 of the 1956 Act are mandatory in nature. What section 273 of the 1956
Act provides is that the mandatory provision is not applicable to a Pvt Ltd company. However, if the
shareholders of a private company, in their own wisdom, provide in the Articles, qualification shares
for a director, the same is not repugnant to the provisions of section 273 of the 1956 Act and,
therefore, the application of the provisions of section 9 does not arise.27
A Private Company (not being a subsidiary of a public company) is entitled to several privileges and
exemptions conferred on private companies by or under the 1956 Act. These have been enumerated
in Notes under section 3 and also annotated under respective Sections.
[s 6.18] Save as otherwise expressly provided in the Act
Certain sections of the Act expressly provide that the provision of that section shall be subject to
Articles of association of the company. In view of the opening words of section 9 “save as otherwise
expressly provided in the Act”, if the section expressly provides that the Articles will prevail, then
section 9 has no application.28
[s 6.19] Articles may provide for larger quorum [Section 174 of the Companies Act, 1956]
For instance, section 174 of the 1956 Act provides that unless the Articles provide for a larger
number, five members personally present in the case of a public company and two members in the
case of other companies shall be the quorum at the meeting of the company.
[s 6.20] Winding up provisions subject to Articles [Section 511 of the Companies Act, 1956]
Sections 9 and 36 ensure the superiority of the provisions of the Act as against the Articles which
apply to the working of a company as a going concern. Section 511 (which expressly provides unless
the Articles otherwise provide) refers to those provisions of the Act which apply during the winding up
of the company. This is why the former override the Articles while the latter is subject to the Articles.29
Where the Articles of the company provided for passing of a special resolution by company for
winding up in certain contingencies. It was held that the Article was not opposed to section 433(f) of
the 1956 Act and was not void under section 9 of the Act.30
Under section 34 of the Arbitration Act, 1940 (10 of 1940) [now the Arbitration and Conciliation Act,
1996 (26 of 1996)], a winding up petition cannot be stayed, but the arbitration agreement may be
enforced against a party who in breach of the agreement files a suit or makes a claim under section
446(2) of the 1956 Act. The provisions of section 9 of the 1956 Act do not in any way conflict with the
provisions of section 446(2).31
[s 6.21] Act to override Agreements or Resolutions
An Agreement to pay a percentage of profit to the promoters and the provision in the Articles
embodying the same would be void being in contravention of the provisions of section 76(1)(a) of the
1956 Act.32 Agreement for appointment of a sole selling agent without complying with section 294(2)
Mr. Laghir1 Rabari

Page 8 of 11
is void.33
[s 6.22] Provisions of this Act express or implied
It is impossible to read the expression “provisions of this Act” in section 9 as indicative merely of the
express provisions and exclude the meanings which have to be read in the provisions of the Act by
the rule of necessary implication. In view of this any provision contained in the memorandum, articles,
agreement or resolution of a company which is repugnant to any provision of the Act, whether such
provision be expressly found in any section or is to be read in the said section by necessary
implication, would be clearly void.34
As already explained, saving clause of section 9 on the contrary comes into operation only if the
section otherwise expressly provides, e.g., Articles, etc., shall override the Act, only if relevant
provision expressly so provides.
[s 6.23] Companies Act to override other Acts
An amendment of Articles of Association of the company in conformity with other Acts, e.g., section
9A of the Forward Contracts (Regulation) Act, 1952 (74 of 1952) would be void if it contravenes the
provisions of the 1956 Act.35
By sections 9 and 10 of the 1956 Act, the jurisdiction of the Civil Court has not been ousted. In
matters of general law and where the jurisdiction of civil court has not been ousted by the 1956 Act,
the civil court would have jurisdiction. The provisions of the 1956 Act as to jurisdiction would override
any provisions to the contrary contained in the Memorandum, Articles or any Agreement.36
[s 6.25] Memorandum and Articles binding [Section 36(1) of the Companies Act, 1956]
Subject to the provisions of this Act, the Memorandum and Articles bind the company and members
as if signed by the company and each member, and contain covenants to observe all the provisions
of the Memorandum and Articles.
[s 6.26] Construction of Memorandum and Articles
Memorandum of Association has to be read together with the Articles of Association, where the terms
are ambiguous or silent. Articles may explain the Memorandum, but cannot extend its scope.37
[s 6.27] Articles or Memorandum contrary to other Acts
The provisions in the Memorandum and Articles of a company in conflict with or repugnant to
provisions of any other Act, e.g., the SCRA, 1956 or the SEBI Act, 1992, etc., would be equally void,
if they do not conflict with the Companies Act. Any provision in the Articles or Memorandum contrary
to any other law will be invalid ab initio. Section 22A of the Securities Contracts (Regulation) Act,
1956 (42 of 1956) [now section 111A of the 1956 Act] provides for free transferability and registration
of shares or listed securities of public companies. The Board of directors can refuse registration of
transfer of shares only on any of the three grounds enumerated in section 22A(3) of the SCRA [now
section 111A of the 1956 Act]. The Articles of the company cannot be treated on par with the
provisions of the law. Any provision in Articles which puts any restriction on the free transferability of
shares would be a negation of the expressed provisions of law and would be self-defeating.38
[s 6.28] Existing companies
This section will apply whether the memorandum or articles, agreements or resolutions, be before or
Mr. Laghir1 Rabari

Page 9 of 11
after coming into operation of this Act. The only exception is provided in section 657 [Saving of
certain Tables under previous companies laws] which says that the Act shall not apply to companies
existing at the commencement of the 1956 Act (1 of 1956) which adopted Table A of Schedule I of
the Companies Act, 1913 (7 of 1913).
5 Enforced vide Notification S.O. 902(E) dt. 26-03-2014, w.e.f. 01-04-2014 and corresponds to section 9 of the 1956 Act.
6 Nazir Ahmed v King Emperor, AIR 1936 PC 253.
7 General Commerce Ltd v Apparel Export Promotion Council, (1990) 69 Com Cas 158 (Del) : (1990) 1 Comp LJ 297 :
(1990) 3 CLA 254.
1543 : (1962) Supp. 3 SCR 973. See also Notes under section 76 of the 1956 Act.
9 Section 6 (b) of the 2013 Act.
10 Corresponds to section 62 of the 2013Act.
11 Jiji Anthony v JRG Securities Ltd, (2011) 161 Com Cas 304 (CLB).
12 Re Jindal Vijayanagar Steel Ltd, (2006) 129 COMP CASES 952 (CLB).
13 S. Ajit Singh v DSS Enterprises Pvt Ltd, (2002) 109 COMP CASES 597 (CLB).
under sections 41, 111A and 153 of the 1956 Act.
15 Western Maharashtra Development Corpn. Ltd v Bajaj Auto Ltd, [2010] 154 COMP CASES 593 (Bombay High Court).
16 . Messer Holdings Ltd v Shyam Madanmohan Ruia, [2010] 159 COMP CASES 29 (Bombay High Court).
17 Tarlok Chand Khanna v Raj Kumar Kapoor, (1983) 54 COMP CASES 12 (Delhi).
18 Ayre v Skelsey’s Adamant Cement Co Ltd, (1905) 21 TLR 464 (CA).
19 Raghunandan Neotia v Swadeshi Cloth Dealers Ltd, (1964) 34 COMP CASES 570 (Cal.) : AIR 1964 Cal 347 : 68 Cal
WN 302. See also Notes under sections 41, 166 and 205 of the 1956 Act.
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20 Southern Roadways Ltd v CIT, (1981) 51 COMP CASES 513 (Mad.) (FB) : (1981) 130 ITR 545 (Mad.) (FB). See also
22 Karnataka Bank Ltd v A.B. Datar, (1994) 79 COMP CASES 417 (Kar.). See also Notes under sections 188, 190 and
23 Amrit Kaur Puri v Kapurthala Flour, Oil and General Mills Co Pvt Ltd, (1984) 56 COMP CASES 194 (P&H). See also
24 Oriental Metal Pressing Works Pvt Ltd v Bhaskar Kashinath Thakoor, (1961) 31 COMP CASES 143 (SC) : AIR 1961
SC 573. See also Notes under sections 255 and 312 of the 1956 Act.
25 In Re, Kare Pvt Ltd, (1977) 47 COMP CASES 276 (Delhi); O.P. Gupta v Shiv General Finance Pvt Ltd, (1977) 47
COMP CASES 279 (Delhi). See also Notes under section 397, 398, 399, 433 and 439 of the 1956 Act.
26 Bhadresh Kantilal Shah v Magotteaux International, (2002) 111 COMP CASES 220 (CLB). See also Notes under
27 Mrs. Aruna Suresh Mehra v Jifcon Tools Pvt Ltd, (1998) 94 COMP CASES 329 (CLB). See detailed Notes under
28 Bennett, Coleman and Co Ltd v UOI, (1977) 47 COMP CASES 92 (Bom.) (DB). See also Notes under section 402 of
the 1956 Act.
29 Globe Motors Ltd v Globe United Engg. and Foundry Co Ltd, (1975) 45 COMP CASES 429 (Delhi) (DB). See also
30 Ramakrishna Industries Pvt Ltd v P.R. Ramakrishnan, (1988) 64 COMP CASES 425 (Mad.) (DB). See also Notes
31 Maruti Ltd v B.G. Shirke & Co Pvt Ltd, (1981) 51 COMP CASES 11 (P&H) (DB). See also Notes sections 439 and 446
of the 1956 Act.
1543 : (1962) Supp. 3 SCR 973. See also Notes under section 76 of the 1956 Act.
33 Arantee Manufacturing Corpn v Bright Bolts Pvt Ltd, (1967) 37 COMP CASES 758 (Bom.) : AIR 1967 Bom 440;
Shalagram Jhajharia v National Coal Co Ltd, (1965) 35 COMP CASES 706 (Cal.) (DB) : (1965) 1 Comp. LJ 112 (Cal.)
(DB) : (1965) 69 Cal WN 369 (Cal.) (DB). See also Notes under sections 13, 173, 204 and 294 of the 1956 Act.
34 Cricket Club of India Ltd v Madhav L. Apte, (1975) 45 COMP CASES 574 (Bom.). See also Notes under sections 169,
274 and 283 of the 1956 Act.
35 Mohanlal Chandumall v Punjab Co Ltd, (1962) 32 COMP CASES 937 : AIR 1961 Punj. 485.
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36 Dwarka Prasad Agarwal v Ramesh Chandra Agarwala, (2003) 117 COMP CASES 206 (SC); Yokogawa Blue Star Ltd v
Soffia Software Ltd, (2004) 119 COMP CASES 929 (Mad.). See detailed Notes under sections 10, 10E and 10FB of the
1956 Act.
248 (SC). See also Notes under sections 13 and 26 of the 1956 Act.
38 Kinetic Engg. Ltd v Sadhana Gadia, (1992) 74 COMP CASES 82 (CLB); Co-op Central Bank Ltd v Additional Industrial
Tribunal, (1970) 40 COMP CASES 206 (SC) : AIR 1970 SC 245.
End of Document
Mr. Laghir1 Rabari

39 Enforced vide Notification S.O. 902(E) dt. 26-03-2014, w.e.f. 01-04-2014
and corresponds to sections 15(c), 33 and 34 of the 1956 Act. [S. 7.
Incorporation of company.—
THERETO

INCIDENTAL THERETO
39[S. 7. Incorporation of company.—
(1) There shall be filed40 with the Registrar within whose jurisdiction the registered office of a
company is proposed to be situated, the following documents and information for
registration,41 namely:—
(a) the memorandum and articles of the company duly signed by all the subscribers to the
memorandum in such manner as may be prescribed;42
(b) a declaration in the prescribed form43 by an advocate, a chartered accountant, cost
accountant or company secretary in practice, who is engaged in the formation of the
company, and by a person named in the articles as a director, manager or secretary of
the company, that all the requirements of this Act and the rules made thereunder in
respect of registration and matters precedent or incidental thereto have been complied
with;
(c) an affidavit44 from each of the subscribers to the memorandum and from persons named
as the first directors, if any, in the articles that he is not convicted of any offence in
connection with the promotion, formation or management of any company, or that he has
not been found guilty of any fraud or misfeasance or of any breach of duty to any
company under this Act or any previous company law during the preceding five years and
that all the documents filed with the Registrar for registration of the company contain
information that is correct and complete and true to the best of his knowledge and belief;
(d) the address for correspondence till its registered office is established;
(e) the particulars of name, including surname or family name, residential address, nationality
and such other particulars of every subscriber to the memorandum along with proof of
identity, as may be prescribed,45 and in the case of a subscriber being a body corporate,
such particulars as may be prescribed;46
(f) the particulars of the persons mentioned in the articles as the first directors of the
company, their names, including surnames or family names, the Director Identification
Number, residential address, nationality and such other particulars including proof of
identity as may be prescribed;47 and
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39 Enforced vide Notification S.O. 902(E) dt. 26-03-2014, w.e.f. 01-04-2014 and corresponds to sections 15(c),
33 and 34 of the 1956 Act. [S. 7. Incorporation o....
(g) the particulars of the interests of the persons mentioned in the articles as the first
directors of the company in other firms or bodies corporate along with their consent to act
as directors of the company in such form and manner as may be prescribed.48
(2) The Registrar on the basis of documents and information filed under sub-section (1) shall
register all the documents and information referred to in that sub-section in the register and
issue a certificate of incorporation in the prescribed form49 to the effect that the proposed
company is incorporated under this Act.
(3) On and from the date mentioned in the certificate of incorporation issued under sub-section
(2), the Registrar shall allot to the company a corporate identity number, which shall be a
distinct identity for the company and which shall also be included in the certificate.
(4) The company shall maintain and preserve at its registered office copies of all documents and
information as originally filed under sub-section (1) till its dissolution under this Act.
(5) If any person furnishes any false or incorrect particulars of any information or suppresses any
material information, of which he is aware in any of the documents filed with the Registrar in
relation to the registration of a company, he shall be liable for action under section 447.
(6) Without prejudice to the provisions of sub-section (5) where, at any time after the
incorporation of a company, it is proved that the company has been got incorporated by
furnishing any false or incorrect information or representation or by suppressing any material
fact or information in any of the documents or declaration filed or made for incorporating such
company, or by any fraudulent action, the promoters, the persons named as the first directors
of the company and the persons making declaration under clause (b) of sub-section (1) shall
each be liable for action under section 447.]
(7) Without prejudice to the provisions of sub-section (6), where a company has been got
incorporated by furnishing any false or incorrect information or representation or by
suppressing any material fact or information in any of the documents or declaration filed or
made for incorporating such company or by any fraudulent action, the Tribunal may, on an
application made to it, on being satisfied that the situation so warrants,—
(a) pass such orders, as it may think fit, for regulation of the management of the company
including changes, if any, in its memorandum and articles, in public interest or in the
interest of the company and its members and creditors; or
(b) direct that liability of the members shall be unlimited; or
(c) direct removal of the name of the company from the register of companies; or
(d) pass an order for the winding up of the company; or
(e) pass such other orders as it may deem fit:
Provided that before making any order under this sub-section,—
(i) the company shall be given a reasonable opportunity of being heard in the matter; and
(ii) the Tribunal shall take into consideration the transactions entered into by the company,
including the obligations, if any, contracted or payment of any liability.
NOTES
Section 7 of the 2013 Act was notified vide Notification S.O. 902(E) and has been in effect from 01-
04-2014. However, clause (c) and (d) of sub-section (7) of section 7 of the 2013 Act has not been
notified yet. Section 7 of the 2013 Act corresponds to sections 15 (c), 33 and 34 of the 1956 Act.
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as follows:
Clause 7.—This clause corresponds to section 33 of the Companies Act, 1956 and seeks to provide for the procedure
to be followed for incorporation of a company. Memorandum and articles of association duly signed, a declaration in a
prescribed form to the effect that the requirements of the Act in respect of registration have been complied with,
affidavit from the subscribers to the memorandum and from the first directors, to the effect, that they are not convicted
and have not been found guilty of any fraud or misfeasance, etc., under this Act during the last five years, complete
details of name, address of the company, particulars of every subscriber and the persons named as first directors shall
be given to the Registrar. Thereafter, the Registrar of companies shall register the company and issue a Certificate of
Incorporation and allot a Corporate Identity Number. The persons furnishing false information in this connection shall
be liable for punishment and the company which is registered shall be liable for punishment prescribed for fraud.
Where a company has got incorporated by furnishing any false or incorrect information, the Tribunal may pass order as
it thinks fit including removal of name from register or winding up of the company.
[s 7.2] Comparison with the Companies Act, 1956
Section 7 of the 2013 Act corresponds to sections 15(c), 33 and 34 of the 1956 Act. It may be noted
that the 2013 Act has omitted the provisions of section 35 of 1956 Act relating to “Conclusiveness of
Certificate of Incorporation”. The rationale for the omission is not specified. It is to be noted that while
section 35 of the 1956 Act is identified as a corresponding section by the MCA, section 7 of the 2013
Act contains no specific provision confirming that the certificate of incorporation shall be conclusive
evidence of compliance of the provisions of the 2013 Act as regards to the registration and
incorporation of company.
For the benefit of the readers, section 35 of 1956 Act is reproduced.
“Conclusiveness of Certificate of Incorporation: A certificate of incorporation given by the Registrar in respect of any
association shall be conclusive evidence that all the requirement of this Act have been complied with in respect of
registration and matters precedent and incidental thereto, and that the association is a company authorized to be
registered and duly registered under this Act”.
[s 7.3] Scope of section 7 of the Companies Act, 2013
Section 7 of the 2013 Act deals with all matters relating to incorporation of companies, detailing the
documents which are to be submitted to the Registrar for incorporating a company. Elaborate
provisions have been introduced to ensure that the subscribers to the memorandum and the first
directors mentioned therein are not undesirable persons.
[s 7.4] Documents and information for registration [Section 7(1) of the Companies Act, 2013]
Section 7(1) of the 2013 Act enumerates the documents and information that have to be filed with the
Central Registration Centre for registration. The documents and information include:
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(i) Memorandum and articles of the company;
• Signing of memorandum and articles: The memorandum will have to be signed by each
subscriber, who shall provide all details and attestation as provided for in rule 13 of the
Companies (Incorporation) Rules, 2014.* Where the subscriber is illiterate he shall affix his
thumb impression which shall be authenticated by a person who shall mention the name of
the subscriber and sign against/below it. The rules require that the content of the
memorandum and articles be explained and the person who makes such an explanation
should also make an endorsement to that effect. Further sub-clause (5) of rule 13 also
provides the manner in which a foreign national (who is a subscriber) should get his
signatures on the document verified/authenticated.
(ii) a declaration to the effect that all the requirements of the 2013 Act in respect of registration
and matters precedent are complied with, which has to be signed by
(a) a professional (advocate, chartered accountant, cost accountant or company secretary in

practice) engaged in the formation of the company. It must be noted that under section 33
of the 1956 Act, cost accountant could not sign the declaration that was to be filed with
the Central Registration Centre for incorporating the company. Under section 7(1) of the
2013 Act, such a declaration may be made by a cost accountant;
• See also rule 14 of the Companies (Incorporation) Rules, 2014 reproduced below:
… Rule 14. Declaration by professionals.—For the purposes of clause (b) of sub-section (1) of section 7, the
declaration by an advocate, a Chartered Accountant, Cost accountant or Company Secretary in practice shall
be in Form No. INC.8.
• Explanation (i) “chartered accountant” means a chartered accountant as defined in clause (b) of sub section 1
of section 2 of the Chartered Accountants Act, 1949 (ii) “Cost Accountant” means a cost accountant as
defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 and (iii)
“company secretary” means a “company secretary” or “secretary” means as defined in clause (c) of sub-
section (1) of section 2 of the Company Secretaries Act, 1980.
(b) a person named in the articles as director, manager or secretary of the company;
(iii) an affidavit from subscribers to the memorandum and from persons named as first directors,
if any, to the effect that they have not been convicted under the 2013 Act / any previous
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company law of any offence connected with formation/ promotion/ management of the
company / for fraud and that the documents filed with the Central Registration Centre for
registration of company contains correct and complete information; (See also Form INC.9)
• Subscriber as promoter: A promoter is one who is mentioned in prospectus and Annual

Return, or someone with control over the affairs of the company, or on whose direction the
board Acts. (Please see section 2(69) of the 2013 Act). A subscriber who holds a nominal
amount if shares to ensure statutory limit of 2 subscribers is met without having an actual
control over the affairs of the company should not be treated as a promoter.
(iv) Address for correspondence till registered office is established or the address the proposed
registered office of the company;
(v) Particulars of subscribers to the memorandum; of persons mentioned in the articles as first
directors of the company; See rule 16 of the Companies (Incorporation) Rules, 2014* for all
particulars of subscribers required. The requirement for the subscriber or first director to self-
attest signature and latest photograph have been removed vide the Companies
(Incorporation) Third Amendment Rules, 2016;
(vi) Particulars of interests of persons mentioned in the articles as first directors of the company
in other firms or bodies corporate. These details shall be filed in Form DIR 12 along with the
requisite fee. These details are not required in case of filing a composite application for
incorporation of a Company under rule 38 of Companies (Incorporation) Rules, 2014
Sub-section (1) of section 7 of the 2013 Act is to be read with Rules 12 to 17 of Companies
(Incorporation) Rules, 2014.
For full text of Companies (Incorporation) Rules, 2014.**
[s 7.5] Relaxation to foreign Nationals with regard to PAN
… Attention of Ministry has been drawn to difficulties being faced by Foreign Nationals while filing Incorporation form
(lNC-71 due to mandatory requirement of submission of PAN details of intending Directors at the time of filing the
application for incorporation.
2. It is hereby clarified that PAN details are mandatory only for those foreign nationals who are required to possess
“PAN” in terms of provisions of the Income-tax Act, 1961 on the date of application for incorporation Where the
intending Director who is a Foreign National is not required to compulsorily possess PAN, it will be sufficient for such a
person to furnish his/her passport number, alongwith undertaking stating that provisions of mandatory applicability of
PAN are not applicable to the person concerned. The form of Declaration is required to be made in the proforma
enclosed.
3. This issues with the approval of Competent Authority.
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Form for Incorporation: An application for Incorporation of a Company shall be filed with the Central
Registration Centre in Form INC.2 for One person Companies and Form INC.7 for all other types of
companies.
MCA has vide notification dated 1 October 2016 has inter-alia introduced a Simplified Performa for Incorporating
Company Electronically (SPICE) by addition of Rule 38 in Companies (Incorporation) Rules, 2014.* The said rule
provides for a single application in form INC 32 for name application, allotment of DIN, incorporation of a company and
an option to apply for Permanent Account Number and Tax Deduction and Collection Account Number. The rule has
also introduced e-Memorandum of Association and e- Articles of Association which can now be signed electronically by
the subscribers.
Table of Fees
[Pursuant to Rule 12 of the Companies (Registration of Offices and Fees) Rules, 2014 ** ]
I. Fee for filings etc. under section 403 of the Companies Act, 2013
Table of fees for the documents required to be submitted, filed, registered or recorded or for any fact or information
required or authorized to be registered under the Act, shall be submitted filed, registered or recorded within the time
specified in the relevant provision on payment of fee as prescribed hereunder:—
A. TABLE OF FEES TO BE PAID TO THE REGISTRAR
Other than OPCs and Small *OPC and Small Companies

Companies
(I) In respect of a company
having a share capital :
1. (a) For OPC and small companies --- 2000

whose nominal share capital does not
exceeds Rs 10,00,000. --- 200
(b) For every Rs 10,000 of nominal 5000 ---

share capital or part of Rs 10,000 after
the first Rs 10,00,000 and upto Rs
50,00,000
(c) For registration of a company whose
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Companies
nominal share capital does not exceeds
Rs 1,00,000.
2. For registration of a company whose

nominal share capital exceeds Rs
1,00,000, the above fee of Rs 5,000 with
the following additional fees regulated
according to the amount of nominal
capital :
(a) for every Rs 10,000 of nominal 400

the first Rs 1,00,000 upto Rs 5,00,000
(b) for every Rs 10,000 of nominal 300 ---

the first Rs 5,00,000 upto Rs 50,00,000
(c) for every Rs 10,000 of nominal share 100 ---

capital or part of Rs 10,000 after the first
Rs 50,00,000 upto Rs. one crore
(d) for every Rs 10,000 of nominal 75 ---

the first Rs 1 crore.
Provided that where the additional fees,

regulated according to the amount of the
nominal capital of a company, exceeds a
sum of Rs 2 crore and 50 lakh, the total
amount of additional fees payable for the
registration of such company shall not, in
any case, exceed Rs 2 crore and 50
lakhs.
3. For filing a notice of any increase in

the nominal share capital of a company,
the difference between the fees payable
on the increased share capital on the
date of filing the notice for the
registration of a company and the fees
payable on existing authorized capital, at
the rates prevailing on the date of filing
the notice.
4. For registration of any existing

company, except such companies as are
by this Act exempted from payment of
fees in respect of registration under this
Act, the same fee is charged for
registering a new company.
5. For submitting, filing, registering or

recording any document by this Act
required or authorised to be submitted,
filed, registered or recorded
(a) in respect of a company having a 200

nominal share capital of upto 1,00,000.
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Companies
(b) in respect of a company having a 300
nominal share capital of Rs 1,00,000 or
more but less than Rs5,00,000.
(c) in respect of a company having a 400

more but less than Rs25,00,000
(d) in respect of a company having a 500

nominal share capital of Rs25,00,000 or
more but less than Rs 1 crore or more.
(e) in respect of a company having a 600

nominal share capital of Rs 1 crore or
more.
6. For making a record of or registering

any fact by this Act required or
authorised to be recorded or registered
by the Registrar—
(a) in respect of a company having a 200

nominal share capital of upto 1,00,000.
(b) in respect of a company having a 300

more but less than Rs5,00,000.
(c) in respect of a company having a 400

more but less than Rs25,00,000
(d) in respect of a company having a 500

nominal share capital of Rs25,00,000 or
more but less than Rs 1 crore or more.
(e) in respect of a company having a 600

nominal share capital of Rs 1 crore or
more.
(II) In respect of a company not

having a share capital :
7. For registration of a company whose 2000

number of members as stated in the
articles of association, does not exceed
20
8. For registration of a company whose 5000

articles of association, exceeds 20 but
does not exceed 200
9. For registration of a company whose

articles of association, exceeds 200 but
is not stated to be unlimited, the above
fee of Rs5,000 with an additional Rs 10
for every member after first 200.
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Companies
10. For registration of a company in 10000
which the number of members is stated
in the articles of association to be
unlimited.
11. For registration of any increase in

the number of members made after the
registration of the company, the same
fees as would have been payable in
respect of such increase, if such
increase had been stated in the articles
of association at the time of registration :
Provided that no company shall be liable

to pay on the whole a greater fee than
Rs 10,000 in respect of its number of
members, taking into account the fee
paid on the first registration of the
company.
12. For registration of any existing

company except such companies as are
by this Act exempted from payment of
fees in respect of registration under this
Act, the same fee as is charged for
registering a new company.
13. For filing or registering any 200

document by this Act required or
authorized to be filed or registered with
the Registrar.
14. For making a record of or registering 200

any fact by this Act required or
authorized to be recorded or registered
by the Registrar.]
(1) The above table prescribed for small companies (as defined under section 2(85) of the Act) and one person
companies defined under Rule related to Chapter II r/w 2(62) of the Act shall be applicable provided the said company
shall remain as said class of company for a period not less than one year from its incorporation.
(2) The above table of fee shall be applicable for any such intimation to be furnished to the Registrar or any other
officer or authority under section 159 of the Act, filing of notice of appointment of auditors or Secretarial Auditor or Cost
Auditor.
(3) The above table of fee and calculation of fee as applicable for increase in authorised capital shall be applicable for
revised capital in accordance with sub-section (11) of section 233 of the Act, (after setting off fee paid by the transferor
company on its authorised capital prior to its merger or amalgamation with the transferee company).
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(4) The above table of fee shall be applicable for filing revised financial statement or board report under section 130
and 131 of the Act.
ROC may obtain declaration/Affidavit from Subscribers/First Directors, and later dates.
[s 7.6] Certificate of Incorporation [Section 7(2) and (3) of the Companies Act, 2013]
The Central Registration Centre r upon being satisfied that the documents and information filed by
the company under sub-section (1) of section 7 of the 2013 Act is accurate and complete, shall issue
a certificate of incorporation under section 7(2) of the 2013 Act in the Form No INC. 11 to the effect
that the company is incorporated under the Act.
Sub-section (3) of section 7 of the 2013 Act further provides that from the date mentioned in the
certificate of incorporation the Central Registration Centre shall allot a corporate identity number,
consequent to which the company shall have a distinct legal entity separate from its
members/shareholders. The corporate identity number shall also be included in the certificate of
incorporation.
[s 7.7] Central Registration Centre to process application for registration of companies
The Government has constituted and established a Central Registration Centre to speedily process
and dispose applications for reservation of names, as well as processing and disposing all related
matters pertaining to section 7 of 2013 Act. See the two notifications in this regard below:
[s 7.8] Notification S.O. 218(E) dated 22-01-2016
In exercise of the powers conferred by sub-sections (1) and (2) of section 396 of the Companies Act, 2013 (18 of 2013)
(herein after referred to as the Act), the Central Government hereby establishes a Central Registration Centre (CRC)
having territorial jurisdiction all over India, for discharging or carrying out the function of processing and disposal of
applications for reservation of names under the provisions of the said Act.
2. The CRC shall function under the administrative control of Registrar of Companies, Delhi (ROC Delhi), who shall act
as the Registrar of the CRC until a separate Registrar is appointed to the CRC. The CRC shall process applications for
reservation of name i.e., e-Form No. INC-1 filed along with the prescribed fee as provided in the Companies
(Registration of Offices and Fees) Rules, 2014.*
3. Processing and approval of name or names proposed in e-Form No. INC-29 shall continue to be done by the
respective Registrar of Companies having jurisdiction over incorporation of companies under the Companies Act, 2013
as per the provisions of the Act and the rules made thereunder.
4. The CRC shall be located at Indian Institute of Corporate Affairs (IICA), Plot No. 6,7, 8, Sector 5, IMT Manesar,
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District Gurgaon (Haryana), Pin Code-122050.
5. This notification shall come into force from 26th January, 2016.
[s 7.9] Notification S.O 1211(E) dated 23-03-2016
In exercise of the powers conferred by sub-sections (1) and (2) of section 396 of the Companies Act, 2013 (18 of 2013)
(hereinafter referred to as the Act), the Central Registration Centre (herein after referred to CRC) established vide
notification number. S.O. 218(E) dated 22nd January 2016 shall also exercise functional jurisdiction of processing and
disposal of e-forms and all related matters pertaining to registration of companies under section 7, 8 and 366 of the
Companies Act, 2013 having territorial jurisdiction all over India.
2. The CRC shall process forms pertaining to registration of companies i.e. e-forms (INC-2, INC-7 and INC- 29 along
with linked forms INC-22, DIR-12 and URC-1 and any other forms as may be notified by the Central Government) filed
along with the prescribed fee as provided in the Companies (Registration of Offices and Fees) Rules, 2014.*
3. The jurisdiction, processing and approval of name or names proposed in e-Form number INC-29 hitherto exercised
by the respective Registrar of companies having jurisdiction over incorporation of companies under the Companies
Act, 2013 and the rules made thereunder shall forthwith be exercised by Registrar, CRC.
4. The jurisdictional Registrar of companies, other than Registrar CRC, within whose jurisdiction the registered office of
the company is situated shall continue to have jurisdiction over the companies incorporated by the Registrar, CRC
under the Companies Act, 2013 for all other provisions of the Act and the rules made thereunder, which may be
relevant after incorporation.
5. This notification shall come into force from 28th March, 2016.
[s 7.10] Duty to maintain and preserve documents [Section 7(4) of the Companies Act, 2013]
Section 7(4) of the 2013 Act imposes a duty on the company to maintain and preserve all the
documents and information filed by it under section 7(1) of the 2013 Act at its registered office till its
dissolution under the Act.
[s 7.11] Punishment for furnishing false information [Section 7(5) and (6) of the Companies
Act, 2013]
Section 7(5) of the 2013 Act imposes liability on any person who furnishes any false or incorrect
information or suppresses any material information of which he is aware in any documents filed with
the Central Registration Centre in relation to the registration of the company. Any such person shall
be liable to action for fraud under section 447 of the 2013 Act.
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Section 7(6) of the 2013 Act specifically makes the promoters, persons named as first directors of the
company and persons making declaration under section 7(1)(b) of the 2013 Act liable for fraud under
section 447 of the 2013 Act where after incorporation of the company it is proved that the company is
incorporated by:
(i) Giving false or incorrect information or representation; or
(ii) Suppressing any material information/fact in any document/declaration filed for incorporating
the company; or
(iii) Any fraudulent action.
[s 7.12] Powers of the Tribunal [Section 7(7) of the Companies Act, 2013]
The powers of the Tribunal prescribed under section 7 of the 2013 Act is in addition to the penal
consequences provided under sub-section (6) of section 7 of the 2013 Act. Section 7(7) of the 2013
Act empowers the tribunal to pass appropriate orders further to an application made to it alleging that
a company had got incorporated by furnishing any false or incorrect information or representation or
by suppressing any material fact or information in any of the documents or declaration filed or made
for incorporating such company or by any fraudulent action.
Before passing an order the tribunal is required to provide a reasonable opportunity to the company
of being heard in the matter and shall also take into consideration the transactions entered into by the
company including the obligation if any contracted or payment of any liability. The Tribunal is
empowered to pass such order as it may deem fit for regulation of the management of the company
including changes, if any, in its memorandum and articles in public interest or in the interest of the
company and its members and creditors. The order may include a direction that liabilities of the
members shall be unlimited or removal of the name of the company from register of companies or an
order for winding up the company. It is pertinent to note that clause c and d of section 7(7) of the
2013 Act is not notified at the time of going to press
S. 15. Printing and signature of memorandum.—The Memorandum shall— The Companies Act, 1956 provision
(a) be printed,
(b) be divided into paragraphs numbered consecutively, and
(c) be signed by each subscriber (who shall add his address, description and occupation, if any,) in the presence
of at least one witness who shall attest the signature and shall likewise add his address, description and
occupation, if any.
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NOTES
Section 15 of the 1956 Act corresponds to section 7 of the 2013 Act
“See section 9 of the existing Act and section 3 of the English Act.” [Clause 12 of the Companies Bill, 1953 (46 of
1953)].
[s 7.14] Printing and Signature
Section 15 (c) of the 1956 Act required that the Memorandum shall be (a) printed, (b) divided into
paragraphs numbered consecutively and (c) signed by each subscriber, who shall add his address,
description and occupation, in presence of at least one witness who shall attest the signature and
likewise add his address, description and occupation.
[s 7.15] Printing includes computer printing
Where the promoters of a company filed with the Registrar of Companies (Registrar) computer
printed Memorandum and Articles of Association for the purpose of registering the companies. The
Registrar refused to accept them on the plea that they should be printed. On a writ petition, the High
Court held that computer printing would be equivalent to printing and that the Registrar should accept
the computer printed Memorandum and Articles of Association as printed matters for the purpose of
section 15 of the 1956 Act and issue a certificate of incorporation to the company.50
[s 7.15.1] Department’s View— Memorandum and Articles of Association—Acceptance of

Computer printed documents for registration of companies
“The Department has received representations that in view of advancement in computer laser printing techniques, the
documents printed on laser printers have same quality of printing as in letter press. In view of this fact the
memorandum and articles printed on computer laser printers may be accepted by the Registrars for registration of
companies for purposes of sections 15 and 30. This matter has been reviewed by the Government and it has now
been decided that with immediate effect the Registrar should accept and take on record all computer printed
memorandum and articles provided the documents are neatly and legibly printed and comply with the other
requirements of the Act.” [Circular No. 7 of 1993 (F. No. 3/30/93-CL-V), dated 22-06-1993 : Chartered Secretary, July
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[s 7.16] Acceptance of Memorandum and Articles of Association printed by offset printing

method for the purpose of registration
“A question has been raised whether Memorandum and Articles of Association printed by offset printing method can be
accepted by the Registrar of Companies for the purpose of registration. The matter has been carefully examined by the
Department and I am directed to say that offset printing is one of the methods of printing developed recently. This
system is as good as normal printing and hence there does not appear any objection in accepting the same by the
ROCs for the purpose of registration.” [Circular No. 3/81 (F. No. 8/31/15/80-CL-V), dated 15-12-1981: Chartered
Secretary, January 1982, page 55].
[s 7.17] Zerox copies of Memorandum and Articles of Association not acceptable
“The question of allowing Zerox copies of Memorandum and Articles of Association has been carefully examined in the
Department. Since there is a specific requirement introduced in our Act, unlike the English Act, requiring the
memorandum and articles of association to be printed, there is no justification for watering it down by allowing Zerox
copies to be filed for the purposes of registration of Companies.” [Letter No. 8/31/15/80-CL-V, dated 30-04-1981].
[s 7.18] Signatures by each subscriber
The Memorandum of Association shall be signed by each subscriber, who shall add his address,
description and occupation, in presence of at least one witness who shall attest the signature.
A public company must have seven or more subscribers and a private company must have two or
more but not exceeding 50 subscribers.
As per section 2(68) of the 2013 Act, the limit of the number of members of a private company has
been increased from 50 to 200.
As per section 13 of the 1956 Act, in the case of a company having Share Capital, (1) Every
subscriber of Memorandum shall take at least one share, and (2) Each subscriber of the
Memorandum shall write opposite to his name the number of shares he takes.
If the foregoing requirement are not fulfilled the person whose name is mentioned as subscriber shall
not to be a subscriber.51
A company may be a signatory. But the agent must have proper authority to sign.52 However, such a
company will not be deemed a director on failure to appoint the first directors. A signatory cannot
rescind or revoke the agreement to take shares. He is liable to pay the call money on the shares
written against his name in the Memorandum irrespective of the fact whether shares have been
issued to him or not. Misrepresentation is no ground for repudiation.53
[s 7.18.1] Department’s View— Signature by an agent of subscriber
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Memorandum of Association and any amendments thereto may be signed by an agent on behalf of
the subscriber if he is authorised by a power of attorney to do so. [Circular No. 128/HCC/64, dated
27-07-1964 : See Full Text in Notes under section 12].
[s 7.19] Illiterate subscriber
The Department has clarified that when the executant of the Memorandum of Association is illiterate he shall give his
thumb impression or mark which shall however be described as such by the scribe or person writing for him. The latter
should place the name of the executant against or below the mark and authenticate it by his own signature. He should
also write against the name of the subscriber, the number of shares taken by him. Such a person should also read and
explain the contents of the document to the executant and make an endorsement on the document that he has so read
and explained the contents of the document to the executant.” [Letter No. 8/15/58, dated 01-09-1958].
[s 7.20] Witness
Each subscriber shall sign in presence of at least one witness who shall attest the signature and add
his address, description and occupation. Witness attesting the signatures should specify, e.g.,
‘witness to the above signatures’, or ‘witness to the above signatures of A, B, etc.’
The witness who will attest the signature must be somebody other than the subscribers. One witness
may attest all the signatures. However, an improper attestation does not make the Memorandum
void.54
[s 7.21] Stamp Duty
Memorandum of Association and Articles of Association of a company require impressed stamp. The
stamp duty varies from State to State and depending upon the nominal share capital in some States.
[electronic payment of stamp duty also allowed]
Appropriate stamp duty according to the local law (State law) has to be put on the Memorandum and
Articles of Association. The Registrar of Companies Office or the stamp vendor may assist in putting
the proper stamp.
[s 7.22] Subscribers as Members
The subscribers of the Memorandum of a company shall be deemed to have agreed to become
members of the company, and on its registration, shall be entered as members in its Register of
Members. [Section 41 of the 1956 Act]
[s 7.23] Subscribers deemed Directors
In default of and subject to any regulations in the articles of a company, subscribers of the
memorandum who are individuals shall be deemed to be the directors of the company, until the
directors are duly appointed in accordance with section 255. [Section 254 of the 1956 Act]
S. 33. Registration of memorandum and articles.—(1) There shall be presented for registration, to the Registrar of
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the State in which the registered office of the company is stated by the memorandum to be situate— The Companies
Act, 1956 provision
(a) the memorandum of the company;
(b) its articles, if any; and
55[(c) the agreement, if any, which the company proposes to enter into with any individual for appointment
as its managing or whole-time director or manager.]
(2) A declaration by an advocate of the Supreme Court or of a High Court, an attorney or a pleader entitled to appear
before a High Court, or 56[a secretary, or a chartered accountant, in whole-time practice in India] who is engaged in the
formation of a company, or by a person named in the articles as a director, 57[***] manager or secretary of the
company, that all the requirements of this Act and the rules thereunder have been complied with in respect of
registration and matters precedent and incidental thereto, shall be filed with the Registrar; and the Registrar may
accept such a declaration as sufficient evidence of such compliance.
58[Explanation.—For the purposes of this sub-section, “chartered accountant in whole-time practice in India” means a
chartered accountant within the meaning of clause (b) of sub-s. (1) of section s.2 of the Chartered Accountants Act,
1949 (38 of 1949) who is practising in India and who is not in full-time employment.]
(3) If the Registrar is satisfied that all the requirements aforesaid have been complied with by the company and that it
is authorised to be registered under this Act, he shall retain and register the memorandum, the articles, if any, and the
agreement referred to in clause (c) of sub-s. (1), if any.
NOTES
See sections 33, 34 and 35 “correspond to sections 22, 23 and 24 of the existing Act. No change of substance has
been made.” [Clauses 28, 29 and 30 of the Companies Bill, 1953 (46 of 1953)].
The Companies (Amendment) Act, 1988 (31 of 1988).—The Notes on clauses explained the
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With the abolition of the office of managing agents and secretaries and treasurers, reference to such office in section
33 is being substituted by reference to managing and whole-time directors. Statutory declaration of compliance of the
formalities of incorporation which is presently authorised to be given by a practising advocate or a Chartered
Accountant may as well be given by a practising Company Secretary. The amendment proposed in this clause seeks
to achieve this. [Clause 6 of the Companies (Amendment) Bill, 1987 (32 of 1987)].
[s 7.25] Sachar Committee Recommendations
The recommendations of the High Powered Expert Committee on Companies and MRTP Acts
constituted under the Chairmanship of Justice Shri Rajindar Sachar, on the basis of which the
amendments were made by Act 31 of 1988, are reproduced below:
Clause (c) of sub-section (1) of this section refers to the agreement proposed to be entered into for appointing
managing agents or secretaries and treasurers. While we feel that the reference in this clause to managing agents etc.
is now redundant we would, suggest that this clause should rather be substituted as follows:—
‘(c) the agreement, if any, which the company proposes to enter into with any individual, as Director, Managing Director
or Whole time Director.’
Sub-section (2) of this section provides for a declaration to be filed by an advocate, a pleader, an attorney or a
chartered accountant. We feel that a practising company secretary is equally competent to file this declaration and
should be included in this sub-section. Necessary addition may, therefore, be made in this section providing for a
declaration to be filed alternatively also by a practising member of the Institute of Company Secretaries of India.
[Report : para 17.8].
[s 7.26] Registration of Memorandum and Articles
Section 33 of the 1956 Act specifies documents to be presented to the Registrar of the State in which
registered office of the company is stated by the memorandum to be situate for registration.
[s 7.27] Documents to be filed for Certificate of Incorporation
For incorporation of a company the following documents shall be presented or filed with the
concerned Registrar of Companies for registration:
(1) the Memorandum of Association of the company (2) the Articles of Association of the company, if
any
(3) the proposed agreement, if any, for appointment of Managing Director or Whole-time Director or
Manager
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(4) A declaration stating that all the requirements of the 1956 Act and the Rules thereunder in respect
of registration have been complied with. Such a declaration may be signed by (a) an Advocate or (b)
an Attorney or (c) a Secretary in whole-time practice in India or (d) a Chartered Accountant in whole-
time practice in India or (e) a person named in the Articles as a Director, Manager or Secretary of the
company. The Registrar of Companies may accept such a declaration as sufficient evidence of such
compliance.
[s 7.28] Chartered Accountant in whole-time practice in India
For the purposes of section 33(2), “chartered accountant in whole-time practice in India” means a
Chartered Accountant within the meaning of clause (b) of sub-section (1) of section 2 of the
Chartered Accountants Act, 1949 (38 of 1949) who is practising in India and who is not in full-time
employment. [Explanation to Sub-section (2)].
[s 7.29] Secretary in whole-time Practice [Section 2(45A) of Companies Act, 1956]
Secretary in whole-time practice means a secretary who shall be deemed to be in practice within the
meaning of sub-section (2) of section 2 of the Company Secretaries Act, 1980 (56 of 1980) and who
is not in full time employment. See Notes under section 2(45A) of the 1956 Act.
[s 7.30] Registrar’s discretion [Section 33(3) of the Companies Act, 1956]
If the Registrar of Companies is satisfied that all the requirements have been complied with by the
company and it is authorised to be registered under the Act, he shall register the Memorandum, the
Articles, if any, and the agreement referred to in sub-section (1)(c), if any.
[s 7.31] Registrar must register
The Registrar of Companies must register the company if the legal formalities have been complied
with. Once the conditions envisaged in sub-sections (1) and (2) of section 33 are satisfied, the
Registrar has no option but to register it. It is not competent for him to refuse registration on any
extraneous considerations or for any reason other than non-compliance with the provisions of sub-
sections (1) and (2) of section 33. The only duty cast on the Registrar before he could register it is to
see that the requirements prescribed by sub-sections (1) and (2) are complied with. It is not within his
province to make enquiries into matters, which are unconnected with the conditions enumerated in
sub-sections (1) and (2) of section 33 or into collateral matters to probe into the motives of the
promoters.59
[s 7.32] Lawful purpose
At the stage of registering the name of a company, the Registrar of Companies is not required to
carry out any elaborate investigation. The only duty cast on the Registrar before he registers a
company is to see that the requirements prescribed under section 33(1) and (2) are complied with.
Unless the purpose of the company appears to be unlawful ex facie, or is transparently illegal or
prohibited by any statute, it cannot be regarded as an unlawful purpose.60
[s 7.33] Company with similar name
It is not open to the registering authority to register a company with a name similar to that of an
existing company or if it resembles closely, such names should be avoided. However, the Registrar
of Companies, while registering the company at the initial stage need not make a thorough
investigation. If such an issue is brought before the Registrar within the time stipulated under section
22 of the Act, it is open to the Central Government to direct the later company to change its name.61
The Registrar of Companies cannot refuse registration of a company in a name which is similar to
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defunct company for 10 years. Before making an order for obtaining a “No objection” letter from a
company using a name similar to the proposed name, the Registrar should be satisfied that the
existing company has been lawfully registered and is entitled to transact its business in that name. In
an appropriate case a writ petition will lie against the order of the Registrar of Companies.62
[s 7.34] Writ
Against an improper refusal to register, an application under Article 226 of the Constitution of India for
a writ in the nature of mandamus will lie.63
But, so long as the Registrar of Companies’ decision is not perverse or clearly wrong the Court will
not interfere.64
[s 7.35] Legal Entity
On incorporation the company becomes a legal person having a separate existence from its
members.65
See detailed Notes under Sections: Effect of registration [section 34] and Conclusiveness of
certificate of incorporation [section 35].
[s 7.36] Certificate of Incorporation [Section 35 of the Companies Act, 1956]
After the Registrar of Companies is satisfied he enters the name of the company in the Register,
starts a new file and issues a Certificate of Incorporation. The date of the Certificate is the date of
birth of the company. The Certificate will be conclusive evidence that the company after compliance
of all formalities has been duly registered.
[s 7.37] Registration cannot be cancelled
A writ cannot be issued to cancel the registration of the company or the commencement certificate
issued to it under section 149 of the 1956 Act.66If a company is born, the method to get it
extinguished is not by assailing its incorporation. The only course open to any one aggrieved by the
constitution of company is to get rid of it by resorting to winding up proceedings. It is not as if such
persons are without remedy.67
[s 7.38] Documents filed constitute notice to public
As per section 36 of the 1956 Act the Memorandum and Articles of Association when registered, bind
the company and its members.68 The Articles of Association as they are found filed with the Registrar
should be taken as in force unless there are copies of special resolutions filed to show the change. A
stranger cannot assume that directors have more powers than are apparent from the records with the
Registrar.69
As per the doctrine of constructive notice any one dealing with a company is deemed to have notice
of the contents of its ‘public documents’, e.g., memorandum and articles of association. A third party
is thus deemed to have knowledge of the contents.70
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Bank v Turquand.71
In India, the doctrine of ultra vires needs to be made in consonance with the English law and
European countries and needs to be further modified on the principle of agency. See detailed Notes
under sections 13 and 290-293 of the 1956 Act.
S. 34. Effect of registration.—(1) On the registration of the memorandum of a company, the Registrar shall certify
under his hand that the company is incorporated and, in the case of a limited company, that the company is limited.
(2) From the date of incorporation mentioned in the certificate of incorporation, such of the subscribers of the
memorandum and other persons, as may from time to time be members of the company, shall be a body corporate by
the name contained in the memorandum, capable forthwith of exercising all the functions of an incorporated company,
and having perpetual succession and a common seal, but with such liability on the part of the members to contribute to
the assets of the company in the event of its being wound up as is mentioned in this Act.
NOTES
THE COMPANIES ACT, 1956 (1 OF 1956).—See Legislative History in Notes under section 33.
[s 7.41] Certificate of incorporation [Section 34(1) of the Companies Act, 1956]
On the registration of the Memorandum of Association of the company, the Registrar of Companies
shall certify under his hand that the company is incorporated.
[s 7.41.1] Effect of Registration [Sub-section (2)]
From the date of incorporation mentioned in the Certificate of incorporation Subscribers and
Members of the company shall be a Body Corporate by the name contained in the memorandum,
capable of exercising all the functions of an incorporated company, and having Perpetual Succession
and a Common Seal, with such liability to contribute to the assets of the company in the event of its
being wound up as is mentioned in the Act.
[s 7.42] Characteristics of a company
The true legal position in regard to the character of a corporation or a company which owes its
incorporation to a statutory authority, is not in doubt or dispute. The corporation in law is equal to a
natural person and has a legal entity of its own. The entity of the corporation is entirely separate from
that of its shareholders; it bears its own name and has a seal of its own; its assets are separate and
distinct from those of its members; it can sue and be sued exclusively for its own purpose; its
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creditors cannot obtain satisfaction from the assets of its members; the liability of the members or
shareholders is limited to the capital invested by them; similarly, the creditors or the members have
no right to the assets of the corporation.72
[s 7.43] Company a legal person and separate juristic entity
From the date of incorporation mentioned in the certificate, the company becomes a legal person
separate from its corporators or members; and there comes into existence a binding contract
between the company and its members as evidenced by the Memorandum and Articles of
Association.73 It has perpetual existence until it is dissolved by liquidation or struck out of the Register
and has a common seal. A shareholder who buys shares does not buy any interest in the property of
the company. A company is a separate juristic entity distinct from the shareholders.74
A company registered under the Companies Act is a legal person, separate and distinct from its
individual members. Property of the company is not the property of the shareholders. A shareholder
has merely an interest in the company arising under its articles of association, measured by a sum of
money for the purpose of liability, and by a share in the profit. A shareholder may not therefore be
entitled to move a petition for infringement of the rights of the company, unless by the action
impugned by him, his rights are also infringed. But in certain cases a writ petition will be maintainable
by the company or its shareholders, e.g., if the State action impairs the rights of the shareholders as
well as the company the Court will grant relief.75
A company, however, is not a citizen of India under the Constitution and does not enjoy fundamental
rights guaranteed by Article 19 of the Constitution of India.76 But a shareholder is entitled to the
protection of Article 19 and to apply under Article 226 along with the company for protection of his
rights. A limited company is more than a mere juridical entity, with a personality in law of its own; that
there is room in company law for recognition of the fact that behind it, or amongst it, there are
individuals, with rights, expectations and obligations inter se which are not necessarily submerged in
the company structure.77
The trend is in the direction of holding that in the matter of fundamental freedoms guaranteed by
Article 19 of the Constitution of India, the rights of a shareholder and the company which the
shareholders have formed are rather co-extensive and the denial to one of the fundamental freedom
would be denial to the other.78
[s 7.45] Company can own property
A company is a person and can enforce its property rights under Article 226 of the Constitution of
India.79It is legally permissible for a company to own a business in a name other than its registered
name.80
[s 7.46] Common Seal
As per section 34(2) from the date of incorporation subscribers and members of the company shall
be a body corporate by the name contained in the memorandum, capable of exercising all the
functions of an incorporated company, and having perpetual succession and a common seal.
See detailed Notes under Power for company to have official seal for use outside India. [section 50 of
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the 1956 Act]
[s 7.46.1] Department’s View— Common Seal—Clarification of section 34 read with sections

50 and 147
The relevant provisions of the Act clearly show that a company registered under the Act should have
only one common seal for use within India. [Letter No. 8/4(255)/63-PR, dated 25-01-1963 : Govt. of
India publication, Clarifications and Circulars on Company Law, 1977 Edition, page 21].
[s 7.47] Contracts and Deeds, Investments, Seal, etc.
Sections 46 to 50 contain provisions for execution of contracts, deeds, etc., on behalf the company.
The company is a legal entity. Where directors in their individual capacity agreed to sell their shares.
The company was not a party to the impugned contract. There was no privity of contract between the
company and directors. The obligations arising out of the said agreement were the personal
obligations of the directors. The company was not bound by obligations under the contract.81
[s 7.48] Perpetual Succession
The members may come and members may go but the company goes on forever. Section 34(2) and
decisions dealt with above manifest that the company is a body corporate having perpetual
succession. It has perpetual existence until it is dissolved by liquidation or struck out of the Register.
A shareholder who buys shares does not buy any interest in the property of the company.
The company has been defined under section 3 of the 1956 Act. It is a juristic person. The company
is managed by the Board of directors. The powers of Board of directors are given under section 291
of the 1956 Act. The Board is empowered to exercise all such powers and do all such acts and things
as the company is authorised to exercise. The members of the Board of directors may change. They
may appoint another person as managing director of the company. This, however, does not cancel or
change the terms of a contract which a person has entered into for the company or on behalf of the
company.82
[s 7.49] Company can sue and be sued
[s 7.50] Corporate entity
Section 34 of the 1956 Act recognises the independent corporate existence of a company as
explained in and emphasised by the House of Lords in the case of Salomon v Salomon & Co Ltd In
that case Salomon, a leather merchant and manufacturer of boots, was the owner of a business He
was solvent. He converted his business into a limited liability company under the name and style of
“Salomon & Company Ltd”. Of the total share capital he took 20,000 shares and his wife and five
children took one share each. No other shares were issued. Salomon received mortgage debentures
of £ 10,000 in part payment for the purchase of his business by the company. Due to trade
depression the company was in financial difficulty. The company went into liquidation. Salomon
claimed preferential right being the debenture holder over certain unsecured creditors of the
company. The unsecured creditors disputed his right to priority on the ground that the company was
a “one-man company” and a sham. The trial judge held that the company was a mere alias or agent
for Salomon and that Salomon was bound to pay the unsecured creditors of the company out of his
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own pocket, notwithstanding that his shares had all been fully paid up. The Appeal Court affirmed the
decision on the ground that the whole claim was a fraud on the Act and that it was never intended by
the Legislature that a company should consist of one substantial person and six mere dummies
having no real interest. On further appeal, the House of Lords reversed the decision on the ground
that there was nothing in the Act as to the degree of interest which may be held by each of the seven
or as to the proportion of interest or influence possessed by one or majority of the shareholders over
the others. In the result, Salomon had a priority, being a debenture holder, over other unsecured
creditors.84
In the case of Ebbw Vale U.D.C. v South Wales Traffic Area Licensing Authority all the shares except
two of the bus company were acquired by the British Transport Commission under a provision of the
Transport Act, 1947. The bus company thereafter applied to the Licensing Authority for permission to
increase the fares but the Ebbw Vale U.D.C. objected on the ground that as the services provided by
the company were in fact provided by the British Transport Commission the Licensing Authority had
no jurisdiction to hear the application. The Court of Appeal held that the bus company had retained its
character as a separate legal entity and did not act as agent of the Commission and that the services
were provided by the company and not by the Commission. The licensing authority was the proper
authority to consider the application. In case an application were made by the Commission under the
Transport Act, it would have been heard by the Transport Tribunal.85
In Lee v Lee’s Air Farming Ltd the company was formed for the purposes of carrying the business of
aerial top-dressing. Lee, a qualified pilot, held all except one of the shares of the company and by the
Articles was appointed Governing Director of the company and the chief pilot. Lee was killed while
operating the company’s aircraft and his widow claimed compensation. The New Zealand Workers’
Compensation Act, 1922 required an employer to pay the compensation on the death of a “worker”.
The word “worker” was defined as “any person who is entered into work under a contract of service
with an employer”. The company opposed the claim on the instruction of its insurers on the ground
that Lee was not a worker within the definition as the same person could not be both employer and
employee. The Judicial Committee of the Privy Council reversed the decision of the New Zealand
Court of Appeal and held that there was a valid contract of service between Lee and the company,
Lee was “worker” and as such his widow was entitled to compensation.86
[s 7.51] Corporate veil
The foregoing decisions manifest that there exists a veil of incorporation between the company and
its members. This veil is opaque and impassable as an iron curtain. The veil is a partition or curtain
between the company and its members. Following this principle the courts in most cases have
refused to go behind the curtain and see who are the real persons composing the company. Thus,
where a company took a lease of a premises for the residence of its controlling director and
shareholder it was held that it was not entitled to the protection of the Rent Act for an artificial person
cannot be a “personal resident”.87
The lease agreements entered into by two group companies, being separate and distinct legal
entities could not be held to be invalid merely because the said documents were signed by one
person who was the director of both the legal entities and was authorised to enter into contract by the
articles.88
Where a trader sold his business to a company it was held that he ceased to have an insurable
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interest in its assets even though he was the beneficial owner of all the shares and in case of
accident if he did not assign the policy also to the company, nobody would get anything.89 Similarly, a
holding company will not have an insurable interest in the assets of its subsidiary.90
For infringement of any of the fundamental rights conferred by Article 19 of the Constitution of India a
company will have no remedy either under Article 226 or Article 32 of the Constitution of India, even
though all the shareholders of the company are citizens of India. Thus, sometimes “Corporate Entity”
works like a boomerang and hits the man who was trying to use it.91
Though the complete separation of the company and its members has never been doubted, there
have been cases in which the Legislature and to some extent the Courts have allowed the veil of
incorporation to be lifted.
[s 7.52] Lifting the corporate veil
Though the courts are generally precluded by the provisions of section 34 of the 1956 Act and the
principles laid down since Salomon’s case92 from treating a company as the “alias, agent, trustee or
nominee” of its members, nevertheless the Companies Act and the Courts have made inroads into
the principle of corporate entity and lifted the corporate veil to see the real persons behind the veil in
certain cases.
the individual members recognised for who they are in certain exceptional circumstances. Generally
and broadly speaking, the corporate veil may be lifted where (1) a statute itself contemplates lifting
the veil, or (2) fraud or improper conduct is intended to be prevented, or (3) a taxing statute or a
beneficent statute is sought to be evaded or (4) where associated companies are inextricably
connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate
the classes of cases where lifting the veil is permissible, since that must necessarily depend on the
relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the
involvement of the element of the public interest, the effect on parties who may be affected, etc.
“Lifting the veil” is not necessary or permissible beyond the essential requirement of the Act.93
It is well settled that, in law, a company is a legal entity distinct from its members. It was so laid down
by the House of Lords in 1897 in the leading case of Salomon v Salomon & Co Ltd Ever since this
decision has been followed by the courts in England as well as in
India. But there have been inroads in the doctrine of corporate personality propounded in Salomon’s
case by statutory provisions as well as by judicial pronouncements. By the process, commonly
described as “lifting the corporate veil”, the law either goes behind the corporate personality to the
individual members or ignores the separate personality of each company in favour of the economic
entity constituted by a group of associated companies. This course is adopted when it is found that
the principle of corporate personality is too flagrantly opposed to justice, convenience or the interest
of the Revenue. This concept of “lifting the veil” is described as “piercing the veil” in the United
States.1
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The principle laid down in Salomon’s case more than a century ago in 1897 by the House of Lords
that the company is at law a different person altogether from the subscribers who have limited
liability, is the foundation of Joint Stock Company and a basic incidence of incorporation both under
the English law and Indian law. Lifting the veil of incorporation under statutes and decisions of the
courts is an equally settled position of law. This is more readily done under American law. To look at
the realities of the situation and to know the real state of affairs behind the facade of the principle of
the corporate personality, the courts have pierced the veil of incorporation.2
The judicial approach in cracking open the corporate shell is somewhat cautious and circumspect. It
is only where the legislative provision justified the adoption of such a course that the veil has been
lifted. In exceptional cases where courts have felt themselves able to ignore the corporate entity and
to treat the individual shareholder as liable for its acts, the same course has been adopted. It would
not be possible to evolve a rational, consistent and inflexible principle which can be invoked in
determining the question as to whether the veil of the corporation should be lifted or not. Broadly
stated, where fraud is intended to be prevented, or trading with an enemy is sought to be defeated,
the veil of a corporation is lifted by judicial decisions and the shareholders are held to be the persons
who actually work for the corporation.3
Broadly speaking, to prevent fraud or trading with enemy and in taxation matters the corporate veil
has been lifted. The courts have also lifted the corporate veil in cases of criminal or quasi-criminal
cases, trust matters, and to ascertain whether an agreement is void for being against the public policy
of the country.
[s 7.53] Corporate veil, when can be lifted
The exceptional circumstances in which the corporate veil may be lifted are given below.
(1) Lifting the veil where Statute itself contemplates
The corporate veil may be lifted where a statute itself contemplates lifting the veil.4
Companies Act, Taxing, Welfare and other Statutes often contemplate provisions for lifting the
corporate veil in certain cases. The lifting the veil is not necessary or permissible beyond the
essential requirement of the Act. Where a non-resident company sought to make investment in India.
The FERA [now the FEMA*] and portfolio investment scheme provided for lifting the veil to find out if
at least 60%. of the shares were held by non-residents of Indian nationality or origin. In such a case
the corporate veil could be lifted to discover the nationality or origin of the shareholders to that extent
and no more.5
The 1956 Act itself contemplates or provides for certain circumstances in which the corporate veil
may be lifted and the members or directors of the company shall be personally liable for certain
transactions as explained below.
Reduction of Members below legal minimum [Section 45 of the Companies Act, 1956].
The liability of the members is limited to the unpaid amount of face value of shares taken by him or
the amount he has guaranteed. In an unlimited company a member’s liability is like that of a partner
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in a firm, it is for the entire debt of the company. Without a written consent the company cannot
increase the liability of a member. [section 38 of the 1956 Act]
Section 45, however, provides that if at any time the number of members of a company is reduced
below legal minimum, i.e., (a) below seven in the case of a public company, or (b) below 2 in the
case of a private company, and the company carries on business for more than six months, every
member of the company after those six months shall be severally liable for the debts contracted
during that time.
For instance, if a public company carries on business with less than seven members for more than
six months, every member who knows of this fact will become liable to an unlimited extent for all the
debts contracted by the company in so carrying on business from the seventh month onwards. He
will enjoy the limited liability privilege for the first six months only. See detailed Notes under section
45 of the 1956 Act.
Contracts and Deeds, Investments, Seal, etc.
Sections 46 to 50 of the 1956 Act contain provisions for execution of contracts, deeds, etc., on behalf
the company. Directors may be personally liable if these are not executed on behalf of the company.
Publication of name by company [Section 147 of the Companies Act, 1956].
If an officer of the company or any person on its behalf signs or authorises the signing of any bill of
exchange, hundi, promissory note, cheque, order for money or goods, etc., without the name of the
company mentioned, such officer or person is personally liable to the holder unless the company
pays the same. [section 147(4) of the 1956 Act]
Liability for fraudulent conduct of business [Section 542 of the Companies Act, 1956].
If in the course of the winding up of a company, it appears that any business of the company has
been carried on, with intent to defraud creditors of the company or any other persons or for any
fraudulent purpose, the persons who were knowingly parties to the carrying on of the business in the
manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the
debts or other liabilities of the company as the Court [or the Tribunal (NCLT)] may direct.
Offences and Prosecution.
Section 5, various provisions of the 1956 Act and penal provisions in various other Acts, contemplate
that in case of offences by companies persons/directors in charge of the management or charged
with the responsibility of complying with any of the provisions of the Act are held responsible for any
contravention. Under section 5 as substituted by Act 31 of 1988 and statutory offences even mens
rea is not required to be proved.
(2) Lifting the veil to prevent Fraud or Improper Conduct
The corporate veil may be lifted where fraud or improper conduct is intended to be prevented.6 The
courts would lift the corporate veil if the corporate personality is being used as a cloak for fraud or
improper conduct.7The concept of corporate entity was evolved to encourage and promote trade and
commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate
character is employed for the purpose of committing illegality or for defrauding others, the court would
ignore the corporate character and will look at the reality behind the corporate veil so as to enable it
to pass appropriate orders to do justice between the parties concerned.8
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The corporate veil can be lifted so as to expose any persons to the liability who have committed a
fraud upon the public from their sheltered position. Where a company booked flats and acted
fraudulently with the intending purchasers, its Directors could be held personally liable for the same
though they acted in the name of company.9
Where a fraud was committed by diversion of funds generated by group of companies inviting huge
investments from the public. For the protection of the investors the Police was directed to investigate
into the affairs of the company and by piercing the veil direction was given to freeze the bank
accounts of the companies and directors pending investigation with a view to repay investors. The
court directed the Securities and Exchange Board of India (SEBI) to intimate the banks not to permit
the respondents or the group of companies to operate their respective bank accounts.10
The court can lift the corporate veil to find out and expose the persons who were floating fraudulent
investment schemes at high returns in the name of the company. The court ordered the investigation
and also the seizure of the company’s assets.11
As held by apex court in a catena of decisions, in offences relating to the diversion of funds of
corporate bodies, the court can, no doubt pierce through and look at the reality behind the corporate
veil, to pass appropriate orders to do justice between the parties concerned, as the concept of
corporate entity was evolved to encourage and promote the trade and commerce, but not to commit
illegality or to defraud people. The lifting of corporate veil is permissible, only after filing of final
charge sheet and during the trial, in the light of material evidences. It may not be proper for the court
to lift the corporate veil and analyse such contentions of the petitioner while considering petition for
recalling the Non-bailable Warrant (NBW) against the petitioner, one of the directors of Anubhav
Agrotech Ltd It is for the trial court to decide the question of lifting the corporate veil, at the
appropriate stage of the case.12
If the corporate personality is used as a cloak for fraud or improper conduct, the court can go behind
the veil. Where the protection of public interests is of paramount importance the court is entitled to go
behind the corporate personality. The State and National Consumer Disputes Redressal
Commissions were right in refusing to permit the two sole directors of two companies, being husband
and wife, to defend themselves under the cloak of corporate entity. The Commissions were right in
lifting the veil and identifying them as the persons responsible for committing the statutory offences
referred to in section 27 of the Consumer Protection Act, 1986 (68 of 1986).13
The doctrine of lifting the corporate veil or cracking open the corporate shell is not confined only to
cases of tax evasion and the court would be well within its right and indeed be justified in lifting even
the curtain rather than the veil and see what goes on behind it, concealed from the public gaze.
Surely, the court will refuse to allow the corporate entity principle to be used as an instrument of
fraud.14
Company itself cannot ask for unveiling its own cloak.
The principal grounds where the veil of corporate entity can be lifted are to protect the interest of the
revenue and also where the corporate personality is being blatantly used as a cloak for fraud or
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improper conduct. However, it is not open to the company to ask for unveiling its own cloak and
examine as to who are the directors and shareholders and who are in reality controlling the affairs of
the company. Where the American company occupying premises as tenant merged into Indian
company for complying with directions restricting foreign shareholding the transferee company was
liable for eviction under section 14(1)(b) of the Delhi Rent Control Act, 1958 which provides for
eviction upon transfer of possession without the consent of the landlord.15
In a decision on Lifting the veil of Holding and Subsidiary companies, dealt with later, it has however
been held that the horizon of the doctrine of lifting of the corporate veil is expanding. It can be lifted
even at the invitation of the company itself.
Reconstruction, Amalgamation or Merger—Applicability of Rent Control Act—Lifting of

Corporate Veil.
An application for sanction of Scheme for Amalgamation of American Company with Indian Company
was made. The Court could lift the veil where the Corporate Personality is used as a cloak for fraud
or improper conduct. However, the company, itself, cannot ask for lifting its own veil to determine
whether there has been no sub-letting or parting with the possession of the property by the American
Company. Where a fraud or trading with enemy is sought to be prevented the Court can lift the
corporate veil to see who are the persons involved and what are their activities. A person entitled to
make an application in any proceeding can request the Court to lift the corporate veil to see who are
the persons involved in the management of the affairs of the company or who are the real controllers
of the affairs of the company. Such persons may be held liable for any wrongful acts of the company.
A person aggrieved or having right under the Companies Act can pray for lifting the corporate veil to
see the real persons in the management or as to who are the directors and shareholders and who
are controlling the affairs of the company. However, the company itself cannot make the application
for lifting the corporate veil. In an Amalgamation two or more companies are fused or consolidated
into one by the process of merger, one company takes over the other. Reconstruction or
Amalgamation has no precise legal meaning. The question whether a winding up is for the purposes
of Reconstruction or Amalgamation depends upon the circumstances of the winding up. The Court
[the Tribunal (NCLT)] may sanction a Scheme of Amalgamation where under all the rights including
lease-hold rights of a transferor company vest in the Transferee Company. The Rent Control Act
applicable to such transfer of property is enforceable against Transferee Company in respect of the
immovable properties covered by the Rent Control Act. The landlord can take action against the
Transferee Company for eviction. The Court sanctioned a Scheme of Amalgamation of the two
companies, where under the Leases, Rights of Tenancy or occupancy of the Transferor Company
vested in and had become the property of the Transferee Company. In spite of sanction of the said
Scheme of Amalgamation by the Court, the provisions of the applicable Rent Control Act, shall apply
and the Transferee Company was liable for eviction under the provisions of the applicable Rent
Control Act. So far as the lifting of corporate veil to see as to who are the Directors and Shareholders
and who are controlling the affairs of the company cannot be done on the application of the company
itself.16
However, for ascertaining the real purpose underlying the Scheme with a view to be satisfied and to
find out that the proposed Scheme of Compromise, Arrangement or Amalgamation is not violative of
any provision of law and is not contrary to public policy, the Court, if necessary, can pierce the veil of
apparent corporate purpose underlying the Scheme and can judiciously X-ray the same.17
Lifting of Corporate Veil—Disregarding the corporate entity.
In an Auction for sale for sandalwood held by the respondent, the District Forest Officer (DFO), the
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petitioner company was the successful Bidder and paid certain amount. At the time of taking delivery
the respondent issued a notice stating that two of its Directors in the petitioner company were
partners in another firm and the firm was liable to pay a huge amount towards Sales Tax and penal
interest and demurrage charges and called upon the company to show cause as to why the amount
paid by the petitioner at the Auction should not be adjusted against the account of the said firm. In a
writ petition filed by the petitioner the respondent was asked to pass final order pursuant to show
cause notice within the stipulated period. Respondent passed an order to the effect that the
confirmation issued was withheld until renewal of the Bank Guarantee by the firm or until disposal of
the pending appeal by the firm. On a writ petition the Court held that it could disregard the corporate
entity. The order of the District Forest Officer did not indicate as to why he considered the firm and
the company to be the same legal entity. Some partners in the firm being directors of the petitioner
company cannot establish that both the entities were the same. To come to any particular conclusion
many relevant facts such as the Date of incorporation of company, the Memorandum of Association,
Articles of Association, Names of promoters and the shareholders who had founded the company
and their relationship with the partners of the firm and the purposes for which the company was
incorporated would be material. These aspects were not considered while passing the order by the
Respondent Officer. The order was passed, the matter was remanded and the respondent Officer
(DFO) was directed to consider the matter afresh in view of the relevant circumstances.18
Doctrine of piercing or lifting the veil.
The Doctrine of piercing or lifting of the veil of a Corporate Personality marks a change in the attitude
that the law as originally adopted towards the concept of separate entity or personality of the
corporation. In suitable cases, the Court will lift the corporate veil.19
(3) Lifting the veil to ascertain Enemy Character
The courts would lift the corporate veil to ascertain the enemy character. A company registered in
India may be an alien enemy if its control is in the hands of alien enemies. The number of alien
enemy shareholders is important in ascertaining the status of the company. The enemy or neutral
character of a company in times of war will be determined by reference to the natural persons who
are members or persons really in control.20
The judicial attitude towards lifting the corporate veil has been divided by a learned scholar in
following categories: (i) peeping behind the veil; (ii) penetrating the veil; (iii) extending the veil; and
(iv) ignoring the veil. The decisions relating to determination of residence or enemy status of a
company have been placed by him in the category of “peeping behind the veil” where the court peeps
behind the veil and concludes from the shareholders or from the people in control of the company,
something about the nature of the company.21
Nationality.
rights guaranteed by Article 19 of the Constitution of India. All citizens of a State are nationals of that
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State but all nationals are not necessarily citizens of that State. The corporations may have
nationality in accordance with the country of their incorporation; but that does not necessarily confer
citizenship on them. The citizens can only be natural persons. The fact that corporations may be
nationals of the country for purposes of international law will not make them citizens of the country for
purposes of municipal law or the Constitution. It is not permissible to pierce the veil of the corporation
to determine the citizenship of the members and then to give the corporation the benefit of Article 19
of the Constitution.24
A non-resident company sought to make investment in India. The FERA [now the FEMA*] and
portfolio investment scheme provided for lifting the veil to find out if at least 60%. of the shares were
held by non-residents of Indian nationality or origin. In such a case the corporate veil could be lifted to
discover the nationality or origin of the shareholders to that extent and no more.25
Domicile.
The domicile of the company registered in India will be India and that will remain so throughout the
company’s existence and it cannot be changed. A Company’s domicile is the place of its registration,
and it retains that domicile so long it exists.26Even though a company acquires enemy character, it
will be subject to the law of the place where it was registered.27
Residence.
There are cases where the courts have looked behind the facade of the company and its place of
registration in order to determine its residence and for this purpose the test laid down is the place of
the central management and control. A company resides, at the place where the real business is
carried on, that is, the place of central management and control.28
A company can have only one nationality and one domicile but may have several residences at the
same time depending upon the circumstances. Income-tax law provides that a company is ordinarily
resident where the actual management of the company is carried on,29 even though it ought to be
managed elsewhere according to its Memorandum and Articles of Association30 and it may have dual
residence.31 A company cannot either be present in India or absent from India.32
(4) Lifting the veil in Tax Matters, viz. , Tax Evasion or Avoidance
The corporate veil may be lifted where a taxing statute or a beneficent statute is sought to be
evaded.33 It is true that from the juristic point of view the company is a legal personality entirely
distinct from its members and is capable of enjoying rights and being subjected to duties which are
not the same as those enjoyed or borne by its members. But in certain exceptional cases the court is
entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal
facade. For example, the court has power to disregard the corporate entity if it is used for tax evasion
or to circumvent tax obligation or to perpetrate fraud.34
Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot
be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to
avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay
the taxes honestly without resorting to subterfuges. It is up to the court to take stock to determine the
nature of the new and sophisticated legal devices to avoid tax and to expose the devices for what
they really are and to refuse to give judicial benediction.35
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It is true that tax avoidance in an underdeveloped or developing economy should not be encouraged
on practical as well as ideological grounds. One would wish, as noted by O. Chinnappa Reddy J. in
the McDowell’s case, that one could get the enthusiasm of Justice Holmes that taxes are the price of
civilization and one would like to pay that price to buy civilization. But the question which many
ordinary taxpayers very often, in a country of shortages with ostentatious consumption and
deprivation for the large masses, ask is, does he with taxes buy civilization or does he facilitate the
waste and ostentation of the few. Unless waste and ostentation in Government spending are avoided
or eschewed, no amount of moral sermons would change people’s attitude to tax avoidance.36
Even though a corporation might be a legal personality distinct from its members, the court is entitled
to lift the mask of corporate entity if the conception is used for tax evasion, or to circumvent tax
obligation or to perpetrate a fraud. It is true that tax planning may be legitimate provided it is within
the framework of the law. Colourable devices cannot be part of tax planning and it is wrong to
encourage or entertain the belief that it is honourable to avoid the payment of tax by dubious
methods. It is the obligation of every citizen to pay the taxes honestly without resorting to
subterfuges. It is also true that, in order to create an atmosphere of tax compliance, taxes must be
reasonably collected and when collected, should be utilised for proper expenditure and not wasted.It
is, however, necessary to remember that one must find out the true nature of the transaction. It is
unsafe to make bad laws out of hard facts and one should avoid subverting the rule of law.37
It is well-settled that, in a suitable case, the court can lift the corporate veil where the companies
share the relationship of a holding company and a subsidiary company and also to pay regard to the
economic realities behind the legal facade.38
When the Assessing Officer enters upon a scrutiny of the transaction, in the task of determining
whether a transaction is a sham or illusory transaction or a device or ruse, he is entitled to penetrate
the veil covering it and ascertain the truth.39
In certain cases the Court is entitled to lift the veil of corporate entity and to pay regard to the
economic realities beyond the legal facade. Any Director who is a party to a fraud or to the
commission of any other tort is personally liable. Where the Excise Department issued a show cause
notice on the company and its Directors alleging removal of goods without payment of duty and
manipulating accounts and sought to realise the Excise Duty and penalty from the Directors. The
petition by the Directors challenging the show cause notice was held not maintainable. It was
permissible to lift the corporate veil of the company to determine whether a particular Director could
be proceeded against in pursuance of the show cause notice.40
(5) Lifting the veil in case of avoidance of Welfare Legislation
It is the duty of the court, in every case where ingenuity is expended to avoid taxing and welfare
legislations, to get behind the smoke-screen and discover the true state of affairs. The court is not to
be satisfied with form and leave alone the substance of a transaction. Avoidance of welfare
legislation is as common as avoidance of taxation and the approach in considering problems arising
out of such avoidance has necessarily to be the same. Where a subsidiary company was created for
avoidance of welfare legislation and all the investments were transferred to it. It was held that the
subsidiary company was only a device to reduce the amount to be paid as bonus to the workmen.
The corporate veil was ignored, dividends received by the subsidiary company were treated as the
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dividends of the holding company, and bonus was calculated on that basis.41
Where a transaction of sale of immovable property by a company in favour of wives of the directors
was alleged to be sham and collusive the court will be justified in piercing the veil of incorporation to
ascertain the true nature of the transaction and whether it was genuine and bona fide or whether it
was between the husbands and the wives behind the facade of the separate entity of the company.
The High Court was right in holding that the transaction was sham, bogus and fictitious and the suit
property remained the property of the company and, therefore, vested in the Central Government
under section 3(1) of the Coal Mines (Nationalisation) Act, 1973 (26 of 1973).42
(6) Lifting the veil in Holding, Subsidiary and Associated companies
reality, part of one concern.43 A holding company and its subsidiary are separate legal entities. But,
for certain purposes, affairs of a subsidiary have been treated by the Acts as affairs of the holding
fraud.44
Where a Director T and his family members created several corporate bodies. The court lifted the
corporate veil and treated all of them as one entity belonging to and controlled by T and his family
where it was found that these corporate bodies were merely cloaks behind which lurked T and/or
members of his family and the device of incorporation was really a ploy adopted for committing
illegalities and/or to defraud people. The properties of the companies were attached in order to do
justice to the persons whom the Directors of the company had duped by allotting the same flats to
more than one person in spite of prohibitory orders.45Where a fraud was committed by diversion of
funds generated by group of companies inviting huge investments from the public. For the protection
of the investors the Police was directed to investigate into the affairs of the company and by piercing
the veil direction was given to freeze the bank accounts of the companies and directors pending
investigation with a view to repay investors. The court directed SEBI to intimate the banks not to
permit the respondents or the group of companies to operate their bank accounts.46
The concept of lifting the corporate veil is a changing concept. The veil of corporate personality, even
though not lifted sometimes, is becoming more and more transparent in modern jurisprudence. It is
high time to reiterate that, in the expanding horizon of modern jurisprudence, the lifting of the
corporate veil is permissible. Its frontiers are unlimited. It must, however depend primarily on the
realities of the situation. The aim of the legislation is to do justice to all the parties. The horizon of the
doctrine of lifting of the corporate veil is expanding. It can be lifted even at the invitation of the
company itself. Where Hindalco made a wholly owned subsidiary company Renusagar in order to
fulfil the conditions of industrial licence of Hindalco. For certain purposes the State or the Electricity
Board also treated Hindalco and Renusagar as one unit. The corporate veil was lifted. In facts of the
case, Hindalco and its wholly owned subsidiary Renusagar were treated as one concern and the
reduced rate leviable to such power consumption was made applicable.47
economic realities behind the legal facade.48In case of holding company and its subsidiary the
corporate veil can be lifted to see their relationship and to ascertain whether they are “related
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persons”.49
Where a company formed by Joint Venture of group of Indian companies and wholly owned
subsidiary of Singapore Telecom bid for a contract to supply telephone directories. The company was
excluded from consideration on the ground that the company had no experience to its name. The
corporate veil could be lifted and the experience of the shareholders could be treated as experience
of the company.50
It is a matter of ordinary prudence that the experience of a body corporate is always that of the
persons manning the body corporate and not of the body corporate itself. Where promoter company
stated in prospectus to have experience of 25 years as it was formed by taking over business of
partnership formed in 1966 there was no mala fide intention or mis-statement in prospectus. There
was no intention to defraud public. The relief was therefore granted.51
The modern tendency is, where there is identity and community of interest between companies in the
group, especially where they are related as holding company and wholly owned subsidiary or
subsidiaries, to ignore their separate legal entity and look instead at the economic entity of the whole
group tearing of the corporate veil. While a subsidiary company has a distinct legal personality, this
does not suffice to dispose of the possibility that its behaviour might be imputed to the parent
company. Such may be the case in particular when the subsidiary, although being a distinct legal
personality, does not determine its behaviour on the market in an autonomous manner but essentially
carries out the instructions given to it by the parent company. When the subsidiary does not enjoy
any real autonomy in the determination of its course of action on the market, it is possible to say that
it has no personality of its own and that it has one and the same as the parent company. An English
company covenanted to supply technical know-how exclusively to an Indian company. English
company during subsistence of contract became subsidiary of another English company. Holding
English company was having a subsidiary in India doing the same business. The question was
whether covenant for exclusive supply to Indian company was violated. After piercing the veil and
removing the smoke-screen, it has to be ascertained whether their activities stood apart and the
subsidiaries have not been functioning with the directing mind and the will of the holding company to
ascertain as to whether it could be said that the subsidiary’s manufacturing process was the process
of the holding company or of another subsidiary company.52
Where the small scale industries were given certain exemptions only if the company owning the
industry was not subsidiary or controlled by a group of persons or companies, the court will lift the
corporate veil of a company to see whether it was a subsidiary of another company and therefore not
entitled to the proposed exemptions. But, a director in one company is also a director in another
company does not make it a subsidiary. To say that a company is subsidiary of the other, a definite
finding must be recorded that the Board of directors of one were controlling the other.53
Where a subsidiary is wholly owned by principal company which has a pervasive control over it and
the former acts as the hand and voice of the latter, the subsidiary in that event would be nothing but
an instrumentality, rather a part, of the principal company. The two in that event would have to be
treated as one concern. Contemporary trend shows that the lifting of the corporate veil is permissible
whenever public interest so demands. Courts have been pragmatic in their approach in unveiling
companies, especially the subsidiary companies to see their real face in the interests of justice.
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Where by interim order of the court, a U.S. company was restrained from entering into joint-venture
agreement with any other party in India. U.S. company sought approval under the Electronic
Hardware Technology Park Scheme to set up wholly owned subsidiary in India. It was held to be not
a case of joint-venture. The subsidiary and parent company were treated as one concern. The interim
order in suit was not violated and approval by the Indian Government could not be restrained.54
Since a holding and subsidiary company relationship necessarily implies great control by the former
over the latter, courts have held that use of a trade mark by a subsidiary can fairly be treated as the
use by the holding company.55
For wrongful acts of a subsidiary by lifting the corporate veil the holding company can be proceeded
against as if it is responsible for the conduct of the affairs of the subsidiary. The holding company
was engaged in the same class of business and it formed subsidiary. It had obligation to conduct the
business of the subsidiary fairly. For wrongful loss to the subsidiary the holding company may be held
liable.56
The veil can be lifting with a view to making the holding company liable for the commitments of its
subsidiary.57
Where shares in the Indian company were held by subsidiary of a foreign company. The foreign
company and its nominee director on Board of the Indian company filed suit against directors of the
Indian company for diversion of funds. The plaintiff director claimed to be beneficial holder of benami
property invoking the principle of lifting the corporate veil. Foreign company and nominee director
were not registered shareholders of the Indian company. The court refused to lift corporate veil and
ascertain the status of the director in respect of the benami property. The Court would not lift the veil
at the instance of a person having no right of relief or whose name does not appear in the register of
members of the company to enable him to show his beneficial interest in company through a chain of
intercorporate investments.58
Holding and subsidiary companies are independent incorporated entities. The holding company
cannot be made liable for the dues of the subsidiary company. The sums due to the Employees’
Provident Fund by the subsidiary company cannot be recovered from the holding company.59
(7) Agency, Trust, Contractual Obligations and other cases
The courts have lifted the corporate veil in several other cases illustrated below.
(i) if agency can be established in fact either in respect of particular transactions or the whole of the
company’s business;60 (ii) to impress company’s property with the terms of a trust;61 (iii) to prevent
deliberate evasion of contractual obligations.62
The courts have, however, often lifted the veil for the benefit of the members of the company than for
the benefit of the outside creditors.63
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The courts have also lifted or pierced the corporate veil for determination of a company’s residence,
in cases of criminal or quasi-criminal cases, trust matters, to ascertain whether an agreement is void
for being against the public policy of the country, etc. The English cases have often pierced the veil to
serve the real aim of the parties and for public purposes.64
The principle of lifting the corporate veil is of general application and not confined to the Companies
Act or any Taxation Act. The principle can be resorted to in all cases depending upon the relevant
statutory or other provisions, the object sought to be achieved, the impugned conduct, the
involvement of the element of the public interest, the effect on parties who may be affected, etc. The
lifting the veil is not necessary or permissible beyond the essential requirement of the Act.65
A non-resident company sought to make investment in India. The FERA [now the FEMA*] and
portfolio investment scheme provided for lifting the veil to find out if at least 60%. of the shares were
held by non-residents of Indian nationality or origin. In such a case the corporate veil could be lifted to
The policy and purpose of the Foreign Exchange Regulations is to attract investment by Non-resident
Indians. The High Court will not lift the veil if it goes against that policy. The Court will refuse to
examine whether the purchase by one foreign company of shares of another foreign company would
amount to purchase of shares of an Indian subsidiary company.67
See also other cases under Property, Liability, etc., hereinafter.
(8) Lifting the veil in case of Contempt of Court
Wilful disobedience of a Court Order will be a civil contempt by the company under the Contempt of
Courts Act, 1971 (70 of 1971) as well as Article 215 of the Constitution. Even though the High Court
Rules provide for execution of the order as a decree. The punishment for contempt does not absolve
a contemner from his liability for wrongful acts.68
Where the court issued an injunction against A and B against dealing with third and fourth storeys of
a building. They formed a private company and effected the transfer. The Court held that the
corporate veil was being blatantly used as a cloak to wilfully disobey the orders of the Court—an
improper purpose. A wilful act means an intentional and deliberate act. Lifting the corporate veil, in
such a situation, was imperative to punish the improper conduct. Once the corporate veil was lifted, it
was crystal clear that the orders of the Court were disobeyed by the respondents A and B, the two
ladies, who had promoted the private company and who were the only shareholders and Directors of
the company. The respondents were guilty of flagrant disobedience of the orders of the court. It was
a contempt of heinous character. For such contempt, the sentence of fine would not meet the ends of
justice. The apology tendered by A and B after the conclusion of the arguments was no apology, it
was an after-thought and a mere device to escape punishment and did not purge the contempt. The
Court directed A and B to be detained in civil prison for 15 days.69
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Section 12 of the Contempt of Courts Act, 1971 contains specific provision for contempt action
against persons in charge of the management or control of companies. Even though in 1952 Act
there was no specific provision, the Supreme Court held that a command to a Corporation is in fact a
command to those who are officially responsible for the conduct of its affairs. If they, after being
apprised of the order directed to the Corporation, prevent compliance or fail to take appropriate
action, within their power, for the performance of the duty of obeying those orders, they and the
corporate body are both guilty of disobedience and may be punished for contempt. For failure to
discharge decrees awarded under the Consumer Protection Act, 1986, the State and National
Consumer Disputes Redressal Commissions were right in lifting the veil and identifying the persons
responsible for committing the statutory offences referred in section 27 of the Consumer Protection
Act, 1986 (68 of 1986).70
Where in a writ petition against a Sick industrial company under the BIFR, the court ordered the
company to pay its workers’ wages by a certain date. The company did not comply with the order. It
was held that there was wilful disobedience of court’s order. The order was a command,
disobedience of which attracted contempt proceedings. All the Directors including Nominees of the
Financial Institutions were held guilty of neglect. The Nominee Directors’ apology was accepted and
the Directors were cautioned. Promoter Directors were awarded sentence of imprisonment for one
month and fined.71 A company may be liable to punishment for Contempt of Court committed by the
employees.72
(9) Government Company
The term company under the 1956 Act includes company in existence in 1956, a private company, a
government company and a company incorporated under the Act. A government company is a juristic
person separate and distinct from its members. The company and the shareholders being distinct
entities the fact that the President of India, the Secretaries, the State or Governor hold all its shares
does not make the company an agent either of the President or the Central Government or the State.
In the absence of a statutory provision a commercial corporation acting on its own behalf, even
though it is controlled wholly or partially by a Government department, will be ordinarily presumed not
to be a servant or agent of the State. Such an inference that the corporation is the agent of the
Government may be drawn where it is performing in substance governmental and not commercial
functions. Thus, if the company performs any governmental functions as distinct from commercial
functions, the corporate veil may be lifted.73
For the purposes of Article 12 of the Constitution of India one must necessarily see through the
corporate veil to ascertain whether behind that veil is the face of an instrumentality or agency of the
State. Where a Government Company within the meaning of section 617 of the 1956 Act carried out
a governmental activity and governmental functions of vital public importance, the Government
Company would be the “State” within the meaning of Article 12. In the case of Central Inland Water
Transport Corporation Ltd it was nothing but the Government operating under a corporate veil. In
every respect it was a veil behind which the Central Government operated through the instrumentality
of the Government Company.74
revenue matters or in cases of fraud, etc.75 As such, no writ application ordinarily lies against a
Government company.76
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A Government Company is a distinct legal entity from its shareholders. A Government company in
which the entire share capital is held by the Central Government cannot contend that it is the Central
Government who owns its property and as such the company is not liable to pay Property Tax. It
would not be a case of State taxation of Union property under Article 285 of the Constitution of India.
Piercing of the veil is not applicable in this case.77
Where contractor engaged workers to carry certain work. To ascertain relationship of master and
servant the corporate veil can be lifted and the relationship between the workers and the company
which engaged the contractor can be ascertained.78
Under the Indian law, the company is a corporate entity or juristic person. The shareholders are not
the owners of its assets. Its right and obligations vis-a-vis the contracting party, unless there exists a
provision to the contrary, must be confined to the terms of the contract. In the case of two
Government Companies, despite the fact that the Government is the majority shareholder in both, a
ship belonging to one Government corporation cannot be said to be a sister ship of a ship belonging
to another Government company. Where on an admiralty suit, an order for arrest of two ships said to
be sister ships was made, and the said two ships were shown in the maritime directory as belonging
to two different companies under the Vietnamese Government. No case was established for the
arrest of the ships in question.79
Corporate Veil—Government Company—Lifting of
A company incorporated under the 1956 Act is a juristic person. A company indisputably has a
distinct and separate entity vis-a-vis its shareholders. It is now well-settled that the corporate veil can
in certain situations be pierced or lifted. The principle behind the doctrine is a changing concept and
is ever expanding its horizons. Though a Government Company registered under the 1956 Act is a
juristic person having separate identity from its shareholders. In certain cases, the Court can lift the
Corporate Veil and see who are the persons responsible for the management of the Government
Company. In a Government Company the company is a separate entity. In a Government Company,
the Government acts through the instrumentality or agency of the Company and has certain
Constitutional limitations. The Government Company is a “State” and it would be constitutionally
liable to respect or protect life and liberty of all persons in terms of Article 21 of the Constitution.
Article 298 of the Constitution of India confers a prerogative right upon the State to carry on trade or
business. In doing trade or business the State must fulfil its Constitutional obligations. It must ensure
protection and preservation of the rights as contained in Articles 14, 19, 21 and 300A of the
Constitution of India. The term “life” used in Article 21 of the Constitution of India has a very wide and
far-reaching concept. Several Government Companies and Public Sector Undertakings (PSUs) of
State of Bihar did not pay salaries to their workmen and other employees for a long time resulting in
death of several persons and misery to a large number of families. The Government of Bihar for all
practical purposes was the sole shareholder of the Government Companies. Under the Companies
Act its liability towards the company’s debtors is confined to the shares it held. However, having
regard to the deep and pervasive control it exercises over the Government Companies the State has
an additional duty to see that the rights of the employees are not infringed. It is liable to see that the
rights of employees to life and liberty is fully safeguarded. The State has a Constitutional obligation to
protect the life and liberty of the employees of the Government owned Companies and Corporations.
These employees are citizens of India. The Government has an additional liability having regard to its
supervisory deep and pervasive control over the Government Company. It cannot be permitted to say
that it did not know the actual state of affairs of the Government Companies and Public Sector
Undertakings (PSUs) or that it did not know that salaries of employees had not been paid for years at
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a stretch leading to starvation deaths of large number of employees and suicides. Even though the
State is not liable for day-to-day functioning of the Companies but it is liable for failure to perform its
Constitutional duties and for the functioning of the Public Sector Undertakings (PSUs) and State’s
Constitutional obligations in relation thereto. The State being a welfare State has a duty to do all
things which they are Statutorily obliged to perform under the Payment of Wages Act, 1936 (4 of
1936), the Minimum Wages Act, 1948 (11 of 1948) and the provisions of other Statutes. Financial
stringency cannot be a ground for not issuing requisite directions by the State when the question of
violation of Fundamental Rights arose. The liability of the State of Bihar cannot be shifted to Union of
India merely on the ground that the Union of India was the repository of fund raised by it through
Central Excise and other levies and imposts. The Central Government is not directly or indirectly or
vicariously liable for the failure of the State Public Sector Undertakings (PSUs). The investments
made by the State in the Public Sector Undertakings (PSUs) in pursuit of social justice were for public
account. The State was, therefore, accountable to the public through the Legislature. If the State or
State Agencies fail to perform their duties it cannot take wrap or shelter under the financial stringency
or shift its liability to the Union of India. However, it cannot be said that in all situations the State can
be directly or vicariously liable to pay salaries or remuneration of the employees of the Public Sector
Undertakings (PSUs) or the Government Company.80
(10) Oppression and mismanagement
A person in control of the requisite voting power may be made responsible for wrongful acts of the
company by lifting the veil as to who has committed the wrongful acts complained of.81
Private Company.
The oppression must be in capacity as shareholder and not in any other capacity. The substratum of
the company is mainly decided with reference to the substance of the venture as conceived by the
members of the company at its formation as set out in the objects clause of its Memorandum of
Association. It is inherent right of shareholders to elect directors. Majority shareholders are not bound
to accept the view of the minority. It would not constitute oppression. Shareholder’s rights,
expectations and obligations to the company are governed by the Memorandum and Articles of
Association and the provisions of the Companies Act. The exercise of this right of the individual
shareholder may be subjected to equitable consideration. However, these equitable considerations
flow from the fact that it originally started as a partnership concern or that there was any agreement,
understanding, e.g., family arrangement that all or some of the shareholders should participate in the
conduct of the business. The principle of the special relationship between the parties forming the
substratum of the company can be invoked only in a case where originally the business was a
partnership concern which has later on converted into a Pvt Ltd company or where if the veil of
corporate character of the company is lifted, it can be found that in reality it was a partnership.82
HUF.
It is well-settled that Pvt Ltd companies are separate legal entities and they cannot, therefore, be
legally called as the properties of the joint Hindu family. Even if the shares in those companies are
the properties of the joint Hindu family, the inter se disputes between the members regarding claims
and counter-claims was wholly inconsequential and irrelevant so far as the claim of the third party,
i.e., Trust was concerned because the Trust was not the property of the said joint Hindu family.83
Separate entity.
The company is a separate entity from its shareholders and directors. The decisions enunciating this
are as follows:
Company owner of its assets not shareholders.
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A company is a separate entity from its shareholders. It is the company which is the owner of its
assets, including immovable properties, and not the shareholders. As long as the company exists,
that is to say, before its dissolution, no shareholder can be said to have any interest in the properties
and assets of the company, either legal or equitable. When the company is being wound up, their
only right is to participate in the surplus assets after the payment of debts and liabilities. Therefore, a
shareholder of a company which is being compulsorily wound up, has no locus standi under Order
21, rule 90 of the Code of Civil Procedure, 1908 (5 of 1908) to apply for setting aside a sale of the
property of the company on the ground of irregularity or fraud.84A shareholder has no right or locus
standi to intervene or object in suit pending against company in respect of some of its assets or in
dealing with the property independently of the company.85
Property of the Company.
The property of the company irrespective of the provisions in the Articles or any Resolutions cannot
be treated as the property of the shareholders and cannot be utilised for the benefit of any of the
shareholders.86
Where a company was the tenant of a property under a lease deed which prohibited sub-letting.
Simply because the company was trying to sell the shares owned by it to third parties, it did not
amount to an attempt to sub-let the premises under the cover of corporate veil. The property of a
company cannot be considered to be the property of its members. An invitation by a company to
subscribe to its shares bringing more shareholders to the company or selling a portion of the shares
retained/owned by it to third parties cannot be considered as a change of the company itself.87
Property purchased prior to incorporation—Specific Performance.
The promoters of a company before its registration purchased a property in the name of the company
and after incorporation of the company the property was shown as the property of the company in its
Balance Sheet, Income Tax Return, Annual Report, Audit Report and in other documents. The
company on registration also paid a sum of Rs 2,22,500 to the promoters. The company filed a suit
for declaration that the company was the absolute owner of the property. The Board of Directors of
the company adopted a Resolution for sale of the above property in favour of the appellant and for
leasing out the property to M. The agreement for sale and the deed of lease, both were signed by the
promoters. In view of the above, there could not be any doubt that for all intent and purposes the
company was the owner of the property and at all material times the promoters (Respondent Nos. 1
and 2) had made representation as such to the appellants as also to others. In terms of section 15(h)
of the Specific Relief Act, 1963 (47 of 1963) the promoters of the company before its incorporation
could enter into the contract for the benefit of the company and such contract may be warranted by
the terms of incorporation of the company subject to the condition that the company should accept
the said transaction. Section 19(e) of the Specific Relief Act, 1963 also provides for grant of a decree
of specific performance of the contract against a company when the promoters of the company
before incorporation entered into a contract for the purchase for the company and such contract is
warranted by the terms of incorporation also applied. The contract could not be ultra vires the
purpose for which the company was incorporated. In the present case the company by filing a suit
claimed declaration that it is the owner of the property showed its acceptance of the contract and
communication thereof to the other party. The promoters by their statements before the Court and by
their conduct including creating mortgage of the property and discharge thereof in favour of the Bank
and made representation by which the third party altered its position, the principle of estoppel would
apply as there was no statutory embargo of vesting the title in the company. In the Memorandum of
Association of the company the promoters (Respondents Nos. 1 and 2) alone were shown to be the
subscribers members of the company and in the Articles of Association they were shown as first
directors and there was no other director. The directors had been attempting to use the name of the
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company for furthering their own personal object in furtherance of their dishonest and fraudulent
design and as such the doctrine of lifting the corporate veil was applicable. The directors were not
entitled to take different stand as against the company. Section 54 of the Transfer of Property Act,
1882 (4 of 1882) does not lay down a law as to whether in all situations an apparent state of affairs
as contained in a Deed of Sale would be treated with the real state of affairs. It does not bar a benami
transaction. There is no embargo on getting the property registered in the name of one person
although the real beneficiary thereof could be another.88
Property of the Shareholders.
Similarly, the shareholders’ property is not the property of the company. Where a shareholder of the
company was tenant of certain premises. He entered into an agreement with the company permitting
the company to use part of the premises. It was held that the company was merely a licensee and not
tenant. Therefore, suit by the tenant against the company for eviction upon termination of the licence
was maintainable.89
[s 7.54] Premises on lease—Lifting or piercing of corporate veil
Prem Lata Bhatia was allotted a premises for running a shop at a monthly rent of Rs 901. The licence
prohibited the use of the premises by anybody else without the written consent of the Government
and the licensee was forbidden from transferring the premises or to carry on business in the premises
with any other person or assign, transfer, change or otherwise alienate her interest in the premises.
The petitioner incorporated a Pvt Ltd Company, Romika World Trade Pvt Ltd, where the petitioner
and her husband held more than 97.93% shares. The company was running its business in the shop.
The respondent, Union of India, initiated proceedings under the Public Premises (Eviction of
Unauthorised Occupants) Act, 1971 (40 of 1971) against the petitioner. The Estate Officer ordered for
eviction of the petitioner on the ground that the shop that was allotted to the petitioner was being run
by the Company without any authority and amounted to sub-letting as the petitioner was doing
business with another partner. She was therefore an unauthorised occupant of the shop. Her appeal
was dismissed by the Additional District Judge and a Writ Petition was dismissed by the High Court.
On appeal, the Division Bench held that applying the principle of piercing the veil of corporate
personality Clause 8 of the Licence Deed had not been violated. Here because of the shareholding
the same person remain in possession though technically the company ran the business. The
petitioner did not cease to be in possession and did not hand over possession to anyone else but
only changed the form of her business and this was usually done when a business expanded. The
appeal was allowed, the respondents were restrained from dispossessing the petitioner from the
shop.90
[s 7.55] Property of the Directors
The company is a corporate personality and separate legal entity. The director owning the property
as landlord cannot file an eviction petition against the tenants under the Rent Control Act for
occupation of the building owned personally by him for functioning of the company merely because
he is a director of the company. Need for occupation of the company is different from the need for
director’s own occupation.91
[s 7.56] Liability of Company
Two companies having same office bearers are yet distinct and separate legal entities. The liability of
one of them cannot be foisted on the other. Where two companies A and B were carrying on
business separately. Some of the office bearers were common. For the liability of company A the
creditor sought to make liable company B and filed a winding up petition under section 439 of the
1956 Act. In the facts of the case, it was held that the principle of piercing the corporate veil was not
applicable. The petition for winding up of the creditors was an abuse of the process of the court and
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the defence of the company was bona fide.92
Liability of company is not the liability of the directors or the employees. A director is not an employer
of the company’s employees.93
[s 7.57] Breach of contract, Penal Laws and Tort
A company is liable for breach of contract and for tort. It is liable under the penal laws where mens
rea is not an essential element of the offence.94 A company may be likened to a human body. It may
be guilty of acting with intent to deceive and making statement which it knows to be false or for
conspiracy to defraud. But it must be proved that the officers were acting within the limits of their
authority on behalf of the company and it must be found that the criminal act of the officer including
his state of mind, intention and knowledge or belief was the act of the company.95 It may be guilty for
contempt of court. It may be sued for malicious prosecution, infringement of copyrights, negligence,
malicious libel and for molesting a person in the exercise of his calling.96 It may sue for
an injury done to its business reputation by defamation or by imputation of insolvency and no special
damage need be proved.1
[s 7.58] Company may own Business Name
A company may carry on business in a name other than its own. Business can be carried on in a
particular business name. On the principle of lifting the corporate veil the court can ascertain the
owner of the business name and proprietor of the business. On piercing the veil the court can make
responsible the company which was carrying on business in the said business name as proprietor of
the business.2
[s 7.59] Offences and Prosecution
Section 5, various provisions of the 1956 Act and other Acts make officers in default, viz., persons in
charge of the management or charged with the responsibility of complying with any of the provisions
of the Act responsible for any contravention of the Statutory defaults. Under section 5 as substituted
by Act 31 of 1988 mens rea is now not required to be proved.
In statutory offences and offences covered by section 5 no mens rea is required to be proved for
offences and defaults under such sections. Where the provisions of the 1956 Act do not use the
words “officer in default”, the penalty and punishment shall be governed by the language of those
provisions.
See detailed Notes under sections 5 and 621 to 631 of the 1956 Act.
[s 7.60] Prosecution under Indian Penal Code
For refund of subscription money the concerned Investor need not be confined to remedies under the
Companies Act alone, resort to prosecution under the Indian Penal Code can also be taken. It is true
that the 1956 Act, contains provisions regarding the issuance of prospectus, applications for shares
and allotment thereof and provides different checks over the misuse of the funds collected from the
public for issuance of shares or debentures, e.g., sections 69 and 73 of the 1956 Act. But where
persons issue prospectus and collect moneys from the public assuring them that they intend to do
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business with the public money for their benefit and the benefit of such public, but the real intention is
to do no business other than collecting the moneys from the public for their personal gain, such
persons are not immune from the prosecution under the Indian Penal Code, 1860 (45 of 1860). If the
promoters or those in charge of managing the affairs of the company are found to have committed
offences like cheating, criminal breach of trust, criminal misappropriation or the like, these persons
cannot use the juristic entity and corporate personality of the company as a shield to evade
themselves from prosecution for offences under the Indian Penal Code, if it is established that the
primary object of the incorporation and existence of the company is to defraud the public. Such
persons cannot claim that the only remedy of the investor is under the 1956 Act. There is a basic
difference between the offences under the Penal Code and acts and omissions which have been
made punishable under different Acts and statutes which are in the nature of social welfare
legislations. For framing charges in respect of those acts and omissions, in many cases, mens rea is
not an essential ingredient; the concerned statute imposes a duty on those who are in charge of the
management, to follow the statutory provisions and once there is a breach or contravention, such
persons become liable to be punished. But for framing a charge for an offence under the Penal Code,
the traditional rule of existence of mens rea is to be followed.3
[s 7.61 ] Mens rea
The offences under sections 420, 467, 471 and 477A of the Indian Penal Code, 1860 (45 of 1860)
read with section 120B of the Indian Penal Code, are all offences having mens rea as one of the
essential ingredients thereof. The accused committing the offences must have a guilty mind and as
such a juristic person such as a body corporate cannot be prosecuted for the said offences.4
For the acts of a person who is the directing mind of the company, the company will be liable
criminally if those acts are in breach of any of the provisions of the criminal law but if he is only an
agent or employee, the company may not be liable on the basis that the actual actor and not the
company is liable. Whether a person is the directing mind of the company or not will depend to a
large extent upon the actual control by him of the company’s operation without effective superior
control.5 And in some cases a company may be liable even though mens rea is necessary,6 and the
punishment is imprisonment and fine.7
[s 7.62] Company, a juristic person, cannot be imprisoned
The company is a corporate entity and a juristic person. A company cannot be prosecuted for an
offence for which the punishment is only imprisonment. If offence is punishable mandatorily with both
imprisonment and fine, then the company can be prosecuted and only fine can be imposed on the
company, though it cannot be imprisoned. The sentence of imprisonment and fine can be imposed on
persons in charge of, and responsible to, the company for the conduct of the business of the
company.8
[s 7.63] Directors’ Liability
A company has its own legal identity and personality, in contradistinction to its directors or
shareholders. Where a company was prosecuted and a fine was imposed on the company. There
was no decision or fixation of liability on any other person. The fine could be recovered from the
company alone even after the winding up. The execution of any distress warrant against any director
or managing director was therefore invalid.9
[s 7.64] Company to be impleaded in Complaint
Where under an Act an offence is committed by a company, (1) it is the person in charge of and
responsible for the conduct of business of the company who is liable for the offence, (2) it is not
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necessary, although it is better to implead the company also as an accused, (3) the offence must be
committed by the company, that is to say, before a person in charge or an officer of a company is
held guilty in that capacity it must be established that there has been a contravention by the
company.10
[s 7.65] Offences against Act cognizable on complaint
Offences against the Companies Act are cognizable only on written complaint by the Registrar of
Companies, a Shareholder or the Central Government. This does not apply to a prosecution by a
company of any of its officers. [section 621 of the 1956 Act]
The Court may take cognizance of offences relating to issue and transfer of securities and non-
payment of dividend on a written complaint by the Securities and Exchange Board of India (SEBI).
[section 621(1), proviso]
[s 7.66] Complaint by company or juristic person
The scheme of the Code of Criminal Procedure, 1973 (2 of 1974) makes it clear that the complainant
must be a corporeal person who is capable of making physical presence in the court. Its corollary is
that even if a complaint is made in the name of an incorporeal person like a company or corporation it
is necessary that a natural person represents such juristic person in the court and it is that natural
person who is looked upon, for all practical purposes, to be the complainant in the case. In other
words, when the complainant is a body corporate it is the de jure complainant, and it must
necessarily associate a human being as de facto complainant to represent the former in court
proceedings. Therefore, the absence of the complainant envisaged in section 256 of the Code of
Criminal Procedure, 1973 which empowers the magistrate to acquit the accused if the complainant
fails to appear, would include absence of the corporeal person representing the incorporeal
complainant and the provision is applicable even in a case where the complainant is a company or
any other juristic person. The courts should not insist that the same officer of the company should
represent company throughout.11
A company is a juristic person, a legal entity. A company though a legal entity does not have a soul,
mind, body and limbs to walk to the court for preferring a complaint. The dictates of common sense,
practical wisdom, prudence and experience impel the courts in such a situation to allow a company to
be represented by some person concerned with the affairs of the company. In the normal course,
such legal entities are managed by a manager, director, managing director or principal officers like
other executives in charge of affairs and administration. No special and express authorisation is
required for initiating any legal proceedings like a criminal complaint under section 141 of the
Negotiable Instruments Act, 1881. Therefore, these officers of the company are entitled to initiate
prosecution.12
A company is a corporate body with a separate existence. It is an artificial person with a perpetual
succession. It is not like a firm whose existence cannot be visualised in the absence of its partners.
Where permission was granted to file a suit against the company it cannot also be treated as
permission against the directors as well and the suit cannot be treated as properly instituted against
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the directors. Further, where directors entered into agreement for sale of shares. The company would
not be privy to contract and not bound by the obligation under the contract.14
[s 7.68] Change in ownership no ground for dismissal of suit
A company is a distinct legal entity and should not be confused with its shareholders. Shares of
companies are usually freely transferable. The corporate legal entity does not mutate or transform
itself or undergo a transfer with each change in its shareholders. Even if the total shareholding of a
company is purchased by one person or a group of persons acting in concert, the legal consequence
is not that the company ceases to exist or undergoes a cataclysmic metamorphosis leading to its
complete disappearance. The company does not extinguish its existence by a mere change in its
name, nor does this follow even if a change occurs in ownership. There is a further distinction
between change in shareholding and amalgamation. Even where amalgamation takes place, due
care is taken to transfer the assets and debts of one company to the other so as to, inter alia, protect
pending litigation. Change in ownership of a company is no ground for dismissal of the suit pending
against it.15
[s 7.69] Suit to continue even if company taken over
Suit may continue even if the units of a company are taken over by the Central Government. The
taking over of the Estate of a company by the Central Government under section 16E of the Tea
(Amendment) Act, 1976 did not affect a suit by or against the company and the bar under section
16M of the Act applied only to the Estate. Existence of company is independent of
Estates.16Takeover by the Central Government of undertakings of a company under the Industries
(Development and Regulation) Act, 1951 (65 of 1951) does not mean that the company itself is taken
over. The company being distinct entity continues to exist. The Central Government representative is
not competent to defend suit against the company.17
See detailed Notes under sections 10, 10E and 10FB to 10GF of the 1956 Act.
legal proceedings. The Articles also empower the Board of Directors to delegate its powers. Where
the Board delegated the powers to a Director. The Director delegated the powers to an Officer of the
company. An appeal filed by such officer was held valid.18
The suit filed by a Director on behalf of a company without being authorised by the Board Resolution
is not maintainable.19
Board of directors, or (2) a Power of Attorney authorising institution of the suit on behalf of the
[s 7.72] Powers and functions of the Tribunal (NCLT)
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On the constitution of the Tribunal (NCLT) under section 10FB of the 1956 Act as inserted by the
Companies (Second Amendment) Act, 2002 (11 of 2003) (w.e.f. date to be notified), the jurisdiction,
powers and functions hitherto being exercised by the CLB, the Central Government, the High Court
as Company Court and BIFR under various Sections of the 1956 Act [See List in Notes under section
10FB], SICA and other Acts have been conferred on the Tribunal (NCLT).
Any person aggrieved by an order or decision of the Tribunal (NCLT) may prefer an appeal to the
Appellate Tribunal except consent orders [section 10FQ of the 1956 Act]. Civil court shall have no
jurisdiction in such matters [section 10GB of the 1956 Act]. Any person aggrieved by decision or
order of the Appellate Tribunal may file an appeal to the Supreme Court on any question of law
arising out of such decision or order [section 10GF of the 1956 Act].
[s 7.73] Appropriate Forum
The matters which are not within the jurisdiction of the Company Law Board (CLB) [now the NCLT
(NCLT)], are decided by the High Court or the District Court as provided under section 10 and other
provisions of the 1956 Act. The residue may go to ordinary Civil Court or some other competent
authority.21
on its behalf.22

or shareholders is called a derivative action, which is normally permissible with the leave of the Court.
company,—(i) to enforce a personal right, e.g., the right to vote or attend a meeting; (ii) a
representative action under Order 1, rule 8 of the Code of Civil Procedure, 1908 on behalf of himself
and other shareholders. Under the Indian company law, only a person who is on the register of
members is a member of the company. The Court would not lift the veil of incorporation at the
instance of a person whose name does not appear in the register of members of the company to
enable him to show his beneficial interest in the company through a chain of intercorporate
investments.23
See detailed Notes on Rule of Internal Management in Foss v Harbottle, Exceptions to the rule and
Actions by minority shareholders, viz., Derivative or Representative action, in respect of Corporate
rights and Individual or personal rights of a Member under sections 10 and 41 of the 1956 Act.
[s 7.76] Suit against company having sub-offices
The Explanation to section 20 of the Code of Civil Procedure, 1908 (5 of 1908) provides that a
corporation shall be deemed to carry on business at its sole or principal office in India or in respect of
any cause of action arising at any place where it has also a subordinate office, at such place. The
Explanation applies to a corporation, which term includes a company. The agreement between the
parties conferring exclusive jurisdiction on the court where the corporation has its principal place shall
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be of no avail.24
[s 7.77] Service of summons on Company
In a suit against a company registered under the Companies Act, 1956, the affixure of the suit
summons at the office of the company is due service as Order 29, Rule 2, of the Code of Civil
Procedure, 1908 provides for service of summons on a corporation by leaving the summons at place
where the corporation carries on business. The word “corporation” has been used in the CPC with
reference to section 34 of the 1956 Act. Under that section when a company is registered, the
Registrar of Companies certifies under his hand the fact of such registration. The effect of
incorporation is that the company becomes a body corporate having perpetual succession and a
common seal.25
Rule 2 of Order 29 of the Code of Civil Procedure, 1908 (5 of 1908) provides for service of process in
a suit against a corporation subject, however, to any statutory provision regulating such service.
Therefore, in the matter of service of summons on a limited company, the provisions of rule 2 of
Order 29 shall be subject to section 51 of the 1956 Act (1 of 1956). The result is that the provision of
section 51 of the Companies Act, 1956 would prevail over rule 2 of Order 29, Civil Procedure Code.
Therefore, a summons on a limited company has to be served at its Registered Office in terms of
section 51 of the 1956 Act.26
[s 7.78] Court Fees
Under clause (vi) of a State Notification issued under section 35 of the Court Fees Act, 1870 (7 of
1870), all persons whose income does not exceed Rs 12,000 have been exempted from paying court
fee. A similar provision regarding exemption from paying court fee has been made in Order 33 of the
Code of Civil Procedure, 1908 (5 of 1908). The expression “person” has not been defined in the
parent Act or Notification issued by the State Government. It cannot be confined to only natural
persons and shall include a juristic person such as a company.27
[s 7.79] Company can file suits in forma pauperis
A company, which is entitled to maintain a suit as a legal person, can file suits in forma pauperisas an
indigent person under rule 1 of Order 33 of the Code of Civil Procedure, 1908 (5 of 1908). Indigent
person is one who is not possessed of sufficient amount as per Explanation I. This enabling provision
allows the filing of a suit by an indigent person without paying the court fee at the initial stage. There
is only a provision for the deferred payment of the court fees. This being a benevolent provision,
includes not only natural persons but juridical persons also. A company being a juristic person, would
be represented by a person competent to re-present it.28
[s 7.80] Interim orders
The mechanical manner in which some of the courts have been granting interim orders—injunctions
and stay orders—without realising the harm such mechanical orders cause to the other side and in
some cases to public interest. It is no answer to say “let us make the order and if the other side is
aggrieved, let it come and apply for vacating it”. This is not a correct attitude. Before making the
order, the court must be satisfied that it is a case which calls for such an order. This obligation cannot
be jettisoned and the onus placed upon the respondents/defendants to apply for vacating it.29
[s 7.81] Decree
It is well-settled that joint-stock company is a corporate entity, which is distinct from its members. The
share in a joint-stock-company is the property of the registered holder but the assets of the company
are the assets of the joint stock entity. They are in no sense the assets or property of a shareholder,
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much less a member of a coparcenary, which may hold the shares in the name of the karta. If the
karta of the family abused his position, either as a shareholder or as a director of the company, the
remedy of the member of the coparcenary or of the shareholder of the company would lie elsewhere.
Neither the decrees nor the course of execution thereof could be challenged by a shareholder unless
his rights as such shareholder are sought to be affected.30A decree passed against a company
cannot be satisfied by attachment and sale of properties belonging to other limited companies even if
it is assumed that they are being managed by the same group of directors. Other companies are
different and distinct juristic personalities with different sets of shareholders.31
[s 7.82] Conversion of unregistered body into company
Where all that was provided under the articles was that a member of Electrical Cable Development
Association as of right be admitted as a member of the appellant company subject to certain
conditions. It did not say that all the members in the unregistered association become members of
the association. No resolution was passed to show that they were converting themselves into an
incorporated body. Held, the appellant was a distinct legal entity other than the unregistered body
and there was no material to show that it was successor. Therefore the company did not become a
tenant in respect of the premises occupied by the unregistered association without an agreement with
the society.32
[s 7.83] Company cannot be a witness
An incorporated company or other corporate bodies cannot make any oath or affirmation and,
therefore, cannot become a witness. However, the employees of the company who are sought to be
cited as witnesses in the prosecution against the company, cannot be equated with the company as
to treat the incriminating evidence, if any, adduced by them, to be self-incriminatory evidence
adduced by the accused company itself. If the officers and employees of a company are not
permitted to appear as witnesses for the prosecution against the company on an extension of the
doctrine against self-incrimination, many of the offences committed by companies cannot be
detected, prosecuted and punished.33
[s 7.84] Company vis-a-vis Statutory Corporations
There is a distinction between a company or corporation incorporated under the 1956 Act and
statutory corporations, e.g., the Life Insurance Corporation or the Industrial Finance Corporation, etc.,
which are created under special Acts or statutes. A company makes rules and regulations in
accordance with the provisions of the Companies Act. A statutory body, on the other hand, makes
rules and regulations by and under the powers conferred by the statutes creating such bodies.34
A corporation constituted under the Road Transport Corporations Act, 1950 (64 of 1950), though
statutory, has a personality of its own distinct from that of the State or other shareholders. It cannot
be said that a shareholder owns the property of the corporation or carries on the business with which
the corporation is concerned. The income derived by such a corporation from its trading activity
cannot be claimed by the State, which is one of the shareholders of the corporation. The income
derived by the corporation from its trading activity cannot therefore be said to be the income of the
State under Article 289 of the Constitution of India. The exemption from Union taxation is available
only if it is shown that the income derived from the said trading activity is the income of the State.35
[s 7.85] Sales Tax
The company is not a citizen and not entitled to fundamental rights. Corporate veil would not be
pierced where sales tax was levied on the company. The shareholders cannot challenge the levy of
sales tax on the principle that on piercing the veil it will appear that the shareholders are the real
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persons who will be affected by the levy of sales tax and such levy will infringe their fundamental
rights. In such a case the court will not lift the corporate veil or allow the shareholders to invoke the
Writ Jurisdiction of the court.36
[s 7.86] Recovery of Sales Tax
A company is a legal entity distinct from its shareholders as well as its directors. As such no
proceedings can be initiated against the Directors or the Managing Director of a company for
recovery of sales tax due from the company. Proceedings against personal assets of the Directors or
Shareholders would therefore be void. The piercing of corporate veil is not applicable in this case.
According to the Sales Tax Acts of various States, e.g., the Andhra Pradesh General Sales Tax Act,
1957 (6 of 1957), the Karnataka Sales Tax Act, 1957 (25 of 1957), the Kerala General Sales Tax Act,
1963 (15 of 1963), the Tamil Nadu General Sales Tax Act, 1959 (1 of 1959), etc., Sales tax arrears of
a company cannot be recovered from its directors except in the course of winding up or liquidation.37
The settled law is that for recovery of tax dues against a company, the authorities cannot proceed
against the personal assets of a director of the company, unless that is permitted by a specific
provision of law or by an agreement between the parties.38
See also Notes under Lifting the veil in Tax Matters, viz., Tax Evasion or Avoidance in earlier
paragraphs.
According to section 179 of the Income-tax Act, 1961 (43 of 1961), if any tax due from a private
company in liquidation cannot be recovered, every person who was a director of the private company
during the relevant year shall be jointly and severally liable for the payment of such tax unless he
proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of
duty on his part in relation to the affairs of the company.39
Where for arrears of tax due from the Managing Director, his deposits with the company were
attached. Further, tax due from the managing director was adjusted against refunds due to the
company from the revenue on the company agreeing to the adjustment. The petition to direct refund
to the company was dismissed.40
[s 7.88] Service Tax on Company
Company shall be liable to pay service tax if the service is of a kind that has been declared taxable
under section 65 of the Finance Act, 1994 (32 of 1994). Every person is wide enough to include a
company.41
[s 7.89] Excise Duty
The shareholders of a public limited company do not, by reason only of their shareholding, have an
interest in the business of the company. Equally, the fact that two public companies have common
Chairman and Directors does not mean that one company has an interest in the business of the
other. The two companies could not be treated as “related persons” and the assessable value of
goods sold and purchased inter se could not be marked up for purposes of excise duty under section
4(4)(c) of the Central Excise Act, 1944 (1 of 1944).42
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However, private companies having common directors belonging to the same family were treated as
“related persons” and higher value was taken as the benefits of the companies were being enjoyed
by members of the same family.43
[s 7.90] Profession Tax on Companies
Company is a distinct entity. A company has special immunities, responsibilities, rights and liabilities.
The company stands as a separate class A company is composed of more than one individual and
enjoys a superior status in the business world having greater capacity to pay tax than individual. Levy
of profession tax on companies at a flat rate of Rs 2,500 under the Karnataka Tax on Professions,
Trades, Callings and Employments Act, 1976 (35 of 1976) was therefore held to be constitutional and
reasonable.44
[s 7.91] Company’s receipts
Company’s receipts may be treated as Individual’s receipts. The Court is entitled to pierce the
corporate veil and recognize the receipts of a company as that of the individual in control of the
company if the company had been used as a device or facade to conceal the true facts, thereby
avoiding or concealing any liability of that individual.45
[s 7.92] Debts of Company
The Directors are not personally liable to pay the debts incurred by the company. The director may
be made personally liable only if he is found guilty of fraudulent trading.46
[s 34.56] Recovery of Dues
There is no provision in the 1956 Act or in the Industrial Disputes Act, 1947 (14 of 1947), which
makes the Managing Director of a company personally liable for recovery of dues against the
company.47
[s 7.93] Recovery of Loan
The company incorporated under the 1956 Act is a separate legal entity. The Managing Director or
Directors are not personally liable under the statute for company’s dues unless they are guarantors.
In case of decree against company and managing director for recovery of bank loan, the Managing
Director or directors cannot be proceeded against unless there is a positive finding that the managing
director or director of the judgment-debtor company was personally liable for discharge of the
decretal amount.48
While interpreting the term “proprietor” as defined by section 2(o) of the Bihar Land Reforms Act,
1950 (30 of 1950) the Supreme Court held that in view of the object of the Bihar Land Reforms Act,
there was no reason to differentiate between an individual proprietor and a company which owned
estates or tenures.49
[s 7.94] Default in Telephone
[s 7.95] Company Lease: Premises let to company
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Where there was a stipulation in the lease deed that the premises let out to the company shall be
used for the residence and personal use of directors and/or their relatives and for the purpose of the
company. It means residential purpose only. The lease was not for commercial purpose. The words
for the purpose of the company ought to be read in conjunction with residence. The company was
ordered to evict the property.51
[s 7.95.1] Land Acquisition
In the case of a company previous consent of the State Government, agreement as required under
sections 39 to 41 of the Land Acquisition Act, 1894 (1 of 1894) and compliance with Rules 3 and 4 of
the Land Acquisition (Companies) Rules, 1963 is mandatorily required. After the agreement between
the company and the State Government is so entered and published in the Official Gazette, the State
Government cannot unilaterally, without notice and opportunity of being heard to the company
withdraw from the acquisition.52
39 Enforced vide Notification S.O. 902(E) dt. 26-03-2014, w.e.f. 01-04-2014 and corresponds to sections 15(c), 33 and 34
of the 1956 Act.
40 Rule 12, 36 and Form No. INC-29 of the Companies (Incorporation) Rules, 2014. For the text of Rules refer Appendix
3.
41 Central Registration Centre (CRC) to exercise all related matter pertaining to registration vide S.O. 1211(E) dt. 23
March 2016, w.e.f. 28-03-2016.
43 Rule 14 and Form No. INC. 8 of the Companies (Incorporation) Rules, 2014. For the text of Rules refer Appendix 3.
49 Rule 18 read with rule 36(13) and Form No. INC-11 of the Companies (Incorporation) Rules, 2014. For the text of
Rules refer Appendix 3.
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50 Selvarajan and Co v Registrar of Cos, (1987) 62 COMP CASES 220 (Mad.). See also Notes under section 30 of the
1956 Act.
51 Arthanari Transport Pvt Ltd v K.P. Swami Goundar, (1965) 35 COMP CASES 930 (Mad.) (DB). See detailed Notes
52 Re Whitley Partners Ltd, (1886) 32 ChD 337 : 55 LJ Ch. 540 : 54 LT 912 (CA); Chotalal v Dalsukhram, (1893) ILR 17
Bom. 472. See also Notes under sections 150 and 432 of the 1956 Act.
53 Re Mirza Ahmed, (1924) MWN 582 : 83 IC 94; Re U.P. Oil Mills Co Ltd, (1931) 1 COMP CASES 262 (All.) : AIR 1931
All. 701; Re, Lurgan’s (Lord) Case, (1902) 1 ChD 707 : 71 LJ Ch. 323 : 86 LT 291. See also Notes under sections 12
54 Seal v Claridge, (1881) 7 QBD 516; Deffell v White, (1866) LR 2 CP 144 : 36 LJ CP 25 : 15 LT 211 : 15 WR 68; Re
Parrot, ex parte Cullen, (1891) 2 QB 151 : 60 LJ QB 567 : 64 LT 801 : 39 WR 543. See also Notes under section 46 of
the 1956 Act.
55 Substituted by the Companies (Amendment) Act, 1988 (31 of 1988), section 6 (w.e.f. 15-06-1988).
56 Substituted by the Companies (Amendment) Act, 1988 (31 of 1988), section 6 (w.e.f. 15-06-1988), for “a chartered
accountant practising in India”.
57 The words “managing agent, secretaries and treasurers” omitted by the Companies (Amendment) Act, 1988 (31 of
1988), section 6 (w.e.f. 15-06-1988). The system of managing agency had already been abolished vide section 324A of
the 1956 Act (1 of 1956), as inserted by the Companies (Amendment) Act, 1969 (17 of 1969), section 4 (w.e.f. 03-04-
1970).
58 Added by the Companies (Amendment) Act, 1988 (31 of 1988), section 6 (w.e.f. 15-06-1988).
59 T.V. Krishna v Andhra Prabha Pvt Ltd, (1960) 30 COMP CASES 437 (AP) (DB) : AIR 1960 AP 123 (DB). See also
60 Executive Board of Methodist Church in India v UOI, (1985) 57 COMP CASES 443 (Bom.); T.V. Krishna v Andhra
Prabha Pvt Ltd, (1960) 30 COMP CASES 437 (AP) (DB) : AIR 1960 AP 123 (DB). See also Notes under sections 12
61 Sidhvi Constructions (India) Pvt Ltd v Registrar of Cos, (1997) 90 COMP CASES 299 (AP). See also Notes under
62 Executive Board of Methodist Church in India v UOI, (1985) 57 COMP CASES 443 (Bom.). See revised Instructions on
defunct companies in Circular Letter No. 10(1)-RS/65, dated 27 November 1965, para 19, printed in Notes under
63 R. v Registrar of Cos, ex p. Bowen, (1914) 3 KB 1161 : 84 LJ KB 229 (DC).
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64 Re Barned’s Banking Co., Peel’s Case, (1867) 2 Ch. App. 674 : 36 LJ Ch. 757; R. v Registrar of Cos, (1912) 3 KB 23 :
81 LJ KB 914 (DC); R. v ROC, ex p. More, (1931) 2 KB 197 : (1931) All ER Rep. 864 : 100 LJ KB 638 (CA); Cotman v
Brougham, (1918) AC 514 (HL) : 87 LJ Ch. 379 : 119 LT 162 (HL). See also Notes under sections 31, 32, 35 and 41 of
the 1956 Act.
65 Section 34; Salomon v Salomon & Co Ltd, (1897) AC 22 : (1895–99) All ER Rep. 33 : 66 LJ Ch. 35 : 75 LT 426 : 45 WR
193 : 13 TLR 46 : 41 SJ 63 (HL); State Trading Corpn. of India Ltd v CTO, (1963) 33 COMP CASES 1057 (SC) : AIR
1963 SC 1811 : (1964) 4 SCR 99; Mrs. Bacha F. Guzdar v CIT, (1955) 25 COMP CASES 1 (SC) : AIR 1955 SC 74 :
(1955) 27 ITR 1 (SC) : (1955) 1 SCR 876. See detailed Notes under section 34—Effect of registration.
66 Maluk Mohamed v Capital Stock Exchange Kerala Ltd, (1991) 72 COMP CASES 333 (Ker.). See also Notes under
sections 12 and 149(3) of the 1956 Act.
Salomon & Co Ltd, (1897) AC 22 : (1895–99) All ER Rep. 33 : 66 LJ Ch. 35 (HL). See detailed Notes under sections 12
68 V.B. Rangaraj v V.B. Gopalakrishnan, (1992) 73 COMP CASES 201 (SC) : AIR 1992 SC 453. See detailed Notes
69 National Coal Co Ltd v Gyan Ranjan Bhattacharya, AIR 1927 Cal 299.
70 Re, Jon Beauforte (London) Ltd, (1953) ChD 131 : (1953) 1 All ER 634 : 2 WLR 465. The doctrine of constructive notice
has been abolished under the English law, but this decision still holds good under the Indian Law. See detailed Notes
under sections 13 and 290–293 of the 1956 Act.
663 (Ex Ch.). See detailed Notes under section 13 and 293 of the 1956 Act.
72 Tata Engineering and Locomotive Co Ltd v State of Bihar, (1964) 34 COMP CASES 458 (SC) : AIR 1965 SC 40 :
(1964) 6 SCR 885.
73 V.B. Rangaraj v V.B. Gopalakrishnan, (1992) 73 COMP CASES 201 (SC) : AIR 1992 SC 453; Naresh Chandra Sanyal
v Calcutta Stock Exchange Association Ltd, (1971) 41 COMP CASES 51 (SC) : AIR 1971 SC 422; Hanuman Prasad
Gupta v Hiralal, (1970) 40 COMP CASES 1058 (SC) : AIR 1971 SC 206 : (1970) 2 Comp. LJ 195 (SC). See also Notes
under sections 3, 9, 12, 13, 26, 33, 35, 36, 41, 82, 111 and 111A of the 1956 Act.
TLR 46 : 41 SJ 63 (HL); State Trading Corp of India Ltd v CTO, (1963) 33 COMP CASES 1057 (SC) : AIR 1963 SC
1811 : (1964) 4 SCR 99; Mrs. Bacha F. Guzdar v CIT, (1955) 25 COMP CASES 1 (SC) : AIR 1955 SC 74 : (1955) 27
ITR 1 (SC) : (1955) 1 SCR 876. See also Notes under sections 2(46), 3, 12, 41 and 82 of the 1956 Act.
75 RustomCavasjee Cooper v UOI, (1970) 40 COMP CASES 325 (SC) : AIR 1970 SC 564 : (1970) 3 SCR 530 : (1970) 1
Comp. LJ 244 (SC) more popularly known as Bank Nationalisation case; Indo-China Steam Navigation Co Ltd v Jasjit
Singh, (1964) 34 COMP CASES 435 (SC) : AIR 1964 SC 1140; Western Coalfields Ltd v Special Area Development
Authority, AIR 1982 SC 697 : (1982) 1 SCC 125. See also Notes under section 2(10) of the 1956 Act.
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76 State Trading Corp of India Ltd v CTO, (1963) 33 COMP CASES 1057 (SC) : AIR 1963 SC 1811 : (1963) 2 Comp. LJ
40 : (1964) 6 SCR 885.
77 Bennett, Coleman and Co Ltd v UOI, AIR 1973 SC 106 : (1973) 2 SCR 757. See also Notes under section 433 of the
1956 Act.
78 Delhi Cloth and General Mills Co Ltd v UOI, (1983) 54 COMP CASES 674 (SC) : AIR 1983 SC 937.
79 M.P. Sharma v Satish Chandra, AIR 1954 SC 300 : 1954 SCR 1077.
80 Lachminarain Kanoria & Co v Victory Jute Mills, (1966) 36 COMP CASES 53 (Cal.).
81 Ray Cylinders and Containers v Hindustan General Industries Ltd, (2001) 103 COMP CASES 161 (Delhi). See detailed
82 Punjab National Bank v Lakshmi Industrial and Trading Co Pvt Ltd, (2002) 111 COMP CASES 109 (All.) (DB). See also
Notes under sections 3 and 291–294 of the 1956 Act.
SCR 885.
TLR 46 : 41 SJ 63 (HL).
85 Ebbw Vale U.D.C. v South Wales Traffic Area Licensing Authority, (1951) 2 KB 366 (CA) : (1951) 1 All ER 806 : (1951)
1 TLR 742 (CA).
86 Lee v Lee’s Air Farming Ltd, (1961) AC 12 : (1960) 3 All ER 420 : (1960) 3 WLR 758 (PC) : (1961) 31 COMP CASES
233 (PC).
87 Lee v Carter Ltd, (1949) 1 KB 85 : (1948) 2 All ER 690 : 64 TLR 536 : 92 SJ 586 (CA).
88 Mohta Alloy and Steel Works v Mohta Finance and Leasing Co Ltd, (1997) 89 COMP CASES 227 (Delhi). See also
89 Macaura v Northern Assurance Co, (1925) AC 619 : 133 LT 152 : 69 SJ 777 (HL). See also Notes under section 82 of
the 1956 Act.
90 Section 4. See also decisions in later paragraphs under Lifting of corporate veil—Holding company and its subsidiary.
91 Ochberg v CIR, (1913) AD [S. Africa] 215.
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TLR 46 : 41 SJ 63 (HL).
93 LIC v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370; CDS Financial Services (Mauritius) Ltd v
BPL Communications Ltd, (2004) 121 COMP CASES 374 (Bom.) (DB). See detailed Notes under separate headings
hereinafter.
1 New Horizons Ltd v UOI, (1997) 89 COMP CASES 849 (SC).
2 Subra Mukherjee v Bharat Coking Coal Ltd, (2000) 101 COMP CASES 257 (SC).
(1964) 6 SCR 885.
4 L.I.C. v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370. See fuller discussion in earlier paragraph
under Lifting the corporate veil.
* See the Foreign Exchange Management Act, 1999 (42 of 1999) in Appendix 171 which has replaced the Foreign
Exchange Regulation Act, 1973 (46 of 1973).
5 L.I.C. v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370.
6 LIC v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370. See detailed discussion in earlier
paragraph under Lifting the corporate veil.
7 Re Darby, ex parte Brougham, (1911) 1 KB 95 : 80 LJ KB 180 : 18 Mans. 10; R. v Grubb, (1915) 2 KB 683 : 84 LJ KB
1744 : 113 LT 510 : 31 TLR 429 (CCA).
8 Delhi Development Authority v Skipper Construction Co Pvt Ltd, (1997) 89 COMP CASES 362 (SC); Ali
JawadAmeerhasan Rizvi v Indo French Biotech Enterprises Ltd, (1999) 95 COMP CASES 373 (Bom.) (DB). See also
Contempt of Court in later paragraphs.
9 Delhi Development Authority v Skipper Construction Co Pvt Ltd, (1997) 89 COMP CASES 362 (SC). See also Holding,
Subsidiary and Associated companies in later paragraphs.
10 Ali JawadAmeerhasan Rizvi v Indo French Biotech Enterprises Ltd, (1999) 95 COMP CASES 373 (Bom.) (DB). See
also Holding, Subsidiary and Associated companies in later paragraphs.
11 SEBI v Livra Plantations Ltd, (1999) 1 Comp. LJ 294 (Bom.); Dindas Shankar Thange v State of Maharashtra, (1999) 1
Comp. LJ 299 (Bom.).
12 S. Shreenivasa Rao alias S. S. Rao v Inspector of Police, (2002) 109 COMP CASES 406 (Mad.).
13 Ravi Kant v National Consumer Disputes Redressal Commission, (1997) 89 COMP CASES 471 (Delhi) (DB).
14 PNB Finance Ltd v Shri Shital Prasad Jain, (1983) 54 COMP CASES 66 (Delhi) (DB).
15 Singer India Ltd v Chander Mohan Chadha, (2004) 122 COMP CASES 468 (SC).
16 Singer India Ltd v Chander Mohan Chadha, (2004) 122 COMP CASES 468 (SC) : AIR 2004 SC 4368 : (2004) 4 Comp.
LJ 413 (SC) : (2004) 7 SCC 1 : (2004) 6 Supreme 259 : (2004) 6 Scale 217 (SC). See detailed Notes under sections
391 and 394 of the 1956 Act.
17 Miheer H. Mafatlal v Mafatlal Industries Ltd, (1996) 87 COMP CASES 792 (SC) : AIR 1997 SC 506 : (1996) 4 Comp.
LJ 124 (SC).
18 Nandh Products Promoters Pvt Ltd v District Forest Officer, (2005) 123 COMP CASES 367 (Mad.).
19 Ansuman Singh v State of U.P, AIR 2004 All 260.
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85 LJ KB 1333 : 114 LT 1049 (HL). See also Notes under sections 12, 13 and 146 of the 1956 Act.
22 Re, General Co. for Promotion of Land Credit, (1871) LR 5 HL 176 : 40 LJ Ch. 655 : 24 LT 641; Janson v Driefontein
Consolidated Mines Ltd, (1902) AC 484 : (1900–03) All ER Rep. 426 : 71 LJ KB 857 : 87 LT 372 : 51 WR 142 : 18 TLR
796 (HL); Gramophone and Typewriter Ltd v Stanley, (1908) 2 KB 89 : (1908–10) All ER Rep. 833 : 77 LJ KB 834 : 99
LT 39 : 24 TLR 480 (CA); Kuenigl v Donnersmarck, (1955) 1 QB 515 : (1955) 1 All ER 46 : (1955) 2 WLR 82. See also
24 State Trading Corp of India Ltd v CTO, (1963) 33 COMP CASES 1057 (SC) : AIR 1963 SC 1811 : (1964) 4 SCR 99.
See also Notes under Company not a Citizen in earlier paragraphs and Government Company in later paragraphs.
26 Gasque v I.R.C, (1940) 2 KB 80 : 109 LJ KB 769 : 56 TLR 683.
28 De Beers Consolidated Mines Ltd v Howe, (1906) AC 455 (HL) : (1904–07) All ER Rep. 1256 (HL).
29 Section 6(3)(ii) of the Income-tax Act, 1961 (43 of 1961); Union Corpn. Ltd v IRC, (1953) AC 482 : (1953) 1 All ER 729
: (1953) 2 WLR 615 : (1953) 97 SJ 206 (HL); Unit Construction Co Ltd v Bullock, (1960) AC 351 (HL) : (1959) 3 All ER
831 (HL) : (1959) 3 WLR 1022 (HL) : (1959) 103 SJ 1027 (HL).
30 Unit Construction Co Ltd v Bullock, (1960) AC 351 (HL) : (1959) 3 All ER 831 (HL) : (1959) 3 WLR 1022 (HL) : (1959)
103 SJ 1027 (HL).
31 Swedish Central Railway Co v Thompson, (1925) AC 495 : (1924) All ER Rep. 710 : 94 LJ KB 527 : 133 LT 97 (HL);
Narottam and Pereira Ltd v CIT, (1953) 23 ITR 454 (Bom.).
(1972) 3 SCR 711. See also Notes under sections 12 and 13 of the 1956 Act.
33 L.I.C. v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370. See fuller discussion in earlier paragraph
under Lifting the corporate veil.
34 JuggilalKamlapat v CIT, AIR 1969 SC 932 : (1969) 2 Comp. LJ 188 (SC) : (1969) 73 ITR 702 (SC) : (1969) 1 SCR 988;
CIT v Sri Meenakshi Mills Ltd, AIR 1967 SC 819 : (1967) 63 ITR 609 (SC) : (1967) 1 SCR 934; Deputy Commissioner v
Cheran Transport Corp Ltd, (1992) 74 COMP CASES 563 (Mad.) (DB); India Waste Energy Development Ltd v Govt of
NCT of Delhi, (2003) 114 COMP CASES 82 (Delhi) (DB).
Mr. Laghir1 Rabari

Page 56 of 62
35 McDowell and Co Ltd v CTO, AIR 1986 SC 649 : (1985) 154 ITR 148 (SC) : (1985) 59 STC 277 (SC); W.T. Ramsay
Ltd v IRC, (1981) 1 All ER 865 (HL) : (1982) AC 300 (HL) : (1981) 2 WLR 449 (HL); IRC v Burmah Oil Co Ltd, (1982)
Simon’s Tax Cases 30; Furniss v Dawson, (1984) 1 All ER 530 (HL) : (1984) 2 WLR 226 (HL).
36 CWT v Arvind Narottam, AIR 1988 SC 1824 : (1988) 173 ITR 479 (SC).
37 UOI v Playworld Electronics Pvt Ltd, (1990) 68 COMP CASES 582 (SC) : AIR 1990 SC 202 : (1990) 184 ITR 308 (SC)
: 1989 (41) ELT 368 (SC); Greenberg v IRC, (1971) 3 All ER 136 : (1971) 3 WLR 386 : (1971) 47 TC 240 (HL);
Sherdeley v Sherdeley, (1987) 2 All ER 54 (HL); M.V. Valliappan v ITO, (1988) 170 ITR 238 (Mad.).
(1964) 6 SCR 885. See detailed discussion earlier under Lifting the corporate veil and later under Holding Company
and its Subsidiary.
39 Sunil Siddharthabhai v CIT, (1985) 156 ITR 509 (SC) : (1985) 49 CTR (SC) 172.
40 Santanu Ray v UOI, (1989) 65 COMP CASES 196 (Delhi) (DB).
41 Workmen v Associated Rubber Industry Ltd, (1986) 59 COMP CASES 134 (SC) : AIR 1986 SC 1 : (1986) 157 ITR 77
(SC).
43 L.I.C. v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370. See detailed discussion in earlier
44 L.I.C. v Hari Das Mundhra, (1966) 36 COMP CASES 371 (All.) (DB); Spencer & Co Ltd v CWT, (1969) 39 COMP
CASES 212 (Mad.) : AIR 1969 Mad. 359 : (1969) 72 ITR 33 (Mad.); Free Wheel (India) Ltd v Dr. Veda Mitra, (1969) 39
COMP CASES 1 (Delhi) (DB) : AIR 1969 Del 258 (DB); CDS Financial Services (Mauritius) Ltd v BPL Communications
Ltd, (2004) 121 COMP CASES 374 (Bom.) (DB). See also Notes under sections 4 and 12 of the 1956 Act.
45 Delhi Development Authority v Skipper Construction Co Pvt Ltd, (1997) 89 COMP CASES 362 (SC). See also Lifting
the veil to prevent Fraud or Improper Conduct and Lifting the veil in case of Contempt of Court in earlier paragraphs.
46 Ali JawadAmeerhasan Rizvi v Indo French Biotech Enterprises Ltd, (1999) 95 COMP CASES 373 (Bom.) (DB). See
also Fraud or Improper Conduct in earlier paragraphs.
47 State of U.P. v Renusagar Power Co, (1991) 70 COMP CASES 127 (SC) : AIR 1988 SC 1737; D.H.N. Food
Distributors Ltd v London Borough of Tower Hamlets, (1976) 3 All ER 462 : (1976) 1 WLR 852 : 120 SJ 215 (CA). See
(1964) 6 SCR 885. See also discussion under Lifting the corporate veil and Tax Matters in earlier paragraphs.
49 UOI v Bombay Tyre International Ltd, (1986) 59 COMP CASES 460 (SC) : (1983) 3 Comp. LJ 270 (SC) : 1983 (14)
ELT 1896 (SC) : (1984) 1 SCR 347.
51 Progressive Aluminium Ltd v Registrar of Cos, (1997) 89 COMP CASES 147 (AP). See also Notes under sections 55,
52 Hackbridge-Hewittic and Easun Ltd v G.E.C. Distribution Transformers Ltd, (1992) 74 COMP CASES 543 (Mad.) (DB);
Harold Holdsworth& Co (Wakefield) Ltd v Caddies, (1955) 1 All ER 725 (HL) : (1955) 1 WLR 352 (HL); ICI v E.C.
Commission, (1972) 11 CMLR 557; D.H.N. Food Distributors Ltd v London Borough of Tower Hamlets, (1976) 3 All ER
462 : (1976) 1 WLR 852 : 120 SJ 215 (CA).
53 Inalsa Ltd v UOI, (1996) 87 COMP CASES 599 (Delhi). See also Notes under section 4 of the 1956 Act.
54 U.K. Mehra v UOI, (1997) 88 COMP CASES 213 (Delhi) (DB).
55 Fatima Tile Works v Sudarsan Trading Co Ltd, (1992) 74 COMP CASES 423 (Mad.). See detailed Notes under section
4 of the 1956 Act.
56 Scottish Co-op Wholesale Society Ltd v Meyer, (1959) AC 324 : (1958) 3 All ER 66 : (1958) 3 WLR 404 (HL). See also
57 SAE (India) Ltd v E.I.D. Parry (India) Ltd, (1998) 18 SCL 481 (Mad.).
58 BSN (UK) Ltd v Janardan Mohandas Rajan Pillai, (1996) 86 COMP CASES 371 (Bom.). See also Notes under
sections 10, 41, 153B and 187C of the 1956 Act.
59 Industrial Development Corp Orissa Ltd v Regional Provident Fund Commissioner, (2002) 112 COMP CASES 527
(Orissa).
60 Southern v Watson, (1940) 3 All ER 439 : 85 SJ 8 (CA).
Mr. Laghir1 Rabari

Page 57 of 62
61 Abbey Malvern Wells Ltd v Ministry of Local Govt. and Planning, (1951) ChD 728 : (1951) 2 All ER 154 : (1951) 1 TLR
1050.
62 Willis v Association of Universities of the British Commonwealth, (1965) 1 QB 140 (CA) : (1964) 2 All ER 39 : (1964) 2
WLR 946 : 108 SJ 197 (CA); Malyon v Plummer, (1964) 1 QB 330 : (1963) 2 All ER 344 : (1963) 2 WLR 1213; Gilford
Motor Co v Horne, (1933) ChD 935 : (1933) All ER Rep. 109 : 102 LJ Ch. 212 (CA); Jyoti Ltd v Kanwaljit Kaur Bhasin,
(1987) 62 COMP CASES 626 (Delhi) see ratio of this decision under Contempt in later paragraphs.
63 Smith, Stone & Knight v Birmingham Corpn, (1939) 4 All ER 116 : 161 LT 371 : 83 SJ 961.
215 (CA).
65 L.I.C. v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370; Bijoy Kumar Agarwal v RatanlalBagaria,
AIR 1999 Cal 106. See fuller discussion in earlier paragraphs under Lifting the corporate veil.
67 Carrasco Investments Ltd v Special Director, Enforcement Directorate, (1994) 79 Comp Cases 631 (Delhi).
68 Delhi Development Authority v Skipper Construction Co Pvt Ltd, (1997) 89 COMP CASES 362 (SC); Rashtriya Mill
Mazdoor Sangh v Khatau Makanji Spg. and Wvg. Co Ltd, (2000) 100 COMP CASES 33 (Bom.). See also Contempt of
Court in Notes under section 10 of the 1956 Act.
69 Jyoti Ltd v Kanwaljit Kaur Bhasin, (1987) 62 COMP CASES 626 (Delhi).
70 Ravi Kant v National Consumer Disputes Redressal Commission, (1997) 89 COMP CASES 471 (Delhi) (DB); Aligarh
Municipal Board v Ekka Tonga Mazdoor Union, AIR 1970 SC 1767.
71 Rashtriya Mill Mazdoor Sangh v KhatauMakanji Spg. and Wvg. Co Ltd, (2000) 100 COMP CASES 33 (Bom.).
72 Director General of Fair Trading v Pioneer Concrete (UK) Ltd, (1995) 1 BCLC 613 (HL).
73 Heavy Engineering Mazdoor Union v State of Bihar, (1969) 39 COMP CASES 905 (SC) : AIR 1970 SC 82 : (1969) 2
Comp. LJ 273 (SC); State Trading Corpn. of India Ltd v CTO, (1963) 33 COMP CASES 1057 (SC) : AIR 1963 SC 1811
: (1963) 2 Comp. LJ 234 (SC); Steel Authority of India Ltd v Shri Ambica Mills Ltd, (1998) 92 COMP CASES 120 (SC);
Dr. S.L. Agarwal v Hindustan Steel Ltd, AIR 1970 SC 1150 : (1970) 3 SCR 363; Western Coalfields Ltd v Special Area
Development Authority, AIR 1982 SC 697 : (1982) 1 SCC 125; Ranjit Kumar Chatterjee v UOI, (1969) 39 COMP
CASES 327 (Cal.) : AIR 1969 Cal 95; K.C. Verma v Bokaro Steel Ltd, (1971) 41 COMP CASES 826 (Pat.) (DB) : AIR
1971 Pat. 137. See detailed Notes under sections 617–620 of the 1956 Act.
74 Central Inland Water Transport Corpn. Ltd v Brojo Nath Ganguly, (1986) 60 COMP CASES 797 (SC) : AIR 1986 SC
1571. See also Notes under section 617 of the 1956 Act.
75 Inland Steam Navigation Workers’ Union v Rivers Steam Navigation Co Ltd, (1968) 38 COMP CASES 99 (Cal.) (DB) :
71 Cal WN 897; KapilaHingorani v State of Bihar, (2003) 116 COMP CASES 133 (SC). See also Notes under sections
391 and 617 of the 1956 Act.
76 Praga Tools Corp v C.V. Imanual, (1969) 39 COMP CASES 889 (SC) : AIR 1969 SC 1306 : (1970) 1 Comp. LJ 50
(SC); Malik Ram v Hindusthan Cables Ltd, (1968) 38 COMP CASES 500 (Cal.) : 72 Cal WN 398; D.M. Nagaraja Rao v
Indian Oil Corpn. Ltd, (1969) 39 COMP CASES 896 (Mys.). See detailed Notes under sections 617 and 2(18) of the
1956 Act.
77 Electronics Corp of India Ltd v Govt of Andhra Pradesh, (1999) 97 COMP CASES 470 (SC) : AIR 1999 SC 1734.
78 Secretary, HSEB v Suresh, 1999 (3) SCC 601.
79 M.V. “Dong Do” v. Ramesh Kumar and Co. Ltd, (2002) 109 COMP CASES 450 (Cal.) (DB).
80 KapilaHingorani v State of Bihar, (2003) 116 COMP CASES 133 (SC).
81 British American Tobacco Co Ltd v IRC, (1943) AC 335 (HL) : (1943) 1 All ER 13 (HL) : (1943) 13 COMP CASES 123
(HL). See also Notes under sections 4 and 406 of the 1956 Act.
82 V.M. Rao v Rajeswari Ramakrishnan, (1987) 61 COMP CASES 20 (Mad.) (DB) : (1986) 1 Comp. LJ 1 (Mad.) (DB).
83 Vikas Jalan v Nucon Industries Pvt Ltd, (2001) 103 COMP CASES 343 (AP). See also Notes under section 433 of the
1956 Act.
Mr. Laghir1 Rabari

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84 Shyamlal Purohit v Jagannath Ray, (1970) 40 COMP CASES 138 (Cal.) (DB) : AIR 1969 Cal 424. See also Notes
85 Purna Investment Ltd v Bank of India Ltd, (1984) 55 COMP CASES 737 (Cal.) (DB); CharanjitLal Chowdhury v UOI,
(1951) 21 COMP CASES 33 (SC) : AIR 1951 SC 41 : 1950 SCR 869; Mrs. Bacha F. Guzdar v CIT, (1955) 25 COMP
CASES 1 (SC) : AIR 1955 SC 74 : (1955) 27 ITR 1 (SC) : (1955) 1 SCR 876. See also Company a legal person and
separate juristic entity earlier.
86 Subra Mukherjee v Bharat Coking Coal Ltd, (2000) 101 COMP CASES 257 (SC). See also Corporate entity, Corporate
veil and Lifting of corporate veil in earlier paragraphs.
87 Naga Brahma Trust v Translanka Air Travels Pvt Ltd, (1997) 88 COMP CASES 136 (Mad.).
88 Jai NarainParasrampuria (Decd.) v Pushpa Devi Saraf, (2006) 133 COMP CASES 794 (SC).
89 Rajdhani Chit Fund Pvt Ltd v Mukesh Maheshwari, (1999) 96 COMP CASES 837 (Delhi); Kathiawar Industries Ltd v
Custodian-General of Evacuee Property, AIR 1967 P&H. 337; Hydro (Sind) Electric Supply Co Ltd v UOI, AIR 1959
P&H. 199.
90 Prem Lata Bhatia v UOI, (2006) 134 COMP CASES 92 (Delhi) (DB).
91 K.M. Basheer v Lona Chackola, (2003) 115 COMP CASES 127 (Ker.) (DB).
92 Martin Burn Ltd v Bhagirath Murarka, (1982) 52 COMP CASES 127 (Cal.) (DB). See also Notes under section 439 of
the 1956 Act.
93 G.C. Mehrotra v Deputy Collector (Collections), Sales Tax, (1998) 93 COMP CASES 617 (All.); Kailash Prasad Modi v
Chief General Manager, Orissa Telecommunication, (1995) 82 COMP CASES 626 (Orissa) (DB) : AIR 1994 Orissa 98
(DB); V.V. Rama Rao v UOI, (1998) 30 CLA 131 (AP); Employees’ State Insurance Corp v S.K. Aggarwal, (1998) 94
COMP CASES 75 (SC). See detailed Notes under Recovery of Tax, Recovery of Dues, etc., in later paragraphs. See
94 R. v Tyler & International Commercial Co, (1891) 2 QB 588 : 65 LT 662 : 7 TLR 720 (CA); Director of Public
Prosecutions v Kent and Sussex Contractors Ltd, (1944) 2 KB 146 : (1944) 1 All ER 119 : 113 LJ KB 88 (DC). See also
Notes sections 5, 293, 621 and 629A of the 1956 Act.
95 Esso Standard Inc v Udharam Bhagwandas Japanwalla, (1975) 45 COMP CASES 16 (Bom.) (DB). See also Notes
96 Bolton (H.L.) Engg. Co Ltd v Graham (T.J.) & Sons Ltd, (1957) 1 QB 159 : (1956) 3 All ER 624 : (1956) 3 WLR 804 :
(1956) 100 SJ 816 (CA); DPP v Kent and Sussex Contractors Ltd, (1944) 2 KB 146 : (1944) 1 All ER 119 : 113 LJ KB
88 (DC); D. & L. Caterers Ltd v D’Anjou, (1945) KB 364 : (1945) 1 All ER 563 : 114 LJ KB 386; Neville v London
Express Newspapers, (1917) 2 KB 564. See also Lifting the veil for Contempt of Court in earlier paragraphs.
1 Linotype Co Ltd v British Empire Typesetting Machine Co Ltd, (1899) 81 LT 331 : 15 TLR 524 (HL); South Hetton Coal
Co v North-Eastern News Association, (1894) 1 QB 133 : 63 LJ QB 293; Lewis v Daily Telegraph Ltd, (1964) 2 QB 601
: (1964) 1 All ER 705 : (1964) 2 WLR 736 (CA).
Mr. Laghir1 Rabari

Page 59 of 62
3 Radhey Shyam Khemka v State of Bihar, (1993) 77 COMP CASES 356 (SC). See also Notes under sections 62, 63, 69
4 A.K. Khosla v T.S. Venkatesan, (1994) 80 COMP CASES 81 (Cal.). See also Notes under sections 5, 293, 621 and
5 Tesco Supermarkets Ltd v Nattrass, (1972) AC 153 : (1971) 2 All ER 127 : (1971) 2 WLR 1166 : (1971) 115 SJ 285
(HL); Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd, (1915) AC 705 : 84 LJ KB 1281 : 113 LT 195 : 31 TLR 294
: 59 SJ 411 (HL); Bolton (H.L.) Engg. Co. Ltd v Graham (T.J.) & Sons Ltd, (1957) 1 QB 159 : (1956) 3 All ER 624 :
(1956) 3 WLR 804 : (1956) 100 SJ 816 (CA); R. v McDonnell, (1966) 1 QB 233 : (1966) 1 All ER 193 : (1965) 3 WLR
1138 : 109 SJ 919 : (1966) 36 COMP CASES 125; Henshall (John) (Quarries) Ltd v Harvey, (1965) 2 QB 233 : (1965) 1
All ER 725 (DC); DPP v Kent and Sussex Contractors Ltd, (1944) 2 KB 146 : (1944) 1 All ER 119 : 113 LJ KB 88 (DC);
R. v ICR Haulage Ltd, (1944) KB 551 : (1944) 1 All ER 691 (CCA). But see R. v Andrews Weatherfoil Ltd, (1972) 1 All
ER 65 : (1972) 1 WLR 118 : 115 SJ 888 (CA). See also Notes under sections 5, 293, 621 and 629A of the 1956 Act.
6 R. v ICR Haulage Ltd, (1944) KB 551 : (1944) 1 All ER 691 (CCA); Esso Standard Inc v Udharam Bhagwandas
Japanwalla, (1975) 45 COMP CASES 16 (Bom.) (DB). See also Notes under sections 5, 542, 621, 621A and 629A of
the 1956 Act.
7 Abdul Aziz v State of Maharashtra, AIR 1963 SC 1470; Supdt. and Legal Remembrancer v Balai Chand Saha, (1974)
78 Cal WN 757 (Cal.); Karunaketan Dutta v Coal Board, (1972) 76 Cal WN 679 (Cal.). See also Notes under section 5
of the 1956 Act.
8 M.V. Javali v Mahajan Borewell and Co, (1998) 91 COMP CASES 708 (SC) : (1998) 230 ITR 1 (SC); M.R. Pratap v
V.M. Muthukrishnan, ITO, (1992) 74 COMP CASES 400 (SC) : (1992) 196 ITR 1 (SC) : AIR 1994 SC 674; ITO v D.
Manoharlal Kothari, (1999) 96 COMP CASES 275 (Mad.) : (1999) 236 ITR 357 (Mad.); Modi Industries Ltd v B.C. Goel,
(1983) 54 COMP CASES 835 (All.) (DB);Oswal Vanaspati and Allied Industries v State of U.P, (1992) 75 COMP
CASES 770 (All.) (FB); Manian Transports v S. Krishna Moorthy, ITO, (1991) 72 COMP CASES 746 (Mad.); P.V. Pai v
R.L. Rinawma, Dy. CIT, (1993) 77 COMP CASES 179 (Kar.) : (1993) 200 ITR 717 (Kar.); Vijaya Commercial Credit Ltd
v ITO, (1988) 63 COMP CASES 581 (Kar.) : (1988) 170 ITR 55 (Kar.). See also Notes under sections 5, 621, 621A and
9 Hrushikesh Panda v State of Orissa, (1997) 89 COMP CASES 613 (Orissa).
COMP CASES 237 (Cal.) (DB); Naresh Kumar v State of Bihar, (1991) 70 COMP CASES 358 (Patna); VidyaWati v
State, (1990) 69 COMP CASES 813 (Delhi). See detailed Notes under section 5 under the Essential Commodities Act.
11 Associated Cement Co Ltd v Keshvanand, (1998) 91 COMP CASES 361 (SC). See also Notes under sections 5, 621,
621A and 629A of the 1956 Act.
12 Geekay Exim (India) Ltd v State of Gujarat, (1998) 94 COMP CASES 516 (Guj.). See also Notes under sections 5, 10
SCR 885. See detailed Notes under Characteristics of a company, Corporate entity, Corporate veil, Lifting the
corporate veil and Perpetual succession hereinbefore.
Mr. Laghir1 Rabari

Page 60 of 62
14 Ray Cylinders and Containers v Hindustan General Industries Ltd, (2001) 103 COMP CASES 161 (Delhi). See detailed
15 Memtec Ltd v Lunarmech, (2001) 103 COMP CASES 1078 (Delhi). See also Notes under sections 10 and 394 of the
1956 Act.
16 Gopalpur Tea Co Ltd v Peshok Tea Co Ltd, (1982) 52 COMP CASES 239 (Cal.) (DB). See also Notes under section
17 B. Mookerjee v State Bank of India, (1993) 76 COMP CASES 292 (Cal.) (DB).
18 Hindustan Petroleum Corpn. Ltd v Sardar Chand, (1991) 71 COMP CASES 257 (P&H).
19 SwadharmaSwarajya Sangha v Indian Commerce and Industries Co Pvt Ltd, (1999) 98 COMP CASES 151 (Mad.)
(DB).
Services Ltd, (1992) 75 COMP CASES 583 (Bom.). See detailed Notes under sections 10, 291, 293, 397 and 398 of
the 1956 Act.
21 Prakash Timbers Pvt Ltd v Smt. Sushma Shingla, (1997) 89 COMP CASES 770 (All.) (DB); Minoo H. Mody v Hemant
D. Vakil, (1997) 89 COMP CASES 456 (Bom.) (DB); Tin Plates Dealers Association Pvt Ltd v Satish Chandra
Sanwalka, (2002) 108 COMP CASES 295 (Cal.). See also Notes under sections 10, 10E, 10F, 10FA and 10FB-10GF
of the 1956 Act.
22 Order 29, rule 1 and Order 6, Rule 14 of the Code of Civil Procedure, 1908 (5 of 1908). See also Notes under sections
23 BSN (UK) Ltd v Janardan Mohandas Rajan Pillai, (1996) 86 COMP CASES 371 (Bom.); Wallersteiner v Moir (No, 2),
(1975) QB 373 : (1975) 1 All ER 849 : (1975) 2 WLR 389 : (1975) 119 SJ 97 (CA); Nurcombe v Nurcombe, (1985) 1 All
ER 65 : (1985) 1 WLR 370 : (1984) BCLC 557 (CA); Giles v Rhind, (2002) 4 All ER 977. See detailed Notes under
24 Patel Roadways Ltd v Prasad Trading Co, (1992) 74 COMP CASES 11 (SC); R.S.D.V. Finance Co Pvt Ltd v Shree
Vallabh Glass Works Ltd, (1993) 78 COMP CASES 640 (SC). See detailed Notes under section 10 of the 1956 Act.
25 All India General Transport Corp Ltd v Raghunath Sahay, (1970) 40 COMP CASES 203 (Pat.). See also Notes under
26 Harendra Nath Ghosal v Superfoam Pvt Ltd, (1992) 74 COMP CASES 740 (Cal.) (DB).
27 Mamata Papers Pvt Ltd v State of Orissa, (2000) 99 COMP CASES 294 (Orissa). See detailed Notes under section
10—Jurisdiction of Courts.
Mr. Laghir1 Rabari

Page 61 of 62
28 Union Bank of India v Khader International Construction, (2001) 105 COMP CASES 856 (SC). See detailed Notes
under section 10—Jurisdiction of Courts.
the veil to prevent Fraud or Improper Conduct, Contempt of Court and Lifting the veil in Holding, Subsidiary and
Associated companies in earlier paragraphs.
30 Vivek Kumar v Pearl Cycle Industries Ltd, (1983) 54 COMP CASES 77 (Delhi). See also Notes under sections 290 and
31 Punjab National Bank v Bareja Knipping Fasteners Ltd, (2001) 103 COMP CASES 958 (P&H). See also Notes under
32 Electrical Cable Development Association v Arun Commercial Premises Co-op Housing Society Ltd, (1998) 94 COMP
CASES 53 (SC).
33 Godrej Soap Ltd v State, (1991) 70 COMP CASES 248 (Cal.) (DB). See also Notes under section 10.
34 Sukhdev Singh v Bhagatram Sardar Singh Raghuvanshi, (1975) 45 COMP CASES 285 (SC) : AIR 1975 SC 1331 :
(1975) 3 SCR 619. See also Notes under section 4A of the 1956 Act.
35 Andhra Pradesh State Road Transport Corpn v ITO, (1964) 34 COMP CASES 473 (SC) : AIR 1964 SC 1486 : (1964)
52 ITR 524 (SC). See also Government Company hereinbefore.
(1964) 6 SCR 885; State Trading Corp of India Ltd v CTO, (1963) 33 COMP CASES 1057 (SC) : AIR 1963 SC 1811 :
(1963) 2 Comp. LJ 234 (SC). See also Notes under Company a legal person and separate juristic entity, Corporate
entity, Corporate veil, Lifting the corporate veil and Government Company, etc., in earlier paragraphs.
37 Maddi Swarna v CTO, (2002) 109 COMP CASES 308 (AP) (DB); Peter J.R. Prabhu v Asst. CCT, (2002) 109 COMP
CASES 299 (Kar.);Nishad Patel v State of Kerala, (1999) 96 COMP CASES 861 (Ker.); Tikam Chand Jain v State
Govt. of Haryana, (1987) 62 COMP CASES 601 (P&H); Surinder Nath Khosla v Excise and Taxation Commissioner,
(1964) 15 STC 838 (P&H); George J. Mathew v Commercial Tax Officer, (2002) 112 COMP CASES 641 (Mad.).
38 G.C. Mehrotra v Deputy Collector (Collections), Sales Tax, (1998) 93 COMP CASES 617 (All.). See also Notes under
Liability of Company in earlier paragraphs.
39 Khaders International Construction Ltd v CIT, (1998) 91 COMP CASES 432 (Ker.); Bhagwandas J. Patel v Deputy CIT,
(1999) 97 COMP CASES 213 (Guj.) (DB). See also Notes under section 3 of the 1956 Act.
40 Satish Chand Singhal v CIT, (1992) 74 COMP CASES 796 (All.) : (1992) 196 ITR 227 (All.).
41 Tata Consultancy Services v UOI, (2002) 111 COMP CASES 292 (Kar.).
42 Alembic Glass Industries Ltd v CCE, (2002) 112 COMP CASES 379 (SC).
Mr. Laghir1 Rabari

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43 Collector of Central Excise v I.T.E.C. Pvt Ltd, (2002) 112 COMP CASES 470 (SC).
44 Sri Banashankary Leasing Co Ltd v State of Karnataka, (1991) 70 COMP CASES 200 (Kar.).
45 Trustor AB v Smallbone (No, 2), (2001) 3 All ER 987. See also Lifting the veil in Tax Matters, viz., Tax Evasion or
Avoidance in earlier paragraphs.
46 Hrushikesh Panda v Indramani Swain, (1988) 63 COMP CASES 368 (Orissa) (DB). See also Notes under sections
2(13) and 543 of the 1956 Act.
47 Kundan Singh v Moga Transport Co Pvt Ltd, (1987) 62 COMP CASES 600 (P&H).
48 BhabaniProsad Ghosh v Central Bank of India, (1993) 76 COMP CASES 349 (Cal.) (DB); H.S. Sidana v Rajesh
Enterprises, (1993) 77 COMP CASES 251 (P&H); Bank of Maharashtra v Racmann Auto Pvt Ltd, (1992) 74 COMP
CASES 752 (Delhi); Indian Overseas Bank v A.B. Senan, (1999) 96 COMP CASES 639 (Ker.); Indian Overseas Bank v
R.M. Marketing and Services Pvt Ltd, (2001) 107 COMP CASES 606 (Delhi).
49 Motipur Zamindari Co Ltd v State of Bihar, AIR 1953 SC 320.
(DB) : AIR 1994 Orissa 98 (DB). See also Notes under section 3 of the 1956 Act.
51 Keshav Kumar Swarup v Flowmore Pvt Ltd, (1996) 85 COMP CASES 210 (SC). See detailed Notes under section 630
of the 1956 Act.
52 Larsen and Toubro Ltd v State of Gujarat, (1998) 92 COMP CASES 373 (SC).
End of Document
Mr. Laghir1 Rabari

corresponds to section 25 of the 1956 Act. See Notification No. G.S.R.
466(E), dt. 05-06-2015, regarding exemptions to Companies formed with
charitable objects, etc. under section 462 of the 2013 Act. [S. 8. Formation
of companies with charitable objects, etc.—
THERETO

INCIDENTAL THERETO
53[S. 8. Formation of companies with charitable objects, etc.—
(1) Where it is proved to the satisfaction of the Central Government54 that a person or an
association of persons proposed to be registered55 under this Act as a limited company—
(a) has in its objects the promotion of commerce, art, science, sports, education, research,
social welfare, religion, charity, protection of environment or any such other object;
(b) intends to apply its profits, if any, or other income in promoting its objects; and
(c) intends to prohibit the payment of any dividend to its members, the Central Government
may, by licence56 issued in such manner as may be prescribed, and on such conditions
as it deems fit, allow that person or association of persons to be registered as a limited
company under this section without the addition to its name of the word “Limited”, or as
the case may be, the words “Private Limited”, and thereupon the Registrar shall, on
application, in the prescribed form,57 register such person or association of persons as a
company under this section.
(2) The company registered under this section shall enjoy all the privileges and be subject to all
the obligations of limited companies.
(3) A firm may be a member of the company registered under this section.
(4)
(i) A company registered under this section shall not alter the provisions of its
memorandum58 or articles except with the previous approval of the Central Government.59
(ii) A company registered under this section may convert itself into company of any other kind
only after complying with such conditions as may be prescribed.60
(5) Where it is proved to the satisfaction of the Central Government61 that a limited company
registered under this Act or under any previous company law has been formed with any of the
objects specified in clause (a) of sub-section (1) and with the restrictions and prohibitions as
mentioned respectively in clauses (b) and (c) of that sub-section, it may, by licence,62 allow
the company to be registered under this section subject to such conditions as the Central
Mr. Laghir1 Rabari

Page 2 of 35
53 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to section 25 of the 1956
Act. See Notification No. G.S.R. 466(E), dt. 05-06....
Government deems fit and to change its name by omitting the word “Limited”, or as the case
may be, the words “Private Limited” from its name and thereupon the Registrar shall, on
application, in the prescribed form,63 register such company under this section and all the
provisions of this section shall apply to that company.
(6) The Central Government64 may, by order, revoke the licence granted to a company registered
under this section if the company contravenes any of the requirements of this section or any
of the conditions subject to which a licence is issued or the affairs of the company are
conducted fraudulently or in a manner violative of the objects of the company or prejudicial to
public interest, and without prejudice to any other action against the company under this Act,
direct the company to convert its status and change its name to add the word “Limited” or the
words “Private Limited”, as the case may be, to its name and thereupon the Registrar shall,
without prejudice to any action that may be taken under sub-section (7), on application, in the
prescribed form,65 register the company accordingly:
Provided that no such order shall be made unless the company is given a reasonable
opportunity of being heard:
Provided further that a copy of every such order shall be given to the Registrar.
(7) Where a licence is revoked under sub-section (6), the Central Government may, by order, if it
is satisfied that it is essential in the public interest, direct that the company be wound up
under this Act or amalgamated with another company registered under this section:
Provided that no such order shall be made unless the company is given a reasonable
opportunity of being heard.
(8) Where a licence is revoked under sub-section (6) and where the Central Government is
satisfied that it is essential in the public interest that the company registered under this
section should be amalgamated with another company registered under this section and
having similar objects, then, notwithstanding anything to the contrary contained in this Act,
the Central Government may, by order, provide for such amalgamation to form a single
company with such constitution, properties, powers, rights, interest, authorities and privileges
and with such liabilities, duties and obligations as may be specified in the order.]
(9) If on the winding up or dissolution of a company registered under this section, there remains,
after the satisfaction of its debts and liabilities, any asset, they may be transferred to another
company registered under this section and having similar objects, subject to such conditions
as the Tribunal may impose, or may be sold and proceeds thereof credited to the
66[Insolvency and Bankruptcy Fund formed under section 224 of the Insolvency and
Bankruptcy Code, 2016].
67[(10)
A company registered under this section shall amalgamate only with another
company registered under this section and having similar objects.
(11)If a company makes any default in complying with any of the requirements laid down in this
section, the company shall, without prejudice to any other action under the provisions of this
section, be punishable with fine which shall not be less than ten lakh rupees but which may
extend to one crore rupees and the directors and every officer of the company who is in
default shall be punishable with imprisonment for a term which may extend to three years or
with fine which shall not be less than twenty-five thousand rupees but which may extend to
twenty-five lakh rupees, or with both:
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Provided that when it is proved that the affairs of the company were conducted
fraudulently, every officer in default shall be liable for action under section 447.]
NOTES
Section 8 of the 2013 Act, except for sub-section (9) was enforced vide Notification SO 902(E) dated
26-03-2013, with effect from 01-04-2014. Section 8 of the 2013 Act corresponds to section 25 of the
1956 Act.
as follows:
This clause corresponds to section 25 of the Companies Act, 1956 and empowers the Central Government to register
an association as limited company having charitable objects to promote commerce, art, science, sports, education,
research, social welfare, religion, charity, protection of environment, etc., without adding to its name the words
‘Limited’, ‘Private Limited’. The profit or any income of the company shall be used for promoting the objects of the
company. Payment of dividend to members is prohibited. The Central Government shall issue license on such terms
and conditions as shall be prescribed by it for registration of such companies and these companies shall be subject to
certain exemptions and restrictions. In the event of any violation of conditions on which a licence is issued, the Central
Government may revoke the licence and order the company, after giving a reasonable opportunity of being heard, to
be wound up or amalgamated with another company having similar objects. A firm may be allowed to become a
member of such company. Where it is proved that the affairs of the company were conducted fraudulently, penal action
for fraud shall be applicable to every officer of the company.
The Insolvency and Bankruptcy Code, 2016, with effect from date to be notified, amends sub-section (9) of section 8 of
the 2013 Act by substituting the words “Insolvency and Bankruptcy Fund formed under section 224 of the Insolvency
and Bankruptcy Code, 2016” for “Rehabilitation and Insolvency Fund formed under section 269.”
[s 8.2] Formation of Companies with charitable objects, etc. [Sub-section (1) of Section 8 of
the Companies Act, 2013]
The Central Government may grant a license to a person or an association of persons to register
under the 2013 Act as a limited company without the addition to its name of the words “Ltd” or “Pvt
Ltd” if it is satisfied that the person or association of persons proposed to be registered:
(a) has in its objects the promotion of commerce, art, science, sports, education, research, social
welfare, religion, charity, protection of environment or any such other object;
(b) intends to apply its profits, if any, or other income in promoting its objects; and
(c) intends to prohibit the payment of any dividend to its members.
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Thereupon, on application in the prescribed form being made to the Registrar, the Registrar shall
register such person or association of persons as a company under section 8 of the 2013 Act.
Sub-section (1) of section 25 of the 1956 Act broadly corresponds to section 8(1) of the 2013 Act
barring the following variations:
1. Under sub-clause (a) of section 8(1) of the 2013 Act, promotion of sports, education,
research, social welfare, protection of environment has been incorporated additionally.
Further, while section 25(1)(a) of the, 1956 Act used the term “any other useful object”,
section 8(1)(a) of the 2013 Act refers to “any such other object.”
2. Section 8 of the 2013 Act pertains to association as well as persons, while section 25 of the
1956 Act merely pertained to associations.
[s 8.3] Existing Companies
Under sub-section (5) of section 8 of the 2013 Act, where the Central Government is satisfied that a
limited company registered under the 2013 Act or under any previous company law has been formed
with any of the objects specified under section 8(1)(a) of the 2013 Act and with the restrictions and
prohibitions under section 8(1)(b) and (c) of the 2013 Act, it may, by license, allow the company to be
registered under section 8 of the 2013 Act and to change its name by omitting the word “Ltd” or “Pvt
Ltd” Thereupon, on application in the prescribed form being made to the Registrar, the Registrar shall
register such person or association of persons as a company under section 8 of the 2013 Act.
[s 8.4] Delegation
The Ministry of Corporate Affairs, has notified that the Central Registration Centre shall exercise
functional jurisdiction of processing and disposal of e-forms and all related matters pertaining to
registration of companies under, inter alia, section 8 of the 2013 Act.68The Central Government had
delegated to the Regional Directors, the powers and functions vested in it under section 8(4)(i) of the
2013 Act for alteration of memorandum in case of conversion into another kind of company and
under section 8(6) of the 2013 Act.69 Further, the Central Government delegated the powers and
functions vested in it, inter alia, under section 8(1), section 8(4)(i) except for alteration of
memorandum in case of conversion into another kind of company and section 8(5) to the Registrar of
Companies.70
[s 8.5] Application for grant of license under Section 8 of the Companies Act, 2013
Any person/association desirous of being incorporated as a company under section 8 of the 2013 Act
shall make an application vide e-Form INC-12 (Form 24A was the corresponding form under the
1956 Act) to the Registrar. The application can also be filed by an existing company for the purpose
of converting itself into such a company. Consequent upon approval of application, a license under
section 8 of the 2013 Act will be issued by the Registrar.71The manner of making the application for a
license under section 8 of the 2013 Act has been detailed under rules 19 and 20 of the Companies
(Incorporation) Rules, 2014*:
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“19. License under section 8 for new companies with charitable objects etc.—(1) A person or an association of persons
(hereinafter referred to in this rule as “the proposed company”), desirous of incorporating a company with limited
liability under sub-section (1) of section 8 without the addition to its name of the word “Ltd”, or as the case may be, the
words “Pvt Ltd”, shall make an application in Form No. INC. 12 along with the fee as provided in the Companies
(Registration Offices and Fees) Rules, 2014 to the Registrar for a license under sub-section (1) of section 8.
(2) The memorandum of association of the proposed company shall be in Form No. INC. 13.
(3) The application under sub-rule (1) shall be accompanied by the following documents, namely:—
(a) the draft memorandum and articles of association of the proposed company;
(b) the declaration in Form No. INC. 14 by an Advocate, a Chartered Accountant, Cost Accountant or Company
Secretary in practice, that the draft memorandum and articles of association have been drawn up in
conformity with the provisions of section 8 and rules made thereunder and that all the requirements of the Act
and the rules made thereunder relating to registration of the company under section 8 and matters incidental
or supplemental thereto have been complied with;
(c) an estimate of the future annual income and expenditure of the company for next three years, specifying the
sources of the income and the objects of the expenditure;
(d) the declaration by each of the persons making the application in Form No. INC.15.
20. License for existing companies.—(1) A limited company registered under this Act or under any previous company
law, with any of the objects specified in clause (a) of sub-section (1) of section 8 and the restrictions and prohibitions
as mentioned respectively in clause (b) and (c) of that sub-section, and which is desirous of being registered under
section 8, without the addition to its name of the word “Ltd” or as the case may be, the words “Pvt Ltd”, shall make an
application in Form No. INC. 12 along with the fee as provided in the Companies (Registration offices and fees) Rules,
2014* to the Registrar for a licence under sub-section (5) of section 8.
(2) The application under sub-rule (1), shall be accompanied by the following documents, namely:—
(a) the memorandum and articles of association of the company;
(b) the declaration as given in Form No. INC. 14 by an Advocate, a Chartered accountant, Cost Accountant or
Company Secretary in Practice, that the memorandum and articles of association have been drawn up in
conformity with the provisions of section 8 and rules made thereunder and that all the requirements of the Act
and the rules made thereunder relating to registration of the company under section 8 and matters incidental
or supplemental thereto have been complied with;
(c) For each of the two financial years immediately preceding the date of the application, or when the company
has functioned only for one financial year, for such year (i) the financial statements,(ii) the Board’s reports,
and (iii) the audit reports, relating to existing companies
(d) a statement showing in detail the assets (with the values thereof), and the liabilities of the company, as on the
date of the application or within 30 days preceding that date;
(e) an estimate of the future annual income and expenditure of the company for next three years, specifying the
sources of the income and the objects of the expenditure;
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(f) the certified copy of the resolutions passed in general/ board meetings approving registration of the company
under section 8; and
(g) a declaration by each of the persons making the application in Form No. INC. 15.
(2) The company shall, within a week from the date of making the application to the Registrar, publish a notice at his
own expense, and a copy of the notice, as published, shall be sent forthwith to the Registrar and the said notice shall
be in Form No. INC. 26 and shall be published—
(a) at least once in a vernacular newspaper in the principal vernacular language of the district in which the
registered office of the proposed company is to be situated or is situated, and circulating in that district, and at
least once in English language in an English newspaper circulating in that district; and
(b) on the websites as may be notified by the Central Government.
(4) The Registrar may require the applicant to furnish the approval or concurrence of any appropriate authority,
regulatory body, department or Ministry of the Central Government or the State Government(s).
(5) The Registrar shall, after considering the objections, if any, received by it within 30 days from the date of publication
of notice, and after consulting any authority, regulatory body, Department or Ministry of the Central Government or the
State Government(s), as it may, in its discretion, decide whether the license should or should not be granted.
(6) The licence shall be in Form No. INC. 16. or Form No. INC. 17, as the case may be, and the Registrar shall have
power to include in the licence such other conditions as may be deemed necessary by him.
(7) The Registrar may direct the company to insert in its memorandum, or in its articles, or partly in one and partly in
the other, such conditions of the license as may be specified by the Registrar in this behalf.”
The Form in which the license is granted by the Registrar, upon satisfaction of the conditions laid
down under section 8(1), 2013 Act, is provided under Form No. INC 16 (for new companies) and
Form No. INC 17 (for companies already registered). Post issue of license, the application for
incorporation of company shall be made vide the prescribed forms.
[s 8.6] Section 8(2) and (3) of the Companies Act, 2013
As per sub-section (2), section 8 of the 2013 Act, a company registered under section 8 shall enjoy
all the privileges and be subject to all the obligations of limited companies [section 25(2) of the 1956
Act is the corresponding provision]. Further, sub-section (3), section 8 of the 2013 Act provides that a
firm may be a member of the company registered under section 8 of the 2013 Act [section 25(4) of
the 1956 Act is the corresponding provision].
[s 8.7] Alteration of memorandum or articles
As per section 8(4)(i) of the 2013 Act, a company registered under Section 8 shall not alter the
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provisions of its memorandum or articles except with the previous approval of the Central
Government [under section 25(8) of the 1956 Act restrictions were imposed on the alteration of the
memorandum with respect to its objects].
[s 8.8] Revocation of license
Section 8(6) of the 2013 Act [sub-clauses (7) to (9) to section 25 of the 1956 Act pertain to revocation
of license] provides that if the company (i) contravenes any of the requirements of section 8 or (ii) any
of the conditions subject to which a license is issued or (iii) conducted affairs fraudulently or in a
manner violative of the objects of the company or prejudicial to public interest, then the Central
Government may revoke the license granted to a company under section 8 of the 2013 Act and direct
the company to change its status and change its name to add the word “Ltd” or the words “Pvt Ltd”
No orders by the Central Government, under section 8(6) of the 2013 Act shall be made unless the
company is given a reasonable opportunity of being heard. Further, intimation to Registrar of
revocation of license is to be provided; the company shall apply to the Registrar in the prescribed
form along with the fee to convert its status and change of name accordingly. (Rule 23 of the
Companies (Incorporation) Rules, 2014*)
[s 8.9] Revocation of license – Consequences thereof
Section 8(7) of the 2013 Act provides that the Central Government, if satisfied that it is essential in
public interest, may order a company whose license is revoked under section 8(6) of the 2013 Act to
be wound up or amalgamated with another company registered under the 2013 Act. No orders by the
Central Government, under section 8(7) of the 2013 Act shall be made unless the company is given a
reasonable opportunity of being heard. Further, sub-section (9) section 8 of the 2013 Act provides
that if on the winding up or dissolution of a company registered under section 8 of the 2013 Act there
remains, after the satisfaction of its debts and liabilities, any asset, they may be transferred to
another company registered under section 8 and having similar objects, or may be sold and proceeds
thereof credited to the Insolvency and Bankruptcy Fund formed under section 224 of the Insolvency
and Bankruptcy Code, 2016. The words “Insolvency and Bankruptcy Fund formed under section 224
of the Insolvency and Bankruptcy Code, 2016” were substituted for “Rehabilitation and Insolvency
Fund formed under section 269” vide the Insolvency and Bankruptcy Code, 2016 (31 of 2016).
As per sub-clause (8) of section 8 of the 2013 Act, where a license is revoked under sub-section (6)
and where the Central Government is satisfied that it is essential in the public interest that the
company registered under section 8 of the 2013 Act should be amalgamated with another company
registered under section 8 of the 2013 Act and having similar objects, then, the Central Government
may, by order, provide for such amalgamation to form a single company with such constitution,
properties, powers, rights, interest, authorities and privileges and with such liabilities, duties and
obligations as may be specified in the order. section 8(10) of the 2013 Act further iterates that a
company registered under section 8 of the 2013 Act shall amalgamate only with another company
registered under section 8 of the 2013 Act and having similar objects.
It may be noted that a section 8 company which is an Electoral Trust as per the Electoral Trusts
Scheme, 2013 read with section 2(22AAA) of the Income-tax Act, 1961 may amalgamate with
another section 8 company having the object of an Electoral Trust or may wind up or dissolve only
after disbursing all its funds as per the scheme.72
[s 8.10] Conversion of a Section 8 company into company of any other kind
A company registered under section 8 of the 2013 Act may convert itself into a company of any other
kind after complying with such conditions as may be prescribed (section 8(4)(ii) of the 2013 Act).
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Rules 21 and 22 of the Companies (Incorporation) Rules, 2014* may be referred to in this regard:
“21. Conditions for conversion of a company registered under Section 8 into a company of any other kind.—(1) A
company registered under section section 8 which intends to convert itself into a company of any other kind shall pass
a special resolution at a general meeting for approving such conversion.
(2) The explanatory statement annexed to the notice convening the general meeting shall set out in detail the reasons
for opting for such conversion including the following, namely:—
(a) the date of incorporation of the company;

(b) the principal objects of the company as set out in the memorandum of association;
(c) the reasons as to why the activities for achieving the objects of the company cannot be carried on in the
current structure i.e. as a section 8 company;
(d) if the principal or main objects of the company are proposed to be altered, what would be the altered objects
and the reasons for the alteration;
(e) what are the privileges or concessions currently enjoyed by the company, such as tax exemptions, approvals
for receiving donations or contributions including foreign contributions, land and other immovable properties,
if any, that were acquired by the company at concessional rates or prices or gratuitously and, if so, the
market prices prevalent at the time of acquisition and the price that was paid by the company, details of any
donations or bequests received by the company with conditions attached to their utilization etc.;
(f) details of impact of the proposed conversion on the members of the company including details of any benefits
that may accrue to the members as a result of the conversion.
(3) A certified true copy of the special resolution along with a copy of the Notice convening the meeting including the
explanatory statement shall be filed with the Registrar in Form No. MGT. 1473 along with the fee.
(4) The company shall file an application in Form No. INC. 18 with the Regional Director with the fee along with a
certified true copy of the special resolution and a copy of the Notice convening the meeting including the explanatory
statement for approval for converting itself into a company of any other kind and the company shall also attach the
proof of serving of the notice served to all the authorities mentioned in sub-rule (2) of rule 22.
(5) A copy of the application with annexures as filed with the Regional Director shall also be filed with the Registrar.
22. Other conditions to be complied with by companies registered under section 8 seeking conversion into any other
kind.—(1) The company shall, within a week from the date of submitting the application to the Regional Director,
publish a notice at its own expense, and a copy of the notice, as published, shall be sent forthwith to the Regional
Director and the said notice shall be in Form No. INC. 19 and shall be published—
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(a) at least once in a vernacular newspaper in the principal vernacular language of the district in which the
registered office of the company is situated, and having a wide circulation in that district, and at least once in
English language in an English newspaper having a wide circulation in that district; and
(b) on the website of the company, if any, and as may be notified or directed by the Central Government.
(2) The company shall send a copy of the notice, simultaneously with its publication, together with a copy of the
application and all attachments by registered post or hand delivery, to the Chief Commissioner of Income Tax having
jurisdiction over the company, Income Tax Officer who has jurisdiction over the company, the Charity Commissioner,
the Chief Secretary of the State in which the registered office of the company is situated, any organisation or
Department of the Central Government or State Government or other authority under whose jurisdiction the company
has been operating and if any of these authorities wish to make any representation to Regional Director, it shall do so
within 60 days of the receipt of the notice, after giving an opportunity to the Company.
(3) The copy of proof of serving such notice shall be attached to the application.
(4) The Board of directors shall give a declaration to the effect that no portion of the income or property of the company
has been or shall be paid or transferred directly or indirectly by way of dividend or bonus or otherwise to persons who
are or have been members of the company or to any one or more of them or to any persons claiming through any one
or more of them.
(5) Where the company has obtained any special status, privilege, exemption, benefit or grant(s) from any authority
such as Income Tax Department, Charity Commissioner or any organisation or Department of Central Government,
State Government, Municipal Body or any recognized authority, a “No Objection Certificate” must be obtained, if
required under the terms of the said special status, privilege, exemption, benefit or grant(s) from the concerned
authority and filed with the Regional Director, along with the application.
(6) The company should have filed all its financial statements and Annual Returns upto the financial year preceding the
submission of the application to the Regional Director and all other returns required to be filed under the Act up to the
date of submitting the application to the Regional Director and in the event the application is made after the expiry of
three months from the date of preceding financial year to which the financial statement has been filed, a statement of
the financial position duly certified by chartered accountant made up to a date not preceding 30 days of filing the
application shall be attached.
(7) The company shall attach with the application a certificate from practicing Chartered Accountant or Company
Secretary in practice or Cost Accountant in practice certifying that the conditions laid down in the Act and these rules
relating to conversion of a company registered under section 8 into any other kind of company, have been complied
with.
(8) The Regional Director may require the applicant to furnish the approval or concurrence of any particular authority
for grant of his approval for the conversion and he may also obtain the report from the Registrar.
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(9) On receipt of the application, and on being satisfied, the Regional Director shall issue an order approving the
conversion of the company into a company of any other kind subject to such terms and conditions as may be imposed
in the facts and circumstances of each case including the following conditions, namely;—
(a) the company shall give up and shall not claim, with effect from the date its conversion takes effect, any special
status, exemptions or privileges that it enjoyed by virtue of having been registered under the provisions of
section 8;
(b) if the company had acquired any immovable property free of cost or at a concessional cost from any
government or authority, it may be required to pay the difference between the cost at which it acquired such
property and the market price of such property at the time of conversion either to the government or to the
authority that provided the immovable property;
(c) any accumulated profit or unutilised income of the company brought forward from previous years shall be first
utilized to settle all outstanding statutory dues, amounts due to lenders claims of creditors, suppliers, service
providers and others including employees and lastly any loans advanced by the promoters or members or
any other amounts due to them and the balance, if any, shall be transferred to the Investor Education and
Protection Fund within 30 days of receiving the approval for conversion;
(10) Before imposing the conditions or rejecting the application, the company shall be given a reasonable opportunity
of being heard by the Regional Director.
(11) On receipt of the approval of the Regional Director,
(i) the company shall convene a general meeting of its members to pass a special resolution for amending its
memorandum of association and articles of association as required under the Act consequent to the
conversion of the section 8 company into a company of any other kind;
(ii) the Company shall thereafter file with the Registrar—
(a) a certified copy of the approval of the Regional Director within 30 days from the date of receipt of the
order in Form No. INC. 20 along with the fee;
(b) amended memorandum of association and articles of association of the company;
(c) a declaration by the directors that the conditions, if any imposed by the Regional Director have been fully
complied with.
(12) On receipt of the documents referred to in sub-rule (10) above, the Registrar shall register the documents and
issue the fresh Certificate of Incorporation.”
[s 8.11] One Person Company
A One Person Company cannot be incorporated or converted into a company under section 8 of the
2013 Act. [Rule 3(5), Companies (Incorporation) Rules, 2014]*
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[s 8.12] Default [Sub-section (11) of Section 8 of the Companies Act, 2013]
In case any default is made by a company in complying with the requirements of section 8, 2013 Act,
the company shall be punishable with fine of ten lakh rupees extending to one crore rupees and the
directors and every officer of the company who is in default shall be punishable with imprisonment for
a term which may extend to three years or with fine of Rs 25,000 extending to Rs 25 lakh, or with
both. Further, when it is proved that the affairs of the company were conducted fraudulently, every
officer in default shall be liable for action under section 447 of the 2013 Act.
In fact, the Standing Committee on Finance (2009–10) in its 21st report on the Companies Bill, 2009,
made certain observations regarding the penalty on default.74 The ICSI had suggested that in case of
companies, the penalty may be restated in the range of Rs 5 lakh to 25 lakh rupees. Also, for
directors penalty may be restated as Rs 25,000 to Rs 5 lakh.
The Ministry of Corporate Affairs on this suggestion stated.—“Keeping in view the importance of compliance with these
provisions, it appears that the amount of punishment and penalty provided is reasonable. In view of above, there may
not be any necessity of any modification in the Bill on this matter.”
The Committee agreed with the views of the Ministry that in view of the need for ensuring compliance
by the companies formed with charitable objects etc., the quantum of punishment and penalty
proposed may not be reduced.
[s 8.13] Exemptions
In the interest of the public, the Central Government has directed that certain provisions of
Companies Act, 2013 shall not apply or shall apply with such exceptions, modifications and
adaptations, as specified in the table below, to a body to which a license is granted under section 8 of
the2013 Act75:
G.S.R. 466(E), dated 5 June 2015.—In exercise of the powers conferred by clauses (a) and (b) of sub-section (1) of
Section 462 and in pursuance of sub-section (2) of said Section read with Section 8 of the Companies Act, 2013 (18 of
2013), and in supersession of notifications issued under section 25 of the Companies Act, 1956 (1 of 1956) except as
respects things done or omitted to be done before such supersession, the Central Government in the interest of public,
hereby directs that certain provisions of the Companies Act, 2013, as specified in column (2) of the Table, shall not
apply or shall apply with such exceptions, modifications and adaptations, as specified in column (3) of the said Table,
to a body to which a licence is granted under the provisions of the aforesaid Section 8, namely:—
Serial Number Provisions of the Act Exceptions, Modifications and

Adaptations
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Adaptations
(1) (2) (3)
1. Clause (24) of section 2. The provisions of clause (24) of section

2 shall not apply.
2. Clause (68) of section 2. The requirement of having minimum

paid-up share capital shall not apply.
3. Clause (71) of section 2. The requirement of having minimum

paid-up share capital shall not apply.
4. Sub-section (2) of section 96. In sub-section (2), after the proviso and
before the explanation, the following
proviso shall be inserted, namely:—
Provided further that the time, date and
place of each annual general meeting
are decided upon before-hand by the
board of directors having regard to the
directions, if any, given in this regard by
the company in its general meeting.
5. Sub-section (1) of section 101. In sub-section (1), for the words “twenty
one days”, the words “fourteen days”
shall be substituted.
6. Section 118. The section shall not apply as a whole

except that minutes may be recorded
within 30 days of the conclusion of every
meeting in case of companies where the
articles of association provide for
confirmation of minutes by circulation.
7. Sub-section (1) of section 136. In sub-section (1), for the words “twenty
one days”, the words “fourteen days”
shall be substituted.
8. Sub-section (1) of section 149 and the Shall not apply.

first proviso to sub-section (1).
9. Sub-sections (4), (5), (6), (7), (8), (9), Shall not apply.
(10), (11), clause (i) of sub-section (12)
and sub-section (13) of section 149.
10. Section 150. Shall not apply.
11. Proviso to sub-section (5) of section 152. Shall not apply.
12. Section 160. Shall not apply to companies whose

articles provide for election of directors
by ballot.
13. Sub-section (1) of section 165. Shall not apply.
14. Sub-section (1) of section 173. Shall apply only to the extent that the
Board of Directors, of such Companies
shall hold at least one meeting within
every six calendar months.
15. Sub-section (1) of section 174. In sub-section (1),—(a) for the words
“one-third of its total strength or two
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Adaptations
directors, whichever is higher”, the
words “either eight members or 25%. of
its total strength whichever is less” shall
be substituted;(b) the following proviso
shall be inserted, namely:— “Provided
that the quorum shall not be less than
two members”.
16. Sub-section (2) of section 177. The words “with independent directors
forming a majority” shall be omitted.
17. Section 178. Shall not apply.
18. Section 179. Matters referred to in clauses (d), (e)

and (f) of sub-section (3) may be
decided by the Board by circulation
instead of at a meeting.
19. Sub-section (2) of section 184. Shall apply only if the transaction with
reference to section 188 on the basis of
terms and conditions of the contract or
arrangement exceeds Rs 1 lakh.
20. Section 189. Shall apply only if the transaction with

reference to section 188 on the basis of
terms and conditions of the contract or
arrangement exceeds Rs 1 lakh.
2. The companies covered under Section 8 of the Companies Act, 2013, while complying with such exceptions,
modifications and adaptations, as specified in column (3) of the aforesaid Table, shall ensure that the interests of their
shareholders are protected.
3. A copy of this notification has been laid in draft before both Houses of Parliament as required by sub-section (2) of
Section 462 of the Companies Act, 2013.
[s 8.14] Refund of deposit under Section 160 of the Companies Act, 2013 in certain cases
Companies registered under section 8 of the 2013 Act sought clarity about the manner in which the
amount of deposit of Rs 1 lakh received by them under section 160(1) of the Companies Act, 2013 is
to be handled if the depositor fails to secure more than 25% of the total valid votes. The Ministry
clarified that the Board of directors of a section 8 company is to decide as to whether the deposit
made by or on behalf of the person failing to secure more than 25% of the valid votes is to be
forfeited or refunded.76
[s 8.15] Power of Registrar to remove name of company from register of companies [Section
Sub-section (2) of section 248 of the 2013 Act provides that a company may, after extinguishing all its
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liabilities, by a special resolution or consent of 75%. members in terms of paid-up share capital, file
an application to the Registrar for removing the name of the company from the register of companies
on all or any of the grounds specified in section 248(1) of the 2013 Act and the Registrar shall, on
receipt of such application, cause a public notice to be issued. Relevant for the purpose of the
present discussion is sub-section (3) of section 248 of the 2013 Act which explicitly states that
nothing in section 248(2) of the 2013 Act shall apply to a section 8 company.
[s 8.16] Section 8 of the Companies Act, 2013 and Corporate Social Responsibility
Reference may be had to the Companies Law Committee Report, February, 2016 where the
Committee considered whether companies under section 8 of the 2013 Act should be exempted from
CSR compliance. Deciding in the negative, the Committee noted:
9.25 The High level CSR Committee had recommended for section 8 companies to be exempted from the provisions
on CSR. It had been noted by the said Committee that “Section 8 companies are ‘not for profit’ companies registered
under section 8 of the Companies Act, 2013 (section 25 of Companies Act, 1956) with the basic object of working in
social and developmental sector. Their involvement in charitable and philanthropic activities is already 100 percent.
These companies prepare income and expenditure statements which reflect the surplus/deficit of an organization and
not the profit of the company. The surplus accrued to such company is not distributed amongst members, but is
ploughed back to the expenditure of the company, that in turn is spent on social welfare activities already included in
Schedule VII. Therefore, it may be not necessary for these companies to undertake CSR activities outside the ambit of
their normal course of business.” The Committee, however, felt that it would not be appropriate to give differential
treatment to section 8 companies in the matter of providing exemptions from compliance of CSR provisions, as there
are certain areas where examples could be found of section 8 and other companies co-existing, for example,
companies in microfinance business. Further, there should not be a difficulty in section 8 companies using the
prescribed percentage of its surplus for CSR activities. Thus, it was decided not to recommend for exemption of
Section 8 companies from the CSR provisions of the Act.77
S. 25. Power to dispense with “Limited” in name of charitable or other company.—(1) Where it is proved to the
satisfaction of the Central Government that an association— The Companies Act, 1956 provision
(a) is about to be formed as a limited company for promoting commerce, art, science, religion, charity or any other
useful object, and
(b) intends to apply its profits, if any, or other income in promoting its objects, and to prohibit the payment of any
dividend to its members, the Central Government may, by licence, direct that the association may be
registered as a company with limited liability, without the addition to its name of the word “Limited” or the
words “Private Limited”.
(2) The association may thereupon be registered accordingly; and on registration shall enjoy all the privileges, and
(subject to the provisions of this section) be subject to all the obligations, of limited companies.
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(3) Where it is proved to the satisfaction of the Central Government—
(a) that the objects of a company registered under this Act as a limited company are restricted to those specified
in clause (a) of sub-section (1), and
(b) that by its constitution the company is required to apply its profits, if any, or other income in promoting its
objects and is prohibited from paying any dividend to its members,
the Central Government may, by licence, authorise the company by a special resolution to change its name, including
or consisting of the omission of the word “Limited” or the words “Private Limited”; and section 23 shall apply to a
change of name under this sub-section as it applies to a change of name under section 21.
(4) A firm may be a member of any association or company licensed under this section, but on the dissolution of the
firm, its membership of the association or company shall cease.
(5) A licence may be granted by the Central Government under this section on such conditions and subject to such
regulations as it thinks fit, and those conditions and regulations shall be binding on the body to which the licence is
granted, and where the grant is under sub-section (1), shall, if the Central Government so directs, be inserted in the
memorandum, or in the articles, or partly in the one and partly in the other.
78[(6)It shall not be necessary for a body to which a licence is so granted to use the word “Limited” or the words
“Private Limited” as any part of its name and, unless its articles otherwise provide, such body shall, if the Central
Government by general or special order so directs and to the extent specified in the direction, be exempt from such of
the provisions of this Act as may be specified therein.]
(7) The licence may at any time be revoked by the Central Government, and upon revocation, the Registrar shall enter
the word “Limited” or the words “Private Limited” at the end of the name upon the register of the body to which it was
granted; and the body shall cease to enjoy the exemption granted by this section:
Provided that, before a licence is so revoked, the Central Government shall give notice in writing of its intention to the
body, and shall afford it an opportunity of being heard in opposition to the revocation.
79[(8)(a)A body in respect of which a licence under this section is in force shall not alter the provisions of its
memorandum with respect to its objects except with the previous approval of the Central Government signified in
writing.
(b) The Central Government may revoke the licence of such a body if it contravenes the provisions of clause (a).
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(c) In according the approval referred to in clause (a), the Central Government may vary the licence by making it
subject to such conditions and regulations as that Government thinks fit, in lieu of, or in addition to, the conditions and
regulations, if any, to which the licence was formerly subject.
(d) Where the alteration proposed in the provisions of the memorandum of a body under this sub-section is with
respect to the objects of the body so far as may be required to enable it to do any of the things specified in clauses (a)
to (g) of sub-section (1) of section 17, the provisions of this sub-section shall be in addition to, and not in derogation of,
the provisions of that section.]
(9) Upon the revocation of a licence granted under this section to a body the name of which contains the words
“Chamber of Commerce”, that body shall, within a period of three months from the date of revocation or such longer
period as the Central Government may think fit to allow, change its name to a name which does not contain those
words; and—
(a) the notice to be given under the proviso to sub-section (7) to that body shall include a statement of the effect
of the foregoing provisions of this sub-section; and
(b) section 23 shall apply to a change of name under this sub-section as it applies to a change of name under
section 21.
(10) If the body makes default in complying with the requirements of sub-section (9), it shall be punishable with fine
which may extend to 80[five thousand rupees] for every day during which the default continues.
NOTES
“Compare section 26 of the existing Act and section 19 of the English Act. Sub-clause (4) is based on the Company
Law Committee’s recommendation in paragraph 38 of the Report. Sub-clause (6)(d) is intended to give effect to the
recommendation contained in paragraph 37 of the Company Law Committee’s Report. The provision has been drafted
in elastic terms. In most other respects the clause is based on section . 19 of the English Act with a few verbal changes
here and there.” [Clause 21 of the Companies Bill, 1953 (46 of 1953)].
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“Section 26 of the Indian Companies Act, 1913, provides for the incorporation under this Act of associations formed not
for profit, but for the promotion of commerce, art, science, religion, charity or any other useful object. The powers of the
Central Government in this regard are in practice exercised by the State Governments by delegation of authority to the
latter, but it will be noticed that under section 289A of the Act, the powers of the Central Government in respect of non-
trading companies, with objects confined to a single State are the powers of the State Government concerned. It
follows that as regards associations not for profit, whose objects are confined to a single State, the powers conferred
on the Central Government under this section can be exercised only by the appropriate State Government. It was
suggested to us that a sub-section might be added to this section authorising a State Govt. to exempt a company to
which a licence had been issued under this section from filing returns relating to directors, although the names and
occupations of directors might be required to be supplied. We commend this suggestion to Government.
There is another important proposal that we make under this section. Recent judicial decisions have thrown doubt on
the point whether a firm as distinct from a company, can be a member of an association not for profit. [Judgment of the
Oudh Chief Court dated the 4th September, 1944 in Ganesh Das Ram Gopal v. R.G. Cotton Mills Co. Ltd. and
another]. We are not unaware of the complications that might result from admission of firms into the membership of
associations incorporated under section 26, but we consider that the balance of advantage is distinctly in favour of
such admission. For, the usefulness of many associations not for profit is likely to be seriously undermined if important
business houses are debarred from participating in the activities of such associations in their own right merely because
they are firms and not companies. We, therefore, recommend that this section should be suitably amended to enable
firms to be members of associations not for profit. We consider it necessary, however, that those associations should
be required to provide in their articles that, on the dissolution of the partnerships, the memberships of these firms in
these associations would also automatically lapse.
Subject to the above proposals, we recommend that the entire section should be replaced by the provisions of section
19 of the English Companies Act, 1948, with the modification that the powers conferred on the Board of Trade under
this section should be exercised by the proposed Central Authority. [Report : paras 37 and 38].
The Joint Committee proposed further changes as follows:
It was pointed out that if the companies referred to in this clause were exempted from the requirement of submitting
lists of their members to the Registrar, no one could find out who were, in fact, members of that company and that this
might lead to undesirable and harmful results. The power to grant this exemption has therefore been vested in the
Government so that they might use their discretion in restricting the exemption to deserving cases. Sub-clause (11) of
original clause was considered by the Committee to be unnecessary in view of the Constitution, and the Committee
have accordingly deleted it. [Report : para 17].
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section 25 of the 1956 Act as follows:
There are several sections in the Act, provisions of which either cannot be fully complied with by non-profit making
companies, e.g., Chambers of Commerce, trade associations, clubs, etc., because of their peculiar constitution and
manner of working, or seldom serve any useful purpose in the case of such bodies. Government, therefore, propose to
take power to modify the requirements of such sections in their application to such companies. Most of these sections
deal with procedural matters, e.g., holding of meetings, election of directors, proxies, voting by show of hands, etc.
[Clause 9 of the Companies (Amendment) Bill, 1959 (37 of 1959)].
The Joint Committee further recommended as follows:
The Committee feel that the Central Government should have a general power to grant exemption to companies
licensed under section 25 of the Act from any provisions of the Act according to the circumstances and exigencies of
each case and that the power need not be confined only to the sections mentioned in the clause. The clause has been
amended accordingly. [Report : para 19].
“This clause seeks to enhance the fine specified in sub-section (10) of section 25 of the Act from five hundred rupees
to five thousand rupees.” [Clause 9 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
Licence to Charitable Companies or Associations [Sub-section (1) of section 25 of the 1956 Act].—An
association may be registered under the 1956 Act without the words “Ltd” or “Pvt Ltd” at the end of its
name.
This is a special privilege for Charitable, etc., Companies or Associations for which an Application
has to be made to the Central Government.
The Central Government will grant a licence to an association if it is satisfied that (a) the object of the
association is to promote commerce, art, science, religion, charity or any other useful object, (b) its
profits or incomes will be applied in promoting its objects and it will not pay any dividend to its
members.
[s 8.18] Delegation of Powers to the Regional Directors
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The powers and functions of the Central Government under section 25 of the 1956 Act have been
delegated to the Regional Directors at Bombay, Calcutta, Madras and Kanpur. [Notification No.
G.S.R. 288(E), dated 31-05-1991].
In exercise of the powers conferred by sections 25 and 609 of the 1956 Act (1 of 1956) The Central
Government made the Companies Regulations, 1956 providing for the procedure for application and
grant of licence to associations under section 25 of the 1956 Act. See regulation section 3 to 14 and
Annexures I to V of the Companies Regulations, 1956. E-form 24A of the Companies (Central
Govt.’s) General Rules and Forms, 1956* prescribes the form for filing application to Central
Government (Regional Director) under section 25 of the 1956 Act. Under the of the 2013 Act, the
procedure for application and grant of license under section 8 of the 2013 Act has been elaborated
vide the Companies (Incorporation) Rules, 2014.**
[s 8.20] Memorandum of Association
As per regulation 6 of the Companies Regulations, 1956 the Memorandum of Association of the
proposed section 25 Company shall be in the form specified in Annexure I to the Regulations or as
near thereto as circumstances admit.
[s 8.21] Applicability of section 293 of the Companies Act, 1956
In the view of the Department there is nothing in section 25 to indicate that the provisions of section 293 of the 1956
Act would not apply to a company coming within the scope of that section. On the other hand, it is expressly stated in
section 25(2) that the companies will be subject to all the obligations of limited companies imposed by the various
provisions of the Act. [Department’s File No. 38/2/68-CL-III.]
[s 8.22] Conditions for existing company to obtain licence [Sub-section (3) of Section 25 of
the 1956 Act]
An existing company may avail itself of the privileges of section 25 of the 1956 Act (section 8(5) of
the 2013 Act) by (a) restricting its objects to promoting commerce, art, science, religion, charity or any
other useful object, and (b) changing its constitution to apply its profits or incomes in promoting its
objects and prohibiting payment of any dividend to its members.
If the Central Government is satisfied it may, by licence, authorise the company by a Special
Resolution to change its name, including or consisting of the omission of the words “Ltd” or “Pvt Ltd”;
and section 23 of the 1956 Act shall apply to a change of name under sub-section (3) of section 25 of
the 1956 Act as it applies to a change of name under section 21 of the 1956 Act.
[s 8.22.1] Special Resolution
To change the name of an existing company on becoming a charitable or non-profit making company
omitting the words “Ltd” or “Pvt Ltd” with the approval of the Central Government a Special
Resolution is required to be passed. [Section 25(3) of the 1956 Act].
[s 8.22.2] Partnership treated as separate entity [Sub-section (4) of Section 25 of the

Companies Act, 1956
firm may be a member of such an association and it will cease to be a member on its dissolution. For
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purposes of section 25 of the 1956 Act, a partnership firm has been recognised as a separate entity.
A firm may be a member of such an association (though a firm cannot be a member or shareholder in
a company within the meaning of the 1956 Act). Under the 2013 Act, sub-section (3) of section 8
provides that a firm may be a member of a company registered under section 8 of the 2013 Act.
[s 8.22.3] Department’s View— A firm may be a member of company licenced under section
25
“A firm, not being a person cannot be registered as a member of a company except where the company is licenced
under section 25.” [Circular No. 4/72, dated 09-03-1972 : Govt. of India publication, Clarifications and Circulars on
[s 8.23] Central Government may impose conditions [Sub-section (5) of Section 25 of the
The licence may be granted on such conditions as the Central Government may think fit (section 8(1)
and (5) of the 2013 Act). In case of a new association the Central Government may direct for
incorporation in the Memorandum and Articles such conditions as it thinks fit.
[s 8.24] Exemptions and privileges [Sub-section (6) of Section 25 of the Companies Act, 1956]
The Central Government may direct that such an association will be exempt from certain specified
provisions of the 1956 Act, unless the Articles of the Association provides, otherwise. While there is
no corresponding provision under section 8 of the 2013 Act, the Ministry has vide its powers under
section 462(1)(a) and (b) of the 2013 Act provided certain exemptions to section 8 companies.81
As already explained, as per sub-section (2) of section 25 of the 1956 Act, the association on
registration shall enjoy all the privileges of limited companies (section 8(2) of the 2013 Act).
[s 8.25] Notifications under Section 25(6) of the Companies Act, 1956 specifying Exemptions
and Privileges to a Section 25-Company Notification No. S.O. 1578, dated 1-7-1961.*—
“In exercise of the powers conferred by sub-section (6) of section 25 of the Companies Act, 1956 (1 of 1956), the
Central Government hereby directs that a body to which a licence is granted under section 25 aforesaid shall be
exempt from the provisions of the said Act specified in column 1 of the Table below to the extent specified in the
corresponding entries in column 2 of the said Table.
TABLE
Provisions of Act Extent of Exemption

82[Section 2(45) In so far as they require the appointment of an individual to
perform the duties which may be performed by a Secretary
under the said Act and any other ministerial or administrative
duties only if he possesses the prescribed qualifications.]
Section 147 The whole.
Section 160(1)(aa) The whole.
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Provisions of Act Extent of Exemption

Section 166(2) The whole: Provided that the time, date and place of each
annual general meeting are decided upon beforehand by the
Board of directors having regard to the directions, if any, given
in this regard by the company in general meeting.
Section 171(1) A general meeting may be called by giving a notice in writing

of not less than 14 days.
83[Section 193 Minutes may be recorded within 30 days of the conclusion of

every meeting in case of companies where the articles of
association provide for confirmation of minutes by circulation.]
Section 209(4A) Books of accounts relating to a period of not less than four
years immediately preceding the current year shall be
preserved.
84[Section 219(1) The documents mentioned in sub-section (1) of section 219

may be sent not less than 14 days before the date of the
general meeting.]
Section 257 Shall not apply to companies whose articles provide for
election of directors by ballot.
85[Section 259 The whole.]
Section 264(1) The whole.
86[* * *]
Section 285 Shall apply only to the extent that the Board of
directors/Executive Committee/or Governing Committee of
such companies shall hold at least one meeting within every
six calendar months.
Section 287 Shall apply only to the extent that the quorum for the Board
meeting shall be either eight members or l/4th of its total
strength whichever is less provided the quorum shall not be
less than two members in any case.
87[Section 292 Matters referred to in clauses (c), (d) and (e) of sub-section (1)
may be decided by the Board by circulation instead of at a
meeting.]
Section 299 Shall apply only to cases to which sub-sections (1) and (3) of
section 297 apply.
Section 301 A register shall be maintained only of contracts to which sub-

sections (1) and (3) of section 297 apply.
88[***] 88[***].”
[Notification No. S.O. 1578, dated 0l-07-1961 : Gazette of India, Part II, section 3(ii), page 1547, dated 08-07-1961 :
(1961) 31 COMP CASES (St.) 350].
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[s 8.26] Other Notifications under Section 25(6) of the Companies Act, 1956 [s 8.26.1]
Associated Chambers of Commerce and Industry exempted from Section 370 † .
Central Government hereby directs that Associated Chambers of Commerce and Industry of India, a body to which a
licence is granted under section 25 of the said Act, shall be exempt from the operation of the provisions of section 370†
thereof in so far as they relate to the requirement of prior approval of the Central Government.” [Notification dated 14-
02-1990, published in the Gazette of India, Pt II, section 3(ii), dated 14-02-1990 : Chartered Secretary, March 1990,
page 219].
[s 8.26.2] Bombay Chambers of Commerce and Industry exempted from Sections 370 and
372 †
Central Government hereby directs that the Bombay Chambers of Commerce and Industry, a body to which a licence
is granted under section 25 of the said Act, shall be exempt from the operation of the provisions of sections 370 and
372† thereof in so far as they relate to the requirement of prior approval of the Central Government.” [Notification dated
14-02-1990 : Gazette of India, Pt II, section 3(ii) : Chartered Secretary, March 1990, page 219].
[s 8.26.3] Western U.P. Chamber of Commerce and Industry exempted from provisions of
Section 372**.
Central Government hereby directs that the Western U.P. Chamber of Commerce and Industry, a body to which a
licence is granted under section 25 of the said Act, shall be exempt from the operation of the provisions of section 372†
thereof in so far as they relate to the requirement of previous approval of the Central Government.” [Notification No.
S.O. 270(E), dated 26 April 1993, published in the Gazette of India, Extraordinary, No. 246, Pt II, section 3(ii) : (1993)
[s 8.26.4] Department’s View— Applicability of the provisions of Section 370† of the

Companies Act, 1956, to Section 25-Companies limited by guarantee and having no share
capital.
“So far as grant of loan is concerned, the same has to be computed with reference to the lending company’s
subscribed capital and its free reserves. A section 25 company may or may not have share capital. If it has share
capital, the provisions of section 370 of the Companies Act, 1956, become applicable in the same manner as these are
applicable to any other company. In case it does not have share capital and is a guarantee company simplicitor, even
then it can have free reserves and percentages under section 370 can be computed in relation to such free reserves
alone. Hence, in either case, the provisions of Section 370 become applicable to the grant of loan by a section 25
company.
2. As regards giving guarantee or providing security by a company, the existence of share capital or free reserves is
not relevant and as such in these cases, the provisions of section 370 are also attracted.
3. In view of the above, it appears that provisions of section 370 of the Act, are applicable to a section 25 company,
unless it qualifies for an exemption under sub-section (2) of section 370 of the Companies Act, 1956.” [Letter No.
1/6/88-CL-V, dated 28-04-1989 : Chartered Secretary, June 1989, page 458].
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[s 8.27] Articles to override Exemptions
Sub-section (6) of section 25 of the 1956 Act provides that such an association, i.e., section 25-
company, will be exempt from specified provisions of the Act, unless the Articles of the Association
provides, otherwise.
Where a section 25-company or association has made its own provisions in respect of the subject
matters of above exemptions and privileges it cannot take advantage of the above exemptions
granted by the Central Government.
[s 8.28] Privileges under other Sections
As per sub-section (2) of section 25 of the 1956 Act, the association on registration shall enjoy all the
privileges of limited companies.
Some more privileges and concessions available to a section 25-Company under other sections of
the 1956 Act are as follows.
[s 8.29] Minimum paid-up capital—Section 25 company exempts [Section 3(6) of the

A company registered under section 25 of the 1956 Act before or after the commencement of the
Companies (Amendment) Act, 2000, shall not be required to have minimum paid-up capital specified
in section 3. [vide section 3(6) of the 1956 Act ]
[s 8.30] Election by ballot of all directors [Section 263A, of the Companies Act, 1956]
Section 25-company may make provisions in its Articles for election of all its directors by ballot at
each Annual General Meeting and provisions of sections 177, 255, 256 and 263 of the 1956 Act will
not apply.
[s 8.31] Section 25-Company—Elections of Directors
Section 263A of the 1956 Act provides that nothing contained in sections 177, 255, 256 and 263 of
the 1956 Act shall affect any provision in the Articles of a company for the election by ballot of all its
directors at each Annual General Meeting if such company does not carry on business for profit or
prohibits the payment of a dividend to its members. Section 263A, 1956 Act only protects the
provisions in the Articles of Association of a company for the election of all its directors by ballot. The
normal rules that the Resolution for appointment of each director should be put to vote individually
[section 263 of the 1956 Act] and that the voting should be initially by show of hands [section 177of
the 1956 Act] unless poll is demanded under section 179of the 1956 Act, are only permitted to be
relaxed by a suitable provision in the Articles of Association of a section 25-Company. It is possible
for such a company to provide by its Articles that election of directors shall take place by ballot and
not by show of hands and that the resolution for appointment of each director need not be moved
individually. This is the only concession available under section 263A of the 1956 Act. Section 263A
of the 1956 Act cannot mean that all other provisions of sections 255 and 256 of the 1956 Act relating
to the appointment and retirement of directors would also not apply to such a company. It must be
clarified that section 25(6) of the 1956 Act, does not per se exempt a company licensed under section
25 from the provisions of the 1956 Act, in general or sections 255 and 256 of the 1956 Act in
particular. In the normal circumstances, the exemption from any of the provisions of the Act, must be
stated expressly in the terms of the licence. In rare cases, however, exemption would be required to
be inferred by necessary implication. Where the Articles of Association of a Club granted licence
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Page 24 of 35
under section 25 of the 1956 Act provided for Elections of Directors not to be held every year but to
be held only once in five years. Approval of this clause of the Articles of Association, by necessary
implication, amounts to grant of exemption from application of section 255 of the 1956 Act, to the
extent of repugnancy between the two. It is not disputed that section 25(6) of the 1956 Act, the
Central Government has the power to grant such exemption. In view of this, it was not necessary for
the company to follow the provisions of sections 255 and 256 of the 1956 Act regarding electing all
directors at every general meeting, or to provide for retirement of 1/3rd of its directors at each Annual
General Meeting.89
[s 8.31.1] Department’s View— Election of Directors in case of Section 25 Companies
In reply to a query: “Section 25 Companies make provisions in their Articles of Association that the companies in their
membership will not be entitled to vote in the election of directors (committee members) unless they have paid their
subscription for the relevant year. The member companies are entitled to nominate their representatives for election to
the Committee. In case, one of the nominees happen to be nominated by a member company, which has not paid the
subscription for the relevant year, the point for clarification is whether such nomination and his subsequent election as
Committee member will be invalid under the law. The Articles of Association of the company concerned do not as such
disqualify a person being nominated for election by a member company which has not paid the subscription.”
The Department has expressed the following views: “There can be no objection to the nomination and election of a
person nominated by a member company which has not paid the subscription for the relevant year.” [Circular No.
23(29)-CL-IV/64, dated 07-05-1964 : Government of India publication, Clarifications and Circulars on Company Law,
1977 Edition, page 21].
[s 8.32] Internal Management : Suit maintainable
In respect of a Charitable Trust registered as a company under section 25 of the 1956 Act, a suit filed
for administration or framing of a scheme of management can be maintained under section 398 of the
1956 Act by the members in a Company Court under section 10 of the 1956 Act [the Company Law
Board under section 10E of the 1956 Act [now the Tribunal (NCLT)]. Beneficiaries can file suit under
section 92 of the Civil Procedure Code, 1908 (5 of 1908). The Court directed that all decisions of
Board of Directors of a section 25 company should be taken up at a meeting to be attended by all its
3 original Directors. A resolution passed at a Board Meeting which was not so attended was declared
null and void.90
[s 8.33] Indoor Management
Where a registered society by a general body resolution decided to convert membership of firms to
individual membership of partners. Refusal to admit all three partners of the firm as members was not
justified. No documents were produced to support the claim that only one partner was allowed as
member per firm. Suit by the firm was maintainable. It was not a case of indoor management.91
[s 8.33.1] Central Government directions
A company licensed under section 25 of the 1956 Act provided in the Articles that the Central
Government can give directions in the national or public interest. The Central Government directed
the Executive Committee of the company not to exercise any of its powers relating to the staff. The
court held that such direction was arbitrary and without jurisdiction. When the council was created by
the Central Government and licenced under section 25 of the 1956 Act, the Central Government
cannot divest the Executive Committee of its powers conferred by the Articles to the Executive
Committee by an order and must observe procedure under the Companies Act, 1956 for amendment
of Articles if it so desires.92
[s 8.33.2] Writ
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Some members of a Club registered under section 25 of the 1956 Act were suspended for a few
weeks. On their writ petition the Court held that the Articles of the Club and action of the Club were
valid and the writ petition was not maintainable.93
Voluntary associations created under the 1956 Act are not statutory authorities exercising
governmental functions. The Bengal Chamber of Commerce which has been granted licence under
section 25 of the1956 Act cannot be treated as “local authority” or “State” within the meaning of
Article 12 and shall not be amenable to writ jurisdiction of the High Court under Article 226 of the
Constitution of India.94
[s 8.34] Registrar’s duty in case of rival parties claiming management
If there are rival parties in a company and each party sends returns or particulars as office-bearers,
the Registrar of Companies should not enter any such particulars in the Register kept by the
Registrar until the disputes between the parties are decided by a competent court. Under section 306
of the 1956 Act, the ROC has no power to pronounce as to the meetings having been validly held or
a particular office-bearer having been duly elected. He cannot also return one of the papers filed
under section 303 of the 1956 Act.95
Where rival groups held meetings at separate places and appointed separate sets of office bearers. It
was impracticable to call meeting. The CLB [now the Tribunal] may order calling of meeting and
decide agenda of the meeting.96
The CLB [now the Tribunal] has the power to direct calling of meetings, other than an Annual General
Meeting, i.e., Statutory or Extraordinary General Meeting under section 186 of the 1956 Act. The
power to convene an Annual General Meeting is vested in the CLB [now the Central Government]
[s 8.35] Annual General Meeting
As per the Central Government Notification under section 25(6) [Notification No. S.O. 1578 (printed
above)], under section 171(1) of the 1956 Act the general body meeting may be called by giving a
notice in writing of not less than 14 days instead of 21 days. The expression
“not less than 14 days” used in section 171 of the 1956 Act, as amended by virtue of the Central
Government Notification under section 25(6) of the 1956 Act, normally implies notice of 14 whole or
clear days; part of the day, after the hour at which the notice is deemed to have been served, cannot
be combined with the part of the day before the time of the meeting, on the date of the meeting, to
form one day. Each of the 14 days must be a full or a calendar day so that the notice can be said to
be “not less than 14 days’ notice”.1
The challenge made to the validity of the annual general meeting for the reason that individual
members were not served with notice containing information as to the candidates contesting
elections for various offices or for membership of the executive committee was not prima facie
tenable because by virtue of the Exemption Notification under section 25(6) of the 1956 Act, the
provisions of section 257 of the 1956 Act are not applicable to such a company. The notification is
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confined not only to companies where polling is by ballot and would cover companies where both the
modes, namely, show of hands and ballot, are provided.2
[s 8.36] Proxy
Section 176 of the Companies Act, 1956 deals with proxies. As per section 176(1) proviso (a) of the
1956 Act, unless the articles otherwise provide, this section shall not apply in the case of a company
not having a share capital. A company, not having a share capital, shall not be able to have proxies
as the manner of voting by its members, unless its articles so provide. The articles of the respondent,
a guarantee company, provided that it shall be permissible for members to vote by proxy. Section
176 of the 1956 Act would therefore apply to the respondent company. It is clear from a reading of
section 176(6) of the 1956 Act that the only proxy which is required for the purposes of enabling a
person to cast his vote which is provided is in the form set out in Schedule IX to the 1956 Act. That
proxy cannot be added on to or subtracted from. No special proxy form issued by any body of
persons which adds to the requirements of a proxy, by imposing any condition, or requiring it to be on
specific proxy paper can be sustained in law. Election rules of the company providing that proxy
forms provided by company alone would be valid were declared invalid as they go beyond section
176(6) of the 1956 Act.3
[s 8.37] Transfer of share or interest by Member
Section 28 of the 1956 Act provides that the articles of association of a company limited by shares
may adopt all or any of the regulations contained in Table A in Schedule I to the 1956 Act. Section 29
of the 1956 Act provides that the articles of association of other companies shall be in one of such
forms in Tables C, D and E in Schedule I as may be applicable or in a form as near thereto as
circumstances admit. In the case of Magadh Stock Exchange Association (MSEA), registered under
section 25 of the 1956 Act, Table C was applicable. If Tables A and C are compared it becomes
other interest between a company limited by shares and a company limited by guarantee, the
Supreme Court set aside the judgment and order passed by the High Court and remitted the matter
back to the High Court for deciding the appeal afresh after hearing both the sides and considering all
the relevant aspects and fulfilment of the requirements of section 108 of the 1956 Act.4
If the Article does not infringe or offend any specific provision of the 1956 Act, then it is valid. Articles
of Association of a Stock Exchange providing for cancellation of membership of a defaulting member
[s 8.38] Section 25-Company—Denial by Association to admit a Member
membership rights. Section 111(4)(a) of the 1956 Act deals with situations wherein the name of a
person is entered in the Register of Members without sufficient cause and when the name of a
person which is already on the Register of Members is omitted therefrom without sufficient cause. In
the instant case, the complaint of the petitioner was that the Association had rejected his application
for Membership and thereby refused to put his name in the Register of Members. The two conditions
prescribed in section 41 of the 1956 Act are cumulative in nature in the sense that there should not
only be an agreement in writing but the name also should be entered in the Register of Members to
be a member of a company. Merely agreeing to become a Member of a company and on that basis
to claim that the refusal of the company to enter his name in the Register would entitle a petitioner to
file a petition under section 111 of the 1956 Act was not sustainable. Whether the refusal by the
Association was mala fide or whether the Articles giving the power to the Association to reject an
application for membership were valid, etc., are beyond the scope of section 111 of the1956 Act. The
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denial of the Association to admit the petitioner as a Member was not a ground to invoke the
provisions of section 111 of the 1956 Act.6
[s 8.39] Amalgamation of Section 25-Company and Trading Company
Such a scheme of amalgamation can be granted under sections 391 to 394 of the 1956 Act provided
the court [now the Tribunal (NCLT)] is satisfied about the reasonableness of the scheme. If the
transferee company, i.e., the Trust, does not carry on business strictly in accordance with the terms
of its own memorandum of association and/or the terms of the licence issued by the Government
under section 25 of the 1956 Act such a contravention can be taken care of and it would be open to
the authorities under the Companies Act to take appropriate action including the revocation of the
licence. However, this would not be a ground to refuse sanction to the scheme of amalgamation. The
transferee company, i.e., the Trust had to file an undertaking that it would carry on its activities strictly
in accordance with the terms of its own memorandum of association.7
[s 8.40] Mismanagement or oppression
The matters complained of in a petition for relief under section 397 of the 1956 Act must affect the
member(s) of the company; harsh and unfair treatment to petitioner alone cannot entitle him to any
relief. A member or a director will have no personal interest in the case of a section 25 company
since the object of the company is wholly charitable and no member or director can complain that he
was ignored while doing the charity. The right of a member in section 25 company is only to ensure
that charitable objects of the company are carried out and the personal benefits of the members do
not at all come into the picture. The scope of section 397 of the 1956 Act is rather curtailed in the
case of a section 25 company. Corpus donation by company to Trust was not ultra vires the object of
the company, no relief was granted.8
The right of member of a company registered under section 25 of the 1956 Act is only to ensure
performance of the charitable trust. If the petition under sections 397, 398 of the 1956 Act is not filed
by persons constituting one-fifth of the total number of members, the petition is not maintainable.
Induction of 48 new members in a single day in accordance with the company’s articles was not an
act of oppression.9
Where the company was acquired by the State on the ground of mismanagement, the Supreme
Court held that the provisions of the 1956 Act were adequate to deal with mismanagement and
acquisition of the company was not permissible. The company was not liable to hold the Annual
General Meetings for each of the years during which it remained under acquisition. Therefore, there
was no question of directing convening of annual general meetings for the period. The order of the
CLB directing the calling of meetings was set aside.10
[s 8.41] Elections of Office Bearers and Executive Members
In a petition filed under sections 397 and 398 of the 1956 Act, alleging oppression and
mismanagement in the affairs of the respondent, a section 25-Company, the petitioner sought
amendment of clause 24 of the Articles of Association of the company for putting restrictions on the
retiring Office Bearers and retiring Members of the Executive Committee from re-election on the
ground that it was necessary to prevent oppression by the majority to provide a gap of one year after
every two consecutive years. Dismissing the petition, it was held that in an election nobody could win
unless he had the support of the majority with him. The elections were to be conducted in a
democratic manner. Every member had the right to vote and to vote in a particular manner. If a
candidate was able to muster the support of majority members and with such support he was able to
get himself elected again and again every time, it was his right to seek elections and get elected in
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this manner. Even if a person were to be debarred by carrying out the proposed amendment to
Article 24, such a person could always field another candidate belonging to his group and of his
choice and could get him elected. Therefore, merely by prescribing that there had to be a gap of one
year after a person got elected as Office Bearer/Executive Member for a consecutive period of two
years the alleged defect could not be remedied. The right of the majority to get elected was different
from their oppressive conduct. The contention that if a person was re-elected again and again he
would indulge in oppression of the minority and mismanagement was not tenable as there was
remedy under sections 397 and 398 of the 1956 Act. It was for the Members to lay down the manner
in which Elections of Office Bearers and Executive Members were to be conducted including the
eligibility conditions. More than 75% Members had decided to retain Article 24 in its present form and
they did not want any amendment therein. Therefore, the respondent Association, a section 25-
Company, was entitled to retain Article 24 in its present form.11
[s 8.42] Wrongful removal of members
Persons who have been removed from membership of a company have a right to apply under section
155 of the 1956 Act [section 155 was omitted vide the Companies (Amendment) Act, 1988 (w.e.f. 31-
05-1991). Reference may be had to sections 111A of the 1956 Act inserted by the Depositories Act,
1996 (w.e.f. 20-09-1995)] of the Act. In an application under section 155 of the 1956 Act [section
111A of the 1956 Act] the Court [the CLB (now the Tribunal)] cannot appoint a Committee to go into
the wrongful exclusion of the names of certain members. The Company Court [the CLB (now the
Tribunal)] cannot debar a person from standing for election or direct that one person should vote only
once either as a representative or as a member. The Court cannot appoint a Committee to go into the
alleged wrongful exclusion of the persons. If a case falls under section 155 of the 1956 Act [section
111A of the 1956 Act] the inherent power of the Court cannot be exercised. If the persons who have
been removed from membership are not before the Court, the Court in a petition under sections 397
and 398 of the1956 Act can only appoint a Chairman for the Annual General Meeting and authorise
him to take into consideration any objections against wrongful removal from the voters’ list prepared
by the company and allow the vote to be cast under objection separately if the Chairman thinks that
there is some substance in the allegation of wrongful removal.12
[s 8.43] Association as Trustee
A company formed for exclusively charitable purposes is not a trustee of its corporate assets in the
strict sense, although it is in a position analogous to a trustee, because the mere fact that it has
assets which can be applied only for the charitable purposes set out in its Memorandum does not
make the company a trustee of those assets in the strict sense.13
An association or company limited by guarantee, registered under section 25 of the 1956 Act without
the word “Ltd”, is a corporation. It is a juristic person and a distinct legal entity. It may, therefore, act
as a trustee if its memorandum permits. If its purposes constitute public, religious and charitable
purpose, the association or the company would be a public trust liable to be registered under the
Public Trusts Act, e.g., the Bombay Public Trusts Act, 1950 (29 of 1950).14
[s 8.44] Club
A members’ club which is not formed for profit is registerable under this section.15 Where the Articles
of Association of the Madras Cricket Club, a sports and recreational club without any profit motive
and registered as a section 25 of the 1956 Act company conferred power on the club to suspend a
member for a limited period. The article was approved by the Regional Director under powers
delegated to him by the Central Government. Held, the need or necessity for the retention of a clause
of the nature impugned in the articles of association, in order to maintain internal discipline among
members of a private club and protect the fair image and status of the club is a matter pertaining to
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private law or personal matters and no public law aspect or any violation of statutory rights or
fundamental rights is involved therein. The wisdom or otherwise of the policy behind the bye-law of a
India. Circular No. 32 of 1975 dealing with expulsion of a shareholder of a public limited company is
not applicable to clubs, associations, etc., incorporated under section 25 of the 1956 Act.16
Members of a voluntary association are bound by its bye-laws. Any radical change in the bye-laws
can be done only by the members of the club in the extraordinary general body meeting. For the
purpose of discussing whether the boat club should be registered under section 25 of the 1956 Act,
an extraordinary general body meeting was required to be convened.17
[s 8.45] Voting by secret ballot
When in a meeting a poll is demanded under section 179 read with 177 of the 1956 Act, it is not
necessary that the voting must be by a secret ballot. The manner in which the voting is to be taken on
a poll being demanded has been left to the discretion of the chairman by section 185 of the 1956 Act.
The court, however, by way of obiter, observed that in an institution like a club, which is not a
commercial concern, it is highly desirable, in order to maintain the proper atmosphere in the
institution and to inspire complete confidence in the management that, whenever a poll is demanded,
the chairman should normally have the voting done by secret ballot which would not indicate the
name of the person voting in any particular manner.18
[s 8.46] Societies Registration Act
A non-profit Charitable Association, Institution or Club etc. may be registered under the Societies
Registration Act, 1860 (21 of 1860) or under section 25 of the 1956 Act . But, general process
governing the rights of members is not the same as in the case of the shareholders or the members
of a company. An ordinary Civil Court cannot have the jurisdiction in respect of the proceedings
concerning the internal management of the society to the same extent as in the case of a company.19
Society registered under the Societies Registration Act, 1860 is not a juristic person within the
meaning of the Companies Act, 1956. A registered society is a mere “Corporation” or a “Quasi-
Corporation”.20
[s 8.46.1] Exemption Notification under section 45NC of RBI Act
“The Reserve Bank of India, on being satisfied that it is necessary so to do, in exercise of its powers conferred under
section 45NC of the Reserve Bank of India Act, 1934 (2 of 1934), hereby declares that the provisions of—
(1) Sections 45-IA, 45-IB and 45-IC of the Reserve Bank of India Act, 1934 (2 of 1934), shall not apply to any non-
banking financial company;
(i) which is—
(b) licensed under section 25 of the 1956 Act.” [Extracts from Notification No. DNBS.138/CGM(VSNM)-
2000, dated 13-01-2000 : (2000) 99 COMP CASES (St.) 299].
[s 8.47] Income-tax
An association only by virtue of being registered under section 25 of the 1956 Act (1 of 1956) is not
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exempted from income-tax. Although, in view of its objects it shall generally qualify for exemption
under section 11 read with section 2(15) of the Income-tax Act, 1961 (43 of 1961).21 The grant of a
licence under section 25 of the 1956 Act is, only a relevant consideration, and not conclusive of the
fact that a company is registered for a charitable purpose within the meaning of section 2(15) of the
Income-tax Act.22
[s 8.48] Accounting and Auditing Practices The CARO, 2003 not applicable to Section 25-
Companies.
The Companies (Auditor’s Report) Order, 2003 is not applicable to a company licensed to operate
under section 25 of the 1956 Act [Para 1(2)(iii) of the Companies (Auditor’s Report) Order, 2003].
Auditors of these companies are, therefore, not required to give report on matters specified in the
CARO, 2003.
Further, the Companies (Auditor’s Report) Order, 2016 is not applicable to a company licensed to
operate under section 8 of the 2013 Act.
[s 8.49] Revocation of Licence [Sub-section (7) of Section 25 of the Companies Act, 1956]
The Central Government may revoke the licence after giving an opportunity to the association to
present its case. Upon revocation, the Registrar shall enter the words “Ltd” or “Pvt Ltd” at the end of
the name upon the register of the body to which it was granted; and the body shall cease to enjoy the
exemption granted by this section.
This power of the Central Government cannot be used mala fide or arbitrarily. An aggrieved
association may challenge the Central Government order under Article 226 of the Constitution of
India.
Under the 2013 Act, section 8(6) to (10) pertain to revocation of license and consequences thereof.
[s 8.49.1] Requisites for alteration of objects clause [Sub-section (8), Section 25 of the
Companies Act, 1956
Section 25 company (a) shall not alter its memorandum with respect to its objects except with the
previous approval of the Central Government signified in writing, (b) if it contravenes the provisions of
clause (a), the Central Government may revoke its licence, (c) the Central Government may vary the
licence, (d) where the alteration is with respect to the things specified in clauses (a) to (g) of section
17(1) of the 1956 Act, the provisions of section 25(8) of the 1956 Act shall be in addition to the
provisions of that section.
Where the Court [the CLB (now the Central Government)] confirmed the alteration under section 17,
1956 Act without previous approval of the Central Government being obtained, it had the jurisdiction
to cancel the order.23
[s 8.49.2] Chamber of Commerce to change name after revocation [Sub-section (9) of

Section 25 of the Companies Act, 1956]
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Where the licence was granted to a Chamber of Commerce, after revocation of the licence that name
cannot be used. The name should be discontinued within three months or such longer period as the
Central Government may allow. Section 23 of the 1956 Act shall apply to a change of name under
this sub-section as it applies to a change of name under section 21 of the 1956 Act.
[s 8.50] Penalty
For alteration of memorandum with respect to its object without the approval of the Central
Government [Sub-section (8), section 25 of the 1956 Act]. Since no specific penalty is provided for,
the company and every officer who is in default shall be punishable under section 629A of the 1956
Act with fine upto Rs 5,000 and where the contravention is a continuing one, with a further fine upto
Rs 500 for every day of default.
For omitting to remove the words “Chamber of Commerce” from the name of the company, in
accordance with sub-section (9), section 25 of the 1956 Act, the company shall be punishable with
fine upto Rs 5,000 for of every day of default. [Sub-section (10) of section 25 of the 1956 Act]
Sub-section (11) of section 8 of the 2013 Act provides the penalty for default in complying with the
provisions of section 8 of the 2013 Act.
[s 8.51] Section 621 of the Companies Act, 1956
A complaint alleging offence under the 1956 Act can only be maintained in strict keeping with the
provisions of section 621 of the 1956 Act. A member of a section 25 company is not a shareholder;
the complaint by such a member is not in compliance with provisions of section 621of the 1956 Act.24
[s 8.52] Self-Regulatory Organizations
“Self-Regulatory Organization” means an organization of intermediaries which is representing a

particular segment of the securities market and which is duly recognised by the Board under these
regulations, but excludes a stock exchange (Rule 2(k) of SEBI (Self-Regulatory Organizations)
Regulations, 2004). Rule 3 of the Regulations provides that any group or association of
intermediaries, which is desirous of being recognized as a Self-Regulatory Organization, may form a
company registered under section 25 of the 1956 Act and such company may make an application to
the Board for grant of certificate of recognition as a Self-Regulatory Organization.
[s 8.53] Stamp [Section 25-Company]
Memorandum and Articles of any Association not formed for profit and registered under the
Companies Act is exempted from paying any Stamp Duty. [Articles 10 and 39 of the Indian Stamp
Act, 1899 (2 of 1899)]. The exemption will be applicable to companies registered under section 8 of
the 2013 Act as well.
53 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to section 25 of the 1956 Act. See
Notification No. G.S.R. 466(E), dt. 05-06-2015, regarding exemptions to Companies formed with charitable objects, etc.
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55 Central Registration Centre (CRC) to exercise all related matter pertaining to registration vide S.O. 1211(E) dt. 23
March 2016, w.e.f. 28-03-2016.
56 Rule 20(6) and Form No. INC. 16 of the Companies (Incorporation) Rules, 2014. For the text of Rules refer Appendix
3.
3.
58 Form No. INC. 17 of the Companies (Incorporation) Rules, 2014. For the text of Rules refer Appendix 3.
59 Power delegated to Regional Directors for conversion into another kind of company and in other cases, to Registrar of
Companies vide S.O. 1352(E) and S.O. 1353(E), dt. 21 May 2014.
60 Rule 21 and 22 of the Companies (Incorporation) Rules, 2014. For the text of Rules refer Appendix 3.
62 Rule 20 (6) and Form No. INC. 17 of the Companies (Incorporation) Rules, 2014. For the text of Rules refer Appendix
3.
3.
64 Power delegated to Regional Directors vide S.O. 1352(E), dt. 21 May 2014.
65 Rule 23 and Form No. INC. 20 of the Companies (Incorporation) Rules, 2014.
66 Substituted by the Insolvency and Bankruptcy Code, 2016 (31of2016)(w., for the following “Rehabilitation and
Insolvency Fund formed under section 269”.
68 Vide Notification S.O. 1211(E) dated 23-03-2016.
69 Vide Notification S.O. 1352 (E) dated 21-05-2014.
70 Vide S.O. 1353(E), dated 21-05-2014.
71 See Instruction Kit for eform INC 12.

72 Noting in Form Nos. INC 13 and 16.
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73 This Form will be processed through STP mode. For clarification, see MCA General Circular No. 28/2014, dt. 09-07-
2014.
74 The Report considered Clause 4(11), Companies Bill, 2009(which corresponds to section 8(11), 2013 Act): Where a
company makes any default in complying with any of the requirements laid down in this section, the company shall,
without prejudice to any other action under the provisions of this section, be punishable with fine which shall not be less
than ten lakh rupees but which may extend to one crore rupees and the directors of the company and every officer of
the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with
fine which shall not be less than Rs 25,000 but which may extend to Rs 25 lakh, or with both.
75 Notification G.S.R. 466 (E) dated 05.06.2015.
76 General Circular No. 38/2014, dated 14-10-2014
77 http://www.mca.gov.in/Ministry/pdf/Report_Companies_Law_Committee_01022016.pdf, last accessed in November,

2016.
78 Substituted by the Companies (Amendment) Act, 1960 (65 of 1960), section 9.
80 Substituted by the Companies (Amendment) Act, 2000 (53 of 2000), section 9 (w.e.f. 13-12-2000), for “Rs 500”.
81 Notification G.S.R. 466(E), dated 05-06-2015
* Published in the Gazette of India, Pt II, section 3(ii), p 1547, dated 8 July 1961 : (1961) 31 COMP CASES (St.) 350 :
Government of India publication, Clarifications and Circulars on Company Law, 1977 Edition, p 19.
82 Inserted by Notification No. S.O. 35(E), dated 09-01-1976 : Gazette of India, Extraordinary, Part II, section 3(ii), p 83,
dated 10-01-1976 : (1976) 46 COMP CASES (St.) 129.
83 Inserted by Notification No. S.O. 2767, dated 05-08-1964 : Govt. of India publication, Clarifications and Circulars on
Company Law, 1977 Edition, p 20.
84 Inserted by Notification No. G.S.R. 73, dated 30-12-1965 : Govt. of India publication ibid.
85 Inserted by Notification No. S.O. 2767, dated 05-08-1964.
86 Sections 280 and 282 omitted as these sections have been omitted by Act 31 of 1965.
87 Inserted by Notification No. S.O. 2767, dated 05-08-1964.
88 The word, figures and brackets “Section 303(2)” in column (1) and words “The whole” in column (2) omitted vide
Notification No. S.O. 2219(E), dated 28-12-2007 (w.e.f. 31-12-2007): published in the Gazette of India, Extraordinary,
Part II, Section 3(ii) : the Ministry of Corporate Affairs (MCA) website http://www.mca.gov.in. Notification also requires
that the Existing Companies shall file e-Form 32 of the Companies (Central Government’s) General Rules and Forms,
1956 under section 303(2) in respect of any change among its Directors, Managing Director, Manager or Secretary
after filing Form DIN-3 regarding Director Identification Number under section 266A within 60 days without payment of
prescribed Fees and thereafter along with Fees and Additional Fees under section 611 of the Act.
† Now section 372A, inserted in place of sections 370 and 372 by the Companies (Amendment) Act, 1999 (21 of 1999),
permits the companies to make inter-corporate investments and loans subject to fulfilment of certain conditions without
prior approval of the Central Government. See detailed Notes and Legislative History under sections 370, 372 and
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** Section 372A, inserted in place of sections 370 and 372 by the Companies (Amendment) Act, 1999 (21 of 1999),
permits the companies to make inter-corporate investments and loans subject to fulfilment of certain conditions without
prior approval of the Central Government.
89 C.P. Singhania v Garware Club House, (2005) 124 COMP CASES 561 (Bom.).
90 M. Gomathinayagam Pillai v Sri Manthiramurthi High School Committee, (1963) 33 COMP CASES 346 (Mad.) : AIR
1963 Mad. 387; Vohra v Ms. Balji Kaur Vohra, (2000) 38 CLA 265 (CLB).
91 Thirunageswaram Handloom Textile Manufacturers Association v T.P. Kuppusamy Mudaliar and Sons, (2002) 112
COMP CASES 341 (Mad.).
92 Apparel Export Promotion Council v UOI, (1997) 90 COMP CASES 309 (Mad.).
93 K. Leela Kumar v Govt. of India, (2002) 108 COMP CASES 610 (Mad.) (DB).
94 In Re, M.L. Shaw, (1986) 59 COMP CASES 312 (Cal.); Ramana Dayaram Shetty v International Airport Authority of
India, AIR 1979 SC 1628.
95 Jullundur District Registered Factory Owners’ Association v Registrar of Cos, (1961) 31 COMP CASES 673 (Punj.).
96 Baptist Church Trust Association v Member, CLB, (1986) 60 COMP CASES 381 (Cal.).
1 Maharaja Exports v Apparel Export Promotion Council, (1986) 60 COMP CASES 353 (Delhi).
3 General Commerce Ltd v Apparel Export Promotion Council, (1990) 69 COMP CASES 158 (Delhi).
(DB).
7 Re Walvis Flour Mills Co Pvt Ltd, (1993) 76 COMP CASES 376 (Bom.).
8 Mohanram Sastry v Swadharma Swarajya Sangha, (1995) 83 COMP CASES 272 (Mad.).
9 AE Al Ameen v Ilyanguudi Muslim Educational Assn, (2009) 150 Com Cas 573 (CLB)
10 Madras Race Club v Dr. K.R. Lakshmanan, (1997) 88 COMP CASES 754 (Mad.); Dr. K.R. Lakshmanan v State of
Tamil Nadu, (1996) 86 COMP CASES 66 (SC).
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11 G.S. Mayawala v Motion Picture Association, (2006) 132 COMP CASES 388 (Delhi).
12 Dineker Rai D. Desai v R.P. Bhasin, (1986) 60 COMP CASES 14 (Delhi) (DB).
13 Liverpool and District Hospital for Diseases of the Heart v Attorney-General, (1981) ChD 193 : (1981) 1 All ER 994 :
(1981) 2 WLR 379 : (1981) 125 SJ 79.
14 Akhil Deshastha Rigvedi Brahman Madhyawarti Mandal v Joint Charity Commissioner, (1973) 43 COMP CASES 361
(Bom.).
15 Cosmopolitan Club v Dy. CTO, AIR 1952 Mad. 814.
16 K. Leela Kumar v Govt. of India, (2002) 108 COMP CASES 610 (Mad.) (DB). The Supreme Court decision in Bajaj Auto
Ltd v N.K. Firodia, (1971) 41 COMP CASES 1 (SC) : AIR 1971 SC 321 regarding expulsion of a shareholder of a public
limited company was held not applicable to section 25 company.
17 Jalandhar M. Reddy and C.V. Sreekumar v Madras Boat Club, (2008) 146 Comp Cases 366 (Mad).
18 Major Mella Singh v President, Jullundur Club Ltd, (1969) 39 COMP CASES 1018 (P&H).
19 Krishna Swami v South Indian Film Chambers of Commerce, AIR 1969 Mad. 42.
20 Board of Trustees, Ayurvedic and Unani Tibia College, Delhi v State of Delhi, AIR 1962 SC 458 : (1962) Supp. 1 SCR
156.
21 CIT v Andhra Chamber of Commerce, (1965) 55 ITR 722 (SC) : AIR 1965 SC 1281 : (1965) 1 SCR 565; Addl. CIT v
Surat Art Silk Cloth Manufacturers Association, (1980) 121 ITR 1 (SC) : AIR 1980 SC 387; CIT v Andhra Chamber of
Commerce, (1981) 130 ITR 184 (SC); Thiagarajar Charities v Addl. CIT, (1997) 225 ITR 1010 (SC).
22 Hyderabad Race Club, Hyderabad v CIT, A.P.I., Hyderabad, (1985) 153 ITR 521 (AP—FB)
23 Ugar Sen Parsottam Das v Chamber of Commerce, Hapur, AIR 1937 All 432.
24 Madras Cricket Club v M. Subbiah, (2010) 154 Com Cas 353.
End of Document
Mr. Laghir1 Rabari

corresponds to sections 34(2) and 46 of the 1956 Act. S. 9. Effect of
registration.—
THERETO

INCIDENTAL THERETO
25 S. 9. Effect of registration.—
From the date of incorporation mentioned in the certificate of incorporation, such subscribers to the
memorandum and all other persons, as may, from time to time, become members of the company,
shall be a body corporate by the name contained in the memorandum, capable of exercising all the
functions of an incorporated company under this Act and having perpetual succession 26[* * *] with
power to acquire, hold and dispose of property, both movable and immovable, tangible and
intangible, to contract and to sue and be sued, by the said name.
NOTES
Section 9 of the 2013 Act was enforced vide Notification SO 902(E), dated 26-03-2014, with effect
from 01-04-2014.Section 9 of the 2013 Act corresponds to section 34(2) of the 1956 Act.
as follows:
This clause corresponds to section 34 of the Companies Act, 1956 and seeks to provide for the effect of registration of
a company. The clause provides that from the date of incorporation, the subscribers become the members of the
company. The company shall be a body corporate with a name, capable of exercising all the functions of an
incorporated company under this Act and shall have perpetual succession and a common seal with power to acquire,
hold and dispose of property, to contract, to sue and be sued, by the said name.
The Companies (Amendment) Bill, 2014 was introduced and the Statement of Objects and Reasons
thereof proposed to amend, inter alia, section 9 of the Companies Act, 2013 for making common seal
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25 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to sections 34(2) and 46
of the 1956 Act. S. 9. Effect of registration.—
optional. Subsequently, vide the Companies (Amendment) Act, 2015, the words “and a common
seal” were omitted with effect from 29-05-2015.
[s 9.2] Effect of Registration
From the date of incorporation mentioned in the certificate of incorporation subscribers and members
of the company shall be a body corporate by the name contained in the memorandum, capable of
exercising all the functions of an incorporated company, and having perpetual succession, with power
to acquire, hold and dispose of property, both movable and immovable, tangible and intangible, to
contract and to sue and be sued, by the said name.
[s 9.3] Body corporate or corporation
The terms “company” and “body corporate” or “corporation” are not the same. While a “company” has
been defined under section 2(20) of the 2013 Act, to mean a company incorporated under the 2013
Act or under any previous company law, as per section 2(11) of the 2013 Act, “body corporate” or
“corporation” includes a company incorporated outside India, but does not include—
(i) a co-operative society registered under any law relating to co-operative societies; and
(ii) any other body corporate (not being a company as defined in the 2013 Act), which the
Central Government may, by notification, specify in this behalf.
Section 9 of the 2013 Act largely corresponds with section 34(2) of the 1956 Act barring variations as
under:
As the Companies (Amendment) Act, 2015 has made the common seal optional, the words “and a
common seal” have been omitted from section 9 of the 2013 Act.
Section 9of the 2013 Act has enumerated the powers of the company to acquire, hold and dispose of
property, contract, sue and be sued.
Under section 34(2) of the 1956 Act, there is a specific reference to the liability of the members to
contribute to the assets of the company in the event of its being wound up.
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S. 34. Effect of registration.—(1) On the registration of the memorandum of a company, the Registrar shall certify
under his hand that the company is incorporated and, in the case of a limited company, that the company is limited.
(2) From the date of incorporation mentioned in the certificate of incorporation, such of the subscribers of the
memorandum and other persons, as may from time to time be members of the company, shall be a body corporate by
the name contained in the memorandum, capable forthwith of exercising all the functions of an incorporated company,
and having perpetual succession and a common seal, but with such liability on the part of the members to contribute to
the assets of the company in the event of its being wound up as is mentioned in this Act.
NOTES
Section 34(2) of the 1956 Act corresponds to section 9 of the 2013 Act.
See sections 33, 34 and 35 “correspond to section 22, 23 and 24 of the companies Act. No change of substance has
been made.” [Clauses 28, 29 and 30 of the Companies Bill, 1953 (46 of 1953)].
[s 9.6] Certificate of incorporation [Sub-section (1) of Section 34 of the Companies Act, 1956]
On the registration of the Memorandum of Association of the company, the Registrar of Companies
shall certify under his hand that the company is incorporated under the Companies Act, 2013, see
[s 9.7] Characteristics of a company
The true legal position in regard to the character of a corporation or a company which owes its
incorporation to a statutory authority, is not in doubt or dispute. The corporation in law is equal to a
natural person and has a legal entity of its own. The entity of the corporation is entirely separate from
that of its shareholders; it bears its own name and has a seal of its own; its assets are separate and
distinct from those of its members; it can sue and be sued exclusively for its own purpose; its
creditors cannot obtain satisfaction from the assets of its members; the liability of the members or
shareholders is limited to the capital invested by them; similarly, the creditors or the members have
no right to the assets of the corporation.27
[s 9.8] Company a legal person and separate juristic entity
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From the date of incorporation mentioned in the certificate, the company becomes a legal person
separate from its corporators or members; and there comes into existence a binding contract
between the company and its members as evidenced by the Memorandum and Articles of
Association.28 It has perpetual existence until it is dissolved by liquidation or struck out of the Register
and has a common seal. A shareholder who buys shares does not buy any interest in the property of
the company. A company is a separate juristic entity distinct from the shareholders.29
A company registered under the Companies Act is a legal person, separate and distinct from its
individual members. Property of the company is not the property of the shareholders. A shareholder
has merely an interest in the company arising under its articles of association, measured by a sum of
money for the purpose of liability, and by a share in the profit. A shareholder may not therefore be
entitled to move a petition for infringement of the rights of the company, unless by the action
impunged by him, his rights are also infringed. But in certain cases a writ petition will be maintainable
by the company or its shareholders, e.g., if the State action impairs the rights of the shareholders as
well as the company the Court will grant relief.30
rights guaranteed by Article 19 of the Constitution of India.31 But a shareholder is entitled to the
protection of Article 19 and to apply under Article 226 along with the company for protection of his
rights. A limited company is more than a mere juridical entity, with a personality in law of its own; that
there is room in company law for recognition of the fact that behind it, or amongst it, there are
individuals, with rights, expectations and obligations inter se which are not necessarily submerged in
the company structure.32
The trend is in the direction of holding that in the matter of fundamental freedoms guaranteed by
Article 19 of the Constitution of India, the rights of a shareholder and the company which the
shareholders have formed are rather co-extensive and the denial to one of the fundamental freedom
would be denial to the other.33
See Notes on Lifting the veil to ascertain Enemy Character, Nationality, Domicile and Residence in
later paragraphs.
[s 9.10] Company can own property
A company is a person and can enforce its property rights under Article 226 of the Constitution of
India.34It is legally permissible for a company to own a business in a name other than its registered
name.35
See also Notes under Property of the Company in later paragraphs.
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As per section 34(2) of the 1956 Act, from the date of incorporation subscribers and members of the
company shall be a body corporate by the name contained in the memorandum, capable of
exercising all the functions of an incorporated company, and having perpetual succession and a
common seal. Under section 9 of the 2013 Act, vide the Companies (Amendment) Act, 2015, the
words “and a common seal” were omitted with effect from 29-05-2015.
[s 9.11.1] Department’s View—Common Seal—Clarification of section 34 read with sections

50 and 147 of the Companies Act, 1956.
The relevant provisions of the Act clearly show that a company registered under the Act should have only one common
seal for use within India. [Letter No. 8/4(255)/63-PR, dated 25-01-1963 : Govt. of India publication, Clarifications and
[s 9.12] Contracts and Deeds, Investments, Seal, etc.
Sections 46 to 50 of the 1956 Act (sections 9, 22, 187, of the 2013 Act) contain provisions for
execution of contracts, deeds, etc., on behalf the company.
The company is a legal entity. Where directors in their individual capacity agreed to sell their shares,
the company was not a party to the impugned contract. There was no privity of contract between the
company and directors. The obligations arising out of the said agreement were the personal
obligations of the directors. The company was not bound by obligations under the contract.36
[s 9.13] Perpetual Succession
The members may come and members may go but the company goes on forever. Section 34(2) of
the 1956 Act (section 9 of the 2013 Act) and decisions dealt with above manifest that the company is
a body corporate having perpetual succession. It has perpetual existence until it is dissolved by
liquidation or struck out of the Register. A shareholder who buys shares does not buy any interest in
the property of the company.
The company has been defined under section 3 of the 1956 Act (section 2(20) of the 2013 Act). It is a
juristic person. The company is managed by the Board of directors. The powers of Board of directors
are given under section 291 of the 1956 Act (section 179 of the 2013 Act). The Board is empowered
to exercise all such powers and do all such acts and things as the company is authorised to exercise.
The members of the Board of directors may change. They may appoint another person as managing
director of the company. This, however, does not cancel or change the terms of a contract which a
person has entered into for the company or on behalf of the company.37
See detailed Notes on Suits after Corporate entity, Corporate veil and Lifting the corporate veil dealt
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with below.
[s 9.15] Corporate entity
Section 34 of the 1956 Act (section 9 of the 2013 Act) recognises the independent corporate
existence of a company as explained in and emphasised by the House of Lords in the case of
Salomon v Salomon & Co Ltd In that case Salomon, a leather merchant and manufacturer of boots,
was the owner of a business. He was solvent. He converted his business into a limited liability
company under the name and style of “Salomon & Company Ltd”. Of the total share capital he took
20,000 shares and his wife and five children took one share each. No other shares were issued.
Salomon received mortgage debentures of £ 10,000 in part payment for the purchase of his business
by the company. Due to trade depression the company was in financial difficulty. The company went
into liquidation. Salomon claimed preferential right being the debenture holder over certain unsecured
creditors of the company. The unsecured creditors disputed his right to priority on the ground that the
company was a “one-man company” and a sham. The trial judge held that the company was a mere
alias or agent for Salomon and that Salomon was bound to pay the unsecured creditors of the
company out of his own pocket, notwithstanding that his shares had all been fully paid up. The
Appeal Court affirmed the decision on the ground that the whole claim was a fraud on the Act and
that it was never intended by the Legislature that a company should consist of one substantial person
and six mere dummies having no real interest. On further appeal, the House of Lords reversed the
decision on the ground that there was nothing in the Act as to the degree of interest which may be
held by each of the seven or as to the proportion of interest or influence possessed by one or majority
of the shareholders over the others. In the result, Salomon had a priority, being a debenture holder,
over other unsecured creditors.39
In the case of Ebbw Vale U.D.C. v South Wales Traffic Area Licensing Authority all the shares except
two of the bus company were acquired by the British Transport Commission under a provision of the
Transport Act, 1947. The bus company thereafter applied to the Licensing Authority for permission to
increase the fares but the Ebbw Vale U.D.C. objected on the ground that as the services provided by
the company were in fact provided by the British Transport Commission the Licensing Authority had
no jurisdiction to hear the application. The Court of Appeal held that the bus company had retained its
character as a separate legal entity and did not act as agent of the Commission and that the services
were provided by the company and not by the Commission. The licensing authority was the proper
authority to consider the application. In case an application was made by the Commission under the
Transport Act, it would have been heard by the Transport Tribunal.40
In Lee v Lee’s Air Farming Ltd the company was formed for the purposes of carrying the business of
aerial top-dressing. Lee, a qualified pilot, held all except one of the shares of the company and by the
Articles was appointed Governing Director of the company and the chief pilot. Lee was killed while
operating the company’s aircraft and his widow claimed compensation. The New Zealand Workers’
Compensation Act, 1922 required an employer to pay the compensation on the death of a “worker”.
The word “worker” was defined as “any person who is entered into work under a contract of service
with an employer”. The company opposed the claim on the instruction of its insurers on the ground
that Lee was not a worker within the definition as the same person could not be both employer and
employee. The Judicial Committee of the Privy Council reversed the decision of the New Zealand
Court of Appeal and held that there was a valid contract of service between Lee and the company,
Lee was “worker” and as such his widow was entitled to compensation.41
[s 9.16] Corporate veil
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The foregoing decisions manifest that there exists a veil of incorporation between the company and
its members. This veil is opaque and impassable as an iron curtain. The veil is a partition or curtain
between the company and its members. Following this principle the courts in most cases have
refused to go behind the curtain and see who are the real persons composing the company. Thus,
where a company took a lease of premises for the residence of its controlling director and
shareholder it was held that it was not entitled to the protection of the Rent Act for an artificial person
cannot be a “personal resident”.42
The lease agreements entered into by two group companies, being separate and distinct legal
entities could not be held to be invalid merely because the said documents were signed by one
person who was the director of both the legal entities and was authorised to enter into contract by the
articles.43
Where a trader sold his business to a company it was held that he ceased to have an insurable
interest in its assets even though he was the beneficial owner of all the shares and in case of
accident if he did not assign the policy also to the company, nobody would get anything.44 Similarly, a
holding company will not have an insurable interest in the assets of its subsidiary.45
For infringement of any of the fundamental rights conferred by Article 19 of the Constitution of India a
company will have no remedy either under Article 226 or Article 32 of the Constitution of India, even
though all the shareholders of the company are citizens of India. Thus, sometimes “Corporate Entity”
works like a boomerang and hits the man who was trying to use it.46
Though the complete separation of the company and its members has never been doubted, there
have been cases in which the Legislature and to some extent the Courts have allowed the veil of
incorporation to be lifted.
[s 9.17] Lifting the corporate veil
Though the courts are generally precluded by the provisions of section 34 of the 1956 Act (section 9
of the 2013 Act) and the principles laid down since Salomon’s case47 from treating a company as the
“alias, agent, trustee or nominee” of its members, nevertheless the Companies Act and the Courts
have made inroads into the principle of corporate entity and lifted the corporate veil to see the real
persons behind the veil in certain cases.
the individual members recognised for who they are in certain exceptional circumstances. Generally
and broadly speaking, the corporate veil may be lifted where (1) a statute itself contemplates lifting
the veil, or (2) fraud or improper conduct is intended to be prevented, or (3) a taxing statute or a
beneficent statute is sought to be evaded or (4) where associated companies are inextricably
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connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate
the classes of cases where lifting the veil is permissible, since that must necessarily depend on the
relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the
involvement of the element of the public interest, the effect on parties who may be affected, etc.
“Lifting the veil” is not necessary or permissible beyond the essential requirement of the Act.49
It is well settled that, in law, a company is a legal entity distinct from its members. It was so laid down
by the House of Lords in 1897 in the leading case of Salomon v Salomon & Co Ltd Ever since this
decision has been followed by the courts in England as well as in India. But there have been inroads
in the doctrine of corporate personality propounded in Salomon’s case by statutory provisions as well
as by judicial pronouncements. By the process, commonly described as “lifting the corporate veil”, the
law either goes behind the corporate personality to the individual members or ignores the separate
personality of each company in favour of the economic entity constituted by a group of associated
companies. This course is adopted when it is found that the principle of corporate personality is too
flagrantly opposed to justice, convenience or the interest of the Revenue. This concept of “lifting the
veil” is described as “piercing the veil” in the United States.50
The principle laid down in Salomon’s case more than a century ago in 1897 by the House of Lords
that the company is at law a different person altogether from the subscribers who have limited
liability, is the foundation of joint stock company and a basic incidence of incorporation both under the
English law and Indian law. Lifting the veil of incorporation under statutes and decisions of the courts
is an equally settled position of law. This is more readily done under American law. To look at the
realities of the situation and to know the real state of affairs behind the facade of the principle of the
corporate personality, the courts have pierced the veil of incorporation.51
The judicial approach in cracking open the corporate shell is somewhat cautious and circumspect. It
is only where the legislative provision justified the adoption of such a course that the veil has been
lifted. In exceptional cases where courts have felt themselves able to ignore the corporate entity and
to treat the individual shareholder as liable for its acts, the same course has been adopted. It would
not be possible to evolve a rational, consistent and inflexible principle which can be invoked in
determining the question as to whether the veil of the corporation should be lifted or not. Broadly
stated, where fraud is intended to be prevented, or trading with an enemy is sought to be defeated,
the veil of a corporation is lifted by judicial decisions and the shareholders are held to be the persons
who actually work for the corporation.52
That Court has observed that:
the doctrine of piercing the veil allows the Court to disregard the separate legal personality of a company and impose
liability upon the persons exercising real control over the said company. However, this principle has been and should
be applied in a restrictive manner, that is, only in scenarios wherein it is evident that the company was a mere
camouflage or sham deliberately created by the persons exercising control over the said company for the purpose of
avoiding liability. The intent of piercing the veil must be such that would seek to remedy a wrong done by the persons
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controlling the company. The application would thus depend upon the peculiar facts and circumstances of each case.53
Broadly speaking, to prevent fraud or trading with enemy and in taxation matters the corporate veil
has been lifted. The courts have also lifted the corporate veil in cases of criminal or quasi-criminal
cases, trust matters, and to ascertain whether an agreement is void for being against the public policy
of the country.
[s 9.18] Corporate veil, when can be lifted
The exceptional circumstances in which the corporate veil may be lifted are given below.
(1) Lifting the veil where Statute itself contemplates.
The corporate veil may be lifted where a statute itself contemplates lifting the veil.54
Companies Act (1956 and 2013 Act), Taxing, Welfare and other Statutes often contemplate
provisions for lifting the corporate veil in certain cases. Lifting the veil is not necessary or permissible
beyond the essential requirement of the Act. Where a non-resident company sought to make
investment in India. The FERA [now the FEMA*] and portfolio investment scheme provided for lifting
the veil to find out if at least 60%. of the shares were held by non-residents of Indian nationality or
origin. In such a case the corporate veil could be lifted to discover the nationality or origin of the
shareholders to that extent and no more.55
The 1956 Act and 2013 Act contemplate or provide for certain circumstances in which the corporate
veil may be lifted and the members or directors of the company shall be personally liable for certain
transactions as explained below.
Section 7(7) of the Companies Act, 2013
Where a company has been incorporated by furnishing any false or incorrect information or
representation or by suppressing any material fact or information or by any fraudulent action, the
Tribunal may direct that liability of the members shall be unlimited.
Civil liability for mis-statements in prospectus [Section 35 of the Companies Act, 2013]
Sub-section (3) of section 35 of the 2013 Act provides that where it is proved that a prospectus has
been issued with intent to defraud the applicants for the securities of a company or any other person
or for any fraudulent purpose, every person referred to in section 35(1) of the 2013 Act shall be
personally responsible, without any limitation of liability, for all or any of the losses or damages that
may have been incurred by any person who subscribed to the securities on the basis of such
prospectus.
Damages for fraud [Section 75 of the Companies Act, 2013]
Where a company fails to repay the deposit or part thereof or any interest thereon referred to in
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section 74 of the 2013 Act within the time specified in section 74(1) of the 2013 Act or such further
time as may be allowed by the Tribunal under section 74(2) of the 2013 Act, and it is proved that the
deposits had been accepted with intent to defraud the depositors or for any fraudulent purpose, every
officer of the company who was responsible for the acceptance of such deposit shall, be personally
responsible, without any limitation of liability, for all or any of the losses or damages that may have
been incurred by the depositors.
Investigation of ownership of company [Section 216 of the Companies Act, 2013]
The Central Government may appoint inspectors to investigate for the purpose of determining the
true persons who are or have been financially interested in the success or failure, whether real or
apparent of the company, or who are or have been able to control or to materially influence the policy
of the company.
Actions to be taken in pursuance of inspector’s report [Section 224 of the Companies Act,
2013]
As per section 224(5) of the 2013 Act, where the report made by an inspector (under section 223 of
the 2013 Act) states that fraud has taken place in a company and due to such fraud any director, key
managerial personnel, other officer of the company or any other person or entity, has taken undue
advantage or benefit, the Central Government may file an application before the Tribunal for
appropriate orders, and also for holding such director, key managerial personnel, officer or other
person liable personally without any limitation of liability.
Liability for fraudulent conduct of business [Section 339 of the Companies Act, 2013]
If in the course of the winding up of a company, it appears that any business of the company has
been carried on with intent to defraud creditors of the company or any other persons or for any
fraudulent purpose, the Tribunal, may, if it thinks it proper so to do, declare that any person, who is or
has been a director, manager, or officer of the company or any persons who were knowingly parties
to the carrying on of the business in the manner aforesaid shall be personally responsible, without
any limitation of liability, for all or any of the debts or other liabilities of the company as the Tribunal
may direct. Under the 1956 Act, section 542 provided for the liability for fraudulent conduct of
business.
Prohibition of association or partnership of persons exceeding certain number [Section 464

of the Companies Act, 2013]
Every member of an association or partnership carrying on business in contravention of section

464(1) of the 2013 Act shall be punishable with fine which may extend to Rs 1 lakh and shall also be
personally liable for all liabilities incurred in such business. Under the 1956 Act, section 11(4)
provides for the personal liability of members carrying on business in contravention of section 11 of
the 1956 Act.
Reduction of Members below legal minimum [Section 45 of the Companies Act, 2013]
The liability of the members is limited to the unpaid amount of face value of shares taken by him or
the amount he has guaranteed. In an unlimited company a member’s liability is like that of a partner
in a firm, it is for the entire debt of the company. Without a written consent the company cannot
increase the liability of a member [section 38 of the 1956 Act]. Under the 2013 Act, there are no
provisions directly corresponding to sections 38 and 45 of the 1956 Act.
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Section 45 of the 1956 Act, however, provides that if at any time the number of members of a
company is reduced below legal minimum, i.e., (a) below 7 in the case of a public company, or (b)
below 2 in the case of a private company, and the company carries on business for more than six
months, every member of the company after those six months shall be severally liable for the debts
contracted during that time.
For instance, if a public company carries on business with less than seven members for more than
six months, every member who knows of this fact will become liable to an unlimited extent for all the
debts contracted by the company in so carrying on business from the seventh month onwards. He
will enjoy the limited liability privilege for the first six months only.
Publication of name by company [Section 147 of the Companies Act, 1956
If an officer of the company or any person on its behalf signs or authorises the signing of any bill of
exchange, hundi, promissory note, cheque, order for money or goods, etc., without the name of the
company mentioned, such officer or person is personally liable to the holder unless the company
pays the same. [section 147(4) of the 1956 Act]. Under the 2013 Act, section 12(3) imposes
obligations upon the company to paint, print, engrave, etc. its name on business letters, billheads,
hundies, promissory notes, etc. While under the 1956 Act, the officer of the company was personally
liable to the holder unless the company paid, under the 2013 Act, if any default is made in complying
with the provisions of section 12 of the 2013 Act, the company and every officer who is in default
shall be liable to a penalty of Rs 1,000 for every day during which the default continues but not
exceeding one lakh rupees. [section 12(8) of the 2013 Act].
Offences and Prosecution
Section 5 of the 1956 Act (section 2(60) under the 2013 Act), various provisions of the 1956 Act and
2013 Act, and penal provisions in various other Acts, contemplate that in case of offences by
companies persons/directors in charge of the management or charged with the responsibility of
complying with any of the provisions of the Act are held responsible for any contravention. Under
section 5 of the 1956 Act as substituted by Act 31 of 1988 and statutory offences even mens rea is
not required to be proved.
(2) Lifting the veil to prevent Fraud or Improper Conduct
The corporate veil may be lifted where fraud or improper conduct is intended to be prevented.56 The
courts would lift the corporate veil if the corporate personality is being used as a cloak for fraud or
improper conduct.57 The concept of corporate entity was evolved to encourage and promote trade
and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate
character is employed for the purpose of committing illegality or for defrauding others, the court would
ignore the corporate character and will look at the reality behind the corporate veil so as to enable it
to pass appropriate orders to do justice between the parties concerned.58
The corporate veil can be lifted so as to expose any persons to the liability who has committed a
fraud upon the public from their sheltered position. Where a company booked flats and acted
fraudulently with the intending purchasers, its Directors could be held personally liable for the same
though they acted in the name of company.59
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Where a fraud was committed by diversion of funds generated by group of companies inviting huge
investments from the public. For the protection of the investors the Police was directed to investigate
into the affairs of the company and by piercing the veil direction was given to freeze the bank
accounts of the companies and directors pending investigation with a view to repay investors. The
court directed the Securities and Exchange Board of India (SEBI) to intimate the banks not to permit
the respondents or the group of companies to operate their respective bank accounts.60
The court can lift the corporate veil to find out and expose the persons who were floating fraudulent
investment schemes at high returns in the name of the company. The court ordered the investigation
and also the seizure of the company’s assets.61
As held by apex court in a catena of decisions, in offences relating to the diversion of funds of
corporate bodies, the court can, no doubt pierce through and look at the reality behind the corporate
veil, to pass appropriate orders to do justice between the parties concerned, as the concept of
corporate entity was evolved to encourage and promote the trade and commerce, but not to commit
illegality or to defraud people. The lifting of corporate veil is permissible, only after filing of final
charge sheet and during the trial, in the light of material evidences. It may not be proper for the court
to lift the corporate veil and analyse such contentions of the petitioner while considering petition for
recalling the Non-bailable Warrant (NBW) against the petitioner, one of the directors of Anubhav
Agrotech Ltd. It is for the trial court to decide the question of lifting the corporate veil, at the
appropriate stage of the case.62
If the corporate personality is used as a cloak for fraud or improper conduct, the court can go behind
the veil. Where the protection of public interests is of paramount importance the court is entitled to go
behind the corporate personality. The State and National Consumer Disputes Redressal
Commissions were right in refusing to permit the two sole directors of two companies, being husband
and wife, to defend themselves under the cloak of corporate entity. The Commissions were right in
lifting the veil and identifying them as the persons responsible for committing the statutory offences
referred to in section 27 of the Consumer Protection Act, 1986 (68 of 1986).63
The doctrine of lifting the corporate veil or cracking open the corporate shell is not confined only to
cases of tax evasion and the court would be well within its right and indeed be justified in lifting even
the curtain rather than the veil and see what goes on behind it, concealed from the public gaze.
Surely, the court will refuse to allow the corporate entity principle to be used as an instrument of
fraud.64
It has been observed by the court that the evolvement of the concept of corporate entity was in order
to promote and encourage trade and commerce, but not to defraud people. Where the cloak of a
corporate entity was being used to defraud, lifting of the corporate veil was satisfied especially taking
into consideration that the defendant company was only a family arrangement of the remaining
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defendants.65
Where two firms and a company were acting in unison with consensus ad idem, therefore, if fraud
was committed by one of the firms the other two cannot feign ignorance and seek exoneration from
misdeeds. The Court observed “corporate veil can be pierced when behind the mask of the juristic
person; there are human agents, who by many permutations and combinations in business
establishment get wrongful gain, which ultimately heckles rule of law. The Court can even lift the
corporate veil to identify those persons behind the corporate personality, who by their manipulation
tend to demean the principles of justice and ethical business practices.”66
Company itself cannot ask for unveiling its own cloak
The principal grounds where the veil of corporate entity can be lifted are to protect the interest of the
revenue and also where the corporate personality is being blatantly used as a cloak for fraud or
improper conduct. However, it is not open to the company to ask for unveiling its own cloak and
examine as to who are the directors and shareholders and who are in reality controlling the affairs of
the company. Where the American company occupying premises as tenant merged into Indian
company for complying with directions restricting foreign shareholding the transferee company was
liable for eviction under section 14(1)(b) of the Delhi Rent Control Act, 1958 which provides for
eviction upon transfer of possession without the consent of the landlord.67
In a decision on Lifting the veil of Holding and Subsidiary companies, dealt with later, it has however
been held that the horizon of the doctrine of lifting of the corporate veil is expanding. It can be lifted
even at the invitation of the company itself.
Reconstruction, Amalgamation or Merger—Applicability of Rent Control Act—Lifting of

Corporate Veil
An application for sanction of Scheme for Amalgamation of American Company with Indian Company
was made. The Court could lift the veil where the Corporate Personality is used as a cloak for fraud
or improper conduct. However, the company, itself, cannot ask for lifting its own veil to determine
whether there has been no sub-letting or parting with the possession of the property by the American
Company. Where a fraud or trading with enemy is sought to be prevented the Court can lift the
corporate veil to see who are the persons involved and what are their activities. A person entitled to
make an application in any proceeding can request the Court to lift the corporate veil to see who are
the persons involved in the management of the affairs of the company or who are the real controllers
of the affairs of the company. Such persons may be held liable for any wrongful acts of the company.
A person aggrieved or having right under the Companies Act can pray for lifting the corporate veil to
see the real persons in the management or as to who are the directors and shareholders and who
are controlling the affairs of the company. However, the company itself cannot make the application
for lifting the corporate veil. In an Amalgamation two or more companies are fused or consolidated
into one by the process of merger, one company takes over the other. Reconstruction or
Amalgamation has no precise legal meaning. The question whether a winding up is for the purposes
of Reconstruction or Amalgamation depends upon the circumstances of the winding up. The Court
[the Tribunal (NCLT)] may sanction a Scheme of Amalgamation where under all the rights including
lease-hold rights of a transferor company vest in the Transferee Company. The Rent Control Act
applicable to such transfer of property is enforceable against Transferee Company in respect of the
immovable properties covered by the Rent Control Act. The landlord can take action against the
Transferee Company for eviction. The Court sanctioned a Scheme of Amalgamation of the two
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companies, where under the Leases, Rights of Tenancy or occupancy of the Transferor Company
vested in and had become the property of the Transferee Company. In spite of sanction of the said
Scheme of Amalgamation by the Court, the provisions of the applicable Rent Control Act, shall apply
and the Transferee Company was liable for eviction under the provisions of the applicable Rent
Control Act. So far as the lifting of corporate veil to see as to who are the Directors and Shareholders
and who are controlling the affairs of the company cannot be done on the application of the company
itself.68
However, for ascertaining the real purpose underlying the Scheme with a view to be satisfied and to
find out that the proposed Scheme of Compromise, Arrangement or Amalgamation is not violative of
any provision of law and is not contrary to public policy, the Court, if necessary, can pierce the veil of
apparent corporate purpose underlying the Scheme and can judiciously X-ray the same.69
Lifting of Corporate Veil—Common partners and directors
In an Auction for sale for sandalwood held by the respondent, the District Forest Officer (DFO), the
petitioner company was the successful Bidder and paid certain amount. At the time of taking delivery
the respondent issued a notice stating that two of its Directors in the petitioner company were
partners in another firm and the firm was liable to pay a huge amount towards Sales Tax and penal
interest and demurrage charges and called upon the company to show cause as to why the amount
paid by the petitioner at the Auction should not be adjusted against the account of the said firm. In a
writ petition filed by the petitioner the respondent was asked to pass final order pursuant to show
cause notice within the stipulated period. Respondent passed an order to the effect that the
confirmation issued was withheld until renewal of the Bank Guarantee by the firm or until disposal of
the pending appeal by the firm. On a writ petition the Court held that it could disregard the corporate
entity. The order of the District Forest Officer did not indicate as to why he considered the firm and
the company to be the same legal entity. Some partners in the firm being directors of the petitioner
company cannot establish that both the entities were the same. To come to any particular conclusion
many relevant facts such as the Date of incorporation of company, the Memorandum of Association,
Articles of Association, Names of promoters and the shareholders who had founded the company
and their relationship with the partners of the firm and the purposes for which the company was
incorporated would be material. These aspects were not considered while passing the order by the
Respondent Officer. The order was passed, the matter was remanded and the respondent Officer
(DFO) was directed to consider the matter afresh in view of the relevant circumstances.70
The issue that arose for consideration was whether the properties of the partners of the petitioner-
firm who are also the directors of two Pvt Ltd companies and partners of the assessee-firm, are liable
to be proceeded against for the sales tax arrears of the assesse firm. It was observed that as far as
the liability of the directors of the company is concerned, the company being a legal entity by itself
can sue and can be sued as a legal entity and any dues from the company have to be recovered only
from that company and not from its directors. Therefore, the court was of the view that the impugned
proceedings seeking to attach the properties of the petitioner-firm on the ground that the partners of
the petitioner-firm are also directors of two Pvt Ltd companies, cannot be sustained. The Court further
observed that where the liability of the properties of the partners of the petitioner-firm towards the tax
arrears of the assesse firm in which also they are partners, is concerned, since there are other
partners in the petitioner-firm apart from the common partners the entire properties of the petitioner-
firm cannot be proceeded against. However, the respective shares of the common partners of the
petitioner-firm, who are also partners in the assessee-firm can be attached.71
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Doctrine of piercing or lifting the veil
The Doctrine of piercing or lifting of the veil of a Corporate Personality marks a change in the attitude
that the law as originally adopted towards the concept of separate entity or personality of the
corporation. In suitable cases, the Court will lift the corporate veil.72
(3) Lifting the veil to ascertain Enemy Character
The courts would lift the corporate veil to ascertain the enemy character. A company registered in
India may be an alien enemy if its control is in the hands of alien enemies. The number of alien
enemy shareholders is important in ascertaining the status of the company. The enemy or neutral
character of a company in times of war will be determined by reference to the natural persons who
are members or persons really in control.73
The judicial attitude towards lifting the corporate veil has been divided by a learned scholar in
following categories: (i) peeping behind the veil; (ii) penetrating the veil; (iii) extending the veil; and
(iv) ignoring the veil. The decisions relating to determination of residence or enemy status of a
company have been placed by him in the category of “peeping behind the veil” where the court peeps
behind the veil and concludes from the shareholders or from the people in control of the company,
something about the nature of the company.74
Nationality
rights guaranteed by Article 19 of the Constitution of India. All citizens of a State are nationals of that
State but all nationals are not necessarily citizens of that State. The corporations may have
nationality in accordance with the country of their incorporation; but that does not necessarily confer
citizenship on them. The citizens can only be natural persons. The fact that corporations may be
nationals of the country for purposes of international law will not make them citizens of the country for
purposes of municipal law or the Constitution. It is not permissible to pierce the veil of the corporation
to determine the citizenship of the members and then to give the corporation the benefit of Article 19
of the Constitution.77
Domicile
The domicile of the company registered in India will be India and that will remain so throughout the
company’s existence and it cannot be changed. A Company’s domicile is the place of its registration,
and it retains that domicile so long it exists.78Even though a company acquires enemy character, it
will be subject to the law of the place where it was registered.79
(4) Lifting the veil in Tax Matters, viz. , Tax Evasion or Avoidance
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The corporate veil may be lifted where a taxing statute or a beneficent statute is sought to be
evaded.80 It is true that from the juristic point of view the company is a legal personality entirely
distinct from its members and is capable of enjoying rights and being subjected to duties which are
not the same as those enjoyed or borne by its members. But in certain exceptional cases the court is
entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal
facade. For example, the court has power to disregard the corporate entity if it is used for tax evasion
or to circumvent tax obligation or to perpetrate fraud.81
Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot
be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to
avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay
the taxes honestly without resorting to subterfuges. It is up to the court to take stock to determine the
nature of the new and sophisticated legal devices to avoid tax and to expose the devices for what
they really are and to refuse to give judicial benediction.82
It is true that tax avoidance in an underdeveloped or developing economy should not be encouraged
on practical as well as ideological grounds. One would wish, as noted by O. Chinnappa Reddy J. in
the McDowell’s case that one could get the enthusiasm of Justice Holmes that taxes are the price of
civilization and one would like to pay that price to buy civilization. But the question which many
ordinary taxpayers very often, in a country of shortages with ostentatious consumption and
deprivation for the large masses, ask is, does he with taxes buy civilization or does he facilitate the
waste and ostentation of the few. Unless waste and ostentation in Government spending are avoided
or eschewed, no amount of moral sermons would change people’s attitude to tax avoidance.83
Even though a corporation might be a legal personality distinct from its members, the court is entitled
to lift the mask of corporate entity if the conception is used for tax evasion, or to circumvent tax
obligation or to perpetrate a fraud. It is true that tax planning may be legitimate provided it is within
the framework of the law. Colourable devices cannot be part of tax planning and it is wrong to
encourage or entertain the belief that it is honourable to avoid the payment of tax by dubious
methods. It is the obligation of every citizen to pay the taxes honestly without resorting to
subterfuges. It is also true that, in order to create an atmosphere of tax compliance, taxes must be
reasonably collected and when collected, should be utilised for proper expenditure and not wasted.It
is, however, necessary to remember that one must find out the true nature of the transaction. It is
unsafe to make bad laws out of hard facts and one should avoid subverting the rule of law.84
economic realities behind the legal facade.85
When the Assessing Officer enters upon a scrutiny of the transaction, in the task of determining
whether a transaction is a sham or illusory transaction or a device or ruse, he is entitled to penetrate
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the veil covering it and ascertain the truth.86
In certain cases the Court is entitled to lift the veil of corporate entity and to pay regard to the
economic realities beyond the legal facade. Any Director who is a party to a fraud or to the
commission of any other tort is personally liable. Where the Excise Department issued a show cause
notice on the company and its Directors alleging removal of goods without payment of duty and
manipulating accounts and sought to realise the Excise Duty and penalty from the Directors, the
petition by the Directors challenging the show cause notice was held not maintainable. It was
permissible to lift the corporate veil of the company to determine whether a particular Director could
be proceeded against in pursuance of the show cause notice.87
In Vodafone v UOI, (2012) 170 Com Cas 369 (SC), the Apex Court observed:
In the application of a judicial anti-avoidance rule, the Revenue may invoke the “substance over form” principle or
“piercing the corporate veil” test only after it is able to establish on the basis of the facts and circumstances
surrounding the transaction that the impugned transaction is a sham or tax avoidant. To give an example, if a structure
is used for circular trading or round tripping or to pay bribes then such transactions, though having a legal form, should
be discarded by applying the test of fiscal nullity. Similarly, in a case where the Revenue finds that in a Holding
Structure an entity which has no commercial/business substance has been interposed only to avoid tax then in such
cases applying the test of fiscal nullity it would be open to the Revenue to discard such inter-positioning of that entity.
However, this has to be done at the threshold. In this connection, we may reiterate the "look at" principle … in which it
was held that the Revenue or the Court must look at a document or a transaction in a context to which it properly
belongs to. It is the task of the Revenue/Court to ascertain the legal nature of the transaction and while doing so it has
to look at the entire transaction as a whole and not to adopt a dissecting approach. The Revenue cannot start with the
question as to whether the impugned transaction is a tax deferment/saving device but that it should apply the "look at"
test to ascertain its true legal nature … . Applying the above tests, we are of the view that every strategic foreign direct
investment coming to India, as an investment destination, should be seen in a holistic manner. While doing so, the
Revenue/Courts should keep in mind the following factors: the concept of participation in investment, the duration of
time during which the Holding Structure exists; the period of business operations in India; the generation of taxable
revenues in India; the timing of the exit; the continuity of business on such exit. In short, the onus will be on the
Revenue to identify the scheme and its dominant purpose. The corporate business purpose of a transaction is
evidence of the fact that the impugned transaction is not undertaken as a colorable or artificial device. The stronger the
evidence of a device, the stronger the corporate business purpose must exist to overcome the evidence of a device.
It was further observed:
Once the transaction is shown to be fraudulent, sham, circuitous or a device designed to defeat the interests of the
shareholders, investors, parties to the contract and also for tax evasion, the Court can always lift the corporate veil and
examine the substance of the transaction…the Court is entitled to lift the veil of the corporate entity and pay regard to
the economic realities behind the legal facade meaning that the court has the power to disregard the corporate entity if
it is used for tax evasion….the corporate veil may be lifted where a statute itself contemplates lifting of the veil or fraud
or improper conduct intended to be prevented or a taxing statute or a beneficial statute is sought to be evaded or
where associated companies are inextricably as to be, in reality part of one concern….Lifting the corporate veil doctrine
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can, therefore, be applied in tax matters even in the absence of any statutory authorization to that effect. Principle is
also being applied in cases of holding company - subsidiary relationship- where in spite of being separate legal
personalities, if the facts reveal that they indulge in dubious methods for tax evasion.
(5) Lifting the veil in case of avoidance of Welfare Legislation
It is the duty of the court, in every case where ingenuity is expended to avoid taxing and welfare
legislations, to get behind the smoke-screen and discover the true state of affairs. The court is not to
be satisfied with form and leave alone the substance of a transaction. Avoidance of welfare
legislation is as common as avoidance of taxation and the approach in considering problems arising
out of such avoidance has necessarily to be the same. Where a subsidiary company was created for
avoidance of welfare legislation and all the investments were transferred to it. It was held that the
subsidiary company was only a device to reduce the amount to be paid as bonus to the workmen.
The corporate veil was ignored, dividends received by the subsidiary company were treated as the
dividends of the holding company, and bonus was calculated on that basis.88
Where a transaction of sale of immovable property by a company in favour of wives of the directors
was alleged to be sham and collusive the court will be justified in piercing the veil of incorporation to
ascertain the true nature of the transaction and whether it was genuine and bona fide or whether it
was between the husbands and the wives behind the facade of the separate entity of the company.
The High Court was right in holding that the transaction was sham, bogus and fictitious and the suit
property remained the property of the company and, therefore, vested in the Central Government
under section 3(1) of the Coal Mines (Nationalisation) Act, 1973 (26 of 1973).89
(6) Lifting the veil in Holding, Subsidiary and Associated companies
reality, part of one concern.90 A holding company and its subsidiary are separate legal entities. But,
for certain purposes, affairs of a subsidiary have been treated by the Acts as affairs of the holding
fraud.91
Where a Director T and his family members created several corporate bodies. The court lifted the
corporate veil and treated all of them as one entity belonging to and controlled by T and his family
where it was found that these corporate bodies were merely cloaks behind which lurked T and/or
members of his family and the device of incorporation was really a ploy adopted for committing
illegalities and/or to defraud people. The properties of the companies were attached in order to do
justice to the persons whom the Directors of the company had duped by allotting the same flats to
more than one person in spite of prohibitory orders.92Where a fraud was committed by diversion of
funds generated by group of companies inviting huge investments from the public. For the protection
of the investors the Police was directed to investigate into the affairs of the company and by piercing
the veil direction was given to freeze the bank accounts of the companies and directors pending
investigation with a view to repay investors. The court directed SEBI to intimate the banks not to
permit the respondents or the group of companies to operate their bank accounts.93
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The concept of lifting the corporate veil is a changing concept. The veil of corporate personality, even
though not lifted sometimes, is becoming more and more transparent in modern jurisprudence. It is
high time to reiterate that, in the expanding horizon of modern jurisprudence, the lifting of the
corporate veil is permissible. Its frontiers are unlimited. It must, however depend primarily on the
realities of the situation. The aim of the legislation is to do justice to all the parties. The horizon of the
doctrine of lifting of the corporate veil is expanding. It can be lifted even at the invitation of the
company itself. Where Hindalco made a wholly owned subsidiary company Renusagar in order to
fulfil the conditions of industrial licence of Hindalco, for certain purposes the State or the Electricity
Board also treated Hindalco and Renusagar as one unit. The corporate veil was lifted. In facts of the
case, Hindalco and its wholly owned subsidiary Renusagar were treated as one concern and the
reduced rate leviable to such power consumption was made applicable.94
economic realities behind the legal facade.95In case of holding company and its subsidiary the
corporate veil can be lifted to see their relationship and to ascertain whether they are “related
persons”.96
Where a company formed by Joint Venture of group of Indian companies and wholly owned
subsidiary of Singapore Telecom bid for a contract to supply telephone directories. The company was
excluded from consideration on the ground that the company had no experience to its name. The
corporate veil could be lifted and the experience of the shareholders could be treated as experience
of the company.1
It is a matter of ordinary prudence that the experience of a body corporate is always that of the
persons manning the body corporate and not of the body corporate itself. Where promoter company
stated in prospectus to have experience of 25 years as it was formed by taking over business of
partnership formed in 1966 there was no mala fide intention or mis-statement in prospectus. There
was no intention to defraud public. The relief was therefore granted.2
The modern tendency is where there is identity and community of interest between companies in the
group, especially where they are related as holding company and wholly owned subsidiary or
subsidiaries, to ignore their separate legal entity and look instead at the economic entity of the whole
group tearing of the corporate veil. While a subsidiary company has a distinct legal personality, this
does not suffice to dispose of the possibility that its behaviour might be imputed to the parent
company. Such may be the case in particular when the subsidiary, although being a distinct legal
personality, does not determine its behaviour on the market in an autonomous manner but essentially
carries out the instructions given to it by the parent company. When the subsidiary does not enjoy
any real autonomy in the determination of its course of action on the market, it is possible to say that
it has no personality of its own and that it has one and the same as the parent company. An English
company covenanted to supply technical know-how exclusively to an Indian company. English
company during subsistence of contract became subsidiary of another English company. Holding
English company was having a subsidiary in India doing the same business. The question was
whether covenant for exclusive supply to Indian company was violated. After piercing the veil and
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removing the smoke-screen, it has to be ascertained whether their activities stood apart and the
subsidiaries have not been functioning with the directing mind and the will of the holding company to
ascertain as to whether it could be said that the subsidiary’s manufacturing process was the process
of the holding company or of another subsidiary company.3
Where the small scale industries were given certain exemptions only if the company owning the
industry was not subsidiary or controlled by a group of persons or companies, the court will lift the
corporate veil of a company to see whether it was a subsidiary of another company and therefore not
entitled to the proposed exemptions. But, a director in one company is also a director in another
company does not make it a subsidiary. To say that a company is subsidiary of the other, a definite
finding must be recorded that the Board of directors of one were controlling the other.4
Where a subsidiary is wholly owned by principal company which has a pervasive control over it and
the former acts as the hand and voice of the latter, the subsidiary in that event would be nothing but
an instrumentality, rather a part, of the principal company. The two in that event would have to be
treated as one concern. Contemporary trend shows that the lifting of the corporate veil is permissible
whenever public interest so demands. Courts have been pragmatic in their approach in unveiling
companies, especially the subsidiary companies to see their real face in the interests of justice.
Where by interim order of the court, a U.S. company was restrained from entering into joint-venture
agreement with any other party in India. U.S. company sought approval under the Electronic
Hardware Technology Park Scheme to set up wholly owned subsidiary in India. It was held to be not
a case of joint-venture. The subsidiary and parent company were treated as one concern. The interim
order in suit was not violated and approval by the Indian Government could not be restrained.5
Since a holding and subsidiary company relationship necessarily implies great control by the former
over the latter, courts have held that use of a trade mark by a subsidiary can fairly be treated as the
use by the holding company.6
For wrongful acts of a subsidiary by lifting the corporate veil the holding company can be proceeded
against as if it is responsible for the conduct of the affairs of the subsidiary. The holding company
was engaged in the same class of business and it formed subsidiary. It had obligation to conduct the
business of the subsidiary fairly. For wrongful loss to the subsidiary the holding company may be held
liable.7
The veil can be lifting with a view to making the holding company liable for the commitments of its
subsidiary.8
Where shares in the Indian company were held by subsidiary of a foreign company. The foreign
company and its nominee director on Board of the Indian company filed suit against directors of the
Indian company for diversion of funds. The plaintiff director claimed to be beneficial holder of benami
property invoking the principle of lifting the corporate veil. Foreign company and nominee director
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were not registered shareholders of the Indian company. The court refused to lift corporate veil and
ascertain the status of the director in respect of the benami property. The Court would not lift the veil
at the instance of a person having no right of relief or whose name does not appear in the register of
members of the company to enable him to show his beneficial interest in company through a chain of
inter-corporate investments.9
Holding and subsidiary companies are independent incorporated entities. The holding company
cannot be made liable for the dues of the subsidiary company. The sums due to the Employees’
Provident Fund by the subsidiary company cannot be recovered from the holding company.10
Where a company was blacklisted on account of being a subsidiary of a blacklisted company, it was
observed that the exercise for determining whether a company is a subsidiary of another company
has to be undertaken in the context of section 4 of the 1956 Act. Merely because a director was
common to the companies, does not make a company subsidiary to another. The question of
blacklisting is a serious one and before any person or company is blacklisted in respect of dealings
with the government, that person or company must be provided an opportunity of hearing.11
(7) Agency, Trust, Contractual Obligations and other cases
The courts have lifted the corporate veil in several other cases illustrated below.
(i) if agency can be established in fact either in respect of particular transactions or the whole of the
company’s business;12 (ii) to impress company’s property with the terms of a trust;13 (iii) to prevent
deliberate evasion of contractual obligations.14
The courts have, however, often lifted the veil for the benefit of the members of the company than for
the benefit of the outside creditors.15
The courts have also lifted or pierced the corporate veil for determination of a company’s residence,
in cases of criminal or quasi-criminal cases, trust matters, to ascertain whether an agreement is void
for being against the public policy of the country, etc. The English cases have often pierced the veil to
serve the real aim of the parties and for public purposes.16
The principle of lifting the corporate veil is of general application and not confined to the Companies
Act or any Taxation Act. The principle can be resorted to in all cases depending upon the relevant
statutory or other provisions, the object sought to be achieved, the impugned conduct, the
involvement of the element of the public interest, the effect on parties who may be affected, etc. The
lifting the veil is not necessary or permissible beyond the essential requirement of the Act.17
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A non-resident company sought to make investment in India. The FERA [FEMA*] and portfolio
investment scheme provided for lifting the veil to find out if at least 60%. of the shares were held by
non-residents of Indian nationality or origin. In such a case the corporate veil could be lifted to
The policy and purpose of the Foreign Exchange Regulations is to attract investment by Non-resident
Indians. The High Court will not lift the veil if it goes against that policy. The Court will refuse to
examine whether the purchase by one foreign company of shares of another foreign company would
amount to purchase of shares of an Indian subsidiary company.19
See also other cases under Property, Liability, etc., hereinafter.
(8) Lifting the veil in case of Contempt of Court
Wilful disobedience of a Court Order will be a civil contempt by the company under the Contempt of
Courts Act, 1971 (70 of 1971) as well as Article 215 of the Constitution. Even though the High Court
Rules provide for execution of the order as a decree. The punishment for contempt does not absolve
a contemner from his liability for wrongful acts.20
Where the court issued an injunction against A and B against dealing with third and fourth storeys of
a building, they formed a private company and effected the transfer. The Court held that the
corporate veil was being blatantly used as a cloak to wilfully disobey the orders of the Court—an
improper purpose. A wilful act means an intentional and deliberate act. Lifting the corporate veil, in
such a situation, was imperative to punish the improper conduct. Once the corporate veil was lifted, it
was crystal clear that the orders of the Court were disobeyed by the respondents A and B, the two
ladies, who had promoted the private company and who were the only shareholders and Directors of
the company. The respondents were guilty of flagrant disobedience of the orders of the court. It was
contempt of heinous character. For such contempt, the sentence of fine would not meet the ends of
justice. The apology tendered by A and B after the conclusion of the arguments was no apology, it
was an after-thought and a mere device to escape punishment and did not purge the contempt. The
Court directed A and B to be detained in civil prison for 15 days.21
Section 12 of the Contempt of Courts Act, 1971 contains specific provision for contempt action
against persons in charge of the management or control of companies. Even though in 1952 Act
there was no specific provision, the Supreme Court held that a command to a Corporation is in fact a
command to those who are officially responsible for the conduct of its affairs. If they, after being
apprised of the order directed to the Corporation, prevent compliance or fail to take appropriate
action, within their power, for the performance of the duty of obeying those orders, they and the
corporate body are both guilty of disobedience and may be punished for contempt. For failure to
discharge decrees awarded under the Consumer Protection Act, 1986, the State and National
Consumer Disputes Redressal Commissions were right in lifting the veil and identifying the persons
responsible for committing the statutory offences referred in section 27 of the Consumer Protection
Act, 1986 (68 of 1986).22
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Where in a writ petition against a Sick industrial company under the BIFR, the court ordered the
company to pay its workers’ wages by a certain date. The company did not comply with the order. It
was held that there was wilful disobedience of court’s order. The order was a command,
disobedience of which attracted contempt proceedings. All the Directors including Nominees of the
Financial Institutions were held guilty of neglect. The Nominee Directors’ apology was accepted and
the Directors were cautioned. Promoter Directors were awarded sentence of imprisonment for one
month and fined.23A company may be liable to punishment for Contempt of Court committed by the
employees.24
(9) Government Company
The term company under the 1956 Act includes company in existence in 1956, a private company, a
government company and a company incorporated under the Act (under section 2(20) of the 2013
Act, the term company means a company incorporated under the 2013 Act or under any previous
company law). A government company is a juristic person separate and distinct from its members.
The company and the shareholders being distinct entities the fact that the President of India, the
Secretaries, the State or Governor hold all its shares does not make the company an agent either of
the President or the Central Government or the State. In the absence of a statutory provision a
commercial corporation acting on its own behalf, even though it is controlled wholly or partially by a
Government department, will be ordinarily presumed not to be a servant or agent of the State. Such
an inference that the corporation is the agent of the Government may be drawn where it is performing
in substance governmental and not commercial functions. Thus, if the company performs any
governmental functions as distinct from commercial functions, the corporate veil may be lifted.25
For the purposes of Article 12 of the Constitution of India one must necessarily see through the
corporate veil to ascertain whether behind that veil is the face of an instrumentality or agency of the
State. Where a Government Company within the meaning of section 617 of the 1956 Act (section
2(45) of the 2013 Act) carried out a governmental activity and governmental functions of vital public
importance, the Government Company would be the “State” within the meaning of Article 12. In the
case of Central Inland Water Transport Corporation Ltd it was nothing but the Government operating
under a corporate veil. In every respect it was a veil behind which the Central Government operated
through the instrumentality of the Government Company.26
revenue matters or in cases of fraud, etc.27 As such, no writ application ordinarily lies against a
Government company.28
A Government Company is a distinct legal entity from its shareholders. A Government company in
which the entire share capital is held by the Central Government cannot contend that it is the Central
Government who owns its property and as such the company is not liable to pay Property Tax. It
would not be a case of State taxation of Union property under Article 285 of the Constitution of India.
Piercing of the veil is not applicable in this case.29
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Where contractor engaged workers to carry certain work. To ascertain relationship of master and
servant the corporate veil can be lifted and the relationship between the workers and the company
which engaged the contractor can be ascertained.30
Under the Indian law, the company is a corporate entity or juristic person. The shareholders are not
the owners of its assets. Its right and obligations vis-a-vis the contracting party, unless there exists a
provision to the contrary, must be confined to the terms of the contract. In the case of two
Government Companies, despite the fact that the Government is the majority shareholder in both, a
ship belonging to one Government corporation cannot be said to be a sister ship of a ship belonging
to another Government company. Where on an admiralty suit, an order for arrest of two ships said to
be sister ships was made, and the said two ships were shown in the maritime directory as belonging
to two different companies under the Vietnamese Government. No case was established for the
arrest of the ships in question.31
Corporate Veil—Government Company—Lifting of
A company incorporated under the 1956 Act (and the 2013 Act) is a juristic person. A company
indisputably has a distinct and separate entity vis-a-vis its shareholders. It is now well-settled that the
corporate veil can in certain situations be pierced or lifted. The principle behind the doctrine is a
changing concept and is ever expanding its horizons. Though a Government Company registered
under the 1956 Act is a juristic person having separate identity from its shareholders. In certain
cases, the Court can lift the Corporate Veil and see who are the persons responsible for the
management of the Government Company. In a Government Company the company is a separate
entity. In a Government Company, the Government acts through the instrumentality or agency of the
Company and has certain Constitutional limitations. The Government Company is a “State” and it
would be constitutionally liable to respect or protect life and liberty of all persons in terms of Article 21
of the Constitution. Article 298 of the Constitution of India confers a prerogative right upon the State
to carry on trade or business. In doing trade or business the State must fulfil its Constitutional
obligations. It must ensure protection and preservation of the rights as contained in Articles 14, 19, 21
and 300A of the Constitution of India. The term “life” used in Article 21 of the Constitution of India has
a very wide and far-reaching concept. Several Government Companies and Public Sector
Undertakings (PSUs) of State of Bihar did not pay salaries to their workmen and other employees for
a long time resulting in death of several persons and misery to a large number of families. The
Government of Bihar for all practical purposes was the sole shareholder of the Government
Companies. Under the Companies Act its liability towards the company’s debtors is confined to the
shares it held. However, having regard to the deep and pervasive control it exercises over the
Government Companies the State has an additional duty to see that the rights of the employees are
not infringed. It is liable to see that the rights of employees to life and liberty is fully safeguarded. The
State has a Constitutional obligation to protect the life and liberty of the employees of the
Government owned Companies and Corporations. These employees are citizens of India. The
Government has an additional liability having regard to its supervisory deep and pervasive control
over the Government Company. It cannot be permitted to say that it did not know the actual state of
affairs of the Government Companies and Public Sector Undertakings (PSUs) or that it did not know
that salaries of employees had not been paid for years at a stretch leading to starvation deaths of
large number of employees and suicides. Even though the State is not liable for day-to-day
functioning of the Companies but it is liable for failure to perform its Constitutional duties and for the
functioning of the Public Sector Undertakings (PSUs) and State’s Constitutional obligations in relation
thereto. The State being a welfare State has a duty to do all things which they are Statutorily obliged
to perform under the Payment of Wages Act, 1936 (4 of 1936), the Minimum Wages Act, 1948 (11 of
1948) and the provisions of other Statutes. Financial stringency cannot be a ground for not issuing
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requisite directions by the State when the question of violation of Fundamental Rights arose. The
liability of the State of Bihar cannot be shifted to Union of India merely on the ground that the Union
of India was the repository of fund raised by it through Central Excise and other levies and imposts.
The Central Government is not directly or indirectly or vicariously liable for the failure of the State
Public Sector Undertakings (PSUs). The investments made by the State in the Public Sector
Undertakings (PSUs) in pursuit of social justice were for public account. The State was, therefore,
accountable to the public through the Legislature. If the State or State Agencies fail to perform their
duties it cannot take wrap or shelter under the financial stringency or shift its liability to the Union of
India. However, it cannot be said that in all situations the State can be directly or vicariously liable to
pay salaries or remuneration of the employees of the Public Sector Undertakings (PSUs) or the
Government Company.32
(10) Oppression and mismanagement
A person in control of the requisite voting power may be made responsible for wrongful acts of the
company by lifting the veil as to who has committed the wrongful acts complained of.33
Private Company
The oppression must be in capacity as shareholder and not in any other capacity. The substratum of
the company is mainly decided with reference to the substance of the venture as conceived by the
members of the company at its formation as set out in the objects clause of its Memorandum of
Association. It is inherent right of shareholders to elect directors. Majority shareholders are not bound
to accept the view of the minority. It would not constitute oppression. Shareholder’s rights,
expectations and obligations to the company are governed by the Memorandum and Articles of
Association and the provisions of the Companies Act. The exercise of this right of the individual
shareholder may be subjected to equitable consideration. However, these equitable considerations
flow from the fact that it originally started as a partnership concern or that there was any agreement,
understanding, e.g., family arrangement that all or some of the shareholders should participate in the
conduct of the business. The principle of the special relationship between the parties forming the
substratum of the company can be invoked only in a case where originally the business was a
partnership concern which has later on converted into a Pvt Ltd company or where if the veil of
corporate character of the company is lifted, it can be found that in reality it was a partnership.34
HUF
It is well-settled that Pvt Ltd companies are separate legal entities and they cannot, therefore, be
legally called as the properties of the joint Hindu family. Even if the shares in those companies are
the properties of the joint Hindu family, the inter se disputes between the members regarding claims
and counter-claims was wholly inconsequential and irrelevant so far as the claim of the third party,
i.e., Trust was concerned because the Trust was not the property of the said joint Hindu family.35
Where the plaintiff sought appointment of a receiver for properties of defendant companies, the Court
observed that these were not the properties of the joint family. Section 34 of the 1956 Act was
referred to, and the court observed that as per section 34 of the 1956 Act a company on incorporation
shall be a body corporate having perpetual succession and common seal. Further, a company
becomes distinct from its members/ shareholders, on incorporation. As such, property of the
company is distinct from the property of the members or shareholders, and vice versa. The plaintiff
was only a shareholder and may continue to be a member/shareholder of the defendant companies,
but that does not mean that he is owner of any of the properties of the companies. The properties of
the defendant companies cannot be a subject matter of a suit for partition of the alleged joint family. If
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the shares of defendant companies are held by the joint family either in the name of its
karta/manager or in the name of any of its members, such shares, at the most, can be made a
subject matter of a suit for partition, but the properties of the defendant companies cannot be made a
subject matter of partition.36
[s 9.19] Separate entity
The company is a separate entity from its shareholders and directors. The decisions enunciating this
are as follows:
[s 9.20] Company owner of its assets not shareholders
A company is a separate entity from its shareholders. It is the company which is the owner of its
assets, including immovable properties, and not the shareholders. As long as the company exists,
that is to say, before its dissolution, no shareholder can be said to have any interest in the properties
and assets of the company, either legal or equitable. When the company is being wound up, their
only right is to participate in the surplus assets after the payment of debts and liabilities. Therefore, a
shareholder of a company which is being compulsorily wound up, has no locus standi under Order
21, Rule 90 of the Code of Civil Procedure, 1908 (5 of 1908) to apply for setting aside a sale of the
property of the company on the ground of irregularity or fraud.37 A shareholder has no right or locus
standi to intervene or object in suit pending against company in respect of some of its assets or in
dealing with the property independently of the company.38
[s 9.21] Property of the Company
The property of the company irrespective of the provisions in the Articles or any Resolutions cannot
be treated as the property of the shareholders and cannot be utilised for the benefit of any of the
shareholders.39
Where a company was the tenant of a property under a lease deed which prohibited sub-letting.
Simply because the company was trying to sell the shares owned by it to third parties, it did not
amount to an attempt to sub-let the premises under the cover of corporate veil. The property of a
company cannot be considered to be the property of its members. An invitation by a company to
subscribe to its shares bringing more shareholders to the company or selling a portion of the shares
retained/owned by it to third parties cannot be considered as a change of the company itself.40
[s 9.22] Property purchased prior to incorporation—Specific Performance
The promoters of a company before its registration purchased a property in the name of the company
and after incorporation of the company the property was shown as the property of the company in its
Balance Sheet, Income Tax Return, Annual Report, Audit Report and in other documents. The
company on registration also paid a sum of Rs 2,22,500 to the promoters. The company filed a suit
for declaration that the company was the absolute owner of the property. The Board of Directors of
the company adopted a Resolution for sale of the above property in favour of the appellant and for
leasing out the property to M. The agreement for sale and the deed of lease, both were signed by the
promoters. In view of the above, there could not be any doubt that for all intent and purposes the
company was the owner of the property and at all material times the promoters (Respondent Nos. 1
and 2) had made representation as such to the appellants as also to others. In terms of section 15(h)
of the Specific Relief Act, 1963 (47 of 1963) the promoters of the company before its incorporation
could enter into the contract for the benefit of the company and such contract may be warranted by
the terms of incorporation of the company subject to the condition that the company should accept
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the said transaction. Section 19(e) of the Specific Relief Act, 1963 also provides for grant of a decree
of specific performance of the contract against a company when the promoters of the company
before incorporation entered into a contract for the purchase for the company and such contract is
warranted by the terms of incorporation also applied. The contract could not be ultra vires the
purpose for which the company was incorporated. In the present case the company by filing a suit
claimed declaration that it is the owner of the property showed its acceptance of the contract and
communication thereof to the other party. The promoters by their statements before the Court and by
their conduct including creating mortgage of the property and discharge thereof in favour of the Bank
and made representation by which the third party altered its position, the principle of estoppel would
apply as there was no statutory embargo of vesting the title in the company. In the Memorandum of
Association of the company the promoters (Respondents Nos. 1 and 2) alone were shown to be the
subscribers members of the company and in the Articles of Association they were shown as first
directors and there was no other director. The directors had been attempting to use the name of the
company for furthering their own personal object in furtherance of their dishonest and fraudulent
design and as such the doctrine of lifting the corporate veil was applicable. The directors were not
entitled to take different stand as against the company. Section 54 of the Transfer of Property Act,
1882 (4 of 1882) does not lay down a law as to whether in all situations an apparent state of affairs
as contained in a Deed of Sale would be treated with the real state of affairs. It does not bar a benami
transaction. There is no embargo on getting the property registered in the name of one person
although the real beneficiary thereof could be another.41
[s 9.23] Property of the Shareholders
Similarly, the shareholders’ property is not the property of the company. Where a shareholder of the
company was tenant of certain premises, he entered into an agreement with the company permitting
the company to use part of the premises. It was held that the company was merely a licensee and not
tenant. Therefore, suit by the tenant against the company for eviction upon termination of the licence
was maintainable.42
[s 9.24] Premises on lease—Lifting or piercing of corporate veil.
Prem Lata Bhatia was allotted premises for running a shop at a monthly rent of Rs 901. The licence
prohibited the use of the premises by anybody else without the written consent of the Government
and the licensee was forbidden from transferring the premises or to carry on business in the premises
with any other person or assign, transfer, change or otherwise alienate her interest in the premises.
The petitioner incorporated a Pvt Ltd Company, Romika World Trade Pvt Ltd, where the petitioner
and her husband held more than 97.93% shares. The company was running its business in the shop.
The respondent, Union of India, initiated proceedings under the Public Premises (Eviction of
Unauthorised Occupants) Act, 1971 (40 of 1971) against the petitioner. The Estate Officer ordered for
eviction of the petitioner on the ground that the shop that was allotted to the petitioner was being run
by the Company without any authority and amounted to sub-letting as the petitioner was doing
business with another partner. She was therefore an unauthorised occupant of the shop. Her appeal
was dismissed by the Additional District Judge and a Writ Petition was dismissed by the High Court.
On appeal, the Division Bench held that applying the principle of piercing the veil of corporate
personality Clause 8 of the Licence Deed had not been violated. Here because of the shareholding
the same person remain in possession though technically the company ran the business. The
petitioner did not cease to be in possession and did not hand over possession to anyone else but
only changed the form of her business and this was usually done when a business expanded. The
appeal was allowed, the respondents were restrained from dispossessing the petitioner from the
shop.43
[s 9.25] Property of the Directors
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The company is a corporate personality and separate legal entity. The director owning the property
as landlord cannot file an eviction petition against the tenants under the Rent Control Act for
occupation of the building owned personally by him for functioning of the company merely because
he is a director of the company. Need for occupation of the company is different from the need for
director’s own occupation.44
[s 9.26] Liability of Company
Two companies having same office bearers are yet distinct and separate legal entities. The liability of
one of them cannot be foisted on the other. Where two companies A and B were carrying on
business separately. Some of the office bearers were common. For the liability of company A the
creditor sought to make liable company B and filed a winding up petition under section 439 of the
1956 Act. In the facts of the case, it was held that the principle of piercing the corporate veil was not
applicable. The petition for winding up of the creditors was an abuse of the process of the court and
the defence of the company was bona fide.45
Liability of company is not the liability of the directors or the employees. A director is not an employer
of the company’s employees.46
[s 9.27] Breach of contract, Penal Laws and Tort
A company is liable for breach of contract and for tort. It is liable under the penal laws where mens
rea is not an essential element of the offence.47 A company may be likened to a human body. It may
be guilty of acting with intent to deceive and making statement which it knows to be false or for
conspiracy to defraud. But it must be proved that the officers were acting within the limits of their
authority on behalf of the company and it must be found that the criminal act of the officer including
his state of mind, intention and knowledge or belief was the act of the company.48 It may be guilty for
contempt of court. It may be sued for malicious prosecution, infringement of copyrights, negligence,
malicious libel and for molesting a person in the exercise of his calling.49 It may sue for an injury done
to its business reputation by defamation or by imputation of insolvency and no special damage need
be proved.50
[s 9.28] Company may own Business Name
A company may carry on business in a name other than its own. Business can be carried on in a
particular business name. On the principle of lifting the corporate veil the court can ascertain the
owner of the business name and proprietor of the business. On piercing the veil the court can make
responsible the company which was carrying on business in the said business name as proprietor of
the business.51
[s 9.29] Offences and Prosecution
Section 5 of the 1956 Act [section 2(60) of the 2013 Act] various provisions of the 1956 Act (and 2013
Act) and other Acts make officers in default, viz., persons in charge of the management or charged
with the responsibility of complying with any of the provisions of the Act responsible for any
contravention of the Statutory defaults.
In statutory offences and offences covered by section 5 of the 1956 Act no mens rea is required to be
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proved for offences and defaults under such sections. Where the provisions of the 1956 Act do not
use the words “officer in default”, the penalty and punishment shall be governed by the language of
those provisions.
[s 9.30] Prosecution under Indian Penal Code
For refund of subscription money the concerned Investor need not be confined to remedies under the
Companies Act alone, resort to prosecution under the Indian Penal Code can also be taken. It is true
that the 1956 Act (and 2013 Act),contains provisions regarding the issuance of prospectus,
applications for shares and allotment thereof and provides different checks over the misuse of the
funds collected from the public for issuance of shares or debentures, e.g., sections 69 and 73 of the
1956 Act. But where persons issue prospectus and collect moneys from the public assuring them that
they intend to do business with the public money for their benefit and the benefit of such public, but
the real intention is to do no business other than collecting the moneys from the public for their
personal gain, such persons are not immune from the prosecution under the Indian Penal Code,
1860 (45 of 1860). If the promoters or those in charge of managing the affairs of the company are
found to have committed offences like cheating, criminal breach of trust, criminal misappropriation or
the like, these persons cannot use the juristic entity and corporate personality of the company as a
shield to evade themselves from prosecution for offences under the Indian Penal Code, if it is
established that the primary object of the incorporation and existence of the company is to defraud
the public. Such persons cannot claim that the only remedy of the investor is under the 1956 Act (or
2013). There is a basic difference between the offences under the Penal Code and acts and
omissions which have been made punishable under different Acts and statutes which are in the
nature of social welfare legislations. For framing charges in respect of those acts and omissions, in
many cases, mens rea is not an essential ingredient; the concerned statute imposes a duty on those
who are in charge of the management, to follow the statutory provisions and once there is a breach
or contravention, such persons become liable to be punished. But for framing a charge for an offence
under the Penal Code, the traditional rule of existence of mens rea is to be followed.52
[s 9.31] Mens rea
The offences under sections 420, 467, 471 and 477A of the Indian Penal Code, 1860 (45 of 1860)
read with section 120B of the Indian Penal Code, are all offences having mens rea as one of the
essential ingredients thereof. The accused committing the offences must have a guilty mind and as
such a juristic person such as a body corporate cannot be prosecuted for the said offences.53
The Court has observed that “ … .prosecution of a “company”, in respect of an “offence”, involving
mens rea as its ingredient, is not possible without having brought on record the natural person(s),
whose state(s) of mind is (are) attributable to the “company” inasmuch as a company's prosecution in
respect of an offence, requiring mens rea as its ingredient, is, in essence, nothing but vicarious
liability of the “company” for the acts of omissions or commissions of such a natural person, who has
been the "alter ego" of the “company” or the controlling mind and will of the company.54
It has been observed that “The principle of vicarious liability is well recognised in civil law. However,
in criminal law, it is well settled that unless a provision for vicarious liability exists in a statute, the
managing director or directors of the company cannot be accused for any offences committed by the
company … the Supreme Court has held that the Indian Penal Code does not contain any provision
for attaching vicarious liability on the part of the managing director or directors of the company when
the accused is the company. It has been further held that since the bank is a body corporate,
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vicarious liability of the managing director and the director would arise provided there exists a
provision in that behalf in the statute.”55
For the acts of a person who is the directing mind of the company, the company will be liable
criminally if those acts are in breach of any of the provisions of the criminal law but if he is only an
agent or employee, the company may not be liable on the basis that the actual actor and not the
company is liable. Whether a person is the directing mind of the company or not will depend to a
large extent upon the actual control by him of the company’s operation without effective superior
control.56 And in some cases a company be liable even though mens rea is necessary,57 and the
punishment is imprisonment and fine.58
As already explained, under section 5 of the 1956 Act, as substituted by Act 31 of 1988 mens rea is
now not required to be proved.
[s 9.32] Company, a juristic person, cannot be imprisoned
The company is a corporate entity and a juristic person. A company cannot be prosecuted for an
offence for which the punishment is only imprisonment. If offence is punishable mandatorily with both
imprisonment and fine, then the company can be prosecuted and only fine can be imposed on the
company, though it cannot be imprisoned. The sentence of imprisonment and fine can be imposed on
persons in charge of, and responsible to, the company for the conduct of the business of the
company.59
[s 9.33] Directors’ Liability
A company has its own legal identity and personality, in contradistinction to its directors or
shareholders. Where a company was prosecuted and a fine was imposed on the company. There
was no decision or fixation of liability on any other person. The fine could be recovered from the
company alone even after the winding up. The execution of any distress warrant against any director
or managing director was therefore invalid.60
[s 9.34] Company to be impleaded in Complaint
Where under an Act an offence is committed by a company, (1) it is the person in charge of and
responsible for the conduct of business of the company who is liable for the offence, (2) it is not
necessary, although it is better to implead the company also as an accused, (3) the offence must be
committed by the company, that is to say, before a person in charge or an officer of a company is
held guilty in that capacity it must be established that there has been a contravention by the
company.61
[s 9.35] Offences against Act cognizable on complaint
Offences against the Companies Act are cognizable only on written complaint by the Registrar of
Companies, a Shareholder or the Central Government. This does not apply to a prosecution by a
company of any of its officers. [Section 621 of the 1956 Act].
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Under the 2013 Act, section 439 pertains to non-cognizable offences.
The Court may take cognizance of offences relating to issue and transfer of securities and non-
payment of dividend on a written complaint by the SEBI (SEBI). [Proviso to section 621(1) of the
1956 Act]
[s 9.36] Complaint by company or juristic person
The scheme of the Code of Criminal Procedure, 1973 (2 of 1974) makes it clear that the complainant
must be a corporeal person who is capable of making physical presence in the court. Its corollary is
that even if a complaint is made in the name of an incorporeal person like a company or corporation it
is necessary that a natural person represents such juristic person in the court and it is that natural
person who is looked upon, for all practical purposes, to be the complainant in the case. In other
words, when the complainant is a body corporate it is the de jure complainant, and it must
necessarily associate a human being as de facto complainant to represent the former in court
proceedings. Therefore, the absence of the complainant envisaged in section 256 of the Code of
Criminal Procedure, 1973 which empowers the magistrate to acquit the accused if the complainant
fails to appear, would include absence of the corporeal person representing the incorporeal
complainant and the provision is applicable even in a case where the complainant is a company or
any other juristic person. The courts should not insist that the same officer of the company should
represent company throughout.62
A company is a juristic person, a legal entity. A company though a legal entity does not have a soul,
mind, body and limbs to walk to the court for preferring a complaint. The dictates of common sense,
practical wisdom, prudence and experience impel the courts in such a situation to allow a company to
be represented by some person concerned with the affairs of the company. In the normal course,
such legal entities are managed by a manager, director, managing director or principal officers like
other executives in charge of affairs and administration. No special and express authorisation is
required for initiating any legal proceedings like a criminal complaint under section 141 of the
Negotiable Instruments Act, 1881. Therefore, these officers of the company are entitled to initiate
prosecution.63
A company is a corporate body with a separate existence. It is an artificial person with a perpetual
succession. It is not like a firm whose existence cannot be visualised in the absence of its partners.
Where permission was granted to file a suit against the company it cannot also be treated as
permission against the directors as well and the suit cannot be treated as properly instituted against
the directors. Further, where directors entered into agreement for sale of shares. The company would
not be privy to contract and not bound by the obligation under the contract.65
[s 9.38] Change in ownership no ground for dismissal of suit
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A company is a distinct legal entity and should not be confused with its shareholders. Shares of
companies are usually freely transferable. The corporate legal entity does not mutate or transform
itself or undergo a transfer with each change in its shareholders. Even if the total shareholding of a
company is purchased by one person or a group of persons acting in concert, the legal consequence
is not that the company ceases to exist or undergoes a cataclysmic metamorphosis leading to its
complete disappearance. The company does not extinguish its existence by a mere change in its
name, nor does this follow even if a change occurs in ownership. There is a further distinction
between change in shareholding and amalgamation. Even where amalgamation takes place, due
care is taken to transfer the assets and debts of one company to the other so as to, inter alia, protect
pending litigation. Change in ownership of a company is no ground for dismissal of the suit pending
against it.66
[s 9.39] Suit to continue even if company taken over
Suit may continue even if the units of a company are taken over by the Central Government. The
taking over of the Estate of a company by the Central Government under section 16E of the Tea
(Amendment) Act, 1976 did not affect a suit by or against the company and the bar under section
16M of the Act applied only to the Estate. Existence of company is independent of Estates.67
Takeover by the Central Government of undertakings of a company under the Industries
(Development and Regulation) Act, 1951 (65 of 1951) does not mean that the company itself is taken
over. The company being distinct entity continues to exist. The Central Government representative is
not competent to defend suit against the company.68
legal proceedings. The Articles also empower the Board of Directors to delegate its powers. Where
the Board delegated the powers to a Director, the Director delegated the powers to an Officer of the
company. An appeal filed by such officer was held valid.69
The suit filed by a Director on behalf of a company without being authorised by the Board Resolution
is not maintainable.70
Board of directors, or (2) a Power of Attorney authorising institution of the suit on behalf of the
[s 9.42] Appropriate Forum
The matters which are not within the jurisdiction of the Company Law Board (CLB) [now in the
context of the 2013 Act the National Company Law Tribunal (NCLT)], are decided by the High Court
or the District Court as provided under section 10 and other provisions of the 1956 Act. The residue
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may go to ordinary Civil Court or some other competent authority.72
on its behalf.73

or shareholders is called a derivative action, which is normally permissible with the leave of the Court.
company,—(i) to enforce a personal right, e.g., the right to vote or attend a meeting; (ii) a
representative action under Order 1, rule 8 of the Code of Civil Procedure, 1908 on behalf of himself
and other shareholders. Under the Indian company law, only a person who is on the register of
members is a member of the company. The Court would not lift the veil of incorporation at the
instance of a person whose name does not appear in the register of members of the company to
enable him to show his beneficial interest in the company through a chain of inter-corporate
investments.74
[s 9.45] Suit against company having sub-offices
The Explanation to section 20 of the Code of Civil Procedure, 1908 (5 of 1908) provides that a
corporation shall be deemed to carry on business at its sole or principal office in India or in respect of
any cause of action arising at any place where it has also a subordinate office, at such place. The
Explanation applies to a corporation, which term includes a company. The agreement between the
parties conferring exclusive jurisdiction on the court where the corporation has its principal place shall
be of no avail.75
In a suit against a company registered under the 1956 Act (and 2013), the affixure of the suit
summons at the office of the company is due service as Order 29, Rule 2, of the Code of Civil
Procedure, 1908 provides for service of summons on a corporation by leaving the summons at place
where the corporation carries on business. The word “corporation” has been used in the CPC with
reference to section 34 of the 1956 Act. Under that section when a company is registered, the
Registrar of Companies certifies under his hand the fact of such registration. The effect of
incorporation is that the company becomes a body corporate having perpetual succession and a
common seal.76
Rule 2 of Order 29 of the Code of Civil Procedure, 1908 (5 of 1908) provides for service of process in
a suit against a corporation subject, however, to any statutory provision regulating such service.
Therefore, in the matter of service of summons on a limited company, the provisions of rule 2 of
Order 29 shall be subject to section 51 of the 1956 Act (section 20, 2013 Act). The result is that the
provision of section 51 of the 1956 Act would prevail over rule 2 of Order 29, Civil Procedure Code.
Therefore, a summons on a limited company has to be served at its Registered Office in terms of
section 51 of the Companies Act, 1956.77
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[s 9.47] Court Fees
Under clause (vi) of a State Notification issued under section 35 of the Court Fees Act, 1870 (7 of
1870), all persons whose income does not exceed Rs 12,000 have been exempted from paying court
fee. A similar provision regarding exemption from paying court fee has been made in Order 33 of the
Code of Civil Procedure, 1908 (5 of 1908). The expression “person” has not been defined in the
parent Act or Notification issued by the State Government. It cannot be confined to only natural
persons and shall include a juristic person such as a company.78
[s 9.48] Company can file suits in forma pauperis.
A company, which is entitled to maintain a suit as a legal person, can file suits in forma pauperis as
an indigent person under rule 1 of Order 33 of the Code of Civil Procedure, 1908 (5 of 1908). Indigent
person is one who is not possessed of sufficient amount as per Explanation I. This enabling provision
allows the filing of a suit by an indigent person without paying the court fee at the initial stage. There
is only a provision for the deferred payment of the court fees. This being a benevolent provision
includes not only natural persons but juridical persons also. A company being a juristic person, would
be represented by a person competent to represent it.79
[s 9.49] Decree
It is well-settled that joint-stock company is a corporate entity, which is distinct from its members. The
share in a joint-stock-company is the property of the registered holder but the assets of the company
are the assets of the joint stock entity. They are in no sense the assets or property of a shareholder,
much less a member of a coparcenary, which may hold the shares in the name of the karta. If the
karta of the family abused his position, either as a shareholder or as a director of the company, the
remedy of the member of the coparcenary or of the shareholder of the company would lie elsewhere.
Neither the decrees nor the course of execution thereof could be challenged by a shareholder unless
his rights as such shareholder are sought to be affected.80A decree passed against a company
cannot be satisfied by attachment and sale of properties belonging to other limited companies even if
it is assumed that they are being managed by the same group of directors. Other companies are
different and distinct juristic personalities with different sets of shareholders.81
[s 9.50] Conversion of unregistered body into company
Where all that was provided under the articles was that a member of Electrical Cable Development
Association as of right be admitted as a member of the appellant company subject to certain
conditions, it did not say that all the members in the unregistered association become members of
the association. No resolution was passed to show that they were converting themselves into an
incorporated body. Held, the appellant was a distinct legal entity other than the unregistered body
and there was no material to show that it was successor. Therefore the company did not become a
tenant in respect of the premises occupied by the unregistered association without an agreement with
the society.82
[s 9.51] Company cannot be a witness
An incorporated company or other corporate bodies cannot make any oath or affirmation and,
therefore, cannot become a witness. However, the employees of the company who are sought to be
cited as witnesses in the prosecution against the company, cannot be equated with the company as
to treat the incriminating evidence, if any, adduced by them, to be self-incriminatory evidence
adduced by the accused company itself. If the officers and employees of a company are not
permitted to appear as witnesses for the prosecution against the company on an extension of the
doctrine against self-incrimination, many of the offences committed by companies cannot be
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detected, prosecuted and punished.83
[s 9.52] Company vis-a-vis Statutory Corporations
There is a distinction between a company or corporation incorporated under the 1956 Act (and 2013)
and statutory corporations, e.g., the Life Insurance Corporation or the Industrial Finance Corporation,
etc., which are created under special Acts or statutes. A company makes rules and regulations in
accordance with the provisions of the 1956 Act. A statutory body, on the other hand, makes rules and
regulations by and under the powers conferred by the statutes creating such bodies.84
A corporation constituted under the Road Transport Corporations Act, 1950 (64 of 1950), though
statutory, has a personality of its own distinct from that of the State or other shareholders. It cannot
be said that a shareholder owns the property of the corporation or carries on the business with which
the corporation is concerned. The income derived by such a corporation from its trading activity
cannot be claimed by the State, which is one of the shareholders of the corporation. The income
derived by the corporation from its trading activity cannot therefore be said to be the income of the
State under Article 289 of the Constitution of India. The exemption from Union taxation is available
only if it is shown that the income derived from the said trading activity is the income of the State.85
[s 9.53] Sales Tax
The company is not a citizen and not entitled to fundamental rights. Corporate veil would not be
pierced where sales tax was levied on the company. The shareholders cannot challenge the levy of
sales tax on the principle that on piercing the veil it will appear that the shareholders are the real
persons who will be affected by the levy of sales tax and such levy will infringe their fundamental
rights. In such a case the court will not lift the corporate veil or allow the shareholders to invoke the
Writ Jurisdiction of the court.86
[s 9.54] Recovery of Sales Tax
A company is a legal entity distinct from its shareholders as well as its directors. As such no
proceedings can be initiated against the Directors or the Managing Director of a company for
recovery of sales tax due from the company. Proceedings against personal assets of the Directors or
Shareholders would therefore be void. The piercing of corporate veil is not applicable in this case.
According to the Sales Tax Acts of various States, e.g., the Andhra Pradesh General Sales Tax Act,
1957 (6 of 1957), the Karnataka Sales Tax Act, 1957 (25 of 1957), the Kerala General Sales Tax Act,
1963 (15 of 1963), the Tamil Nadu General Sales Tax Act, 1959 (1 of 1959), etc., Sales tax arrears of
a company cannot be recovered from its directors except in the course of winding up or liquidation.87
The settled law is that for recovery of tax dues against a company, the authorities cannot proceed
against the personal assets of a director of the company, unless that is permitted by a specific
provision of law or by an agreement between the parties.88
See also Notes under lifting the veil in Tax Matters, viz., Tax Evasion or Avoidance in earlier
paragraphs.
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According to section 179 of the Income-tax Act, 1961 (43 of 1961), if any tax due from a private
company in liquidation cannot be recovered, every person who was a director of the private company
during the relevant year shall be jointly and severally liable for the payment of such tax unless he
proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of
duty on his part in relation to the affairs of the company.89
Where for arrears of tax due from the Managing Director, his deposits with the company were
attached. Further, tax due from the managing director was adjusted against refunds due to the
company from the revenue on the company agreeing to the adjustment. The petition to direct refund
to the company was dismissed.90
[s 9.56] Service Tax on Company
Company shall be liable to pay service tax if the service is of a kind that has been declared taxable
under section 65 of the Finance Act, 1994 (32 of 1994). Every person is wide enough to include a
company.91
[s 9.57] Excise Duty
The shareholders of a public limited company do not, by reason only of their shareholding, have an
interest in the business of the company. Equally, the fact that two public companies have common
Chairman and Directors does not mean that one company has an interest in the business of the
other. The two companies could not be treated as “related persons” and the assessable value of
goods sold and purchased inter se could not be marked up for purposes of excise duty under section
4(4)(c) of the Central Excise Act, 1944 (1 of 1944).92
However, private companies having common directors belonging to the same family were treated as
“related persons” and higher value was taken as the benefits of the companies were being enjoyed
by members of the same family.1
[s 9.58] Profession Tax on Companies
Company is a distinct entity. A company has special immunities, responsibilities, rights and liabilities.
The company stands as a separate class. A company is composed of more than one individual and
enjoys a superior status in the business world having greater capacity to pay tax than individual. Levy
of profession tax on companies at a flat rate of Rs 2,500 under the Karnataka Tax on Professions,
Trades, Callings and Employments Act, 1976 (35 of 1976) was therefore held to be constitutional and
reasonable.2
[s 9.59] Company’s receipts
Company’s receipts may be treated as Individual’s receipts. The Court is entitled to pierce the
corporate veil and recognize the receipts of a company as that of the individual in control of the
company if the company had been used as a device or facade to conceal the true facts, thereby
avoiding or concealing any liability of that individual.3
[s 9.60] Debts of Company
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The Directors are not personally liable to pay the debts incurred by the company. The director may
be made personally liable only if he is found guilty of fraudulent trading.4
[s 9.61] Recovery of Dues
There is no provision in the 1956 Act or in the Industrial Disputes Act, 1947 (14 of 1947), which
makes the Managing Director of a company personally liable for recovery of dues against the
company.5
[s 9.62] Recovery of Loan
The company incorporated under the 1956 Act (or 2013 Act) is a separate legal entity. The Managing
Director or Directors are not personally liable under the statute for company’s dues unless they are
guarantors. In case of decree against company and managing director for recovery of bank loan, the
Managing Director or directors cannot be proceeded against unless there is a positive finding that the
managing director or director of the judgment-debtor company was personally liable for discharge of
the decretal amount.6
While interpreting the term “proprietor” as defined by section 2(o) of the Bihar Land Reforms Act,
1950 (30 of 1950) the Supreme Court held that in view of the object of the Bihar Land Reforms Act,
there was no reason to differentiate between an individual proprietor and a company which owned
estates or tenures.7
[s 9.63] Default in Telephone
[s 9.64] Company Lease: Premises let to company
Where there was a stipulation in the lease deed that the premises let out to the company shall be
used for the residence and personal use of directors and/or their relatives and for the purpose of the
company. It means residential purpose only. The lease was not for commercial purpose. The words
for the purpose of the company ought to be read in conjunction with residence. The company was
ordered to evict the property.9
[s 9.65] Land Acquisition
In the case of a company previous consent of the State Government, agreement as required under
sections 39 to 41 of the Land Acquisition Act, 1894 (1 of 1894) and compliance with Rules 3 and 4 of
the Land Acquisition (Companies) Rules, 1963 is mandatorily required. After the agreement between
the company and the State Government is so entered and published in the Official Gazette, the State
Government cannot unilaterally, without notice and opportunity of being heard to the company
withdraws from the acquisition.10
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See the Land Acquisition (Companies) Rules, 1963.
[s 9.66] Money Lenders Act
The company is a person liable to take a licence under the Kerala Money Lenders Act, 1958 (35 of
1958).11
[s 9.67] Producer Company—Effect of Registration [Section 581C of the Companies Act,

1956]
As provisions of Part IXA, 1956 Act shall be applicable mutatis mutandis to a producer company in a
manner as if the 1956 Act has not been repealed; the discussion herein is relevant in light of the 2013
Act as well. Liability of Members of Producer Company shall be limited as mentioned in the
Memorandum of Association in respect of the shares allotted to a Member remaining unpaid.
Suit, Arbitration, Appeal or other Legal Proceedings by or against the Inter-State Co-operative
Society shall continue by or against the Producer Company on its Incorporation as Producer
Company under section 581C of the 1956 Act or Transformation of the Inter-State Co-operative
Society as a Producer Company under section 581J of the 1956 Act.
25 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to sections 34(2) and 46 of the 1956
Act.
26 The words “and a common seal” omitted by the Companies (Amendment) Act, 2015 (21 of 2015), section 3 (w.e.f. 29
May 2015).
(1964) 6 SCR 885.
28 V.B. Rangaraj v V.B. Gopalakrishnan, (1992) 73 COMP CASES 201 (SC) : AIR 1992 SC 453; Naresh Chandra Sanyal
v Calcutta Stock Exchange Association Ltd, (1971) 41 COMP CASES 51 (SC) : AIR 1971 SC 422; Hanuman Prasad
Gupta v Hiralal, (1970) 40 COMP CASES 1058 (SC) : AIR 1971 SC 206 : (1970) 2 Comp. LJ 195 (SC).
TLR 46 : 41 SJ 63 (HL); State Trading Corp of India Ltd v CTO, (1963) 33 COMP CASES 1057 (SC) : AIR 1963 SC
1811 : (1964) 4 SCR 99; Mrs. Bacha F. Guzdar v CIT, (1955) 25 COMP CASES 1 (SC) : AIR 1955 SC 74 : (1955) 27
ITR 1 (SC) : (1955) 1 SCR 876.
30 Rustom Cavasjee Cooper v UOI, (1970) 40 COMP CASES 325 (SC) : AIR 1970 SC 564 : (1970) 3 SCR 530 : (1970) 1
Comp. LJ 244 (SC) more popularly known as Bank Nationalisation case; Indo-China Steam Navigation Co Ltd v Jasjit
Singh, (1964) 34 COMP CASES 435 (SC) : AIR 1964 SC 1140; Western Coalfields Ltd v Special Area Development
Authority, AIR 1982 SC 697 : (1982) 1 SCC 125.
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31 State Trading Corp of India Ltd v CTO, (1963) 33 COMP CASES 1057 (SC) : AIR 1963 SC 1811 : (1963) 2 Comp. LJ
40 : (1964) 6 SCR 885.
32 Bennett, Coleman and Co Ltd v UOI, AIR 1973 SC 106 : (1973) 2 SCR 757.
33 Delhi Cloth and General Mills Co Ltd v UOI, (1983) 54 COMP CASES 674 (SC) : AIR 1983 SC 937.
34 M.P. Sharma v Satish Chandra, AIR 1954 SC 300 : 1954 SCR 1077.
36 Ray Cylinders and Containers v Hindustan General Industries Ltd, (2001) 103 COMP CASES 161 (Delhi).
37 Punjab National Bank v Lakshmi Industrial and Trading Co Pvt Ltd, (2002) 111 COMP CASES 109 (All.) (DB).
SCR 885.
TLR 46 : 41 SJ 63 (HL).
40 Ebbw Vale U.D.C. v South Wales Traffic Area Licensing Authority, (1951) 2 KB 366 (CA) : (1951) 1 All ER 806 : (1951)
1 TLR 742 (CA).
41 Lee v Lee’s Air Farming Ltd, (1961) AC 12 : (1960) 3 All ER 420 : (1960) 3 WLR 758 (PC) : (1961) 31 COMP CASES
233 (PC).
42 Lee v Carter Ltd, (1949) 1 KB 85 : (1948) 2 All ER 690 : 64 TLR 536 : 92 SJ 586 (CA).
43 Mohta Alloy and Steel Works v Mohta Finance and Leasing Co Ltd, (1997) 89 COMP CASES 227 (Delhi). See also
44 Macaura v Northern Assurance Co, (1925) AC 619 : 133 LT 152 : 69 SJ 777 (HL).
45 Section 4 of the 1956 Act. See also decisions in later paragraphs under Lifting of corporate veil—Holding company and
its subsidiary.
46 Ochberg v CIR, (1913) AD [S. Africa] 215.
TLR 46 : 41 SJ 63 (HL).
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Page 40 of 47
48 Ibid.
49 LIC v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370; CDS Financial Services (Mauritius) Ltd v
BPL Communications Ltd, (2004) 121 COMP CASES 374 (Bom.) (DB).
(1964) 6 SCR 885.
53 Balwant Rai Saluja v Air India Ltd, AIR2015SC375.

57 Re, Darby, ex parte Brougham, (1911) 1 KB 95 : 80 LJ KB 180 : 18 Mans. 10; R. v Grubb, (1915) 2 KB 683 : 84 LJ KB
1744 : 113 LT 510 : 31 TLR 429 (CCA).
58 Delhi Development Authority v Skipper Construction Co Pvt Ltd, (1997) 89 COMP CASES 362 (SC); Ali Jawad
Ameerhasan Rizvi v Indo French Biotech Enterprises Ltd, (1999) 95 COMP CASES 373 (Bom.) (DB). See also
Contempt of Court in later paragraphs.
59 Delhi Development Authority v Skipper Construction Co Pvt Ltd, (1997) 89 COMP CASES 362 (SC). See also Holding,
Subsidiary and Associated companies in later paragraphs.
60 Ali Jawad Ameerhasan Rizvi v Indo French Biotech Enterprises Ltd, (1999) 95 COMP CASES 373 (Bom.) (DB). See
also Holding, Subsidiary and Associated companies in later paragraphs.
61 SEBI v Livra Plantations Ltd, (1999) 1 Comp. LJ 294 (Bom.); Dindas Shankar Thange v State of Maharashtra, (1999) 1
Comp. LJ 299 (Bom.).
62 S. Shreenivasa Rao alias S. S. Rao v Inspector of Police, (2002) 109 COMP CASES 406 (Mad.).
63 Ravi Kant v National Consumer Disputes Redressal Commission, (1997) 89 COMP CASES 471 (Delhi) (DB).
64 PNB Finance Ltd v Shri Shital Prasad Jain, (1983) 54 COMP CASES 66 (Delhi) (DB).
65 . Saurabh Exports v Blaze Finlease & Credits Pvt Ltd, (2007) 76 CLA 21 (Del) : (2006) 133 Com Cas 495.
66 Yella Constructions Ltd v East Coast Railway, 2006 (6) Andh LT 714.
67 Singer India Ltd v Chander Mohan Chadha, (2004) 122 COMP CASES 468 (SC).
68 Singer India Ltd v Chander Mohan Chadha, (2004) 122 COMP CASES 468 (SC) : AIR 2004 SC 4368 : (2004) 4 Comp.
LJ 413 (SC) : (2004) 7 SCC 1 : (2004) 6 Supreme 259 : (2004) 6 Scale 217 (SC).
69 Miheer H. Mafatlal v Mafatlal Industries Ltd, (1996) 87 COMP CASES 792 (SC) : AIR 1997 SC 506 : (1996) 4 Comp.
LJ 124 (SC).
70 Nandh Products Promoters Pvt Ltd v District Forest Officer, (2005) 123 COMP CASES 367 (Mad.).
71 . Sri Mappillai vinayakar Cine Complex v Commercial Tax Officer, (2010) 97 SCL 252 : (2008) 146 Com Cas 110
(Mad).
72 Ansuman Singh v State of U.P, AIR 2004 All 260.
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85 LJ KB 1333 : 114 LT 1049 (HL).
75 Re, General Co. for Promotion of Land Credit, (1871) LR 5 HL 176 : 40 LJ Ch. 655 : 24 LT 641; Janson v Driefontein
Consolidated Mines Ltd, (1902) AC 484 : (1900–03) All ER Rep. 426 : 71 LJ KB 857 : 87 LT 372 : 51 WR 142 : 18 TLR
796 (HL); Gramophone and Typewriter Ltd v Stanley, (1908) 2 KB 89 : (1908–10) All ER Rep. 833 : 77 LJ KB 834 : 99
LT 39 : 24 TLR 480 (CA); Kuenigl v Donnersmarck, (1955) 1 QB 515 : (1955) 1 All ER 46 : (1955) 2 WLR 82.
77 State Trading Corp of India Ltd v CTO, (1963) 33 COMP CASES 1057 (SC) : AIR 1963 SC 1811 : (1964) 4 SCR 99.
See also Notes under Company not a Citizen in earlier paragraphs and Government Company in later paragraphs.
78 Gasque v I.R.C, (1940) 2 KB 80 : 109 LJ KB 769 : 56 TLR 683.
81 Juggilal Kamlapat v CIT, AIR 1969 SC 932 : (1969) 2 Comp. LJ 188 (SC) : (1969) 73 ITR 702 (SC) : (1969) 1 SCR
988; CIT v Sri Meenakshi Mills Ltd, AIR 1967 SC 819 : (1967) 63 ITR 609 (SC) : (1967) 1 SCR 934; Deputy
Commissioner v Cheran Transport Corp Ltd, (1992) 74 COMP CASES 563 (Mad.) (DB); India Waste Energy
Development Ltd v Govt of NCT of Delhi, (2003) 114 COMP CASES 82 (Delhi) (DB).
82 McDowell and Co Ltd v CTO, AIR 1986 SC 649 : (1985) 154 ITR 148 (SC) : (1985) 59 STC 277 (SC); W.T. Ramsay
Ltd v IRC, (1981) 1 All ER 865 (HL) : (1982) AC 300 (HL) : (1981) 2 WLR 449 (HL); IRC v Burmah Oil Co Ltd, (1982)
Simon’s Tax Cases 30; Furniss v Dawson, (1984) 1 All ER 530 (HL) : (1984) 2 WLR 226 (HL).
83 CWT v Arvind Narottam, AIR 1988 SC 1824 : (1988) 173 ITR 479 (SC).
84 UOI v Playworld Electronics Pvt Ltd, (1990) 68 COMP CASES 582 (SC) : AIR 1990 SC 202 : (1990) 184 ITR 308 (SC)
: 1989 (41) ELT 368 (SC); Greenberg v IRC, (1971) 3 All ER 136 : (1971) 3 WLR 386 : (1971) 47 TC 240 (HL);
Sherdeley v Sherdeley, (1987) 2 All ER 54 (HL); M.V. Valliappan v ITO, (1988) 170 ITR 238 (Mad.).
(1964) 6 SCR 885. See detailed discussion earlier under Lifting the corporate veil and later under Holding Company
and its Subsidiary.
86 Sunil Siddharthabhai v CIT, (1985) 156 ITR 509 (SC) : (1985) 49 CTR (SC) 172.
87 Santanu Ray v UOI, (1989) 65 COMP CASES 196 (Delhi) (DB).
88 Workmen v Associated Rubber Industry Ltd, (1986) 59 COMP CASES 134 (SC) : AIR 1986 SC 1 : (1986) 157 ITR 77
(SC).
91 L.I.C. v Hari Das Mundhra, (1966) 36 COMP CASES 371 (All.) (DB); Spencer & Co Ltd v CWT, (1969) 39 COMP
CASES 212 (Mad.) : AIR 1969 Mad. 359 : (1969) 72 ITR 33 (Mad.); Free Wheel (India) Ltd v Dr. Veda Mitra, (1969) 39
COMP CASES 1 (Delhi) (DB) : AIR 1969 Del 258 (DB); CDS Financial Services (Mauritius) Ltd v BPL Communications
Ltd, (2004) 121 COMP CASES 374 (Bom.) (DB).
the veil to prevent Fraud or Improper Conduct and Lifting the veil in case of Contempt of Court in earlier paragraphs.
93 Ali Jawad Ameerhasan Rizvi v Indo French Biotech Enterprises Ltd, (1999) 95 COMP CASES 373 (Bom.) (DB). See
also Fraud or Improper Conduct in earlier paragraphs.
94 State of U.P. v Renusagar Power Co, (1991) 70 COMP CASES 127 (SC) : AIR 1988 SC 1737; D.H.N. Food
Distributors Ltd v London Borough of Tower Hamlets, (1976) 3 All ER 462 : (1976) 1 WLR 852 : 120 SJ 215 (CA).
(1964) 6 SCR 885. See also discussion under Lifting the corporate veil and Tax Matters in earlier paragraphs.
96 UOI v Bombay Tyre International Ltd, (1986) 59 COMP CASES 460 (SC) : (1983) 3 Comp. LJ 270 (SC) : 1983 (14)
ELT 1896 (SC) : (1984) 1 SCR 347.
2 Progressive Aluminium Ltd v Registrar of Cos, (1997) 89 COMP CASES 147 (AP).
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Page 42 of 47
3 Hackbridge-Hewittic and Easun Ltd v G.E.C. Distribution Transformers Ltd, (1992) 74 COMP CASES 543 (Mad.) (DB);
Harold Holdsworth & Co (Wakefield) Ltd v Caddies, (1955) 1 All ER 725 (HL) : (1955) 1 WLR 352 (HL); ICI v E.C.
Commission, (1972) 11 CMLR 557; D.H.N. Food Distributors Ltd v London Borough of Tower Hamlets, (1976) 3 All ER
462 : (1976) 1 WLR 852 : 120 SJ 215 (CA).
4 Inalsa Ltd v UOI, (1996) 87 COMP CASES 599 (Delhi).
5 U.K. Mehra v UOI, (1997) 88 COMP CASES 213 (Delhi) (DB).
6 Fatima Tile Works v Sudarsan Trading Co Ltd, (1992) 74 COMP CASES 423 (Mad.).
7 Scottish Co-op Wholesale Society Ltd v Meyer, (1959) AC 324 : (1958) 3 All ER 66 : (1958) 3 WLR 404 (HL).
8 SAE (India) Ltd v E.I.D. Parry (India) Ltd, (1998) 18 SCL 481 (Mad.).
9 BSN (UK) Ltd v Janardan Mohandas Rajan Pillai, (1996) 86 COMP CASES 371 (Bom.).
10 Industrial Development Corp Orissa Ltd v Regional Provident Fund Commissioner, (2002) 112 COMP CASES 527
(Orissa).
11 . Whale Stationery Products Ltd v UOI, (2008) 82 CLA 185 (Del).
12 Southern v Watson, (1940) 3 All ER 439 : 85 SJ 8 (CA).
13 Abbey Malvern Wells Ltd v Ministry of Local Govt. and Planning, (1951) ChD 728 : (1951) 2 All ER 154 : (1951) 1 TLR
1050.
14 Willis v Association of Universities of the British Commonwealth, (1965) 1 QB 140 (CA) : (1964) 2 All ER 39 : (1964) 2
WLR 946 : 108 SJ 197 (CA); Malyon v Plummer, (1964) 1 QB 330 : (1963) 2 All ER 344 : (1963) 2 WLR 1213; Gilford
Motor Co v Horne, (1933) ChD 935 : (1933) All ER Rep. 109 : 102 LJ Ch. 212 (CA); Jyoti Ltd v Kanwaljit Kaur Bhasin,
(1987) 62 COMP CASES 626 (Delhi) see ratio of this decision under Contempt in later paragraphs.
15 Smith, Stone & Knight v Birmingham Corpn, (1939) 4 All ER 116 : 161 LT 371 : 83 SJ 961.
215 (CA).
17 L.I.C. v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370; Bijoy Kumar Agarwal v Ratanlal Bagaria,
AIR 1999 Cal 106. See detailed discussion in earlier paragraphs under Lifting the corporate veil.
19 Carrasco Investments Ltd v Special Director, Enforcement Directorate, (1994) 79 Comp Cases 631 (Delhi).
20 Delhi Development Authority v Skipper Construction Co Pvt Ltd, (1997) 89 COMP CASES 362 (SC); Rashtriya Mill
Mazdoor Sangh v Khatau Makanji Spg. and Wvg. Co Ltd, (2000) 100 COMP CASES 33 (Bom.).
21 Jyoti Ltd v Kanwaljit Kaur Bhasin, (1987) 62 COMP CASES 626 (Delhi).
22 Ravi Kant v National Consumer Disputes Redressal Commission, (1997) 89 COMP CASES 471 (Delhi) (DB); Aligarh
Municipal Board v Ekka Tonga Mazdoor Union, AIR 1970 SC 1767.
23 Rashtriya Mill Mazdoor Sangh v Khatau Makanji Spg. and Wvg. Co Ltd, (2000) 100 COMP CASES 33 (Bom.).
24 Director General of Fair Trading v Pioneer Concrete (UK) Ltd, (1995) 1 BCLC 613 (HL).
25 Heavy Engineering Mazdoor Union v State of Bihar, (1969) 39 COMP CASES 905 (SC) : AIR 1970 SC 82 : (1969) 2
Comp. LJ 273 (SC); State Trading Corpn. of India Ltd v CTO, (1963) 33 COMP CASES 1057 (SC) : AIR 1963 SC 1811
: (1963) 2 Comp. LJ 234 (SC); Steel Authority of India Ltd v Shri Ambica Mills Ltd, (1998) 92 COMP CASES 120 (SC);
Dr. S.L. Agarwal v Hindustan Steel Ltd, AIR 1970 SC 1150 : (1970) 3 SCR 363; Western Coalfields Ltd v Special Area
Development Authority, AIR 1982 SC 697 : (1982) 1 SCC 125; Ranjit Kumar Chatterjee v UOI, (1969) 39 COMP
CASES 327 (Cal.) : AIR 1969 Cal 95; K.C. Verma v Bokaro Steel Ltd, (1971) 41 COMP CASES 826 (Pat.) (DB) : AIR
1971 Pat. 137.
26 Central Inland Water Transport Corpn. Ltd v Brojo Nath Ganguly, (1986) 60 COMP CASES 797 (SC) : AIR 1986 SC
1571.
27 Inland Steam Navigation Workers’ Union v Rivers Steam Navigation Co Ltd, (1968) 38 COMP CASES 99 (Cal.) (DB) :
71 Cal WN 897; Kapila Hingorani v State of Bihar, (2003) 116 COMP CASES 133 (SC).
28 Praga Tools Corp v C.V. Imanual, (1969) 39 COMP CASES 889 (SC) : AIR 1969 SC 1306 : (1970) 1 Comp. LJ 50
(SC); Malik Ram v Hindusthan Cables Ltd, (1968) 38 COMP CASES 500 (Cal.) : 72 Cal WN 398; D.M. Nagaraja Rao v
Indian Oil Corpn. Ltd, (1969) 39 COMP CASES 896 (Mys.).
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Page 43 of 47
29 Electronics Corp of India Ltd v Govt of Andhra Pradesh, (1999) 97 COMP CASES 470 (SC) : AIR 1999 SC 1734.
30 Secretary, HSEB v Suresh, 1999 (3) SCC 601.
31 M.V. “Dong Do” v. Ramesh Kumar and Co Ltd, (2002) 109 COMP CASES 450 (Cal.) (DB).
32 Kapila Hingorani v State of Bihar, (2003) 116 COMP CASES 133 (SC).
33 British American Tobacco Co Ltd v IRC, (1943) AC 335 (HL) : (1943) 1 All ER 13 (HL) : (1943) 13 COMP CASES 123
(HL).
35 Vikas Jalan v Nucon Industries Pvt Ltd, (2001) 103 COMP CASES 343 (AP).
36 Amratlal Bhanji Laxman v Kusum Prabhudas Laxman, Suit No, 3461 of 2007, dated 11-06-2009, Bom HC.
37 Shyamlal Purohit v Jagannath Ray, (1970) 40 COMP CASES 138 (Cal.) (DB) : AIR 1969 Cal 424.
38 Purna Investment Ltd v Bank of India Ltd, (1984) 55 COMP CASES 737 (Cal.) (DB); Charanjit Lal Chowdhury v UOI,
(1951) 21 COMP CASES 33 (SC) : AIR 1951 SC 41 : 1950 SCR 869; Mrs. Bacha F. Guzdar v CIT, (1955) 25 COMP
CASES 1 (SC) : AIR 1955 SC 74 : (1955) 27 ITR 1 (SC) : (1955) 1 SCR 876. See also Company a legal person and
separate juristic entity earlier.
39 Subra Mukherjee v Bharat Coking Coal Ltd, (2000) 101 COMP CASES 257 (SC). See also Corporate entity, Corporate
veil and Lifting of corporate veil in earlier paragraphs.
40 Naga Brahma Trust v Translanka Air Travels Pvt Ltd, (1997) 88 COMP CASES 136 (Mad.).
41 Jai Narain Parasrampuria (Decd.) v Pushpa Devi Saraf, (2006) 133 COMP CASES 794 (SC).
42 Rajdhani Chit Fund Pvt Ltd v Mukesh Maheshwari, (1999) 96 COMP CASES 837 (Delhi); Kathiawar Industries Ltd v
Custodian-General of Evacuee Property, AIR 1967 P&H. 337; Hydro (Sind) Electric Supply Co Ltd v UOI, AIR 1959
P&H. 199.
43 Prem Lata Bhatia v UOI, (2006) 134 COMP CASES 92 (Delhi) (DB).
44 K.M. Basheer v Lona Chackola, (2003) 115 COMP CASES 127 (Ker.) (DB).
45 Martin Burn Ltd v Bhagirath Murarka, (1982) 52 COMP CASES 127 (Cal.) (DB).
46 G.C. Mehrotra v Deputy Collector (Collections), Sales Tax, (1998) 93 COMP CASES 617 (All.); Kailash Prasad Modi v
Chief General Manager, Orissa Telecommunication, (1995) 82 COMP CASES 626 (Orissa) (DB) : AIR 1994 Orissa 98
(DB); V.V. Rama Rao v UOI, (1998) 30 CLA 131 (AP); Employees’ State Insurance Corp v S.K. Aggarwal, (1998) 94
COMP CASES 75 (SC). See detailed Notes under Recovery of Tax, Recovery of Dues, etc., in later paragraphs.
47 R. v Tyler & International Commercial Co, (1891) 2 QB 588 : 65 LT 662 : 7 TLR 720 (CA); Director of Public
Prosecutions v Kent and Sussex Contractors Ltd, (1944) 2 KB 146 : (1944) 1 All ER 119 : 113 LJ KB 88 (DC).
48 Esso Standard Inc v Udharam Bhagwandas Japanwalla, (1975) 45 COMP CASES 16 (Bom.) (DB).
Mr. Laghir1 Rabari

Page 44 of 47
49 Bolton (H.L.) Engg. Co Ltd v Graham (T.J.) & Sons Ltd, (1957) 1 QB 159 : (1956) 3 All ER 624 : (1956) 3 WLR 804 :
(1956) 100 SJ 816 (CA); DPP v Kent and Sussex Contractors Ltd, (1944) 2 KB 146 : (1944) 1 All ER 119 : 113 LJ KB
88 (DC); D. & L. Caterers Ltd v D’Anjou, (1945) KB 364 : (1945) 1 All ER 563 : 114 LJ KB 386; Neville v London
Express Newspapers, (1917) 2 KB 564. See also Lifting the veil for Contempt of Court in earlier paragraphs.
50 Linotype Co Ltd v British Empire Typesetting Machine Co Ltd, (1899) 81 LT 331 : 15 TLR 524 (HL); South Hetton Coal
Co v North-Eastern News Association, (1894) 1 QB 133 : 63 LJ QB 293; Lewis v Daily Telegraph Ltd, (1964) 2 QB 601
: (1964) 1 All ER 705 : (1964) 2 WLR 736 (CA).
52 Radhey Shyam Khemka v State of Bihar, (1993) 77 COMP CASES 356 (SC).
53 A.K. Khosla v T.S. Venkatesan, (1994) 80 COMP CASES 81 (Cal.).
54 R.S. Sodhi v Partha Pratim Saikia, (2009) 151 Com Cas 583 (Gau).
55 Sesa Goa Ltd v State of Maharashtra, (2009) 151 Com Cas 358 : (2009), 89 SCL 169 (Bom).
56 Tesco Supermarkets Ltd v Nattrass, (1972) AC 153 : (1971) 2 All ER 127 : (1971) 2 WLR 1166 : (1971) 115 SJ 285
(HL); Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd, (1915) AC 705 : 84 LJ KB 1281 : 113 LT 195 : 31 TLR 294
: 59 SJ 411 (HL); Bolton (H.L.) Engg. Co. Ltd v Graham (T.J.) & Sons Ltd, (1957) 1 QB 159 : (1956) 3 All ER 624 :
(1956) 3 WLR 804 : (1956) 100 SJ 816 (CA); R. v McDonnell, (1966) 1 QB 233 : (1966) 1 All ER 193 : (1965) 3 WLR
1138 : 109 SJ 919 : (1966) 36 COMP CASES 125; Henshall (John) (Quarries) Ltd v Harvey, (1965) 2 QB 233 : (1965) 1
All ER 725 (DC); DPP v Kent and Sussex Contractors Ltd, (1944) 2 KB 146 : (1944) 1 All ER 119 : 113 LJ KB 88 (DC);
R. v ICR Haulage Ltd, (1944) KB 551 : (1944) 1 All ER 691 (CCA). But see R. v Andrews Weatherfoil Ltd, (1972) 1 All
ER 65 : (1972) 1 WLR 118 : 115 SJ 888 (CA).
57 R. v ICR Haulage Ltd, (1944) KB 551 : (1944) 1 All ER 691 (CCA); Esso Standard Inc v Udharam Bhagwandas
Japanwalla, (1975) 45 COMP CASES 16 (Bom.) (DB).
58 Abdul Aziz v State of Maharashtra, AIR 1963 SC 1470; Supdt. and Legal Remembrancer v Balai Chand Saha, (1974)
78 Cal WN 757 (Cal.); Karunaketan Dutta v Coal Board, (1972) 76 Cal WN 679 (Cal.).
59 M.V. Javali v Mahajan Borewell and Co, (1998) 91 COMP CASES 708 (SC) : (1998) 230 ITR 1 (SC); M.R. Pratap v
V.M. Muthukrishnan, ITO, (1992) 74 COMP CASES 400 (SC) : (1992) 196 ITR 1 (SC) : AIR 1994 SC 674; ITO v D.
Manoharlal Kothari, (1999) 96 COMP CASES 275 (Mad.) : (1999) 236 ITR 357 (Mad.); Modi Industries Ltd v B.C. Goel,
(1983) 54 COMP CASES 835 (All.) (DB); Oswal Vanaspati and Allied Industries v State of U.P, (1992) 75 COMP
CASES 770 (All.) (FB); Manian Transports v S. Krishna Moorthy, ITO, (1991) 72 COMP CASES 746 (Mad.); P.V. Pai v
R.L. Rinawma, Dy. CIT, (1993) 77 COMP CASES 179 (Kar.) : (1993) 200 ITR 717 (Kar.); Vijaya Commercial Credit Ltd
v ITO, (1988) 63 COMP CASES 581 (Kar.) : (1988) 170 ITR 55 (Kar.).
60 Hrushikesh Panda v State of Orissa, (1997) 89 COMP CASES 613 (Orissa).
COMP CASES 237 (Cal.) (DB); Naresh Kumar v State of Bihar, (1991) 70 COMP CASES 358 (Patna); Vidya Wati v
State, (1990) 69 COMP CASES 813 (Delhi).
Mr. Laghir1 Rabari

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62 Associated Cement Co Ltd v Keshvanand, (1998) 91 COMP CASES 361 (SC).
63 Geekay Exim (India) Ltd v State of Gujarat, (1998) 94 COMP CASES 516 (Guj.).
SCR 885. See detailed Notes under Characteristics of a company, Corporate entity, Corporate veil, Lifting the
corporate veil and Perpetual succession hereinbefore.
65 Ray Cylinders and Containers v Hindustan General Industries Ltd, (2001) 103 COMP CASES 161 (Delhi).
66 Memtec Ltd v Lunarmech, (2001) 103 COMP CASES 1078 (Delhi).
67 Gopalpur Tea Co Ltd v Peshok Tea Co Ltd, (1982) 52 COMP CASES 239 (Cal.) (DB).
68 B. Mookerjee v State Bank of India, (1993) 76 COMP CASES 292 (Cal.) (DB).
69 Hindustan Petroleum Corpn. Ltd v Sardar Chand, (1991) 71 COMP CASES 257 (P&H).
70 Swadharma Swarajya Sangha v Indian Commerce and Industries Co Pvt Ltd, (1999) 98 COMP CASES 151 (Mad.)
(DB).
Services Ltd, (1992) 75 COMP CASES 583 (Bom.).
72 Prakash Timbers Pvt Ltd v Smt. Sushma Shingla, (1997) 89 COMP CASES 770 (All.) (DB); Minoo H. Mody v Hemant
D. Vakil, (1997) 89 COMP CASES 456 (Bom.) (DB); Tin Plates Dealers Association Pvt Ltd v Satish Chandra
Sanwalka, (2002) 108 COMP CASES 295 (Cal.).
73 Order 29, rule 1 and Order 6, rule 14 of the Code of Civil Procedure, 1908 (5 of 1908).
74 BSN (UK) Ltd v Janardan Mohandas Rajan Pillai, (1996) 86 COMP CASES 371 (Bom.); Wallersteiner v Moir (No, 2),
(1975) QB 373 : (1975) 1 All ER 849 : (1975) 2 WLR 389 : (1975) 119 SJ 97 (CA); Nurcombe v Nurcombe, (1985) 1 All
ER 65 : (1985) 1 WLR 370 : (1984) BCLC 557 (CA); Giles v Rhind, (2002) 4 All ER 977.
75 Patel Roadways Ltd v Prasad Trading Co, (1992) 74 COMP CASES 11 (SC); R.S.D.V. Finance Co Pvt Ltd v Shree
Vallabh Glass Works Ltd, (1993) 78 COMP CASES 640 (SC).
76 All India General Transport Corp Ltd v Raghunath Sahay, (1970) 40 COMP CASES 203 (Pat.).
77 Harendra Nath Ghosal v Superfoam Pvt Ltd, (1992) 74 COMP CASES 740 (Cal.) (DB).
78 Mamata Papers Pvt Ltd v State of Orissa, (2000) 99 COMP CASES 294 (Orissa).
Mr. Laghir1 Rabari

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79 Union Bank of India v Khader International Construction, (2001) 105 COMP CASES 856 (SC).
80 Vivek Kumar v Pearl Cycle Industries Ltd, (1983) 54 COMP CASES 77 (Delhi).
81 Punjab National Bank v Bareja Knipping Fasteners Ltd, (2001) 103 COMP CASES 958 (P&H).
82 Electrical Cable Development Association v Arun Commercial Premises Co-op Housing Society Ltd, (1998) 94 COMP
CASES 53 (SC).
83 Godrej Soap Ltd v State, (1991) 70 COMP CASES 248 (Cal.) (DB).
84 Sukhdev Singh v Bhagatram Sardar Singh Raghuvanshi, (1975) 45 COMP CASES 285 (SC) : AIR 1975 SC 1331 :
(1975) 3 SCR 619.
85 Andhra Pradesh State Road Transport Corpn v ITO, (1964) 34 COMP CASES 473 (SC) : AIR 1964 SC 1486 : (1964)
52 ITR 524 (SC). See also Government Company hereinbefore.
(1964) 6 SCR 885; State Trading Corp of India Ltd v CTO, (1963) 33 COMP CASES 1057 (SC) : AIR 1963 SC 1811 :
(1963) 2 Comp. LJ 234 (SC). See also Notes under Company a legal person and separate juristic entity, Corporate
entity, Corporate veil, Lifting the corporate veil and Government Company, etc., in earlier paragraphs.
87 Maddi Swarna v CTO, (2002) 109 COMP CASES 308 (AP) (DB); Peter J.R. Prabhu v Asst. CCT, (2002) 109 COMP
CASES 299 (Kar.); Nishad Patel v State of Kerala, (1999) 96 COMP CASES 861 (Ker.); Tikam Chand Jain v State
Govt. of Haryana, (1987) 62 COMP CASES 601 (P&H); Surinder Nath Khosla v Excise and Taxation Commissioner,
(1964) 15 STC 838 (P&H); George J. Mathew v Commercial Tax Officer, (2002) 112 COMP CASES 641 (Mad.).
88 G.C. Mehrotra v Deputy Collector (Collections), Sales Tax, (1998) 93 COMP CASES 617 (All.). See also Notes under
Liability of Company in earlier paragraphs.
89 Khaders International Construction Ltd v CIT, (1998) 91 COMP CASES 432 (Ker.); Bhagwandas J. Patel v Deputy CIT,
(1999) 97 COMP CASES 213 (Guj.) (DB).
90 Satish Chand Singhal v CIT, (1992) 74 COMP CASES 796 (All.) : (1992) 196 ITR 227 (All.).
91 Tata Consultancy Services v UOI, (2002) 111 COMP CASES 292 (Kar.).
92 Alembic Glass Industries Ltd v CCE, (2002) 112 COMP CASES 379 (SC).
1 Collector of Central Excise v I.T.E.C. Pvt Ltd, (2002) 112 COMP CASES 470 (SC).
2 Sri Banashankary Leasing Co Ltd v State of Karnataka, (1991) 70 COMP CASES 200 (Kar.).
Mr. Laghir1 Rabari

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3 Trustor AB v Smallbone (No, 2), (2001) 3 All ER 987. See also Lifting the veil in Tax Matters, viz., Tax Evasion or
Avoidance in earlier paragraphs.
4 Hrushikesh Panda v Indramani Swain, (1988) 63 COMP CASES 368 (Orissa) (DB).
5 Kundan Singh v Moga Transport Co Pvt Ltd, (1987) 62 COMP CASES 600 (P&H).
6 Bhabani Prosad Ghosh v Central Bank of India, (1993) 76 COMP CASES 349 (Cal.) (DB); H.S. Sidana v Rajesh
Enterprises, (1993) 77 COMP CASES 251 (P&H); Bank of Maharashtra v Racmann Auto Pvt Ltd, (1992) 74 COMP
CASES 752 (Delhi); Indian Overseas Bank v A.B. Senan, (1999) 96 COMP CASES 639 (Ker.); Indian Overseas Bank v
R.M. Marketing and Services Pvt Ltd, (2001) 107 COMP CASES 606 (Delhi).
7 Motipur Zamindari Co Ltd v State of Bihar, AIR 1953 SC 320.
(DB) : AIR 1994 Orissa 98 (DB).
9 Keshav Kumar Swarup v Flowmore Pvt Ltd, (1996) 85 COMP CASES 210 (SC).
10 Larsen and Toubro Ltd v State of Gujarat, (1998) 92 COMP CASES 373 (SC).
11 Link Hire-Purchase and Leasing Co Pvt Ltd v State of Kerala, (2001) 103 COMP CASES 941 (Ker.).
End of Document
Mr. Laghir1 Rabari

corresponds to section 36 of the 1956 Act. S. 10. Effect of memorandum
and articles.—
THERETO

INCIDENTAL THERETO
12 S. 10. Effect of memorandum and articles.—
(1) Subject to the provisions of this Act, the memorandum and articles shall, when registered,
bind the company and the members thereof to the same extent as if they respectively had
been signed by the company and by each member, and contained covenants on its and his
part to observe all the provisions of the memorandum and of the articles.
(2) All monies payable by any member to the company under the memorandum or articles shall
be a debt due from him to the company.
NOTES
Section 10 of the 2013 Act has been enforced vide Notification SO 902(E) dated 26-03-2014, with
effect from 01-04-2014. Section 10 of the 2013 Act corresponds to section 36 of the 1956 Act.
as follows:
This clause corresponds to section 36 of the Companies Act, 1956 and seeks to provide for the effect of memorandum
and articles whereby the memorandum and articles shall be binding on the company and the members to the extent as
if they respectively had been signed by the company and by each member. All moneys payable by members to the
company shall be debt due from him to the company.
[s 10.2] Memorandum and Articles binding [Sub-section (1) of Section 10 of the Companies
Act, 2013]
Subject to the provisions of the 2013 Act, the Memorandum and Articles bind the company and
members as if signed by the company and each member, and contain covenants to observe all the
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Act. S. 10. Effect of memorandum and articles.—
provisions of the Memorandum and Articles. Section 10(1), 2013 Act corresponds to section 36(1) of
the 1956 Act.
[s 10.3] Money payable by member a debt due [Sub-section (2) of Section 10 of the
All money payable by any member to the company under the Memorandum or Articles of Association
of the company is a debt due from him to the company. Section 10(2) of the 2013 is a verbatim
reproduction of sub-section (2) section 36 of the 1956 Act.
As section 10 of the 2013 Act corresponds verbatim to section 36 of the 1956 Act, the ensuing
discussion in light of section 36 of the 1956 Act is relevant for the purpose of interpretation of section
10 of the 2013 Act.
S. 36. Effect of memorandum and articles.—(1) Subject to the provisions of this Act, the memorandum and articles
shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been
signed by the company and by each member, and contained covenants on its and his part to observe all the provisions
of the memorandum and of the articles. The Companies Act, 1956 provision
(2) All money payable by any member to the company under the memorandum or articles shall be a debt due from him
to the company.
NOTES
Mr. Laghir1 Rabari

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follows:
The section corresponds to section 21 of the existing Act and section 20 of the English Act. The language has been
generalised so as to make a reference not only to the members of the company but also to the company. [Clause 31 of
[s 10.5] Construction of Memorandum and Articles
Memorandum of Association has to be read together with the Articles of Association, where the terms
are ambiguous or silent. Articles may explain the Memorandum, but cannot extend its scope.13
Primarily the Memorandum alone must be looked at for the purpose of ascertaining the objects of the
company. It is only in case of ambiguity that the Articles may be referred to for the very limited
purpose of explaining the ambiguity.14 Articles should be construed as a business document so as to
give business efficacy in preference to a construction which will prove it unworkable.15
[s 10.6] Act to override Memorandum and Articles [Section 9 of the Companies Act, 1956]
Save as otherwise expressly provided in the 1956 Act (a) the provisions of the 1956 Act shall
override the memorandum, articles, agreements or resolutions, and (b) any provision contained in the
memorandum, articles, agreement or resolution shall, to the extent to which it is repugnant to the
provisions of the Act, become or be void. Correspondingly, section 6 of the 2013 Act provides that the
provisions of the 2013 Act shall override memorandum, articles, etc.
[s 10.7] Subject to provisions of the Companies Act
The Memorandum and Articles of company are binding subject to provisions of the (section 36 of the
1956 Act and section 10 of the 2013 Act). In view of non obstante clause in proviso to section 80A(1)
of the 1956 Act, the CLB [the Tribunal] has power to lay down conditions while granting permission to
issue further redeemable preference shares in lieu of existing shares. Such condition overrides the
Articles.16
[s 10.8] Contract, its binding nature
As per section 36 of the 1956 Act (section 10 of the 2013 Act), the Memorandum and Articles bind
the company and members as if signed by the company and each member. The decisions
enunciating the binding nature of this contract are as follows.
[s 10.9] Memorandum irrevocably binds Subscriber
Memorandum of Association of the company irrevocably binds a subscriber thereof to contribute the
proportion of the capital for which he subscribes, but it does not bind him irrevocably as regards
matters not required by the Act to be stated therein. A person who subscribes for preference shares
may take an equivalent of ordinary shares instead.17
[s 10.10] Articles a contract between Company and its Members
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There are decisions or dicta to the effect that the Articles of Association of a company constitute a
contract between the members inter se18 and also to the effect that the Articles do not constitute a
contract between the members inter se.19
The result of apparently conflicting decisions is that though the Articles can neither constitute a
contract between the company and an outsider nor give any individual member of the company
special contractual rights beyond those of the members generally, they in fact constitute a contract
between the company and its members in respect of their ordinary rights as members.20
[s 10.11] Articles regulate the Internal Management
Subject to the provisions of the 1956 Act), the company and its members are bound by the provisions
contained in the Articles of Association. The Articles regulate the internal management of the
company and define the powers of its officers. They also establish a contract between the company
and the members and between the members inter se.21
[s 10.12] Articles binding on Members inter se
Section 36 of the 1956 Act makes the Memorandum of Association and Articles of Association of a
Company, when registered, binding not only on the company but also the Members inter se to the
same extent as if they had been signed by the company and by each member and covenanted to by
the company and each shareholder to observe all the provisions of the Memorandum and of the
Articles. The Articles of Association constitute a contract not merely between the shareholders and
the company but between the individual shareholders also. The Articles of Association of a Company
are a source of powers of the Directors who can as a result exercise only those powers conferred by
the Articles in accordance therewith. Any action referable to the Articles and contrary thereto would
be ultra vires the Articles.22
[s 10.13] Private agreements – whether binding
Normally, private agreements, unless they are made part of the articles, are not binding on the
company. Any dispute regarding private agreements for investment in shares has to be agitated in a
civil court. While in the normal course, the company should be a party or the articles should reflect
such a private agreement to bind the company, yet if the company has taken benefit or has acted in
terms of any such private agreement, then the company is bound by the terms of the agreement, at
least in relation to the terms that the company has acted upon or derived certain benefits. However,
even if they do not form part of the articles, if the company has acted in terms of such agreements, as
in the present case, they are binding on the company insofar as the terms which have been acted
upon by the company.23
Please also see Notes under section 58 for contracts or arrangements between two or more persons
for transfer of shares.
[s 10.14] Articles as to splitting of shares binding
The 1956 Act, does not lay down any rule as to the number of share certificates that a company
should issue to a member who holds more than one share. However, the issue of a great number of
split shares to the same shareholder may considerably inconvenience the company and for that
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reason Articles of Association of companies sometimes provide that issue of several certificates
relating to the same holding shall be in the discretion of the directors. The Articles of Association are
not only a contract between the company and its members but they also constitute a relationship
between the company and its members, their rights inter se. Therefore, where the transferor is a
member of the company and who has sought for splitting of share certificates he is bound by the
provisions of the Articles that the Board of directors shall not approve splitting of shares below a
certain number in each certificate.24
[s 10.15] Contractual force of Articles
The contractual force of the Articles of Association of the company is limited to such provisions of the
Articles as are applied to the relationship of the members as such.25
[s 10.16] Where Articles silent– Process of implication
While making general observations as to the process of implication, it was noted:
16…The court has no power to improve upon the instrument which it is called upon to construe, whether it be a
contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is
concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the
authors or parties to the document would have intended. It is the meaning which the instrument would convey to a
reasonable person having all the background knowledge which would reasonably be available to the audience to
whom the instrument is addressed….It is this objective meaning which is conventionally called the intention of the
parties, or the intention of Parliament, or the intention of whatever person or body was or is deemed to have been the
author of the instrument.
17. The question of implication arises when the instrument does not expressly provide for what is to happen when
some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended
something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to
continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.
18. In some cases, however, the reasonable addressee would understand the instrument to mean something else. He
would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant
background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument
may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as
to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It
only spells out what the instrument means.26
[s 10.17] Variation between prospectus and articles
The representation made in the prospectus would not change the terms of the contract between the
company and the members which are already settled. The prospectus did not become a contract
between the company and the members inasmuch as the subscribers buying the shares did so with
the knowledge that the contract would consist of the memorandum and the articles of association and
not of the representations made in the prospectus. Any variation between the language of the
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Page 6 of 10
prospectus and articles is, therefore, to be construed as the article prevailing over the prospectus.27
[s 10.18] Third party
The Articles do not constitute a contract between the company and any third party.28 An outsider to
whom rights are purported to be given by the Articles in his capacity as such outsider whether he is
or subsequently becomes a member cannot sue on those Articles treating them as contracts between
himself and the company to enforce those rights. No rights merely purporting to be given by an Article
to a person whether a member or not in a capacity other than that of a member, such as a solicitor or
promoter, can be enforced against the company.29 The rights arising out of such contracts can be
enforced only through the company.30
[s 10.19] Implied contract
Though Memorandum and Articles may not constitute a contract between the company and an
outsider, such as a promoter and the company, an implied contract may be inferred from the acts of
the parties on the terms set out in the Articles. The Articles have been held to constitute an implied
contract between the company and its directors in certain cases given below.
[s 10.20] Contract between company and its Directors
Where in terms of certain Articles a shareholder was appointed managing director of the company
who acted for several years and was remunerated as provided in the Articles, it was held that this
constituted an implied contract between the company and the shareholder so as to entitle him to a
declaration that he was the managing director of the company.31
It is a well-established that the Articles of Association of a company form part of the contract between
the shareholders inter se; and if on the basis of these Articles the directors were employed by the
company, the terms of the Articles are embodied in and form part of the contract between the
company and its directors.32
[s 10.21] Articles of Government Company
The Articles of Association of a Corporation or a Government Company providing that the Board of
Directors will act subject to direction of the President of India or hold office at the pleasure of the
Governor shall be binding on the directors.33
[s 10.22] Acts beyond scope of Memorandum ultra vires
Where an act is beyond the scope of the Memorandum of Association of the company, it is ultra
vires, and no legal effect ensues, it is void, cannot be ratified by the shareholders and if any money
has been disbursed then the officers of the company responsible for such unlawful disbursement and
not the company will be responsible.34
[s 10.23] Acts outside powers of Directors
An act outside the powers of Directors will not bind the company. A company and the directors of the
company are different legal personalities. The company derives its powers from the Memorandum.
Some of the powers are delegated to the directors. For certain purposes they are said to be trustees
and for some others to be the agents or managers of the company. The acts of the Directors within
the powers conferred on them may be binding on the company. But their acts outside the said
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Page 7 of 10
powers will not bind the company.35
[s 10.24] Conduct of the parties
In interpreting Memorandum and Articles of a company the conduct of the parties accepting a
standard practice for past several years as to the internal management of the company would have to
be given due weight.36
As per the doctrine of constructive notice any one dealing with a company is deemed to have notice
of the contents of its ‘public documents’, e.g., Memorandum and Articles of Association of the
company. A third party is thus deemed to have knowledge of the contents of its objects clause.
Where the insolvent company’s stated objects were to manufacture dresses but it was making
veneered panels. The claims of the creditors were held to be ultra vires on a combination of actual
knowledge of the present nature of the business and constructive knowledge of objects clause.37
Bank v Turquand.38
Where a person dealing with a company in good faith, purchased property of a company from an
officer of the company, he was entitled to assume that the internal affairs of the company were being
conducted properly. Further held that the third party holding the agreement to sell from the managing
director was protected in a pending suit for specific performance. Such party was not a necessary
party to the proceedings.39
[s 10.26] English law
The constructive notice rule has been abolished by the English Companies Act, 1989 and a third
party acting in good faith is protected by new sections in dealing with the Board of directors or officers
or agents authorised by the Board. But, where third party’s dealings are with some officer or agent
other than the Board of directors or authorised by the Board normal agency principles as refined in
Turquand’s case and later decisions are still relevant even under English law.
Under the English Companies Act, 2006, the validity of any act done by a company shall not be called into question on
the ground of lack of capacity by reason of anything in the company’s constitution.
[s 10.27] Sub-section (2), Section 36 of the Companies Act, 1956
Moneys payable by a member to the company under the memorandum or articles of the company is
a debt due from the member to the company. Section 10(2) of the 2013 Act is the corresponding
provision.
[s 10.28] Suit and notice
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A suit may be filed to recover the debt. But precondition to enforcement to such a debt, though due
and payable, is that proper notice is to be given in accordance with the Articles to the person
concerned. Without such a notice the debt is not enforceable.40
Where provisions in the Memorandum of a Government Company provided that the Board of
Directors was competent to refer disputes to the arbitration. It is only an enabling provision. There is
no necessary inference of an arbitration agreement. It could not be said that there was a written
agreement to arbitration between the parties. There was no compulsion on the Board of directors to
make reference to arbitration under the Arbitration and Conciliation Act, 1996.41
[s 10.30] Article referring to Arbitration
An Article referring to Arbitration of any dispute between the company and any member does not
constitute a submission to arbitration of a dispute between the company and one of its directors as
such, notwithstanding that the director was a member of the company.42
12 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to section 36 of the 1956 Act.
248 (SC).
14 Shyam Chand v Calcutta Stock Exchange Association Ltd, AIR 1949 Cal 337.
15 Holmes v Keyes, (1959) ChD 199 : (1958) 2 All ER 129 : (1958) 2 WLR 772 : (1958) 102 SJ 329 (CA); S.S. Rajakumar
v Perfect Castings Pvt Ltd, (1968) 38 COMP CASES 187 (Mad.) : (1968) 1 Comp. LJ 41 (Mad.); Jarnail Singh v Bakshi
Singh, (1960) 30 COMP CASES 192 (Punj.) : AIR 1960 Punj. 455.
16 Raja Ram Corn Products (Punjab) Ltd v Co Law Board, (2003) 113 COMP CASES 33 (P&H) (DB).
17 Duke’s Case, (1876) 1 ChD 620.
18 Eley v Positive Govt. Security Life Assce. Co., (1876)1 Ex.D. 88 : 45 LJ Exch. 451 (CA); Borland’s Trustee v Steel Bros.
& Co Ltd, (1901) 1 ChD 279 : 70 LJ Ch. 51; Hanuman Prasad Gupta v Hiralal, (1970) 40 COMP CASES 1058 (SC) :
AIR 1971 SC 206 : (1970) 2 Comp. LJ 195 (SC); Unity Co Pvt Ltd v Diamond Sugar Mills Ltd, AIR 1971 Cal 18 : (1970)
2 Comp. LJ 64 (Cal.).
19 Welton v Saffery, (1897) AC 299 : 66 LJ Ch. 362 : 76 LT 505 : 45 WR 508 (HL).
20 Hickman v Kent Sheep-Breeders’ Assn., (1915) 1 ChD 881 : 84 LJ Ch. 688 : 113 LT 159; Beattie v E & F Beattie Ltd,
(1938) ChD 708 : (1938) 3 All ER 214 : 107 LJ Ch. 333 (CA); Shiv OnkarMaheswari v BansidharJagannath, (1957) 27
Mr. Laghir1 Rabari

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COMP CASES 255 (Bom.) : AIR 1956 Bom 459 : (1956) ILR Bom. 100 : 1956 Bom. LR 3.Hanuman Prasad Gupta v
Hiralal, (1970) 40 COMP CASES 1058 (SC) : AIR 1971 SC 206 : (1970) 2 Comp. LJ 195 (SC)
422; V.B. Rangaraj v V.B. Gopalakrishnan, (1992) 73 COMP CASES 201 (SC) : AIR 1992 SC 453.
22 Smt. Claude-Lila Parulekar v Sakal Papers Pvt Ltd, (2005) 124 COMP CASES 685 (SC) relying on Hunter v Hunter,
(1936) AC 222 : 105 LJ Ch. 97 : 154 LT 513 : (1937) 7 COMP CASES 36 (HL); Lyle and Scott Ltd v Scott’s Trustees,
(1959) AC 763 : (1959) 2 All ER 661 : (1959) 3 WLR 133 : (1959) 103 SJ 507 : (1960) 30 COMP CASES 30 (HL);
Naresh Chandra Sanyal v Calcutta Stock Exchange Association Ltd, (1971) 41 COMP CASES 51 (SC) : AIR 1971 SC
422 : (1971) 1 SCC 50; Hanuman Prasad Gupta v Hiralal, (1970) 40 COMP CASES 1058 (SC) : AIR 1971 SC 206 :
(1970) 1 SCC 437 : (1970) 2 Comp. LJ 195 (SC).
23 Harshadbhai B. Patel v Bhagirath Construction Co Pvt Ltd, (2013) 117 CLA 52 (CLB).
24 Kinetic Honda Motor Ltd v Pawan Gupta, (1996) 86 COMP CASES 596 (CLB).
25 London Sack & Bag Co Ltd v Dixon &Lugton Ltd, (1943) 2 All ER 763 : 170 LT 70 (CA); Welton v Saffery, (1897) AC
299 : 66 LJ Ch. 362 : 76 LT 505 : 45 WR 508 (HL); Shiv OnkarMaheswari v BansidharJagannath, (1957) 27 COMP
CASES 255 (Bom.) : AIR 1956 Bom 459 : (1956) ILR Bom. 100 : 1956 Bom. LR 3.
26 Attorney General of Belize v Belize Telecom Ltd, (2009) 2 BCLC 148 (UK PC).
27 Globe Motors Ltd v Globe United Engg. and Foundry Ltd, (1975) 45 Com Cas 429, 434 (Del).
28 Doraiswami Iyengar v United India Life Assurance Co Ltd, AIR 1956 Mad. 316; Major General Shanta Shamsher Jung
BahadurRana v Kamani Bros. Pvt Ltd, (1959) 29 COMP CASES 501 (Bom.) : AIR 1959 Bom 201.
29 Hickman v Kent Sheep-Breeders’ Association, (1915) 1 ChD 881 : 84 LJ Ch. 688 : 113 LT 159; Rameswar v Calcutta
Wheat and Seed Association, (1938) 42 Cal WN 161 (Cal.).
30 Mac Dougall v Gardiner (No, 2), (1875) 1 ChD. 13 : 45 LJ Ch. 27 : 33 LT 521 (CA); Burland v Earle, (1902) AC 83 :
(1900–03) All ER Rep. Ext. 1452 : 71 LJ PC 1.
31 Gulab Singh v Punjab Zamindara Bank, AIR 1942 Lah. 47; Anglo-Austrian Printing and Publishing Union, Re, Isaac’s
Case, (1892) 2 ChD 158 : 66 LT 593 : 61 LJ Ch. 481 : 40 WR 518 : 36 SJ 427 (CA); New British Iron Co., Re, ex parte
Beckwith, (1898) 1 ChD 324 : 67 LJ Ch. 164; Beattie v E & F Beattie Ltd, (1938) ChD 708 : (1938) 3 All ER 214 : 107
LJ Ch. 333 (CA).
32 Indian Copper Corp Ltd v CIT, (1960) 30 COMP CASES 200 (Patna) (DB).
33 Fertilizer Corp of India Ltd v Workmen, AIR 1970 SC 867; G. Karunakaran v State of Kerala, (1987) 61 COMP CASES
334 (Ker.).
248 (SC).
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35 Ram Chand and Sons Sugar Mills Pvt Ltd v Kanhayalal Bhargava, (1967) 37 COMP CASES 42 (SC) : AIR 1966 SC
1899 : (1966) 2 Comp. LJ 224 (SC).
37 Re, Jon Beauforte (London) Ltd, (1953) ChD 131 : (1953) 1 All ER 634 : 2 WLR 465. The Doctrine of constructive
notice has been abolished under English Law.
663 (Ex Ch.).
39 . M. Rajendra Naidu v Sterling Holiday Resorts (India) Ltd, (2008) 144 Com Cas 243 : (2009) 93 SCL 11 (Mad).
40 PabnaDhana-Bhandar Co Ltd v Foyezuddin Mia, (1933) 3 COMP CASES 41 (Cal.) : (1932) 36 Cal WN 589 : AIR 1932
Cal 716; Viswanath v HolylandCinetone Ltd, AIR 1939 All 739.
41 Skypark Builders and Distributors v Kerala Police Housing and Construction Corp Ltd, (2003) 114 COMP CASES 425
(Ker.) (DB).
42 Beattie v E & F Beattie Ltd, (1938) ChD 708 : (1938) 3 All ER 214 : 107 LJ Ch. 333 (CA); Hickman v Kent Sheep-
Breeders’ Assn., (1915) 1 ChD 881 : 84 LJ Ch. 688 : 113 LT 159.
End of Document
Mr. Laghir1 Rabari

43 Section 11 omitted by the Companies (Amendment) Act, 2015, section 4
(w.e.f. 29-5-2015). [S. 11. Commencement of business.—]
THERETO

INCIDENTAL THERETO
43[S. 11. Commencement of business.—]
43 Section 11 omitted by the Companies (Amendment) Act, 2015, section 4 (w.e.f. 29-5-2015).
End of Document
Mr. Laghir1 Rabari

corresponds to sections 17A, 146 and 147 of the 1956 Act. S. 12. Registered
office of company.—
THERETO

INCIDENTAL THERETO
44 S. 12. Registered office of company.—
(1) A company shall, on and from the fifteenth day of its incorporation and at all times thereafter,
have a registered office capable of receiving and acknowledging all communications and
notices as may be addressed to it.
(2) The company shall furnish to the Registrar verification of its registered office within a period
of thirty days of its incorporation in such manner as may be prescribed.45
(3) Every company shall—
(a) paint or affix its name, and the address of its registered office, and keep the same painted
or affixed, on the outside of every office or place in which its business is carried on, in a
conspicuous position, in legible letters, and if the characters employed therefor are not
those of the language or of one of the languages in general use in that locality, also in the
characters of that language or of one of those languages;
46[(b) have its name engraved in legible characters on its seal, if any;]
(c) get its name, address of its registered office and the Corporate Identity Number along with
telephone number, fax number, if any, e-mail and website addresses, if any, printed in all
its business letters, billheads, letter papers and in all its notices and other official
publications; and
(d) have its name printed on hundies, promissory notes, bills of exchange and such other
documents as may be prescribed:47
Provided that where a company has changed its name or names during the last two years, it
shall paint or affix or print, as the case may be, along with its name, the former name or
names so changed during the last two years as required under clauses (a) and (c):
Provided further that the words “One Person Company” shall be mentioned in brackets below
the name of such company, wherever its name is printed, affixed or engraved.
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44 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to sections 17A, 146 and
147 of the 1956 Act. S. 12. Registered office of c....
(4) Notice of every change of the situation of the registered office, verified in the manner
prescribed,48 after the date of incorporation of the company, shall be given to the Registrar
within fifteen days of the change, who shall record the same.
(5) Except on the authority of a special resolution passed by a company, the registered office of
the company shall not be changed,—
(a) in the case of an existing company, outside the local limits of any city, town or village
where such office is situated at the commencement of this Act or where it may be situated
later by virtue of a special resolution passed by the company; and
(b) in the case of any other company, outside the local limits of any city, town or village where
such office is first situated or where it may be situated later by virtue of a special
resolution passed by the company:
Provided that no company shall change the place of its registered office from the
jurisdiction of one Registrar to the jurisdiction of another Registrar within the same
State unless such change is confirmed by the Regional Director on an application
made in this behalf by the company in the prescribed manner.49
(6) The confirmation referred to in sub-section (5) shall be communicated within a period of thirty
days from the date of receipt of application by the Regional Director to the company and the
company shall file the confirmation with the Registrar within a period of sixty days of the date
of confirmation who shall register the same and certify the registration within a period of thirty
days from the date of filing of such confirmation.
(7) The certificate referred to in sub-section (6) shall be conclusive evidence that all the
requirements of this Act with respect to change of registered office in pursuance of sub-
section. (5) have been complied with and the change shall take effect from the date of the
certificate.
(8) If any default is made in complying with the requirements of this section, the company and
every officer who is in default shall be liable to a penalty of one thousand rupees for every
day during which the default continues but not exceeding one lakh rupees.
NOTES
04-2014. Section 12 of the 2013 Act corresponds to sections 17A, 146 and 147 of the 1956 Act.
as follows:
Clause 12.—This clause corresponds to sections 146 and 147 of the Companies Act, 1956 and seeks to provide that
from the date of incorporation and at all times thereafter, a company shall have a registered office capable of receiving
and acknowledging all communications and notices addressed to it. In case of any change of the registered office, the
company has to give notice to the Registrar of companies within a stipulated time. Where a company has changed its
name in last two years, the company shall paint or affix its former names along with the name of the company. A
private company which is OPC shall mention the words “OPC” in bracket below its name. Any change of registered
office outside the local limits of any city, town or village shall be done only with the approval of members through
special resolution. Any change of registered office of a company from the jurisdiction of one Registrar to another
Registrar in the same state shall require confirmation of the Regional Director. The clause further provides that if a
default is made in complying with the requirement in this clause the company and every officer of the company shall be
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liable to penalty.
[s 12.2] Registered Office [Section 12(1) of the Companies Act, 2013]
Company shall have an office called the Registered Office where communications or notices may be
sent. Such office must be in existence on and from the 15th day of its incorporation.
[s 12.3] Intimation to Registrar [Section 12(2) of the Companies Act, 2013]
Notice of the verification of the Registered Office should be given to the Registrar of Companies
within 30 days after the date of incorporation of the company. Any change of Registered Office shall
also be intimated to the Registrar within 15 days of such change, who shall record the same.
The provisions relating to section 12 of the 2013 Act, in terms of its implementation are covered in
“The Companies (Incorporation) Rules, 2014. Few of the relevant rules are reproduced below:
25. Verification of registered office.—(1) The verification of the registered office shall be filed in Form No. INC. 22
along with the fee, and
(2) There shall be attached to say Form, any of the following documents, namely:—
(a) the registered document of the title of the premises of the registered office in the name of the company; or
(b) the notarized copy of lease or rent agreement in the name of the company along with a copy of rent paid
receipt not older than one month;
(c) the authorization from the owner or authorized occupant of the premises along with proof of ownership or
occupancy authorization, to use the premises by the company as its registered office; and
(d) the proof of evidence of any utility service like telephone, gas, electricity, etc. depicting the address of the
premises in the name of the owner or document, as the case may be, which is not older than two months.
36. Integrated Process for Incorporation.—
*****
(9) A company using the provisions of this rule may furnish verification of its registered office under sub-section (2) of
section 12 of the Act by filing e-Form INC-29 in which case the company shall attach along with such e-Form INC-29,
any of the documents referred to in sub-rule (2) of rule 25.
26. Publication of name by company.—(1) Every company which has a website for conducting online business or
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otherwise, shall disclose/publish its name, address of its registered office, the Corporate Identity Number, Telephone
number, fax number if any, email and the name of the person who may be contacted in case of any queries or
grievances on the landing/home page of the said website.
(2) The Central Government may as and when required, notify the other documents on which the name of the
company shall be printed.”
27. Notice and verification of change of situation of the registered office.—The notice of change of the situation of
the registered office and verification thereof shall be filed in Form No. INC. 22 along with the fee and shall be attached
to the said form, the similar documents and manner of verification as are specified for verification of Registered office
on incorporation in terms of sub-section (2) of section 12 of the 2013 Act.
28. Shifting of registered office within the same State.—(1) An application seeking confirmation from the Regional
Director for shifting the registered office within the same State from the jurisdiction of one Registrar of Companies to
the jurisdiction of another Registrar of Companies, shall be filed by the company with the Regional Director in Form No.
INC. 23 along with the fee.
(2) The company shall, not less than one month before filing any application with the Regional Director for the change
of registered office.—
(a) publish a notice, at least once in a daily newspaper published in English and in the principal language of that
district in which the registered office of the company is situated and circulating in that district; and
(b) serve individual notice on each debenture holder, depositor and creditor of the company, clearly indicating the
matter of application and stating that any person whose interest is likely to be affected by the proposed
alteration of the memorandum may intimate his nature of interest and grounds of opposition to the Regional
Director with a copy to the company within 21 days of the date of publication of that notice:
Provided that in case no objection is received by the Regional Director within 21 days from the date of service or
publication of the notice, the person concerned shall be deemed to have given his consent to the change of registered
office proposed in the application:
Provided further that the shifting of registered office shall not be allowed if any inquiry, inspection or investigation has
been initiated against the company or any prosecution is pending against the company under the Act.
Provided also that on completion of such inquiry, inspection or investigation as a consequence of which no prosecution
is envisaged or no prosecution is pending, shifting of registered office shall be allowed.
[s 12.4] Purpose of the eForm
The company is required to furnish to the Registrar verification of its registered office in e-Form INC-
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22 within a period of 30 days from the date of its incorporation. The company can also specify the
address of registered office at the time of filing incorporation e Forms. For this, the applicant shall
upload e Form INC-22 as linked form to e Form INC-7. In case of One Person Company, the
particulars of the registered office address can be filed ineFormINC-2 only.
And any change in situation of the registered office thereafter, the company is required to notify to
Registrar in e Form INC-22 within 15 days of such change.
[s 12.5] Publication of Name and Registered Office
Object of this section is to show to the public dealing with company that the liability of its members is
“Ltd” and to notify the address at which all communications and documents for the company may be
delivered.
[s 12.6] Name and Address outside Office(s) [Section 12(3) (a) of the Companies Act, 2013]
The Name of the Company and the Address of Registered Office should be painted or affixed outside
every office and places of business. The language should be one of those in general use in the
locality. This may be in addition to the language in which the company carries on its correspondence.
[s 12.7] Name on Common Seal of the company [Section 12(3) (b) of the Companies Act,
2013]
The name of the company should be engraved on its Common Seal in legible characters. This
requirement will apply only to those companies that have chosen to retain a common seal. Effective
29 May 2015 the 2013 Act was amended to give companies the option of having a common from
seal.
[s 12.8] Common Seal of company when to be used
The Articles of Association of the Company should provide for putting the Common Seal of the
company on Documents. Apart from this, the Company’s Seal is to be put on Power of Attorney,
Deed of Lease, Deed of Sale, Share Certificates, Debentures, Debenture Trust Deeds, Deed of
Mortgage, Promissory Notes, Negotiable Instruments (except cheques), Agreement of
Hypothecation, Loan Agreements with Banks and Financial Institutions, Contract of Employment,
Guarantees issued by the company and all formal documents and documents executed on stamped
papers. This requirement will apply only to those companies that have chosen to retain a common
seal. Effective 29 May 2015 the 2013 Act was amended to give companies the option of having a
common seal.
For cases on companies business name, refer to the Notes under section 147 of the 1956 Act.
[s 12.9] Name and Address on Letters, Bills, etc. [Section 12(3)(c) of the Companies Act,
2013]
The Name of the company and the Address of Registered Office must also be on each Business
Letters, Bills, Letter-papers, Notices, and Official Publications.
[s 12.10] Name and Address on Hundies, Promisory Notes etc. [Section 12(3)(d) of the
The Name must be so mentioned in all Bills of Exchanges, Hundies, Promissory Notes,
Endorsements, Cheques, Orders for Money or for goods signed on behalf of the company and on
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Bills of Parcels, Invoices, Receipts and Letters of Credit.
[s 12.11] Display of earlier names
The proviso to section 12(3) of the 2013 Act also provides that where a company has changed its
name or names during the last two years, it shall paint or affix or print, as the case may be, along with
its name, the former name or names so changed during the last two years.
[s 12.12] Display of “One person Company”.
An additional proviso to section 12(3) of the 2013 Act requires that the words “One Person Company”
shall be mentioned in brackets below the name of such a company, wherever its name is printed,
affixed or engraved.
[s 12.13] Shifting of Registered Office [Section 12(5) of the Companies Act, 2013]
For shifting the Registered Office of a company to a place outside the local limits of the City, Town or
Village where such Registered Office is situated, a Special Resolution of the company is necessary.
[s 12.14] Change of registered office within the State
As per proviso to section 12(5) of the 2013 Act the change of the place of registered office from one
place to another within the State but from one Registrar of Companies to another requires to be
confirmed by the Regional Director.
[s 12.15] Application to Regional Director
The company shall make an application in the prescribed form to the Regional Director for
confirmation. The confirmation shall be communicated to the company within 30 days from the date
of receipt of application for such change. [Sub-section 12(6)]
[s 12.16] Filing
The company shall file with the Registrar a certified copy of the confirmation by the Regional Director
within 60 days from the date of confirmation together with a printed copy of the memorandum as
altered and the Registrar shall register the same and certify the registration under his hand within 30
days from the date of filing.
[s 12.17] Certificate conclusive [Section 12(7) of the Companies Act, 2013]
The certificate of the Registrar shall be conclusive evidence that all the requirements of the Act with
respect to alteration and confirmation have been complied with and altered memorandum shall be
memorandum of the company.
[s 12.18] Penalty [Section 12(8) of the Companies Act, 2013]
For default in complying with the requirements of this section the company and every officer of the
company who is in default is liable to a fine which may extend to Rs 1,000 for every day during which
the default continues but not exceeding Rs 1 lakh.
[s 12.19] Compoundable offence
Offence under this section is compoundable under section 441 of the 2013 Act.
Key Compliance Checklist
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ü On incorporation, company must furnish a verification of its registered office in Form No. INC-
22 along with the specified documents to the Registrar within a period of 30 days from its
incorporation. However, where companies have furnished the necessary documents and filed
INC 22 at the time of incorporation this is not required.
ü Every change of situation of registered office, outside the local limits of city, town and village
where it is presently situated, requires members’ approval by way of special resolution.
Ensure to file copy of special resolution with the Registrar within 30 days in Form MGT-14.
[Section 179(3)]
ü In case of change of registered office from one State to another, the certified copy of order of
Central Government50 approving the same should be filed with the Registrar in Form INC-28
within 30 days of receipt of order.
ü Every company which changes its registered office shall file Form INC-22 along with notice of
change of the situation of the registered office and verification thereof attached to the form
within 15 days from the date of change.
51[S. 17A. Change of registered office within a State.—(1) No company shall change the place of its registered
office from one place to another within a State unless such change is confirmed by the Regional Director. The
(2) The company shall make an application in the prescribed form to the Regional Director for confirmation under sub-
section (1).
(3) The confirmation referred to in sub-section (1) shall be communicated to the company within four weeks from the
date of receipt of application for such change.
Explanation.—For the removal of doubts, it is hereby declared that the provisions of this section shall apply only to the
companies which change the registered office from the jurisdiction of one Registrar of Companies to the jurisdiction of
another Registrar of Companies within the same State.
(4) The company shall file, with the Registrar a certified copy of the confirmation by the Regional Director for change of
its registered office under this section, within two months from the date of confirmation, together with a printed copy of
the memorandum as altered and the Registrar shall register the same and certify the registration under his hand within
one month from the date of filing of such document.
(5) The certificate shall be conclusive evidence that all the requirements of this Act with respect to the alteration and
confirmation have been complied with and henceforth the memorandum as altered shall be the memorandum of the
company.]
NOTES
Section 17A of the 1956 Act Corresponds to section 12 of the 2013 Act.
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THE COMPANIES (AMENDMENT) ACT, 2000 (53 OF 2000).—The Notes on clauses explained this section as follows:
This clause seeks to insert new section 17A to provide that permission of the Regional Director shall be required for
changing the registered office of a company within the same State. [Clause 7 of the Companies (Second Amendment)
Bill, 1999 (139 of 1999)].
Section 17A(1) corresponds to the proviso to section 12(5) of the 2013 Act. Please refer to the Notes
above.
This section shall apply only to the companies which change the registered office from the jurisdiction
of one Registrar of Companies to the jurisdiction of another Registrar of Companies within the same
State. [Explanation to sub-section (3)]
[s 12.21] Natural justice
In approving the change in the registered office the Regional Director should give the company
reasonable opportunity of being heard and give a reasoned decision on the basis of the principles of
natural justice.52
[s 12.22] Oppression and mismanagement
Where shifting of registered office of the company was not shown to be oppressive to the
shareholder. It was not a loss to the company so as to amount to oppression or mismanagement.53
[s 12.23] Notice of situation and change of registered office [Section 146 of the Companies
Act, 1956]
Notice of situation of registered office and every change must be given to the ROC within 30 days
[section 146(2) of the 1956 Act]. A Special Resolution is required to remove the registered office
outside the local limits of any city, town or village [Section 146(2) proviso].
A perusal of sections 17, 17A and 146 of the 1956 Act shows that there are three types of changes of
registered office contemplated—(1) when the registered office is being changed from one State to
another; (2) when the registered office is being changed from the jurisdiction of one Registrar of
Companies to the jurisdiction of another Registrar of Companies; and (3) when the registered office is
being changed within the jurisdiction of the same Registrar of Companies. In the first two cases, the
change takes effect only after it is recorded by the competent authority and in the third case, the
notice of change itself has to be given after the change has occurred and the only obligation that is
cast on the Registrar of Companies is to record the same.54
India (ICAI) enumerated Salient provisions of the 1956 Act (1 of 1956) concerning Chartered
Accountants and stated as follows.
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[s 12.24.1] Compliance with the Companies Act
The Companies Act lays down detailed provisions regarding various matters and casts an obligation
upon directors and officers of the company to carry out the requirements of the law. Generally
speaking, it is the duty of the directors and the management to ensure that the provisions of the
Companies Act have been complied with. However, where non-compliance with the provisions of the
Companies Act has a bearing upon the accounts and transactions of the company, the Auditor would
in the normal course of his inquiry become aware of the breaches of the Act and may have an
obligation to bring this to the attention of the shareholders. In order to facilitate the work of the
Auditors, a list of important Sections has been provided in the Statement.
The List of important Sections provided in the Statement, inter alia, enumerated sections 16 to 18 of
the 1956 Act as follows:
[s 12.24.2] Alteration of Memorandum [Section 16, 17 and 18 of the Companies Act, 1956]
—Where the Memorandum of Association of a company has been altered, e.g., as to the Objects
clause, Capital structure, etc., it should be seen that prima facie the alteration has been made in
accordance with the law.
[See Statement on Auditing Practices, issued by the Institute of Chartered Accountants of India
(ICAI), Third Edition, 1977, para 15.1 : Reproduced in Handbook of Auditing Pronouncements,
Volume I—Compendium of Statements and Standards, published by the ICAI, Third Edition, 2005,
para 15.1, pages II-30 to 39].
[s 12.25] Section 17A of the Companies Act, 1956
Permission of the Regional Director (RD) shall be required for changing the Registered Office of
Company within the same State.
[s 12.26] Compliance Certificate—Alteration of Memorandum
ICSI Guidance Note on Compliance Certificate are reproduced with below.
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[s 12.28] Check-List for issue of Compliance Certificate
Check-List for issue of Compliance Certificate on Paras 26 and 27 of the Form of Compliance
Certificate as contained in ICSI Guidance Note on Compliance Certificate relating to Alteration in the
Memorandum with respect to Change in Registered Office from one State to another and Objects
Clause is given in Notes under section 17 of the 1956 Act.
[s 12.28.1] Alteration in the Memorandum of Association with respect to Change in

Registered Office from one State to another
See Relevant paras of ICSI Guidance Note on Compliance Certificate in Notes under section 17 of
the 1956 Act.
[s 12.28.2] Shifting of Registered Office from a place under the Jurisdiction of one ROC to a
place under the Jurisdiction of another ROC within the same State.—Check whether :
(i) the company has passed a Special Resolution in the General Meeting for shifting its Registered Office from a
place under the jurisdiction of one ROC [Registrar of Companies] to a place under the jurisdiction of another
ROC, within the same State;
(ii) it has made application in Form 1AD [now e-Form 1AD] to the Regional Director for confirmation of Special
Resolution;
(iii) the RD had passed the confirmation order of the resolution within four weeks from the date of receipt of the
company’s application;
(iv) the company has filed with the ROC from whose jurisdiction it proposes to shift the Registered Office, a copy
of the confirmation order of the Regional Director along with the printed copy of the Memorandum as altered
within two months from the date of confirmation by the Regional Director; and
(v) the ROC from whose jurisdiction Registered Office has been shifted, has registered the documents and
certified the registration under his hand within one month from the date of filing of such documents.
Certificate, etc., in Notes under section 383A.
See also Notes under sections 17, 18 and 40 of the 1956 Act.
Section 17A. Check whether : (1) a Board resolution passed? (2) e-Form 1AD* of the Companies
(Central Government’s) General Rules and Forms, 1956, filed along with a fee of Rs 500 to the
Regional Director? (3) a copy of the confirmation order passed by the Regional Director filed with the
concerned Registrar of Companies within two months along with a printed copy of the Memorandum
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and Articles duly altered? (4) the Registrar issued certificates registering the alterations? (5) the
change had been incorporated in the memorandum, articles and other documents? (12) members’
requests for memorandum and articles, etc., met within seven days (section 39)?
The documents involved are: (1) Memorandum and Articles, (2) Minutes of Board, (3) e-Form 1AD,
(4) Order of the Regional Director, (5) Registrar’s Certificate.
S. 146. Registered office of company.—(1) A company shall, as from the day on which it begins to carry on
business, or as from the 55[thirtieth] day after the date of its incorporation, whichever is earlier, have a registered office
to which all communications and notices may be addressed. The Companies Act, 1956 provision
(2) Notice of the situation of the registered office, and of every change therein, shall be given within 56[thirty] days after
the date of the incorporation of the company or after the date of the change, as the case may be, to the Registrar who
shall record the same:
Provided that except on the authority of a special resolution passed by the company, the registered office of the
company shall not be removed—
(a) in the case of an existing company, outside the local limits of any city, town or village where such office is
situated at the commencement of this Act, or where it may be situated later by virtue of a special resolution
passed by the company; and
(b) in the case of any other company, outside the local limits of any city, town or village where such office is first
situated, or where it may be situated later by virtue of a special resolution passed by the company.
(3) The inclusion in the annual return of a company of a statement as to the address of its registered office shall not be
taken to satisfy the obligation imposed by sub-section (2).
(4) If default is made in complying with the requirements of this section, the company, and every officer of the company
who is in default, shall be punishable with fine which may extend to 57[five hundred rupees] for every day during which
the default continues.
NOTES
Section 146 of the 1956 Act Corresponds to section 12 of the 2013 Act.
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THE 1956 ACT (1 OF 1956).—The Notes on clauses explained the provisions of this section as follows:
This corresponds to section 72 of the existing Act. As recommended by the Company Law Committee, provision has
been made to the effect that except on the authority of a special resolution passed by the shareholders the registered
office of the company should not be moved more than 10 miles from its location at the commencement of this Act, or in
the case of a company which is established after the commencement of this Act, from the place where it is first
situated. In sub-clause (3) provision has been made for the punishment not only of the company but also of officers of
the company who act in contravention of the provisions of this clause. Compare section 107(3) of the English Act.

amendments of minor detail or of a clarificatory or
consequential nature, e.g., number of days for filing, compliance etc. have been made in sections
specified in the Schedule. [Clause 62 of the Companies (Second Amendment) Bill, 1964 (64 of
1964)].
follows:
“This clause seeks to enhance the fine specified in sub-section (4) of section 146 of the Act from Rs 50 to Rs 500.”
Section 146 (1) and (2) of the 1956 Act corresponds to sub-sections (1), (2) and (4) of section 12 of
the 2013 Act. Please refer to the Notes above.
Notice of Situation of the Registered Office or the notice of Change of situation of the Registered
Office should be in e-Form No. 18 of the Companies (Central Government’s) General Rules and
Forms, 1956.
[s 12.31.1] Department’s View— “Local limits” to mean both the local body limits and the
postal limits
“Clause (a) of sub-section (2) of section 146 of the Companies Act, 1956, lays down that the registered office of a
company shall not be shifted outside the local limits of any city, town or village where such registered office is situated
unless the company passes a special resolution to that effect. As a result of rapid urbanisation, cities frequently tend to
expand beyond municipal limits. In view of this, the expression ‘local limits’ in the aforesaid section of the Companies
Act should be taken to mean both the local body limits and the postal limits, and where the two do not coincide, the
wider of the two.” [Circular No. 19/72, dated 26-06-1972 : Government of India publication, Clarifications and Circulars
on Company Law, 1977 Edition, page 71].
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[s 12.32] Annual Return [Section 146(3) of the Companies Act, 1956]
A statement in the Annual Return of the company notifying the change of the Registered Office will
not be sufficient.
[s 12.33] Within same City, Town or Village
Removal of Registered Office from one place to other within the local limits of any city, town or village
where the Registered Office is situated requires a Board Resolution and Intimation to the Registrar of
Companies of such change within 30 days thereof.
[s 12.34] Outside the State [Section 17(1) and (2) of the Companies Act, 1956]
For removal of Registered Office from one State to another, a Special Resolution of the company
[section 17(1)] of the 1956 Act and sanction of the CLB [now the Central Government] are necessary.
[s 12.35] Effect of Change of Registered Office [Sections 17, 17A and 146 of the Companies
Act, 1956]
A perusal of sections 17, 17A and 146 of the 1956 Act, shows that there are three types of changes
of Registered Office contemplated—(1) when the Registered Office is being changed from one State
to another; (2) when the Registered Office is being changed from the jurisdiction of one Registrar of
Companies to the jurisdiction of another Registrar of Companies; and (3) when the Registered Office
is being changed within the jurisdiction of the same Registrar of Companies. In the first two cases,
the change takes effect only after it is recorded by the competent authority and in the third case, the
Section 146 (4) of the 1956 Act corresponds to sub-section (8) of section 12 of the 2013 Act. Please
refer to the Notes above.
[s 12.36] Officer in default
Where the company had Managing Director, it was he who was the officer in default and liable for
prosecution along with the company for failure to inform the Registrar of change in situation of
Registered Office under section 146 of the 1956 Act. The other Directors were not liable for
prosecution as per amended section 5. However, for false information in Form 18 the Director who
furnished Form containing false information was liable to be proceeded against under section 628 of
the 1956 Act.59
[s 12.37] Offences and Prosecution—Failure to inform Change of Registered Office
The Company changed situation of its Registered Office. The company had a Managing Director and
he will be treated as the Officer in default. The other Directors are not liable for prosecution as per
amended section 5 of the 1956 Act. However, for false information in Form 18 the Director who
furnished Form containing false information would be liable to be proceeded against under section
628 of the 1956 Act. False statement was filed before the Registrar of Companies (ROC). The
Director furnished Form No. 18] giving the address of Registered Office of the company. The address
given in the Form 18 was false. The Director furnishing the Form 18 was liable to be prosecuted for
giving false information or statement and he was liable to be proceeded against and punished under
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[s 12.38] Importance of Registered Office
The importance of the Registered Office of the company shall be manifest from the following.
[s 12.39] Place of keeping Registers and Returns
Register of Charges and instruments creating charges [section 143], Register of Members and
Returns [section 163], Books of Account [section 209], Register of Directors [section 303], etc., are to
be kept at the Registered Office. See detailed Notes under respective Sections.
[s 12.40] Inspection of Registers and Returns
Inspection of instruments creating charges and Register of Charges [section 144], Register of
Members and Returns [section 163], etc., is to be given at the Registered Office of the company.
[s 12.41] Communications or Notices [Section 146(1) of the Companies Act, 1956]
All communications or notices may be addressed to the Registered Office.
[s 12.42] Service of Documents on Company [Section 51 of the Companies Act, 1956]
Service of documents is to be made on the company at its Registered Office. A document or notice,
etc., may be served on a company or on an officer of the company by sending it to the company or
officer at the Registered Office of the company by post under a Certificate of Posting or by
Registered Post or by leaving it at its Registered Office.
Though it is only permissive and not imperative, it is only one of the several modes of service of
notices on a company.61
The notice is normally to be served on the Secretary, Director or a Principal Officer of the company.
Normally a clerk has no authority to accept a notice.62
Service at a place other than Registered Office is insufficient even though the company carries on
business at that place.63
[s 12.43] Domicile of the Company
The situation of the Registered Office of a company determines domicile of the company for all
purposes.64
[s 12.44] Residence of the Company
A company may acquire a foreign residence so as to be capable of being sued in a foreign country.65
But the company remains domiciled and is capable of being sued in the country of incorporation.66 A
company may have more than one residence.67
[s 12.45] Winding up—Inability to pay debts—Statutory Notice of demand
Statutory Notice of demand under section 434(1)(a) of the 1956 Act must be served at the Registered
Office of the company. Time of 21 days for Statutory Notice is mandatory. Presumption of inability to
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pay debt under section 433(e) is available only where the Statutory Notice of demand is served at the
Registered Office. Where the petitioner served notice at former Registered Office, the presumption
was not available. The petitioner was not entitled to take the plea of deemed insolvency under
section 434 of the 1956 Act. On facts, the petitioner failed to show that disappearance of the
substratum had imperilled the chance of recovery. The winding up petition was dismissed.68
[s 12.46] Winding up—Statutory Notice of demand at Registered Office
Office of the company. Time of 21 days for Statutory Notice is mandatory. Presumption of inability is
available only where the Statutory Notice of demand is served at the Registered Office. Where the
petitioner served notice at former Registered Office, the presumption was not available. The
petitioner was not entitled to take the plea of deemed insolvency under section 434 of the 1956 Act.
On facts, the petitioner failed to show that disappearance of the substratum had imperilled the
chance of recovery. The winding up petition was dismissed.69
[s 12.47] Statutory Notice by Registered Post
A winding up petition was made by the unpaid creditors. Statutory Notice of demand under section
434(1)(a) of the 1956 Act was served by Registered Post with Acknowledgment Due [Regd. A.D.] at
the Registered Office of the company. It was disputed that the acknowledgment was not signed by
the authorised representative of the company. This cannot rebut the presumption of service of
statutory notice. Service of Statutory Notice was proper. The winding up petition was maintainable.70
[s 12.48] Requirement of Statutory Notice—Change of Registered Office
On the application of a creditor, the Court considered the demand notice issued by the petitioner. The
respondent sent a reply to such Statutory Notice. It was found by the Court that the respondent sent
its reply to statutory notice raising objection that it was not properly served as it was not sent to the
Registered Office of the Company. The Court held that such an objection was not enough to rebut
the presumption that the company was unable to pay its debt. There was no pleading in the petition
as to the contingent and prospective liabilities of the respondent company. The Court held that the
Statutory Notice was not valid and other contentions of the petitioner could not be relied upon for an
order of winding up of company. The Company changed its Registered Office, duly informed the
Registrar of Companies (ROC), and the recording of such change was the responsibility of the
Registrar. It is immaterial that the ROC did not properly record such change of the Registered Office
of the Company. In spite of undue delay in registering the change of address of the Registered Office
of the company, it was held that the change was effective on filing of the requisite Form No. 18 [now
e-Form 18] of the Companies (Central Govt.’s) General Rules and Forms, 1956. In the facts, it was
held that the petition was filed after the period of limitation and there was bona fide dispute between
the parties but the same could not be decided by the Company Court. The petition for winding up was
dismissed.71
[s 12.49] Statutory Notice not served at the Registered Office
The creditor company made an application for winding up of company for inability to pay its debt. The
respondent company admitted its liability and its inability to pay was proved as cheques issued by it
were dishonoured by non-payment. The disputes raised by respondent company were not bona fide
and an after-thought. Where the debts are not disputed, the Court [the Tribunal (NCLT)] cannot and
should not postpone adjudication of the petitioner’s rights if on the basis of evidence and records, the
Court [Tribunal (NCLT)] is satisfied that the case for admission of the petition has been made out.
The company took the defence that Statutory Notice was not served at the Registered Office of the
company. It was found that the statutory notice was sent within the prescribed period to the old
address of the company as recorded in official records of the Registrar of Companies. In the facts, it
was held that the notice was valid. On the facts the Court held that there was a prima facie case for
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admission of petition. The Court could not postpone such adjudication on the ground that the
respondent is thriving to exist and it should be given an opportunity to revive itself. The petition was
admitted.72
[s 12.50] Change of Registered Office not effected in Register
Where the Registrar of Companies had not effected the change of situation of the Registered Office
in the Register of Companies under section 146(2) of the 1956 Act. The notice under section
434(1)(a) of the 1956 Act, on the purported new address was not in accordance with the law. It is not
a mechanical act on the part of the Registrar of Companies to effect the change in the Register but
he must be satisfied that the legal requirements have been complied with. Though the requirements
of section 434(1)(a) are procedural requirements, none the less the settled position in company law is
that they pertain to a winding up order and even procedural provisions have to be strictly construed.73
[s 12.51] No Registered Office
Where a company has no Registered Office, service of a demand under section 434 of the 1956 Act
or of a winding up petition at the de facto office although unregistered may be sufficient. All
documents and notices are to be served at the Registered Office of the company and in the event the
Registered Office is demolished then at the office of the company wherever it may be situated.74
[s 12.52] Different Addresses for Correspondence
But when the company has a Registered Office and different addresses for correspondence, the
demand must be served at the Registered Office even if the Registered Office is not functioning. The
demand under section 434(1)(a) of the 1956 Act has to be served on the company by causing it to be
delivered at its Registered Office. The company cannot waive this condition.75
[s 12.53] Service of Summons on the Company—Corporate Office
Order 29, Rule 2 of the Code of Civil Procedure, 1908 (5 of 1908), does not limit the service of
Summons at the Registered Office of the company alone. It provides for different modes of service
which also include service of Summons on the Secretary or Managing Director or Principal Officer of
the Corporation or service through the Registered Post at the Corporation’s Registered Office, or at
the place where the Corporation carried on business in case it had no Registered Office. Summons
were served on the Corporate Office of the company and were also admittedly received by its
employee who had executed the receipt affixing the Seal of company. Such service could not be held
as bad or invalid or against the provisions of Order 29, Rule 2 of the Code of Civil Procedure, 1908 (5
of 1908). The respondent having effected such service on the appellants Corporate Office at Delhi,
which was admitted had done its duty, was not expected to do anything more under the
circumstances. Even if the service is disputed the Court was satisfied that appellants had knowledge
of notice of hearing and had sufficient time to appear on the next day.76
[s 12.54] Winding up— Ex parte Order—Recalling
A winding up petition was made. The respondent company was served with a notice of the petition
and it was published on three occasions once by the petitioner and twice by the Court. Before the
winding up petition was filed, Statutory Notice was issued, at the address of Registered Office of the
company. After winding up petition was admitted, it was published on three occasions. The company
made an application for recalling the winding up order on the ground that the Registered Office of the
company was shifted and such a change was intimated to the petitioner. In the application for
recalling of the winding up order, the company did not give the source of information about the
winding up proceedings. The publication was in the place of the company’s Registered Office. It was
held that the company was duly served and had the knowledge of such proceedings of the winding
up order. Even on merits, the company could not deny that it took loan from the petitioning creditor.
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The company could not show that its director who signed the loan documents was not a director of
the company on the date the loan agreement was executed. As such, there was no such merit in the
company’s application for recalling the order of the winding up.77
[s 12.55] No Office or practically Ceased to exist
If the company has no office and it has practically ceased to exist, then service on the late Secretary
or other officer of the company may be allowed.78
[s 12.56] Company cannot be found—Execution of Decree at correct Address
Where notice or decree could not be served on the company as the company was not in existence at
the declared address, the creditor can initiate the winding up proceedings and pray for the substituted
service by advertisement. The Registrar of Companies may take up appropriate proceedings against
the company if the provisions of sections 146 or 147 of the 1956 Act are violated. The Registrar of
Companies may call for information or explanation under section 234 of the 1956 Act. The decree-
holder can seek execution of the decree at the correct address The Registrar of Companies may be
impleaded to give the correct address of the company. But the decree-holder cannot collect the
decree amount from out of the fine imposed by the Registrar of Companies. The only remedy of the
creditor is to execute the decree against the company or to apply for winding up of the company
under sections 433 to 439 of the 1956 Act.79
[s 12.57] Situs of Shares and Debts
The situs of shares of the company is the Registered Office of the company. The debt owed by the
company is also situate at the Registered Office of the company. The law and procedure prevailing in
the State in which the company’s Registered Office is situate will be applicable in the transactions
with the shares or debts.
[s 12.58] Banking or Insurance Company [Section 223 of the Companies Act, 1956]
A Banking or Insurance company is to publish its Statement of Accounts at its Registered Office.
[s 12.59] Income-tax—Company having Registered Office in Sikkim
The Indian Income-tax Act, inter alia, taxes income which accrues or arises in India. It is immaterial
whether a company has its Registered Office in Sikkim or may be carrying on business activities
there. Notice under section 148 of the Income-tax Act, 1961 can be issued in relation to income
which is stated to have arisen in India even if the petitioner has a company registered in Sikkim.80
S. 147. Publication of name by company.—(1) Every company—
(a) shall paint or affix its name 81[and the address of its registered office] and keep the same painted or affixed, on
the outside of every office or place in which its business is carried on, in a conspicuous position, in letters
easily legible; and if the characters employed therefor are not those of the language, or of one of the
languages, in general use in that locality, also in the characters of that language or of one of those
languages;
(b) shall have its name engraven in legible characters on its seal; and
(c) shall have its name 82[and the address of its registered office] mentioned in legible characters in all its
business letters, in all its bill heads and letter paper, and in all its notices 82[***] and other official publications;
83[and also have its name so mentioned in all bills of exchange], hundies, promissory notes, endorsements,
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cheques and orders for money or goods purporting to be signed by or on behalf of the company, and in all
bills of parcels, invoices, receipts and letters of credit of the company.
(2) If a company does not paint or affix its name 82[and the address of its registered office], or keep the same painted or
affixed in the manner directed by clause (a) of sub-section (1), the company, and every officer of the company who is
in default, shall be punishable with fine which may extend to 84[five hundred rupees] for not so painting or affixing its
name 82[and the address of its registered office], and for every day during which its name 82[and the address of its
registered office] is not so kept painted or affixed.
(3) If a company fails to comply with clause (b) or clause (c) of sub-section . (1), the company shall be punishable with
fine which may extend to 85[five thousand rupees].
(4) If an officer of a company or any person on its behalf—
(a) uses, or authorises the use of, any seal purporting to be a seal of the company whereon its name is not
engraven in the manner aforesaid;
(b) issues, or authorises the issue of, any business letter, bill head, letter paper, notice 86[***] or other official
publication of the company wherein 87[its name and the address of its registered office are] not mentioned in
the manner aforesaid;
(c) signs, or authorises to be signed, on behalf of the company, any bill of exchange, hundi, promissory note,
endorsement, cheque or order for money or goods wherein its name is not mentioned in the manner
aforesaid; or
(d) issues, or authorises the issue of, any bill of parcels, invoice, receipt or letter of credit of the company, wherein
its name is not mentioned in the manner aforesaid;
• such officer or person shall be punishable with fine which may extend to 88[five thousand rupees], and shall
further be personally liable to the holder of the bill of exchange, hundi, promissory note, cheque or order for
money or goods, for the amount thereof, unless it is duly paid by the company.
NOTES
Section 147 of the 1956 Act Corresponds to SECTION 12 of the 2013 Act
English Act, 1948 : Section 108 Companies Act, 1913 : Sections 73, 74
English Act, 1985 : Sections 348–350
[s 12.60] Legislative History.—
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“sections 73 and 74 of the existing Act have been combined on the lines of section 108 of the English Act. The drafting
has been simplified and made clearer.” [Clause 140 of the Companies Bill, 1953 (46 of 1953)].
The changes proposed in section 147 of the Act are designed to (a) dispense with the mention of the name and
address of the registered office of the company in purely commercial advertisements, and (b) require a company to
mention the address of its registered office in all its business letters, bill heads, etc. (See paragraph 59 of the Report).
[Clause 36 of the Companies (Amendment) Bill, 1959 (37 of 1959)].
The relevant paragraph of the Companies Act Amendment Committee, 1957 Report is reproduced
below:
It has been pointed out that the requirement of section 147(1)(c) that the name of the company shall be mentioned
inter alia in all kinds of advertisements causes inconvenience to business houses among whom it is customary to push
their sales under trade names without mentioning the company’s name, address etc. in full. The reference to
‘advertisement’ in section 147(1)(c) is perhaps to the advertisement referred to in specific sections of the Act like
sections 2(36), 53(3), 72(2) etc. but the language is comprehensive. The Cohen Committee pointed out that the word
‘advertisements’ which was found in section 93 of the English Act of 1929 should be removed as the provision had, in
practice, been disregarded and no harm was likely to ensue from its deletion. In India, too, the practice appears to be
that in trade and commercial advertisements the name of the company is not mentioned in full but only the trademark
or brand name of the product advertised. This is so particularly in the case of advertising media other than the Press,
such as, dealer aids, display material hoardings, posters, mobile advertisement, radio, cinema slides etc. In our
opinion, the word ‘advertisements’ might be deleted from section 147 of the Act because the other words found in the
section, namely, ‘notices and other official publications’ are wide enough to include important business advertisements.
We are recommending a similar amendment of section 595(c) in the case of foreign companies. It has also been
represented to us that while it is desirable that the address of the registered office of the company should be
mentioned in all its business letters, bill heads etc. under the first part of section 147(1)(c), it is not necessary to do so
in the documents mentioned in the latter part. We accept the suggestion and recommend the insertion of the words
‘and the address of its registered office’ after the word ‘name’ in the first line of section 147(1)(c) and the addition of the
words ‘its name’ after the word ‘and’ and before the words ‘in all bills of exchange etc. etc.’ in the fourth line of the
clause. [Report : para 59].
The Joint Committee made further changes and explained:
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The Committee consider that besides the name of the company, the address of its registered office should also be
painted or affixed outside every office or place in which its business is carried on. This has been provided in the
amended clause. [Report : para 33].
follows:
“This clause seeks to enhance the fine specified in sub-section (2) from Rs 50 to Rs 500 and in sub-
sections (3) and (4) from Rs 500 to Rs 5,000 of section 147 of the 1956 Act.” [Clause 52 of the
[s 12.60.1] Department’s View— Publication of name by company in the local language
There appears to be some doubt in commercial quarters as to the language or languages to be employed in exhibiting
the names of companies outside their offices or places of business as required by sub-section (1)(a) of section 147 of
the Companies Act, 1956 (1 of 1956). Unlike the corresponding section [section 73] in the repealed Indian Companies
Act of 1913 (7 of 1913), which required the name of a company to be shown in the English language, section 147(1)(a)
enjoins on all companies to paint or affix their names, outside their offices or places of business in the language or one
of the languages in general use in the locality. Exhibition of the names in English alone without, at the same time,
showing them in the local language will not, therefore, be sufficient compliance with the requirements of the section.”
[Press Note, dt. 4 July 1956 : Government of India publication, Clarifications and Circulars on Company Law, 1977
Edition, page 71].
[s 12.60.2] Department’s View— Manner in which a company’s seal should be kept
“Though the Companies Act, 1956 or the Model Regulations in Table ‘A’ of Schedule I to the Act do not provide for the
form and manner in which the Common Seal of a company should be kept, i.e., whether a metallic one or a rubber
stamp—it is understood that the general practice obtaining among enlightened company management is to use
metallic ‘Common Seals’ having regard to the importance of the use of such seals in the day-to-day working of
Companies. In view of the above, as also the wordings of section 147(1)(b) of the Act, it is considered that the view
that only a metallic seal should be used is correct. The provisions, if any, in the Articles of Association of the concerned
company should also be looked into in this connection to see if they clearly lay down the mode and manner of keeping
a Common Seal.” [Letter No. 8/70(147)/64-PR, dt. 08-12-1964 : Government of India publication, Clarifications and
[s 12.61] Official Seal for use outside India [Section 50 of the Companies Act, 1956]
Where a company has any business or transaction in a place outside India, a facsimile of the
common seal may be kept there. See detailed Notes under section 50 of the 1956 Act.
[s 12.62] Business Name
A company may, however, carry on business in other names also while not concealing its own name
as the owner thereof. A party can sue a company under its assumed name.89 If a company purchases
a business and continues the use of the vendors’ business name, which is not the company’s
corporate name or establishes a business under a business name which is not its corporate name, it
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may obtain an injunction to prevent others from using that business name.90
A contract can be enforced even though the company has sealed the contract by the seal of its
Business Name.91
[s 12.63] Promissory Note executed by Chief Executive
Where money was borrowed and Promissory Note was executed by the Chief Executive of the
company in that capacity. The company and new management could not deny the execution of the
promissory note. That accounts of the company did not reflect the borrowing was the internal matter
with which the creditor was not concerned. The company was liable for borrowing by the Chief
Executive for the company.92
[s 12.63.1] Department’s View— Publication of company’s name in notices
Section 147 of the Companies Act, 1956 provides for publication of the address of the registered office in all its
‘notices’ along with other official publications but the word ‘notices’ was not clearly defined. It should, therefore, be
clarified as to whether the word ‘notices’ applied to notices to be given under the Act or it also included the other
notices such as notice inviting tenders,
employment notices, notice for lost shares or debenture certificates, notice for a change of name by the company or
closure of register of members, etc.
The Department has expressed the following views: “As the expression ‘notice’ has not been defined in the Companies
Act, 1956 (1 of 1956) or in the General Clauses Act, 1897 (10 of 1897) the word ‘notice’ should be liberally construed in
the context of Section 147 of the Companies Act, 1956.” [Company News & Notes, dt. 1 July 1963 : Government of
India publication, Clarifications and Circulars on Company Law, 1977 Edition, page 71].
[s 12.64] Whether share certificate is an official publication within the meaning of section
147(1)(c)
“The question is whether a share certificate is an official publication within the meaning of section 147(1)(c) of the
Companies Act, 1956. It will be seen that in terms of section 82 of the Act the shares are moveable properties
transferable in the manner provided in the Articles of the company. Section 83 provides that each such share shall be
distinguished by its appropriate number. Section 84 provides that a certificate under the common seal of the company
specifying any shares held by any member shall be prima facie evidence of the title of the member to such shares.
Thus shares are moveable properties transferable in the manner provided in the Articles of the company and the share
certificates are certificates of title and are moveable properties but are not publications in the nature of prospectus,
balance sheets, profit and loss accounts, notices and advertisements. The conclusion reached, therefore, is that the
share certificate is not an official publication within the meaning of section 147(1)(c) of the Act.” [Circular No. 3 of 1973,
dt. 03-02-1973 : Govt. of India publication, Clarifications and Circulars on Company Law, 1977 Edition, page 72].
[s 12.65] Penalty for non-compliance with Section 147(1)(a) [Sub-section (2) of the Companies
Act, 1956]
For non-compliance with the provisions of section 147(1)(a) of the 1956 Act in regard to painting or
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affixing its Name and Address of Registered Office outside Office or Place of Business, the company
and every officer who is in default, shall be punishable with fine upto Rs 500 for every day of default.
[s 12.66] Penalty for non-compliance with Section 147(1)(b) and (c) [Sub-section (3) of the
For non-compliance with the provisions of section 147(1)(b), and (c) of the 1956 Act in regard to
Engraving Common Seal and mentioning Name and Address of the Registered Office in all Business
Letters, etc., the company shall be punishable with fine upto Rs 5,000.
[s 12.67] Penalty for Seal, Letter etc. without Name [Sub-section (4)]
If an officer of the company or any person on its behalf (a) uses or authorises the use of Seal on
which the company’s Name is not legibly engraved, or (b) uses or authorises the use of any Business
Letter, Letter-paper, Notices, etc., without the Name and Address of the company and Registered
Address of the company being written on them, or (c) signs or authorises the signing of any Bill of
Exchange, Hundi, Promissory Note, Cheque, Order for money or Order for goods without the Name
of the Company mentioned, or (d) issues or authorises the issue of any Bill of parcels, Invoice,
Receipt or Letter of Credit without mentioning the Name of the Company, such officer or person is
liable to a fine which may extend to Rs 5,000.
Further, such officer or person is personally liable to the holder of the Bill of Exchange, Hundi,
Promissory Note, Cheque or Order for money or Order for goods unless the company pays the same.
[s 12.68] Personally Liable
A Secretary who accepts on behalf of the company a Bill in which the word “Ltd” does not appear, is
personally liable on the Bill.1 A director is liable on a Bill accepted by him if he describes the company
by wrong name.2 But if the omission of the word “Ltd” in the acceptance is due merely to the rubber
stamp by which the word “acceptance” is impressed being longer than and overlapping the Bill and
the false name appeared on face of the Bill, a director who signs the acceptance is not personally
liable.3
If the name of the company appears on the face of the Bill, it need not be restated in the acceptance.
The abbreviation “Ltd.” for “Ltd” may be used.4
[s 12.69] Holder
“Holder” means in the case of an order for goods the person whom the order is given. If the order is
lost, its terms may be proved by carbon copy.5
[s 12.70] Company cannot be found
The Registrar of Companies may take appropriate proceedings against the company if the provisions
of sections 146 or 147 of the 1956 Act are violated. The Registrar may be impleaded to give the
correct address of the company.6
[s 12.71] Failure to ensure compliance—Persons not directors
Where the persons in question were contended to have been appointed as directors of the company.
But signatures on Form Nos. 29 and 32 [now merged into single e-Form 32] filed before the Registrar
of Companies (ROC) were not the same. There was nothing to show that persons in question acted
as directors. In a petition for relief, the failure to ensure compliance with the requirements of sections
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53, 147, 252, 264(2), 292A, 383A of the Companies Act, 1956 was held to be oppressive.7
See also Notes under sections 53, 252, 264(2), 292A and 383A of the 1956 Act.
[s 12.72] Section 25 Company
Section 25 company is exempt from the provisions of the whole of section 147. [Notification No. S.O.
1578, dt. 01-07-1961 : See Full Text in Notes under section 25(6)].
[s 12.73] Compliance Certificate—Address of Registered Office
44 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to sections 17A, 146 and 147 of the
1956 Act.
45 Rule 25 read with rule 36(9) and Form No. INC-22 and Form No. INC-29 of the Companies (Incorporation) Rules,
2014. For the text of Rules refer Appendix 3.
46 Clause (b), substituted by the Companies (Amendment) Act, 2015 (21 of 2015), section 5 (w.e.f. 29-05-2015). Prior to
substitution it stood as under:
“(b) have its name engraved in legible characters on its seal;”.
3.
50 Power delegated to Regional Directors vide Notification No. S.O. 1352(E), dated 21-05-2014.
51 Inserted by the Companies (Amendment) Act, 2000 (53 of 2000), section 7 [(w.e.f. 1-3-2001) vide Notification No. S.O.
176(E), dated 27-2-2001, published in the Gazette of India, Extry., No. 128, Pt II, section 3(ii), dated 27-2-2001 : (2001)
52 Ramesh B. Desai v UOI, (1990) 69 COMP CASES 33 (Delhi). See detailed Notes on Principles of Natural Justice under
sections 10FZA, 294AA and 637 of the 1956 Act.
53 Hanuman Prasad Bagri v Bagress Cereals Pvt Ltd, (2001) 105 COMP CASES 493 (SC). See detailed Notes under
54 Kold-hold Industries Pvt Ltd v Arabian Exports Ltd, (2004) 119 COMP CASES 1 (Bom.).
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55 Substituted by the Companies (Amendment) Act, 1965 (31 of 1965), section 62 and Schedule, for “twenty-eighth”
(w.e.f. 15 October 1965).
56 Substituted by Act 31 of 1965, section 62 and Sch., for “twenty-eight” (w.e.f. 15-10-1965).
57 Substituted by the Companies (Amendment) Act, 2000 (53 of 2000), section 56, for “Rs 50” (w.e.f. 13-12-2000).
59 Vijay Kumar Gupta v Registrar of Cos, (2004) 118 COMP CASES 604 (HP). See also Notes under sections 5 and 628
of the 1956 Act.
60 Vijay Kumar Gupta v Registrar of Cos, (2004) 118 COMP CASES 604 (HP).
61 Dawson Bank Ltd v Municipal Committee, AIR 1941 Rang. 339; Re, Fortune Copper Mining Co., (1870) LR 10 Eq. 390
: 40 LJ Ch. 43 : 22 LT 650.
62 Order 29, rule 2 of the Code of Civil Procedure, 1908 (5 of 1908); Re, Brewery Assets Corporation, Truman’s Case,
(1894) 3 ChD 272 : 63 LJ Ch. 635 : 71 LT 328.
63 Pearks, Gunston and Tee Ltd v Richardson, (1902) 1 KB 91 : 71 LJ KB 18 : 85 LT 616. But see Notes under section 51.
85 LJ KB 1333 : 114 LT 1049 (HL). See also Notes under sections 12, 34 and 383A of the 1956 Act.
65 Littauer Glove Corp v F.W. Millington Ltd, (1928) 44 TLR 746.
66 Egyptian Delta Land and Investment Co Ltd v Todd, (1929) AC 1 : 98 LJ KB 1 (HL).
67 Canon Indian Co v Maclaren, (1855) 5 HLC 416.
68 Om Prakash Jaiswal v Shekhraj Hotel Pvt Ltd, (2004) 122 COMP CASES 255 (All.) : (2003) 2 Comp. LJ 34 (All.);
Motilal Agarwal v Diabari Tea Co Ltd, (2005) 128 COMP CASES 672 (Cal.); Sika Qualcrete Ltd v Orissa Bridge
Construction Corp Ltd, (2006) 129 COMP CASES 660 (Orissa). See detailed Notes under sections 51, 433(e) and
434(1)(a) of the 1956 Act.
69 Motilal Agarwal v Diabari Tea Co Ltd, (2005) 128 COMP CASES 672 (Cal.); Sika Qualcrete Ltd v Orissa Bridge
Construction Corp Ltd, (2006) 129 COMP CASES 660 (Orissa).
70 VIP Buildcom Pvt Ltd v Everest Kanto Cylinder Ltd, (2005) 124 COMP CASES 774 (Cal.).
71 State Black Sea Shipping Co v Viraj Overseas Pvt Ltd, (2005) 125 COMP CASES 831 (Delhi) : (2004) 1 Comp. LJ 396
(Delhi).
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72 Hotline Teletubes and Components Ltd v A.S. Impex Ltd, (2004) 119 COMP CASES 98 (Delhi) : (2004) 1 Comp. LJ
412 (Delhi).
73 Mukund Kanaiyalal Patel v Swarup Shree Yarn Pvt Ltd, (2002) 109 COMP CASES 413 (Bom.). See also Notes under
74 Re, Fortune Copper Mining Co., (1870) LR 10 Eq. 390 : 40 LJ Ch. 43 : 22 LT 650.
75 Vysya Bank Ltd v Randhir Steel and Alloys Pvt Ltd, (1993) 76 COMP CASES 244 (Bom.). See detailed Notes under
76 Parasrampuria Synthetics Ltd v Shankar Prasad, (2005) 123 COMP CASES 419 (Delhi) (DB).
77 Om Prakash Jaiswal v Shekhraj Hotel Pvt Ltd, (2004) 122 COMP CASES 255 (All.) : (2003) 2 Comp. LJ 34 (All.).
78 Gaskell v Chambers, (1858) 26 Beav. 252 : 28 LJ Ch. 385.
79 C. Hamsa Koya v Sakthi Automobiles Pvt Ltd, (1992) 73 COMP CASES 74 (Mad.). See also Notes under sections 147,
234 and 433 to 439 of the 1956 Act.
80 Alankar Commercial Pvt Ltd v Asst. CIT, (2000) 101 COMP CASES 243 (SC) : (2000) 244 ITR 31 (SC). See detailed
Notes on Applicability of the Companies Act to Companies in Sikkim under sections 1 and 3 of the 1956 Act.
82 The word “, advertisements” omitted by Act 65 of 1960, section 34.
83 Substituted by Act 65 of 1960, section 34, for “and in all bills of exchange”.
84 Substituted by the Companies (Amendment) Act, 2000 (53 of 2000), section 57, for “Rs 50” (w.e.f. 13-12-2000).
85 Substituted by Act 53 of 2000, section 57, for “Rs 500” (w.e.f. 13-12-2000).
86 The word “, advertisement” omitted by Act 65 of 1960, section 34.
87 Substituted by Act 65 of 1960, section 34, for “its name is”.
89 Rajendra Prasad Oil Mills v Smt. Chunni Devi, (1969) 39 COMP CASES 193 (All.) (FB) : AIR 1969 All 11 (FB).
90 Pearks, Gunston and Tee Ltd v Thompson, Talmey & Co, (1901) 18 RPC 185 : 17 TLR 354; H.E. Randall Ltd v British
and American Shoe Co, (1902) 2 ChD 354 : 71 LJ Ch. 683; Employers’ Liability Assurance Corp v Sedgwick, Collins &
Co, (1927) AC 95 : (1926) All ER Rep. 388 : 95 LJ KB 1015 : 136 LT 72 (HL).
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91 OTV Birwel Co Ltd v Technical and General Guarantee Co Ltd, (2002) 4 All ER 668 (QB).
92 Kirlampudi Sugar Mills Ltd v G. Venkata Rao, (2003) 114 COMP CASES 563 (AP). See also Notes under section 47 of
the 1956 Act.
1 Basudeo Lal Modi v Madanlal Chhapolia, AIR 1967 Orissa 107; Penrose v Martyr, (1858) E.B. & E. 499 : 28 LJ QB 28 :
6 WR 603; Atkins & Co v Wardle, (1889) 5 TLR 734 (CA).
2 Nassau Steam Press v Tyler, (1894) 70 LT 376 : 38 SJ 363.
3 Dermatine Co Ltd v Ashworth, (1905) 21 TLR 510.
4 F. Stacey & Co Ltd v Wallis, (1912) 106 LT 544 : 28 TLR 209.
5 Civil Service Co-op Society Ltd v Chapman, (1914) WN 369 : 30 TLR 679.
6 C. Hamsa Koya v Sakthi Automobiles Pvt Ltd, (1992) 73 COMP CASES 74 (Mad.). See detailed Notes under section
7 Kasturi and Sons Ltd v Sporting Pastime India Ltd, (2007) 139 COMP CASES 623 (CLB).
End of Document
Mr. Laghir1 Rabari

corresponds to sections 16, 17, 18, 19, 21, 23 and 37 of the 1956 Act. S. 13.
Alteration of memorandum.—
THERETO

INCIDENTAL THERETO
8 S. 13. Alteration of memorandum.—
(1) Save as provided in section 61, a company may, by a special resolution and after complying
with the procedure specified in this section, alter the provisions of its memorandum.
(2) Any change in the name of a company shall be subject to the provisions of sub-sections (2)
and (3) of section 4 and shall not have effect except with the approval of the Central
Government9 in writing:
Provided that no such approval shall be necessary where the only change in the name of
the company is the deletion therefrom, or addition thereto, of the word “Private”,
consequent on the conversion of any one class of companies to another class in
accordance with the provisions of this Act.
(3) When any change in the name of a company is made under sub-section (2), the Registrar
shall enter the new name in the register of companies in place of the old name and issue a
fresh certificate of incorporation with the new name and the change in the name shall be
complete and effective only on the issue of such a certificate.
(4) The alteration of the memorandum relating to the place of the registered office from one State
to another shall not have any effect unless it is approved by the Central Government10 on an
application in such form and manner as may be prescribed.11
(5) The Central Government12 shall dispose of the application under sub-section (4) within a
period of sixty days and before passing its order may satisfy itself that the alteration has the
consent of the creditors, debenture-holders and other persons concerned with the company
or that the sufficient provision has been made by the company either for the due discharge of
all its debts and obligations or that adequate security has been provided for such discharge.
(6) Save as provided in section 64, a company shall, in relation to any alteration of its
memorandum, file with the Registrar—
(a) the special resolution passed by the company under sub-section (1);
(b) the approval of the Central Government under sub-section (2), if the alteration involves
any change in the name of the company.
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8 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to sections 16, 17, 18, 19,
21, 23 and 37 of the 1956 Act. S. 13. Alteration....
(7) Where an alteration of the memorandum results in the transfer of the registered office of a
company from one State to another, a certified copy of the order of the Central Government
approving the alteration shall be filed by the company with the Registrar of each of the States
within such time and in such manner as may be prescribed,13 who shall register the same,
and the Registrar of the State where the registered office is being shifted to, shall issue a
fresh certificate of incorporation indicating the alteration.
(8) A company, which has raised money from public through prospectus and still has any
unutilised amount out of the money so raised, shall not change its objects for which it raised
the money through prospectus unless a special resolution is passed by the company and—
(i) the details, as may be prescribed,14 in respect of such resolution shall also be published
in the newspapers (one in English and one in vernacular language) which is in circulation
at the place where the registered office of the company is situated and shall also be
placed on the website of the company, if any, indicating therein the justification for such
change;
(ii) the dissenting shareholders shall be given an opportunity to exit by the promoters and
shareholders having control in accordance with regulations to be specified by the
Securities and Exchange Board.
(9) The Registrar shall register any alteration of the memorandum with respect to the objects of
the company and certify the registration within a period of thirty days from the date of filing of
the special resolution in accordance with clause (a) of sub-section (6) of this section.
(10)No alteration made under this section shall have any effect until it has been registered in
accordance with the provisions of this section.
(11)Any alteration of the memorandum, in the case of a company limited by guarantee and not
having a share capital, purporting to give any person a right to participate in the divisible
profits of the company otherwise than as a member, shall be void.
NOTES
04-2014. Section 13 of the 2013 Act corresponds to sections 16, 17, 18, 19, 21, 23 and 37 of the
1956 Act.
as follows:
Clause 13.—This clause corresponds to section 16 of the Companies Act, 1956 and seeks to provide that a company
may alter the provisions of its memorandum with approval of the members through special resolution. No alteration
shall have any effect unless it is registered with the Registrar. Where there is change in the name of a company, the
Registrar shall issue a fresh certificate of incorporation. Any alteration of the memorandum relating to the place of
registered office from one State to another shall be effective only with the approval of the Central Government on an
application filed to it. A copy of the order to this effect has to be filed with the Registrar. This clause further provides
that a company, which has raised money from public for one or more objects mentioned in the prospectus and is still
having some unutilised money shall not change its object unless a special resolution is passed and exist option is
given to dissenting shareholders.
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Section 13 of the 2013 Act deals with the alteration of memorandum of association of a company.
The Memorandum of Association is one of the basic documents which is required to be filed with the
Registrar of Companies along with the application for incorporation of the proposed company. The
memorandum of the company defines the limit of its powers.
‘Alter’ or ‘Alteration’ as defined in section 2(3) of the 2013 Act includes the making of additions,
omissions and substitutions. The memorandum contains information on the name of the company,
registered office of the company, objects of the company, liability of its members, and share capital.
Section 13 prescribes the manner in which changes may be made in any of the constituents
mentioned above or any other provision that the memorandum may contain.
[s 13.3] Alteration by special resolution
Section 13(1) of the 2013 Act states that save as provided in section 61 of the 2013 Act, the
memorandum of articles may be altered by a special resolution in accordance with the procedure laid
down under this section. Any alteration to the memorandum is to be passed through a special
resolution in a general meeting by three-fourth majority.
Section 61 of the 2013 Act deals with the alteration of its share capital by a limited company.
[s 13.4] Change in name of the company
Sections 13(2) and 13(3) of the 2013 Act provide for the conditions to be fulfilled and the procedure to
be followed in case of change in the name of the company.
The change in name shall be subject to the requirements prescribed under sections 4(2) and 4(3) of
the 2013 Act. Section 4(2) of the 2013 Act requires that the name of the company should not be
identical or resemble too closely the name of an existing company or that use of such a name should
not constitute an offence under any statute in force or its use should not be undesirable in the opinion
of the Central Government. The new name proposed must adhere to these requirements read with
those elaborated under rule 8 of the Companies (Incorporation) Rules, 2014. See commentary under
section 4 of the 2013 Act and Companies (Incorporation) Rules, 2014 in Appendix 3.
In addition to being subject to section 4(2) and 4(3) of the 2013 Act, the change in names shall be
made effective only with the written approval of the Central Government. The power of the Central
Government to approve the name has been delegated to Registrar of Companies vide Notification
S.O. 1353(E) dt. 21-05-2014.
However, where the change in the name of the company is to delete of add the word ‘private’ there
from as a result of conversion of one class of company into another class, the approval of Registrar
of Companies is not necessary to effect the change. It is important that the conversion of the
company has been done in accordance with the provisions of the 2013 Act.
As provided in section 13(3) of the 2013 Act, in the event of any change in the name of the company
under section 13(2), the new name shall be entered in the Register of Companies by the Registrar in
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place of the old name. The Registrar shall also issue a new certificate of incorporation with the new
name. The provision further clarifies that the change in name shall be complete and effective only
upon issue of a fresh certificate of incorporation. This implies that the change even if made in the
Register of Companies shall not achieve finality until a fresh certificate is issued,
[s 13.5] Change in name of listed companies
All listed companies which decide to change their names shall be required to comply with the
conditions set out under regulation 45 of the SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015.
regulation 45.—(1) The listed entity shall be allowed to change its name subject to compliance with the following
conditions:
(a) a time period of at least one year has elapsed from the last name change;
(b) at least 50%. of the total revenue in the preceding one year period has been accounted for by the new activity
suggested by the new name; or
(c) the amount invested in the new activity/project is atleast 50%. of the assets of the listed entity:
Provided that if any listed entity has changed its activities which are not reflected in its name, it shall change its name
in line with its activities within a period of six months from the change of activities in compliance of provisions as
applicable to change of name prescribed under Companies Act, 2013.
Explanation.—For the purpose of this regulation,—
(i) ‘assets’ of the listed entity means the sum of fixed assets, advances, works in Progress / Inventories,
investments, trade receivables, cash & cash equivalents;
(ii) advances’ shall include only those amounts extended to contractors and suppliers towards execution of
project, specific to new activity as reflected in the new name.
(2) On satisfaction of conditions at sub-regulation (1), the listed entity shall file an application for name availability with
Registrar of Companies.
(3) On receipt of confirmation regarding name availability from Registrar of Companies, before filing the request for
change of name with the Registrar of Companies in terms of provisions laid down in Companies Act, 2013 and rules
made thereunder, the listed entity shall seek approval from Stock Exchange by submitting a certificate from chartered
accountant stating compliance with conditions at sub-regulation (1).
[s 13.6] Compulsory Change of Name
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Rule 8(3) of the Companies (Incorporation) Rules, 2014* provides that where a company has changed its activities or
objects such that it ceases to be reflected in its name, it shall change its name in line with its activities within a period of
six months from the change of activities in accordance with the provisions relating to change of name.
[s 13.7] Change in place of the registered office from one State to another
Sub-sections (4), (5) and (7) of section 13 of the 2013 Act deal with alteration in memorandum
relating to place of registered office. When the change in place of registered office results in shift from
one State to another, it will be effective only when it is approved by the Central Government.
The form and manner in which the application for shift in place of registered office must be made is
prescribed under rule 30 of the Companies (Incorporation) Rules, 2014.
30. Shifting of registered office from one State or Union territory to another State.—(1) An application under sub-
section (4) of section 13, for the purpose of seeking approval for alteration of memorandum with regard to the change
of place of the registered office from one State Government or Union territory to another, shall be filed with the Central
Government in Form No. INC. 23 along with the fee and shall be accompanied by the following documents, namely:-
(a) a copy of the memorandum and articles of association; (b) a copy of the notice convening the general meeting
along with relevant Explanatory Statement; (c) a copy of the special resolution sanctioning the alteration by the
members of the company; (d) a copy of the minutes of the general meeting at which the resolution authorizing such
alteration was passed, giving details of the number of votes cast in favor or against the resolution; (e) an affidavit
verifying the application; (f) the list of creditors and debenture holders entitled to object to the application; (g) an
affidavit verifying the list of creditors; (h) the document relating to payment of application fee; (i) a copy of board
resolution or Power of Attorney or the executed Vakalatnama, as the case may be; (j) a copy of the No Objection
Certificate from the Reserve Bank of India where the applicant is a registered Non Banking Financial Company.
(2) There shall be attached to the application, a list of creditors and debenture holders, drawn up to the latest
practicable date preceding the date of filing of application by not more than one month, setting forth the following
details, namely:- (a) the names and address of every creditor and debenture holder of the company; (b) the nature and
respective amounts due to them in respect of debts, claims or liabilities:
Provided that the applicant company shall file an affidavit, signed by the Company Secretary of the company, if any
and not less than two directors of the company, one of whom shall be a managing director, where there is one, to the
effect that they have made a full enquiry into the affairs of the company and, having done so, have formed an opinion
that the list of creditors is correct, and that the estimated value as given in the list of the debts or claims payable on a
contingency or not ascertained are proper estimates of the values of such debts and claims and that there are no other
debts of or claims against the company to their knowledge.
(3) There shall also be attached to the application an affidavit from the directors of the company that no employee shall
be retrenched as a consequence of shifting of the registered office from one state to another state and also there shall
be an application filed by the company to the Chief Secretary of the concerned State Government or the Union territory
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(4) A duly authenticated copy of the list of creditors shall be kept at the registered office of the company and any
person desirous of inspecting the same may, at any time during the ordinary hours of business, inspect and take
extracts from the same on payment of a sum not exceeding ten rupees per page to the company.
(5) There shall also be attached to the application a copy of the acknowledgment of service of a copy of the application
with complete annexures to the Registrar and Chief Secretary of the State Government or Union territory where the
registered office is situated at the time of filing the application.
(6) The company shall at least fourteen days before the date of hearing- (a) advertise the application in the Form No.
INC. 26 in a vernacular newspaper in the principal vernacular language in the district in which the registered office of
the company is situated, and at least once in English language in an English newspaper circulating in that district; (b)
serve, by registered post with acknowledgement due, individual notice(s), to the effect set out in clause (a) on each
debenture-holder and creditor of the company; and (c) serve, by registered post with acknowledgement due, a notice
together with the copy of the application to the Registrar and to the regulatory body, if the company is regulated under
any special Act or law for the time being in force.
(7) Where any objection of any person whose interest is likely to be affected by the proposed application has been
received by the applicant, it shall serve a copy thereof to the Central Government on or before the date of hearing.
(8) Where no objection has been received from any of the parties, who have been duly served, the application may be
put up for orders without hearing.
(9) Before confirming the alteration, the Central Government shall ensure that, with respect to every creditor and
debenture holder who, in the opinion of the Central government, is entitled to object to the alteration, and who signifies
his objection in the manner directed by the Central government, either his consent to the alteration has been obtained
or his debt or claim has been discharged or has determined, or has been secured to the satisfaction of the Central
Government.
(10) The Central Government may make an order confirming the alteration on such terms and conditions, if any, as it
thinks fit, and may make such order as to costs as it thinks proper: Provided that the shifting of registered office shall
not be allowed if any inquiry, inspection or investigation has been initiated against the company or any prosecution is
pending against the company under the Act.
“Explanation.—On completion of such inquiry, inspection or investigation as a consequence of which no prosecution is

envisaged or no prosecution is pending, shifting of registered office shall be allowed.”.
The power of the Central Government under section 13(4) has been delegated to the Regional
Directors vide Notification S.O. 1352(E) dt. 21-05-14. Section 13(5) of the 2013 Act provides a time
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Page 7 of 66
limit of 60 days within which the Central Government shall decide on and dispose of the application
for shift in registered office from one State to another. While deciding on the application for shift in
registered office, the Central Government may satisfy itself about the alteration having being
consented to by the creditors, debenture holders and other persons concerned with the company,
that the company has made sufficient provision for discharge of all its debts and obligations or that
the company has provided for adequate security for discharge of its debts and obligations.
Section 13(7) provides that a certified copy of the order of the Central Government approving the
alteration must be filed with the Registrar of the State where the registered office was prior to
alteration as well as the State where the registered office has been shifted to after the alteration. Rule
31 of the Companies (Incorporation) Rules, 2014* provides that certified copy of the order approving
the alteration must be filed with the Registrar of both the States within 30 days of receipt thereof in
Form INC 28.
For discussion on shift in registered office within the State see notes under section 12 of the 2013
Act.
[s 13.8] Alteration in memorandum to be filed with the Registrar
Subject to provisions under section 64 of the 2013 Act dealing with notice to be given to the Registrar
for alteration of share capital, section 13(8) of the 2013 Act provides as follows:
(i) In case of any alteration to the memorandum, the company must file the special resolution
passed in the general meeting must be filed with the Registrar;
(ii) In the case of alteration in the name of the company, the approval of the Central Government
as contained in section 13(2) must be filed with the Registrar.
[s 13.9] Alteration in Objects Clause
The alteration in objects clause is dealt with in section 13(8) and section 13(9) of the 2013 Act.
Where an alteration is proposed in the objects of a company which has raised money from public
through prospectus and still has any unutilised amount out of the money so raised, the company can
change its objects for which it raised the money through prospectus only through a special resolution
passed by the company. The special resolution must be passed by three-fourth majority.
In addition to this, the following conditions must be fulfilled to change the objects of a company:
(i) the details of such resolution must be published in the newspapers, one in English and one in
vernacular language, which is in circulation at the place where the registered office of the
company is situated;
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(ii) the special resolution shall be posted on the company website of the company, if any, along
with a justification for the change;
(iii) the promoters and shareholders having control in accordance with regulations to be specified
by the Securities and Exchange Board must give the dissenting shareholders an opportunity
to exit.
Rule 32 of the Companies (Incorporation) Rules, 2014 prescribes that such a special resolution must
be passed through a postal ballot and the resolution must contain the following details:
(a) the total money received;
(b) the total money utilized for the objects stated in the prospectus;
(c) the unutilized amount out of the money so raised through prospectus,
(d) the particulars of the proposed alteration or change in the objects;
(e) the justification for the alteration or change in the objects;
(f) the amount proposed to be utilised for the new objects;
(g) the estimated financial impact of the proposed alteration on the earnings and cash flow of the
company;
(h) the other relevant information which is necessary for the members to take an informed
decision on the proposed resolution;
(i) the place from where any interested person may obtain a copy of the notice of resolution to
be passed.
An advertisement providing details of each resolution to be passed for change in objects must be
published in newspapers simultaneously with the dispatch of postal ballot notices to shareholders.
The alteration in the objects must be registered by the Registrar and certified within 30 days of the
filing of the special resolution in that regard by the company.
[s 13.10] When will the alteration become effective
Any alteration in the memorandum of the company shall be effective only when it is registered with
the Registrar as provided under section 13 of the 2013 Act.
[s 13.11] Alteration to give right to participate in divisible profits to persons otherwise than as
a member void
Any alteration in the memorandum of a company that is limited by guarantee and has no share
capital, which has the effect of granting rights to persons otherwise than as members to participate in
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the divisible profits of the company shall be void,
S. 16. Alteration of memorandum.—(1) A company shall not alter the conditions contained in its memorandum
except in the cases, in the mode, and to the extent, for which express provision is made in this Act. The Companies
Act, 1956 provision
(2) Only those provisions which are required by section 13 or by any other specific provision contained in this Act, to be
stated in the memorandum of the company concerned shall be deemed to be conditions contained in its memorandum.
(3) Other provisions contained in the memorandum, including those relating to the appointment of a managing director
1[***] or manager, may be altered in the same manner as the articles of the company, but if there is any express
provision in this Act permitting of the alteration of such provisions in any other manner, they may also be altered in
such other manner.
(4) All references to the articles of a company in this Act shall be construed as, including references to the other
provisions aforesaid contained in its memorandum.
NOTES
“Sub-clause (1) corresponds to section 10 of the existing Act and section 4 of the English Act. Sub-section (2) brings
out the intention quite clearly. Sub-section (3) compare the proviso to section 10 of the existing Act. It has been
generalised so as to refer to everything which need not be included in the memorandum.” [Clause 13 of the Companies
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Bill, 1953 (46 of 1953)].
follows:
“This clause seeks to omit the expression ‘managing agent, secretaries and treasurers’ in sub-section (3) of section 16
of the Act which is of consequential nature.” [Clause 6 of the Companies (Second Amendment) Bill, 1999 (139 of
1999)].
The Companies (Amendment) Act, 2000 has been repealed by the Repealing and Amending Act, 2016.
[s 13.13] Alteration of Memorandum
A company shall not alter (1) conditions contained in Memorandum except in cases, mode and extent
expressly provided in the Act, (2) only matters required by section 13 or specific provision to be
stated in Memorandum are deemed conditions, (3) other provisions in Memorandum, e.g.,
appointment of MD, manager, etc., may be altered as articles or as expressly provided, (4) all
references to articles in the Act shall include these other provisions.
[s 13.14] Conditions [Sub-sections (1) and (2)]
A company shall not alter the conditions contained in its Memorandum except in cases, mode and to
the extent for which express provision is made in this Act. [section 16(1) of the 1956 Act]
Only provisions required by section 13 or by any other specific provision in the Act, to be stated in the
Memorandum shall be deemed to be conditions contained in its Memorandum. [section 16(2) of the
1956 Act]
[s 13.15] Clauses in the Memorandum
The Clauses in the Memorandum as regards Name, Situation of registered office, Objects, Capital,
Guarantee, Liability and Subscription Clauses are conditions. See detailed Notes under section 13 of
the 1956 Act.
These clauses or conditions can be altered only in accordance with the provisions of the 1956 Act.
The Act provides as follows:
[s 13.16] Objects Clause
Special Resolution is required for Alteration of Objects in the Memorandum of Association of the
company so far as permissible in clauses (a) to (g) of sub-section (1) of section 17. See detailed
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[s 13.17] Registered Office
Special Resolution [Section 17(1) of the 1956 Act] and confirmation by Company Law Board (CLB)
[now the Central Government] on petition [Section 17(2) of the 1956 Act] is required for Alteration of
Memorandum for change of place of Registered Office from one State to another.
[s 13.18] Change of Name
Provisions for Change of Name by a company are contained in sections 21 to 24 of the 1956 Act. To
alter the name the sanction of the Registrar of Companies is necessary in addition to Special (in
some cases Ordinary) Resolution.
[s 13.19] Alteration of Share Capital
For alteration of share capital section 94 of the 1956 Act is to be complied with. To alter the capital
clause ordinary resolution is sufficient provided it does not amount to Reduction in Share Capital. See
Reduction of Share Capital can be made in the mode provided in sections 100 to 104 and 402 of the
1956 Act. See Notes under sections 100–104 and 402 of the 1956 Act. Reorganisation of share
capital is provided in sections 391–394 of the 1956 Act
[s 13.20] Liability
A member’s liability cannot be increased without his consent except in cases of clubs where the rate
of subscription may be increased.15
Liability of directors may be made unlimited under section 323 of the 1956 Act. Registration of
unlimited company as limited, etc., may be made in accordance with section 32 of the 1956 Act.
[s 13.21] Clauses other than Conditions [Sub-sections (3) and (4)]
Other provisions contained in Memorandum, e.g., appointment of managing director or manager,

etc., may be altered as the Articles of the company or if there is any express provision in the Act, may
also be altered in such other manner.
Clauses other than conditions may be altered generally by Special Resolution, as if they are
contained in the Articles. See detailed Notes under Section 31 of the 1956 Act.
All references to the Articles of a company in the Act shall be construed as including references to
these other provisions contained in its Memorandum.
A clause in the Memorandum regarding the right to dividend of a class of shareholders may be
altered by a special resolution; no confirmation of the Court or Company Law Board [now the Central
Government] is needed.16
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The transfer of an undertaking in exercise of the powers contained in the Memorandum does not
amount to alteration of the Memorandum.17
[s 13.22] Special Resolution
To alter the provisions contained in the Memorandum of Association subject to sub-section (1) of
section 16 of the 1956 Act a Special Resolution is required to be passed. [section 16(3) of the 1956
Act]
[s 13.23] Filing
A copy of the Special Resolution has to be filed with the Registrar of Companies in e-Form 23* of the
Companies (Central Government’s) General Rules and Forms, 1956 within 30 days. [Section 192]
Certificate shall be attached with Board’s Report under Section 217 of the 1956 Act and laid by the
[s 13.23.2] Form of Compliance Certificate [Paras 28 and 29]
Form of Compliance Certificate appended to the Companies (Compliance Certificate) rules, 2001,
“28. The company has altered the provisions of the Memorandum with respect to Name of the company during the
year under scrutiny and complied with the provisions of the Act.
29. The company has altered the provisions of the Memorandum with respect to Share Capital of the company during
the year under scrutiny and complied with the provisions of the Act.”
[Paras 28 and 29 of Form of Compliance Certificate appended to the Companies (Compliance

Certificate) rules, 2001 : See Full Text under section 383A of the 1956 Act].
the 1956 Act as prescribed in the Companies (Compliance Certificate) rules, 2001 by a Practising
Check-List for issue of Compliance Certificate.—
Check-List for issue of Compliance Certificate on relevant Para 28 of the Form of Compliance Certificate as contained
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in ICSI Guidance Note on Compliance Certificate is reproduced below.
Alteration of the Memorandum with respect to Name Clause.—
“Check whether:
(i) the company had obtained the availability of new Name from the Registrar of Companies;
(ii) the Board of Directors had called and held the General Meeting within six months of the date of Registrar’s
letter intimating the availability of name;
(iii) the company has passed the Special Resolution for the Change of Name and obtained approval of the Central
Government (Registrar of Companies) in this respect;
(iv) the company has filed with the Registrar of Companies certified true copy of the Special Resolution along with
the relevant Explanatory Statement and the letter issued by the Registrar of Companies making the new
Name available with the company;
(v) the ROC has issued a fresh Certificate of Incorporation incorporating the alterations consequent to change of
name;
(vi) every copy of Memorandum issued after the date of alteration is in accordance with the alteration;
(vii) the Name has been painted/affixed/printed on the name board, business letters, bill heads, Memorandum and
Articles; and
(viii) new common seal has been adopted by the Board.”
Check-List for issue of Compliance Certificate on Para 29 of the Form of Compliance Certificate
contained in ICSI Guidance Note is reproduced below.
Alteration of the Memorandum with respect to Share Capital.—
“Check whether:
(i) the Articles of Association authorise the alteration of Share Capital;
(ii) the Board of Directors have passed a Resolution approving the alteration of Capital as above;
(iii) the company had called and held the General Meeting and obtained approval of the company in general
meeting by an Ordinary Resolution for the alteration;
(iv) the company has filed Form No. 5 [now e-Form 5] and Form No. 23 [now e-Form 23] (if the Articles are
amended), with the ROC; and
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(v) every copy of Memorandum and Articles issued after the date of alteration is in accordance with the
alteration.”
Sections 16 to 19.—Alteration of Memorandum.—See Secretarial Practice and Check List under

18[S.17. Special resolution and confirmation by Central Government required for alteration of memorandum.—
(1) A company may, by special resolution, alter the provisions of its memorandum so as to change the place of its
registered office from one State to another, or with respect to the objects of the company so far as may be required to
enable it— The Companies Act, 1956 provision
(a) to carry on its business more economically or more efficiently; or
(b) to attain its main purpose by new or improved means; or
(c) to enlarge or change the local area of its operations; or
(d) to carry on some business which under the existing circum-stances may conveniently or advantageously be
combined with the business of the company; or
(e) to restrict or abandon any of the objects specified in the memorandum; or
(f) to sell or dispose of the whole or any part of the undertaking, or of any of the undertakings, of the company; or
(g) to amalgamate with any other company or body of persons.
(2) The alteration of the provisions of memorandum relating to the change of the place of its registered office from one
State to another shall not take effect unless it is confirmed by the Central Government on petition.
(3) Before confirming the alteration, the Central Government must be satisfied—
(a) that sufficient notice has been given to every holder of the debentures of the company, and to every other
person or class of persons whose interests will, in the opinion of the Central Government, be affected by the
alteration; and
(b) that, with respect to every creditor who, in the opinion of the Central Government, is entitled to object to the
alteration, and who signifies his objection in the manner directed by the Central Government, either his
consent to the alteration has been obtained or his debt or claim has been discharged or has been
determined, or has been secured:
• Provided that the Central Government may, in the case of any person or class of persons, for special reasons,
dispense with the notice required by clause (a).
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(4) The Central Government shall cause notice of the petition for confirmation of the alteration to be served on the
Registrar who shall also be given a reasonable opportunity of appearing before the Central Government and state his
objections and suggestions, if any, with respect to the confirmation of the alteration.
(5) The Central Government may make an order confirming the alteration on such terms and conditions, if any, as it
thinks fit, and may make such order as to costs as it thinks proper.
(6) The Central Government shall, in exercising its powers under this section, have regard to the rights and interests of
the members of the company and of every class of them, as well as to the rights and interests of the creditors of the
company and of every class of them.
(7) The Central Government may, if it thinks fit, adjourn the proceedings in order that an arrangement may be made to
the satisfaction of the Central Government for the purchase of the interests of dissentient members; and may give such
directions and make such orders as it thinks fit for facilitating, or carrying into effect, any such arrangement:
Provided that no part of the capital of the company may be expended for any such purchase.]
NOTES
English Act, 1948 : Section 5 Companies Act, 1913 : Sections 12, 13, 14
English Act, 1985 : Sections 4, 5, 6
THE COMPANIES (SECOND AMENDMENT) ACT, 2002 (11 OF 2003).—The Notes on clauses explained the reasons for
“This clause seeks to substitute a new section for section 17 of the Companies Act, 1956. The existing provisions
contained in section 17 of the Act empower Company Law Board to confirm alteration of memorandum of association
of a company. It is now proposed to confer this power upon the NCLT [power has been conferred upon the Central
Government in the Act]. This amendment is of consequential nature.” [Clause 7 of the Companies (Amendment) Bill,
2001 (80 of 2001)].
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(Second) Act, 2015.
Legislative History of original section 17 of the 1956 Act, which was earlier amended by the
Companies (Amendment) Act, 1960, the Companies (Amendment) Act, 1974 and the Companies
(Amendment) Act, 1996 (5 of 1997) is as follows.
“This combines sections 12, 13 and 14 of the existing Act. Compare section 5 of the English Act.” [Clause 14 of the
The Joint Committee further recommended as follows:
“The Committee consider it necessary to empower the Registrar to appear before the Court [the CLB (now the Central
Government)] in case he desires to point out any irregularity in an alteration to its memorandum proposed by a
company. Sub-clause (4) makes the necessary enabling provision in this behalf.” [Report : para 15].
“This is to clarify that the Court [the CLB (now the Central Government)] shall cause notice of the petition for
confirmation of the alteration of memorandum to be served on the Registrar.” [Clause 6 of the Companies
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follows:
“The Administrative Reforms Commission has recommended that the functions which are now discharged by the
Courts under the Companies Act, 1956, may be reviewed and those which are essentially of an administrative nature
may be transferred to the executive. This recommendation of the ARC has been examined and it is proposed to
transfer some of the functions of the Court of administrative nature to the Central Government.” [Clause 4 of the
The Joint Committee recommended to make further changes as follows:
“These clauses seek to transfer to the Central Government the powers to decide certain matters which are at present
decided by the Courts. A point was raised before the Joint Committee that, since these powers are of a quasi-judicial
nature, they should not be exercised by the Central Government. The Committee, therefore, feel that instead of
conferring these powers on the Central Government, these powers should be conferred by the statute itself on the CLB
[now re-transferred to the Central Government] to enable it to exercise such powers quasi-judicially. These clauses
have been amended accordingly.” [Report : para 20].
OF 1997).—The Statement of Objects and Reasons explained the

object of the amendments “to simplify some procedural and legal requirements in the interest of
corporate sector”. [Statement of Objects and Reasons appended to the Companies (Amendment)
Bill, 1996 (34 of 1996)].
[s 13.27] Powers conferred on the Central Government
From the commencement of relevant provisions of the Companies (Second Amendment) Act, 2002
(11 of 2003) the powers which were hitherto being exercised by the Company Law Board (CLB)
under this section have been conferred on the Central Government.
Original section 17 of the 1956 Act conferred this power upon the “Court”. The powers of the “Court”
were earlier conferred upon the CLB by Act 41 of 1974.
The following commentary on the Powers of Court, CLB and Principles laid down in disposing
Petitions would be a guide for the Central Government in deciding Applications and to the Members
passing Special Resolution.
[s 13.28] Delegation of power to Regional Directors under the Companies Act, 1956
Central Government vide Notification No. S.O. 1539 dt. 10-07-2012 delegated to the Regional
Directors at Mumbai, Kolkata, Chennai, Noida, Ahmedabad and Hyderabad w.e.f. 12 August 2012,
the power and function vested in it under section 17 of the 1956 Act subject to condition that the
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Central Government may revoke such delegation of powers or may itself exercise the power under
the said section, if in its opinion such a course of action is necessary in the public interest.
[s 13.29] Alteration of Memorandum of Association [Sub-section (1)]
A company may by Special Resolution alter its Memorandum of Association to change: (1) the place
of its registered office from one State to another, or (2) the objects of the company so far as required
to enable it—(a) to carry on its business more economically or efficiently; or (b) to attain its main
purpose by new or improved means; or (c) to enlarge or change the local area of its operations; or (d)
to carry on some business which may conveniently or advantageously be combined with its business;
or (e) to restrict or abandon any of the objects; or (f) to sell or dispose of whole or part of the
undertaking(s); or (g) to amalgamate with any other company or body of persons.
To alter the provisions of its Memorandum so as to change its Objects a Special Resolution is
required to be passed. [section 17(1) of the 1956 Act]
To alter the provisions of its Memorandum so as to change the place of its Registered Office from
one State to another, a Special Resolution is required to be passed subject to confirmation by the
Company Law Board [now the Central Government]. [section 17(1) and (2) of the 1956 Act]
[s 13.21] Resolution by postal ballot
As per rule 4(a) of the Companies (Passing of the Resolution by Postal Ballot) rules, 2001, the
resolution for alteration in the object clause of memorandum shall be passed through postal ballot.
[s 13.22] Filing
Companies (Central Government’s) General Rules and Forms, 1956 within 30 days. [section 192 of
the 1956 Act]
[s 13.23] Alteration of Objects [Section 17(1)(a) to (g) of the Companies Act, 1956]
The alteration of the objects stated in Memorandum of Association of a company must be for the
purposes specified in clauses (a) to (g) of sub-section (1) of section 17 of the 1956 Act explained
hereinafter.
Prior to the substitution of section 17(2) by the Companies (Amendment) Act, 1996 (5 of 1997) (w.e.f.
01-03-1997), the alteration of objects did not take effect until it was confirmed by the CLB on petition.
Now sub-section (2) applies to shifting of registered office outside the State as explained later.
[s 13.24] English Law
Under the English Companies Act, 1985, section 4, a company may, by special resolution, alter its
objects stated in the Memorandum. The restrictions that the alteration must be for seven purposes,
similar to section 17(1)(a) to (g) of the Indian 1956 Act have been removed under the English Act.
The company may carry on altered objects unless application for confirmation of court is made under
section 5 of the English Act. See also Notes under section 13.
(1)(a) Carry business more economically or efficiently
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This clause presupposes that the company is carrying on business.19 Alteration must leave the
business substantially what was before with only such changes in mode of conducting it as will
enable it to be carried on more economically or more efficiently.20
Where a company seeks to alter the objects clause in its Memorandum of Association, the business
must remain substantially the same. The additions, alterations and changes should only be steps in
aid to improve the efficiency of the company.21 But a company which actively prosecuted the object of
production an amendment of the Memorandum need not be confined to the purpose of increasing the
efficiency with regard to production alone.22
A power to borrow and give security, a power to invest reserves in various securities and other
ancillary powers may be authorised.23Alteration of the objects clause in memorandum providing for
giving donations or grants for any religious, educational, charitable or any other social purposes or for
the benefit of humanity or a section thereof was permitted.24
The Courts refused confirmation where the alteration of Memorandum of Association was
unconnected with and opposed to the existing objects or where the change would alter the basis of
the company.25
(1)(b) Attain main purpose by new or improved means
This sub-clause uses the expression main “purpose” and not “object”. The word “purpose” is more
restricted than “object” and consequently the alteration must be one to carry out the main purpose of
the company rather than one of the objects of the company, although that object may be described in
the memorandum as a main object.26
There will be no difficulty in ascertaining the main purpose of companies registered after 1965 as the
Memorandum of Association of such companies will clearly show the main objects in view of
amended section 13. In companies registered prior to that date, one has first to look to the
Memorandum and then get assistance from the evidence as to what in fact have been the main
objects and in case of doubt also have reference to what has actually been done.27
(1)(c) Enlarge or change local area of operations
A company was formed to acquire land in Egypt. It desired to acquire land in the Sudan. It was held
that the alteration could be made provided that the company inserted the words “and Sudan” after the
word “Delta” in its name.28
(1)(d) Carry business which may conveniently or advantageously be combined
The new or additional business to be carried on may be wholly different from the existing business of
the company and yet be capable of being conveniently or advantageously combined with it. The
additional business must not be destructive of, or inconsistent with, the existing business under the
existing circumstances.29
Where the business of a company consisted of holding large investments. A special resolution was
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passed to enable the company to carry on business of bankers, financiers, underwriters and dealers
in securities (and to buy, sell and deal in real and personal estate of every description). The court
sanctioned alteration excluding the objects bracketed.30 Where the Memorandum stated that the main
object of the company was to purchase, acquire and carry on the business of distillers, rectifiers,
brewers, maltsters, methylators. The company passed a special resolution to alter its memorandum
by adding a new object, viz., to acquire or purchase or take over on hire, picture houses, cinemas,
theatres or similar houses for exhibiting pictures, and films. Held, the cinema business could not be
conveniently or advantageously combined with the existing business of distilling of the company
within the meaning of section 17(1) of the 1956 Act.31
A company formed for generating power was allowed to carry on “cold storage and other allied
business”.32 Sugar and oil manufacturing company was allowed to do the business of steel makers,
revetters and steel castings.33
The Cyclists’ Touring Club was formed to promote, assist and protect cyclists. The company wanted
to include among the persons to be assisted “all tourists including motorists”. The court refused to
sanction such alteration on the ground that it was impossible to combine the two businesses as one
of the objects of the company was to protect cyclists against motorists.34
In cases alterations would render the name of the company misleading, the Court often directed
name to be changed so as to express alterations in objects and spheres of the company.35 The court
sanctioned alteration to a marine insurance company by adding fire, life and accident business;36 a
boiler insurance company by adding other insurance;37 investment and loan company by adding
guarantee and finance company;38 a marine underwriting company by adding marine insurance and
insurance of risk in land transit;39 and a company carrying on business as malters and hop merchants
by adding the business of fruit merchants, canners and preserve manufacturers.40
Where memorandum provided that each clause must be read independently of each other,
confirmation could be refused to an alteration adding new sub-clause except on condition of deleting
the provision in question or limiting its application.41
The addition of the business of selling goods on hire-purchase system, to build hotels and
restaurants and doing business in them with the name of the company as the Bharat Mining
Corporation Ltd would be not only illogical but misleading to the world dealing with the company to
introduce such independent and separate businesses. These businesses could by no means
conveniently or advantageously be combined with the business of the company as in section 17(1)(d)
of the 1956 Act. Nor these new businesses were necessary to enable the company to carry on its
existing business more economically or more efficiently or to attain its “main” purpose by new or
improved means as in section 17(1)(a) or (b) of the 1956 Act.42
If the alteration in objects is sought to be covered by clause 17(1)(a) it must be shown that by the
new business the existing business of the company can be more economically or efficiently carried
on. If the alteration is sought to be covered by clause 17(1)(d) it must be shown that the new
business would be such as could be conveniently or advantageously combined with the existing
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business of the company. In either case, the company ought to be carrying on some business.43
The court refused to confirm an alteration unconnected with and opposed to the existing objects or
where the change would alter the basis of the company.44
[s 13.25] Multipurpose Companies
Where the colliery business was nationalised. The company proposed to venture into new fields.
Normally a diversification was not permitted which would defeat the business already carried. But, as
the business could no longer be carried, the court allowed the alteration subject to reasonable
suggestion by counsel for the Registrar of Companies (ROC) for alteration of company’s name
appropriately. The Court also observed that the days of devotion to single purpose or limited
purposes both for institutions and men are gone. We are living in an age of multipurpose institutions
and projects, men and institutions must go in for multifarious activities and ventures. Whether,
however, that is a desirable trend or not is another debate outside the realm of company
jurisprudence.45
Where a banking company was prohibited from doing banking business, alteration to confine its
objects to non-banking business was confirmed by the court.46
[s 13.26] Additional Business
Whether one business can be conveniently combined with another is essentially a business question
to be determined by the directors and shareholders of the company. The shareholders of a company
would consider whether any additional business may be conveniently or advantageously combined
with the existing business keeping in mind that the new business is not destructive of or inconsistent
with the existing business.47
[s 13.27] New Business
A company is free to alter its Objects Clause in its Memorandum as it is for its members to decide as
to what business the company should carry on from time to time. It is not necessary that the
proposed new business must be ancillary or similar to the existing business or businesses of the
company. “Some business” in section 17(1) of the 1956 Act implies some new business not already
provided for in the objects clause and not necessarily ancillary to the existing businesses. The
proposed new business may even be entirely new and may amount to a departure from the old
businesses. But, the new business should not be so inconsistent or incongruous with its existing
businesses as to be destructive thereof. This is clearly suggested by the use of the word “combined”
in section 17(d) of the 1956 Act as two mutually destructive things cannot be combined together. This
question being essentially a business proposition has normally to be determined by the persons
engaged in the business of the company.48
[s 13.28] New Objects
The alteration of the Object Clause with a negative expression “the company shall not undertake the
following objects” was not allowed.49 The alteration should be in accordance with and within the
scope of section 17 of the 1956 Act.50
A new object undertaken by an amendment of the Memorandum of Association cannot be shown as

or under the “Main Object”.51
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See also Notes under section 13 and 149 of the 1956 Act.
[s 13.29] Powers of CLB [ now the Central Government]
The powers of the Company Law Board (CLB) [now the Central Government] under section 17 are
discretionary and to be used judiciously and with circumspection. While the CLB was liberal in
allowing the companies to diversify their activities and venture into new fields which were in the
interest of the company and beneficial to the public or the society, it was equally the duty of the CLB
to ensure that the cost and expenditure of the new project was met out of company’s own legitimate
funds or from sources legally permitted. If the new business involves any diversion of funds from the
ongoing project to a new project then the CLB refused the permission to do so.52
[s 13.30] No Confirmation for alteration of Objects [Section 17(2) of the Companies Act, 1956
as substituted in 1997 and 2003]
Section 17(2) of the 1956 Act which earlier provided that the alteration under section 17(1) of the
1956 Act shall not take effect unless it was confirmed by the CLB on petition as substituted by the
Companies (Amendment) Act, 1996 (5 of 1997) now provides that alteration relating to the Change of
place of Registered Office from one State to another shall not take effect unless it is confirmed by
CLB [now Central Government vide the Companies (Second Amendment) Act, 2002 (11 of 2003)] on
petition.
Thus Objects Clause in the Memorandum of Association can be altered simply by passing Special
Resolution and no confirmation is needed.
(1)(e) Restrict or abandon any of the objects
There is jurisdiction to confirm alterations of objects in Memorandum which involve the abandonment
of objects which are in their character fundamental.53
(1)(f) Sell or dispose whole or part of undertaking(s)
The special resolution is required to alter its objects in memorandum to sell or dispose of the whole,
or any part, of the undertaking, or of any of the undertakings, of the company.
(1)(g) Amalgamate with other company or body of persons
A company may by special resolution alter its memorandum to change the objects to enable it to
amalgamate with any other company or body of persons.
A company has inherent power to amalgamate. There is no limitation on the power of the Company
Law Board [now the Central Government] to make an order allowing insertion of a clause
empowering the company to amalgamate.54
Where power to amalgamate does not flow from the Memorandum, the company may by special
resolution alter the Memorandum to have such power. The shareholders and all persons affected by
any proposed amalgamation will have sufficient opportunity of meeting the case of actual
amalgamation when the company applies to the Court [now the Tribunal (NCLT)] with the actual
scheme for amalgamation. Further, there is a statutory power of amalgamating a company with
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another company without any specific power in the Memorandum under sections 391 to 396 of the
Act.55
The Court [now the Tribunal (NCLT)] has jurisdiction to sanction a scheme of amalgamation under
section 394 even if the scheme contemplates a consequential alteration in the objects clause of the
Memorandum of Association of the transferee company without complying with the procedure in
section 17 of the 1956 Act. Where the requisite resolution under section 149(2A) of the 1956 Act for
shifting the business under “other objects” to the “main objects” of the Memorandum of Association
was passed objection of the Central Government that the transferee company had no power to take
up and carry on the business of the transferor company was overruled.56
[s 13.31] Power of companies to Amalgamate
Section 17 of the 1956 Act, is an aid to companies seeking Amalgamation. Sections 391 to 394 in
Chapter V of the 1956 Act are of very wide amplitude so as to take into their fold compromises or
arrangements including alteration of objects. The Legislature in its wisdom has provided for such
wide range of power to be exercised by the Company Court [now the Tribunal (NCLT) (w.e.f. date to
be notified)], since in matters of Amalgamation conducive to the interest of shareholders, there
should be no fetters. The power of companies to amalgamate may flow either from the objects in their
Memorandum of Association or may be acquired by resort to sections 391 to 394 of the 1956 Act.
Even though in the Objects Clause in the Memorandum of Association of the company there is no
power for the Amalgamation of the company with another company, the company may apply to the
Court [the Tribunal (NCLT)] for sanctioning a Scheme of Amalgamation. The Court [the Tribunal
(NCLT)] under sections 391 to 394 of the 1956 Act has powers to sanction Amalgamation of the
company.57
See detailed Notes under sections 17, 391 to 394 of the 1956 Act.
[s 13.32] Scheme of Amalgamation—Consequential alterations in Objects Clause
The procedure for Alteration of the Memorandum need not be followed in an Amalgamation. The
Scheme of Compromise, Arrangement or Amalgamation requiring change in Objects Clause of the
Company can be sanctioned under sections 391 and 394 of the 1956 Act by the Company Court [the
Tribunal (w.e.f. date to be notified)] after notice being served to the CLB [the Central Government
(Regional Director)] under section 394A of the Act. The Court [now the Tribunal (NCLT)] can sanction
a Scheme of Amalgamation even if it contemplates consequential alterations in the Objects Clause of
the Memorandum of Association of the Company.58
See detailed Notes under sections 17, 391 to 394A of the 1956 Act.
[s 13.33] Amalgamation or Merger of 100% Subsidiaries with Holding Company
Where in amalgamation of Transferor Companies being 100% subsidiaries of the Transferee

Company, no new shares are to be issued under the proposed Scheme to the Transferor Company.
Such scheme is approved by the shareholders and creditors of the respective companies. The
proposed scheme will also not affect the members and creditors of the transferee company. It is not
always necessary for the transferee company to make application for such an amalgamation.
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However, the transferee company in such cases is not precluded from filing the petition for approval
specially when another High Court while approving the scheme has given a direction that the scheme
shall stand approved subject to the approval of the scheme by the other Court [now the Tribunal
(NCLT)] within whose jurisdiction Registered Office of the transferee company is situated. The
transferee company though not required can file a petition and seek approval of the scheme by way
of abundant caution, or because of any doubt as to whether any member or creditors are in any way
affected by the Scheme of Amalgamation/Merger.59
See detailed Notes, Form and Procedure under sections 391–394 of the 1956 Act.
[s 13.34] Creditors’ objection
In an application for the alteration of the objects clause or adopting of new objects, the CLB, took into
consideration the objections of the creditors and also of the employees. However, the Central
Government cannot direct the company to make payment to the creditors or to the workers first. It
may impose suitable conditions safeguarding the interests of the creditors including the objector
before confirming the alteration.60Where a creditor objected to alteration of objects clause on the
ground that the company owed it money. The company was financially sound. On facts, the alteration
was allowed. The CLB could not adjudicate claims.61
Section 17(2) of the 1956 Act as to confirmation by the CLB [now the Central Government] as
substituted in 1997 and 2003 now applies only to inter-State shifting of Registered Office of the
company. The above decisions shall be useful guide to the Central Government for such
confirmation. The following Circulars shall be useful guide to the shareholders in passing Special
Resolution for alteration of objects.
[s 13.34.1] Department’s View— Diversification of Objects
“It is often seen that companies having inadequate resources propose to take up objects which may be entirely new,
having regard to the existing objects. There have been cases in which companies having very unsatisfactory financial
condition have attempted to insert entirely new objects in the memorandum on the plea that they expected to do very
well if they could take up the newly proposed business. It has been decided that all such cases of undesirable
diversification of activities should be opposed at the Court*. Whether a proposal for diversification is undesirable or not
is to be decided on due consideration of the facts of the particular case and having regard to the policy of the
Government on the subject. Government do not favour existing companies taking up new lines of activity which are not
reasonably connected with the activities in which they are already engaged.
The reasons for this policy are as follows:—
(1) the need to broad-base investment in industries instead of giving the existing shareholders a preferential right
to increase their investment in the existing companies;
(2) through the spreading of investment in the manner indicated above, to prevent rise in the shares of existing
well-established concerns;
(3) to encourage the growth of managerial talent by enlarging the field for the exercise of top managerial powers;
(4) to enable the shareholders to obtain information about the performance of an undertaking readily from the
accounts which are statutorily required to be submitted to the shareholders; and
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(5) to enable the State to ascertain the relative efficiency of investment and management in different lines of
activity more readily through a scrutiny of the financial accounts which may not be readily available for the
constituent units if they are grouped into one company.
In no case, alteration in the objects clause should be opposed where the industrial licence has been given to the
company enabling it to branch off into other activities.
2. A reference is invited to sub-section (4) of section 17 of the Companies Act, 1956 which enjoins the Court*, to which
a petition has been made by a company for confirmation of an alteration in its memorandum of association, to give the
Registrar a reasonable opportunity to appear before the Court* and state his objections and suggestions with respect
to the confirmation. This provision is new and was inserted in the Act because it was considered necessary that the
Registrar should have the right to appear before the Court* in case he desires to point out any irregularity in the
proposed alteration. The Government of India are, however, anxious that this right is judiciously exercised by the
Registrars so as not to create an impression in the mind of the public that the new provision is being made use of to
harass or unnecessarily interfere in the management of companies. This should be borne in mind whenever any
occasion arises for having recourse to the provisions referred to above. In all cases of doubt, Registrars are advised to
consult their Regional Director in the matter before exercising the right conferred on them by the said sub-section.”
[Circular Letter No. F. 2(7)-PR/56, dt. 20-03-1956 : Govt. of India publication, Clarifications and Circulars on Company
[s 13.35] Change of name by a company during the pendency/hearing of petition for

alteration of object clause(s) under Section 17 of the Companies Act, 1956
“I am directed to state that it has come to the notice of the Department that in the Northern and Eastern Regions,
sometimes the Registrars of Companies are permitting change of name of a company based on the company pursuing
certain provisions listed in ‘other objects’ as contained in its memorandum of association. This change of name is being
done while a petition is already lying before the Company Law Board [now the Central Government]† for shifting
‘object(s)’ given in ‘other objects’ to main objects in the memorandum of association.
The aforesaid action of the Registrars of Companies amounts to prejudging the issue particularly when the matter is
pending before the Company Law Board [now the Central Government] under section 17 of the Companies Act, 1956,
for approval of the Company Law Board [now the Central Government] for shifting a provision from other objects to the
main objects clause in the memorandum of association.
In view of the above circumstances, you are advised not to permit change of name during the pendency of a petition
under section 17 of the Act before the Company Law Board [now the Central Government].” [Circular No. 4 of 1996, dt.
13-05-1996 (F. No. 3/7/96-CL-V) : (1996) 86 COMP CASES (St.) 126].
See also Notes under substituted section 17(2) and section 21 of the 1956 Act.
[s 13.36] Filing
See Notes after Shifting of Registered Office from one State to another [section 17(2) to (7)] and
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The Registrar of Companies filed a complaint under section 17 read with section 291 of the 1956 Act
alleging that air-taxi operation was not included in the Memorandum of association and by carrying
such business without amending objects clause of Memorandum of Association, the company had
committed an offence punishable under section 629A of the 1956 Act. The complaint ought to be filed
within a period of six months of the date of knowledge. As the prospectus, special resolutions and
annual reports were already filed with the ROC, the respondent was well aware of the business
carried on by N.E.P.C. company. The complaint was therefore barred by time.62
[s 13.38] Political Contributions
Section 293A of the 1956 Act, as substituted by the Companies (Amendment) Act, 1985 (35 of 1985),
has lifted the blanket ban on political contributions by companies and has allowed the companies to
make contributions to political parties from out of their profits. In decisions prior to blanket ban such
contributions, it has been held that the companies could alter their objects in the memorandum under
section 17(1) of the 1956 Act to enable the company to make contributions towards the funds of the
political parties.63
See detailed Notes on Prohibitions and restrictions regarding Political Contributions under section
293A of the 1956 Act as amended by the Election and Other Related Laws (Amendment) Act, 2003
(46 of 2003).
[s 13.39] Alteration of objects to convert into Nidhi Company
The alteration of Memorandum must be for any of the seven purposes under section 17(1) of the
1956 Act. The alteration of objects so as to make it a nidhi company was not covered by section 17 of
the 1956 Act and was not confirmed by the Company Law Board.64
[s 13.40] Charitable Companies
In case of a company formed for charitable purpose the alteration should be in conformity with the
law relating to charities.65
See detailed Notes on Charitable Companies under section 25 of the 1956 Act.
[s 13.41] Unlimited Company
In case an unlimited company wants to enlarge its objects the sanctioning authority should be
satisfied that every member appreciated that his liability would become unlimited.66
[s 13.42] Shifting of Registered Office outside the State [Sections 17(1) and (2) of the
To change the place of its Registered Office from one State to another a Special Resolution of the
company [Sub-section (1)] and sanction of the Company Law Board [now the Central Government]
are necessary. [Sub-section (2)]
To alter the provisions of its Memorandum of Association so as to change the place of its Registered
Office from one State to another, a Special Resolution is required to be passed subject to
confirmation by the Company Law Board [now the Central Government]. [section 17(1) and (2) of the
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1956 Act]
For provisions relating to Special Resolution and matters requiring sanction of shareholders by
Special Resolution see Notes under section 189 of the 1956 Act.
[s 13.44] Filing
Companies (Central Government’s) General Rules and Forms, 1956 within 30 days. [Section 192].
See detailed Notes, Form and Procedure under sections 189 and 192 of the 1956 Act.
[s 13.45] Form 23 (substituted w.e.f. 10-02-2006)
See e-Form 23* of the Companies (Central Government’s) General Rules and Forms, 1956 as
substituted by the Companies (Central Government’s) General Rules and Forms (Amendment) rules,
2006 vide Notification No. G.S.R. 56(E), dt. 10-02-2006, published in the Gazette of India,
Extraordinary, No. 50, Pt II, Section 3(i), page 156, dt. 10-02-2006 : the Ministry of Company Affairs
(MCA) website http://www.mca.gov.in : (2006) 130 COMP CASES (St.) 13.
[s 13.46] Revised e-Form 23 (released 16 December 2006)
See Revised e-Form 23 on the Ministry of Corporate Affairs (MCA) website http://www.mca.gov.in
under category Compliance Related Filing/Informational Services, Date of Last Release (16
December 2006).
See Revised e-Form 23 of the Companies (Central Government’s) General Rules and Forms, 1956
[Pursuant to section 192 of the 1956 Act] for Registration of Resolution(s) and Agreement(s) [Special
Resolution passed under section 17(2) of the 1956 Act].
See detailed Notes, Form and Procedure under sections 189(2) and 192 of the 1956 Act.
[s 13.47] Proper resolution
The special resolution passed must be in a meeting duly convened. If the meeting is not duly held
there is no special resolution and the Company Law Board [now the Central Government] cannot
exercise jurisdiction.67
All general meetings except the Annual General Meetings of a company are Extraordinary General
Meetings, which are not necessarily required to be held only at the registered office of a company.
The EGM for passing a special resolution for shifting the registered office from one State to another
need not be held only at the registered office and on the said ground a meeting or the resolution
passed at the meeting cannot be said to be bad or void.68
Mere omission to state the fact of the closure of registered office of the company at Calcutta while re-
moving it to New Delhi, in the Explanatory Statement calling the Extraordinary General Meeting will
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not vitiate the notice or the resolution.69
In case of annual general meeting if all the members entitled to attend and vote at the meeting
consent, the meeting may be convened even by shorter than 21 days’ notice. Such consent may be
before the meeting is held or after the resolutions were passed. Where post-consent validated the
special resolution originally passed without sufficient notice and there was no objection that the
resolution was not bona fide, the special resolution changing the registered office from the State of
Bihar to the State of West Bengal could be confirmed.70
[s 13.48] Confirmation by Central Government [Section 17(2) of the Companies Act, 1956]
The alteration relating to the change of the place of its Registered Office from one State to another
shall not take effect unless it is confirmed by the Central Government on petition.
This power has hitherto being exercised by the Company Law Board. From the commencement of
the Companies (Second Amendment) Act, 2002 (11 of 2003), the power has been conferred upon
the Central Government.
By the Companies (Second Amendment) Act, 2002 (11 of 2003), the powers and jurisdiction
presently being exercised by the Company Law Board (CLB) has been transferred to and vested in
“the Central Government” (w.e.f. date to be notified).
See detailed Notes under sections 10E, 10FB and 637 of the 1956 Act.
[s 13.49.1] Form and Procedure
Petition under Section 17(2) of the 1956 Act for Confirming Alteration in Memorandum of Association
as to change of place of the Registered Office from one State to another shall be made as follows:
[s 13.49.2] Company Law Board (Till enforcement)
See Form and Procedure for petition (till commencement of the above amendment) hitherto made to
Company Law Board (CLB) in Notes under Section 10E of the 1956 Act.
See detailed Notes, Form and Procedure, Fees, etc., under section 10E of the 1956 Act.
[s 13.49.3] Central Government (After enforcement)
From the commencement of the Companies (Second Amendment) Act, 2002 (11 of 2003) (w.e.f.
date to be notified), the Application shall be made to the Central Government.
[s 13.50] Filing of CLB’s [ now Central Government] Order
Notice of the Company Law Board’s (CLB) Order [now the Central Government (w.e.f. date to be
notified)] under Section 17(1) or 17(5) of the 1956 Act shall be given to the Registrar of Companies
(ROC) in e-Form 21* of the Companies (Central Government’s) General Rules and Forms, 1956.
[s 13.51] Powers of the Central Government [Section 17(3) to (7) of the Companies Act, 1956]
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Before confirming the alteration the CLB [now Central Government] must be satisfied that—(a)
sufficient notice has been given to debenture holders and person or class of persons whose interests
are affected; and (b) with respect to creditor entitled to object, his consent has been obtained or debt
discharged, determined or secured. [Sub-section (3)]. Notice of petition has been served on the
Registrar of Companies and reasonable opportunity given to appear and state objections and
suggestions. [Sub-section (4)]
The CLB [now the Central Government] has to take into consideration objections of “any person” if
his interest is affected. Therefore, application of a company seeking waiver of requirement of
publishing general notice on the plea that company had to incur expenses on publication charges
was held to be not tenable.71
The CLB [now the Central Government] may make an order confirming the alteration on such terms
and conditions, as it thinks fit [Sub-section (5)]
The words “either wholly or in part” in section 17(5) were omitted by the Companies (Amendment)
Act, 1996 (5 of 1997).
Before confirming alteration CLB [now the Central Government] shall have regard to rights and
interests of members and creditors of every class. [Sub-section (6)]. The Central Government may
direct for purchase of the interests of dissentient members and carrying into effect any such
arrangement. [Sub-section (7)]
The Company Law Board (CLB) [now the Central Government] has very wide discretionary powers to
confirm the alteration of the memorandum, conditionally or unconditionally or not to confirm at all.72
[s 13.52] Shifting of the Registered Office
If a special resolution to shift the registered office of the company is passed, then the CLB [now the
Central Government] would confirm the alteration of the memorandum of association and permit
shifting of the registered office of the company from one State to another, if it is beneficial for the
company in spite of protests by some of the shareholders, workers or creditors. The CLB [now the
Central Government] has to consider the interest of the shareholders of all the classes and the
creditors as a whole.73
If all the formalities of the statute, i.e., section 17 of the 1956 Act read with relevant rules and
regulations providing procedural framework before the petition, have been complied with the CLB
[now Central Government] would confirm the alteration. In so doing, the Central Government is not
concerned to consider the wisdom or desirability of the proposed alteration. It is not the function of
the CLB [now the Central Government] to substitute its own wisdom or judgment in the place of the
collective wisdom or judgment of the company expressed in a special resolution. These matters must
be left to the domestic decision of the shareholders. The company is the best judge of how to run its
business or where to situate its Registered Office.74
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[s 13.53] Alteration of Situation Clause or Registered Office Clause
Section 17 of the 1956 Act, read with the Company Law Board Regulations, 1991 [power of CLB
vested in the Central Government (w.e.f. date to be notified)], provides the procedural frame-work
before the CLB [the Central Government] considers a petition for Alteration of the Memorandum. The
procedural frame-work is intended to take care of the interests of the shareholders, creditors and
every other person or class of persons whose interest will be affected by the alteration. The various
provisions of the Act provide an opportunity to the Members of the company to air their views with
regard to the Alteration of Memorandum. When the CLB [Central Government] is satisfied that the
company has complied with the prescribed procedure it is only appropriate to presume that the
interests of the concerned parties are taken due care of. While the decision to shift the Registered
Office of the company to another State being a domestic matter rests with the shareholders, the
company is the best judge of how to run its business more economically or conveniently or where to
locate the Registered Office for efficient running of the business. When the Special Resolution
approving the Alteration of the Situation Clause or Registered Office Clause of the Memorandum of
Association was unanimously passed in accordance with section 189 of the, 1956 Act, by all the
three shareholders present at the Extraordinary General Meeting (EGM). The Registrar of
Companies (ROC) took on record the Form No. 23 [now e-Form 23] filed by the company and had no
objection to the company’s proposal for altering the Situation Clause or Registered Office Clause of
the Memorandum of Association of the company. No objections were raised nor filed by any member
or creditor to the company’s proposal upon publication of general notice in the Newspaper. The
alteration was to be confirmed on condition that the interest of none of the employees of the
company, if any, at its Registered Office shall be prejudiced by way of retrenchment or otherwise.75
See also Notes under sections 171, 173(2) and 189 of the 1956 Act.
[s 13.54] State has no locus standi
The State in which Registered Office is situated has no locus standi or right of its own to be heard
(apart from the Registrar). However, section 17(3)(a) of the 1956 Act.is wide enough to enable the
CLB [now the Central Government] to direct notice to be served on the State if it is of opinion that the
interests of the State will be affected by the order. But, it is for the members of the company and not
for the State to decide whether the Registered Office of the company should be transferred from one
State to another in the interest of the company. The loss of revenue to, or of employment to the
citizens of, a State, facilities afforded to the company by the State Government, etc., are not relevant
factors. The CLB [now the Central Government] while confirming the alteration may in exercise of the
discretion under section 17(5) of the 1956 Act impose suitable conditions to safeguard the interests of
the State.76Decisions of the Orissa High Court to the contrary do not seem to be good law.77
The CLB [now the Central Government] while confirming the alteration will not adjudicate on the
claims of the State Government, e.g., sales tax, electricity charges and other dues outstanding from
the company to the State Government.78
[s 13.55] Discretion to impose conditions
The CLB [now the Central Government] has discretion to impose such conditions as it may deem fit.
Where resolution was passed for shifting of registered office from the NCT of Delhi to the State of
Maharashtra by two shareholders and petition for confirmation of CLB filed. The company thereafter
issued shares to the public. Although, alteration was confirmed, as majority of new shareholders were
from Maharashtra and the resolution was a mere formality. The CLB directed the company to seek
consent of new shareholders, since the variation of registered office of the company after issue of
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prospectus and before allotment was in violation of the spirit behind section 61 of the 1956 Act.79
The Company Law Board (CLB) [now the Central Government] has very wide discretionary powers to
confirm the alteration of the Memorandum, conditionally or unconditionally or not to confirm at all.80
The words “either wholly or in part” in section 17(5) of the 1956 Act were omitted by the Companies
(Amendment) Act, 1996 (5 of 1997) (w.e.f. 01-03-1997).
[s 13.56] Memorandum of Association—Alteration—Registered Office
Section 17 of the 1956 Act read with the CLB Regulations, 1991 provides the procedural framework
before the Company Law Board (CLB) [now the Central Government (w.e.f. date to be notified)]
considers a petition for alteration of the Memorandum. The procedural framework is intended to take
care of the interests of the shareholders, creditors and every other person or class of persons whose
interest will be affected by the alteration. The various provisions under the Act provide an opportunity
to the members of the company to air their views with regard to the Alteration of the Memorandum.
When the CLB is satisfied that the company has complied with the prescribed procedure it is only
appropriate to presume that the interests of the concerned parties are taken due care of. A Clause in
the Agreement which had not been incorporated in the Memorandum of Association relating to
shifting of the Registered Office with mutual consent of the objector could not be forced on the
company. Such a Clause when incorporated in the Articles of Association would run against the spirit
of section 17 of the 1956 Act and consequently would become void by virtue of section 9 of the 1956
Act. Though the regulations did not prescribe that public notice shall be effected only after passing a
Special Resolution, yet in the spirit of the Regulations the public notice shall be effected only after
passing the Special Resolution. The objector had neither contended nor established that any
prejudice was caused to any interested person on account of defective publication. General Meetings
cannot be conducted at the dictates of a lone shareholder. The plea of loss of revenue to a State was
irrelevant for the purpose of section 17 of the 1956 Act. The defective publication was to be
condoned as the company gave public notice in two newspapers about the results of the Postal Ballot
and filing of the petition before the CLB under section 17 of the 1956 Act. The Alteration in the
Memorandum of Association of the company as approved by the Special Resolution passed by
Postal Ballot was confirmed subject to certain conditions.81
[s 13.57] Objection by Shareholders after Special Resolution
Pursuant to a Special Resolution passed unanimously by the shareholders of the petitioner-company

for shifting of its Registered Office from the State of Madhya Pradesh to the State of West Bengal in
accordance with section 189 of the 1956 Act, at its Annual General Meeting, the company filed a
petition under section 17 of the 1956 Act for confirmation of the alteration of the Memorandum of
Association of the company. Four shareholders objected saying that their approval was taken
forcibly. It was held that neither in their objection memo nor during the hearing had the objectors
indicated how the shifting of the Registered Office would be prejudicial to the interest of the company
or to the shareholders. If they had any reservation on the contents of the Explanatory Statement they
should have raised their objection in the General Body Meeting at the time the proposal was being
considered by the general body. In accordance with section 194 of the 1956 Act the Minutes of the
Meeting signed by the Chairman of the meeting in terms of section 193 of the 1956 Act shall be
evidence of the proceedings recorded therein. When the Resolution had been approved
unanimously, the objectors being shareholders could not object to the shifting of the Registered
Office in these proceedings. Accordingly, the objections raised by the four shareholders were to be
rejected and the alteration in the Memorandum of Association of the petitioner-company as approved
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by the Special Resolution passed confirmed.82
[s 13.58] Employees
In exercise of its discretion under section 17(5) of the 1956 Act the CLB [now the Central
Government] may confirm the alteration shifting the Registered Office from one state to another
subject to the conditions that the interests of none of the employees shall be prejudicially affected.83
[s 13.59] Shifting of Registered Office from one State to another
Where the Special Resolution to shift the Registered Office of the Company from one State to
another has been approved by 99.99%. votes by the shareholders of the company through Postal
Ballot. Therefore, by 99.99%. affirmative votes the shareholders confirmed that it would be in the
interest of the company that the Registered Office be shifted from State of Maharashtra to State of
Tamil Nadu. In these circumstances, the objections of the ex-employees/executives/ supervisory staff
had to be considered. Their main apprehension appeared to be that the shifting of the Registered
Office might prejudice their cases in the Labour Court. As by an Affidavit the Company gave an
undertaking to comply with the directions of the Labour Court, the apprehension of the employees no
longer survived. Accordingly, the Alteration in the Memorandum of Association of the petitioner-
company as approved by Special Resolution by the shareholders of the company through Postal
Ballot was confirmed as set forth in the Schedule forming part of this order, subject to the condition
that the company shall ensure compliance with the directions of the Labour Court in cases filed by
the ex-employees/executives/supervisory staff thus: “Resolved that pursuant to the provisions of
Section 17 of the 1956 Act, Clause II of the Memorandum of Association be altered by the
substitution of the words ‘State of Tamil Nadu’ in place of the words ‘State of Maharashtra’. Further
resolved that Clause II of the Memorandum of Association shall be read as under: ‘The Registered
Office of the company shall be situated in the State of Tamil Nadu.’ Let a copy of this order be sent to
all objectors”.84
[s 13.60] Creditors
In approving the shifting of the registered office from one State to another State or adopting of new
objects, the creditors’ objections have to be taken into consideration. But, the CLB [now the Central
Government] would not go into the collective wisdom of the company. It should adopt a business-like
approach in approving the alteration. However, in exercise of its discretion the CLB [now the Central
Government] may impose suitable conditions safeguarding the interests of the creditors including the
objector before confirming the alteration.85
[s 13.61] CLB [ now Central Government] not to adjudicate claims
The CLB [now the Central Government] will not adjudicate claims.Where a creditor objected to
alteration of objects clause on the ground that the company owed it money. The company was
financially sound. On facts, the alteration was allowed.86
Where a creditor of another group company objected to the shifting of situation clause of its
memorandum of association on the ground that a group company of the petitioner owed it money.
Held, though the company belonged to the same group, under law, the group companies were two
different entities. Moreover, the CLB [now the Central Government] will not adjudicate claims or
counter-claims.87
Allegations of mala fides and pending prosecution against the managing director of the company is
not a ground to refuse confirmation of resolution to shift registered office of the company. The CLB
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confirmed the alteration subject to the condition that the claim of the objectors shall not be adversely
affected.88The litigation between the joint-holder of shares cannot be a ground for stalling the
shifting.89
[s 13.62] Refusal to confirm in particular year
When the Court [Company Law Board (now the Central Government)] refuses to order the transfer of
the Registered Office of the company in a particular year and later when facts and circumstances are
so altered that such transfer is necessary, the application has to be considered in the entirely
different situation and order made accordingly.90
[s 13.63] Sick Company
Under a scheme of rehabilitation the BIFR allowed shifting of the company’s registered office. A
petition was made to the CLB [now required to be made to the Central Government] for confirmation
of shifting of registered office to another State. The CLB held that the creditors could not insist on
payment before shifting of registered office. The CLB [now the Central Government] cannot direct
settlement contrary to BIFR’s [now the Tribunal’s (NCLT)] order.91
[s 13.64] Not outside India
A company cannot change its Registered Office from India to another country and the Court
[Company Law Board (now the Central Government)] has no power to sanction such alteration of the
Memorandum.92
[s 13.65] Change of registered office within the State [Section 17A of the Companies Act,
1956]
See detailed Notes, Form and Procedure under relevant Section 17A of the 1956 Act.
[s 13.66] Notice of situation and change of registered office [Section 146 of the Companies
Act, 1956]
Notice of situation of registered office and every change must be given to the ROC within 30 days.
[section 146(2) of the 1956 Act]. A Special Resolution is required to remove the registered office
outside the local limits of any city, town or village [section 146(2) proviso of the 1956 Act.].
A perusal of sections 17, 17A and 146 of the 1956 Act shows that there are three types of changes of
registered office contemplated—(1) when the registered office is being changed from one State to
another; (2) when the registered office is being changed from the jurisdiction of one Registrar of
Companies to the jurisdiction of another Registrar of Companies; and (3) when the registered office is
being changed within the jurisdiction of the same Registrar of Companies. In the first two cases, the
change takes effect only after it is recorded by the competent authority and in the third case, the
See detailed Notes, Form and Procedure under section 146 of the 1956 Act
[s 13.67] Filing
The company shall file with the Registrar—(a) the Special Resolution in respect of clauses (a) to (g)
of sub-section (1) of section 17 of the 1956 Act within one month, (b) the certified copy of the order of
the CLB [now the Central Government] confirming the alteration in case of shifting of Registered
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Office from one State to another within three months, (c) a printed copy of the Memorandum as
altered, and (d) in case of transfer of Registered Office from one State to another, certified copy of
the order shall be filed with the Registrars of Companies (ROCs) of each State. The Registrar shall
register and certify the registration within one month.
[s 13.68] Alteration of other Clauses in Memorandum
For alteration of other conditions contained in the memorandum of association of the company
mentioned in section 13(3), viz., Name, Capital, Guarantee, Liability and Subscription Clauses and
Clauses other than aforesaid conditions see Notes under Section 16 of the 1956 Act.
[s 13.69] Compliance Certificate—Alteration of Memorandum
[s 13.69.2] Form of Compliance Certificate [Paras 26 and 27]
26. The company has altered the provisions of the Memorandum with respect to situation of the company’s Registered
Office from one State to another during the year under scrutiny after complying with the provisions of the Act.
27. The company has altered the provisions of the Memorandum with respect to the Objects of the company during the
year under scrutiny and complied with provisions of the Act.
[Paras 26 and 27 of Form of Compliance Certificate appended to the Companies (Compliance

Certificate) rules, 2001 : See Full Text under section 383A of the 1956 Act.].
[s 13.69.3] ICSI Guidance Note on Compliance Certificate
Check-List for issue of Compliance Certificate on Paras 26 and 27 of the Form of Compliance
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Alteration in the Memorandum of Association with respect to Change in Registered Office

from one State to another and Object Clause.—
“Check whether:
(i) the Board of Directors had passed a Resolution for change in Registered Office of the company/alteration of
object clause;
(ii) the Board had called a General Meeting and necessary Special Resolution has been passed at the said
meeting;
(iii) a certified true copy of the Special Resolution along with the certified true copy of the Explanatory Statement
was filed with the Registrar in Form No. 23 [now e-Form 23] within 30 days from the date of passing of the
Resolution;
(iv) a petition has been filed before the Company Law Board*, for confirmation of the Alteration of Memorandum
relating to change of place of the company’s Registered Office from one State to another;
(v) a certified true copy of the order of the CLB* confirming the Alteration of Memorandum in respect of
Registered Office of the company together with the printed copy of the Memorandum as altered was filed with
the ROC of each State;
(vi) the Registrar of each State registered the same and issued the Certificate of Registration under his hand; and
(vii) every copy of the Memorandum issued after the date of alteration is in accordance with the alteration.”
[s 13.69.5] Forms, Returns and Documents To be Filed with the Registrar of Companies.—
Other Important Returns.—(e) Court/CLB Orders.—
Check whether Form No. 21 [now e-Form 21] has been filed with the ROC along with certified copies
of the following orders :
Section 17(2).—Order of the Company Law Board* approving the shifting of the Registered Office
from one State to other.
See Requirements of Para 2 in Notes under Section 10E of the 1956 Act.
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Page 36 of 66
[s 13.69.6] Shifting of Registered Office from a place under the Jurisdiction of one ROC to a
place under the Jurisdiction of another ROC within the same State
See Relevant paras of ICSI Guidance Note in Notes under Section 17A of the 1956 Act
Sections 16 to 19 of the 1956 Act—Alteration of Memorandum.—Check whether : (1) the alteration

falls under any of the purposes specified in section 17(1)(a) to (g)? (2) a Board resolution passed? (3)
a special resolution passed, minutes recorded, and e-Form 23** of the Companies (Central
Government’s) General Rules and Forms, 1956, duly filed along with the statement of material facts
and a printed copy of the memorandum and articles duly altered with the Registrar of Companies
within one month? [section 18(1)] (4) of the 1956 Act. when situation of registered office changed
from one State to another, Form and Procedure for petition under section 17(2) of the 1956 Act. to
the CLB [now the Central Government] complied with? (5) the CLB [now the Central Government]
confirmed the alteration? (6) the order of the CLB [now the Central Government] had been filed with
the Registrar(s) in e-Form 21** of the Companies (Central Government’s) General Rules and Forms,
1956 within three months along with a printed copy of the memorandum and articles duly altered?
[section 18(1)] (7) of the 1956 Act. the Registrar(s) issued certificates registering the alterations? (8)
any extension of time for filing the CLB [now the Central Government] order with the Registrar was
sought? [section 18(4) of the 1956 Act.]. If so, whether the documents filed within the extended
period? (9) e-Form 18** of the Companies (Central Government’s) General Rules and Forms, 1956
duly filed with Registrars of the concerned States and Certificates obtained within 30 days of the
change? (when situation of registered office changed) (10) provisions of Clause 33 of the Listing
Agreement complied with? (applicable only to listed companies) (11) the change had been
incorporated in the memorandum, articles and other documents? (12) members’ requests for
memorandum and articles, etc., met within seven days [section 39 of the 1956 Act.]?
The documents involved are : (1) Memorandum and Articles, (2) Minutes of Board/General meeting,
(3) e-Forms 18, 21 and 23, (4) Order of the Company Law Board [now the Central Government], (5)
Registrar’s Certificates, (6) Intimation to Stock Exchange, (7) Petition under section 17(2) of the 1956
Act to Company Law Board [now the Central Government] along with enclosures.
[s 13.71] Producer Company—Alteration of Memorandum [Section 581H of the Companies

Act, 1956]
The Producer Company may alter the conditions of its Memorandum of Association in the manner
and to the extent provided in this Act, i.e., the 1956 Act.
[s 13.71.1] Alteration of Objects by Special Resolution [Section 581H(2) of the Companies

Act, 1956]
A Producer Company may alter its objects specified in Memorandum by Special Resolution.
[s 13.71.2] Alteration not inconsistent with Main Objects
But such alteration of its Memorandum should not be inconsistent with the Main Objects of the
Company as provided in section 581B of the 1956 Act.
[s 13.71.3] Special Resolution
To alter its objects specified in Memorandum a Special Resolution of the Producer Company is
required to be passed. [section 581H(2) of the 1956 Act].
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[s 13.72] Filing [Section 581H(3) of the Companies Act, 1956]
A copy of the amended Memorandum of Association together with a copy of the Special Resolution
amending the Memorandum certified by two Directors shall be filed with the Registrar of Companies
(ROC) within 30 days from the date of passing of the Special Resolution.
[s 13.72.1] Filing with two Registrars [Proviso to Section 581H(3) of the Companies Act, 1956]
Where the company by the aforesaid amendment Transfers its Registered Office from the jurisdiction
of one Registrar of Companies (ROC) to another, certified copies of the Special Resolution are to be
filed with both the Registrars of Companies (ROCs) within 30 days of the passing of the Special
Resolution.
Both the Registrars (ROCs) should record the fact and the Registrar of Companies (ROC) from
whose jurisdiction the Registered Office has been shifted should transfer all documents relating to the
company to the Registrar within whose jurisdiction the Registered Office has been transferred.
[s 13.72.2] Confirmation of Alteration [Section 581H(4) of the Companies Act, 1956]
Such Transfer or Alteration of Memorandum of Association of the Producer Company relating to the
change of the place of its Registered Office from one State to another will not take effect unless on
an application the Company Law Board (CLB) confirms the same.
S. 18. Alteration to be registered within three months.—1[(1) A company shall file with the Registrar— The
(a) a special resolution passed by a company in relation to clauses (a) to (g) of sub-s. (1) of section s.17, within
one month from the date of such resolution; or
(b) a certified copy of the order of the 2[Central Government] made under sub-s. (5) of that section confirming the
alteration, within three months from the date of order, as the case may be, together with a printed copy of the
memorandum as altered and the Registrar shall register the same and certify the registration under his hand
within one month from the date of filing of such documents.]
(2) The certificate shall be conclusive evidence that all the requirements of this Act with respect to the alteration and
the confirmation thereof have been complied with, and thenceforth the memorandum as so altered shall be the
memorandum of the company.
(3) Where the alteration involves a transfer of the registered office from one State to another, a certified copy of the
order confirming the alteration shall be filed by the company with the Registrar of each of the States, and the Registrar
of each such State shall register the same, and shall certify under his hand the registration thereof; and the Registrar of
the State from which such office is transferred shall send to the Registrar of the other State all documents relating to
the company registered, recorded or filed in his office.
(4) The 3[Central Government] may, at any time, by order, extend the time for the filing of documents 4[or for the
registration of the alteration] under this section by such period as it thinks proper.
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NOTES
Companies Act, 1913 : Section 15
“Compare section 15 of the existing Act. Sub-section (1) of that section has been split up into two sub-clauses in the
Bill.” [Clause 15 of the Companies Bill, 1953 (46 of 1953)].
The amendments are based on the recommendations contained in para 30 of the Report that the Registrar should be
required to certify the registration of the Court’s [the CLB (now the Central Government)] order made under section
17(5) within one month from the date of filing of the relevant documents with him and the Court [CLB (now the Central
Government)] should be empowered to extend this period. [Clause 7 of the Companies (Amendment) Bill, 1959 (37 of
1959)].
Under section 17(2), an alteration of the memorandum under sub-section (1) shall not take effect until and except in so
far as it is confirmed by the Court [the CLB (now the Central Government)] on petition. Sections 18 and 19 provide for
registration of the altered memorandum with the Registrar and for the consequences of a failure to register. Under
section 18(1), read with sub-section (4), a copy of the altered memorandum and a copy of the Court’s [the CLB (now
the Central Government)] order confirming the alteration have to be filed with the Registrar within three months of the
date of the order or such further time as might be granted by the Court [the CLB (now the Central Government)]. If the
company has done this, it has done all that it is or can be required to do. Section 19(2) provides that if the registration
is not effected within three months next after the date of the order of the Court confirming the alteration or within such
further time as may be allowed by the Court for filing the documents under sub-section (4) of section 18, such
alteration and the order of the Court [the CLB (now the Central Government)] confirming it shall become void. There is
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no period prescribed within which after the order of the Court [the CLB (now the Central Government)] has been filed,
the Registrar should register and certify the alteration. Under section 18(4) the Court [the CLB (now the Central
Government)] has no power to extend the time for registration. For this purpose, s. 18(1) and (4) and 19(2) might be
amended. [Report : para 30].
OF 1974).—The powers of the Court were conferred on the

Company Law Board by Act 41 of 1974 (w.e.f. 01-02-1975). The powers have now been conferred
upon the Central Government see the Companies (Second Amendment) Act, 2002 (11 of 2003)
below.
THE COMPANIES (AMENDMENT) ACT, 1996 (5 OF 1997).—The Statement of Objects and Reasons appended to the
Companies (Amendment) Bill, 1996 (34 of 1996) explained the object of the amendments “to simplify some procedural
and legal requirements in the interest of corporate sector”.
The Companies (Second Amendment) Act, 2002 (11 of 2003).—The Notes on clauses explained
thus:
This clause seeks to amend section 18 relating to alteration of memorandum of association to be registered within
three months. It is proposed to confer the powers of the Company Law Board upon the Tribunal [conferred upon the
Central Government in the Act]. This amendment is of consequential nature. [Clause 8 of the Companies (Amendment)
Bill, 2001 (80 of 2001)].
(Second) Act, 2015.
[s 13.74] Filing [Sub-section (1)]
A company shall file with the Registrar of Companies: (a) a Special Resolution passed by a company
in relation to clauses (a) to (g) of sub-section (1) of section 17 of the 1956 Act, within one month from
the date of such resolution; or (b) a certified copy of the order of the CLB [now the Central
Government] made under section 17(5) of the 1956 Act confirming the alteration regarding change of
Registered Office from one State to another within three months from the date of order, as the case
may be, together with a printed copy of the Memorandum as altered and the Registrar shall register
the same and certify the registration within one month. [Section 18(1) of the 1956 Act]
[s 13.75] Exclusion of Time
Section 18(1) of the 1956 Act provides that after the Company Law Board [now the Central
Government] confirms the alteration the company must file with the Registrar of Companies a
certified copy of the Board’s [now Central Government’s] order made under section 17(5) of the 1956
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Act within three months from the date of the order. Under section 640A of the 1956 Act, the time
taken in drawing up the order and obtaining a certified copy of the order of the CLB [now the Central
government] will be excluded in computing the period of three months.5
[s 13.76] Certificate by Registrar conclusive [Sub-section (2)]
After the company files the necessary documents with the Registrar he shall give a certificate within
one month from the date of the filing of the documents. Such certificate shall be conclusive evidence
that all the requirements of the Act have been complied with.
[s 13.77] Change of Registered Office: Filing with both Registrars [Sub-section (3)]
Where the alteration relates to transfer of registered office from one State to another, the company
must file certified copy of the order of the CLB [now the Central Government] confirming the alteration
with the Registrar of each State. The Registrar of each such State shall register the same, and certify
the registration. The Registrar of the State from which such office is transferred shall send to the
Registrar of the other State all documents relating to the company registered, recorded or filed in his
office.
[s 13.77.1] Department’s View— Section 18(3) of the Companies Act, 1956. Filing of CLB
order confirming transfer of Registered Office from one State to another with ROC of each
State
This Department is of the view that the main spirit behind Section 18(3) of the 1956 Act in regard to the filing of the
Court’s [the CLB’s (now Central Government)] order confirming the transfer of the company’s Registered Office from
one State to another State with the Registrar of Companies of each State is that the Registrar of Companies from
whose State the Registered Office is transferred should keep the Court [the CLB (now Central Government)] order duly
registered in his office as an evidence to such shifting and should transfer all other records of the company to the
Registrar of Companies to whose State the Registered Office has been so shifted. The other Registrar of Companies
will register the other copy of the Court [the CLB (now Central Government)] order and keep that order with the records
transferred to him by his counterpart. [Circular No. 2/75 (F. No. 26/1/75-CL-III) : Govt. of India publication, Clarifications
[s 13.78] Filing with Registrar (ROC)
As per rule 20C* of the Companies (Central Govt.’s) General Rules and Forms, 1956 inserted by the
Companies (Central Govt.’s) General Rules and Forms (Amendment) rules, 2006 vide Notification
No. G.S.R. 56(E), dt. 10-02-2006, published in the Gazette of India, Extraordinary, No. 50, Pt II,
section 3(i), page 156 : (2006) 130 COMP CASES (St.) 13, the company was required to file
Documents with the Registrar of Companies (ROC) under section 18 of the 1956 Act together with
Form 62* of the Companies (Central Govt.’s) General Rules and Forms, 1956.
[s 13.79] Form 62 (substituted w.e.f. 16-09-2006) not applicable under Section 18
See Form 62* of the Companies (Central Government’s) General Rules and Forms, 1956 as
substituted (w.e.f. 16-09-2006) by the Companies (Central Government’s) General Rules and Forms
(Second Amendment) Rules, 2006 vide Notification No. G.S.R. 555(E), dt. 14-09-2006, published in
the Gazette of India, Extraordinary, No. 435, Part II, Section 3(i), page 31, dt. 14-09-2006 : MCA
website http://www.mca.gov.in : (2006) 133 COMP CASES (St.) 130.
Earlier e-Form 62 was required to be filed in pursuance of section 18. But, substituted e-Form 62
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Page 41 of 66
does not make a reference to Section 18.
Instructions to original e-Form 62 also contained instructions in relation to section 18 of the 1956 Act.
But, Instructions to substituted e-Form 62 do not contain instructions in relation to section 18 of the
1956 Act.
[s 13.80] Effect of failure to register
If the company fails to file the documents within time or fails to make application to the CLB [now the
Central Government] for extension of time under section 18(4) within the specified period, all
proceedings so far taken shall become void and inoperative. However, on sufficient cause shown the
CLB [now the Central Government] the may revive the order provided such application is made within
a month from the expiry of the said three months or the extended period granted by the CLB [now the
Central Government]. [Section 19]
[s 13.81] Extension of Time [Sub-section (4)]
The CLB [now the Central Government] may, at any time, by order, extend the time for the filing of
documents or for the registration of the alteration under this section by such period as it thinks
proper. The Registrar of Companies cannot extend the time for filing the CLB [now the Central
Government] order. The CLB [now the Central Government] has been given power to extend the time
for filing the order.
[s 13.82] Powers of Central Government
Application under Section 18(4) of the 1956 Act for Filing documents for Registration of Alteration in
Memorandum of Association shall be made as follows:
[s 13.84] Central Government (After enforcement)
From the commencement of the Companies (Second Amendment) Act, 2002 (11 of 2003) (w.e.f.
date to be notified), the Application shall be made to the Central Government.
[s 13.85] Scope of Sections 18 and 19 of the Companies Act, 1956
Considering the scope of sections 18 and 19 and with particular reference to section 640A, the
certified copy of the order of the CLB [now the Central Government] has to be filed within three
months from the date when the same is handed over and only after such outer limit is finally fixed, the
period of one month referred to in section 19 of the 1956 Act starts to run against the company.6
[s 13.86] Application for extension in stipulated period
Although section 18(4) of the 1956 Act permits the CLB [now the Central Government] to extend time
for filing or registration this section has to be read along with section 19(2) of the 1956 Act. The
application to the CLB [now the Central Government] for extension of time should therefore be made
within the stipulated period. Under section 19(2) of the 1956 Act the documents and all proceedings
become void and inoperative after the expiry of stipulated period. The revival of the order is possible
within a further period of one month after the expiry of stipulated period. Therefore, the extension of
time limit cannot be granted after expiry of stipulated period. When an order has already become void
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Page 42 of 66
by the operation of law, providing for extension of time cannot in any way help because the order no
longer exists. “Extending time” and “reviving” are two separate acts.7
Where the company passed a special resolution for addition of one more object to the existing main
objects clause in its Memorandum. Under section 18(1)(a) of the 1956 Act the special resolution is
required to be filed with the Registrar within one month. The special resolution along with Form 23
was filed with the Registrar of Companies after a delay of 60 days. It was held that the resolution had
become void on the expiry of 30 days. Therefore, there was no question of granting any extension of
time. The applicant could neither seek remedy under proviso to section 19(2).8
[s 13.87] Substantial compliance
Where the company shifted its registered office from the State of Karnataka to the NCT of Delhi.
Order of the CLB was filed before the Registrar of Companies, Karnataka within three months and
certificate of registration was issued by the ROC, Karnataka. However, there was delay of one month
and 18 days in filing the order of CLB [now the Central Government] with the Registrar of Companies,
NCT of Delhi and Haryana. Application under section 18(4) for condoning the delay was granted as
there was substantial compliance of this section.9
In an exceptional case, extension under section 18(4) of the 1956 Act was granted after four years,
where the company filed certified copy of the order of CLB [now Central Government], confirming the
alteration of Memorandum changing the company’s registered office from one State to another, with
the Registrar of Companies within three months. However, it did not file Form 21, a printed copy of
the Memorandum as altered and Filing fees. The Registrar therefore did not register the alteration. As
certified copy of the order, which is the essence, was filed well within the period of three months, the
failure to file the other documents did not nullify the filing of the basic document. The CLB however
directed the Registrar of Companies to initiate proceedings for unauthorised shifting of the registered
office before registration.10
S. 19. Effect of failure to register.—(1) No such alteration as is referred to in section 17 shall have any effect until it
has been duly registered in accordance with the provisions of section 18. The Companies Act, 1956 provision
11[(2)If the documents required to be filed with the Registrar under section 18 are not filed within the time allowed
under that section, such alteration and the order of the [Central Government] made under sub-section (5) of section 17
and all proceedings connected therewith, shall, at the expiry of such period, become void and inoperative:
Provided that the [Central Government] may, on sufficient cause shown, revive the order on application made within a
further period of one month.]
NOTES
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follows:
“The first paragraph of section 16 of the existing Act has been split up into two sub-clauses.” [Clause 16 of the
THE COMPANIES (AMENDMENT) ACT, 1960 (65 of 1960).—The Notes on clauses explained the
“The amendment to section 19(2) of the Act is consequential on the amendments suggested in section 18. (See para
30 of the Report.)” [Clause 8 of the Companies (Amendment) Bill, 1959 (37 of 1959)].
THE COMPANIES (AMENDMENT) ACT, 1974 (41 of 1974).—The powers of the Court have been
conferred on the CLB by Act 41 of 1974 (w.e.f. 01-02-1975).
THE COMPANIES (SECOND AMENDMENT) ACT, 2002 (11 of 2003).—The Notes on clauses
explained the amendments as follows:
This clause seeks to amend sections 18 and 19 relating to alteration of memorandum of association to be registered
within three months and effect of failure of such registration. It is proposed to confer the powers of the Company Law
Board in the aforesaid sections upon the Tribunal [conferred on the Central Government in Act]. These amendments
are of consequential nature. [Clause 8 of the Companies (Amendment) Bill, 2001 (80 of 2001)].
(Second) Act, 2015.
[s 13.89] Alteration effective only on registration [Section 19(1) of the Companies Act, 1956]
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Alteration of Memorandum so as to change the place of Registered Office from one State to another,
or with respect to the objects of the company referred to in section 17 of the 1956 Act shall have
effect only after it has been duly registered under section 18 of the 1956 Act.
[s 13.90] Order operative only on filing
The alteration takes effect only after it has been duly registered with the ROC. Filing means not
merely delivering the documents with the Registrar and paying the fees. Filing means the delivery of
documents, payment of fees, scrutiny by the Registrar’s Office, acceptance of the documents to be in
order and issue of a certificate as provided in section 18 of the 1956 Act. Therefore, the alteration will
take effect after the Registrar issues the certificate of registration.
[s 13.91] Period within which to file
A company shall file with the Registrar—(a) a special resolution passed by a company in relation to
clauses (a) to (g) of sub-section (1) of section 17 of the 1956 Act, within one month; or (b) a certified
copy of the order of the Company Law Board [now the Central Government] made under section
17(5) of the 1956 Act confirming the alteration within three months from the date of order, as the case
may be, together with a printed copy of the memorandum as altered and the Registrar shall register
the same and certify the registration within one month. [section 18(1) of the 1956 Act]
[s 13.92] Effect of failure to register within time [Section 19(2) of the Companies Act, 1956]
If the documents required to be filed with the Registrar of Companies under section 18 are not filed
within the time allowed under section 18(1) of the 1956 Act, i.e., one month from the date of passing
of the special resolution or three months from the date of the Company Law Board’s [now the Central
Government’s] order, such alteration, the order of the CLB [now the Central Government] made
under section 17(5) of the 1956 Act and all proceedings connected therewith, shall, at the expiry of
such period, become void and inoperative.
[s 13.93] Extension of time [Section 18(4) of the Companies Act, 1956]
The Company Law Board may, at any time, by order, extend the time for the filing of documents or
for the registration of the alteration under this section by such period as it thinks proper.
[s 13.94] Exclusion of time
The time required to obtain certified copy of the order of the CLB [now the Central Government] shall
be added to the period of one or three months stipulated under Section 18(1) of the 1956 Act [section
640A of the 1956 Act].12
[s 13.95] Revival [Proviso to Section 19(2) of the Companies Act, 1956]
If the alteration, i.e., the Special Resolution or the order of the CLB [now the Central Government]
and proceedings connected therewith become void and inoperative at the expiry of the period
stipulated under Section 18(1) or period extended under section 18(4) of the 1956 Act, the CLB [now
the Central Government] may, on sufficient cause shown, revive the order on application by the
company made within a further period of one month.
[s 13.96] Scope of sections 18 and 19 of the Companies Act, 1956
Considering the scope of sections 18 and 19 and with particular reference to section 640A of the
1956 Act, the certified copy of the order of the CLB [now the Central Government] has to be filed
within three months from the date when the same is handed over and only after such outer limit is
finally fixed, the period of one month referred to in section 19 of the 1956 Act starts to run against the
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company.13
[s 13.97] Revival and extension in stipulated period
Although section 18(4) of the 1956 Act permits the CLB [now the Central Government] to extend time
for filing or registration this section has to be read along with section 19(2) of the 1956 Act. The
application to the CLB [now the Central Government] for extension of time should therefore be made
within the stipulated period. Under section 19(2) of the 1956 Act the documents and all proceedings
become void and inoperative after the expiry of stipulated period. The revival of the order is possible
within a further period of one month after the expiry of stipulated period. Therefore, the extension of
time limit cannot be granted after expiry of stipulated period. When an order has already become void
by the operation of law, providing for extension of time cannot in any way help because the order no
longer exists. “Extending time” and “reviving” are two separate acts.14
Where the company passed a special resolution for addition of one more object to the existing main
objects clause in its Memorandum. Under section 18(1)(a) of the 1956 Act the special resolution is
required to be filed with the Registrar within one month. The special resolution along with Form 23
was filed with the Registrar of Companies after a delay of 60 days. It was held that the resolution had
become void on the expiry of 30 days. Therefore, there was no question of granting any extension of
time. The applicant could neither seek remedy under proviso to section 19(2) of the 1956 Act.15
In some exceptional cases, the extension under section 18(4) of the 1956 Act was granted after the
stipulated period when there was substantial compliance of section 18 of the 1956 Act.
[s 13.97.1] Department’s View— Section 19: Void Order—Revival of order
Cases have come to the notice of Government where, even when the companies failed to apply to the Court [the CLB
(now the Central Government)] within a period of three months for extension of time to file the order or within a further
period of one month for revival of the order, Courts [the CLB (now the Central Government)] have passed orders
granting applicant companies extension of time to file copies of the orders with the Registrars. Such orders of
extension are not in conformity with the law and whenever the Registrars get an opportunity they should bring the
above position of law to the notice of the Court [the CLB (now the Central Government)]. [Circular No. 20(26)-CL-IV/61,
dt. 31-07-1961 : Govt. of India publication, Clarifications and Circulars on Company Law, 1977 Edition, page 9].
[s 13.98] Powers of Central Government
See detailed Notes under sections 10E, 10FB and 637 of the 1956 Act.
S. 21. Change of name by company.—A company may, by special resolution and with the approval of the Central
Government signified in writing, change its name: The Companies Act, 1956 provision
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Page 46 of 66
16[Provided that no such approval shall be required where the only change in the name of a company is the addition
thereto or, as the case may be, the deletion therefrom, of the word “Private”, consequent on the conversion in
accordance with the provisions of this Act of a public company into a private company or of a private company into a
public company.]
NOTES
English Act, 1948 : Section 18(1) Companies Act, 1913 : Section 11(4)
“Clause 18 is based on section 11(4) of the existing Act and section 18(1) of the English Act.” [Clause 18 of the
This amendment does away with the technical necessity of obtaining Government’s approval under section 21 for the
mere addition or deletion of the word ‘Private’ from a company’s name, consequent on its conversion from a public into
a private company or vice versa. [Clause 6 of the Companies (Second Amendment) Bill, 1964 (64 of 1964)].
[s 13.100] Change of Name by company
A company may change its name by Special Resolution and with the approval of the Central
Government. No such approval shall be required where the only change in the name of a company is
the addition or deletion of word “Private” consequent on the conversion in accordance with the
provisions of this Act of a public company into a private company or vice versa.
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Special Resolution and the Central Government approval are necessary to change the name of a
company. Whether a company obtained the Central Government sanction or not is a question of
fact.17
To change the name of company with the approval of the Central Government a Special Resolution
is required to be passed. [Section 21 of the 1956 Act]
For provisions relating to Special Resolution and matters requiring sanction of shareholders by
Special Resolution see Notes under section 189 of the 1956 Act.
[s 13.102] Filing
Companies (Central Government’s) General Rules and Forms, 1956 within 30 days. [Section 192 of
the 1956 Act]
[s 13.103] Delegation of Powers to the Registrars of Companies
The powers and functions of the Central Government under Section 21 have been delegated to the
Registrars of Companies. [Notification No. G.S.R. 507(E), dt. 24-06-1985 : For text of the Notification
see Notes under section 637 of the 1956 Act]
From the decision of the Registrar of Companies an appeal to the Company Law Board [now the
Central Government] or a writ petition to High Court may be maintainable. See Notes under sections
10E and 20 of the 1956 Act.
As per rule 4A* of the Companies (Central Govt.’s) General Rules and Forms, 1956, the company
seeking to change its name shall make an application to the Registrar of Companies of the State in
which the registered office of the company is situate in e-Form No. 1A* along with a fee of Rs 500.
The Registrar of Companies will ordinarily inform within a period of seven days of the receipt of the
application whether the changed name is available or not.
[s 13.104.1] Department’s View— Guidelines regarding change of names
“Section 21 of the Companies Act lays down that a company may, by special resolution and with the approval of the
Central Government signified in writing, change its name. 18[***]. As it has been observed that applications under this
section received in the Department do not always contain full particulars necessary to enable Government to take
decision without further reference to the parties concerned, the nature of the information/documents required to be
furnished by the applicants is indicated in the succeeding paragraphs for the information and guidance of all
concerned.
In considering an application for change of name not resulting from conversion, the Central Government generally
examines it from the following angles:
(i) Whether the reasons adduced by the company for the change of name are sufficient;
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(ii) Whether the proposed name is in consonance with the principal objects of the company as set out in its
memorandum of association and with the business actually carried on by it, where such consideration is
relevant; and
(iii) Whether the proposed name is not undesirable.
As regards (i) and (ii), the question is decided on the merits of each case. As regards (iii) the proposal is considered in
the light of the principles set out in Annexure ‘A’ to this letter. These principles are however, not exhaustive but only
illustrative, their main object being to ensure that a company does not adopt a name likely to mislead the public, that
the proposed name is inoffensive and is consistent with the resources and objects of the company. The companies will
therefore be well-advised to consult the Registrar of Companies concerned in the first instance with a view to
ascertaining whether the name proposed to be adopted by them would be available for registration. While making such
consultation they should furnish the particulars specified in Annexure ‘B’ to this letter in duplicate.
In the case of a Banking company, if it desires to change its name as a result of its decision to give up the business of
Banking, it is required first to alter its memorandum of association so as to eschew the business of banking as defined
in section 5(1)(b) of the Banking Companies Act, 1949 (10 of 1949) [now the Banking Regulation Act, 1949 (10 of
1949)] and apply to the Central Government under section 21 of the Companies Act, 1956 only after effecting the said
alteration in accordance with the requirements of law. In such cases, the applicant company should also attach a copy
of a certificate from the Reserve Bank of India that the Bank has no objection to the proposed change. All applications
for change of name, not resulting from conversion, should be made after passing the necessary special resolution and
accompanied by the following particulars:
(a) Detailed reasons for the change of name;
(b) An uptodate copy of the Memorandum and Articles of association;
(c) A copy each of the balance-sheet and profit and loss account for the last two financial years;
(d) A certified copy of the communication received from the Registrar in token of his having recorded the special
resolution in terms of section 192 of the Act; and
(e) Where the change is as a result of alterations in the objects of the company as set out in its memorandum of
association, whether or not a certified copy of the Court’s [the CLB (now the Central Government)] order
under section†
As regards the change of name due to conversion, it has been decided that in future the company concerned should
furnish all the particulars set forth in Annexure ‘C’ to this Letter. It is also required to pass a separate special resolution
in terms of section 21 of the Act.
ANNEXURE A
A name which falls within the categories mentioned below will not generally be allowed:
[Not reproduced as they have been consolidated and revised by later Circulars: See Department’s views under Section
20.]
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ANNEXURE B
Particulars to be furnished to the Registrar of Companies for ascertaining availability of proposed name:
[Not reproduced as now these particulars are to be furnished in Form No. 1A* of the Companies (Central
Government’s) General Rules and Forms, 1956.]
ANNEXURE C
Particulars to be furnished while applying for change of name consequent on conversion from a public company into a
private company or vice-versa:
[Not reproduced as now the particulars for conversion of a public company into a private company are to be furnished
in Form No. 1B* of the Companies (Central Government’s) General Rules and Forms, 1956.]” [Circular No. 28(64)-CL-
IV/57, dt. 30-07-1957 : Government of India publication, Clarifications and Circulars on Company Law, 1977 Edition,
page 13].
[s 13.105] Change of name by a company during the pendency/hearing of petition for

alteration of object clause(s) under Section 17 of the Companies Act, 1956
“I am directed to state that it has come to the notice of the Department that in the Northern and Eastern Regions,
sometimes the Registrars of Companies are permitting change of name of a company based on the company pursuing
certain provisions listed in ‘other objects’ as contained in its memorandum of association. This change of name is being
done while a petition is already lying before the Company Law Board [now the Central Government] for shifting
‘object(s)’ given in ‘other objects’ to main objects in the memorandum of association.
The aforesaid action of the Registrars of Companies amounts to prejudging the issue particularly when the matter is
pending before the Company Law Board [now the Central Government] under section 17† of the Companies Act, 1956,
for approval of the Company Law Board [now the Central Government] for shifting a provision from other objects to the
main objects clause in the memorandum of association.
In view of the above circumstances, you are advised not to permit change of name during the pendency of a petition
under section 17 of the Act before the Company Law Board [now the Central Government].” [Circular No. 4 of 1996, dt.
13-05-1996 (F. No. 3/7/96-CL-V) : (1996) 86 COMP CASES (St.) 126].
[s 13.106] Change of name only as prescribed
Under section 21 of the 1956 Act, the company is required to pass a special resolution and obtain
approval of the Central Government for change of its name. The change in the name of the company
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cannot be effected merely on the scheme of amalgamation becoming effective. Accordingly, para 16
of the proposed scheme of amalgamation was required to be deleted therefrom under sections 391
and 394 of the 1956 Act.19
[s 13.107] Change of name on Amalgamation
Under section 21 of the 1956 Act the change of name can be brought about by the shareholders
irrespective of the amalgamation, by merely passing a special resolution with the approval of the
Central Government signified in writing, which function had been delegated to the Registrar of
Companies. The change of name can be done even de hors amalgamation. Where special resolution
approving the scheme provided for change of name without any further act or deed. The Registrar of
Companies also made the name available. The change of name would not be impediment in
sanctioning the scheme.20
The name of the transferor company became changed because of the sanctioned scheme of
amalgamation. The ROC refused to record the new name because the formal requirements of
section 21 of the 1956 Act were not complied with. This was held to be not justified. Such schemes
are approved and then sanctioned by the court. The Central Government is always under information
about such schemes.21
[s 13.108] Deletion of trade name
Where respondent company had the trade name of a foreign company as a part of its name and the
respondent company went into liquidation and the licence granted by the foreign company had been
withdrawn, the foreign company could seek for deletion of its trade name from the name of the
respondent company on the ground that the continued use of its name by the company under
liquidation would be prejudicial to its interests.22 Where a company which had been permitted to use
the trade name ofthe respondent as a part of its name went into liquidation and was not operational,
then when the respondent filed an application for deletion of its trade name from the name of the
company, the respondent would be justified in seeking deletion of its trade name and section 21 of
the 1956 Act cannot have application for, it was not company that had moved for change of its
name.23
[s 13.109] Registration of change of name and effect
Section 21 of the 1956 Act permits a company to change its name in the manner as prescribed and
nothing else. Ex facie, the section indicates that the company continues in a new name. Section 23 of
the 1956 Act is mainly a ministerial section and lays down the procedure for recording of the change
of name. A fresh certificate of incorporation is no doubt issued, but the same is only for the purpose
of recording the alteration in the name. The effect of the issue of the new certificate as provided in
sub-section (1) of section 23 of the 1956 Act is to render the change of name complete and effective.
In spite of a change of name, the entity continues.24
Where the certificate of the Registrar of Companies showed that the company had changed its name
in compliance with the prescribed statutory formalities, the validity thereof could not be considered
under section 17 of the 1956 Act proceedings.25
[s 13.110] Compliance with this Act and other statutes required
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The change of name can take place on compliance with the provisions of the 1956 Act provided it is
not prohibited by any other statute. Registration of an air company under a new name after it has
vested in the Airlines Corporation would be evasion of section 28 of the Air Corporations Act, 1953
(27 of 1953).26
[s 13.111] Rights and obligations not affected by change
This section is to be read with sections 22 and 23 of the 1956 Act. In spite of such change the rights
of the company will not be affected, for instance, the tenancy right continues, the landlord has to
recognise the new company and there should be continuity of tenancy. If pending execution of a
certificate debt, the name of the company is changed, under sections 21–23 of the 1956 Act, the
identity of the company does not change, no transfer of interest of decree-holder is involved and the
execution court has the power to amend the petition by substituting the name of the decree-holder
company.27
[s 13.112] Decree in old name
A decree obtained in the old name may be executed by the company in its new name.28
[s 13.113] Legal proceedings
A combined reading of the provisions of sections 43A [since inapplicable], 21 and 23 leaves no
manner of doubt that when a company is converted into a public company, apart from the change in
its name, the constitution and the entity of the company is not affected in any other manner and the
legal proceedings instituted by its former name can be continued by its new name.29
[s 13.114] Private Company becoming Public Company—Suit
A private company becoming a public limited company and consequent change of name of the
company under Section 21 of the 1956 Act is of no consequence in so far as the rights and
obligations of the company are concerned nor would it render any Suit or legal proceedings by or
against the company defective by virtue of Section 23(3) of the 1956 Act. Therefore, the contention
that the suit should fail since the company had become public limited company was untenable.30
[s 13.115] Change of name of Company—Stamp Duty—Lease-cum-sale Agreement
By reason of mere change in the name of the company “Prasad Garments Pvt Ltd” the erstwhile
lessee cannot be held to have transferred its leasehold interest in favour of the appellant. Execution
of an instrument which would attract payment of Stamp Duty in terms of Article 5(d) of the Karnataka
Stamp Act, 1957 (34 of 1957) must involve Transfer of property or otherwise a right or liability may,
inter alia, be created, transferred, etc., as envisaged in Section 3 thereof. The Supplementary Lease
Agreement cannot be said to be an “instrument”. Having regard to the fact that the entity of the
appellant could not be said to be totally different from Prasad Garments Pvt Ltd and as by reason of
Supplementary Agreement, no fresh transaction had been entered into. Once it is held that the
Supplementary Agreement is neither a Deed of lease nor a Deed of sale within the meaning of
Section 105 or Section 54 of the Transfer of Property Act, 1882 (4 of 1882) as the case may be,
Article 5(d) of the Karnataka Stamp Act, 1957 will have no application. If Article 5(d) has no
application, indisputably the residuary clause contained in Article 5(f)(i) would have application. The
appellant admittedly paid the Stamp Duty in terms thereof. It is now well-settled that for the purpose
of levy of Stamp Duty, the real and true meaning of the instrument must be ascertained.31
The provisions of section 21 of the 1956 Act shall apply to a Government Company with the following
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modification: To section 21 of the 1956 Act, the following proviso shall be added, namely:
“Provided that nothing in this section shall apply to a Government Company where the change in its
name consists only in the deletion of the word ‘Private’ therefrom.” [Notification No. G.S.R. 1649, dt.
13-11-1965 : Govt. of India publication, Clarifications and Circulars on Company Law, 1977 Edition,
page 293].
Section 21 of the 1956 Act. Check whether: (1) a Board resolution passed? (2) an application made
to the Registrar in e-Form No. 1A* along with a fee of Rs 500 for ascertaining the availability of
proposed name and the Registrar has approved the name? (3) a special resolution passed and e-
Form No. 23* duly filed with the Registrar? (4) application for approval for change of Name made to
the Registrar of Companies in e-Form 1B* and of the Central Government approval of the Registrar
obtained? (5) fresh certificate of incorporation obtained from the Registrar? (6) intimation sent to the
stock exchange in the case of listed companies?
Ensure that the name was changed on the name board, seal, business letters, bill heads,
memorandum and articles, etc. [section 147 of the 1956 Act].
The documents involved are: (1) Minutes of Board/General Meeting, (2) Approval letter of Registrar
of Companies, (3) e-Forms 1A and 23, (4) Fresh Certificate of Incorporation, (5) Intimation to Stock
Exchange, (6) Memorandum and Articles as altered, (7) Correspondence with Registrar.
S. 23. Registration of change of name and effect thereof.—(1) Where a company changes its name in pursuance of
section 21 or 22, the Registrar shall enter the new name on the register in the place of the former name, and shall
issue a fresh certificate of incorporation with the necessary alterations embodied therein; and the change of name shall
be complete and effective only on the issue of such a certificate. The Companies Act, 1956 provision
(2) The Registrar shall also make the necessary alteration in the memorandum of association of the company.
(3) The change of name shall not affect any rights or obligations of the company, or render defective any legal
proceedings by or against it; and any legal proceedings which might have been continued or commenced by or against
the company by its former name may be continued by or against the company by its new name.
NOTES
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Compare section 18(3) and (4) of the English Act. It has been made clear that when the name is changed, the
Registrar should himself make the necessary alteration in the memorandum of the company. [Clause 20 of the
[s 13.119] New Certificate of Incorporation [Sub-section (1)]
A change in name under section 21 or 22 of the 1956 Act shall be recorded by the Registrar of
Companies. The Registrar shall issue a fresh certificate of incorporation in the new name. The
change of name shall be complete and effective only on the issue of such a certificate.
[s 13.120] Change of Name by company [Section 21 of the Companies Act, 1956]
A company may change its name by Special Resolution and with the approval of the Central
Government.
[s 13.121] Change of name of Company—Stamp Duty—Lease-cum-sale Agreement
By reason of mere change in the name of the company “Prasad Garments Pvt Ltd” the erstwhile
lessee cannot be held to have transferred its leasehold interest in favour of the appellant. Execution
of an instrument which would attract payment of Stamp Duty in terms of Article 5(d) of the Karnataka
Stamp Act, 1957 (34 of 1957) must involve Transfer of property or otherwise a right or liability may,
inter alia, be created, transferred, etc., as envisaged in Section 3 thereof. The Supplementary Lease
Agreement cannot be said to be an “instrument”. Having regard to the fact that the entity of the
appellant could not be said to be totally different from Prasad Garments Pvt Ltd and as by reason of
Supplementary Agreement, no fresh transaction had been entered into. Once it is held that the
Supplementary Agreement is neither a Deed of lease nor a Deed of sale within the meaning of
section 105 or Section 54 of the Transfer of Property Act, 1882 (4 of 1882) as the case may be,
Article 5(d) of the Karnataka Stamp Act, 1957 will have no application. If Article 5(d) has no
application, indisputably the residuary clause contained in Article 5(f)(i) would have application. The
appellant admittedly paid the Stamp Duty in terms thereof. It is now well-settled that for the purpose
of levy of Stamp Duty, the real and true meaning of the instrument must be ascertained.32
[s 13.122] Direction for changing name [Section 22 of the Companies Act, 1956]
A direction can be given for cancellation of a registration of a company with undesirable name or in a
name similar to a registered Trade Mark.33
[s 13.123] Mutation of new name
The certificate of incorporation issued by the Registrar of Companies changing the name of a
company shall be conclusive. After change of name the company shall be entitled to ask other
companies in which it holds shares to substitute its new name in their Register of Members in place
of the old name. When the shareholder was registered as a company in the U.K. The certificate of
incorporation issued to the company by the Registrar in the U.K. would be conclusive of change of
name of the shareholder company. The allegation of fraud was not sufficient to make out a case
against rectification. The rectification of name was allowed.34
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[s 13.124] Suit
Adoption of a name belonging to an existing company is not permissible. Even if a Certificate of

Incorporation is issued, a suit can be maintained for restraining it from using the name in a passing
off action on account of similarity of a name.35
[s 13.125] Oppression—Power to direct Change of name of Company
In a petition for oppression and mismanagement the Company Law Board [the Tribunal (NCLT)] may
give direction for change of name of the Company as per agreement. The appellant-company
formerly known as Prentice Hall Inc., an internationally known publisher, incorporated first
respondent-company as a wholly owned subsidiary in India. In view of the Government of India
regulations the appellant had to reduce its shareholding to 49%. A Collaboration Agreement was
entered into between the parties under which the appellant granted licence to the respondent-
company, inter alia, to re-print and sell the books included in the schedule to such Agreement of
which the appellant was the owner of the copyright. The life of this Agreement was 10 years subject
to the right of the appellant to terminate it. The collaboration agreement also provided that in the
event the appellant terminated the agreement the respondent company would omit the words
“Prentice” and “Hall” from its name. In view of this, it was held that in case the petitioner accepted the
alternative of transferring all its shares in favour of the second-respondent without any consideration,
the second respondent in that eventuality would take steps for change of the name of the Indian
Company by dropping the words “Prentice Hall”.36
[s 13.126] Alteration in Memorandum [Sub-section (2)]
The Registrar shall also make the necessary alteration in the memorandum of association of the
company.
[s 13.127] Rights and obligations not affected [Sub-section (3)]
The change of name shall not affect any rights or obligations of the company. Legal proceedings by
or against it may be continued in its new name.
Issue of new certificate will not affect the company’s legal position. Its rights acquired before such
change will not be affected. Similarly its obligations incurred before such change will remain
unaffected. For all practical purposes the company continues as if no change has taken place.37A
change of name does not amount to change in the constitution of the company.38
[s 13.128] Legal proceedings
But, in legal proceedings the necessary amendment is to be made and an appeal in its former name
will not be maintainable.39
However, after change of its name, if any legal proceeding is commenced or instituted by a company
in its old name, it would be a case of mere mis-description and not a case of initiation of a proceeding
by a person not in existence. Where the suit is filed by a company in its old name even after the
name has been changed. It would be only a mis-description and an amendment of cause title will be
allowed.40
[s 13.129] Private Company becoming Public Company—Suit
A private company becoming a public limited company and consequent change of name of the
company under Section 21 of the 1956 Act is of no consequence in so far as the rights and
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obligations of the company are concerned nor would it render any Suit or legal proceedings by or
against the company defective by virtue of Section 23(3) of the 1956 Act. Therefore, the contention
that the suit should fail since the company had become public limited company was untenable.41
[s 13.130] Conversion of private into public company
A combined reading of the provisions of sections 43A (relating to deemed public company is since
inapplicable), 21 and 23 of the 1956 Act leaves no manner of doubt that when a company is
converted into a public company, apart from the change in its name, the constitution and the entity of
the company is not affected in any other manner and the legal proceedings instituted by its former
name can be continued by its new name.42
[s 13.131] New share certificates
Change of name of a company necessitates the issuing of new share certificates. Where the
shareholder lodged transfer deeds with share certificates in old name after cut off date. The transfer
could not be registered as it was in violation of section 108 of the 1956 Act. Section 23(3) of the 1956
Act is not applicable in such a case.43
The provisions of section 23 of the 1956 Act shall apply to a Government Company with the following
modification: In section 23 of the 1956 Act, after sub-section (1), the following sub-section shall be
inserted, namely:
“(1A) Where the change in the name of a Government Company consists only in the deletion of the
word ‘Private’ therefrom, that Government Company shall, not later than three months from the date
thereof, inform the Registrar of the aforesaid change and thereupon the Registrar shall delete the
word ‘Private’ before the word ‘Ltd’ in the name of the Company upon the register and shall also
make the necessary alterations in the certificate of incorporation issued to the company.” [Notification
No. G.S.R. 1649, dt. 13-11-1965 : Govt. of India publication, Clarifications and Circulars on Company
S. 37. Provision as to companies limited by guarantee.—(1) In the case of a company limited by guarantee and not
having a share capital, and registered on or after the first day of April, 1914, every provision in the memorandum or
articles or in any resolution of the company purporting to give any person a right to participate in the divisible profits of
the company otherwise than as a member shall be void. The Companies Act, 1956 provision
(2) For the purpose of the provisions of this Act relating to the memorandum of a company limited by guarantee and of
this section, every provision in the memorandum or articles, or in any resolution, of any company limited by guarantee
and registered on or after the first day of April, 1914, purporting to divide the undertaking of the company into shares or
interests, shall be treated as a provision for a share capital, notwithstanding that the nominal amount or number of the
shares or interests is not specified thereby.
NOTES
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The section corresponds to section 27 of the existing Act and section 21 of the English Act. For the words
‘commencement of this Act’ which refer to the commencement of the Act of 1913, the date on which that Act came into
force, viz., the 1st day of April, 1914, has been substituted. [Clause 32 of the Companies Bill, 1953 (46 of 1953)].
[s 13.134] Object of section
An English company limited by guarantee issued shares of no-par-value. Section 37 is aimed at

preventing the formation of such a company.44
Thus sub-section (1) provides that a company limited by guarantee having no share capital cannot
allow any outsider to participate in the divisible profits of the company registered after 1 April 1914.
This is no longer possible also because a provision in the Memorandum or Articles of a company
limited by guarantee dividing its undertaking into shares or interest is deemed to be a provision for
creation of share capital. The effect is that the shares must be given a nominal value.
[s 13.135] Shares of no nominal or no-par-value
Issue of shares of no-par-value means the undertaking is divided into a certain number of shares.
Each share represents a fraction of the whole share capital. The value of each share will fluctuate
with the value of the whole undertaking. This is so because the shares will have no nominal par
value. The advantage of shares with no-par-value is that it will save the company from certain
adverse effects. Sometimes companies find that a fixed nominal capital leads to unjustified criticism
of the extent of their profits which appear to be excessive in relation to the nominal capital, but
actually it is not so in comparison with the actual capital employed. Companies find that at times they
are subjected to penal taxes when they wanted to adjust the nominal capital to a more realistic figure
by making bonus issues. Further, the companies have to bear with adverse criticism. The no-par-
share has this advantage that the shareholders will get the real benefit from the prosperity of the
company. The introduction of no-par-shares will not lead to any weakening of the safeguards
provided by the Acts and the Rules about the raising of and maintaining capital. There will be a term
called “stated capital” instead of “paid up capital and share premium account”.
This will be the capital yardstick. This “stated capital” will not be reduced on redemption of
redeemable preference shares. There will be no “capital redemption reserve fund”. However, if
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shares of no-par-value and shares of par value (as all present-day shares in India are) are permitted
to be issued by different companies then the public and sometimes even the judges may be misled.45
Unscrupulous company promoters may continue to mislead the public by issue of shares of par
value. It is quite likely that a company may issue irredeemable 10% Rs 1,000 Preference Shares at a
price of Rs 1,500 repayable on winding up a sum of Rs 1,000 only. A layman will be tempted to buy
such a preference share in preference to a share of no-par-value without realising the implications.
In Ghana the issue of no-par-value shares has been made compulsory,46and in the U.S.A. it is almost
of general practice.
[s 13.136] Debentures
This section does not prevent a company limited by guarantee from issuing debentures with the rate
of interest rising and falling with the profits of the company.
[s 13.137] Memorandum of Association
The Memorandum of a company limited by Guarantee shall state that the liability of its members is
limited. [section 13(2) of the 1956 Act]
A company limited by Guarantee should indicate the amount that a member may be called upon to
pay in case the company is wound up. [section 13(3) of the 1956 Act]
[s 13.138] Articles of a company limited by Guarantee
The Articles of a company limited by guarantee must state the number of members with which the
company is to be registered, i.e., members at the inception of the company. [section 27(2) of the
1956 Act].
[s 13.139] Transfer of interest by Member
The principles of the transfer of shares by a shareholder member may not be applicable to a member
of a company limited by Guarantee. Section 29 of the 1956 Act provides that the Articles of a
guarantee company shall be in one of such forms in Tables C or D in Schedule I as may be
applicable. Section 28 of the 1956 Act provides that the Articles of a company limited by shares may
adopt all or any of the Regulations in Table A. If Tables A and Table Care compared it becomes
other interest between a company limited by shares and a company limited by guarantee. The
Supreme Court set aside the judgment and order p assed by the High Court and remitted the matter
back for deciding the appeal afresh.47
[s 13.140] Income-tax
An association only by virtue of being registered under section 25 of the 1956 Act (1 of 1956) is not
exempted from income-tax. Although, in view of its objects it shall generally qualify for exemption
under section 11 read with section 2(15) of the Income-tax Act, 1961 (43 of 1961).48
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8 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to sections 16, 17, 18, 19, 21, 23
14 Rule 32 of the Companies (Incorporation) Rules, 2014.

15 Edwards v Halliwell, (1950) WN 537 : (1950) 2 All ER 1064 : 94 SJ 803 (CA). See also Notes under sections 12, 38 and
41 of the 1956 Act.
16 In Re, Rampuria Cotton Mills Ltd, AIR 1959 Cal. 253 : 63 CWN 11.
17 Shyamapada Chakrabertty v Controller of Insurance, (1962) 32 COMP CASES 258 (SC) : AIR 1962 SC 1355 : (1962)
Supp. 2 SCR 130. See also Notes under sections 17 and 102 of the 1956 Act.
18 Substituted by the Companies (Second Amendment) Act, 2002 (11 of 2003), section 7 [(w.e.f.) date to be notified].
19 Re Motilal Hirabhai Spg., Wvg. and Mfg. Co Ltd, (1970) 40 COMP CASES 1216 (Guj.); Re, Drages Ltd, (1942) 1 All
ER 194.
20 Re, Cyclists’ Touring Club, (1907) 1 ChD 269 : 23 TLR 220; Re, Bolsom Bros. (1928) Ltd, (1935) ChD 413 : 104 LJ Ch.
267 : 152 LT 477 : 79 SJ 214.
21 In Re, Delhi Bharat Grain Merchants Association Ltd, (1974) 44 COMP CASES 214 (Delhi); Re, Rajendra Industries
Pvt Ltd, (1967) 37 COMP CASES 563 (Mad.); Re, New Asiatic Insurance Co Ltd, (1967) 37 COMP CASES 331 (Punj.)
: AIR 1967 Punj. 15.
22 Jayantilal v Tata Iron and Steel Co Ltd, AIR 1958 Bom 155.
23 Re, Government Stock Investment Co (No. 2), (1892) 1 ChD 597 : 61 LJ Ch. 381 : 66 LT 608; Re, Reversionary
Interest Society Ltd, (1892) 1 ChD 615 : 61 LJ Ch. 379 : 66 LT 460; Coats (J&P) Ltd v Crossland, (1904) 20 TLR 800;
Re, New Westminster Brewery Co., (1911) WN 247 : 105 LT 946 : 56 SJ 141; Re, John Brown & Co Ltd, (1914) WN
434; Re, Marshall Sons and Co., (1919) WN 207. See also Notes under sections 543 of the 1956 act.
24 Re Samantaraj Films Pvt Ltd, (1974) 44 COMP CASES 477 (Orissa). See also Notes under sections 293A—
Prohibitions and restrictions regarding political contributions, as amended by the Election and Other Related Laws
(Amendment) Act, 2003 (46 of 2003).
25 Re, Bolsom Bros. (1928) Ltd, (1935) ChD 413 : 104 LJ Ch. 267 : 152 LT 477 : 79 SJ 214; Re, Scientific Poultry
Breeders’ Association Ltd, (1933) ChD 227 : 101 LJ Ch. 423 (CA) : 148 LT 68 : 49 TLR 4 : 76 SJ 798 : (1933) 3 COMP
CASES 89 (CA).
Mr. Laghir1 Rabari

Page 59 of 66
26 Re Government Stock Investment Co., (1891) 1 ChD 649; Incorporated Glasgow Dental Hospital v Lord Advocate,
(1927) SC 400 [Scottish] : (1927) SLT 270.
27 North of England Zoological Society v Chester Rural District Council, (1959) 3 All ER 116 : (1959) 1 WLR 773 : (1959)
103 SJ 582 (CA).
28 Re Egyptian Delta Land and Investment Co Ltd, (1907) WN 16; Re, Indian Mechanical Gold Extracting Co., (1891) 3
ChD 538.
29 Straw Products Ltd v ROC, (1969) : 39 COMP CASES 974 (Orissa); Juggilal Kamlapat Jute Mills Co Ltd v ROC,
(1967) 37 COMP CASES 20 (All.) : AIR 1966 All 417; Re, New Asiatic Insurance Co Ltd, (1967) 37 COMP CASES 331
(Punj.) : AIR 1967 Punj. 15; Re, Bhutoria Bros. Pvt Ltd, (1958) 28 COMP CASES 122 (Cal.) : AIR 1957 Cal. 593; Re,
Dalmia Cement (Bharat) Ltd, (1964) 2 Comp. LJ 63 (Mad.); Re, Delhi Bharat Grain Merchants Association Ltd, (1974)
44 COMP CASES 214 (Delhi); Re, New Asarwa Mfg. Co Ltd, (1975) 45 COMP CASES 151 (Guj.).
30 Re Parent Tyre Co Ltd, (1923) 2 ChD 222 : 92 LJ Ch. 358 : 129 LT 244 : 39 TLR 426.
31 Punjab Distilling Industries Ltd v ROC, (1963) 33 COMP CASES 811 (Punj.).
32 Re Ambala Electric Supply Co Ltd, (1963) 33 COMP CASES 585 (Punj.).
33 Re Motilal Padampat Sugar Mills Pvt Ltd, (1964) 34 COMP CASES 86 (All.).
34 Re, Cyclists’ Touring Club, (1907) 1 ChD 269 : 23 TLR 220. See also In Re, Goneshbari Tea Co Pvt Ltd, (1964) 34
COMP CASES 556 (Cal.) : 68 CWN 490.
35 Re Standard General Assurance Co Ltd, AIR 1965 Cal. 16.
36 Re Alliance Marine Assurance Co., (1892) 1 ChD 300 : 61 LJ Ch. 176 : 40 WR 329.
37 Re National Boiler Insurance Co., (1892) 1 ChD 306 : 61 LJ Ch. 501 : 65 LT 849.
38 Re Empire Trust, (1891) 64 LT 221.
39 Re Ulster Marine Insurance Co., (1891) 27 IR [Irish] 487.
40 Re Baird & Sons Ltd, (1932) SC [Scottish] 455.
41 Re Cole (E.K.) Ltd, (1945) 1 All ER 521n. See also Notes under sections 13 of the 1956 Act.
42 Re Bharat Mining Corpn. Ltd, (1967) 37 COMP CASES 430 (Cal.) : 71 CWN 359; Re, Indian Iron & Steel Co Ltd,
(1957) 27 COMP CASES 361 (Cal.) : 61 CWN 374.
43 In Re, Motilal Hirabhai Spg., Wvg. and Mfg. Co Ltd, (1970) 40 COMP CASES 1216 (Guj.).
44 Re, Bolsom Bros. (1928) Ltd, (1935) ChD 413 : 104 LJ Ch. 267 : 152 LT 477 : 79 SJ 214; Re, Scientific Poultry
Breeders’ Association Ltd, (1933) ChD 227 : 101 LJ Ch. 423 (CA) : 148 LT 68 : 49 TLR 4 : 76 SJ 798 : (1933) 3 COMP
CASES 89 (CA).
45 In Re, United Collieries Ltd, (1975) 45 COMP CASES 226 (Cal.). See Circular No. 1 of 1995, dated 16-02-1995 and
Recent Trend under English Law in Notes under sections 13 and 20 of the 1956 Act.
46 Mahaluxmi Bank Ltd v Registrar of Cos, (1961) 31 COMP CASES 287 (Cal.).
47 Pondicherry Textile Corp Ltd v K.K. Ramanujam, (1998) 91 COMP CASES 441 (CLB); Re, Modi Spg. and Wvg. Mills
Co Ltd, (1963) 33 COMP CASES 901 (All.); Re, Fort Gloster Jute Mfg. Co Ltd, 68 CWN 481 (Cal.).
48 Industrial Cables (India) Ltd v Registrar of Cos, (1973) 43 COMP CASES 353 (P&H); Re, Geo Rubber Exports Ltd,
(1991) 72 COMP CASES 713 (CLB).
49 In Re, SMP Mutual Benefit Ltd, (1994) 4 Comp. LJ 385 (CLB); Re, Balaji Mutual Benefit Ltd, (1994) 4 Comp. LJ 551
(CLB).
50 In Re, Mafatlal Consultancy Services (India) Ltd, (1995) 17 Corp. LA 385 (CLB).
51 In Re, Sarvin Securities Pvt Ltd, (1995) 17 Corp. LA 387 (CLB).
Mr. Laghir1 Rabari

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52 In Re, Sipani Automobiles Ltd, (1993) 78 COMP CASES 557 (CLB).
53 Re, Jewish Colonial Trust, (1908) 2 ChD 287 : 77 LJ Ch. 629 : 99 LT 243 : 24 TLR 595; Strathspey Public Assembly
and Agricultural Hall Co Ltd v Anderson’s Trustees, (1934) SC [Scottish] 385 : (1934) SLT 335; Re, Hampstead Garden
Suburb Trust Ltd, (1962) ChD 806 : (1962) 2 All ER 879 : (1962) 3 WLR 474 : (1963) 33 COMP CASES 166 (Ch.).
54 Nagaisuree Tea Co Ltd v Ram Chandra Karnani, (1966) 2 Comp. LJ 208 (Cal.).
55 Hari Krishna Lohia v Hoolungooree Tea Co Ltd, (1970) 40 COMP CASES 458 (Cal.) (DB) : AIR 1969 Cal 312 (DB);
Re, Marybong and Kyel Tea Estate Ltd, (1977) 47 COMP CASES 802 (Cal.); Re, Aimco Pesticides Ltd, (2001) 103
COMP CASES 463 (Bom.); Re, Jalpaiguri Tea Co Ltd, (1974) 44 COMP CASES 335 (Cal.). See also Notes under
sections 391 to 396 of the 1956 Act.
56 In Re, Rangkala Investments Ltd, (1997) 89 COMP CASES 754 (Guj.). See also Notes under sections 149(2A) and
57 In Re, Hindhivac Pvt Ltd, (2005) 128 COMP CASES 266 (Kar.); Re, Highland Electro Appliances Pvt Ltd, (2003) 2
Comp. LJ 16 (Delhi).
58 In Re, Liqui Box India Pvt Ltd, (2006) 131 COMP CASES 645 (P&H); Re, Maneckchowk and Ahmedabad
Manufacturing Co Ltd, (1970) 40 COMP CASES 819 (Guj.) : (1970) 2 Comp. LJ 300 (Guj.); Re, PMP Auto Industries
Ltd, (1994) 80 COMP CASES 289 (Bom.).
59 In Re, Santhanalakshmi Investments Pvt Ltd, (2006) 129 COMP CASES 789 (Mad.); Mahaamba Investments Ltd v IDI
Ltd, (2001) 105 COMP CASES 16 (Bom.).
60 In Re, Symphony Comfort Systems Ltd, (1998) 91 COMP CASES 404 (CLB); Re, Deutsche Babcock Power Systems
Ltd, (1999) 97 COMP CASES 341 (CLB); Re, J.L. Morison (India) Ltd, (1999) 95 COMP CASES 907 (CLB);
Pondicherry Textile Corpn. Ltd v K.K. Ramanujam, (1998) 91 COMP CASES 441 (CLB). See also Notes in earlier
paras under Shifting of Registered Office.
61 In Re, Symphony Comfort Systems Ltd, (1998) 91 COMP CASES 404 (CLB).
* Powers of the Court were conferred on the CLB. sections 17(2) as to confirmation by the CLB [now the Central
Government] has been substituted in 1997. But, the Circular shall be useful guide to the shareholders in passing
Special Resolution for alteration of objects.
* Powers of the Court were conferred on the CLB. sections 17(2) as to confirmation by the CLB [now the Central
Government] has been substituted in 1997. But, the Circular shall be useful guide to the shareholders in passing
Special Resolution for alteration of objects.
† Powers of the Court were conferred on the CLB. sections 17(2) as to confirmation by the CLB [now the Central
Government] has been substituted in 1997 and 2003. But, the Circular shall be useful shareholders in passing Special
Resolution for alteration of objects. See also Circular No. 1 of 1995, dated 16-02-1995 and Recent Trend under English
Law under sections 13 and 20 of the 1956 Act.
62 NEPC India Ltd v Registrar of Cos, (1999) 97 COMP CASES 500 (Mad.).
63 Jayantilal Ranchhoddas Koticha v Tata Iron and Steel Co Ltd, (1957) 27 COMP CASES 604 (Bom.) : AIR 1958 Bom
155; Re Dehri Rohtas Light Railway Co Ltd, (1960) 30 COMP CASES 387 (Patna); Re, Sri Natesar Spg. and Wvg. Mills
Pvt Ltd, (1960) 30 COMP CASES 54 (Mad.); Re, Maharaja Shree Umaid Mills Ltd, (1961) 31 COMP CASES 273 (Raj.);
Indian Steel and Wire Products Ltd v CIT, (1968) 38 COMP CASES 660 (Cal.) : 69 ITR 379; Re, Indo-Pharma
Pharmaceutical Works Pvt Ltd, (1968) 38 COMP CASES 313 (Bom.).
Mr. Laghir1 Rabari

Page 61 of 66
64 Re Lord Mahaveer Goutham Benefit Fund Ltd, (1994) 79 COMP CASES 535 (CLB). See also Notes under sections
65 Re Ulster S.P.C.A., (1936) NL 97; Dominion Students’ Hall Trust v Attorney-General, (1947) ChD 183. See also Notes
under sections 25 of the 1956 Act.
66 Re Dorking Villa Building Co., (1939) 1 ChD 635 : (1939) 83 SJ 134.
67 Prachi Insurance Co Ltd v Choudhury Madhusudan Das, (1964) 2 Comp. LJ 157 (Orissa) : (1964) ILR Cal. 531. See
68 In Re, Metal Box India Ltd, (2001) 105 COMP CASES 939 (CLB); Bharat Commerce and Industries Ltd v ROC, (1973)
43 COMP CASES 275 (Cal.) (DB). See also Notes under sections 172 of the 1956 Act.
69 Bharat Commerce and Industries Ltd v Registrar of Cos, (1973) 43 COMP CASES 275 (Cal.) (DB). See detailed Notes
70 Re Parikh Engg. and Body Building Co Ltd, (1975) 45 COMP CASES 157 (Pat.). See also Notes under sections 171 of
the 1956 Act.
71 Re Classic Welding Products Pvt Ltd, (2003) 117 COMP CASES 94 (CLB).
72 Jayantilal v Tata Iron and Steel Co Ltd, AIR 1958 Bom 155; Re, Dehri Rohtas Light Railway Co Ltd, (1960) 30 COMP
CASES 387 (Patna).
73 Re Pal-Peugeot Ltd, (1997) 89 COMP CASES 808 (CLB); Re, K.G. Khosla Compressors Ltd, (1998) 91 COMP CASES
546 (CLB); Re, Upper Ganges Sugar and Industries Ltd, (2001) 105 COMP CASES 377 (CLB); Re, Usha Beltron Ltd,
(2001) 104 COMP CASES 411 (CLB); Re, Metal Box India Ltd, (2001) 105 COMP CASES 939 (CLB); Re, SPML India
Ltd, (2001) 104 COMP CASES 486 (CLB); Zuari Agro Chemicals Ltd v F.S. Wadia, (1974) 44 COMP CASES 465
(Bom.).
74 Re Metal Box India Ltd, (2001) 105 COMP CASES 939 (CLB); Zuari Agro Chemicals Ltd v F.S. Wadia, (1974) 44
COMP CASES 465 (Bom.); Re, K.G. Khosla Compressors Ltd, (1998) 91 COMP CASES 546 (CLB); Re, Mackinnon
Mackenzie & Co Pvt Ltd, (1967) 37 COMP CASES 516 (Cal.); Re, Dalmia Cement (Bharat) Ltd, (1964) 34 COMP
CASES 729 (Mad.).
75 Re Satyashree Balaji Wires and Cables Pvt Ltd, (2007) 137 COMP CASES 283 (CLB).
76 In Re Metal Box India Ltd, (2001) 105 COMP CASES 939 (CLB); Re, Usha Beltron Ltd, (2001) 104 COMP CASES 411
(CLB); Rank Film Distributors of India Ltd v ROC and State of W.B, (1968) 38 COMP CASES 487 (Cal.) : AIR 1969 Cal
32 : (1968) 1 Comp. LJ 129 (Cal.) : 72 Cal WN 384; Re, Mackinnon Mackenzie & Co Pvt Ltd, (1967) 37 COMP CASES
Mr. Laghir1 Rabari

Page 62 of 66
516 (Cal.); Bharat Commerce and Industries Ltd v ROC, (1973) 43 COMP CASES 275 (Cal.) (DB); Minerva Mills Ltd v
Govt. of Maharashtra, (1975) 45 COMP CASES 1 (Bom.).
77 Re Orissa Chemicals & Distilleries Pvt Ltd, (1962) 32 COMP CASES 497 : AIR 1961 Orissa 62; Orient Paper Mills Ltd v
State, (1958) 28 COMP CASES 523 (Orissa) : AIR 1957 Orissa 232.
78 Re SPML India Ltd, (2001) 104 COMP CASES 486 (CLB); Re, Neelachal Auto Ltd, (2001) 105 COMP CASES 288
(CLB).
79 Re Pal-Peugeot Ltd, (1997) 89 COMP CASES 808 (CLB). See also Notes under section 61 of the 1956 Act.
80 Bharat Commerce and Industries Ltd v ROC, (1973) 43 COMP CASES 275 (Cal.) (DB); Jayantilal v Tata Iron and Steel
Co Ltd, AIR 1958 Bom 155; Re, Northern Enterprises Corporation Pvt Ltd, (1974) 44 COMP CASES 334 (P&H).
81 Re Jindal Vijayanagar Steel Ltd, (2006) 129 COMP CASES 952 (CLB).
82 Re Perfect Refractories Ltd, (2005) 128 COMP CASES 234 (CLB).
83 Re J.L. Morison (India) Ltd, (1999) 95 COMP CASES 907 (CLB); Bharat Commerce and Industries Ltd v ROC, (1973)
43 COMP CASES 275 (Cal.) (DB).
84 In Re, Automobile Products of India Ltd, (2005) 127 COMP CASES 941 (CLB).
85 In Re, Deutsche Babcock Power Systems Ltd, (1999) 97 COMP CASES 341 (CLB); Re, Symphony Comfort Systems
Ltd, (1998) 91 COMP CASES 404 (CLB); Pondicherry Textile Corpn. Ltd v K.K. Ramanujam, (1998) 91 COMP CASES
441 (CLB).
86 In Re, Symphony Comfort Systems Ltd, (1998) 91 COMP CASES 404 (CLB); Re, Upper Ganges Sugar and Industries
Ltd, (2001) 105 COMP CASES 377 (CLB); Re, Metal Box India Ltd, (2001) 105 COMP CASES 939 (CLB).
87 In Re, Deutsche Babcock Power Systems Ltd, (1999) 97 COMP CASES 341 (CLB). See also Notes under sections 4
88 In Re, Seaways Maritime Pvt Ltd, (2002) 111 COMP CASES 78 (CLB).
89 In Re, K.G. Khosla Compressors Ltd, (1998) 91 COMP CASES 546 (CLB).
90 Promode Kumar Mittal v Southern Steel Ltd, (1980) 50 COMP CASES 555 (Cal.).
91 Re Metal Box India Ltd, (2001) 105 COMP CASES 939 (CLB). Now the powers of BIFR have been vested in the
Tribunal (NCLT) under new sections 424A to 424L inserted in the 1956 Act, by the Companies (Second Amendment)
Act, 2002 (11 of 2003).
92 Krimens Oil Mills Pvt Ltd v ROC, AIR 1958 Mad. 450 : (1958) 2 Mad LJ 141.
Mr. Laghir1 Rabari

Page 63 of 66
* Power transferred to the Central Government from the commencement of the Companies (Second Amendment) Act,
2002 (11 of 2003) [w.e.f. date to be notified].
** See the Companies (Central Government’s) General Rules and Forms, 1956 in Appendix 73.
1 Substituted by the Companies (Amendment) Act, 1996 (5 of 1997), section 3 [(w.e.f. 1-3-1997) vide Notification No.
G.S.R. 78(E), dated 15-2-1997 : (1997) 88 COMP CASES (St.) 228].
2 Substituted for “Company Law Board”, by the Companies (Second Amendment) Act, 2002 (11 of 2003), section 8
(w.e.f. 12-8-2012).
3 Substituted for “Company Law Board”, by the Companies (Second Amendment) Act, 2002 (11 of 2003), section 8
(w.e.f. 12-8-2012).
5 Saroja Mills Ltd v Registrar of Cos, (1964) 34 COMP CASES 336 (Mad.) : (1964) 1 Comp. LJ 103 (Mad.); Project
Engineers Pvt Ltd v Registrar of Cos, (1967) 37 COMP CASES 566 (Mad.); Beauty Art Dyers and Cleaners Pvt Ltd v
ROC, (1974) 44 COMP CASES 460 (Bom.); Shri Amba Motors Agencies Pvt Ltd v ROC, (1978) 48 COMP CASES 89
(Delhi). See also Notes under sections 19 and 640A of the 1956 Act.
6 Project Engineers Pvt Ltd v ROC, (1967) 37 COMP CASES 566 (Mad.).
7 Shivalik Steels and Alloys Pvt Ltd (No. 2) v. ROC, (1992) 73 COMP CASES 195 (CLB); National Industrial Corpn. Ltd v
ROC, (1963) 33 COMP CASES 265 (Punj.); Janardhana Mills Ltd v ROC, (1964) 34 COMP CASES 333 (Mad.). See
8 Ganga Textiles Ltd v Registrar of Cos, (1998) 94 COMP CASES 36 (CLB).
9 In Re, Ishita Properties Ltd, (2002) 112 COMP CASES 547 (CLB).
10 Shivalik Steels and Alloys Pvt Ltd (No. 1) v. ROC, (1992) 73 COMP CASES 174 (CLB).

12 Saroja Mills Ltd v Registrar of Cos, (1964) 34 COMP CASES 336 (Mad.) : (1964) 1 Comp. LJ 103 (Mad.); Project
Engineers Pvt Ltd v Registrar of Cos, (1967) 37 COMP CASES 566 (Mad.); Beauty Art Dyers and Cleaners Pvt Ltd v
ROC, (1974) 44 COMP CASES 460 (Bom.); Shri Amba Motors Agencies Pvt Ltd v ROC, (1978) 48 COMP CASES 89
(Delhi). See detailed Notes under sections 18 and 640A of the 1956 Act.
13 Project Engineers Pvt Ltd v ROC, (1967) 37 COMP CASES 566 (Mad.).
Mr. Laghir1 Rabari

Page 64 of 66
14 Shivalik Steels and Alloys Pvt Ltd (No. 2) v. ROC, (1992) 73 COMP CASES 195 (CLB); National Industrial Corpn. Ltd v
ROC, (1963) 33 COMP CASES 265 (Punj.); Janardhana Mills Ltd v ROC, (1964) 34 COMP CASES 333 (Mad.). See
15 Ganga Textiles Ltd v Registrar of Cos, (1998) 94 COMP CASES 36 (CLB).
17 F.S. Abdul Qayum v Manindra Land and Building Corpn. Ltd, (1955) 25 COMP CASES 143 (All.) (DB) : AIR 1955 All
192 (DB).
18 Reference to Department Letter No. 8/21/56-PR, dated 06-02-1957 has been omitted as that Circular is out of date in
view of the proviso to sections 21 as inserted by Act 31 of 1965.
† Now sections 17(2) as substituted in 1997 and 2003 requires confirmation by the CLB [now the Central Government]
only for alteration relating to the Change of place of Registered Office from one State to another. Thus Objects Clause
in the Memorandum of Association can be altered simply by passing Special Resolution and no confirmation is needed.
† Now sections 17(2) as substituted in 1997 and 2003 requires confirmation by the CLB [now the Central Government]
only for alteration relating to the Change of place of Registered Office from one State to another. Thus Objects Clause
in the Memorandum of Association can be altered simply by passing Special Resolution and no confirmation is needed.
19 Re Govind Rubber Ltd, (1995) 83 COMP CASES 556 (Bom.); Re, Novopan India Ltd, (1997) 88 COMP CASES 596
(AP).
20 Re Jaypee Cement Ltd, (2004) 122 COMP CASES 854 (All.) : (2004) 2 Comp. LJ 105 (All).
21 Intertek Testing Services India Pvt Ltd and Calab Brett India Pvt Ltd Re, (2009) 4 Comp LJ 637 (Bom); Mysore
Comento Ltd Re, (2010) 97 SCL 290 : (2009) 150 Com Cases 623 : (2009) Kar LJ 388 (Kar).
22 Re Official Liquidator, Toshiba Anand Batteries (under liquidation), (2011) 262 Com Cases 83 (Ker).
23 The Federal Bank Ltd v Sri Augustine, (2010) 102 SCL 138 (Ker).
24 Pioneer Protective Glass Fibre Pvt Ltd v Fibre Glass Pilkington Ltd, (1986) 60 COMP CASES 707 (Cal.) (DB). See
detailed Notes under sections 23.
25 Re Neelachal Auto Ltd, (2001) 105 COMP CASES 288 (CLB).
26 Surendra v Indian Airlines Corpn, AIR 1966 Cal 272 (DB).
27 Kalipada Sinha v Mahalaxmi Bank Ltd, AIR 1966 Cal 585 (DB). See also Notes under sections 22 and 23 of the 1956
Act.
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28 F.S. Abdul Qayum v Manindra Land and Building Corpn. Ltd, (1955) 25 COMP CASES 143 (All.) (DB) : AIR 1955 All
192 (DB).
29 Solvex Oils and Fertilizers v Bhandari Crosfields Pvt Ltd, (1978) 48 COMP CASES 260 (P&H). See also Notes under
sections 3, 23, 31, 43, 43A and 44 of the 1956 Act.
31 Prasad Technology Park Pvt Ltd v Sub-Registrar, (2005) 128 COMP CASES 996 (SC).
32 Prasad Technology Park Pvt Ltd v Sub-Registrar, (2005) 128 COMP CASES 996 (SC).
33 Kothari Products Ltd v Registrar of Cos, (2001) 103 COMP CASES 841 (All.); Kilburn Electricals Ltd v Regional
Director, (2000) 99 COMP CASES 243 (Mad.).
34 Sulphur Dyes Ltd v Hickson and Dadajee Ltd, (1995) 83 COMP CASES 533 (Bom.). See also Notes under sections 35
and 111A of the 1956 Act.
35 Montari Overseas Ltd v Montari Industries Ltd, (1996) 20 CLA 313 (Delhi) (DB) : (1996) PTC 16 (Delhi) (DB). See also
36 Pearson Education Inc. (formerly Prentice Hall Inc.) v Prentice Hall India Pvt Ltd, (2007) 136 COMP CASES 294
(Delhi).
37 D. Srinivasaiah v Vellore Varalakshmi Bank Ltd, (1954) 24 COMP CASES 55 (Mad.) : AIR 1954 Mad. 802; F.S. Abdul
Qayum v Manindra Land and Building Corpn. Ltd, (1955) 25 COMP CASES 143 (All.) (DB) : AIR 1955 All 192 (DB).
See also Notes under sections 21 of the 1956 Act.
38 Economic Investment Corp Ltd v CIT, (1970) 40 COMP CASES 1 (Cal.) : AIR 1970 Cal 389 : (1970) 75 ITR 233 (Cal.).
39 Kalipada Sinha v Mahalaxmi Bank Ltd, AIR 1966 Cal 585 (DB); Malhati Tea Syndicate Ltd v Revenue Officer, (1973) 43
COMP CASES 337 (Cal.) : AIR 1972 Cal 78.
40 Pioneer Protective Glass Fibre Pvt Ltd v Fibre Glass Pilkington Ltd, (1986) 60 COMP CASES 707 (Cal.) (DB);
Purushottam Umedbhai and Co v Manilal and Sons, AIR 1961 SC 325.
42 Solvex Oils and Fertilizers v Bhandari Crosfields Pvt Ltd, (1978) 48 COMP CASES 260 (P&H). See also Notes under
sections 3, 21, 43A and 44 of the 1956 Act.
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43 Dinesh Gandhi v Bayer Diagnostics India Ltd, (2002) 111 COMP CASES 547 (CLB). See also Notes under sections
44 Malleson v General Mineral Patents Syndicate Ltd, (1894) 3 ChD 538 : 63 LJ Ch. 868.
45 Re, Mackenzie & Co Ltd, (1916) 2 ChD 450 : 85 LJ Ch. 804 : 115 LT 440.
46 Companies Code, 1963, sections 40 of the 1956 Act.
47 Narendera Kumar Agrawal v Smt. Saroj Maloo, (1996) 85 COMP CASES 172 (SC). See also Notes under sections 25,
27, 28, 29, 108, 111A and Schedule I of the 1956 Act.
48 CIT v Andhra Chamber of Commerce, (1965) 55 ITR 722 (SC) : AIR 1965 SC 1281 : (1965) 1 SCR 565; Addl. CIT v
Surat Art Silk Cloth Manufacturers Association, (1980) 121 ITR 1 (SC) : AIR 1980 SC 387; CIT v Andhra Chamber of
Commerce, (1981) 130 ITR 184 (SC); Thiagarajar Charities v Addl. CIT, (1997) 225 ITR 1010 (SC). See also Notes
under sections 25 of the 1956 Act.
End of Document
Mr. Laghir1 Rabari

corresponds to section 31 of the 1956 Act. [ S. 14. Alteration of Articles.—
THERETO

INCIDENTAL THERETO
49 [ S. 14. Alteration of Articles.—
(1) Subject to the provisions of this Act and the conditions contained in its memorandum, if any, a
company may, by a special resolution, alter its articles including alterations having the effect
of conversion of—
(a) a private company into a public company; or
(b) a public company into a private company:
Provided that where a company being a private company alters its articles in such a manner
that they no longer include the restrictions and limitations which are required to be included in
the articles of a private company under this Act, the company shall, as from the date of such
alteration, cease to be a private company:]
Provided further that any alteration having the effect of conversion of a public company into a
private company shall not take effect except with the approval of the Tribunal which shall
make such order as it may deem fit.
(2) Every alteration of the articles under this section and a copy of the order of the Tribunal
approving the alteration as per sub-section (1) shall be filed50 with the Registrar, together with
a printed copy of the altered articles, within a period of 15 days in such manner as may be
prescribed, who shall register the same.
51[(3) Any alteration of the articles registered under sub-section (2) shall, subject to the
provisions of this Act, be valid as if it were originally in the articles.]
NOTES
Section 14(1) and (3) of the 2013 Act was notified vide Notification S.O. 902(E) and has been in
effect from 01-04-2014. Section 14(2) has been notified vide Notification S.O. 1934 (E) dt. 01-06-
2016. Section 14 of the 2013 Act corresponds to section 31 of the 1956 Act.
as follows:
Mr. Laghir1 Rabari

Page 2 of 15
Act. [ S. 14. Alteration of Articles.—
Clause 14.—This clause corresponds to section 31 of the Companies Act, 1956 and seeks to provide for alteration of
articles. A company may alter its articles including alterations having effect of conversion of a private company into a
public company or a public company into private company with the approval of members through special resolution.
Approval of the Tribunal shall be also required in case of conversion of a public company into a private company. A
copy of order of Tribunal shall be filed with the Registrar together with a printed copy of the altered articles.
Section 14 of the 2013 Act provides for the alteration of Articles of Association of a company. It
prescribes the procedure to be followed to effect changes to the articles of a company including those
that result in conversion of a public company into a private company and vice versa.
Section 2(3) of the 2013 Act provides that “alter” and “alteration” shall include the making of
additions, omissions and substitutions.
[s 14.3] Alteration through Special Resolution [Section 14(1) of the Companies Act, 2013]
The articles of a company may be altered only by passing a special resolution. The alteration may be
made subject to the provisions of the 2013 Act and any condition that is contained in the
Memorandum of Association. The alteration may be of such a nature that it results in the conversion
of a private company into a public company or vice versa.
The articles cannot be altered, if the alteration is repugnant to, or inconsistent with, any statute or
general law or if it is such as to defeat the provisions of any law.52
Amendments may be made to the articles through a special resolution as provided for in section
114(2) of the 2013 Act. This would mean that the number of votes cast in favour of the amendment is
three times more than the votes, if any, cast against the resolution. The articles are one of the
constitutional documents of the company that govern the internal management and are binding on
the members.
[s 14.4] Conditions to be fulfilled where alteration to articles results in conversion of the

company
The first proviso to section 14(1) of the 2013 Act provides that where a private company makes such
alterations to its articles of association that the limitations and restrictions that are required to be
included in the articles of a private company are no longer included; the company shall cease to be a
private company.
The second proviso to section 14(1) of the 2013 lays down the condition to be fulfilled for the
conversion of a public company to a private company caused by the amendment to the articles to
take effect. Any alteration to the articles that results in the conversion of a public company into a
private company shall become effective with the approval of the Tribunal. In this regard, the Tribunal
may make such order as it may deem fit.
Mr. Laghir1 Rabari

Page 3 of 15
[s 14.5] Entrenchment provisions
As provided in section 5(3) of the 2013 Act, the articles may contain provisions for entrenchment to
the effect that specified provisions of the articles may be altered only if conditions or procedures as
that are more restrictive than those applicable in the case of a special resolution, are met or complied
with. Provisions for entrenchment can be made either on the incorporation of the company or by
amendment of the articles, as provided in section 5(4) of the 2013 Act. Provisions for entrenchment
whether made on the formation of the company or by amendment must be brought to the notice of
the Registrar in the manner prescribed under rule 10 of the Companies (Incorporation) Rules, 2014.*
[s 14.6] Registration of the alteration to articles [Section 14(2) of the Companies Act, 2013]
Alterations made to the articles under section 14 of the 2013 Act as also a copy of the order of the
Tribunal under second proviso to section 14(1) of the 2013 Act are required to be filed with the
Registrar of Companies along with a copy of the altered articles of association. These documents are
mandated to be filed within 15 days in the manner prescribed for the Registrar to register it.
Rule 33 of the Companies (Incorporation) Rules, 2014 prescribes filing Form INC-27 to effect
conversion of a private company into a public company and vice versa. Rule 33(2) prescribes that a
copy of order of the Tribunal approving the alteration must be filed in Form INC-27 with the Registrar
within 15 days of the receipt of the order along with the printed copy of the altered articles. In contrast
to the time period of 15 days under the 2013 Act, section 31 of the 1956 Act prescribed a time-limit of
30 days from the receipt of approval from the Central Government.
It may be noted that second proviso to section 14(1) and section 14(2) of the 2013 Act is not yet
notified. General Circular 18/2014, dt. 11-06-2014 provides that in view of the fact that second
proviso to section 14(1) and s, 14(2) of the 2013 Act have not been notified and the resulting
difficulties faced by the stakeholders while filing Form INC-27, the corresponding provisions of the
1956 Act shall remain in force till such time that the provisions of the 2013 Act are notified.
[s 14.7] Alteration in articles to be valid as if originally in the articles
Any alteration made to the articles that is registered under section 14(2) of the 2013 Act through the
prescribed procedure shall be valid as if it were originally in the articles.
S. 31. Alteration of articles by special resolution.—(1) Subject to the provisions of this Act and to the conditions
contained in its memorandum, a company may, by special resolution, alter its articles: The Companies Act, 1956
provision
53[Provided
that no alteration made in the articles under this sub-section which has the effect of converting a public
company into a private company, shall have effect unless such alteration has been approved by the Central
Government.]
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(2) Any alteration so made shall, subject to the provisions of this Act, be as valid as if originally contained in the articles
and be subject in like manner to alteration by special resolution.
54[(2A) Where any alteration such as is referred to in the proviso to sub-s. (1) has been approved by the Central
Government, a printed copy of the articles as altered shall be filed by the company with the Registrar within one month
of the date of receipt of the order of approval.]
(3) The power of altering articles under this section shall, in the case of any company formed and registered under Act
No. 19 of 1857 and Act No. 7 of 1860 or either of them, extend to altering any provisions in Table B annexed to Act 19
of 1857, and shall also, in the case of an unlimited company formed and registered under the said Acts or either of
them, extend to altering any regulations relating to the amount of capital or its distribution into shares, notwithstanding
that those regulations are contained in the memorandum.
NOTES
English Act, 1948 : Sections 10, 380(2) Companies Act, 1913 : Section 20
English Act, 1985 : Sections 9 and 678
Section 31 of the 1956 Act was inserted by the Companies (Amendment) Act, 1960.
It is considered desirable to subject to Governmental scrutiny any proposals for conversion of public companies into
private companies so as to ensure that such conversions are not resorted to merely with the object of evading the
restrictions placed on the management of public companies (paragraph 34 of the Report). [Clause 11 of the
2016
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“The Act does not prevent the conversion of a public company into a private company by amending its articles by a
special resolution and otherwise complying with the requirements of the Act. On account of the restrictions placed by
the Act on the management of public companies, there has been in recent months a tendency to convert public
companies into private companies. While such conversions are no doubt primarily matters for the shareholders and, in
fact, the consent of the Court is not required, it seems to us that, having regard to the fact that they can be effected
merely by the adoption of a special resolution which may have commanded the positive support of only a minority of
the members of a company, some form of control of these conversions is necessary if certain of the objects of the Act
are to be achieved. At present, the Department is exercising some control over such conversions by resorting to
section 21 and regarding the addition of the word ‘Private’ consequent upon such conversion as change in the name of
the company which, under the section, requires the approval of the Central Government. But, this is a change required
to be made by the Act and section 21 cannot bear the strain the Department seeks to put upon it. We recommend the
addition of a proviso to section 31(1).
There is no need for the approval of the Government in the converse case of a private company being converted into a
public company and thereby submitting itself to restrictions from which private companies are exempt. Where there is
an alteration of the articles, the articles as altered, should be filed with the Registrar. A provision to that effect should
be made.” [Report : para 34].
[s 14.9] Alteration of Articles by Special Resolution [Sub-section (1)]
A company may by special resolution alter its Articles subject to the provisions of this Act and
conditions in its memorandum. However, an alteration in the articles which has the effect of
converting a public company into a private company, shall not have effect unless such alteration has
been approved by the Central Government.
[s 14.10] Delegation of Powers to the Registrars of Companies
The powers and functions of the Central Government under section 31(1) of the 1956 Act have been
delegated to the Registrars of Companies. [Notification No. G.S.R. 507(E), dt. 24-06-1985 as
amended by Notification No. G.S.R. 281(E), dt. 21-03-1995 : For text of the Notification see Notes
under section 637]. Earlier, the powers were delegated to the Regional Directors [Notification No.
G.S.R. 288(E), dt. 31-05-1991].
[s 14.11] Alteration to be in conformity with Act and Memorandum
Alterations of Articles will be by Special Resolution. An alteration will be invalid if it is inconsistent with
the provisions of the Act or the company’s Memorandum.
To alter the Articles of Association a Special Resolution is required to be passed. [Section 31]
[s 14.13] Filing
A copy of the Special Resolution has to be filed with the Registrar of Companies in the prescribed
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manner within 30 days. [section 192 of the 1956 Act]
Where Articles have been registered, a copy of resolution which has the effect of altering the Articles
and a copy of agreement, if any, shall be embodied in or annexed to every copy of the Articles issued
after the passing of the resolution or the making of the agreement. [section 192(2) of the 1956 Act]
[s 14.14] Resolution by postal ballot
As per rule 4(b) of the Companies (Passing of the Resolution by Postal Ballot) Rules, 2001, the
resolution for alteration of articles of associations in relation to insertion of provisions defining private
company shall be passed through postal ballot.
[s 14.15] Conversion of public into private company [Sub-section (1), proviso]
Where alteration is for converting a public company into a private company the approval of the
Central Government is necessary for such alteration.
As per rule 4B of the Companies (Central Govt.’s) General Rules and Forms, 1956,* where the
alteration of the Articles of Association of any company has the effect of converting a public company
into a private company, the company shall make an application to the Central Government in Form
No. 1B, within three months from the date of passing of the special resolution.
[s 14.17] Copy of Application to Registrar of Companies
As per rule 20A(1) of the Companies (Central Government’s) General Rules and Forms, 1956* a copy
of every Application, i.e., e-Form 1B, together with a copy of each of the documents enclosed
therewith, made in pursuance of section 31(1) of the 1956 Act shall be forwarded by the company to
the Registrar of Companies concerned simultaneously with the application to the Central
Government.
Now Powers of the Central Government under this section 31(1) of the 1956 Act have been
delegated to the Registrar of Companies (ROC).
[s 14.18] Filing with Registrar (ROC)
As per rule 20C of the Companies (Central Govt.’s) General Rules and Forms, 1956 inserted by the
Companies (Central Govt.’s) General Rules and Forms (Amendment) Rules, 2006 vide Notification
No. G.S.R. 56(E), dt. 10-02-2006, published in the Gazette of India, Extraordinary, No. 50, Pt II,
section 3(i), page 156 : (2006) 130 COMP CASES (St.) 13, the company was required to file
Documents with the Registrar of Companies (ROC) under section 31 of the 1956 Act together with
Form 62* of the Companies (Central Govt.’s) General Rules and Forms, 1956.
[s 14.18.1] Department’s View— Citizen’s Charter of DCA
As per Citizen’s Charter of the Department of Company Affairs, all applications submitted to the
Department of Company Affairs, Regional Directors, Registrars of Companies and Official Liquidators
shall be processed within the time frame indicated in Schedules (I), (II), (III) & (IV). Organisational
chart of the Department of Company Affairs and Addresses of Regional Directors and Registrars of
Companies (ROCs) have been given in Schedule (V) annexed to the Citizen’s Charter.
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As per Schedule (III), the Registrars of Companies shall process Application for change of name of a
company [sections 21/31] in 15 working days. [Press Note No. 9 (1999 Series) (F. No. 5/25/99-CL-V),
dt. 9 August 1999 : www.dca.nic.in : (1999) 98 COMP CASES (St.) 1 : See Fuller Text under sections
33, 609 and 637 of the 1956 Act].
[s 14.19] Registrar’s powers
The Registrar of Companies cannot withhold its approval to an alteration or articles arbitrarily. An
agreement of all corporators by putting their signatures though not in each other’s presence is
effective for alteration of articles though no specific resolution at a general meeting is passed.55 The
Registrar of Companies may refuse to register an alteration of the Articles of Association which
introduces an illegal object.56 If the Registrar wrongfully refuses to register, an application under
Article 226 of the Constitution of India will lie for mandamus and other writs or orders,57 as the
Registrar’s function is quasi-judicial.58
[s 14.19.1] Alteration of Articles of Association
“A company can never replace its articles; it is only the regulations contained therein which may be changed.
Accordingly the concerned company can adopt an entirely new set of regulations in place of those now contained in its
existing articles by passing a special resolution to that effect in accordance with the provisions of section 31 of the Act.
The new set of regulations proposed to be adopted should form a part of the special resolution and the explanatory
statement to be annexed to the notice of the general meeting under section 173(2) should set out all material facts
concerning the proposed alterations in the existing articles.” [Letter No. 8/32(31)/63-PR, dt. 23-10-1963 : Govt. of India
[s 14.19.2] Application under section 31(1) proviso to be critically examined
“Clause 5 of the Companies (Amendment) Bill, 1972 seeks to amend section 43A [since inapplicable (w.e.f. 13
December 2000)]† of the Companies Act, 1956, with a view to enlarging the scope of the section. In view of this
applications under the proviso to sub-section (1) of section 31 of the Act for conversion of a public company into a
private company should be critically examined and conversion allowed only if the applicant company is closely held
one having no public interest involved in it.” [Circular No. 34/72, dt. 03-10-1972 : Govt. of India publication,
[s 14.20] Two Filings
A copy of the Special Resolution has to be filed with the Registrar of Companies in Form 23* of the
Companies (Central Government’s) General Rules and Forms, 1956 within 30 days. [Section 192 of
the 1956 Act]
When the approval of the Central Government [power delegated to the Registrars of Companies] for
conversion of a public company into a private company [section 31(1) proviso of the 1956 Act] is
obtained, a copy of such approval is also to be filed within one month of the receipt of the approval.
[Section 31(2A) of the 1956 Act]
[s 14.21] Penalty
Since no specific penalty for failure to file with the Registrar a copy of the order approving alteration
of articles under sub-section (1) [Sub-section (2A)] is provided in this section, the company and every
officer who is in default, shall be punishable under section 629A of the 1956 Act with fine upto Rs
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5,000 and where the contravention is a continuing one, with a further fine upto Rs 500 for every day
of default.
[s 14.22] Alterations as valid as originally contained [Sub-section (2) of the Companies Act,
1956]
An alteration of Articles shall, subject to the provisions of the Act, be as valid as if originally contained
in the Articles and be subject in like manner to alteration by special resolution.
[s 14.23] Retrospective effect
Once the alteration is made such alteration will be deemed, as if it were there since the registration of
the company. Such altered Articles may again be altered by Special Resolution as provided in this
section.
[s 14.24] Altered articles not retrospective for all purposes
Every company has the power to alter its Articles of Association by special resolution passed at a
general meeting. Such alterations will be valid provided they are not inconsistent with the provisions
of the Companies Act and the memorandum of association of the company. Altered articles,
however, would not have retrospective operation. Section 31(2) of the 1956 Act provides that the
alteration made in accordance with section 31(1) of the 1956 Act shall be valid as if it were part of the
original articles. It is only for this limited purpose that the legal fiction is introduced by the said
section. The scope of fiction cannot be extended so as to make the alteration itself retrospective in
effect for all purposes. A company will be liable in damages in case the alteration of the Articles
results in a breach of a contract entered into by the company with any person. By effecting alterations
in its Articles a company cannot defeat or escape from its contractual obligation with any person. The
power to alter the Articles subject to what is stated above is indisputably very wide. The Articles
cannot also be so altered as to deprive the minority of their rights. No majority of shareholders can,
by altering the Articles, retrospectively, affect, to the prejudice of the non-consenting owners of
shares, the rights already existing under a contract, nor take away the rights already accrued, e.g.,
after a transfer of shares is lodged, the company cannot have a right of lien so as to defeat the
transfer.59
[s 14.25] Amendment of Articles for compulsory transfer of shares
The Articles of Association of company are in the nature of a contract. The rights and liabilities of the
members of a company are regulated by the articles of association. A person on becoming the
member of the company agrees to be bound by such a contract. Alteration of the Articles of
Association is permitted under section 31 of the 1956 Act. Section 31(2) of the 1956 Act declares that
the alteration so made shall be as valid as if originally contained in the articles of association subject,
of course, to the provisions of the Companies Act. A power to expel a member upon terms to get rid
of a member as shareholder is a power that might be resorted in the articles of association. The
amendment of the Articles to provide for compulsory transfer of the shares against the wishes of
some of the existing members of the company was held permissible.60
[s 14.26] Right given by Act cannot be curtailed
A clause in the Articles of Association of a company providing that certain provisions cannot be
altered at all or can be altered by a unanimous resolution only can nevertheless be altered by a
special resolution. The right given by the Act cannot be curtailed by the Articles. A provision as to
voting rights in the Articles which has the effect of making a special resolution to alter the articles
incapable of being passed if a particular shareholder or group of shareholders exercise his or their
voting rights against it is not a provision depriving the company of the power to alter its Articles, and
is valid. However, an article providing that no alteration shall be made in the Articles without the
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consent of a particular person would be invalid.61
[s 14.27] Limitation to alterations
An alteration of Articles cannot increase the liability of the members but, otherwise, such alteration
may have retrospective effect.62
[s 14.28] Alteration must be bona fide
The alteration in Articles must be bona fide in the interest of the general body of shareholders. There
must be honesty in what is done. The power to alter Articles must be exercised bona fide for the
benefit of the company as a whole. A resolution constitutes a fraud on the minority if it is not passed
bona fide for the benefit of the company as a whole or its effect is to discriminate between the
majority and the minority shareholders so as to give to the former an advantage of which the latter
was deprived.63
The power of alteration can be exercised only in good faith in the interests of the company as a
whole. A discriminatory amendment depriving some members of their rights qua members would be
struck down as invalid. The articles were altered in this case to enable the company to forfeit fully
paid shares.64
[s 14.29] Oppression and Mismanagement
Under section 31 of the 1956 Act a company has very wide power to alter its Articles of Association.
The only statutory limitation in the exercise of such power of alteration is the one contained in section
38 of the 1956 Act. But, the power conferred on the company under section 31 of the 1956 Act to
alter the Articles of Association of a company by special resolution shall not be abused by the
majority of shareholders so as to oppress the minority. Minority shareholders can enforce rights
affected by alteration in proceedings under sections 397 and 398 of the 1956 Act.65
The alteration of Articles of Association conferring the power on the company to expel one of the
shareholders is subject to one limitation. The alteration must not be such as to sacrifice the interests
of the minority to those of a majority without any reasonable prospect of advantage to the company
as a whole. A compulsory transfer of shares without the shareholder’s consent must be in the
interests of the company, but not for the benefit of some of the shareholders even if they are the
majority.66
The shareholders have the right of vote for exercise of a statutory power as they may think fit which
cannot be taken away by the company’s constitution or by any contractual undertaking given by the
company itself although they can bind themselves contractually as to how they would exercise their
rights. A shareholder has no right to assume that his company’s Articles would always remain in a
particular form. He cannot object to any alteration as fraudulent provided such alteration is passed
properly and does not unfairly discriminate against any one.67
[s 14.30] Board of Directors may convene EGM
The Board of Directors have power to convene Extraordinary General Meeting of shareholders to
consider proposed amendments to Articles of Association. Directors who were privy to decision to call
meeting cannot seek order restraining holding of meeting. The amendments were not prejudicial to
their interest but were intended to facilitate smooth functioning of the management. It would finally be
for the shareholders to decide in the meeting whether to opt for the proposals or not. An injunction
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could not be granted to restrain the holding of a meeting, when such a meeting was the only way in
which the shareholders could decide the matter. Further, since Table A of Schedule I to the 1956 Act
did not apply to Articles of Association of the company, the question of issuing fresh notice of the
adjourned meeting did not arise.68
[s 14.31] Amendment of Articles—Removal of Managing Director
Disputes arose between the members of a family company. By a Resolution of the Board Meeting
held by the appellant’s brother and his mother, the appellant was removed from the post of Managing
Director. The Board of Directors resolved to delete Article 74 of the Articles of Association of the
company by which the appellant was appointed as Managing Director of the Company, which formed
no part of the notice of holding Extraordinary General Meeting (EGM). The Special Resolution was
passed on the basis of such defective Notice. If the notice does not specify the Special Resolution to
be taken the Resolution would be invalid. The expression of intention in the notice under section
189(2)(a) of the 1956 Act should be sufficiently specific so as to effectively inform each member of
the company of the actual Resolution sought to be passed in the General Meeting. The notice must
be frank, open, clear and satisfactory. If it is not, the notice is bad and the Special Resolution vitiated
and cannot be acted upon. It was held that such defective Special Resolution cannot effect the
deletion of Article 74 of the Articles of Association of the company, it was invalid and the removal of
the appellant as Managing Director was invalid.69
[s 14.32] Expulsion of Member
Even if Articles authorise the directors to expel a member under certain circumstances such powers
must be exercised bona fide and in the general interest of the company.70This decision and Circular
No. 32 of 1975 [reproduced in Notes under section 41 of the 1956 Act] dealing with the expulsion of a
shareholder of a public limited company is not applicable to clubs, associations, etc., incorporated
under section 25 of the 1956 Act. The wisdom or otherwise of the policy behind the bye law of a
India.71
[s 14.33] Increase in members of Guarantee Company
In view of sections 27(2), 9, 31 and 97 of the 1956 Act increase in the number of members of a
company limited by guarantee calls for an amendment of the Articles of Association and can only be
done by a Special Resolution by the general body. Article 2 of Table C of Schedule I to the Act does
not authorise the Board of directors to usurp the functions of the company for the purpose of
increasing or decreasing the number of members. Therefore, Article 2 of the Articles of Association of
the Delhi and District Cricket Association (DDCA) which authorised that the Board of directors may
increase the number of members with which the company was registered was held to be void.72
[s 14.34] Sections 31(1), 106 and 107
Where the Government held equity shares in a Company and the Articles provided for the State to
nominate 3 Directors, one of them as Chairman of the Board of Directors. The Company issued
further shares which the State did not subscribe and its shareholding was reduced to 1/5th of the
Subscribed Capital. An objection by the State to restrain the Company from amending the Articles
taking away the right of the State to nominate Directors was not maintainable. The proposed
amendment did not affect any class of shareholders.73
[s 14.35] Right to nominate Directors
But if the right to nominate Directors is contained in an Agreement or in a Statute, then such a
change would not be lawful.
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If the alteration of Articles of Association is not ultra vires the Act or Memorandum or unlawful, the
Court will not issue an injunction at the suit of shareholders or persons affected merely on the ground
that such alteration will cause a breach of contract for which the company may have to pay
damages.74
[s 14.37] Alteration of Articles—Restrictive provisions
Articles may be altered by special resolution [section 31 of the 1956 Act]; by special resolution and
with the approval of the Central Government [sections 268 and 310 of the 1956 Act]; by special
resolution and with the sanction of the Court (now the Tribunal) [section 100]; by an order of the
Company Law Board (now the Tribunal) [sections 397, 398 and 404 of the 1956 Act] and by the
Central Government. [section 408(1), proviso of the 1956 Act]
[s 14.38] Indian Companies (Foreign Interests) Act [ repealed ]
Under the Indian Companies (Foreign Interests) Act, 1918 (20 of 1918), without the consent in writing
of the Central Government a company could not alter its Articles affecting in such a way as to bring
the company under the control of foreign interests.
This Act has since been repealed by the Indian Companies (Foreign Interests) Repeal Act, 2000 (24
of 2000). As per Statement of Objects and Reasons appended to the Bill, the Act had become
obsolete and retention thereof as separate Act was unnecessary. [(2000) 102 COMP CASES (St.)
81].
[s 14.39] Definition of Articles [Section 2(2) of the Companies Act, 1956]
Articles means the Articles of Association of a company as originally framed or as altered from time to
time.
[s 14.40] Form of Articles
The Articles inconsistent with the provisions of the Act are void [section 9 of the 1956 Act]. In view of
this, Model Regulations in relevant Tables in Schedule I should be carefully studied while drafting
Articles of Association of a company.
[s 14.41] Compliance Certificate—Alteration of Articles of Association
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30. The company has altered its Articles of Association after obtaining approval of Members in the General Meeting
held on ……………… and the amendments to the Articles of Association have been duly registered with the Registrar
of Companies.
[s 14.42.2] Alteration of the Articles of Association
“Check whether the Articles were altered during the year. If so, check whether:
(i) the Board of Directors have passed a Resolution approving the Alteration of Articles;
(ii) the company had called and held the General Meeting and obtained approval of the company in General
Meeting by a Special Resolution for the alteration;
(iii) copy of the Special Resolution containing the amendments to the Articles of Association along with Form No.
23 [now e-Form 23] have been duly filed with the ROC within 30 days; and
(iv) the Alteration had been incorporated in all copies of Articles.”
[s 14.43] Producer Company—Amendment of Articles [Section 581-I(1) of the Companies

Act, 1956]
For amendment of the Articles of Association of the Producer Company there must be a proposal by
at least 2/3rds of the elected Directors or by at least 1/3rd of the Members and such proposal should
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be adopted by the members by a Special Resolution.
[s 14.44] Filing [Section 581-I(2) of the Companies Act, 1956]
A copy of the amended Articles of Association together with a copy of the Special Resolution both
duly certified by two Directors shall be filed with the Registrar within 30 days of the passing of the
Resolution.
Section 31 of the 1956 Act. Whether articles of the company were altered? If so, check whether a
special resolution to alter the articles was passed and e-Form 23* filed with the Registrar? See also
the Companies (Passing of the Resolution by Postal Ballot) Rules, 2001. If the alteration had the
effect of converting a public company into a private company, check whether : (1) approval of the
Registrar of Companies obtained? [e-Form 1B*] (2) within one month of the date of the receipt of the
order of approval, a printed copy of the altered Articles filed with the Registrar? (3) intimation sent to
the stock exchange in the case of listed companies?
The documents involved are : (1) Minutes of Board/General Meeting, (2) Forms 1B and 23, (3)
Approval of Registrar of Companies, (4) Correspondence with the stock exchange in case of listed
companies, (5) Altered copies of Articles.
50 Rule 33 and Form No. INC. 27 of the Companies (Incorporation) Rules, 2014. For clarification regarding filing of Form
No. INC-27 for conversion of company from public to private, see MCA General Circular No. 18/2014, dt. 11-06-2014.
For the text of Rules refer Appendix 3.
52 Mathrubhumi Printing and Publishing Co Ltd v Vardhaman Publishers Ltd, (1992) 73 Com Cas 80 : (1992) 1 Comp LJ
234 (Ker—DB).
55 Cane v Jones, (1981) 1 All ER 533 : (1980) 1 WLR 1451 : (1980) 124 SJ 542. See also Notes under section 174 of the
1956 Act.
56 Pioneer Mutual Benefit and Friend-in-Need Society Ltd v Assistant Registrar of Joint Stock Cos, (1933) 3 COMP
CASES 37 (Mad.) : AIR 1933 Mad. 129. See also Notes under sections 12, 32 and 433 of the 1956 Act.
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57 R. v Registrar of Cos, (1912) 3 KB 23 : 81 LJ KB 914 (DC).
58 Bowman v Secular Society Ltd, (1917) AC 406 : 86 LJ Ch. 568 : 117 LT 161 (HL).
† The concept of Deemed Public Companies, viz., Private Companies to become Public Companies in certain cases
[section 43A] is no longer applicable [vide section 43A(11) inserted by the Companies (Amendment) Act, 2000 (w.e.f.
13-12-2000)]. Now see new definition of “Public Company” in section 3(1)(iv) (w.e.f. 13 December 2000). See also
Notes under sections 3, 43A and 44 of the 1956 Act.
59 Mathrubhumi Printing and Publishing Co Ltd v Vardhaman Publishers Ltd, (1992) 73 COMP CASES 80 (Ker.) (DB);
Southern Foundries Ltd v Shirlaw, (1940) AC 701 : (1940) 2 All ER 445 : 109 LJ KB 461 (HL). See also Notes under
sections 108, 111, 397, 398 and Schedule I, Table A, regulation 22 of the 1956 Act.
Kershaw, Leese & Co Ltd, (1920) 1 ChD 154 : 89 LJ Ch. 113 (CA). See also Notes under sections 26, 41 and 108 of
the 1956 Act.
61 Bushell v Faith, (1970) 1 All ER 53 : (1970) 2 WLR 272 : (1970) 40 COMP CASES 944 (HL). See also Notes under
62 Allen v Gold Reefs of West Africa Ltd, (1900) 1 ChD 656 : (1900–03) All ER Rep. 746 (CA) : 69 LJ Ch. 266 : 82 LT 210
: 48 WR 452 (CA); Sidebottom v Kershaw, Leese & Co Ltd, (1920) 1 ChD 154 : 89 LJ Ch. 113 (CA). See also Notes
63 Allen v Gold Reefs of West Africa Ltd, (1900) 1 ChD 656 : 69 LJ Ch. 266 : 82 LT 210 (CA); Greenhalgh v Arderne
Cinemas Ltd, (1951) 1 ChD 286 : (1950) 2 All ER 1120 : 94 SJ 855 (CA); Rights and Issues Investment Trust Ltd v
Stylo Shoes Ltd, (1965) ChD 250 : (1964) 3 All ER 628 : (1964) 3 WLR 1077; Sidebottom v Kershaw, Leese & Co Ltd,
(1920) 1 ChD 154 : 89 LJ Ch. 113 (CA); Shuttleworth v Cox Bros. & Co (Maidenhead) Ltd, (1927) 2 KB 9 : 96 LJ KB
104 (CA); Mathrubhumi Printing and Publishing Co Ltd v Vardhaman Publishers Ltd, (1992) 73 COMP CASES 80
(Ker.) (DB). See also Notes under sections 41 and 394 of the 1956 Act.
64 Tapas Sinha Roy v Linkmen Services Pvt Ltd, (2007) 77 CLA 340 (CLB).
Southern Foundries Ltd v Shirlaw, (1940) AC 701 : (1940) 2 All ER 445 (HL). See also Notes under sections 108, 111,
397, 398 and Schedule I, Table A, Reg. 22.
66 Gothami Solvent Oils Ltd v Smt. Mallina Bharathi Rao, (2001) 105 COMP CASES 710 (AP); Sidebottom v Kershaw,
Leese & Co Ltd, (1920) 1 ChD 154 : 89 LJ Ch. 113 (CA); Brown v British Abrasive Wheel Co Ltd, (1919) 1 ChD 290 :
(1918–19) All ER Rep. 308 : 88 LJ Ch. 143 : 120 LT 529. See also Notes under sections 26, 41 and 108 of the 1956
Act.
67 Russell v Northern Bank Development Corp Ltd, (1992) BCLC 1016 (HL) : (1993) 3 Comp. LJ 45 (HL); Greenhalgh v
Arderne Cinemas Ltd, (1951) 1 ChD 286 : (1950) 2 All ER 1120 : 94 SJ 855 (CA); Mathrubhumi Printing and Publishing
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Co Ltd v Vardhaman Publishers Ltd, (1992) 73 COMP CASES 80 (Ker.) (DB); K.G. Khosla v Rahul C. Kirloskar, (2001)
103 COMP CASES 984 (Delhi).
68 K.G. Khosla v Rahul C. Kirloskar, (2001) 103 COMP CASES 984 (Delhi). See also Notes under section 169 and
Schedule I, Table A, regulation 53 of the 1956 Act.
69 M.S. Madhusoodhanan v Kerala Kaumudi Pvt Ltd, (2003) 117 COMP CASES 19 (SC) : (2003) 6 Supreme 49 : (2003) 6
JT 560 (SC).
70 Bajaj Auto Ltd v N.K. Firodia, (1971) 41 COMP CASES 1 (SC) : AIR 1971 SC 321. See detailed Notes under sections
25, 41, 108, 111 and 111A of the 1956 Act.
71 K. Leela Kumar v Govt of India, (2002) 108 COMP CASES 610 (Mad.) (DB). See detailed Notes under section 25 of the
1956 Act.
72 Dharam Pal Bhasin v B.N. Khanna, (1988) 64 COMP CASES 651 (Delhi). See also Notes under sections 9, 27, 97 and
73 State of Karnataka v Mysore Coffee Curing Works Ltd, (1984) 55 COMP CASES 70 (Kar.).
74 Southern Foundries Ltd v Shirlaw, (1940) AC 701 : (1940) 2 All ER 445 : 109 LJ KB 461 (HL).
End of Document
Mr. Laghir1 Rabari

corresponds to section 40 of the 1956 Act. S. 15. Alteration of memorandum
or articles to be noted in every copy.—
THERETO

INCIDENTAL THERETO
75 S. 15. Alteration of memorandum or articles to be noted in every copy.—
(1) Every alteration made in the memorandum or articles of a company shall be noted in every
copy of the memorandum or articles, as the case may be.
(2) If a company makes any default in complying with the provisions of sub-section (1), the
company and every officer who is in default shall be liable to a penalty of one thousand
rupees for every copy of the memorandum or articles issued without such alteration.
NOTES
04-2014. Section 15 of the 2013 Act corresponds to section 40 of the 1956 Act.
THE COMPANIES ACT, 2013 (18 OF 2013).—The Notes on Clauses to the Companies Bill, 2011, provided
the following in respect of section 15 of 2013 Act:
Clause 15—This clause corresponds to section 40 of the Companies Act, 1956 and seeks to provide that every
alteration made in the memorandum or articles of a company shall be noted in every copy of the memorandum and
articles of association.
Only a minor modification differentiates the current provision with its corresponding provision under
the 1956 Act – a ten-fold increase in fine. Penalty amount, in the scheme of the 2013 Act, has been
increased from Rs 100 [as per section 40(2) of the 1956 Act] to Rs 1000.
Mr. Laghir1 Rabari

Page 2 of 4
Act. S. 15. Alteration of memorandum or articles ....
[s 15.3] Mandatory Incorporation of alteration of memorandum or articles [Section 15(1) of the

Section 15(1) of the 2013 Act explicitly provides that alterations made in the memorandum or articles
of a company need to be mandatorily incorporated in each copy issued after the date of such
alteration.
Although section 15 of the 2013 Act does not refer to agreements, proviso to section 117(1)
(Resolutions and agreements to be filed) of the 2013 Act requires copy of every resolution which has
the effect of altering the articles and copy of agreement referred to in section 117(3) to be embodied
or annexed to every copy of the articles issued after passing of such resolution or making of such
agreement. Section 117 (1) proviso also provides that every resolution that has the effect of altering
the articles shall be embodied in and annexed to every copy of the Articles made after the passing of
the resolution.
There have also been instances wherein the Registrar of Companies directing companies to file a
copy of agreement(s) cross referenced in the Articles of Association or where Articles carry a conflict
resolution provision between the Articles and an agreement.
[s 15.4] Penalty [Section 15 (2) of the Companies Act, 2013]
A defaulting company and every member of the company who is a party to such default attracts a
penalty of Rs 1000 for every copy of the memorandum or articles issued without incorporating
alterations. This penalty is provided within section 15(2) of the 2013 Act, a penal provision which
provides for non-compliance read with section 15(1) of the 2013 Act.
As per section 441 (Compounding of certain offence) of the 2013 Act, the offence under section 15 is
compoundable in nature.
S. 40. Alteration of memorandum or articles, etc., to be noted in every copy.—(1) Where an alteration is made in
the memorandum or articles of a company, 76[***] or any resolution, referred to in section s.192, every copy of the
memorandum, articles, agreement or resolution issued after the date of the alteration shall be in accordance with the
alteration. The Companies Act, 1956 provision
(2) If, at any time, the company issues any copies of the memorandum, articles, resolution or agreement, which are not
in accordance with the alteration or alterations made therein before that time, the company, and every officer of the
company who is in default, shall be punishable with fine which may extend to 77[one hundred rupees] for each copy so
issued.
Mr. Laghir1 Rabari

Page 3 of 4
NOTES
English Act, 1948 : Section 25 Companies Act, 1913 : Section 25A
In sub-clause (1), reference has been made to certain resolutions and agreements which have also to be treated in the
same way as articles of the company. [Clause 35 of the Companies Bill, 1953 (46 of 1953)].
The Companies (Amendment) Act, 2000 (53 of 2000).—The Notes on clauses explained as follows:
“This clause, inter alia, seeks to enhance the fine specified in sub-section (2) of section 40 of the Act from ten rupees
to one hundred rupees.” [Clause 11 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
[s 15.7] Corrected or altered copy to be issued [Section 40(1) of the Companies Act, 1956]
Corrected copy of the Memorandum, Articles, Agreements and Resolutions as on the date of issue
should be supplied to the members.
Section 39 imposes a duty on the company and its officers to supply within seven days of demand
copies of Memorandum, Articles, Resolutions and Agreements.
Mr. Laghir1 Rabari

Page 4 of 4
Section 40 imposes a further duty that Memorandum, Articles, Resolutions and Agreements supplied
should be corrected up to the date of despatch.
For issuing at any time copies of memorandum, articles, resolutions or agreements which are not in
accordance with the alterations made therein before that time, the company and every officer who is
in default shall be punishable with fine upto Rs 100 for each copy so issued.
76 The words, brackets, letter and figures “in the agreement referred to in clause (c) of sub-section (1) of section 39 or in
any other agreement” omitted by the Companies (Amendment) Act, 2000 (53 of 2000), section 11 (w.e.f. 13 December
2000).
77 Substituted Act 53 of 2000, section 11, for “Rs 10” (w.e.f. 13-12-2000).
End of Document
Mr. Laghir1 Rabari

corresponds to section 22 of the 1956 Act. [S. 16. Rectification of name of
company.—
THERETO

INCIDENTAL THERETO
78 [S. 16. Rectification of name of company.—
(1) If, through inadvertence or otherwise, a company on its first registration or on its registration
by a new name, is registered by a name which,—
(a) in the opinion of the Central Government,79 is identical with or too nearly resembles the
name by which a company in existence had been previously registered, whether under
this Act or any previous company law, it may direct the company to change its name and
the company shall change its name or new name, as the case may be, within a period of
three months from the issue of such direction, after adopting an ordinary resolution for the
purpose;
(b) on an application by a registered proprietor of a trade mark that the name is identical with
or too nearly resembles to a registered trade mark of such proprietor under the Trade
Marks Act, 1999, made to the Central Government80 within three years of incorporation or
registration or change of name of the company, whether under this Act or any previous
company law, in the opinion of the Central Government, is identical with or too nearly
resembles to an existing trade mark, it may direct the company to change its name and
the company shall change its name or new name, as the case may be, within a period of
six months from the issue of such direction, after adopting an ordinary resolution for the
purpose.
(2) Where a company changes its name or obtains a new name under sub-section (i), it shall
within a period of fifteen days from the date of such change, give notice of the change to the
Registrar along with the order of the Central Government, who shall carry out necessary
changes in the certificate of incorporation and the memorandum.
(3) If a company makes default in complying with any direction given under sub-section (i), the
company shall be punishable with fine of one thousand rupees for every day during which the
default continues and every officer who is in default shall be punishable with fine which shall
not be less than five thousand rupees but which may extend to one lakh rupees.
NOTES
04-2014. Section 16 of the 1956 Act corresponds to section 22 of the 1956 Act.
Mr. Laghir1 Rabari

Page 2 of 8
Act. [S. 16. Rectification of name of company.—
[s 16.1] Legislative History:
THE COMPANIES ACT, 2013 (18 OF 2013).—The Notes on Clauses to the Companies Bill, 2011, provided
the following in respect of section 16 of 2013 Act:
“Clause 16.—This clause corresponds to section 22 of the Companies Act, 1956 and seeks to empower the Central
Government to give direction to the company to rectify its name if the name registered is identical with or too nearly
resembles the name, by which a company in existence has been previously registered, or the name is identical with or
too nearly resembling to a registered trade mark. The clause further provides that if default is made in complying with
any direction given under sub-clause (1) the company and every officer who is in default shall be punishable with fine.”
The significant difference between section 16 of 2013 Act and 22 of 1956 Act is with respect to time
period and the penalty amount.
Section 16(1)(a) and (b) empowers the central government to direct a company to rectify its name, if
the registered name, whether under this Act or any previous company law, is either identical with or
too nearly resembles the name of:
(i) an existing company: the rectification is to be made within a period of three months from the
issue of such directions of the central government, after adopting an ordinary resolution for
the purpose; or
(ii) an existing trade mark under the Trade Marks Act, 1999 as per the application by a registered
proprietor of a trade mark made within three years of incorporation or registration or change
of name of the company: the rectification is to be made within a period of six months from the
issue of such direction.
Such rectifications are to be made only after the said company adopts an ordinary resolution for this
purpose.
[s 16.4] Notice to the Registrar
Within a period of 15 days from the date of change of name or obtainment of a new name under
sections (1), notice, along with the order of the Central Government, is to be given to the Registrar by
the company. The Registrar shall then carry out necessary changes in the certificate of incorporation
and the memorandum.
[s 16.5] Penalty
Under Section 16(3), a defaulting company attracts a fine of Rs 1,000 for every day during which the
default continues. This section simultaneously imposes a fine which shall not be less than Rs 5,000
Mr. Laghir1 Rabari

Page 3 of 8
but which may extend to one lakh rupees, on every defaulting officer of such company.
[s 16.6] Delegation of powers to Regional Director
The powers of the Central Government under section 16 have been delegated to the Regional
Directors by Notification No. S.O. 1352(E), dt. 21 May 2014.
As per section 441 (Compounding of certain offence) of the 2013 Act, the offence under section 16 is
compoundable in nature.
S. 22. Rectification of name of company.—(1) 81[If, through inadvertence or otherwise, a company on its first
registration or on its registration by a new name, is registered by a name which,— The Companies Act, 1956
provision
(i) in the opinion of the Central Government, is identical with, or too nearly resembles, the name by which a
company in existence has been previously registered, whether under this Act or any previous companies law,
the first-mentioned company, or
(ii) on an application by a registered proprietor of a trade mark, is in the opinion of the Central Government
identical with, or too nearly resembles, a registered trade mark of such proprietor under the Trade Marks Act,
1999 (Act No. 47 of 1999), such company,—]
(a) may, by ordinary resolution and with the previous approval of the Central Government signified in writing,
change its name or new name; and
(b) shall, if the Central Government so directs within twelve months of its first registration or registration by
its new name, as the case may be, or within twelve months of the commencement of this Act, whichever
is later, by ordinary resolution and with the previous approval of the Central Government signified in
writing, change its name or new name within a period of three months from the date of the direction or
such longer period as the Central Government may think fit to allow.
82[Providedthat no application under clause (ii) made by a registered proprietor of a trade mark after five years of
coming to notice of registration of the company shall be considered by the Central Government.]
(2) If a company makes default in complying with any direction given under clause (b) of sub-s. (1), the company, and
every officer who is in default, shall be punishable with fine which may extend to 83[one thousand rupees] for every day
during which the default continues.
Mr. Laghir1 Rabari

Page 4 of 8
NOTES
English Act, 1948 : Section 18(2) Companies Act, 1913 : Section 11(2)
“Compare section 11(2) of the existing Act and section 18(2) of the English Act.” [Clause 19 of the Companies Bill,
1953 (46 of 1953)].
OF 1999).—Sections 20 and 22 of the Companies Act, 1956 (1 of 1956)

regarding Companies not to be registered with undesirable names and Rectification of name of
company have been amended by the Trade Marks Act, 1999 (47 of 1999) (w.e.f. 15 September
2003).
“This clause seeks to enhance the fine specified in sub-section (2) of section 22 of the Act from Rs 100 to Rs 1,000.”
NB that this amendment Act has been repealed by the Repealing and Amending Act, 2016.
[s 16.9] Rectification of Name of company [Section 22(1)(a) of the Companies Act, 1956]
If through inadvertence or otherwise the name of a company is identical or too nearly resembles (i)
the name of an existing company registered prior to such company, or (ii) a trade mark registered
under the Trade Marks Act, 1999, the company may change the name by an ordinary resolution and
approval of the Central Government.
[s 16.10] Ordinary Resolution
To rectify the company’s Name with the previous approval of the Central Government [powers
delegated to the Regional Directors] an Ordinary Resolution is required to be passed. [section
Mr. Laghir1 Rabari

Page 5 of 8
22(1)(a) of the 1956 Act].
For provisions relating to Ordinary Resolution and matters requiring sanction of shareholders by
Ordinary Resolution see Notes under section 189.
[s 16.11] Direction for Changing the Name [Section 22(1)(b) of the Companies Act, 1956]
The Central Government may within 12 months direct the company to change its name, if in its
opinion the name is identical or too nearly resembles (i) the name of an existing company registered
prior to such company, or (ii) a trade mark registered under the Trade Marks Act, 1999 on an
application by the registered proprietor. Within three months of such direction the company must
comply with it.
The time-limit for exercise of discretionary power of the Central Government for rectification is
prescribed in essence for invoking its power under section 22. However, the Central Government
does not have jurisdiction to give any direction after 12 months of registration of the company.84
Further, the power of rectification of name of a company vested in the Central Government in section
22 of the 1956 Act (now section 16 of the 2013 Act) is limited to form an opinion as to whether the
name was identical with or too nearly resembled with the name of an existing company. Therefore
when the name of the company resembled the name of a mark which was not registered, then, the
Regional Director cannot direct the petitioner to rectify its name.85
[s 16.12] Limitation [Sub-section (1), Proviso]
No application under clause (ii) made by a registered proprietor of a trade mark after five years of
coming to notice of registration of the company shall be considered by the Central Government.
An application filed after the expiry of this period was not entertained.86
[s 16.13] Delegation of Powers to the Regional Directors
The powers and functions of the Central Government under section 22 have been delegated to the
Regional Directors at Bombay, Calcutta, Madras and Kanpur. [Notification No. G.S.R. 288(E), dt. 31-
05-1991 :
[s 16.14] Natural Justice
Order directing the change of name of the company under section 22(1)(b) of the 1956 Act is a quasi-
judicial order having civil consequences. Therefore, the authority, i.e., the Regional Director taking
decision must record the reasons for passing the order so that all concerned can come to know on
what ground the order was passed. The order must be a speaking order observing the principles of
natural justice. A non-speaking order or an order denying opportunity of being heard would be liable
to be quashed and set aside.87
[s 16.15] Writ
The Central Government [the Regional Director] may direct the company to change its name within
12 months. The provision for a period of 12 months cannot be interfered with or the period cannot be
Mr. Laghir1 Rabari

Page 6 of 8
extended in any writ proceedings.88
[s 16.16] Stay or injunction
But the period of stay or injunction should be excluded in computing the period of 12 months laid
down in section 22(1)(b) of the 1956 Act.89
[s 16.17] Passing off action
After expiry of period of 12 months an action to restrain the use of name and passing off is
maintainable. The jurisdiction of the Regional Director is confined to section 22 of the 1956 Act. He
cannot exercise the jurisdiction of a civil court in a passing off action.90
[s 16.18] Name of the Company—Similar to existing name
The Registrar of Companies (ROC) has the power to restrain use of a name by a Company similar to
the name of an Incorporated Company. The Registrar of Companies (ROC) directed the petitioner
Company to change its name. The Company filed a writ petition challenging the Order of Regional
Director (RD). The High Court held by dismissing the writ petition that the order was legally
acceptable and supported by sufficient reasons. The names were found either identical or too similar.
The Order of the Regional Director (RD) was valid and the writ petition was dismissed.91
[s 16.19] Phonetic resemblance
To pass an order under section 22 of the 1956 Act the requirement is that the names should be found
either identical or too similar or resembling. Where all the words in names of both the companies
were exactly the same and the words “Lloyd” and “Lords” phonetically resembled each other and the
products of both the companies were also the same. The order by the Regional Director directing the
company to change the name was for legally acceptable and sufficient reasons. The writ petition for
quashing the order of the Regional Director was dismissed.92
[s 16.20] Name with permission or no objection letter
A company was incorporated at Madras with the word “Kilburn” in its name with the permission or no
objection letter from a Calcutta based company. The Madras company floated two other companies
with name “Kilburn” and got them registered at Madras. It was held that the permission or no
objection of the Calcutta company did not extend to two other companies. The order for change of
names of the two new companies under section 22(1)(b) of the 1956 Act was therefore justified.93
[s 16.21] Right to use the Family or Surname
Where the petitioner-company “Hira Lal and Sons (Export) Pvt Ltd” was incorporated in the year
1973. The Registrar of Companies (ROC) allowed respondent-company to be incorporated with the
name “Hira Lall and Sons (I) Pvt Ltd” in July 2000. The petitioner filed a representation under section
22 of the 1956 Act and the Registrar of Companies (ROC) directed respondent-company to change
its name by suffixing “Anupam” being the name of its Director “Hira Lall and (Sons) (I) Anupam Pvt
Ltd”. On a writ petition, contending that name of the respondent-company was identical with that of
the petitioner-company. Dismissing the writ petition, it was held that under section 20(2) of the 1956
Act the name which is identical with or too nearly resembles the name by which a company in
existence has been previously registered would be deemed to be undesirable by the Central
Government within the meaning of section 20(1) of the 1956 Act. If it had been the case of an
outsider using “Hira Lal and Sons” as prefix to its name there might have been some substance in the
contention of the petitioner. That was not so as the petitioner-company as well as respondent-
company were persons with common family roots. From the No Objection Certificate (NOC), dt. 10
September 2000 given by the Directors of the petitioner-company it could be inferred that there was
an oral understanding at the time of incorporation of respondent-company for using the name of their
Mr. Laghir1 Rabari

Page 7 of 8
grandfather “Hira Lall”. Moreover, the petitioner-company was doing different business from
respondent-company. Since Hira Lall was the grandfather of the parties the right to use the family or
surname could not be denied or treated as unauthorised. After the change of name of respondent-
company to “Hira Lall and (Sons) (I) Anupam Pvt Ltd” it would not come under the mischief of section
20(2) of the 1956 Act.94
[s 16.22] Geographical names
The commercial use of geographical names is universally well known. Merely by using “Manipal” as
part of the corporate name of the companies incorporated by defendants, the names of those
companies could not be said to be identical or so closely resembling the name of plaintiffs, as to
mislead, cause confusion, or result in unfair exploitation of the goodwill earned by plaintiffs
companies. The application for permanent and interim injunction was therefore dismissed.95
For failure to comply with any directions of the Central Government to change the name of the
company, the company and every officer who is in default shall be punishable with fine upto Rs 1,000
for every day of default.
81 Substituted by the Trade Marks Act, 1999 (47 of 1999), section 158 and Sch. [(w.e.f. 15 September 2003) vide
Notification No. S.O. 1048(E), dt. 15 September 2003, published in the Gazette of India, Extraordinary, No. 834, Pt II,
Section 3(ii) : (2003) 117 COMP CASES (St.) 156]. Prior to its substitution the opening portion stood as follows: “If,
through inadvertence or otherwise, a company on its first registration or on its registration by a new name, is registered
by a name which, in the opinion of the Central Government, is identical with, or too nearly resembles, the name by
which a company in existence has been previously registered, whether under this Act or any previous companies law,
the first-mentioned company—”.
82 Proviso added by the Trade Marks Act, 1999 (47 of 1999), section 158 and Sch. [(w.e.f. 15 September 2003) vide
Notification No. S.O. 1048(E), dated 15 September 2003, published in the Gazette of India, Extraordinary, No. 834, Pt
II, section 3(ii) : (2003) 117 COMP CASES (St.) 156].
83 Substituted by the Companies (Amendment) Act, 2000 (53 of 2000), section 8 (w.e.f. 13-12-2000), for “Rs 100”.
84 MRC Logistics Pvt Ltd v Regional Director, (2009) 151 Com Cas 466 : (2010) 1 Comp LJ 35 (Bom— DB).
85 International Trade & Exhibitions India Pvt Ltd v Regional Director, North, (2012) 106 CLA 15 : (2011) 110 SCL 1 (Del).
86 Technova Tapes (India) Pvt Ltd v Regional Director, Ministry of Co Affairs (Southern Region), (2010) 155 Com Cas 395
(Karn).
87 PinoBisazza Glass Pvt Ltd v Bisazza India Ltd, (2003) 114 COMP CASES 165 (Guj.); Sholay.com Pvt Ltd v Regional
Director, Government of India, (2004) 120 COMP CASES 114 (Mad.).
Mr. Laghir1 Rabari

Page 8 of 8
88 Sidhvi Constructions (India) Pvt Ltd v ROC, (1997) 90 COMP CASES 299 (AP); Hope Textiles Ltd v UOI, (1994) 205
ITR 508 (SC). See also Notes under section 20 of the 1956 Act.
89 Sen and Pandit Electronics Pvt Ltd v UOI, (2003) 115 COMP CASES 299 (Cal.) : AIR 1999 Cal 289 : (2000) 36 CLA 68
(Cal.).
90 KalpanaPolytec India Ltd v UOI, (2001) 106 COMP CASES 558 (Cal.) (DB); Concord International (Mauritius) Ltd v
Concord Tourist Guide Agency Ltd, (1985) LRC (Comm) 751 (CA).
91 Lords Insullations India Pvt Ltd v Regional Director, Department of Co Affairs, Southern Region, Chennai, (2004) 122
92 Lords Insullations India Pvt Ltd v Regional Director, Department of Co Affairs, Southern Region, Chennai, (2004) 122
93 Kilburn Electricals Ltd v Regional Director, (2000) 99 COMP CASES 243 (Mad.). See also Notes under section 20 of
the 1956 Act.
94 Hira Lal and Sons (Export) Pvt Ltd v UOI, (2005) 127 COMP CASES 904 (Delhi).
95 Manipal Housing Finance Syndicate Ltd v Manipal Stock and Share Brokers Ltd, (1999) 98 COMP CASES 432 (Mad.).
See also Notes under section 20 of the 1956 Act.
End of Document
Mr. Laghir1 Rabari

corresponds to section 39 of the 1956 Act. S. 17. Copies of memorandum,
articles, etc., to be given to members. —
THERETO

INCIDENTAL THERETO
97 S. 17. Copies of memorandum, articles, etc., to be given to members. 96

—
(1) A company shall, on being so requested by a member, send to him within seven days of the
request and subject to the payment of such fees as may be prescribed,98 a copy of each of
the following documents, namely:—
(a) the memorandum;
(b) the articles; and
(c) every agreement and every resolution referred to in sub-section (i) of section 117, if and
in so far as they have not been embodied in the memorandum or articles.
(2) If a company makes any default in complying with the provisions of this section, the company
and every officer of the company who is in default shall be liable for each default, to a penalty
of one thousand rupees for each day during which such default continues or one lakh rupees,
whichever is less.
NOTES
Section 17 of the 2013 Act was enforced vide Notification S.O. 902(E) dt. 26-03-2014 with effect
from 1-04-2014. Section 17 of the 2013 Act corresponds to section 39 of the 1956 Act.
as follows:
This clause corresponds to section 39 of the Companies Act, 1956 and seeks to provide that every company shall on
being so requested by a member, send copies of memorandum, and articles of association, agreement or resolution on
payment of fees.
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Page 2 of 5
Act. S. 17. Copies of memorandum, articles, etc.,....
[s 17.2] Member’s right to have copies of memorandum, articles, etc. [Sub-section (1) of
On payment of such fees as may be prescribed, a member is entitled to have, within seven days of
the request, from the company a copy each of the following documents:
(1) the Memorandum of Association;
(2) the Articles of Association; and
(3) every agreement and every resolution referred to in sub-section (1) of section 117, if and in
so far as they have not been embodied in the memorandum or articles.
As per rule 34 of the Companies (Incorporation) Rules, 2014*, copies of memorandum and articles,
etc. are to be given to members on request being made by them.
Apart from a few variations, sub-section (1) of section 17 of the 2013 Act largely corresponds to sub-
section (1) of section 39 of the 1956 Act. Under section 39 of the 1956 Act, copies of memorandum
and articles, etc. were to be given to members subject to the payment of fee of one rupee. Under
section 17 of the 2013 Act, the supply of copies of memorandum and articles, etc. is subject to
payment of fees as may be prescribed vide the Companies (Registration offices and Fees) Rules,
2014.*
[s 17.3] Penalty [Sub-section (2) of Section 17 of the Companies Act, 2013]
For failure to send to a member, copies of memorandum, articles, agreements and resolutions, within
seven days, the company and every officer who is in default shall be liable for each default, to a
penalty of Rs 1,000 for each day during which such default continues or Rs 1 lakh, whichever is less.
Under the 1956 Act, sub-section (2) of section 39 of the 1956 Act provided that the company and
every officer who is in default shall be punishable with a fine upto Rs 500 for each offence. Thus, the
penalty under the 2013 Act has been enhanced to Rs 1,000 for each day of default, as opposed to
Rs 500 for each offence. However, the maximum penalty has been capped at Rs 1 lakh. Further, the
term “offence” used under section 39(2), 1956 Act has been replaced with the term “default” under
[s 17.4] Alteration of Memorandum or Articles to be noted in every copy
As per section 15 of the 2013 Act (section 40 under 1956 Act), where alteration is made in the
memorandum or articles of the company, every alteration shall be noted in every copy of the
memorandum, articles, etc. Penalty for default in issuing copy of the memorandum or articles without
such alteration has been provided under sub-section (2) of section 15 of the 2013 Act (corresponding
to section 40(2) of the 1956 Act).
Mr. Laghir1 Rabari

Page 3 of 5
S. 39. Copies of memorandum and articles, etc., to be given to members.—(1) A company shall, on being so
required by a member, send to him within seven days of the requirement and subject to the payment of a fee of one
rupee, a copy each of the following documents as in force for the time being— The Companies Act, 1956 provision
(a) the memorandum;
(b) the articles, if any;
1[(c)* * * ]; and
(d) every other agreement and every resolution referred to in section 192, if and in so far as they have not been
embodied in the memorandum or articles.
(2) If a company makes default in complying with the requirements of this section, the company, and every officer of
the company who is in default, shall be punishable, for each offence, with fine which may extend to 2[five hundred
rupees].
NOTES
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on clauses explained this section 39 of the 1956 Act as
follows:
This clause corresponds to section 25 of the existing Act and section 24 of the English Act. Power has been conferred
in general terms on any company to reduce any fee or charge etc. payable to it (clause 591) [Section 636]. Hence the
omission of the words ‘or such less sum as the company may prescribe’ which occur in the existing Act. In sub-clause
(2) reference has been made to the officer of the company who is in default—compare section 24(2) of the English Act.
this section 39 of the 1956 Act as follows:
Mr. Laghir1 Rabari

Page 4 of 5
“This clause seeks to omit clause (c) in sub-section (1) of section 39 of the Act relating to managing agent, secretaries
and treasurers and also seeks to enhance the fine specified in sub-section (2) of that section from fifty rupees to five
hundred rupees.” [Clause 10 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
This Amendment Act was repealed by the Repealing and Amending Act, 2016.
[s 17.6] Member’s right to copies of certain other documents
A member is also entitled to copies of certain other documents under the following sections.
[s 17.7] Minute Book [Section 196 of the Companies Act, 1956]
Under section 196 of the 1956 Act (section 119 under the 2013 Act) a member may inspect and take
copies of the Minute Book of General Meetings but not the Minute Book of Board Meetings.
[s 17.7] Balance Sheet [Section 219 of the Companies Act, 1956]
A member is entitled to copies of the company’s balance sheet with all its enclosures under section
219 of the 1956 Act. [section 136 under the 2013 Act]
[s 17.8] Cause of action for failure to deliver documents
1956 Act, i.e., for failure to deliver the documents or share certificates, etc., within the prescribed
time, read with section 53 of the 1956 Act, would arise where the registered office of the company is
situated. Section 53 of the 1956 Act prescribes the mode of delivery, inter alia, by sending the
document by post and section 53(2) of the 1956 Act is the deeming provision for delivery of such
letter. So, if the documents are posted within the stipulated time, there would be compliance with the
section and there would not be any offence.3 Under the 2013 Act, mode of delivery of documents is
prescribed under section 20.
[s 17.9] Order of compromise or arrangements [Section 391 of the Companies Act, 1956]
As per section 391(4) of the 1956 Act, a copy of every order shall be annexed to every copy of the
memorandum of the company issued after the certified copy of the order has been filed. Under the
2013 Act, Section 230 pertains to power to compromise or make arrangements with creditors and
members, however, there is no explicit requirement to annex a copy of every order to every copy of
the memorandum of the company.
98 The Companies (Registration offices and fees) Rules, 2014. For the text of Rules refer Appendix 20.
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1 Omitted by the Companies (Amendment) Act, 2000 (53 of 2000), section 10 (w.e.f. 13-12-2000). The system of
managing agency had already been abolished vide section 324A of the 1956 Act, as inserted by the Companies
(Amendment) Act, 1969 (17 of 1969), section 4 (w.e.f. 3-04-1970).
3 H.V. Jayaram v ICICI Ltd, (2000) 99 COMP CASES 341 (SC); Hanuman Prasad Gupta v Hiralal, (1970) 40 COMP
CASES 1058 (SC) : AIR 1971 SC 206 : (1970) 2 Comp. LJ 195 (SC); Karnataka Bank Ltd v B. Suresh, (2001) 105
COMP CASES 110 (Kar.).
End of Document
Mr. Laghir1 Rabari

corresponds to section 32 of the 1956 Act. S. 18. Conversion of companies
already registered.—
THERETO

INCIDENTAL THERETO
4 S. 18. Conversion of companies already registered.—
(1) A company of any class registered under this Act may convert itself as a company of other
class under this Act by alteration of memorandum and articles of the company in accordance
with the provisions of this Chapter.
(2) Where the conversion is required to be done under this section, the Registrar shall on an
application made by the company, after satisfying himself that the provisions of this Chapter
applicable for registration of companies have been complied with, close the former
registration of the company and after registering the documents referred to in sub-section (1),
issue a certificate of incorporation in the same manner as its first registration.
(3) The registration of a company under this section shall not affect any debts, liabilities,
obligations or contracts incurred or entered into, by or on behalf of the company before
conversion and such debts, liabilities, obligations and contracts may be enforced in the
manner as if such registration had not been done.
NOTES
Section 18 of the 2013 Act was enforced vide Notification S.O. 902(E) dt. 26-03-2014, with effect
as follows:
This clause corresponds to section 32 of the Companies Act, 1956 and seeks to provide that a company may convert
itself in some other class of company by altering its memorandum and articles of association. The conversion shall not
affect any debts, liabilities, obligations or contracts incurred or entered into by the company.
Mr. Laghir1 Rabari

Page 2 of 9
Act. S. 18. Conversion of companies already regist....
[s 18.2] Conversion of companies already registered [Sub-section (1) of Section 18 of the

The 2013 Act, vide section 18(1), provides that a company of any class registered under the 2013 Act
may convert itself as a company of other class under the 2013 Act by alteration of memorandum and
articles of the company. While section 32 of the 1956 Act provided for the registration of an unlimited
company as a limited company and re-registration of a limited company, Section 18 of the 2013 Act is
couched in wider terms. Section 18 of the 2013 Act enables the conversion of a One Person
Company into a public company or a private company (excepting a section 8 company), conversion
of private company into One Person Company, conversion of unlimited liability company into a limited
liability company by shares or guarantee, conversion of company limited by guarantee into a
company limited by shares.
[s 18.3] Procedure of conversion [Sub-section (2) of Section 18 of the Companies Act, 2013]
Upon an application of conversion being made by the Company, the Registrar, after satisfying himself
that the provisions applicable for registration of companies have been complied with, shall close the
former registration of the company. After registering the documents referred to in section 18(1) of the
2013 Act, the registrar shall issue a certificate of incorporation in the same manner as its first
registration. Sub-section (2) of section 32 of the 1956 Act is the corresponding provision.
[s 18.4] Conversion of a private company into a public company and vice versa
See Notes under sections 13 and 14 of the 2013 Act.
[s 18.5] Conversion of a company registered under section 8 of the 2013 Act into a company
of any other kind
[s 18.6] Conversion of One Person Company into a public company or a private company in
certain cases
A One Person Company may be formed for any lawful purpose by one person, as per section 3 of the
2013 Act. Rule 6 of the Companies (Incorporation) Rules, 2014* provides for the procedure of
converting a One Person Company into a public company or a private company.
6. One Person Company to convert itself into a public company or a private company in certain cases.—
(1) Where the paid up share capital of an One Person Company exceeds 50 lakh rupees and its average annual
turnover during the relevant period exceeds two crore rupees, it shall cease to be entitled to continue as a
One Person Company.
(2) Such One Person Company shall be required to convert itself, within six months of the date on which its paid
up share capital is increased beyond Rs 50 lakh or the last day of the relevant period during which its
average annual turnover exceeds two crore rupees as the case may be, into either a private company with
minimum of two members and two directors or a public company with at least of seven members and three
directors in accordance with the provisions of section 18 of the Act.
(3) The One Person Company shall alter its memorandum and articles by passing a resolution in accordance with
sub-section (3) of section 122 of the Act to give effect to the conversion and to make necessary changes
incidental thereto.
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(4) The One Person Company shall within period of 60 days from the date of applicability of sub-rule (1), give a
notice to the Registrar in Form No. INC. 5 informing that it has ceased to be a One Person Company and that
it is now required to convert itself into a private company or a public company by virtue of its paid up share
capital or average annual turnover, having exceeded the threshold limit laid down in sub-rule (1).
• Explanation.—For the purposes of this rule,- “relevant period” means the period of immediately preceding
three consecutive financial years;
(5) If One Person Company or any officer of the One Person Company contravenes the provisions of these rules,
One Person Company or any officer of the One Person Company shall be punishable with fine which may
extend to Rs 10,000 and with a further fine which may extend to Rs 1,000 for every day after the first during
which such contravention continues.
(6) A One Person company can get itself converted into a Private or Public company after increasing the
minimum number of members and directors to two or minimum of seven members and two or three directors
as the case may be, and by maintaining the minimum paid-up capital as per requirements of the Act for such
class of company and by making due compliance of section 18 of the Act for conversion.
[s 18.7] Conversion of private company into One Person Company
Rule 7 of the Companies (Incorporation) Rules, 2014* provides for the procedure of converting a
private company into One Person Company.
“7. Conversion of private company into One Person Company.—(1) A private company other than a company
registered under section 8 of the Act 5[having paid up share capital of Rs 50 lakhs or less and average annual turnover
during the relevant period] two crore rupees or less may convert itself into one person company by passing a special
resolution in the general meeting.
(2) Before passing such resolution, the company shall obtain No objection in writing from members and creditors.
(3) The one person company shall file copy of the special resolution with the Registrar of Companies within 30 days
from the date of passing such resolution in Form No. MGT. 14.6
(4) The company shall file an application in Form No. INC. 6 for its conversion into One Person Company along with
fees as provided in in the Companies (Registration Offices and Fees) Rules, 2014**, by attaching the following
documents, namely:—
(i) The directors of the company shall give a declaration by way of affidavit duly sworn in confirming that all
members and creditors of the company have given their consent for conversion, the paid up share capital
company is Rs 50 lakhs or less or average annual turnover is less than two crores rupees, as the case may
be;
(ii) the list of members and list of creditors;
(iii) the latest Audited Balance Sheet and the Profit and Loss Account; and
(iv) the copy of No Objection letter of secured creditors.
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Page 4 of 9
(5) On being satisfied and complied with requirements stated herein the Registrar shall issue the Certificate.”
[s 18.8] Conversion of a public company into a One Person Company
There is no explicit provision / procedure for the conversion of a public company into a One Person
Company. As such, a public company may be required to convert into a private company and then
subsequently into a One Person Company.
[s 18.9] Conversion of unlimited liability company into a limited liability company by shares
or guarantee
Rule 37 of the Companies (Incorporation) Rules, 2014, inserted vide Notification G.S.R. 743(E) dt.
27-07-2016, provides for the procedure of converting an unlimited liability company into a limited
liability company by shares or guarantee.
37. Conversion of unlimited liability company into a limited liability company by shares or guarantee.—
(1)Without prejudice to any other provision in the Companies Act, for effecting the conversion of an unlimited liability
company with or without share capital into limited liability company by shares or guarantee, such a company shall pass
a special resolution in a general meeting and thereafter, an application shall be filed in Form No. INC-27 in the manner
provided in sub-rules (2) and (3).
(2) The Company shall within seven days from the date of passing of the special resolution in a general meeting,
publish a notice, in Form No. INC-27A of such proposed conversion in two newspapers (one in English and one in
vernacular language) in the district in which the registered office of the company is situate and shall also place the
same on the website of the Company, if any, indicating clearly the proposal of conversion of the company into a
company limited by shares or guarantee, and seeking objections if any, from the persons interested in its affairs to
such conversion and cause a copy of such notice to be dispatched to its creditors and debentures holders made as on
the date of notice of the general meeting by registered post or by speed post or through courier with proof of dispatch.
The notice shall also state that the objections, if any, may be intimated to the Registrar and to the company within 21
days of the date of publication of the notice, duly indicating nature of interest and grounds of opposition.
(3) The Company shall within 45 days of passing of the special resolution file an application as prescribed in sub rule
(1) for its conversion into a company limited by shares or guarantee along with the fees as provided in the Companies
(Registration Offices and Fees) Rules, 2014*, by attaching the following documents, namely:—
(a) notice of the general meeting along with explanatory statement;
(b) copy of the resolution passed in the general meeting;
(c) copy of the newspaper publication;
(d) a copy of altered Memorandum of Association as well as Articles of Association duly certified by any one of
the Directors duly authorised in this behalf or Company Secretary of the Company, if any.
(e) declaration signed by not less than two Directors of the Company, including Managing Director, if any, that
such conversion shall not affect any debts, liabilities, obligations or contracts incurred or entered into by or on
Mr. Laghir1 Rabari

Page 5 of 9
behalf of the Company before conversion (except to the extent that the liability of the members shall become
limited).
(f) a complete list of creditors and debenture holders, to whom individual notices have been sent under sub rule
(2) setting forth the following details, namely:-
(i) the names and address of every creditor and debenture holder of the Company;
(ii) the nature and respective amounts due to them in respect of debts, claims or liabilities:
(iii) declaration by a Director of the Company that notice as required under sub-rule (2) has been dispatched
to all the creditors and debenture holders with proof of dispatch.
(g) a declaration signed by not less than two Directors of the Company, one of whom shall be a Managing
Director where there is one, to the effect that they have made a full enquiry into the affairs of the Company
and, having done so, have formed an opinion that the list of creditors is correct, and that the estimated value
as given in the list of the debts or claims payable on a contingency are proper estimates of the values of such
debts and claims and that there are no other debts or claims against the company to their knowledge.
(h) a declaration of solvency signed by at least two Directors of the Company, one of whom shall be the Managing
Director, where there is one to the effect that the Board of Directors of the Company have made a full inquiry
into the affairs of the company, as a result of which they have formed an opinion that it is capable of meeting
its liabilities and will not be rendered insolvent within a period of one year from the date of declaration,
through a resolution, passed in a duly convened meeting or by circulation.
(i) The company shall also obtain a certificate from the Auditors that the company yis solvent and that it is a
going concern as on the date of passing of resolution by the Board certifying solvency as per clause (h)
above.
(j) No Objection Certificate from sectoral regulator, if applicable.
(k) No Objection Certificate from all secured creditors, if any.
(4) Declaration signed by not less than two Directors including Managing Director, where there is one, that no
complaints are pending against the company from the members or investors and no inquiry, inspection or investigation
is pending against the company or its Directors or officers.
(5) The Registrar shall, after considering the application and objections if any, received by the Registrar and after
ensuring that the company has satisfactorily addressed the objections received by the company, suitably decide
whether the approval for conversion should or should not be granted.
(6) The certificate of incorporation consequent to conversion of unlimited liability company to into a company limited by
shares or guarantee be in Form INC-11A issued to the company upon grant of approval for conversion.
(7) Conditions to be complied with, subsequent to conversion.—
(1) Company shall not change its name for a period of one year from the date of such conversion.
(2) The company shall not declare or distribute any dividend without satisfying past debts, liabilities, obligations or
contracts incurred or entered into before conversion.
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Page 6 of 9
• Explanation: For the purpose of this clause, past debts, liabilities, obligations or contracts does not include
secured debts due to banks and financial institutions.
(8) An Unlimited Liability Company shall not be eligible for conversion into a company limited by shares or guarantee in
case—
(a) its net worth is negative, or
(b) an application is pending under the provisions of the Companies Act, 1956 or the Companies Act, 2013 for
striking off its name, or
(c) the company is in default of any of its Annual Returns or financial statements under the provisions of the
Companies Act, 1956 or the Companies Act, 2013, or
(d) a petition for winding up is pending against the company, or
(e) the company has not received amount due on calls in arrears, from its directors, for a period of not less than
six months from the due date; or
(f) an inquiry, inspection or investigation is pending against the company.
(9) The Registrar of Companies shall take a decision on the application filed under these rules within 30 days from the
date of receipt of application complete in all respects.
[s 18.10] Conversion of company limited by guarantee into a company limited by shares
Vide Notification G.S.R. 936 (E) dt. 1-10-2016, Rule 39 shall be inserted in the Companies (Incorporation) Rules, 2014*
with effect from 1-11-2016, providing for conversion of a company limited by guarantee into a company limited by
shares.
39. Conversion of a company limited by guarantee into a company limited by shares.—(1) A company other than
a company registered under section 25 of the Companies Act, 1956 or section 8 of the Companies Act, 2013 may
convert itself into a company limited by shares.
(2) The company seeking conversion shall have a share capital equivalent to the guarantee amount.
(3) A special resolution is passed by its members authorising such a conversion omitting the guarantee clause in its
Memorandum of Association and altering the Articles of Association to provide for the articles as are applicable for a
company limited by shares.
(4) A copy of the special resolution shall be filed with the Registrar of Companies in Form no. MGT- 14 within 30 days
Mr. Laghir1 Rabari

Page 7 of 9
from the date of passing of the same along with fee as prescribed in the Companies (Registration Offices and Fees)
Rules, 2014.
(5) An application in Form No. INC-27 shall be filed with the Registrar of Companies within 30 days from date of the
passing of the special resolution enclosing the altered Memorandum of Association and altered Articles of Association
and a list of members with the number of shares held aggregating to a minimum paid up capital which is equivalent to
the amount of guarantee hither to provided by its members.
(6) The Registrar of Companies shall take a decision on the application filed under these rules within 30 days from the
date of receipt of application complete in all respects and upon approval of Form No. INC-27, the company shall be
issued with a certificate of incorporation in Form No. INC-11B.
[s 18.11] Debts, liabilities, obligations or contracts [Sub-section (3) of Section 18 of the

Any debts, liabilities, obligations or contracts entered into, by or on behalf of the company before conversion shall not
be affected. As per Section 18(3) of the Companies Act, 2013, such debts, liabilities, obligations and contracts may be
enforced in the manner as if such registration had not been done.
S. 32. Registration of unlimited company as limited, etc.—(1) Subject to the provisions of this section,— The
(a) a company registered as unlimited may register under this Act as a limited company; and
(b) a company already registered as a limited company may re-register under this Act.
(2) On registration in pursuance of this section, the Registrar shall close the former registration of the company, and
may dispense with the delivery to him of copies of any documents with copies of which he was furnished on the
occasion of the original registration of the company; but, save as aforesaid, the registration shall take place in the
same manner and shall have effect, as if it were the first registration of the company under this Act.
(3) The registration of an unlimited company as a limited company under this section shall not affect any debts,
liabilities, obligations or contracts incurred or entered into, by, to, with or on behalf of, the company before the
registration, and those debts, liabilities, obligations and contracts may be enforced in the manner provided by Part IX of
this Act in the case of a company registered in pursuance of that Part.
Mr. Laghir1 Rabari

Page 8 of 9
NOTES
follows:
“This section corresponds to section 16 of the English Act and section 67 of the existing Act. The provisions have been
generalised so that they may be applicable to all cases which may occur.” [Clause 27 of the Companies Bill, 1953 (46
of 1953)].
[s 18.13] Re-registration of a Company [Sub-section (1) of Section 32 of the Companies Act,

1956]
(a) An unlimited company may register itself as a limited company; and (b) A company may re-
register itself.
[18.14] Form and Procedure
Re-registration of a company involves change of name as the word “limited” has to be added to the
name. A special resolution and the approval of the Central Government will be required. Section 21
1956 Act (under the 2013 Act, see Section 13) will apply to such a change.
[s 18.15] Rights and liabilities not affected [Sub-section (3) of Section 32 of the Companies
Act, 1956]
Registration or re-registration will not affect the rights and liabilities before registration. The position
under the 2013 Act is similar (Sub-section (3) of Section 18 of the 2013 Act). Section 23(3) of the
1956 Act regarding effect of registration of change will be applicable in such cases.
5 Substituted for the words “having paid up share capital of Rs 50 lakhs or less or average annual turnover during the
relevant period is” by the Companies (Incorporation) Amendment Rules, 2015 vide G.S.R 349(E) dt. 01-05-2015.
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Page 9 of 9
6 This Form will be processed through STP mode. For clarification, see MCA General Circular No.28/2014, dt. 09-07-
2014.
End of Document
Mr. Laghir1 Rabari

7 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September
2013 and corresponds to section 42 of the 1956 Act. S. 19. Subsidiary
company not to hold shares in its holding company.—
THERETO

INCIDENTAL THERETO
7 S. 19. Subsidiary company not to hold shares in its holding company.—
(1) No company shall, either by itself or through its nominees, hold any shares in its holding
company and no holding company shall allot or transfer its shares to any of its subsidiary
companies and any such allotment or transfer of shares of a company to its subsidiary
company shall be void:
Provided that nothing in this sub-section shall apply to a case—
(a) where the subsidiary company holds such shares as the legal representative of a
deceased member of the holding company; or
(b) where the subsidiary company holds such shares as a trustee; or
(c) where the subsidiary company is a shareholder even before it became a subsidiary
company of the holding company:
Provided further that the subsidiary company referred to in the preceding proviso shall have a
right to vote at a meeting of the holding company only in respect of the shares held by it as a
legal representative or as a trustee, as referred to in clause (a) or clause (b) of the said
proviso.
(2) The reference in this section to the shares of a holding company which is a company limited
by guarantee or an unlimited company, not having a share capital, shall be construed as a
reference to the interest of its members, whatever be the form of interest.
NOTES
Section 19 of the 2013 Act was notified vide Notification S.O. 2754(E) and has been in effect from
12-09-2013. Section 19 of 2013 Act corresponds to section 42 of the 1956 Act.
Mr. Laghir1 Rabari

Page 2 of 8
7 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section
42 of the 1956 Act. S. 19. Subsidiary company not to ho....
as follows:
Clause 19.—This clause corresponds to section 42 of the Companies Act, 1956 and seeks to provide that subsidiary
company shall not hold shares in its holding company and no holding company shall allot or transfer its shares to any
of its subsidiary companies and any such allotment or transfer of shares of a company to its subsidiary company shall
be void.
[s 19.2] Analysis of Section
Section 19 of the 2013 Act provides that subject to the situations specified within the section, a
subsidiary company shall not hold shares, in case of a company having shares, or the interest of its
members, in case of a company limited by guarantee or an unlimited company not having share
capital, in its holding company.
This provision is applicable to companies which share the relationship of a holding and subsidiary
company. The term ‘Holding Company’ is defined under section 2(46) and the term ‘Subsidiary
Company’ is defined under section 2(87) of the 2013 Act.
See Notes on sections 2(46) and 2(87) in Chapter 1.
[s 19.3] Subsidiary company to not hold shares in its holding company
Section 19(1) prohibits a subsidiary company from holding shares in its holding company. This
provision applies to both, holding of shares through the subsidiary company itself or through its
nominees.
A holding company is also prohibited from allotting or transferring shares to any of its subsidiary
companies. In case a holding company makes such allotment or transfer of shares, it shall be void.
[s 19.4] Exceptions
The first proviso to section 19(1) of the 2013 Act lays down exceptions to the general prohibition
provided in section 19(1). The three circumstances under which a subsidiary company may hold
shares in its holding company are:
(i) The subsidiary company holds the shares of its holding company as a legal representative of
a deceased member of the holding company;
(ii) The subsidiary company holds the shares of its holding company as a trustee;
(iii) The subsidiary company was a shareholder before it became a subsidiary company of the
holding company.
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Page 3 of 8
The second proviso to section 19(1) of the 2013 Act provides that only where the subsidiary company
holds the shares of its holding company as a legal representative or as a trustee, it shall have the
right to vote at a meeting of the holding company.
[s 19.5] Prohibition on buy-back of its own shares by the holding company [Section 70]
In context of the prohibition laid down in section 19 of the 2013 Act, it is pertinent to note that under
section 70 of the 2013 Act no holding company can purchase its own shares or other specified
securities through any of its subsidiary company.
[s 19.6] Provision applicable to companies limited by guarantee and unlimited companies

having no share capital [Section 19(3)]
The prohibition under section 19 of the 2013 Act shall apply in case of companies limited by
guarantee and unlimited companies having no share capital. For this purpose, shares of a holding
company shall be construed as interest of its members. The interest being referred to in section 19(3)
may be in whatever form that the company may deem fit.
S. 42. Membership of holding company.—(1) Except in the cases mentioned in this section, a body corporate cannot
be a member of a company which is its holding company and any allotment or transfer of shares in a company to its
subsidiary shall be void. The Companies Act, 1956 provision
(2) Nothing in this section shall apply—
(a) where the subsidiary is concerned as the legal representative of a deceased member of the holding company;
or
(b) where the subsidiary is concerned as trustee, unless the holding company or a subisidiary thereof is
beneficially interested under the trust and is not so interested only by way of security for the purposes of a
transaction entered into by it in the ordinary course of a business which includes the lending of money.
(3) This section shall not prevent a subsidiary from continuing to be a member of its holding company if it was a
member thereof either at the commencement of this Act or before becoming a subsidiary of the holding company, but,
except in the cases referred to in sub-s. (2), the subsidiary shall have no right to vote at meetings of the holding
company or of any class of members thereof.
(4) Subject to sub-s. (2), sub-ss (1) and (3) shall apply in relation to a nominee for a body corporate which is a
subsidiary, as if references in the said sub-ss (1) and (3) to such a body corporate included references to a nominee
for it.
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(5) In relation to a holding company which is either a company limited by guarantee or an unlimited company, the
reference in this section to shares shall, whether or not the company has a share capital, be construed as including a
reference to the interest of its members as such, whatever the form of that interest.
NOTES
English Act, 1948 : Section 27 English Act, 1985 : Section 23
This section corresponds to section 27 of the English Act. Section 27 of the English Act has been incorporated in
accordance with the Company Law Committee’s recommendation in paragraph 40 of the Report. [Clause 37 of the
Section 30 of the present Act defines the members of a company. The original subscribers to a memorandum together
with those who subsequently become members constitute a company from the date of its registration, but it is desirable
to define more clearly the membership of a holding company than the Act at present does. We recommend that the
provisions of s. 27 of the English Companies Act, 1948, be adopted. Under this section of the English Act, no
subsidiary or its nominee can in future become a member of its holding company, except as a personal representative
or a trustee. In the latter case, neither the holding company nor the subsidiary may have any beneficial interest under
the trust except by way of security for the purpose of a transaction entered into in the ordinary course of a business,
which includes the lending of money. In regard to subsidiaries, which are already members of their holding companies,
they are permitted to retain their membership but can exercise no voting rights in future, except where they are
personal representatives or trustees. Further, any allotment or transfer of shares in a company to its subsidiary is
declared to be void. These salutary provisions constitute an attempt to maintain the separate operational identity of a
holding company and its subsidiary and thereby to preserve the respective shareholders’ control over them. In the
absence of any such provision, the affairs of a holding company and its subsidiary may, in the hands of unscrupulous
company managers, become inextricably involved and confused to the serious detriment of shareholders. [Report :
para 40].
[s 19.8] Object of the section
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Page 5 of 8
The object of this section is to maintain the separate operational identity of a holding company and its
subsidiaries and thereby preserve the respective shareholders’ control over them.8
A holding company and a subsidiary are two separate legal entities. It is true that occasionally the
corporate veil of a holding and subsidiary company is pierced through in order to find out the
substance but that is only where it is permitted by a statute or in exceptional cases of fraud.
See detailed Notes under sections 4 and 34 of the 1956 Act.
[s 19.9] Subsidiary not to be Member of its Holding Company [Sub-section (1)]
A subsidiary company cannot hold shares or be a member in its holding company. A body corporate
cannot be a member of a company which is its holding company and any allotment or transfer of
shares in a company to its subsidiary shall be void. The idea is also to stop holding companies to
exercise their position of influence in matters of voting at shareholder meetings.
[s 19.10] Section 42 not hit by Scheme of Amalgamation, Merger
A subsidiary company can buy the shares in the holding company where it is a part of a Scheme of
Amalgamation sanctioned by the Court [now the Tribunal (NCLT)]. Section 42 falls in that Part of the
1956 Act which deals with incorporation of company and matters incidental thereto. This Part deals
with the Memorandum of Association, Names of the companies, Articles of Association, Change of
the registration of companies and sections 41 and 42 of the 1956 Act deal with Membership of the
company. From a plain reading of section 42 of the 1956 Act it cannot be said that this section is
intended to be read with section 391, 392 or 394 of the 1956 Act at the time when the scheme of the
amalgamation is pending before the Court [now the Tribunal (NCLT)] for approval and when the
shareholders and the creditors have approved the same and the Registrar of Companies has also
filed an affidavit that the affairs of the company are not conducted in a manner prejudicial to the
shareholders or prejudicial to the public interest.9
The provisions of sections 391 to 394 of the 1956 Act are not controlled by the provisions of sections
42 and 77 of the 1956 Act. Therefore, the objection of the Official Liquidator or the Regional Director
that by merger, sections 42 and 77 of the 1956 Act which prohibit the holding of shares by a
subsidiary company in its holding company would be contravened was overruled.10
[s 19.11] Exceptions to section 42 [Sub-section (2)]
This section will not apply (a) where a subsidiary acts as the legal representative of a deceased
member of the holding company and (b) if the subsidiary is a trustee for some other shareholder, the
holding company or its subsidiary not being beneficiary except as lender of money in the usual
course of business.
[s 19.12] Subsisting holdings, no voting right [Sub-section (3)]
A company, which was a member before becoming a subsidiary, may retain its membership but the
subsidiary company shall not exercise any right of vote at any meeting of the holding company. A
subsidiary may retain its membership of the holding company if such membership was acquired
before 1 April 1956, but without any voting right.
[s 19.13] Subsidiary includes nominee [Sub-section (4)]
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Sub-sections (1) and (3) shall apply in relation to a nominee for a body corporate which is a
subsidiary. References to a body corporate in these sub-sections include references to a nominee for
it. This is subject to the provisions of sub-section (2).
The term “subsidiary” includes a nominee of the subsidiary. Legal representative includes heirs and
persons who in law represent the estate of the deceased person.11
[s 19.14] Guarantee company or unlimited company [Sub-section (5)]
Where the holding company is a company limited by guarantee or unlimited company the subsidiary
cannot have any interest in such company.
[s 19.15] Holding Company and Subsidiary Company
Section 4 of the 1956 Act explains the Meaning of Holding Company and Subsidiary Company.
Section 42 of the 1956 Act (1 of 1956) prohibits allotment of Shares of the Holding Company to a
Subsidiary Company.
The importance of relationship of Holding Company and Subsidiary Companies lies in preserving
operational identity, shareholders’ control over each of the companies and in the obligation to attach
Subsidiary’s Balance Sheet, Profit and Loss Account, Directors’ and Auditors’ Reports and a
Statement showing Holding Company’s interest in the Subsidiary Company, to the Balance Sheet of
the Holding Company.
[s 19.16] Balance sheet of Holding Company
Section 212 of the 1956 Act deals with Balance sheet of Holding Company to include certain
particulars as to its Subsidiaries. Section 213 confers powers on the Central Government to extend
financial year of the Subsidiary so that it ends with that of its Holding Company.
Section 214 of the 1956 Act provides for Inspection of Subsidiary Company’s Books of Accounts.
[s 19.17] Compliance Certificate—Holding Company and Subsidiary Company
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Check-List for issue of Compliance Certificate as contained in ICSI Guidance Note on Compliance
Certificate, on, inter alia, requires a PCS to check as follows.
[s 19.18.2] Check-List for other Compliances
a Practising Company Secretary (PCS) to check certain Sundry Items (General). Relevant
paragraphs on Holding Company and Subsidiary Company are reproduced below.
“(c) Holding Company and Subsidiary Company.—
Check whether:
(i) if during the year the company has become a ‘Holding Company’ or ‘Subsidiary Company’ under section 4 and
where the financial year of the subsidiary does not coincide with that of the holding company there should not
have been a gap in excess of six months between the financial year of the holding and subsidiary company;
(ii) in such cases the Balance sheet of Holding Company include certain particulars as to its Subsidiaries as
required under section 212;
(iii) where the Holding Company was unable to obtain the required information from its Subsidiaries check
whether a report in writing to that effect was attached to the Balance sheet of the Holding Company;
(iv) any exemption was obtained from the Central Government and if so whether the directions given by the
Central Government were complied with.”
“(j) Membership of Holding Company.—
Check whether :
(i) the company is a Member of a company which is its Holding Company;
(ii) the company which is a Member of its Holding Company has been allotted any shares or acquired further
shares after it became a Subsidiary as such allotment or transfer is void.”
“(b) In case of a Private Company which is a Subsidiary of a Public Company.—
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Check whether the company has a minimum paid-up capital of Rs 1 lakh or such higher paid up capital, as may be
prescribed. In case of existing company, check that it has enhanced its paid up capital as required within two years
from the commencement of the Companies (Amendment) Act, 2000 i.e. 13-12-2000.”
1956 Act.
8 Re Asian Investments Ltd, (1992) 73 COMP CASES 517 (Mad.). See also Notes under sections 100 to 102 of the 1956
Act.
9 Re Himachal Telematics Ltd and Himachal Futuristic Communications Ltd, (1996) 86 COMP CASES 325 (Delhi). See
also Notes under sections 77, 391, 392 and 394 of the 1956 Act.
10 Re New Vision Laser Centers (Rajkot) Pvt Ltd, (2002) 111 COMP CASES 756 (Guj.); Re, Consolidated Coffee Ltd,
(1999) 97 COMP CASES 1 (Kar.). See detailed Notes under sections 77 and 391 to 394 of the 1956 Act.
11 Dina Moni v Elahadut Khan, 8 Cal WN 848; Amarchandra v Sebak, 11 Cal WN 593.
End of Document
Mr. Laghir1 Rabari

corresponds to sections 51, 52 and 53 of the 1956 Act. S. 20. Service of
documents.—
THERETO

INCIDENTAL THERETO
12 S. 20. Service of documents.—
(1) A document may be served on a company or an officer thereof by sending it to the company
or the officer at the registered office of the company by registered post or by speed post or by
courier service or by leaving it at its registered office or by means of such electronic or other
mode as may be prescribed:13
Provided that where securities are held with a depository, the records of the beneficial
ownership may be served by such depository on the company by means of electronic or
other mode.
14(2)Save as provided in this Act or the rules made thereunder for filing of documents
with the Registrar in electronic mode, a document may be served on Registrar or any
member by sending it to him by post or by registered post or by speed post or by courier
or by delivering at his office or address, or by such electronic or other mode as may be
prescribed:
Provided that a member may request for delivery of any document through a particular
mode, for which he shall pay such fees as may be determined by the company in its
annual general meeting.
Explanation.—For the purposes of this section, the term “courier” means a person or
agency which delivers the document and provides proof of its delivery.
NOTES
Section 20 of the 2013 Act was enforced vide Notification S.O. 902 (E) dt. 26-03-2014, with effect
from 01-04-2014. Section 20 of the 2013 Act corresponds to sections 51, 52 and 53 of the 1956 Act.
as follows:
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Page 2 of 25
This clause corresponds to section 51, 52 and 53 of the Companies Act, 1956 and seeks to provide for the mode in
which documents may be served on the company, on the members and also on the Registrars.
[s 20.2] Mode of service of documents on company [Sub-section (1) of Section 20 of the

Under the 2013 Act, a document may be served on a company or an officer thereof by sending it to
the company or the officer at the registered office of the company by:
(a) Registered post, or
(b) Speed post, or
(c) Courier service, or
(d) Leaving it at its registered office, or
(e) Means of such electronic or other mode as may be prescribed.
As per sub-rule (1) of rule 35 of the Companies (Incorporation) Rules, 2014*, a document may be
served on a company or an officer thereof through electronic transmission. Sub-rule (2) of rule 35 of
the Companies (Incorporation) Rules, 2014 provides that the term “electronic transmission” for the
purpose of sub-rule (1) means a communication—
(a) delivered by—
(i) facsimile telecommunication or electronic mail when directed to the facsimile number or
electronic mail address, respectively, which the company or the officer has provided from
time to time for sending communications to the company or the officer respectively;
(ii) posting of an electronic message board or network that the company or the officer has
designated for such communications, and which transmission shall be validly delivered
upon the posting; or
(iii) other means of electronic communication, in respect of which the company or the officer
has put in place reasonable systems to verify that the sender is the person purporting to
send the transmission; and
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(b) that creates a record that is capable of retention, retrieval and review, and which may
thereafter be rendered into clearly legible tangible form.
[s 20.3] Securities held with a depository [Proviso to sub-section (1) of Section 20 of the
Where securities are held with a depository, the records of a beneficial ownership may be served by
such depository on the company by means of electronic or other mode. As per sub-clause (32) of
section 2 of the 2013 Act, depository means a depository as defined in clause (e) of sub-section (1)
of section 2 of the Depositories Act, 1996 (22 of 1996).
[s 20.4] Mode of service of documents on Registrar or any member [Sub-section (2) of

Save as provided in the 2013 Act or the rules made for filing of documents with the Registrar in
electronic mode, a document may be served on Registrar or any member by sending it to him by:
(a) Post, or
(b) Registered post, or
(c) Speed post, or
(d) Courier, or
(e) Delivering at his office or address, or
(f) Such electronic or other mode as may be prescribed.
As per sub-rule (3) of rule 35 of the Companies (Incorporation) Rules, 2014*, a document may be
served on the Registrar or any member through electronic transmission. Sub-rule (4) of rule 35 of the
Companies (Incorporation) Rules, 2014 provides that the term “electronic transmission” for the
purposes of sub-rule (3) means a communication—
(a) delivered by—
(i) facsimile telecommunication or electronic mail when directed to the facsimile number or electronic mail
address, respectively, which the Registrar or the member has provided from time to time for sending
communications to the Registrar or the member respectively;
(ii) posting of an electronic message board or network that the Registrar or the member has designated for
those communications, and which transmission shall be validly delivered upon the posting; or
(iii) other means of electronic communication, in respect of which the Registrar or the member has put in
place reasonable systems to verify that the sender is the person purporting to send the transmission, and
(b) that creates a record that is capable of retention, retrieval and review, and which may thereafter be rendered
into clearly legible tangible form.
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[s 20.5] Proviso to sub-section (2) of Section 20 of the Companies Act, 2013
A member may request for delivery of any document through a particular mode, for which the
member shall pay such fees as may be determined by the company in its annual general meeting.
The procedure for service of documents on a foreign company is laid down in section 383 of the
[s 20.7] Courier
As per Explanation to section 20 of the 2013 Act, the term “courier” means a person or agency which
delivers the document and provides proof of its delivery. Further, as per sub-rule (5) of rule 35 of the
Companies (Incorporation) Rules, 2014*, “courier” for the purposes of sub-section (1) and (2) of
section 20, 2013 Act means a document sent through a courier which provides proof of delivery.
[s 20.8] Delivery by post
In case of delivery by post, such service shall be deemed to have been effected– (i) in the case of a
notice of a meeting, at the expiration of 48 hours after the letter containing the same is posted; and
(ii) in any other case, at the time at which the letter would be delivered in the ordinary course of post.
[Sub-rule (6) of rule 35 of the Companies (Incorporation) Rules, 2014]
[s 20.9] Nidhis
As per Notification G.S.R. 465(E) dt. 05-06-2015, sub-section (2) of section 20 of the 2013 Act shall
apply subject to the modification that in the case of a Nidhi, the document may be served only on
members who hold shares of more than Rs 1,000 in face value or more than 1%. of the total paid-up
share capital of the Nidhis whichever is less. For other shareholders, document may be served by a
public notice in newspaper circulated in the district where the Registered Office of the Nidhi is
situated; and publication of the same on the notice board of the Nidhi.
Section 20 of the 2013 Act corresponds to sections 51, 52 and 53 of the 1956 Act.
1. Sub-section (1) of section 20 of the 2013 Act providing for service of documents on a
company corresponds to section 51 of the 1956 Act.
(i) The 2013 Act has incorporated new modes of service of documents on a company, i.e.,
speed post, courier service, such electronic or other mode as may be prescribed.
(ii) Service by post under certificate of posting as provided under section 51 of the 1956 Act
has been done away with by the 2013 Act.
(iii) Section 20 of the 2013 Act has down away with service by depository on companies by
delivery of floppies or discs. [Proviso to section 51 of the 1956 Act]
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2. Sub-section (2) of section 20 of the 2013 Act providing for service of documents on Registrar
or any member corresponds to sections 52 and 53 of the 1956 Act.
(i) The 2013 Act has incorporated new modes of service of documents on the Registrar or
any member, i.e., speed post, courier service, such electronic or other mode as may be
prescribed.
(ii) Under the 2013 Act, a member may request for delivery of document through a particular
mode.
(iii) The words “certificate of posting” under section 52 of the 1956 Act have not been
incorporated under section 20, 2013 Act.
(iv) Leaving the documents for the Registrar was recognized as a mode of service under
section 52 of the 1956 Act but has not been included under section 20 of the 2013 Act.
(v) While under section 53 of the 1956 Act, documents may be served on a member
“personally”, section 20 of the 2013 Act does not expressly incorporate the term
“personally.” However, under section 20 of the 2013 Act, the documents may be served
on a member by delivering at his office or address.
(vi) Service via advertisement in newspaper on members who have no registered address in
India and have not supplied the company an address within India, recognized as a mode
of service under sub-section (3) of section 53 of the 1956 Act, has not been incorporated
under section 20, 2013 Act. However, the incorporation of electronic mode of service
compensates for such omission.
(vii) Mode of service on joint-holder of share, and on persons entitled to shares in case of
death, insolvency as given under sub-sections (4) and (5) of section 53 of the 1956 Act
have not been incorporated under section 20 of the 2013 Act. The omission may lead to
practical difficulties.
S. 51. Service of documents on company.—A document may be served on a company or an officer thereof by
sending it to the company or officer at the registered office of the company by post under a certificate of posting or by
registered post, or by leaving it at its registered office: The Companies Act, 1956 provision
15[Providedthat where the securities are held in a depository, the records of the beneficial ownership may be served by
such depository on the company by means of electronic mode or by delivery of floppies or discs.]
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NOTES
English Act, 1948 : Section 437 Companies Act, 1913 : Sections 17(2), 148, 149
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on clauses explained the provisions contained in
sections 51, 52 and 53 of the 1956 Act as follows:
These are based on sections 148 and 149 of the existing Act and regulations 112 to 115 of Table A in the First
Schedule to that Act, which are all compulsory regulations. See section 17(2) of the existing Act. They have therefore
been incorporated in the body of the Bill as suggested by the Company Law Committee. [Clauses 46 to 48 of the
[s 20.12] Service by depository in electronic mode
The Depositories Act, 1996 inserted the proviso to section 51 of the 1956 Act. As per the proviso,
where the securities are held in a depository, the records of the beneficial ownership may be served
by the depository on the company by means of electronic mode or by delivery of floppies or discs.
Proviso to sub-section (1) of section 20 of the 2013 Act is similar.
The following discussion, including interpretations/judicial analysis, is in the light of section 51 of the
1956 Act. However, to the extent applicable, the discussion may be relevant for analysis of section 20
of the 2013 Act.
[s 20.13] Mode of Service of Documents on Company [Section 51 of the Companies Act, 1956]
Under the 1956 Act, a document may be served on a company by sending it addressed to the
registered office of the Company by post under certificate of posting or by registered post. A
document may also be served by leaving it at the Registered Office of the company. As per sub-
section (1) of section 20 of the 2013 Act, service of documents on company may also be done by
speed post, courier service, such electronic or other mode as may be prescribed.
Service by certificate of posting is not safe, as in many cases the Court or Tribunal would be reluctant
to accept it as good service. Section 20 of the 2013 Act has not incorporated certificate of posting as
a mode of service. Personal delivery or service will also not be acceptable to Court or Tribunal unless
a competent person on behalf of the company has given a receipt for the letter or document.
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It would be better to serve a company by registered post or through peon who shall obtain a proper
signature and rubber stamp from the company’s employee. If an officer of the company is to be
served, the same procedure is to be adopted.
A summons has to be served by registered post or personally on the Secretary, Director or Principal
Officer of the company and in spite of due diligence if this cannot be done, then only it can be left at
the registered office. Service on an Office Assistant of a registered company is no service at all.16
Technically, if the provisions of this section are complied with, it will be no defence to a decree
obtained in default of appearance of the company that the Writ of Summons never reached the
company.17
[s 20.15] Summons to be served at Registered Office
Section 51 of the 1956 Act which deals with service of documents on companies enjoins that a
document may be served on a company or an officer thereof by sending it to the company or officer
at the registered office of the company by post under a certificate of posting or by registered post or
by leaving it at its registered office. The “document”, in view of section 2(15) of the 1956 Act includes
summons, notices, requisition, order, other legal processes and registers whether issued, sent or
kept in pursuance of this or any other Act or otherwise. Rule 2 of Order 29 of the Code of Civil
Procedure, 1908 (5 of 1908) provides for service of process in a suit against a corporation subject,
however, to any statutory provision regulating such service. Therefore, in the matter of service of
summons on a limited company, the provisions of rule 2 of Order 29 shall be subject to section 51 of
the 1956 Act. The result is that the provision of section 51 of the 1956 Act would prevail over rule 2 of
Order 29 of the Civil Procedure Code. Therefore, a summons on a limited company has to be served
at its registered office in terms of section 51 of the 1956 Act. Where this is not done, there is no valid
service of summons upon the company. Where the appellate court, on appreciating the evidence
adduced by the parties, accepted the company’s contention that its premises had remained closed
during the time summons were served. There could be no inference that the summons were tendered
by the postal authorities and refused by the company. There could therefore be no presumption as to
valid service.18
[s 20.16] Service of Summons on the Company—Corporate Office
Order 29, rule 2 of the Code of Civil Procedure, 1908 (5 of 1908), does not limit the service of
Summons at the Registered Office of the company alone. It provides for different modes of service
which also include service of Summons on the Secretary or Managing Director or Principal Officer of
the Corporation or service through the Registered Post at the Corporation’s Registered Office, or at
the place where the Corporation carried on business in case it had no Registered Office. Summons
were served on the Corporate Office of the company and were also admittedly received by its
employee who had executed the receipt affixing the Seal of company. Such service could not be held
as bad or invalid or against the provisions of Order 29, rule 2 of the Code of Civil Procedure, 1908 (5
of 1908). The respondent having effected such service on the appellants Corporate Office at Delhi,
which was admitted had done its duty, was not expected to do anything more under the
circumstances. Even if the service is disputed the Court was satisfied that appellants had knowledge
of notice of hearing and had sufficient time to appear on the next day.19
[s 20.17] Presumption of service
When a summons was sent to the proper address of the addressee by registered post and tendered
with the postal authority for service, then the presumption of service arises under section 27 of the
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Page 8 of 25
General Clauses Act, 1897 (10 of 1897). Such presumption, even though rebuttable, has to be
rebutted by the other side by leading sufficient evidence.20
[s 20.18] Service of Notice on company
The Managing Director of the company is entitled to accept the notice on behalf of the company. The
notice accepted by the Managing Director of the company is a proper service on the company.21
[s 20.19] Service of order on company
The appellant, before the Securities Appellate Tribunal, Mumbai, contended that the impugned order
was sent to the appellant at the registered office of the company in Delhi, which was lying closed.
The appellant further contended that the new correspondence address had already been filed with
the SEBI in the year 2003. As per the appellant, despite this address having been communicated, the
impugned order was sent at the registered office and hence there was delay in filing the appeal. The
Securities Appellate Tribunal was not satisfied with the explanation put forth by the appellant, and
dismissed the appeal as time barred.22
[s 20.20] Improper service of show cause notice
A show cause notice was issued to the appellant by the time he had ceased to be a Director of the
company. The notice was sent by registered post at the address of the company which came back
undelivered and finally the notice was sent to Ahmedabad Stock Exchange Ltd for effecting service
on the appellant at the address of the company. The company was lying closed and the show cause
notice was stated to have been pasted on the outer door of the premises of the company. The
Securities Appellate Tribunal, Mumbai observed that the show cause notice ought to have been
served on the appellant at his known address. He could not be served at the address of the company
and pasting of the notice at the door of the premises of the company cannot be treated as proper
service in terms of section 51 of the 1956 Act.23
[s 20.21] Any other mode of service provided by any other Act
Any other mode of service provided by any other Act may also be valid.24
[s 20.22] Defective Address
The letter should be addressed with substantial accuracy. The omission of the word “Private” in the
address will not invalidate a service of document. Similarly the omission of the word “Ltd” will not
affect the validity of service of a notice or document on a company provided there was no company at
the other address in a similar name.25 A notice addressed to the company and served on the
directors is good service.26
[s 20.23] Articles cannot limit mode of service
The Articles of Association of a company cannot contain any provision contrary to this section nor
can it limit the mode of service to one only of the modes provided by the statute.27
[s 20.24] Service of notice by Fax
Service of notice by Fax is valid.28
The procedure for service of documents on a foreign company is laid down in section 596 of the 1956
Act. Similarly, see section 383 of the 2013 Act.
[s 20.26] Winding up—Inability to pay debts—Statutory Notice
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Page 9 of 25
Office of the company. Time of 21 days for Statutory Notice is mandatory. Presumption of inability to
pay debt under section 433(e) of the 1956 Act is available only where the Statutory Notice of demand
is served at the Registered Office. Where the petitioner served notice at former Registered Office, the
presumption was not available. The petitioner was not entitled to take the plea of deemed insolvency
under section 434 of the 1956 Act. On facts, the petitioner failed to show that disappearance of the
substratum had imperilled the chance of recovery. The winding up petition was dismissed.29
S. 52. Service of documents on Registrar.—A document may be served on a Registrar by sending it to him at his
office by post under a certificate of posting or by registered post, or by delivering it to, or leaving it for, him at his office.
NOTES
THE COMPANIES ACT, 1956 (1 OF 1956).—See Legislative History in Notes under section 51 of the 1956 Act.
[s 20.28] Mode of Service of Documents on the Registrar [Section 52 of the Companies Act,
1956
Under the 1956 Act, service of documents on the Registrar of Companies (ROC) may be by post
under a certificate of posting, or by registered post, or by delivery to him or by leaving the document
for him at his office. The document should be sent to his office address.
It is advisable to send the document by Registered Post with Acknowledgement Due or by a peon
who shall obtain signature of an employee of the Registrar’s office and rubber stamp in
acknowledgement of receipt of the document.
Sub-section (2) of section 20, 2013 Act has incorporated new modes of service of documents on the
Registrar, i.e., speed post, courier service, such electronic or other mode as may be prescribed.
Further, the words “certificate of posting” under section 52 of the 1956 Act have not been
incorporated under section 20 of the 2013 Act. Leaving the documents for the Registrar has not been
included as a mode of service under section 20 of the 2013 Act.
S. 53. Service of documents on members by company.—(1) A document may be served by a company on any
member thereof either personally, or by sending it by post to him to his registered address, or if he has no registered
address in India, to the address, if any, within India supplied by him to the company for the giving of notices to him.
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Page 10 of 25
(2) Where a document is sent by post,—
(a) service thereof shall be deemed to be effected by properly addressing, prepaying and posting a letter
containing the document, provided that where a member has intimated to the company in advance that
documents should be sent to him under a certificate of posting or by registered post with or without
acknowledgement due and has deposited with the company a sum sufficient to defray the expenses of doing
so, service of the document shall not be deemed to be effected unless it is sent in the manner intimated by
the member; and
(b) 30[***] such service shall be deemed to have been effected—
(i) in the case of a notice of a meeting, at the expiration of forty-eight hours after the letter containing the
same is posted, and
(ii) in any other case, at the time at which the letter would be delivered in the ordinary course of post.
(3) A document advertised in a newspaper circulating in the neighbourhood of the registered office of the company
shall be deemed to be duly served on the day on which the advertisement appears, on every member of the company
who has no registered address in India and has not supplied to the company an address within India for the giving of
notices to him.
(4) A document may be served by the company on the joint-holders of a share by serving it on the joint-holder named
first in the register in respect of the share.
(5) A document may be served by the company on the persons entitled to a share in consequence of the death or
insolvency of a member by sending it through the post in a prepaid letter addressed to them by name, or by the title of
representatives of the deceased, or assignees of the insolvent, or by any like description, at the address, if any, in India
supplied for the purpose by the persons claiming to be so entitled, or until such an address has been so supplied, by
serving the document in any manner in which it might have been served if the death or insolvency had not occurred.
NOTES
THE COMPANIES ACT, 1956 (1 OF 1956).—See Legislative History in Notes under section 51, 1956 Act.
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Page 11 of 25
section 53 of the 1956 Act as follows:
The expression ‘unless the contrary is proved’ in clause (b) of sub-section (2) of section 53, may be construed to mean
that the presumption regarding the receipt of notice of a general meeting is rebuttable, and is likely to cause difficulty in
practice in those cases where members receive the notice of a general meeting late due to delays in post but may
nevertheless urge that the notice given to them is a notice of a period less than 21 days and goes against the
provisions of section 171(1) of the Act. It is, therefore, proposed to delete the expression from clause (b) of section
53(2). [Clause 17 of the Companies (Amendment) Bill, 1959 (37 of 1959)].
NB the Repeal and Amendment Act of 2016, repeals this amendment act.
[s 20.30] Service of Documents on Members by company [Section 53(1) of the Companies

Act, 1956]
Under the 1956 Act, a document may be served by a company on any member either: (a) personally,
or (b) by sending it by post to his registered address in India, as recorded in the Company’s Register,
or (c) if he has no registered address in India, to the address, if any, within India supplied by him to
the company for the giving of notices to him.
A letter sent by post should be properly addressed and stamped. The address should be the
registered address or the address supplied by the member for such purpose. If a member wanted the
letter to be sent by registered post or otherwise and paid the required expenses in advance, the letter
should be sent according to such instructions, even though such address is outside India.31 Service of
notice under certificate of posting is proper service. A member wishing to be served notice by
Registered Post must deposit sufficient amount therefor with the company.32
Under the 2013 Act, a document may be served on members by post, registered post, speed post,
courier, delivering at member’s office or address, or such electronic or other mode as may be
prescribed. The following discussion, including interpretations/judicial analysis, is in light of section 53
of the 1956 Act. To the extent applicable, the discussion may be relevant for analysis of section 20 of
the 2013 Act. While certificate of posting has not been recognized as a mode of service under the
2013 Act, even prior to the passage of the Act, the Department of Posts had discontinued the postal
facility under certificate of posting vide their letter dt. 23 February 2011. As such, the discussion
pertaining to certificate of posting has been retained for academic interest and pending disputes, if
any.
[s 20.31] Notice of EGM not properly addressed
Where the Notice of Extraordinary General Meeting (EGM) sent to the second and third petitioners at
the address of the first petitioner failed to fulfil the requirements of section 53 of the 1956 Act, the
Board Meeting was also invalid due to lack of quorum. As there were discrepancies in the three
versions of the minutes of the same Board Meeting, no credence could be attached to any of the
versions of the minutes of the Board Meeting. The proceedings of the EGM and the Board Meeting
were in violation of the provisions of the 1956 Act and Articles of Association of the company and
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Page 12 of 25
were invalid. It was held that the transfer of shares and change in management of the company was
oppressive to the minority shareholders. The transfer of shares was set aside. The Company Law
Board (CLB) directed the shares be restored in the name of the transferors and the company to
rectify the Register of Members. The petitioners along with the second respondent and her daughter,
being the shareholders and the first petitioner with the second respondent as directors were at liberty
to manage the day-to-day affairs of the company in accordance with the Articles of Association of the
company.33
[s 20.32] Document served personally
A document or letter served personally is deemed to have been effected on the same day.
[s 20.33] Nidhi Companies and Mutual Benefit Societies
In exercise of the powers conferred by section 620A of the 1956 Act (1 of 1956), the Central
Government has (i) declared the companies specified in Schedules I and II as Nidhis and Mutual
Benefit Societies respectively; and (ii) directed that the provisions of section 53(1) of the 1956 Act
shall not apply or apply with the exceptions, modifications and adaptations specified in Schedule III to
the Notification as follows:
[s 20.34] Section 53(1) of the Companies Act, 1956
Shall apply subject to the modification that in the case of a Nidhi or Mutual Benefit Society a
document may be served only on members who hold more than Rs 1,000 in face value or more than
1% of the total paid up capital of the Nidhi company whichever is less.
For other shareholders document may be served by a public notice in newspaper circulated in the
district where the Registered Office of a Nidhi company is situated; and publication on the notice
board of the Nidhi or Mutual Benefit Society.
[Notification No. G.S.R. 978, dt. 28-05-1963, Schedule III as substituted by Notification No. G.S.R.
517(E), dt. 31-08-2006, published in the Gazette of India, Extraordinary, No. 402, Pt II, section 3(i) :
(2006) 133 COMP CASES (St.) 24].
Under the 2013 Act, see Notification No. G.S.R. 465(E), dt. 05-06-2015, regarding exemptions to
Nidhis under section 462 of the 2013 Act
[s 20.35] Presumption as to service of documents by post [Section 53(2) of the Companies

Act, 1956]
Where a document is sent by post—(a) service is deemed to be effected by properly addressing,

prepaying and posting it. But, where a member has intimated to the company in advance that
documents should be sent to him under a certificate of posting or by registered post with or without
acknowledgement due and has deposited with the company a sum sufficient to defray the expenses,
service shall not be deemed to be effected unless it is sent in the manner intimated by the member;
and (b) such service shall be deemed to have been effected—(i) in case of a notice of meeting, at the
expiration of 48 hours after the letter containing the same is posted, and (ii) in any other case at the
time at which the letter would be delivered in the ordinary course of post.
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Under the 2013 Act, deemed service in case of delivery by post has been provided under sub-rule (6)
of rule 35 of the Companies (Incorporation) Rules, 2014*.
[s 20.36] Service deemed to be effected
If a letter or notice is posted to a shareholder at his registered address by affixing the requisite postal
stamps, the service is deemed to have been effected on him in view of section 53(2)(a) of the 1956
Act, if he has not issued any instructions to the company and provided sufficient funds to have it sent
to him under certificate of posting or by registered post with or without acknowledgement.34
[s 20.37] Notice of Meeting deemed served after 48 Hours [Section 53(2)(b)(i) of the
A notice of meeting sent by post will be deemed to have been effected after 48 hours of its posting.
The provisions of sub-section (2)(b)(i) of section 53 of the 1956 Act are to make the service certain
and to fix the day of service as the day on which the said 48 hours expire.35
Under section 53(2)(b)(i) of the 1956 Act, notice of a meeting is deemed to be served at the
expiration of 48 hours after the letter containing it is posted. Section 171 of the 1956 Act requires 21
days’ clear notice to the members for calling a general meeting. Where notices for a meeting to be
held on 21 September 1987, were posted on 31 August 1987 and 1 September 1987, they could be
deemed to have been received on 2 September 1987 and 3 September 1987 respectively. The
members, therefore, could not be held to have had 21 days’ clear notice of the meeting.36
Where for consideration of a Scheme of Amalgamation notices for meeting of the shareholders
accompanied by statement under section 393 of the 1956 Act were sent by Certificate of Posting, a
shareholder complained that the notice was invalid and the meeting should be postponed. The Court
held that under section 53 of the 1956 Act the notice sent by post shall be deemed to have been
effected after 48 hours of posting of the notice and that the notice in question was duly served giving
more than 21 days’ clear notice to the petitioner.37When a notice of a meeting is sent duly addressed
and stamped by Certificate of Posting it will be deemed to have been duly served even though the
letter does not in fact reach the addressee.38
[s 20.38] Notices through Courier
Where the notices were posted through courier giving 26 clear days between the date of the meeting
and the date of the notice, sections 171 and 172 of the 1956 Act were held to have been substantially
complied with.39
[s 20.39] Notice of Meeting by Courier not conclusive proof
The mere production of the Courier Consignment Notes could not amount to conclusive proof of
service of copies of the requisitions and notice of the meeting on the petitioners, satisfying the
requirements of section 172 of the 1956 Act (under the 2013 Act, section 101 pertains to notice of
meeting). Section 172 of the 1956 Act provides that Notice of every Meeting shall be given, among
others, to every Member of the company whose name appears on its Register of Members. The
provisions of section 172 of the 1956 Act are mandatory and must strictly be complied with, non-
compliance with which invalidates the resolutions passed at the general meeting. Any meeting held
without proper notice would not be validly held and proceedings of such a meeting would be illegal.
There was no material to show that the petitioners had supplied any different address for service of
any document on them. Moreover, the courier consignment notes, in the event of serious disputes
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between the parties, could not amount to conclusive proof of service of notice on the concerned
addressee, especially when despatch of notice by courier service was not in consonance with section
53(1)(a) of the 1956 Act. The respondents failed to prove service of notice of the Extraordinary
General Meeting on the petitioners. The Resolution passed at the Board Meeting was also invalid as
it failed to comply with section 286 of the 1956 Act.40 Under the 2013 Act, courier has been
recognized as a mode of service on members.
[s 20.40] Notice of Meetings mandatory
Service of notice upon the directors before a Board meeting is held and service of notice and taking
all steps required under law before holding of Annual General Meeting are mandatory in case of a
public company notwithstanding anything to the contrary in the Articles. It is no good contending that
as the meeting has been attended by the majority members, the same would be valid. It is a general
rule of common law that a corporate body is not properly constituted unless the notice of meeting is
given to every member. Section 172 of the 1956 Act mandates service of such notice specifying the
place, date and hour of the meeting and containing the statement of the business to be transacted
thereat. Section 172(2) of the 1956 Act provides for service of notice on every member of the
company in the manner authorised by sub-sections (1) to (4) of section 53 of the1956 Act. In case of
a Private Company, the same provisions are applicable unless the Articles of the company provide
otherwise. The Meetings of a Private Company can be held in terms of its Articles of Association,
even though it is not in accordance with the provisions of the 1956 Act.41
[s 20.41] Presumption in any other case [Section 53(2)(b)(ii) of the Companies Act, 1956]
Sub-section (2)(b)(ii) provides that in any other case the service is deemed to have been effected at
the time at which the letter would be delivered in the ordinary course of post. Thus, if it is a notice
other than of a meeting, it will be deemed to have been effected at the time at which the letter would
be delivered in the ordinary course of post.42 Under the 2013 Act, see sub-rule (6) of rule 35 of the
Companies (Incorporation) Rules, 2014*.
[s 20.42] Presumption of service is rebuttable
It is true that under section 53 of the 1956 Act, the certificate of posting or registered post are one of
the modes for the service of documents or notices, but the presumption to be drawn under section 53
of the 1956 Act is not absolute, but rebuttable. The court, on the facts and circumstances of a case,
may refuse to draw a presumption.43Where there are materials to show that notices were sent, the
burden is on the addressee to rebut the statutory presumption.44
[s 20.43] Certificate of Posting weak presumption
Certificate of Posting raises a weak presumption which is rebuttable.45Certificate of posting would not
be sufficient. The company must prove despatch of notices. The appellants did not produce the
dispatch register nor the books of account showing that the expenses were incurred by the company
for posting the notices. If the primary evidence was not proved the presumption on the basis of
section 53(2) of the 1956 Act could not be drawn. The meetings held without proper notice were not
properly held and proceedings of such meetings were illegal.46 Under section 20 of the 2013 Act,
certificate of posting has not been recognized as a mode of service.
[s 20.44] Green Initiative in Corporate Governance
Vide Circular No. 17/2011, dt. 21-04-2011, with the subject “Green Initiative in the Corporate
Governance – Clarification regarding service of documents by e-mode instead of Under Posting
Certificate”, it was provided:
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“The Ministry of Corporate Affairs has taken a “Green Initiative in the Corporate Governance” by
allowing paperless compliances by the Companies after considering sections 2, 4, 5 and 81 of the
Information Technology Act, 2000 for legal validity of compliances under Companies Act through
electronic mode.
Section 53 of the Companies Act, 1956 provides service of documents under ‘Certificate of posting’
as one of the accepted mode of service. Whereas the Department of posts has recently discontinued
the postal facility under ‘Certificate of posting’ vide their letter dt. 23-02-2011. The Information
Technology Act, 2000 also permits service of documents, etc., in electronic mode.
Keeping in view of above, it is hereby clarified that a company would have complied with section 53
of the 1956 Act, if the service of document has been made through electronic mode provided the
company has obtained e-mail addresses of its members for sending the notice/documents through e-
mail by giving an advance opportunity to every shareholders to register their e-mail address and
changes therein from time to time with the company.
In cases where any member has not registered his-email address with the company, the service of
document, etc. will be affected by other modes of service as provided under section 53 of the 1956
Act.”
The 2013 Act explicitly recognizes electronic mode as a mode of service under section 20 of the
2013 Act. As per rule 35 of the Companies (Incorporation) Rules, 2014*, a document may be served
on any member through electronic transmission.
[s 20.45] Registered Post Acknowledgment Due
Notice shall not be deemed to be effective unless it is sent in the manner intimated by the
member/shareholder who has deposited the sum sufficient to defray the expenses to send it by
Registered Post or Registered A.D. In case of majority or minority groups the notice of the Board or
Annual General Meeting must advisedly be sent by Registered A.D. In some cases, notice sent to
majority group under Certificate of Posting was held to be not proper notice. The companies were
directed to hold the Board meeting/AGM after issuing notice through registered post with
acknowledgment due.47
[s 20.46] Registered Post not delivered
Documents sent by Registered Post, if not delivered to the addressee, the company will have to send
the documents again.48
[s 20.47] Person attending Meeting
A person who attended the General Meetings as also the Board Meetings cannot question the validity
of the meetings on the ground that he did not receive any notice of any meeting.49
[s 20.48] Notice handed over to assistant of Director
Where notice of Board Meeting was claimed to have been handed over to the assistant of the
Director, despatch register did not show the details of despatch. There was no service. Therefore,
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meetings were not validly held and resolutions passed thereat would be of no effect.50
[s 20.49] Alteration of Articles—Special Resolution—Service of Notice
For an alteration of the Articles of Association, three conditions have to be fulfilled, namely, (i) Notice
specifying the intention to propose the Resolution as an Extraordinary (Special) Resolution must be
given; (ii) the Special Resolution must be passed by 75% of the Members present; and (iii) not less
than 21 days’ Notice of the Meeting must be duly given. All these pre-conditions are cumulative and
mandatory. The intention in the Notice under section 189(2)(a) of the 1956 Act proposing an
Extraordinary or Special Resolution must be sufficiently specific, frank, open and clear. Notice of the
meeting was not served on all the members and further, there was deletion of an Article not forming
part of the notice. The Resolution could not be given effect to. The words “shall presume” in section
53(2) of the 1956 Act mean a rebuttable presumption which the Court must raise provided the posting
of the documents is proved, the onus being on the addressee alone to show that the documents
referred to in the Certificate of Posting were not received by him. If the basic facts such as due
posting of notice is proved, the Court must raise presumption that the notice under Certificate of
Posting has been effected. The word “Presumption” is only an inference of affirmative or
disaffirmative of the truth or falsehood of a doubtful fact drawn by process of probable reasons for
something proved or taken for granted. “Shall presume” do not indicate the same as “Presumption”.
The respondents decided to increase the share capital and to allot additional shares to its
shareholders. Notice was not given to appellant and his group who were all shareholders. The
Certificate of Posting of Notice was suspected and it did not amount to conclusive proof of such
posting of Notice. Further nobody on behalf of respondent gave any evidence that the notice of
proceedings was sent through post to the appellant. As Certificate of Posting of Notice could not be
proved, the allotment of additional shares was invalid. It was further held that subsequent allotment of
shares to other shareholders and affirmation of such allotment of shares were also invalid. The
appellant was not served with Notice according to provisions of section 53 of the 1956 Act or the
Articles of Association of the Company. It was not proved that the sealed envelope contained such
notice or that the envelope was ultimately received by the appellant. The affidavit on behalf of the
respondent indicated entry in the local Delivery Book. As the service of Notice to the appellant was
not proved it was held that the allotment of shares was invalid. Service of notice must be personal
service. Sufficient proof has to be shown that notice was duly served personally. There was an entry
in the local delivery book acknowledged to have been received by personal assistant of the
addressee concerned. It was further stated that the said notice was sent by a peon. No evidence was
produced that the letter was served to the addressee. The Court held that there was no service done.
It was contended that proper documents were not executed for transfer of the shares. The company,
however, produced documents that the transfer was approved by the Board of Directors and Annual
Returns were filed showing such transfer, and such transfer of the shares was admitted in counter-
affidavit filed on behalf of transferor and transferor received the consideration. The transfer was valid.
maintainable and the company need not be a party to such agreement. A Resolution passed by the
Board of Directors of the company indicated that the Transfer Deeds were duly approved. In this case
presumption is that the transfer of shares were properly executed and such transfer is valid even
though the price should be determined at a later date. For alteration of the Articles of the company
Notice period is 21 days. Notice specifying the intention to pass Special Resolution by requisite
majority is required. Deletion of any particular Article providing that certain shareholder shall be a
permanent Managing Director of the company was held not valid as the said Notice did not specify
the intention of altering the said Article. Despatch of such notice of convening the meeting of Board of
Directors of the company was not proved, despatch register did not contain details of such despatch.
As such, the said meeting was not validly held and the Resolutions passed were of no effect. The
Minute Book must be properly maintained and would be sufficient evidence of proceedings of such
meeting. Annual Return has to contain full particulars mandatorily required.51
[s 20.50] Notice of EGM to every Member—Certificate of Posting not conclusive
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The notice of every General Meeting, e.g., Extraordinary General Meeting (EGM), of the company
should be given to every member of the company whose name appears on its Register of Members,
in any manner authorised by section 53(1) to (4) of the 1956 Act. The requirements of section 172 of
the 1956 Act are mandatory and must strictly be complied with, non-compliance with which
invalidates the resolutions passed at such meeting. The respondents had produced a Certificate of
Posting to establish service of notice on the petitioner. The certificate of posting in the event of
serious disputes between the parties, could not amount to conclusive proof of service of notice on the
addressee, meeting the mandatory requirements of section 172 of the 1956 Act. It was unsafe to
place any reliance on mere certificate of posting, without any corroborative evidence such as
despatch register, books of account, etc., showing the expenses incurred in connection with sending
of notices to the shareholders, including the petitioner. The certificate of posting would show that
certain postal envelopes had been put into the post office and would not itself necessarily mean that
there had been conclusive proof of service of the notice on the addressee. In a petition filed under
sections 397 and 398 of the 1956 Act it was held that the Directors who are empowered by the
Articles to allot shares at their discretion must (i) exercise their power with utmost good faith for the
benefit and interest of the company, (ii) ensure fair play in action in corporate management and (iii)
act bona fide in exercise of their responsibilities in further issue of shares. Therefore, increase in
share capital was illegal and void.52
[s 20.51] Notice of EGM – Deemed service
If a notice of EGM is given of not less than seven days in writing and is put in post it matters not that
the addressee receives it much later or less than seven days before the meeting or even thereafter.
What matters is whether the Company has sent the notice more than seven days in advance. Under
section 53 of the 1956 Act any document served upon any member of the Company by the Company
sent by post shall be deemed to be properly effectuated by properly addressing, prepaying and
posting a letter containing the document in post. Under section 53(2)(b) of the 1956 Act, the service
will be deemed to have been effected 48 hours after the same is posted in case of a notice of a
meeting.53
[s 20.52] Meetings—Service of Notice—Registered Post
Notice of Annual General Meeting was sent by Certificate of Posting. Petitioner complained non-
receipt of the notice for the said Annual General Meeting. The Court, however, held that the Annual
General Meeting should be held after issuing notice through Registered Post with Acknowledgment
Due [Regd. A.D.]. The Company could issue further shares for carrying on its business and meeting
payment commitments. The objection of the petitioner as to further issue of shares was overruled and
the Company was directed to hold the Annual General Meeting again after issuing appropriate notice
through Registered Post with Acknowledgment Due.54
[s 20.53] Issue of Rights Shares—No proper Notice—Oppression
Under section 53 of the 1956 Act notices are required to be sent to the addresses registered with the
company. Where the second respondent had the knowledge of the correct address of the appellant,
the appellant immediately sent letter pointing out that the respondent’s offer was sent at the wrong
address and that the appellant was deprived from exercising its right as a shareholder to subscribe
for further shares on the basis of rights. Therefore by sending the letter at another address the motive
of the company was to ensure that it was not received by the appellant in time and it lost its chance to
apply for the rights shares. The only justification given for sending the notice of issue of rights shares
at the given address was that the particular address was the one printed by the petitioner on the
books published by it. That was a far-fetched explanation. Moreover, the respondents did not at all
give any justification for issuing further share capital. The move of the respondents lacked bona fides,
especially when 75% of the money collected by issue of the share capital was paid back as dividend
within a short period. In view of the profitability and cash flow of the company the issue of further
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shares was not a business necessity. However, as the respondent-company was the brain child of
Prentice Hall Inc., the predecessor of the appellant which gave its name to it as well and also
ensured that it did the business of printing and publishing the appellant’s titles for which it was
incorporated. In view of this, option was given to the petitioner that in case the petitioner accepted the
alternative of transferring all its shares in favour of the second-respondent without any consideration,
the second respondent in that eventuality would take steps for change of the name of the Indian
Company by dropping the words “Prentice Hall”.55
[s 20.54] No proper Notice—Closely-held company—Exclusion of a Group
The company gave lease of its immovable properties on nominal rent without periodical increase.
There was no representation in the Board of Directors of a particular group. Preference shares were
allotted to the members excluding that particular group. Both the groups were related family
members. Allotment of shares to the exclusion of one set of shareholders, allotment of shares at the
Meetings for which notices were not sent in spite of money being deposited for sending the Notices
by Registered Post were wrongful acts. Non-issue of notices by Registered Post was an act of
oppression. Exclusion of a group in a closely-held company having 44% shareholding was an act of
oppression. The Company Law Board (CLB) [now the Tribunal (NCLT)] directed valuation and
division of assets and properties of the company in shareholding proportion. Valuation would be done
by an independent Valuer.56
[s 20.55] Delivery of Share Certificates—Presumption—Burden of proof
Section 113(1) of the 1956 Act contemplates the delivery of share certificates, etc., within stipulated
time. In case of allotment of shares/debentures, the certificates are to be delivered in accordance
with procedure laid down in section 53 of the 1956 Act within three months of allotment. Section 53 of
the 1956 Act provides that a document may be served by a company on any member either
personally or by sending it by post to him to his registered address. A presumption has been drawn
that where a document is sent by post, service thereof shall be deemed to be effected by properly
addressing, pre-paying and posting the letter containing the document. The presumption under
section 53 of the 1956 Act is rebuttable and a shareholder may allege that he has not been delivered
the share certificate or it was not properly addressed. The bulk registered receipt with the name of
the addressee and post office of destination is not complete in itself and on the basis of such a
document the proceedings could not be quashed. Burden of proof of delivery of share certificate to
shareholder is upon the company. Where no conclusive proof was produced, it was held that the
company defaulted in delivering the share certificate and was directed to deliver the share
certificate.57
In terms of section 113 read with section 53 of the 1956 Act, the company is obliged to deliver the
share certificates to the shareholder within three months after the allotment of its shares. The
petitioner was the wife of one of the directors of the respondent-company and held 7,500 shares in
the respondent-company. In a petition filed under section 113 of the 1956 Act, contending that she
did not receive share certificates pertaining to the shares held by her, the company produced the
acknowledgment signed by the husband of the petitioner for having received the certificates. It was
held that the delivery of the certificates had not been made to the shareholder but to her husband
with whom matrimonial differences had arisen and certain proceedings were pending. Since the
share certificates had not been delivered to the petitioner the company was to issue duplicate share
certificates in respect of 7,500 shares allotted to her.58
[s 20.56] Share Certificates sent under Certificate of Posting
Where rectified Share Certificates were sent under Certificate of Posting. It was held that the
Registrar of Companies (ROC) is an aggrieved person under the Act competent to file a complaint for
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failure to deliver the share certificates within time stipulated under section 113 of the 1956 Act.
Section 53(2) of the 1956 Act specifies the service of documents on members of companies but the
actual mode of service is not specified as to the delivery of share certificates. Therefore, as there was
no specific mode prescribed, the company sent the rectified share certificates under certificate of
posting. Further, it was not the case of the concerned allottee that the share certificates were not at
all despatched. In the light of the language employed in section 53 of the 1956 Act, it could not be
said that the prosecution proved its case beyond all reasonable doubt. Though the Registrar of
Companies could maintain the complaint as an aggrieved person, the actual person who was
knowledgeable about what transpired was not examined. Maintaining a complaint was different from
proof of an offence. As the benefit of doubt would be in favour of the appellants, the Managing
Director, the fine imposed and the conviction were to be set aside with a direction to refund the fine
already paid.59
[s 20.57] Forfeiture of Shares—Forfeiture Notice sent by Registered Post
By virtue of section 53(1) of the 1956 Act a document may be served by a company on any member
either personally or by sending it by post to his registered address, or if he had no registered address
in India to the address, if any, within India supplied by him to the company for the giving of notice to
him. Where the final notice of forfeiture was sent to the residential address of the petitioner as
entered in the Register of Members of the company, though the petitioner claimed that he had been
residing in Dubai for several years, there was no material to show that the petitioner had notified any
change in his address for communication by the company. The plea that if the notice proposing the
forfeiture of shares sent by post was not served, the company was to take steps to ascertain the
correct address of the shareholders before deciding to forfeit shares would not hold good in the light
of due service of the notice of forfeiture on the petitioner. The letter of offer stipulated, inter alia, that
any change in the address was to be indicated to the company. While the petitioner had not chosen
to notify the change in his address and was prepared to receive other communications including
dividend warrants at the place of his registered address, it was not open to him at this stage to take a
stand that the notice ought to have been sent to his address at Dubai. The forfeiture notice was sent
to the petitioner’s registered address and thus the notice was in consonance with the provisions of
section 53(1) of the 1956 Act. Since the petitioner had failed to make any payment in terms of the
demand made by the company, leading to forfeiture of shares in accordance with law, the petitioner
was not entitled to any bonus shares on the forfeited shares. The fact that the shares had been
forfeited after eight years did not invalidate the forfeiture which had been made lawfully. Therefore,
the claim for rectification of the Register of Members was not to be allowed.60
[s 20.58] Newspaper advertisement for Members abroad [Sub-section (3) of Section 53 of the
Documents advertised in a newspaper circulating in the neighbourhood of the registered office of the
company shall be deemed to be duly served on the day on which the advertisement appears, on
every member who (a) has no registered address in India and (b) has not supplied to company an
address within India for giving of notices to him.
In normal circumstances notice cannot be given to members by advertisement if their registered

addresses are in India. Where the notice is advertised in the newspaper circulating in the
neighbourhood of the registered office of the company it will be deemed to have been effected on
members who have no registered address in India on the same day on which the advertisement
appears.61 Under section 20 of the 2013 Act, notice via advertisement has not been recognized as a
mode of service on members. That said notice of adjourned meetings or a change in the date, time or
place of a general meeting can be given by publication in the newspaper. Since, the 2013 Act permits
service of notice on members through electronic mode, amongst others, companies could use this
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mode of service to meet their statutory obligation.
[s 20.59] Service on joint shareholders [Sub-section (4) of Section 53 of the Companies Act,
1956]
A document may be served by company on the joint-holders of a share by serving it on the joint-
holder named first in the register in respect of the share. In case of joint-holders of a share, the notice
is to be served on the first named joint-holder in the Register of Members.
[s 20.60] Death or insolvency of a Member [Sub-section (5) of Section 53 of the Companies

Act, 1956]
The document may be served by the company on persons entitled to shares in consequence of the
death or insolvency of a member (a) by post in a prepaid letter addressed to them by name, or title of
representatives of the deceased, or assignees of the insolvent at the address, if any, in India supplied
for the purpose by persons claiming to be so entitled, or (b) until such an address has been supplied,
by serving the document in any manner in which it might have been served if the death or insolvency
had not occurred.
In case of death or insolvency of a member, the notice is to be sent to his registered address. But if
his legal representative or assignee of the insolvent has informed the company of any other address,
the notice has to be sent at that other address. But, a company is not bound to send notice to a
deceased member, or to his legal representatives whose names do not appear on the register.62
[s 20.61] Duty of Legal Representatives
It is the duty of the legal representatives of a deceased shareholder to intimate and furnish to the
company their address for notices to be served on them by the company. If they fail to send such
intimation, the company would serve the documents or notice in any manner in which it might have
been served as if the death did not take place.63
[s 20.62] Cause of action for failure to deliver certificates or documents
1956 Act, i.e., for failure to deliver the documents, share certificates, dividend warrants and balance
sheet, etc., within the prescribed time, read with section 53 of the 1956 Act, would arise where the
registered office of the company is situated. Under section 53 of the 1956 Act, a document is to be
served either personally or by sending it by post at the registered address within India. Sub-section
(2) specifically mentions that where a document is sent by post, such service thereof shall be
deemed to be effected by properly addressing, prepaying and posting the letter containing the
document. Since there is a statutory mode of delivering the document by post and deeming provision
of such delivery, the place where such posting is done is the place of performance of statutory duty
and the same stands discharged as soon as the document is posted. Reading sections 113 and 53 of
the 1956 Act together, share certificates are to be delivered in accordance with the procedure laid
down in section 53 of the 1956 Act. Hence, the cause of action for the default under section 113 of
not sending the share certificates within the stipulated time would arise at the place where the
registered office of the company is situated as from that place the share certificates can be posted
and are usually posted. For such default, as contemplated under section 113(1), 1956 Act, there is no
question of any cause of action arising at the place where the complainant was to receive postal
delivery. The cause of action for failure to deliver the share certificates or documents within the
prescribed time would arise where the registered office of the company is situated. The complaint for
an offence under section 113(2) of the 1956 Act has to be filed where the registered office of the
company is situated. What is punishable under sub-section (2) of section 113 of the 1956 Act is non-
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delivery, in accordance with the provision laid down under section 53 of the 1956 Act, of the
certificates of shares within the prescribed time. So, if the documents are posted within the stipulated
time, there would be compliance with section 113 of the 1956 Act and that there would not be any
offence.64
[s 20.62.1] Department’s View— Issue of refund orders, allotment letters, share certificates
and letters of offer by registered post
“I am directed to say that the Government has been receiving complaints from the investing public regarding non-
receipt of refund orders, allotment letters, share certificates, rights of offer and dividend warrants. In this connection, it
may be stated that the Ministry of Finance, Department of Economic Affairs, vide their circular letter No. 8/15/SE/86-B,
dt. 03-06-1986 [now see also SEBI Guidelines refer Notes under section 55A], addressed to all stock exchanges,
informed that the Government has decided that henceforth all companies listed or seeking enlistment on stock
exchanges, shall issue refund orders, allotment letters/certificates only by registered post. It has now been considered
necessary that with a view to protect the interests of investors, the letters of offer for rights issue be also issued to the
shareholders by registered post, in future.
2. You are, therefore, requested to ensure strict compliance with these guidelines by your constituent member
companies.” [Circular No. 6 of 1992 (F. No. 17/8/89-CL-V), dated 03-09-1992 : Chartered Secretary, October 1992,
page 933 : (1992) 75 COMP CASES (St.) 217].
[s 20.62.2] Dipartment’s view.— Issue of refund orders under section 73(2)/(2A) of the
Companies Act, 1956
“I am directed to invite your attention to this Department’s Circular No. 6 of 1992 (F. No. 17/8/89-CL-
V), dated 3rd September, 1992 [printed above], on the above subject, and to say that your constituent
member-companies were advised to ensure issue of refund orders only by registered post. The
matter has been considered further, keeping in view the constraints faced by the companies in
issuing the refund orders by registered post, as the Postal Department is not able to cope up with the
work involved. It has, accordingly, been decided that it will be in order for the companies to issue
refund orders for amounts exceeding Rs 1,500 per refund order only by registered post and the
refund orders below that amount be issued under certificate of posting. In case of delay in refund,
interest for the delayed period be calculated at 15%. per annum and paid along with the refund order
or while issuing the duplicate refund order, as the case may be, up to the date of actual despatch. In
this regard, attention is also invited to the penal provisions contained in section 73(2B) of the
Companies Act, 1956.” [Circular No. 1 of 1993 (F. No. 17/8/89-CL-V), dt. 16-03-1993 : Chartered
Secretary, April 1993, page 370 : (1993) 76 COMP CASES (St.) 88].
12 Enforced vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to sections 51, 52 and 53 of the
1956 Act.
14 See Notification No. G.S.R. 465(E), dt. 05-06-2015, regarding exemptions to Nidhis under section 462 of the 2013 Act.
Mr. Laghir1 Rabari

Page 22 of 25
15 Inserted by the Depositories Act, 1996 (22 of 1996), section 30 and Sch. (w.r.e.f. 20-09-1995).
16 Shalimar Rope Works Ltd v Abdul Hussain, AIR 1980 SC 1163 : (1980) 3 SCR 1028; Nicco Corp Ltd v Cethar Vessels
Ltd, (1998) 92 COMP CASES 748 (Mad.).
17 Cathrineholm A/S v Norequipment Trading Ltd, (1972) 2 QB 314 : (1972) 2 All ER 538 : (1972) 2 WLR 1242 : (1972)
116 SJ 159 (CA).
18 Harendra Nath Ghosal v Superfoam Pvt Ltd, (1992) 74 COMP CASES 740 (Cal.) (DB). See also All India General
Transport Corp Ltd v Raghunath Sahay, (1970) 40 COMP CASES 203 (Pat.)
19 Parasrampuria Synthetics Ltd v Shankar Prasad, (2005) 123 COMP CASES 419 (Delhi) (DB).
20 Madan and Co v Wazir Jaivir Chand, AIR 1989 SC 630.
21 Maharashtra State Financial Corp v Masvi and Co Pvt Ltd, (1993) 76 COMP CASES 168 (Bom.).
22 . Krishna Kumar Agarwal v SEBI, (2009) 89 SCL 31 (SAT—Mum)
23 Kalpesh R Sheth v SEBI, (2008) 88 SCL 219 (SAT)
24 Jute & Gunny Brokers Ltd v UOI, (1962) 32 COMP CASES 845 (SC) : AIR 1961 SC 1214.
25 Springate v Questier, (1952) 2 All ER 21 : 116 JP 367 (DC); Sarkar Estates Pvt Ltd v Kusumika Iron Works Pvt Ltd,
(1962) 32 COMP CASES 575 (Cal.) : AIR 1961 Cal 439; Liverpool Marine Insurance Co v Haughton, (1874) 23 WR 93.
26 Benabo v William Jay & Partners Ltd, (1941) ChD 52 : (1940) 4 All ER 196 : 110 LJ Ch. 17.
27 Sadashiv Shankar Dandige v Gandhi SevaSamaj Ltd, (1958) 28 COMP CASES 137 (Bom.) : AIR 1958 Bom 247 : 60
Bom. LR 90.
28 SIL Import v Exim Aides Silk Exporters, (1999) 97 COMP CASES 575 (SC); Hastie &Jenkerson v McMohan, (1991) 1
All ER 255.
29 Om Prakash Jaiswal v Shekhraj Hotel Pvt Ltd, (2004) 122 COMP CASES 255 (All.) : (2003) 2 Comp. LJ 34 (All.);
Motilal Agarwal v Diabari Tea Co Ltd, (2005) 128 COMP CASES 672 (Cal.); Sika Qualcrete Ltd v Orissa Bridge
Construction Corp Ltd, (2006) 129 COMP CASES 660 (Orissa).
30 The words “unless the contrary is proved,” omitted by the Companies (Amendment) Act, 1960 (65 of 1960), section 16.
31 Abdul Karim Babu Khan v Sirpur Paper Mills Ltd, (1969) 39 COMP CASES 33 (AP) (DB).
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Page 23 of 25
32 Parmanand Choudhary v Smt. Shukla Devi Mishra, (1990) 67 COMP CASES 45 (MP) (DB).
33 Shobhi G. Mahtani v LilaramShewaram (India) Pvt Ltd, (2007) 139 COMP CASES 817 (CLB).
34 Col. Kuldip Singh Dhillon v Paragaon Utility Financiers Pvt Ltd, (1986) 60 COMP CASES 1075 (P&H).
35 Bharat Kumar Dilwali v Bharat Carbon and Ribbon Mfg. Co Ltd, (1973) 43 COMP CASES 197 (Delhi); Maharaja
Exports v Apparel Export Promotion Council, (1986) 60 COMP CASES 353 (Delhi).
36 Balwant Singh Sethi v SardarZorawarsinghHushnak Singh Anand, (1988) 63 COMP CASES 310 (Bom.).
37 ChallaRajendra Prasad v Asian Coffee Ltd, (2000) 100 COMP CASES 689 (AP).
38 Ramdas v Cotton Ginning Co, (1887) ILR 9 All. 366; Jadabpore Tea Co Ltd v Bengal Dooars National Tea Co Ltd,
(1984) 55 COMP CASES 160 (Cal.) (DB).
39 Somalingappa Shiva Putrappa Mugabasav v Shree Renuka Sugars Ltd, (2002) 110 COMP CASES 371 (Kar.).
40 Ansar Khan v Finecore Cables Pvt Ltd, (2007) 140 COMP CASES 76 (CLB).
41 Mahabir Prasad Jalan v Bajrang Prasad Jalan, (2000) 102 COMP CASES 81 (Cal.) (DB).
42 Bharat Bhushan v H.B. Portfolio Leasing Ltd, (1992) 74 COMP CASES 20 (Delhi); ShekarMehra v Kilpest Pvt Ltd,
(1986) 3 Comp. LJ 234 (MP).
43 BhankerpurSimbhaoli Beverages Pvt Ltd v Sarabhjit Singh, (1996) 86 COMP CASES 842 (P&H); Malleswara Finance
and Investments Co Pvt Ltd v CLB, (1995) 82 COMP CASES 836 (Mad.) (DB); Shiv Kumar v State of Haryana, (1994)
87 FJR 66 (SC) : (1994) 4 JT 162 (SC); Mst. L.M.S. UmmuSaleema v B.B. Gujral, (1983) 53 COMP CASES 312 (SC);
HerdiliaUnimers Ltd v Smt. Renu Jain, (1998) 92 COMP CASES 841 (Raj.); Inter Sales v Reliance Industries Ltd,
(2002) 108 COMP CASES 680 (Cal.) (DB).
44 Shri VS Krishnan v Westfort Hi-Tech Hospital, (2008) 142 Comp Cases 235 (SC).
45 Akbarali A. Kalvert v Konkan Chemicals Pvt Ltd, (1997) 88 COMP CASES 245 (CLB).
46 Micromeritics Engineers Pvt Ltd v S. Munusamy, (2003) 116 COMP CASES 465 (Mad.) affirmed in Micromeritics
Engineers Pvt Ltd v S. Munusamy, (2004) 122 COMP CASES 150 (Mad.) (DB).
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Page 24 of 25
47 Tarlok Chand Khanna v Raj Kumar Kapoor, (1983) 54 COMP CASES 12 (Delhi); Ms. Hardeep Kaur v Thinlac
Enterprises Pvt Ltd, (2004) 122 COMP CASES 944 (CLB).
48 Inter Sales v Reliance Industries Ltd, (2002) 108 COMP CASES 680 (Cal.) (DB).
49 R. Khemka v Deccan Enterprises Pvt Ltd, (2000) 100 COMP CASES 211 (AP) (DB).
50 M.S. Madhusoodhanan v Kerala Kaumudi Pvt Ltd, (2003) 117 COMP CASES 19 (SC).
51 M.S. Madhusoodhanan v Kerala Kaumudi Pvt Ltd, (2003) 117 COMP CASES 19 (SC) : AIR 2004 SC 909 : (2003) 6
Supreme 49 (SC).
52 Goldmark Enterprise Ltd v Pondy Metal and Rolling Mills Pvt Ltd, (2007) 136 COMP CASES 598 (CLB).
53 Naina D Kamani v Janson Engineering & Trading Pvt Ltd, (2012) 107 CLA 516 : 2012 (1) Bom CR 868 (Bom).
54 Ms. Hardeep Kaur v Thinlac Enterprises Pvt Ltd, (2004) 122 COMP CASES 944 (CLB).
55 Pearson Education Inc. (formerly Prentice Hall Inc.) v Prentice Hall India Pvt Ltd, (2007) 136 COMP CASES 294 (Delhi)
: (2006) CLC 218 (Delhi); Kasturi and Sons Ltd v Sporting Pastime India Ltd, (2007) 139 COMP CASES 623 (CLB).
56 T. Ramesh U. Pai v Canara Land Investments Ltd, (2005) 123 COMP CASES 869 (CLB).
57 Cardiff Chemicals Ltd v Fortune Bio-Tech Ltd, (2005) 126 COMP CASES 275 (CLB); Herdilia Unimers Ltd v Smt. Renu
Jain, (1998) 92 COMP CASES 841 (Raj.); H.V. Jayaram v ICICI Ltd, (2000) 99 COMP CASES 341 (SC).
58 Smt. Sujata Khetawat v Ushashree Tea Pvt Ltd, (2006) 133 COMP CASES 943 (CLB).
59 Ritesh Exports Ltd v Registrar of Cos, (2005) 127 COMP CASES 583 (AP).
60 K.B. Madhavan v Federal Bank Ltd, (2007) 135 COMP CASES 234 (CLB).
61 United Bank of India Ltd v United India Credit and Development Co Ltd, (1977) 47 COMP CASES 689 (Cal.).
62 Allen v Gold Reefs of West Africa Ltd, (1900) 1 ChD 656 : (1900–03) All ER Rep. 746 : 69 LJ Ch. 266 (CA); Tricumdas
Mills Co v HajeeSaboo, (1902) 4 Bom. LR 215; Ward v Dublin North City Milling Co Ltd, (1919) 1 IR [Irish] 5.
63 Canara Bank Ltd v T.P.R. Thampi, (1972) 42 COMP CASES 473 (Ker.).
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64 H.V. Jayaram v ICICI Ltd, (2000) 99 COMP CASES 341 (SC); Hanuman Prasad Gupta v Hiralal, (1970) 40 COMP
CASES 1058 (SC) : AIR 1971 SC 206 : (1970) 2 Comp. LJ 195 (SC); Indian Petro Chemicals Corpn. Ltd v State of
Rajasthan, (2001) 104 COMP CASES 285 (Raj.); Karnataka Bank Ltd v B. Suresh, (2001) 105 COMP CASES 110
(Kar.).
End of Document
Mr. Laghir1 Rabari

2013 and corresponds to section 54 of the 1956 Act. S. 21. Authentication of
Documents, Proceedings and Contracts.—
THERETO

INCIDENTAL THERETO
65 S. 21. Authentication of Documents, Proceedings and Contracts.—
Save as otherwise provided in this Act,—
(a) a document or proceeding requiring authentication by a company; or

(b) contracts made by or on behalf of a company,may be signed by any key managerial
personnel or an officer of the company duly authorised by the Board in this behalf.
NOTES
as follows:
This clause corresponds to section 54 of the Companies Act, 1956 and seeks to provide for authentication of
documents, proceedings and contracts, etc.
The Companies Law Committee was constituted, inter alia, with the mandate of making
recommendations on issues arising from the implementation of the 2013 Act. The relevant extract of
Pt I of the Report of the Companies Law Committee, February, 2016, i.e., Recommendations
Proposing Amendments to the Act, is reproduced hereunder:
2.6 It was stated before the Committee that since the definition of “officer” under Section 2(59) included top level
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54 of the 1956 Act. S. 21. Authentication of Documents....
management persons in a company, it would be practically very difficult for only such top level persons to sign the
documents, without providing for any other employee to sign, even with a board resolution. Suggestions were made for
such authentication to be allowed under the signature of ‘any employee of the company duly authorised by the Board’.
The Committee noted that since any authorization for employees would be backed by a board resolution, it would be
expected of the Board to exercise due care while authorizing any such employee. Accordingly, the Committee
recommended an amendment to Section 21, to allow authorizations, on the signature of ‘any employee of the company
duly authorised by the Board’.66
Thus, the Companies (Amendment) Bill, 2016, proposes to amend section 21 of the Companies Act,
2013 vide Clause 7 as follows:
In section 21 of the principal Act, for the words “an officer of the company”, the words “an officer or employee of the
company” shall be substituted.
The Notes on Clauses appended to the Companies (Amendment) Bill, 2016 explain:
Clause 7 of the Bill seeks to amend section 21 of the Act to allow authorisations on the signature of any employee of
the company duly authorised by the Board, with respect to authentication of documents, proceedings and contracts, in
addition to key managerial personnel and officers already provided in the section.
[s 21.2] Authentication of documents, proceedings and contracts
A company, as an artificial person with no physical existence, is required to act via human agents. A
document or proceeding requiring authentication by a company or contracts made by or on behalf of
the company may be signed by any key managerial personnel or an officer of the company duly
authorized by the Board in this behalf. The qualification “requiring authentication by a company”
pertains to documents and proceedings, and not to contracts made by or on behalf of a company.
[s 21.3] Document
As per section 2(36) of the 2013 Act, “document” includes summons, notice, requisition, order,
declaration, form and register, whether issued, sent or kept in pursuance of the 2013 Act or under
any other law for the time being in force or otherwise, maintained on paper or in electronic form.
[s 21.4] Key managerial personnel
Under section 2(51) of the 2013 Act, key managerial personnel means the Chief Executive Officer or
the managing director or the manager, the company secretary, the whole-time director, the Chief
Financial Officer, and such, other officer as may be prescribed.
[s 21.5] Officer
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Officer has been defined under section 2(59) of the 2013 Act and includes any director, manager or
key managerial personnel or any person in accordance with whose directions or instructions the
Board of Directors or any one or more of the directors is or are accustomed to act.
Section 21 of the 2013 Act differs from section 54 of the 1956 Act broadly as under:
1. Scope: While section 54 of the 1956 Act dealt with the manner of authentication of documents and
proceedings, the scope of section 21 of the 2013 Act is wider as it provides for not only authentication of
documents and proceedings, but signing of contracts made by or on behalf of the company as well.
2. Personnel competent to authenticate: Section 54 of the 1956 Act provided that authentication may be done by
a director, manager, secretary or other authorized officer of the company. As per section 21 of the 2013 Act,
the scope of personnel has been expanded as documents or proceedings may be authenticated and
contracts may be made by or behalf of the company by any key managerial personnel or an officer of the
company duly authorized by the Board.
3. Board’s authorization: The requirement of being “duly authorized by the Board” has been explicitly provided
4. Common seal: While section 54 of the 1956 Act expressly provided that the authentication need not be under
the company’s common seal, section 21 of the 2013 Act has done away with the redundant wordage possibly
in consideration of the fact that common seal is not of the essence for execution of each and every
document, proceeding and contract. Now, with the amendments introduced by the Companies (Amendment)
Act, 2015, the legislature has explicitly made the common seal optional. See section 22, 2013 Act.
S. 54. Authentication of documents and proceedings.—Save as otherwise expressly provided in this Act, a
document or proceeding requiring authentication by a company may be signed by a director, 67[***] the manager, the
secretary or other authorised officer of the company, and need not be under its common seal. The Companies Act,
1956 provision
NOTES
English Act, 1948 : Section 36 Indian Companies Act, 1913 : Section 150
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English Act, 1985 : Section 41 English Act, 2006: Section 44(2)
Section 54 of the 1956 Act was amended by the Companies (Amendment) Act, 2000 (53 of 2000).
(Please note that this amendment act has been repealed by the 2016 Repeal and Amendment Act)
THE COMPANIES (AMENDMENT) ACT, 2000 (53 OF 2000).—The Notes on clauses explained the amendment as
follows:
This clause seeks to omit the expression ‘managing agent, secretaries and treasurers’ in section 54 of the Act which is
of consequential nature. [Clause 15 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
[s 21.8] Authentication of document or proceeding
Under section 54 of the 1956 Act, a document or proceeding may be authenticated by the signature
of a Director, Manager, Secretary or any other Authorised Officer of the company. Since a company,
not being a physical entity, can only act in relation to the outside world by its agents, no one
nowadays would question that the signature of the duly authorised agent of the company, acting in
the course of the company’s business, is the signature of the company.68
[s 21.9] Seal
No seal need be affixed unless expressly required by any law.
[s 21.10] Authentication by other mode in Act
If any provision of the 1956 Act requires a document to be executed in any other manner that should
be followed. Authentication by any other mode is not excluded. (The position is similar under the
2013 Act as section 21 starts with the words “Save as otherwise provided in this Act”) See for
instance the manner of authentication of annual returns (section 161 of the 1956 Act), balance sheet
(section 215 of the 1956 Act), Board’s report (section 217 of the 1956 Act), Auditor’s report (section
229 of the 1956 Act). Further, a notary public may authenticate under the Notaries Act, 1952.
[s 21.11] Presumption of genuineness
The counsel for the State sought to invoke provisions of the Indian Evidence Act in order to raise a
presumption of genuineness or correctness in favour of the return filed by the company. The Court
observed that even assuming for a moment that the return filed by the company comes within the
category of a document mentioned in section 81 of the Indian Evidence Act, the presumption of
genuineness, if drawn in its favor, would only mean that it was, in fact, a return filed by the company,
duly authenticated, as required under section 54 of the 1956 Act. Section 81 of the Indian Evidence
Act does not enable the Court to draw a further presumption that what all is stated in the return is
true.69 While the observations were made in light of the 1956 Act, the same are relevant under the
2013 Act as well.
Signing of Contracts – By extending the scope of section 21 of the 2013 Act, the legislature has
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Page 5 of 5
sought to include the manner of signing of contracts made by or on behalf of the Company. The
original intention of the section was to prescribe the manner of authentication of documents and
proceedings by a company. However, by including signing of contracts made by or on behalf of the
company the ability of a company to authorise any person now stands curtailed. In fact, the import of
the new provision is that contracts can be signed on behalf of the company only by key managerial
personnel and officers of the company. This clearly has put a lot of burden on companies since as
explained above the key managerial personnel and officers of a company are very senior officials of
the company. In the course of business a company may enter into many contracts, big and small. By
not distinguishing these, it would effectively mean that every employment letter or a small vendor
contract that has to be signed by or behalf of the company will have to be signed by a key managerial
personnel or officer. This can be distinguished from signing of deeds (as covered under section 22 of
the 2013 Act), for which a company can still authorise any person. While, the Company law
committee has recognized this logistical nuisance, it would bode well for the government to exercise
its powers to issue an order clarifying and simplifying the applicability of this provision.
1956 Act.
66 http://www.mca.gov.in/Ministry/pdf/Report_Companies_Law_Committee_01022016.pdf, Last accessed in November,

2016.
67 The words “the managing agent, the secretaries and treasurers,” omitted by the Companies (Amendment) Act, 2000
(53 of 2000), section 15 (w.e.f. 13 December 2000). The system of managing agency had already been abolished vide
section 324A of the Companies Act, 1956 (1 of 1956), as inserted by the Companies (Amendment) Act, 1969 (17 of
1969), section 4 (w.e.f. 03-04-1970).
68 Observations made in light of section 6 of the Statute of Frauds Amendment Act, 1828 in UBAF Ltd v European
American Banking Corp, [1984] 2 All ER 226.
69 Saroj v Registrar of Cos, (1971) 7 DLT 213.
End of Document
Mr. Laghir1 Rabari

2013 and corresponds to sections 47 and 48 of the 1956 Act. S. 22.
Execution of Bills of Exchange, etc.—
THERETO

INCIDENTAL THERETO
70 S. 22. Execution of Bills of Exchange, etc.—
(1) A bill of exchange, hundi or promissory note shall be deemed to have been made, accepted,
drawn or endorsed on behalf of a company if made, accepted, drawn, or endorsed in the
name of, or on behalf of or on account of, the company by any person acting under its
authority, express or implied.
(2) A company may, by writing 71[under its common seal, if any,] authorise any person, either
generally or in respect of any specified matters, as its attorney to execute other deeds on its
behalf in any place either in or outside India.
72[Provided that in case a company does not have a common seal, the authorisation
under this sub-section shall be made by two directors or by a director and the Company
Secretary, wherever the company has appointed a Company Secretary.]
(3) A deed signed by such an attorney on behalf of the company and under his seal shall bind
the company 73[* * *].
NOTES
from 12-09-2013. Section 22 of the 2013 Act corresponds to sections 47 and 48 of the 1956 Act.
as follows:
This clause corresponds to section 47 of the Companies Act, 1956 and seeks to provide for execution of bills of
exchange, hundi, promissory notes and other deeds. A company may, by writing under its common seal, authorise any
person as its attorney to execute deeds on company’s behalf. Deed signed by such an attorney on behalf of the
company and under his seal shall bind the company and have same effect as if it were made under its common seal.
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Page 2 of 11
70 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to sections
47 and 48 of the 1956 Act. S. 22. Execution of Bills ....
The Companies (Amendment) Bill, 2014 was introduced and the Statement of Objects and Reasons
thereof proposed to amend, inter alia, section 22 of the 2013 Act for making common seal optional,
and proposed consequential changes for authorization for execution of documents.
Subsequently, the Companies (Amendment) Act, 2015, with effect from 29-05-2015, brought about
the following changes in section 22 of the 2013 Act:
(i) In sub-clause (2), the words “under its common seal, if any,” were substituted for the words
“under its common seal.”
(ii) Proviso to sub-clause (2) was inserted.
(iii) In sub-clause (3), the words “and have the effect as if it were made under its common seal”
were omitted.
[s 22.2] Mode of execution of Negotiable Instruments [Sub-section (1) of Section 22 of the

A bill of exchange, hundi or promissory note must be drawn, accepted, made or endorsed in the
name of the company, or the words “on behalf of” or “on account of”, e.g., “for and on behalf of”
should be used. The document may be signed by any person acting under the authority of the
company, whether express or implied.
[s 22.3] Manner of authorization [Sub-section (2) of Section 22 of the Companies Act, 2013]
The company may appoint and empower any person as its attorney for a particular purpose or
generally. The appointment must be in writing and under its common seal, if any.
[s 22.4] Common seal
While the 2013 Act does not define a common seal, as per the Secretarial Standard – 8 issued in
2008by the Council of the Institute of Company Secretaries of India, on “Affixing of Common Seal”:
“Common seal means the metallic seal of a company which can be affixed only with the approval of
the Board of directors of the company. It is the signature of the company to any document on which it
is affixed and binds the company for all obligations undertaken in the document … .”74
[s 22.5] Table F (Articles of Association of a Company Ltd by Shares), Schedule I of the

Companies Act, 2013
Regulation I(1)(b) provides that “the seal” means the common seal of the company. Regulation 79,
“The Seal” provides as under:
79. (i) The Board shall provide for the safe custody of the seal.
Mr. Laghir1 Rabari

Page 3 of 11
(ii) The seal of the company shall not be affixed to any instrument except by the authority of a resolution of the
Board or of a committee of the Board authorised by it in that behalf, and except in the presence of at least
two directors and of the secretary or such other person as the Board may appoint for the purpose; and those
two directors and the secretary or other person aforesaid shall sign every instrument to which the seal of the
company is so affixed in their presence.
Similarly, see Table H (Articles of Association of a Company limited by guarantee and not having
share capital), Schedule I of the 2013 Act. Under the 1956 Act, regulation 84 of Table A, Schedule I
provided for “The Seal.”
[s 22.6] Where company does not have a common seal [Proviso to sub-section (2) of Section
Proviso to sub-clause (2) of section 22 of the 2013 Act was inserted vide the Companies
(Amendment) Act, 2015; as per the provision case a company does not have a common seal, the
authorization shall be made by two directors or by a director and the Company Secretary, wherever
the company has appointed a Company Secretary. As elaborated hereunder, even under English law
as well as the Ltd Liability Partnership Act, 2008, having a common seal is not a mandatory
requirement.
[s 22.7] Common Seal optional under English Law
Section 36A(3) of the English Companies Act, 1985 inserted by the English Companies Act, 1989
removed the need for a company to have a common seal. section 36A provided that in favour of a
purchaser in good faith for valuable consideration including a lessee, mortgagee or other person who
for valuable consideration acquires an interest in property, a document shall be deemed to be duly
executed by a company if it purports to be signed by a director and the secretary or by two directors
and that, where it makes it clear on its face that it is intended to be a deed, to have been “delivered”.
Subsequently, even under sub-clause (1) of section 45 of the English Companies Act, 2006 “a
company may have a common seal, but need not have one.”
[s 22.8] Common seal optional under the Ltd Liability Partnership Act, 2008
Under the Ltd Liability Partnership Act, 2008, a limited liability partnership may have a common seal,
if it decides to have one. See section 14 (c) of the Ltd Liability Partnership Act, 2008.
[s 22.9] Section 5 of the Information Technology Act, 2000
The Information Technology Act, 2000, vide section 5, provides for the legal recognition of digital
signature. As per the provision, where any law provides that information or any other matter shall be
authenticated by affixing the signature or any document shall be signed or bear the signature of any
person then, notwithstanding anything contained in such law, such requirement shall be deemed to
have been satisfied, if such information or matter is authenticated by means of digital signature
affixed in such manner as may be prescribed by the Central Government. Questions as to the
manner of placing common seal upon documents authenticated by means of digital signature remain
relevant only to companies having a common seal. For companies that have not opted to have a
common seal can sign documents by affixing their digital signature.
[s 22.10] Deed signed by an attorney [Sub-section (3) of Section 22 of the Companies Act,
2013]
A deed signed by an attorney on behalf of a company and under his seal shall bind the company.
Even if a deed signed by the attorney does not bear his seal, the company will still be bound. Please
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note under section 21 of the 2013 Act, a Key Managerial personnel may sign a contract (or any other
person duly authorised by the Board)
[s 22.11] Comparison
Section 22 of the 2013 Act as it stood upon introduction largely corresponded to sections 47 and 48
of the 1956 Act. However, vide the Companies (Amendment) Act, 2015, the common seal has been
made optional and manner of authorization in case the company does not have a common seal has
been introduced.
S. 47. Bills of exchange and promissory notes.—A bill of exchange, hundi or promissory note shall be deemed to
have been made, accepted, drawn or endorsed on behalf of a company if drawn, accepted, made, or endorsed in the
name of, or on behalf or on account of, the company by any person acting under its authority, express or implied. The
NOTES
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on clauses explained the provisions of section 47 of the
This section corresponds to section 89 of the Indian Act and section 33 of the English Act. [Clause 42 of the
[s 22.13] Analysis
As sub-section (1) of section 22 of the 2013 Act corresponds to section 47 of the 1956 Act, the
interpretations/judicial decisions hereunder are, to the extent applicable, relevant for the analysis of
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Page 5 of 11
[s 22.14] Essential conditions or requirements of Section 47 of the Companies Act, 1956
It is clear that in order that a company may be bound by a negotiable instrument purporting to have
been issued on its behalf two conditions must be satisfied: the instrument must be drawn, made,
accepted or endorsed in the name of or by or on behalf of or on account of the company, and the
person who makes, draws, endorses or accepts the instrument must have the authority given to him
by the company on that behalf. This authority may be either express or implied. There is thus no
doubt that before a company can be bound by a negotiable instrument one of the essential conditions
is that the instrument on its face must show that it has been drawn, made, accepted or endorsed by
the company. This may be done either by showing the name of the company itself on the instrument,
or by the statement of the person making the instrument that he is doing so on behalf of the
company. In other words, unless the plain tenor of the negotiable instrument on its face satisfies the
relevant requirement the instrument cannot be validly treated as an instrument drawn by the
company. The failure to comply with the essential requirements of section 47 of the 1956 Act must
necessarily mean that the negotiable instrument is defectively issued, would not bind the company
and cannot be enforced against it.75
[s 22.15] Bank’s position—Honouring of cheque
In order to make the company liable on a bill or note it must appear on the face of such bill or note
that it was intended to be drawn, accepted or made on behalf of the company. It is only in the matter
of enforcement of negotiable instrument against a company that the principle underlying in section 47
of the 1956 Act comes into play. This principle cannot be extended to a claim made by a company
against its bank on the ground that the cheque which the bank had accepted and honoured was
defective in that it did not comply with the requirements of section 47 of the 1956 Act and could not
have been enforced against it. The law in regard to the company’s power to issue negotiable
instruments has to be found in the relevant provisions of the 1956 Act itself and not in the Negotiable
Instruments Act, 1881 (26 of 1881). Where the resolution of the appellant company did not require
the drawers of the cheques to specify on each cheque that they were made or drawn on behalf of the
company and the cheques accepted by the bank were not inconsistent with the requirements of the
resolution, the bank was justified in thinking that the cheques must have been issued by the two
drawers on behalf of the only account on which they could operate and that they drew the cheques in
pursuance of the authority conferred on them by the company by its resolution.76Where the
endorsement was “M & Sons, Managing Agents of L.A. Co. Ltd”, it was held that the company was
not liable but M & Sons was.77 But in such cases the court is entitled to look at the surrounding
circumstances under which the bill was signed.78
[s 22.16] Duty of third party
A third party dealing with an agent of a company cannot rely upon apparent authority but is bound to
acquaint himself with the Memorandum and Articles of Association of the company.79
[s 22.17] Power of Attorney
Any person dealing with an agent on the basis of a power of attorney is put on inquiry though not as
to the existence of special circumstances.80
But this principle will not apply to a contract under seal entered into by an agent outside India.81
[s 22.18] Rule in Royal British Bank v Turquand
In the case of acts ultra vires by the Directors or Officers of the company beyond their authority, the
effect of the constructive notice rule was mitigated by refinement of normal agency principles in Royal
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British Bank v Turquand.82
[s 22.19] Protection against irregularity in Indoor Management
A person taking in due course a bill of exchange or hundi signed by a director who, consistently with
the company’s Articles, might have been, but who was not in fact authorised to sign bills or hundis is,
upon the principle of the Royal British Bank v Turquand, entitled to assume that the director was
“acting under its authority” when he signed the bill, and to recover on the bill or hundi against the
company accordingly. The lender who lent money to the company in those circumstances on a
promissory note or a bill of exchange executed by the manager and the director after having found on
inquiry from the Memorandum and the Articles the existence of such power to borrow, need not and
cannot, and is not obliged, to look further into the internal management of the company and embark
on an investigation whether a particular manager or director who is given such powers under the
memorandum and articles has nevertheless lost it or qualified or limited it by an internal resolution
contained in the internal minutes book or resolution of the company’s directors.83
[s 22.20] Recent Trend—English Law
As the doctrine of constructive notice has now been abolished under the English law, the rule in
Turquand’s case is no longer of relevance to the third party dealing with the company through the
Board of directors. Hence, a third party, who has dealt with the company through its Board of
directors (de jure or de facto) or with someone authorised by the Board of directors, will be protected
so long as he has acted in good faith.
[s 22.21] Borrowing powers and promissory NOTES
Where the Articles of Association of a company allow borrowing by the Directors, borrowing moneys
on promissory notes is a transaction coming within the powers of the Directors. When a person is
appointed as the managing director by a resolution of the Board of Directors vesting in him full
powers for the management of the company’s affairs and authorising him to sign all papers of the
company, he has full powers to borrow moneys on promissory notes even without a resolution of the
Board of Directors as envisaged under section 292(c) of the 1956 Act,84 now section 179 (3)(d) of the
2013 Act.
[s 22.22] Promissory on behalf of company
Where the promissory note was executed on behalf of the company for sale of property to the
company,the seal of the company was not necessary on the promissory note. Promissory note is
covered by section 47 and not section 48 of the 1956 Act. Even if the plaintiff as a director had voted
in the passing of the resolution the only legal consequence would be that his vote would have to be
excluded from consideration. But, the validity of the transaction would not be thereby affected.85
Where money was borrowed and promissory note executed by the Chief Executive of the company in
that capacity,the company and new management could not deny the execution of the promissory
note. That accounts of the company did not reflect the borrowing was the internal matter with which
the creditor was not concerned. The company was liable for borrowing by the chief executive for the
company.86
[s 22.23] Promissory Note by Managing Director
Where a promissory note was executed by the Managing Director,there was no indication that the
sum was borrowed by the company or the Managing Director on behalf of the company. The
Managing Director was held personally liable. Even if the company had treated it as its own liability it
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would not bind the creditor.87
[s 22.24] Publication of name by company [Section 147 of the Companies Act, 1956]
Every company shall have its name mentioned in legible characters, inter alia, in all bills of exchange,
hundies, promissory notes, endorsements, cheques and letters of credit, etc., of the company.
[section 147(1)(c) of the 1956 Act]
[s 22.25] Dishonour of Cheques
Under section 141 of the Negotiable Instruments Act, 1881 [Offences by companies]: If the person
committing an offence under section 138 of the Negotiable Instruments Act [Dishonour of cheque for
insufficiency, etc., of funds in the account] is a company, the persons who are in charge of the
conduct of the business of the company as well as the company will be liable. To make a person
liable under section 141 of the Negotiable Instruments Act, 1881, mere repetition of requirement
under section 141(1) of the Negotiable Instruments Act, 1881 will be of no assistance, but there
should be necessary averments in the complaint as to how and in what manner the accused was
guilty of consent and connivance or negligence and therefore, responsible under sub-section (2) of
section 141 of the Negotiable Instruments Act, 1881. In case the Director is to be made liable, then
there must be necessary averment as to his involvement in the day to day affairs of the company.88
[s 22.26] Bank Guarantee
The duty to satisfy about the authority of the executant is on the beneficiary. If a transaction is
contained in more than one documents between the same parties, they must be read and interpreted
together to see the position of the Directors of the company as surety or guarantor.89
S. 48. Execution of deeds.—(1) A company may, by writing under its common seal, empower any person, either
generally or in respect of any specified matters, as its attorney, to execute deeds on its behalf in any place either in or
outside India. The Companies Act, 1956 provision
(2) A deed signed by such an attorney on behalf of the company and under his seal where sealing is required, shall
bind the company and have the same effect as if it were under its common seal.
NOTES
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THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on clauses explained the provisions of section 48 of the
This section corresponds to section 90 of the Indian Act and section 34 of the English Act. [Clause 43 of the
[s 22.28] Analysis
To the extent applicable, the judicial decisions/interpretations made hereunder in the context of the
1956 Act may be considered relevant while analyzing section 22 of the 2013 Act.
[s 22.29] Appointment of Attorney under Seal to execute Deeds
The company may in writing under a Common Seal empower any person to execute a Deed on its
behalf.90 (Under section 22 of the 2013 Act, the requirement of a common seal has been made
optional.) Such appointment is to be made by the Board of Directors. The Attorney shall execute
Deeds which should be under his own seal, where seal is required, and such a contract or deed will
be binding on the company. The power of attorney executed by the company and its scope and
operations are strictly construed.91
[s 22.30] Duty of outsiders
A third party dealing with the attorney cannot rely upon apparent authority but should acquaint
himself with the Memorandum and Articles of the company.92 Such outsiders, however, need not
have knowledge of the existence of the special circumstances.93
[s 22.31] Agreement without common seal
Where the Articles of Association of a company provided that certain types of agreement would be
executed under the common seal of the company, a lease agreement executed by the Managing
Director without the common seal is not binding on the company.94
[s 22.32] Powers of Managing Director
From the definition of “managing director” under section 2(26) of the 1956 Act, it is clear that the
managing director as an agent of the company does not have all the powers to act for and on behalf
of the company. Where, the managing director did not have the actual authority or power to fix the
common seal of the company to any document by arriving at any kind of settlement for and on behalf
of the company, he had no “actual” authority or power to act for and on behalf of the company. The
Memorandum of understanding (MoU) entered into between the managing director and N was not for
and on behalf of the respondent-company, nor was it a valid deed in terms of section 48 of the 1956
Act, so as to bind the company. The MoU or settlement did not create a binding debt. Winding up
could not, therefore, be ordered under sections 433 and 434 of the 1956 Act.95
[s 22.33] Publication of name by company [Section 147 of the Companies Act, 1956]
Every company shall have its name engraven in legible characters on its seal. [Section 147(1)(b) of
the 1956 Act]. Section 12(3)(b) of the 2013 Act is the corresponding provision, however, the
requirement is applicable only in the case the company has a common seal.
[s 22.34] Contract with Company—Common Seal of Company
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Sections 46 and 48 of the 1956 Act merely lay down the mode of signing contract or execution of
deeds on behalf of the company. Once a contract or deed is executed on behalf of the company, it is
the company and not the persons signing which can sue or be sued on the contract if the evidence is
clear that the signature was only that of the company. An oral agreement for sale is permissible in
law. Where the contract was executed in the name of the company, it was not disputed that all the
five directors executed the agreement. The company was a Pvt Ltd company. The subsequent letters
written on behalf of the company clearly demonstrated that all the directors were aware of the said
agreement. The company before the Trial Court never chose to file any written statement or dispute
the contentions raised in the plaint. In fact in the deeds executed in favour of the agreement, it had
been clearly stated that the suit for specific performance of contract filed by the respondent was
pending. The company never denied or disputed the correctness or otherwise of the contents of the
agreement. The company never denied or disputed the terms of the agreement nor raised any plea
that the agreement was not binding on the company or the same was illegal. Thus, even in the
absence of a Resolution the contract could not have been held to be invalid or illegal. So far as the
question of putting up of the seal of the company is concerned, it is a relic of the days when
mediaeval barons, who could not read or write, used their rings to make a characteristic impress.
Even in the absence of a seal, the company may still be held to be liable having regard to the nature
of transaction and the authority of those who had executed it. If the act of the directors is not ultra
vires or no public policy is involved, the parties acting thereupon cannot be left at large.96
[s 22.35] Complaint by Power of Attorney holder
The Gujarat High Court, while considering the competence of a power of attorney holder to file a
complaint under section 630 of the 1956 Act on behalf of the company, held as under:
Under Section 48 of the Companies Act, 1956, a Company may, by writing under its common seal, empower any
person, either generally or in respect of any specified matters, as its attorney, to execute deeds on its behalf in any
place either in or outside India. A deed signed by such an attorney on behalf of the company and under his seal where
sealing is required, shall bind the Company and have the same effect as if it were under its common seal. Thus, taking
any view of the matter, the complaint filed by the power of attorney is a valid complaint and the learned Magistrate has
rightly entertained and taken the cognizance of the said complaint.97
[s 22.36] Contract, Deed or Bond—Company’s Seal, necessity of—Trade Name
A company may use its Trade Name and not its Registered Name in the Body of a Deed or Bond. In
the present transaction there was also a surety. On the action of the Contractor it was held that the
company was bound under the Contract even though in the contract, its Trading Name was used and
the surety was also liable for breach of the agreement. The underlying Contract was not a nullity, the
contractor was entitled to enforce the contract. It was not against the Public Policy to allow the
enforcement of such a contract. The Contract, Deed or Bond was found valid and enforceable.98
70 Enforced vide S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to sections 47 and 48
of the 1956 Act.
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71 Substituted for the words “under its common seal” by the Companies (Amendment) Act, 2015 (21 of 2015), section
6(i)(a) (w.e.f. 29-05-2015).
72 Inserted by the Companies (Amendment) Act, 2015 (21 of 2015), section 6(i)(b) (w.e.f. 29-05-2015).
73 The words “and have the effect as if it were made under its common seal” omitted by the Companies (Amendment)
Act, 2015 (21 of 2015), section 6(ii) (w.e.f. 29-05-2015).
74 http://www.icsi.edu/docs/WebModules/Publications/FINALSS8.htm, Last accessed in November 2016.
75 Oriol Industries Ltd v Bombay Mercantile Bank Ltd, (1961) 31 COMP CASES 185 (SC) : AIR 1961 SC 993.
76 Oriol Industries Ltd v Bombay Mercantile Bank Ltd, (1961) 31 COMP CASES 185 (SC) : AIR 1961 SC 993;Mahony v
East Holyford Mining Co, (1875) LR 7 HL 869 : (1874–80) All ER Rep. 427 : 33 LT 383 (HL).
77 Sreelal v Lister Antiseptic Dressing Co, AIR 1925 Cal 1062 : 29 Cal WN 828; Re, Jajodia Cotton Mills, 31 Cal WN 683
(Cal.). The system of managing agency, secretaries and treasurers has since been abolished vides. 324A of the 1956
Act.
78 Elliott v Bax-Ironside, (1925) 2 KB 301 : (1925) All ER Rep. 209 : 94 LJ KB 807 (CA).
79 Mercantile Bank of India Ltd v Chartered Bank of India, Australia and China and Strauss & Co Ltd, (1937) 1 All ER 231.
80 Bryant, Powis and Bryant v La Banque de Peuple, (1893) AC 170 : 62 LJ PC 68; Montaignac v Shitta, (1890) 15 App.
Cas. 357 : 39 WR Dig. 178.
82 Royal British Bank v Turquand, (1856) 6 E.&B. 327 : (1843–60) All ER Rep. 435 (Ex Ch.) : 25 LJ QB 317 : 2 Jur. NS
663 (Ex Ch.).
83 Shri KishanRathi v Mondal Bros. & Co Pvt Ltd, (1967) 37 COMP CASES 256 (Cal.) : AIR 1967 Cal 75 : 70 Cal WN 164;
SurveKedarappa v Bhimappa, (1960) 30 COMP CASES 131 (Mys.); Dey v Pullinger Engineering Co, (1921) 1 KB 77.
84 P. Rangaswami Reddiar v R. Krishnaswami Reddiar, (1973) 43 COMP CASES 232 (Mad.) : AIR 1973 Mad. 251.
85 C. Sundararaja Pillai v Sakthi Talkies (Dindigul) Ltd, (1967) 37 COMP CASES 463 (Mad.) (DB).
86 Kirlampudi Sugar Mills Ltd v G. Venkata Rao, (2003) 114 COMP CASES 563 (AP).
87 M. Mahadevan Pillai v VedavalliAmmal, (1994) 79 COMP CASES 851 (Mad.).
88 Smt. Sujatha Rana v Dilip Kumar, [2010] 160 Com Cas 28 : (2011) 1 Kar LJ 518 (Karn).
89 Chattanatha Karayalar v Central Bank of India, (1965) 35 COMP CASES 610 (SC) : AIR 1965 SC 1856 : (1965) 3 SCR
318; Margaret Lalita Samuel v Indo-Commercial Bank Ltd, (1979) 49 COMP CASES 86 (SC) : AIR 1979 SC 102 :
(1979) 1 SCR 914; Bank of Bihar Ltd v Dr. Damodar Prasad, (1969) 39 COMP CASES 133 (SC) : (1969) 1 SCR 620;
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Union Bank of India v Manku Narayana, (1987) 62 COMP CASES 1 (SC); Punjab National Bank v Mehra Brothers Pvt
Ltd, (1983) 54 COMP CASES 541 (Cal.); United Commercial Bank v Rathi Fibres and Fabrics Ltd, (1983) 54 COMP
CASES 625 (Delhi); Central Bank of India v P. R. Garments Industries Pvt Ltd, (1987) 62 COMP CASES 669 (Guj.).
90 Sociedade de Fomento Industrial Ltd v Ravindranath Subraya Kamat,AIR 1999 Bom 158.
91 Danby v Coutts & Co, (1885) 29 ChD. 500 : 54 LJ Ch. 577 : 52 LT 401 : 33 WR 559; Jacobs v Morris, (1902) 1 ChD
816 : 71 LJ Ch. 363 : 86 LT 275 : 50 WR 371 (CA); Hambro v Burnard, (1904) 2 KB 10 : 73 LJ KB 669 : 90 LT 803
(CA).
92 Mercantile Bank of India Ltd v Chartered Bank of India, Australia and China and Strauss & Co Ltd, (1937) 1 All ER 231.
93 Montaignac v Shitta, (1890) 15 App. Cas. 357 : 39 WR Dig. 178; Bryant, Powis and Bryant v La Banque de Peuple,
(1893) AC 170 : 62 LJ PC 68.
94 RajendraNath Dutta v ShibendraNath Mukherjee, (1982) 52 COMP CASES 293 (Cal.).
95 G. Subba Rao v Rasmi Die-Castings Ltd, (1998) 93 COMP CASES 797 (AP); Freeman and Lockyer v Buckhurst Park
Properties (Mangal) Ltd, (1964) 2 QB 480 : (1964) 1 All ER 630 : (1964) 2 WLR 618 : (1964) 34 COMP CASES 405
(CA).
96 Panchanan Dhara v Monmatha Nath Maity (Deceased) through Legal Representatives (L.R.s),(2006) 131 COMP
CASES 577 (SC) relying on Probodh Chandra Mitra v Road Oils (India) Ltd, AIR 1930 Cal 782; OTV Birwel Co Ltd v
Technical and General Guarantee Co Ltd, (2002) 4 All ER 668 : (2002) 2 BCLC 723 (QB).
97 Chandubhai Virjibhai Gokani v State of Gujarat, (2009) 149 Com Cas 720 : (2008) 87 SCL 155 (Guj).
98 OTV Birwel Co Ltd v Technical and General Guarantee Co Ltd, (2002) 4 All ER 668 : (2002) 2 BCLC 723 (QB).
End of Document
Mr. Laghir1 Rabari

[s 23] Public Offer and Private Placement.—
Company Law > CHAPTER III PROSPECTUS AND ALLOTMENT OF SECURITIES > PART I:
PUBLIC OFFER
CHAPTER III PROSPECTUS AND ALLOTMENT OF SECURITIES
PART I: PUBLIC OFFER
[(1) A public company may issue securities—

(a) to public through prospectus (herein referred to as “public offer”) by complying with the
provisions of this Part;]1 or
[(b) through private placement by complying with the provisions of Part II of this Chapter;]2 or
[(c) through a rights issue or a bonus issue in accordance with the provisions of this Act and
in case of a listed company or a company which intends to get its securities listed also
with the provisions of the SEBI Act, 1992 Securities and Exchange Board of India(15 of
1992) and the rules and regulations made thereunder.]3
[(2) A private company may issue securities—
(a) by way of rights issue or bonus issue in accordance with the provisions of this Act; or
(b) through private placement by complying with the provisions of Part II of this Chapter.]4
Explanation.—For the purposes of this Chapter, “public offer” includes initial public offer or
further public offer of securities to the public by a company, or an offer for sale of securities to
the public by an existing shareholder, through issue of a prospectus.
NOTES
There is no provision under the 1956 Act that corresponds entirely or directly with section 23 of the
2013 Act. However, the Ministry of Corporate Affairs had in its Circular No. 07/2014 dt. 1 April 2014
identified section 67 of the 1956 Act as the provisional corresponding section to section 23 of the
2013 Act.
THE COMPANIES ACT, 2013 (18 OF 2013).—The Notes on Clauses to the Companies Bill, 2011, explained as
follows:
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Clause 23.—This is a new clause and seeks to provide the ways in which a public company or a private company may
issue securities.
[s 23.2] Scope
This section consolidates the modes by which an Indian company may issue securities. While both
private and public companies may issue securities through a private placement, rights issue or bonus
issue, only a public company may issue securities through a “public offer.” Section 23 further
provides that a public company which is listed or intends to get its securities listed must also comply
with the provisions of the Securities Exchange Board of India Act, 1992 (15 of 1992), and the rules
and regulations made thereunder. A listed company will also need to comply with the SEBI (Issue of
Capital and Disclosure Requirements) Regulations, 2009, notified pursuant to section 30 of the SEBI
Act, 1992, for the issue of securities under one of the modes prescribed under section 23 of the 2013
Act.
[s 23.3] Public Offer
The explanation to the provision defines a public offer to mean an issue of securities to the public (by
means of an initial public offer or further public offer of securities to the public or an offer of sale of
securities by the existing shareholders) through a prospectus. A prospectus has been defined by
section. 2(70) of the 2013 Act to mean any document described or issued as a prospectus and
includes a red herring prospectus (referred to in section 32 of the 2013 Act) or a shelf prospectus
(referred to in section 31 of the 2013 Act) or any notice, circular, advertisement or other document
inviting offers from the public for the subscription or purchase of any securities of a body corporate.
Section 26 of the 2013 Act provides for matters to be stated in the prospectus.
While earlier the proviso to section 67(3) of the 1956 Act clarifies that an offer will be deemed to be
made to the public if offer or invitation to subscribe for shares or debentures is made to 50 persons or
more. The 2013 Act does not define the expression “public” for the purposes of a “public offer,” and
an offer of a prospectus to even one person would constitute a public offer under the 2013 Act. A
further reading of section 23 of the 2013 Act would imply that an issue of securities by a public
company that is not a rights issue, a bonus issue or a private placement (in accordance with the 2013
Act) could only be undertaken as a public offer. Further, sub-section (4) of section 42 of the 2013 Act
provides that any private placement not undertaken in accordance with section 42 of the 2013 Act will
be treated as a public offer.
Section 42 of the Companies Act, 2013 provides that, in the case of a private placement, if a
company, listed or listed, makes an offer to allot or invites subscription, or allots or enters into an
agreement to allot, securities to more than 200 people (excluding qualified institutional buyers, and
employees of the company being offered being offered securities under a scheme of employees
stock option), in a financial year, the same shall be deemed to be an offer to the public.
(See detailed notes under section 42 of the 2013 Act)
[s 23.4] Private Placement
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The 2013 Act deals with private placement under section 42. (See detailed notes under section 42)
[s 23.5] Rights Issue
The 2013 Act deals with rights issue under section 62 (1).
(See detailed notes under section 62 (1))
[s 23.6] Bonus Issue
The 2013 Act deals with bonus issue under section 63.
(See detailed notes under section 63)
[s 23.7] Penalty
A contravention of section 23 of the 2013 Act could result in penalty under section 450 of the 2013
Act (as there is no specific penalty for a contravention of section 23). Section 450 of the 2013 Act
provides that the company and every officer in default or such other person shall be punishable with
a fine which may extend to Rs 10,000 and where the contravention is continuing with a further fine
which may extend to Rs 1,000 for every day after the first for which the contravention continues.
1 Notified by Notification S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 Separate 2013.
2 Notified by Notification S.O. 902(E) dt. 26 March 2014, w.e.f. 01 April 2014.
3 Notified by Notification S.O. 2754(E) dt. 12 Septembet 2013, w.e.f. 12 September 2013.
4 Notified by Notification S.O. 902(E) dt. 26 March 2014, w.e.f. 01 April 2014.
End of Document
Mr. Laghir1 Rabari

5 Notified by Notification S.O. 2754(E) dt. 12 September 2013, w.e.f. 12
September 2013 and corresponds to section 55A of the 1956 Act. [s 24]
Power of Securities and Exchange Board to regulate issue and transfer of
securities, etc.—
PUBLIC OFFER
5[s24] Power of Securities and Exchange Board to regulate issue and

transfer of securities, etc.—
(1) The provisions contained in this Chapter, Chapter IV and in section 127 shall,—
(a) In so far as they relate to—
i. issue and transfer of securities; and
ii. non-payment of dividend, by listed companies or those companies which intend to get
their securities listed on any recognised stock exchange in India, except as provided
under this Act, be administered by the Securities and Exchange Board by making
regulations in this behalf.
(b) In any other case, be administered by the Central Government.
Explanation.—For the removal of doubts, it is hereby declared that all powers relating to all
other matters relating to prospectus, return of allotment, redemption of preference shares and
any other matter specifically provided in this Act, shall be exercised by the Central
Government, the Tribunal or the Registrar, as the case may be.
(2) The Securities and Exchange Board shall, in respect of matters specified in sub-section (1)
and the matters delegated to it under proviso to sub-section (1) of section 458, exercise the
powers conferred upon it under sub-sections (1), (2A), (3) and (4) of section 11, sections 11A,
11B and 11D of the SEBI Act, 1992 Securities and Exchange Board of India(15 of 1992).
NOTES
Section 24 of the 2013 Act corresponds to section 55A of the 1956 Act.
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Page 2 of 16
5 Notified by Notification S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to
section 55A of the 1956 Act. [s 24] Power of Securit....
as follows:
Clause 24.—This clause corresponds to section 55A of the Companies Act, 1956, and seeks to provide that issue and
transfer of securities and non-payment of dividend by listed companies or those companies which intend to get their
securities listed shall be administered by the Securities and Exchange Board of India and in other cases shall be
administered by Central Government.
This provision outlines the powers granted to the SEBI (SEBI), the Central Government, the Tribunal
and the Registrar under Chapters III (Prospectus and Allotment of Securities) and IV (Share Capital
and Debentures) and section 127 (punishment for failure to distribute dividend) of the 2013 Act.
[s 24.2] Legislative History of the SEBI Act
THE SEBI ACT, 1992 (15OF 1992).—The Statement of Objects and Reasons appended to the SEBI Bill,
1992 (37 of 1992),6 is reproduced below:
Securities and Exchange Board of India (SEBI) was established in 1988 through a Government resolution to promote
orderly and healthy growth of the securities market and for investors’ protection. SEBI has been monitoring the
activities of stock exchanges, mutual funds, merchant bankers, etc., to achieve these goals.
The Indian capital market has witnessed tremendous growth in recent times, characterised particularly by the
increasing participation of the public. Investors’ confidence in the capital market can be sustained largely by ensuring
investor’s protection. With this end in view, the Government decided to vest SEBI immediately with statutory powers
required to deal effectively with all matters relating to capital market. As Parliament was not in session, and there was
an urgent need to in still a sense of confidence in the public in the growth and stability of the capital market, the
President promulgated the Securities and Exchange Board of India Ordinance, 1992 (No. 5 of 1992), on the 30th
January, 1992.
Therefore, the SEBI Act, 1992 (15 of 1992), was enacted (w.e.f. 30 January 1992) (SEBI Act) to
provide for the establishment of SEBI to protect the interests of investors in securities and to promote
the development of, and to regulate, the securities market. SEBI has been given necessary statutory
powers through the SEBI Act, and has been entrusted with the task of ensuring disclosures and
investor protection.
[s 24.3] Powers of SEBI [Section 24(1)(a)]
This provision provides SEBI with the power to administer and make regulations in relation to (a)
issue and transfer of securities and (b) non-payment of dividend, by listed companies or those
companies which intend to get their securities listed on any recognised stock exchange in India,
covered under Chapters III (Prospectus and Allotment of Securities) and IV (Share Capital and
Debentures) and section 127 (punishment for failure to distribute dividend) of the 2013 Act.
Therefore, all the provisions covered in Chapters III and IV of the 2013 Act that relate to issue and
transfer of securities as well as payment of dividend in relation to listed companies would be
regulated and administered by SEBI.
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[s 24.4] Powers of the Central Government, Tribunal and Registrar [Section 24(1)(b)]
Provisions other than those relating to the issue and transfer of securities and payment of dividends
under Chapters III and IV and section 127 will be administered by the Central Government.
Moreover, this section, through the explanation, clarifies that the scope of the powers of the Central
Government, the Tribunal and the Registrar is in relation to all other matters with respect to (a)
prospectus, (b) return of allotment, (c) redemption of preference shares and (d) any other matter
specifically provided for in the 2013 Act.
The national company law tribunals (“NCLTs”) have been constituted w.e.f. 1 June 2016,7 as a result
of which the company law boards (“CLBs”) stand dissolved effective from 1 June 2016. Further,
eleven benches of the NCLTs have been constituted w.e.f. 1 June 2016 having two at New Delhi and
one each at Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad,
Kolkata and Mumbai.8 Consequently, as per Section 434 of the Companies Act, 2013, all matters,
proceedings or cases pending before the CLBs have been transferred to the NCLTs.
[s 24.5] Exercise of Powers under the SEBI Act [Section 24(2)]
This sub-section empowers SEBI to exercise the powers conferred on it under the SEBI Act in
relation to the following sections:
i. Sub-sections (1), (2A), (3) and (4) of section 11—Specific functions and powers of the Board;
ii. Section 11A—Power to regulate or prohibit issue of prospectus, offer document or
advertisement soliciting money for issue of securities;
iii. Section 11B—Power to issue directions; and
iv. Section 11D—Cease and desist proceedings.
This provision clarifies that SEBI can use its powers under the SEBI Act to administer and enforce
provisions in relation to issue and transfer of securities and payment of dividend as well as section
194 (prohibition on forward dealings in securities of a company by a director or key managerial
personnel) and section 195 (prohibition on insider trading of securities) under the 2013 Act. This was
held in relation to section 55A of the 1956 Act in the case of SEBI v Kunnamkulam Paper Mills Ltd,9
where it was held that section 55A does not preclude SEBI from exercising other rights under the
SEBI Act and Regulations framed under it. Additionally, as held in In Re: Kerala Housing Finance
Ltd,10 jurisdiction of SEBI over various provisions of the 1956 Act in the case of public companies,
whether listed or unlisted, when they issue and transfer securities, flows from the provisions of
section 55A of the 1956 Act. These decisions are applicable to section 24 of the 2013 Act.
[s 24.6] Public Issue
In the case of Sahara India Real Estate Corp Ltd v SEBI,11 it has been held that when an unlisted
company issues fully convertible bonds to more than 50 persons, it is regarded as a public issue and
SEBI has the jurisdiction to regulate such issues in accordance with its powers under section 55A. As
held in the case of Kimsuk Krishna Sinha v SEBI,12 SEBI has the power to conduct enquiry into a
complaint regarding the statements made by a company in its red herring prospectus even after a
public issue is closed.
[s 24.7] Directions Issued by the SEBI
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As per sections 11 and 11B of the SEBI Act, SEBI has the authority to issue directions to protect the
interests of investors and regulate the securities market. SEBI’s decisions are however subject to
appeal as also judicial review, and, thus, must answer the test of reasonableness. The discretionary
jurisdiction has to be exercised keeping in view the purpose for which it is conferred and the object
sought to be achieved.13
[s 24.8] Interim Orders of SEBI
Directions issued by SEBI have authority of law. The SEBI Act is of remedial nature. As per sections
11 and 11B of the SEBI Act, SEBI is empowered to pass interim orders in aid of the final orders.
[s 24.9] Misstatement in Prospectus, Powers of SEBI
The adequacy of disclosures in DLF Ltd's (“DLF”) red herring prospectus and prospectus was called
into question by SEBI in the DLF case14 SEBI on 10 October 2014 held that non-disclosure of
material information in relation to related party transactions, information about subsidiaries,
outstanding litigation etc. in the red herring prospectus and prospectus of DLF resulted in DLF, its
directors and chief financial officer being held liable for violation of SEBI (Disclosure and Investor
Protection) Guidelines, 2000 (“DIP Guidelines”) read with corresponding provisions of the SEBI
(Issuance of Capital and Disclosure Requirements) Regulations, 2009 (“ICDR Regulations”) and the
Companies Act, 1956. SEBI therefore restrained DLF, its directors and chief finance officer from
buying or selling securities or otherwise accessing the capital markets for a period of three-years.
Thereafter, DLF, its directors and chief finance officer filed an appeal before the Securities Appellate
Tribunal (“SAT”).15 The SAT framed three material issues - (i) whether the transactions of DLF with
certain companies named in the complaint, including alleged subsidiaries, were sham transactions,
and whether the three companies continued to be subsidiaries of DLF; (ii) whether the prospectus
contained material information which was true and adequate, and (iii) whether the parties knowingly
suppressed material information and facts so as to mislead and defraud the investors in the stock
market. On the first issue, it was held that the transactions were legal and that there was no
requirement to look behind them. On the second issue, the SAT held that the three companies were
no longer subsidiaries and were not required to be disclosed in the offer document. On the third
issue, it was held that the DLF had not committed “fraud” and that elements necessary to constitute
“fraud” were onerous and were not satisfied in the present case. After examining the definition of
“fraud” under regulation 3 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating
to Securities Market) Regulations, 2003, the SAT held that a person could be held guilty of fraud only
if he has done an act or omission, or made a false and reckless statement, with a view to induce
another person to deal in securities, which was not proved by the complainant in this case. The SAT
also observed that though SEBI was empowered with discretion under the Companies Act, 1956
orders passed by SEBI should not amount to over-regulation. Further, the SAT pointed out that SEBI
had unduly delayed in writing its order, by nine months, and such delay is fatal to the concept of fair
hearing, rule of law and such amounts to violation of Article 21 of the Constitution of India.
Subsequently, SEBI filed an appeal before the Supreme Court against the order issued by SAT which
is currently pending.16
SEBI is a quasi-judicial authority and therefore it is obligated to observe the principles of natural
justice before debarring a company from access to the capital market. Where before cancellation of a
stock broker’s registration the petitioner was not permitted during enquiry to be defended by a lawyer,
the enquiry being in violation of the principles of natural justice, the entire enquiry proceedings as well
as subsequent proceedings were quashed and set aside.17 In another instance, SEBI purporting to
act under section 11B of the SEBI Act read with regulation 11 of the erstwhile SEBI (Prohibition of
Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 1995 (now the
SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets)
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Regulations, 2003), prohibited the appellant as a director of the company in his personal capacity
from accessing the capital market and dealing in securities for a period of five years. The order was
directed against the director and no show-cause notice was issued to him in his personal capacity,
but still he was banned from the capital market for a period of five years. The principles of natural
justice require that a show-cause notice to be issued against the director if any adverse order was
passed against him. Thus, the order of SEBI was set aside.18
[s 24.11] Securities Market Manipulations—SEBI Order Prohibiting Justified
The appellant, an individual investor, was in securities trading having a large portfolio of securities.
SEBI called upon the appellant to explain why his transactions in relation to which there was
evidence of market manipulation should not be viewed as contravention of the provisions of
regulations 4(a), (b) and (c) of the erstwhile SEBI (Prohibition of Fraudulent and Unfair Trade
Practices Relating to Securities Markets) Regulations, 1995 (now the SEBI (Prohibition of Fraudulent
and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003). SEBI found that the
explanation given by the appellant was not satisfactory and therefore passed an order restraining the
appellant from associating with any corporate body in accessing the securities market and prohibiting
him from buying, selling or dealing in securities, directly or indirectly for a period of one year. On
appeal, it was held that the appellant was not tried for fraud, and his case also could be said to be a
case of no evidence. SEBI having brought sufficient data on record in the show-cause notice as well
as in its order, the appellant had not been able to furnish a satisfactory explanation. The argument
that trading volumes of the appellant in respect of several other securities were equally large did not
hold water because these were the shares of large and reputed companies unlike the security in
question related to a new company. The appellant knew that the value of the security in question was
getting eroded by the day as he kept buying and selling this security in large volumes. No plausible
explanation was offered by the appellant regarding daily buying and selling of a declining stock in
such massive volumes. Therefore, SEBI was justified in concluding that the appellant had the insider
assurance that he would not suffer financially in the process. However, the period of restraint was
reduced from 12 to six months.19
[s 24.12] SEBI Ordering Investigation—SEBI Expert on the Subject
SEBI ordered the inquiry officer to investigate into the affairs relating to buying, selling or dealing in
the shares of Initial Public Offerings (IPOs). SEBI has the power to investigate into “transactions”
under section 11(4) of the SEBI Act. On an investigation, the SEBI came into possession of the
material which warranted issuance of the directions. The “entities” against whom the order was
passed were not “entities” who in their individual capacity as “genuine” and “bona fide” investors
participated in the IPOs. The SEBI demonstrated that when “the transaction as a whole” was looked
into, it clearly showed that there was a game plan. The opening of dematerialised accounts running
into thousands in the name of fictitious entities, subscribing to the IPOs through those accounts,
accumulating all the shares allotted to these fictitious accounts in key operators’ accounts,
transferring those shares to the petitioners for their benefit in their accounts, sale of these on the day
of the listing of those securities or soon thereafter. In this entire game plan, it was the petitioners who
derived a benefit, which they were otherwise not entitled to. There was no material to hold that SEBI
had drawn “final conclusions” against the persons, whose names were mentioned in the order
including the petitioners or that the SEBI would not take into consideration the explanations and
objections filed by the petitioners since the order stated that it “shall be treated as a show-cause
notice against the concerned entities” who “may file their objections, if any, to this order within 15
days from the date of this order” and avail of an opportunity of personal hearing at SEBI. SEBI having
passed the order, being the expert on the subject, it was for the expert to decide out of the available
courses, which course was to be adopted. The court would not interfere in the discretion exercised by
an expert on the subject.20
[s 24.13] Public Issue—Minimum Subscription not Received—Direction by SEBI
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SEBI under section 11B of the SEBI Act issued a direction to the petitioner-company to refund the
subscription received from the public issue together with interest at the rate of 15% per annum, and
the direction was issued without prejudice to the right of SEBI to initiate prosecution against the
petitioner under the 2013 Act. The petitioner appealed and the Appellate Authority confirmed the
findings of SEBI. In a writ petition questioning the order of SEBI and the Appellate Authority on the
ground of breach of the principles of natural justice for failure to permit the petitioner to cross-
examine witnesses, the petitioner also contended that the funds received by the company had
already been used in the business and to withdraw the money at this stage was impossible and,
therefore, the company might not be in a position to comply with the direction to refund the
subscription money. Dismissing the writ petition, it was held (i) that at the time of public issue, one of
the conditions was that if the issue was not subscribed by 90% from the public, then the investors or
subscribers to the public issue were required to be refunded their money by the company. The SEBI
had found on examination of the record that an artificial subscription was shown by creating a false
capital market, and if the artificial subscription was taken out from the total subscription, the actual
subscription was below 90% and, therefore, the company was bound by the condition of refunding
the money to the investors. Therefore, if the SEBI, which was the expert body in the field, had found
that the company was bound to refund the money as per the terms and conditions of the public issue,
it was not open to the company to contend that the money was already invested in business and
could not be refunded now. (ii) That the contention that denial of opportunity for cross-examination
itself was prejudice could not be accepted. No case was made out by the petitioner from the
averments made in the petition as well as from the proceedings of the Appellate Authority or before
the SEBI that on account of denial of opportunity of cross-examination, any prejudice was caused to
the petitioner. (iii) That though the cross-examination of witnesses was not required, the petitioner
continued to insist upon the same and the matter was adjourned about 11 times for making oral
submissions, but the petitioner-company did not avail of the same and allowed the SEBI to pass the
order and thereafter preferred the appeal complaining the denial of cross-examination. The conduct
of the petitioner was not bona fide. (iv) That the SEBI and the Appellate Authority, which were expert
bodies on the subject, had found that in the larger interest of investors and the public, directions
should be issued to the petitioner-company to refund the money obtained at the public issue which
was wrongly retained by the petitioner-company by creating a false capital market. The Court would
not undertake judicial review as a Court of Appeal, and when there was fair play in action on the part
of the Authority, there was no reason to set aside the directions issued by the SEBI and confirmed by
the Appellate Authority.21
[s 24.14] Investigation by SEBI—Show-Cause Notice
Mere perusal of section 11C(1) of the SEBI Act indicates that what is required for initiating
investigation into the affairs of any intermediary or persons associated with the securities market is
an order in writing by the Board (SEBI) specifying any person known as investigating authority to
carry out/undertake the investigation. The section does not contemplate an obligation to supply a
copy of the said order to the person concerned. Had it been so, the legislative intention would have
been expressed in explicit language. In other words, if the intention of the legislation had been to
provide a copy to the person concerned, then it would have said so in clear terms. At the stage of
investigation, what is necessary is to provide for an opportunity to the person concerned. It is being
done. Where the show-cause notice itself mentions the order of investigation, the requirement of
section 11C of the SEBI Act is satisfied.22
[s 24.15] Direction to Change Depository Participant not Justified
Where the member of the SEBI passed an order directing the existing clients of the petitioner, a stock
broking company, to switch over to another depository participant. It was held that having regard to
the comprehensive regulatory directives issued, it was not necessary to direct the depository
participant transactions of the clients of the petitioners to switch over to another depository participant
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even before the time available to the petitioner to submit objections to the show-cause notice had
expired.23
[s 24.16] Procedure for Holding Enquiry and Imposing Penalty
Chapter VI-A on Penalties and Adjudication [sections 15A–15JA] of the SEBI Act inserted by the
Securities Laws (Amendment) Act, 1995 (9 of 1995), and further amended from time to time provides
for:
Penalty for failure to furnish information, return, etc. [section 15A]. Penalty for failure by any person to
enter into agreement with clients [section 15B]. Penalty for failure to redress investors’ grievances
[section 15C]. Penalty for certain defaults in case of mutual funds [section 15D]. Penalty for failure to
observe rules and regulations by an asset management company [section 15E]. Penalty for default in
case of stock brokers [section 15F]. Penalty for insider trading [section 15G]. Penalty for non-
disclosure of acquisition of shares and takeovers [section 15H]. Penalty for fraudulent and unfair
trade practices [section 15HA]. Penalty for contravention where no separate penalty has been
provided [section 15HB]. Power to adjudicate [section 15I]. Factors to be taken into account by the
adjudicating officer [section 15J]. Crediting sum realised by way of penalties to consolidated fund of
India [section 15JA].
[s 24.17] Penalty for Contravention of SEBI Act and Regulations
Chapter VI-A of the SEBI Act provides for Penalties and Adjudication, which provisions were
introduced in the SEBI Act by the Securities Laws (Amendment) Act, 1995 (9 of 1995). Sections 15A
to 15HA are in the form of mandatory provisions imposing penalty in default of the provisions of the
SEBI Act and Regulations. Sections 15A to 15H and 15HA employ the words “shall be liable” and,
therefore, mandatorily provide for imposition of monetary penalties for respective breaches of or non-
compliance with the provisions of the SEBI Act and Regulations. The Scheme of the SEBI Act of
imposing penalty is very clear. Chapter VI-A does not deal with criminal offences. These defaults for
failures are nothing but failure or default of statutory civil obligations provided under the SEBI Act and
the Regulations made thereunder. It is pertinent to note that section 24 of the SEBI Act deals with
criminal offences under the Act and their punishment. The penalty leviable under this chapter or
under these sections is penalty in cases of default or failure of statutory obligation or in other words
breach of civil obligation.
For instance, as held in the case of Chairman, SEBI v Shriram Mutual Fund,24 once it is conclusively
established that the Mutual Fund has violated the terms of the Certificate of Registration and the
Statutory Regulations, i.e., the SEBI (Mutual Funds) Regulations, 1996, the imposition of penalty
becomes a sine qua non of the violation. The intention of the parties is wholly irrelevant since there
has been a clear violation of the statutory regulations and provisions repetitively, covering a period of
six quarters. The respondents wilfully violated statutory provisions with impunity and hence the
imposition of penalty was fully justified. Every Mutual Fund has to redeem the units as per terms and
conditions of the scheme on the request of the unit holders. The objective behind imposing certain
limits on the business that can be conducted by a Mutual Fund through the associate broker is to
eliminate any undue advantage to the class of brokers by virtue of their close association with the
Asset Management Company, Sponsors, etc. In other words, the object of imposing such limits is to
ensure that there is no concentration of business only in such entities, so that there is an indirect
pecuniary advantage to the person associated with the asset management company, sponsors, etc.
Any undue concentration on the business of the Mutual Fund with its affiliated brokers by paying
huge commissions to such brokers is neither desirable nor in the interest of the unit holders.
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[s 24.18] Quantum of Penalty under Section 15I of the SEBI Act
As per section 15J of the SEBI Act, while adjudging the quantum of penalty under section 15I of the
SEBI Act, the Adjudicating Officer must have due regard to the following factors: (i) the amount of
disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default, (ii)
the amount of loss caused to an investor or group of investors as a result of the default and (iii) the
repetitive nature of the default. In Karvy Consultants Ltd v SEBI,25 the appellant had suo moto
rectified the mistakes pointed out in the show-cause notice, at their own expense and no deliberate
intention or mala fide could be attributed to the appellant, and the quantum of penalty was modified
and reduced. Further, in case of Sanjay Kumar Gupta v Adjudicating Officer, SEBI,26 the appellant
was required to appear before the investigating officer as per the Preferential Allotment Guidelines
and Takeover Regulations; however, due to a bona fide mistake, he failed to do so on the appointed
date. The court held that this was a bona fide and technical violation and therefore the quantum of
penalty was reduced.
[s 24.19] SEBI Rules and Regulations—Parliamentary Control
Section 31 of the SEBI Act provides that every rule and regulation made by the SEBI shall be laid
before each House of Parliament while it is in session for a total period of 30 days comprised in one
session or two or more successive sessions. If both Houses of Parliament agree in making any
modification in the rule or regulation or both Houses agree that the rule or regulation should not be
made, the rule or regulation shall have effect only in modified form or be of no effect. However, any
modification or annulment shall not affect the validity of anything previously done under that rule or
regulation.27
[s 24.20] Application of other Laws is not Barred
The provisions of the SEBI Act are in addition to, and not in derogation of, the provisions of any other
law for the time being in force.
[s 24.21] Remedies Writ
The writ jurisdiction of the High Courts can be invoked only if all the alternate remedies have been
exhausted. For instance, in the case of Jai Bhagwan Gupta v UOI, a public interest petition seeking a
direction for investigation into the affairs of a company, on the ground that the interests of the poor,
illiterate and innocent investors in the company had to be protected, was dismissed. It was dismissed
because the son of the petitioner was one of the majority shareholders in the company who had also
filed a suit against the company on the ground that the public issue was opposed to the norms of the
SEBI. It was held that the petition was a gross abuse of the process of law. The Court stated that
SEBI would look into the irregularities, if any, and should perform its statutory functions without any
delay.28
Again in the case of Mohd. Rafeek v SEBI, a company in its letter of offer clearly mentioned under
general instructions that any application effected in cash amounting to Rs 20,000 would be refunded.
The company rejected the application and refunded application money of Rs 21,600 on this ground.
The complaint made by the petitioner to the SEBI was rejected. On a writ petition, the court held that
allotment of shares is a matter of contract within the jurisdiction of the Ordinary Civil Court. Order of
the SEBI is appealable under section 20 [now sections 15T to 15Z] of the SEBI Act. Therefore, such
a question cannot be agitated by a writ petition and the writ will not be issued.29
Writ of Quo Warranto
In the case of Arun Kumar Agarwal v UOI, the petitioner challenged the appointment of Chairman of
the SEBI for five years instead of three years. It was held not to be a case affecting public interest or
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fundamental rights. The petition was filed three years after appointment. The Central Government
had power to relax the provision. The writ was not issued.30
Civil Suit
There is a common law right of a shareholder to seek rectification of the register of members, and the
jurisdiction of the Civil Court in appropriate cases is not barred where complicated questions of law
and fact arise. The Civil Court also has power to suspend voting rights by way of interim order where
shares were acquired in breach of SEBI Regulations and were void. The Court may also define terms
used in the SEBI Regulations, such as “acquirer,” “person acting in concert,” etc.31
[s 24.22] Violation of SEBI Regulations—Jurisdiction to Rectify Register
When the rectification of the share register is de hors, the provisions of the SEBI Regulations or any
other provisions of the 2013 Act and corresponding rules and regulations made thereunder the Civil
Court would have jurisdiction to entertain and try such a suit under section 9 of the Code of Civil
Procedure, 1908 (5 of 1908). There is a common law right in a shareholder to apply for rectification of
the share register even though it is not his own share in respect of which he is seeking rectification,
but if it flows from the provisions of the SEBI regulations, it would fall within the exclusive jurisdiction
of the SEBI and not of the Civil Court. However, where the power had exclusively been conferred on
the SEBI, the jurisdiction of the Civil Court to enforce the same by rectification of share register is
barred. By amendment of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
1997 (w.e.f. 9 September 2002), by providing for the remedy under clauses (c) and (d) of regulation
44, the SEBI had been empowered to give effective relief of Rectification of Share Register by
cancellation of the allotment or by directing the company not to give effect to the transfer if found to
be contrary to the SEBI regulations. Thus, there is an express bar to the jurisdiction of the Civil Court
for rectification of the register when it is solely based on the contention that the allotment and/or
transfer of shares is contrary to the SEBI regulations. The plaintiffs could not independently invoke
any common law right of rectification of the share register and file a suit independent of the provisions
of sections 15Y and 20A of the SEBI Act. The suit was held to be not maintainable in the Civil Court
in view of the express bar conferred under the provisions of sections 15Y and 20A of the SEBI Act.32
[s 24.23] Legal Representation [Section 15V]
Section 15V of the SEBI Act substituted by the Securities Laws (Second Amendment) Act, 1999 (32
of 1999), provides that the appellant may either appear in person or authorise one or more “chartered
accountants” or “company secretaries” or “cost accountants” or “legal practitioners” or any of its
officers to present his or its case before the Securities Appellate Tribunal (SAT).
Similar provision has been made in the Depositories Act, 1996 [section 23C], and the Securities
Contracts (Regulation) Act, 1956 [section 22C].
[s 24.24] Securities Appellate Tribunal [s 24.24.1] Securities Appellate Tribunal (Procedure)

Rules, 2000
In exercise of the powers conferred by section 29 read with sections 15T and 15U of the SEBI Act,
the Central Government has made the Securities Appellate Tribunal (Procedure) Rules, 2000.
[s 24.24.2] Scope of Powers of SAT
SEBI is an expert body. But when it exercises its quasi-judicial functions, its decisions are subject to
appeal. SEBI has wide legislative, executive, administrative and judicial powers. The only check upon
exercise of such wide-ranging power is that it must comply with the Constitution of India and the SEBI
Act. In that view of the matter, where an expert Tribunal has been constituted, the scrutiny at its end
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must be held to be of wide import. The Tribunal, another expert body, must, thus, be allowed to
exercise its own jurisdiction conferred on it by the statute without any limitation.33
[s 24.24.3] Appeal to SAT
As per section 15T(1) of the SEBI Act (15 of 1992) substituted by the Securities Laws (Second
Amendment) Act, 1999 (32 of 1999) save as provided in sub-section (2) [consent orders], any person
aggrieved,—(a) by an order of the Board [SEBI] made, on and after the commencement of the
Securities Laws (Second Amendment) Act, 1999, under the SEBI Act, rules or regulations made
thereunder; or (b) by an order made by an adjudicating officer under the SEBI Act, may prefer an
appeal to the SAT having jurisdiction in the matter.
In order to bring greater transparency and impartiality of appellate bodies, the securities laws,
namely, the Securities Contracts (Regulation) Act, 1956 [SCRA], SEBI Act, and the Depositories Act,
1996, have been amended to empower the SAT to dispose of all appeals under these Acts instead of
Central Government/SEBI.
See sections 15T–15Z of the SEBI Act as amended by the SEBI (Amendment) Act, 2002 (59 of
2002), viz., Appeal to the SAT [section 15T], Procedure and powers of the SAT [section 15U], Right
to legal representation [section 15V], Limitation [section 15W], Presiding officer, Members and staff of
SAT to be public servants [section 15X], Civil court not to have jurisdiction [s, 15Y] and Appeal to
Supreme Court [section 15Z] of the SEBI Act.
SEBI issued Circular No. EFD/ED/Cir.-01/2007 dt. 20 April 2007 which provided a framework for
passing of consent orders which was subsequently amended in 2012 by Circular No.
CIR/EFD/1/2012 dt. 25 May 2012.
This circular covers provisions regarding commencement and scope of consent orders, procedure for
consent orders when adjudication proceedings are pending, procedure for making consent orders,
factors to be considered for consent orders, waivers, consequences of non-acceptance and
enforceability.
[s 24.24.4] Appeal to the Supreme Court
Section 15Z of the SEBI Act substituted by the SEBI (Amendment) Act, 2002 (59 of 2002), provides
for an appeal from the decision or order of the SAT to the Supreme Court on any question of law
arising out of such order.
[s 24.24.5] Appeal from Order of SAT to Supreme Court on Question of Law
Section 15Z of the SEBI Act allows any person aggrieved by the decision or the order of the SAT to
file an appeal to the Supreme Court on any question of law arising out of such order. In the case of
Technip S.A. v SMS Holding Pvt Ltd, the dispute as to whether the transaction in question, i.e.,
takeover of company incorporated in France, was to be judged according to the French Law or the
Indian Law was a question of law. Normally, since admittedly both Coflexip and Technip were
incorporated according to and under the laws of France and were therefore “domiciled” in France,
any issue relating to their internal affairs was to be resolved by applying the law of their domicile, in
this case the French law. But the Tribunal’s (SAT) conclusion was that Indian law would apply, and its
conclusion as to the applicable law had been questioned by the appellant. The appeal on question of
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law was therefore held to be maintainable. Further, the relationship of Technip and Coflexip, i.e.,
whether one of control or not, was really a question of their status. The applicable law would
therefore be the law of their domicile, namely, the French law. However, the question as to their
obligation under the Indian law vis-a-vis SEAMEC (target) would have to be governed exclusively by
the Indian law, i.e., the SEBI Act and the SEBI Regulations. Technip (the acquirer) acquired or
agreed to acquire the right to control SEAMEC (in this case the alleged target company) either by
itself or acting in concert with any other shareholder of Coflexip. The difference between the French
law and the Indian regulations related to the prescribed limits of shareholding for control by one
company over another. This could not make the French law violative of any public policy underlying
the SEBI Act, rules and regulations for the Court to disregard the French law. Thus, it was the French
law which had to be applied to decide whether Technip took over control of Coflexip.34
[s 24.24.6] Appeals from Orders of SAT—Change of Forum
After the coming into force of the amended provisions, appeals from the orders of the SAT will lie to
the Supreme Court and not to the High Court. However, a law which brings about a change in the
forum does not affect pending actions unless intention to the contrary is clearly shown. When appeals
have been filed in a Tribunal or Court before the new law bringing the change in the forum is brought
into force, unless the Legislature by specific words or by necessary implication clearly so indicated,
the Court or the Tribunal would continue to have jurisdiction to entertain the appeals. Change of
forum does not affect the substantive right of litigants.35
36[s55A] Powers of SEBI.—The provisions contained in sections 55 to 58, 59 to 81 (including sections 68A, 77A and
80A), 108, 109, 110, 112, 113, 116, 117, 118, 119, 120, 121, 122, 206, 206A and 207, so far as they relate to issue
and transfer of securities and non-payment of dividend shall,— The Companies Act, 1956 provision
(a) in case of listed public companies;
(b) in case of those public companies which intend to get their securities listed on any recognized stock exchange
in India, be administered by the SEBI; and
(c) in any other case, be administered by the Central Government.
Explanation.—For the removal of doubts, it is hereby declared that all powers relating to all other matters including the
matters relating to prospectus, statement in lieu of prospectus, return of allotment, issue of shares and redemption of
irredeemable preference shares shall be exercised by the Central Government, the 37[Tribunal] or the Registrar of
Companies, as the case may be.]
NOTES
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Section 55A of the 1956 Act corresponds to section 24 of the 2013 Act.
THE COMPANIES (AMENDMENT) ACT, 2000 (53 OF 2000).—The Notes on Clauses explained thus:
This clause seeks to insert new section 55A so as to provide that certain provisions of the Act specified in that clause
relating to listed companies will be administered by the Securities and Exchange Board of India. [Clause 16 of the
THE COMPANIES (SECOND AMENDMENT) ACT, 2002 (11 OF 2003).—The Notes on Clauses explained the
This clause seeks inter alia to amend section 55A of the 1956 Act relating to powers of Securities and Exchange Board
of India so far as they relate to issue and transfer of securities. It is proposed to confer the powers of the Company Law
Board in the aforesaid section upon the Tribunal. These amendments are of consequential nature. [Clause 8 of the
[s 24.26] Powers of SEBI under the Companies Act
Section 55A of the 1956 Act is covered under sub-sections (1) and (2) of section 24 of the 2013 Act,
as explained in the commentary above.
[s 24.27] Central Government
This section is covered under sub-section (1)(b) of section 24 of the 2013 Act, as explained in the
commentary above
THE DEPOSITORIES ACT, 1996 (22 OF 1996).—The Depositories Act, 1996, made consequential Amendments
in the SEBI Act.
THE SECURITIES LAWS (AMENDMENT) ACT, 1999 (31 OF 1999).—The

Statement of Objects and Reasons appended
to the Securities Laws (Amendment) Bill, 1999 (70 of 1999),38 is reproduced below:
“In the last few years there have been substantial improvements in the functioning of capital markets in India. Market
and credit risks have been reduced by requirement of adequate capitalisation, margining and establishment of clearing
corporations in stock exchanges, etc. Systemic improvements have been made by introduction of screen based trading
and depositories to allow book entry transfer of securities, etc. However, there are inadequate advanced risk
management tools. With a view to provide such tools and to strengthen and deepen markets, there is an urgent need
to include derivatives as securities in the Securities Contracts (Regulation) Act, 1956, whereby trading in derivatives
may be possible within the framework of that Act.
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Page 13 of 16
2. Recently many companies especially plantation companies have been raising capital from investors through
schemes which are in the form of collective investment schemes. However, there is not an adequate regulatory
framework to allow an orderly development of this market. In order that the interests of investors are protected, it has
been decided that the SEBI would frame regulations with regard to collective investment schemes. It is, therefore,
proposed to amend the definition of “securities” so as to include within its ambit the derivatives and the units or any
other instrument issued by any collective investment scheme to the investors in such schemes.
3. It is also proposed to substitute section 29A of the aforesaid Act [Securities Contracts (Regulation) Act, 1956]
relating to delegation of powers. At present powers can be delegated to the SEBI. It is now proposed to also delegate
powers to the Reserve Bank of India.
4. The Securities Contracts (Regulation) Amendment Bill, 1998 (73 of 1998), was introduced in Lok Sabha on the 4
July 1998, proposing amendments in the Securities Contracts (Regulation) Act, 1956, to give effect to the amendments
mentioned above. The Bill was referred to the Standing Committee on Finance on the 10 July 1998, for examination
and report thereon by the Hon’ble Speaker, Lok Sabha. The Committee submitted its report on the 17 March 1999.
The committee was of the opinion that the introduction of derivatives, if implemented with proper safeguards and risk
containment measures, will certainly give a fillip to the sagging market, result in enhanced investment activity and instill
greater confidence among the investors/participants. The Committee after having examined the provisions of the Bill
and being convinced of the needs and objectives of the Bill, approved the same for enactment by Parliament with
certain modifications/ recommendations which, inter alia, are stated as under:—
(i) A view was expressed before the Standing Committee that since under section 30 of the Indian Contract Act,
1872, the contracts which are cash settled are classified as wagers and trading in wagers is null and void, the
index futures which are always cash settled would also be classified as wagers under the said Act. Due to
this, no proceedings to enforce an index future contracts either by an exchange against a defaulting broker or
client against his broker would stand the legal scrutiny before the court of law. The Committee was, therefore,
of the view that there was no harm in having an overriding provision as a matter of abundant caution. They,
therefore, suggested the incorporation of the following provision in the Bill, namely:
“Notwithstanding anything contained in any other Act, contracts in derivatives as per this Act
shall be legal and valid.”
(ii) The Committee was convinced that stock exchanges which are presently working would be better equipped to
undertake trading in derivatives in a sophisticated environment. They further observed that most of these
exchanges have already been modernised having state-of-the-art technology, the facility of depository and
clearance house and moreover, since they are in a better position to handle the risk profiles of the retail
investors, institutional investors and corporate bodies, it would be prudent to allow trading in derivatives by
such exchanges only. The Committee had, therefore, proposed that the following Explanation may be added
in the Bill, namely:—
“The derivatives shall be traded and settled on the stock exchange and clearing house of the
stock exchange respectively in accordance with the rules and bye-laws of the stock
exchanges.” and
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Page 14 of 16
(iii) The Committee was of the opinion that there was a need to define collective investment schemes in the Act.
They had recommended that a definition of collective investment scheme suitably worded in consonance with
the definition recommended by the Dave Committee should be included in the Act.

THE SECURITIES LAWS (SECOND AMENDMENT) ACT, 1999 (32
appended to the Securities Laws (Second Amendment) Bill, 1999 (68 of 1999),39 is reproduced
below:
“The Securities Contracts (Regulation) Act, 1956, the SEBI Act, 1992, the Depositories Act, 1996, and the SEBI (Issue
of Capital and Disclosure) Regulations, 2009, govern the operations of the capital market. The objectives of these Acts
and Regulations are to prevent undesirable transactions in securities by regulating the business of dealing therein, to
provide for the establishment of the SEBI to protect the interests of investors in securities and to promote the
development of, and to regulate, the securities markets and to provide for regulation of depositories in securities and
for matters connected therewith or incidental thereto.
2. The Securities Contracts (Regulation) Act, 1956, and the SEBI Act, 1992, were amended by the Securities Laws
(Amendment) Act, 1995, which, inter alia, made provisions in the SEBI Act, 1992, for appointment of adjudicating
officer for imposition of penalties and for establishment of the Securities Appellate Tribunal to hear appeals against the
orders or decisions of such adjudicating officers.
3. The Central Government has been conferred powers to hear appeals in respect of all matters (except hearing of
appeals against the orders of adjudicating officer under the SEBI Act, 1992), under the Securities Contracts
(Regulation) Act, 1956, the SEBI Act, 1992, and the Depositories Act, 1996. In addition to appellate powers, the
Central Government, inter alia, has been conferred powers to issue directions and to make rules under these Acts. The
Central Government is also represented on the management of the SEBI as well as stock exchanges.
4. The powers of the Central Government to issue directions and to make rules and appoint members of the SEBI as
well as on governing body of the stock exchanges are being perceived as compromising its appellate powers. It is,
therefore, proposed to transfer the aforesaid appellate functions of the Central Government under all three Acts from
the Central Government to the Securities Appellate Tribunal.
[s 24.28] Comparison with the 2013 Act
Section 24 of the 2013 Act not only retains the powers granted to SEBI under section 55A of the
1956 Act but also expressly states that the powers conferred under section 11, section 11A, section
11B and section 11D of the SEBI Act fall within the jurisdiction of SEBI. Though the powers under
section 11 of the SEBI Act were exercisable by SEBI under the 1956 Act as well, the 2013 Act has
expressly provided for the same. Further, the 2013 Act empowers SEBI to make regulations for the
administration of its powers. Moreover, the 2013 Act now expressly allows SEBI to use its powers
under the SEBI Act to administer and enforce provisions in relation to issue and transfer of securities
and payment of dividend as prescribed under the 2013 Act.
5 Notified by Notification S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section
Mr. Laghir1 Rabari

Page 15 of 16
6 [2013] 113 CLA 253.

7 Notified by Notification No. S.O. 1935(E), dt. 1 June 2016 (w.e.f. 1 June 2016).
8 Notified by Notification No. S.O. 1935(E), dt. 1June 2016 (w.e.f. 1June 2016).
9 SEBI v Kunnamkulam Paper Mills Ltd, [2013] 113 CLA 253.
10 In Re, Kerala Housing Finance Ltd WTM/PS/27/CFD/SRO-KLO/JULY/2015, decided by SEBI on 31 July 2015.
11 Sahara India Real Estate Corp Ltd v SEBI, (2013) 1 SCC 1.
12 Kimsuk Krishna Sinha v SEBI, (2010) 100 SCL 197.
13 Clariant International Ltd v SEBI, (2004) 122 COMP CAS 112 (SC).
14 In the matter of complaints of Mr. Kimsuk Krishna Sinha in respect of DLF Ltd and Sudipti Estates Pvt Ltd,
WTM/RKA/IVD -7/117-124/2014.
15 DLF Ltd v SEBI, SAT, Appeal No. 331 of 2014.
16 SEBI v DLF Ltd, Civil Appeal Nos. 3718/2015.
17 Mitesh Manubhai Sheth v Secretary, Govt of India, (1998) 91 COMP CAS 910 (Guj.).
18 Subramanian v SEBI, (2005) 123 COMP CAS 388 (SAT).
19 Shashikant G. Badani v SEBI, (2005) 123 COMP CAS 473 (SAT).
20 Rajan Vasudevbhai Dapki v SEBI (SEBI), (2007) 136 COMP CAS 20 (Guj.) ; Raj Kumar Kishorepuria v General
Manager, SEBI, (2005) 127 COMP CAS 18 (Cal.).
21 Hindustan Finstock Ltd v SEBI, (2003) 113 COMP CAS 711 (Guj.).
22 Bonanza Biotech Ltd v UOI, (2005) 126 COMP CAS 80 (MP).
23 Karvy Stock Broking Ltd v SEBI, (2006) 133 COMP CAS 335 (AP).
24 Chairman, SEBI v Shriram Mutual Fund, (2006) 131 COMP CAS 591 (SC); relying on Director of Enforcement v MCT.
M. Corp Pvt Ltd, (1997) 88 COMP CAS 449 (SC) : (1996) 2 SCC 471; J.K. Industries Ltd v Chief Inspector of Factories
and Boilers, (1997) 88 COMP CAS. 285 (SC) : (1996) 6 SCC 665; R.S. Joshi, Sales Tax Officer v Ajit Mills Ltd, (1977)
40 STC 497 (SC) : (1977) 4 SCC 98; Gujarat Travancore Agency v CIT, (1989) 177 ITR 455 (SC) : (1989) 3 SCC 52;
Swedish Match AB v SEBI, (2004) 122 COMP CAS 83 (SC) : (2004) 11 SCC 641; SEBI v Cabot International Capital
Corp, (2005) 123 COMP CAS 841 (Bom.) (DB).
25 Karvey Consultants Ltd v SEBI, (2006) 130 COMP CAS 79 (SAT); Cameo Corporate Services Ltd v SEBI, (2005) 57
SCL 294 (SAT); SEBI v Cabot International Capital Corp, (2005) 123 COMP CAS 841 (Bom.) (DB) : (2004) 51 SCL 307
(Bom.) (DB); Sri Krishna Naik v SEBI, (2005) 123 COMP CAS 211 (SAT); S. Ramesh v SEBI, (2005) 124 COMP CAS .
78 (SAT); K.C. Palanisamy v SEBI, (2005) 124 COMP CAS 578 (SAT).
26 Sanjay Kumar Gupta v Adjudicating Officer, SEBI, (2005) 127 COMP CAS 274 (SAT); Mukesh Malhotra v SEBI,
(2005) 124 COMP CAS 336 (SAT); Intec Shares and Stock Brokers Ltd v Chairman, SEBI, (2005) 124 COMP CAS 552
(SAT); Mayfair Paper and Board Pvt Ltd v SEBI, (2005) 123 COMP CAS 381 (SAT); Continental Device India Ltd v
SEBI, (2005) 123 COMP CAS 778 (SAT).
27 Veneet Agarwal v UOI, (2005) 126 COMP CAS 132 (Bom.) (DB).
28 Jai Bhagwan Gupta v UOI, (1998) 92 COMP CAS 107 (Delhi) (DB).
29 Mohd. Rafeek v SEBI, (1999) 98 COMP CAS 802 (Ker.).
30 Arun Kumar Agarwal v UOI, (2000) 100 COMP CAS 406 (Del.) (DB).
31 Shirish Finance and Investment Pvt Ltd v M. Sreenivasulu Reddy, (2002) 109 COMP CAS 913 (Bom.) (DB). See also
Notes under sections 10 and 111A and the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997,
hereinafter.
32 Kesha Appliances Pvt Ltd v Royal Holdings Services Ltd, (2006) 130 COMP CAS 227 (Bom.).
33 Clariant International Ltd v SEBI, (2004) 122 COMP CAS 112 (SC).
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Page 16 of 16
34 Technip S.A. v SMS Holding Pvt Ltd, (2005) 125 COMP CAS 545 (SC).
35 SEBI v Sterlite Industries (India), (2005) 125 COMP CAS 14 (Bom.) (DB).
36 Inserted by the Cos (Amendment) Act, 2000 (53 of 2000), section 16 (w.e.f. 13-12-2000). This amending Act has been
repealed by the Repealing and Amending Act, 2016.
37 Substituted by the Companies (Second Amendment) Act, 2002 (11 of 2003), section 9, for “Company Law Board”
(Enforcement date not notified). This amending act has been repealed by the Repealing and Amending (Second) Act,
2015.
38 Published in the Gazette of India, Extraordinary, Pt II, Section 2, dt. 28-10-1999 : (1999) 98 Comp. Cas. (St.) 235.
39 Published in the Gazette of India, Extraordinary, Pt II, section 2, dt. 28 October 1999 : (1999) 98 COMP CAS (St.) 235.
End of Document
Mr. Laghir1 Rabari

40 Sub-sections (1), (2) and (4) were notified by Notification S.O. 2754(E) dt.
12 September 2013., w.e.f. 12 September 2013, and sub-section (3) was
notified by Notification S.O. 902(E) dt. 26 March 2014, w.e.f. 01 April 2014
and corresponds to section 64 of the 1956 Act. [s 25] Documents containing
offer of securities for sale to be deemed prospectus.—
PUBLIC OFFER
40[s
25] Documents containing offer of securities for sale to be deemed
prospectus.—
(1) Where a company allots or agrees to allot any securities of the company with a view to all or
any of those securities being offered for sale to the public, any document by which the offer
for sale to the public is made shall, for all purposes, be deemed to be a prospectus issued by
the company; and all enactments and rules of law as to the contents of prospectus and as to
liability in respect of mis-statements, in and omissions from, prospectus, or otherwise relating
to prospectus, shall apply with the modifications specified in sub-sections (3) and (4) and
shall have effect accordingly, as if the securities had been offered to the public for
subscription and as if persons accepting the offer in respect of any securities were
subscribers for those securities, but without prejudice to the liability, if any, of the persons by
whom the offer is made in respect of mis-statements contained in the document or otherwise
in respect thereof.
(2) For the purposes of this Act, it shall, unless the contrary is proved, be evidence that an
allotment of, or an agreement to allot, securities was made with a view to the securities being
offered for sale to the public if it is shown—
(a) that an offer of the securities or of any of them for sale to the public was made within six
months after the allotment or agreement to allot; or
(b) that at the date when the offer was made, the whole consideration to be received by the
company in respect of the securities had not been received by it.
(3) Section 26 as applied by this section shall have effect as if—
(i) it required a prospectus to state in addition to the matters required by that section to be
stated in a prospectus—
(a) The net amount of the consideration received or to be received by the company in
respect of the securities to which the offer relates; and
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Page 2 of 6
40 Sub-sections (1), (2) and (4) were notified by Notification S.O. 2754(E) dt. 12 September 2013., w.e.f. 12
September 2013, and sub-section (3) was notified ....
(b) The time and place at which the contract where under the said securities have been
or are to be allotted may be inspected;
(ii) the persons making the offer were persons named in a prospectus as directors of a
company.
(4) Where a person making an offer to which this section relates is a company or a firm, it shall
be sufficient if the document referred to in sub-section (1) is signed on behalf of the company
or firm by two directors of the company or by not less than one-half of the partners in the firm,
as the case may be.
NOTES
as follows:
Clause 25.—This clause corresponds to Section 64 of the Companies Act, 1956 and seeks to provide that any
document by which the offer or sale of shares or debentures to the public is made shall for all purposes be treated as
prospectus.
[s 25.2] Securities Meaning
The term securities has been defined in section 2(h) of the Securities Contracts Regulations Act,
1956, to include:
(h) “securities” include—
(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature
in or of any incorporated company or other body corporate;
(ia) derivative;
(ib) units or any other instrument issued by any collective investment scheme to the investors in such
schemes;
(ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);41
(id) units or any other such instrument issued to the investors under any mutual fund scheme;
Explanation.—For the removal of doubts, it is hereby declared that “securities” shall not include any
unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which
provides a combined benefit risk on the life of the persons and investment by such persons and
issued by an insurer referred to in clause (9) of section 2 of the Insurance Act, 1938(4 of 1938).
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Page 3 of 6
(ie) any certificate or instrument (by whatever name called), issued to an investor by any issuer being a
special purpose distinct entity which possesses any debt or receivable, including mortgage debt,
assigned to such entity, and acknowledging beneficial interest of such investor in such debt or
receivable, including mortgage debt, as the case may be;
(ii) government securities;
• (iia) such other instruments as may be declared by the Central Government to be securities; and
(iii) rights or interests in securities.
[s 25.3] Deeming Provision [Section 25(1)]
Sub-section (1) of section 25 deems any document by which securities are offered for sale to the
public, as a prospectus issued by the company. As a consequence, such a document is subject to
the provisions in relation to issuance and contents of a prospectus provided for under the 2013 Act,
SEBI (Issue of Capital and Disclosure) Regulations, 2009, and any other regulation issued by SEBI
as the case may be.
[s 25.4] Applicability to Hybrid Instruments
In the case of Sahara India Real Estate Corp Ltd v Securities Exchange Board of India,42 the SC held
that the term “security” as used in the 1956 Act, the Securities Exchange Board of India Act, 1999
(“SEBI Act”) and the Securities Contract Regulation Act, 1956 (“SCRA”), includes hybrid instruments
such as optionally fully convertible debentures (“OFCDs”). The reasoning was arrived because the
term “securities” under the SCRA covers all “marketable securities.” Since the OFCDs in this case
were offered to lakhs of people, these hybrid instruments were held to be “marketable securities”
falling with the purview and regulation of the SCRA, SEBI Act as well as the 1956 Act.
[s 25.5] Allotment of Securities being Offered for Sale to the Public [Section 25(2)]
Unless the contrary is proved, it will be presumed that an allotment of, or an agreement to allot,
securities was being offered for sale to the public if:
i. an offer of the securities or of any of them for sale to the public was made within six months
after the allotment or agreement to allot; or
ii. at the date when the offer was made, the whole consideration to be received by the company
with respect of the securities had not been received by it.
[s 25.6] Contents of the Prospectus [Section 25(3)]
Section 25(3) provides matters that are to be stated in the prospectus issued by a company. These
matters are in addition to those that require to be stated as per section 26 of the 2013 Act. This
includes
i. the net amount of the consideration received or to be received by the company in respect of
the securities to which the offer relates; and
ii. the time and place at which the contract under which the said securities have been or are to
be allotted may be inspected.
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Section 26 of the 2013 Act provides a list of disclosures, including name and address of the
registered office of the company, the company secretary, chief financial officer, auditors, legal
counsels, etc., date of opening and closing of the issue, risk factors, details of directors and
promoters, capital structure, etc. In addition, Schedule VIII, Pt A of the SEBI (Issue of Capital and
Disclosure) Regulations, 2009, also provides a list of disclosures that are required to be made in an
offer document.
See detailed commentary to section 26 for the details of the information to be set out in the
prospectus.
[s 25.7] Issue of Securities by a Company and Partnership [Section 25(4)]
Sub-section (4) of section 25 states that the prospectus would have to be signed by at least two
directors of the company and in the case of a partnership, by half of the number of partners. While
sub-section (1) discussed only about a company offering securities to the public, sub-section (4)
appears to be an enabling provision as it mandates that half number of the partners have to sign a
prospectus when it is a partnership.
[s 25.8] Eligibility
regulation 26 (6) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009,
provides that equity shares may be offered for sale if such equity shares have been held by the seller
for a period of at least one year prior to the filing of the draft offer document with SEBI. In case of
convertible securities, the holding period of such convertible securities as well as that of the equity
share after conversion together will be considered for the purpose of calculating the period of one
year. In case of bonus securities, if the specified securities offered for sale were issued under a
bonus issue on securities held for a period of at least one year prior to the filing of draft offer
document, holding period of such securities will be considered for the purpose of calculating the
period of one year.
[s 25.9] Minimum Application Value and Subscription
With respect to an offer for sale, the issue price payable for each specified security will be determined
at the time of application as per regulation 32(1) of the SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2009. As per the proviso to regulation 49(3) of the SEBI (Issue of Capital
and Disclosure Requirements) Regulations, 2009, the requirement of minimum subscription,
excluding the requirement of allotting minimum number of specified securities, is not applicable to an
offer for sale.
[s 25.10] Listing Obligation
The Supreme Court of India in the case of Sahara India Real Estate Corp Ltd v Securities Exchange
Board of India,43 (C.A. Nos. 9813 and 9833 of 2011) has held that any issue of securities once made
to 50 or more persons will attract the mandatory obligation under section 73(1) of the 1956 Act (see
notes under section 40 of the 2013 Act), i.e., an obligation on every company intending to offer
shares or debentures to the public to apply on a stock exchange for listing of its securities.
Mr. Laghir1 Rabari

Page 5 of 6
[s 64] Document containing offer of shares or debentures for sale to be deemed prospectus.—(1) Where a
company allots or agrees to allot any shares in or debentures of the company with a view to all or any of those shares
or debentures being offered for sale to the public, any document by which the offer for sale to the public is made shall,
for all purposes, be deemed to be a prospectus issued by the company; and all enactments and rules of law as to the
contents of prospectuses and as to liability in respect of statements in and omissions from prospectuses, or otherwise
relating to prospectuses, shall apply with the modifications specified in sub-sections (3), (4) and (5), and have effect
accordingly, as if the shares or debentures had been offered to the public for subscription and as if persons accepting
the offer in respect of any shares or debentures were subscribers for those shares or debentures, but without prejudice
to the liability, if any, of the persons by whom the offer is made in respect of mis-statements contained in the document
or otherwise in respect thereof
(2) For the purposes of this Act, it shall, unless the contrary is proved, be evidence that an allotment of, or an
agreement to allot, shares or debentures was made with a view to the shares or debentures being offered for sale to
the public if it is shown—
(a) that an offer of the shares or debentures or of any of them for sale to the public was made within six months
after the allotment or agreement to allot; or
(b) that at the date when the offer was made, the whole consideration to be received by the company in respect of
the shares or debentures had not been received by it.
(3) Section 56 as applied by this section shall have effect as if it required a prospectus to state in addition to the
matters required by that section to be stated in a prospectus—
(a) the net amount of the consideration received or to be received by the company in respect of the shares or
debentures to which the offer relates; and
(b) the place and time at which the contract under which the said shares or debentures have been or are to be
allotted may be inspected.
(4) Section 60 as applied by this section shall have effect as if the persons making the offer were persons named in a
prospectus as directors of a company.
(5) Where a person making an offer to which this section relates is a company or a firm, it shall be sufficient if the
document referred to in sub-section (1) is signed on behalf of the company or firm by two directors of the company or
by not less than one-half of the partners in the firm, as the case may be; and any such director or partner may sign by
his agent authorised in writing.
NOTES
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Page 6 of 6
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on Clauses explained this section as follows:
See section 100 of the Company Law Committee’s redraft and section 45 of the English Act. [Clause 57 of the
[s 25.12] Object
This section is primarily meant for a company which on formation or afterwards allots shares to
underwriters and others with a view to such shares being offered for sale to the public.
[s 25.13] Offer of Securities to more than 50 Persons
As held in the case of Sahara India Real Estate Corp Ltd v Securities Exchange Board of India,44
though the intention of a company may be to make a private placement, however, such a private
placement is deemed to be a public offer once securities are offered to more than 50 persons.
Therefore, SEBI will have jurisdiction, and the issuer will have to comply with the various disclosure
and procedural requirements under the 2013 Act as well the SEBI (Issue of Capital and Disclosure)
Regulations, 2009.
The 1956 Act identified the document containing sale of shares and debentures as a deemed
prospectus; however, the 2013 Act identified that the document containing sale of securities shall be
construed as a deemed prospectus. It shall therefore comply with relevant provisions of 2013 Act and
rules and regulations issued by SEBI including SEBI (Issue of Capital and Disclosure Requirements)
Regulations, 2009.
40 Sub-sections (1), (2) and (4) were notified by Notification S.O. 2754(E) dt. 12 September 2013., w.e.f. 12 September
2013, and sub-section (3) was notified by Notification S.O. 902(E) dt. 26 March 2014, w.e.f. 01 April 2014 and
corresponds to section 64 of the 1956 Act.
41 Security receipt means a receipt or other security, issued by a securitisation company or reconstruction company to
any qualified institutional buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of
an undivided right, title or interest in the financial asset involved in securitisation.
42 Sahara India Real Estate Corp Ltd v Securities Exchange Board of India, (2013) 1 SCC 1.
43 Sahara India Real Estate Corp Ltd v Securities Exchange Board of India, (2012) 10 SCC 603 (2013) 1 SCC 1.
44 Sahara India Real Estate Corp Ltd v Securities Exchange Board of India, (2013) 1 SCC 1.
End of Document
Mr. Laghir1 Rabari

45 Notified by Notification S.O. 902 (E) dt. 26 March 2014, w.e.f. 01 April
2014 and correspond to sections 55, 56, 57, 58, 59 and 60 and Schedule II of
the 1956 Act. [s 26] Matters to be stated in prospectus.—
PUBLIC OFFER
45[s 26] Matters to be stated in prospectus.—
(1) Every prospectus issued by or on behalf of a public company either with reference to its
formation or subsequently, or by or on behalf of any person who is or has been engaged or
interested in the formation of a public company, shall be dated and signed and SHALL—
(a) state the following information, namely:—
(i) names and addresses of the registered office of the company, company secretary,
Chief Financial Officer, auditors, legal advisers, bankers, trustees, if any, underwriters
and such other persons as may be prescribed;46
(ii) dates of the opening and closing of the issue, and declaration about the issue of
allotment letters and refunds within the prescribed time;47
(iii) a statement by the Board of Directors about the separate bank account where all
monies received out of the issue are to be transferred and disclosure of details of all
monies including utilised and unutilised monies out of the previous issue in the
prescribed manner;48
(iv) details about underwriting of the issue;49
(v) consent of the directors, auditors, bankers to the issue, expert’s opinion, if any, and of
such other persons, as may be prescribed;50
(vi) the authority for the issue and the details of the resolution passed therefor;
(vii) procedure and time schedule for allotment and issue of securities;
(viii) capital structure of the company in the prescribed manner;51
(ix) main objects of public offer, terms of the present issue and such other particulars as
may be prescribed;52
(x) main objects and present business of the company and its location, schedule of
implementation of the project;
(xi) particulars relating to—
(A) management perception of risk factors specific to the project;
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45 Notified by Notification S.O. 902 (E) dt. 26 March 2014, w.e.f. 01 April 2014 and correspond to sections 55,
56, 57, 58, 59 and 60 and Schedule II of the 19....
(B) gestation period of the project;

(C) extent of progress made in the project;
(D) deadlines for completion of the project; and
(E) any litigation or legal action pending or taken by a Government Department or a
statutory body during the last five years immediately preceding the year of the
issue of prospectus against the promoter of the company;
(xii) minimum subscription, amount payable by way of premium, issue of shares otherwise
than on cash;
(xiii) details of directors including their appointments and remuneration, and such
particulars of the nature and extent of their interests in the company as may be
prescribed;53 and
(xiv) disclosures in such manner as may be prescribed54 about sources of promoter’s
contribution;
(b) set out the following reports for the purposes of the financial information, namely:—
(i) reports by the auditors of the company with respect to its profits and losses and
assets and liabilities and such other matters as may be prescribed;55
(ii) reports relating to profits and losses for each of the five financial years immediately
preceding the financial year of the issue of prospectus including such reports of its
subsidiaries and in such manner as may be prescribed:56
Provided that in case of a company with respect to which a period of five years
has not elapsed from the date of incorporation, the prospectus shall set out in
such manner as may be prescribed,57 the reports relating to profits and losses for
each of the financial years immediately preceding the financial year of the issue of
prospectus including such reports of its subsidiaries;
(iii) reports made in the prescribed manner by the auditors upon the profits and losses of
the business of the company for each of the five financial years immediately
preceding issue and assets and liabilities of its business on the last date to which the
accounts of the business were made up, being a date not more than one hundred and
eighty days before the issue of the prospectus:
Provided that in case of a company with respect to which a period of five years
has not elapsed from the date of incorporation, the prospectus shall set out in the
prescribed manner, the reports made by the auditors upon the profits and losses
of the business of the company for all financial years from the date of its
incorporation, and assets and liabilities of its business on the last date before the
issue of prospectus; and
(iv) reports about the business or transaction to which the proceeds of the securities are
to be applied directly or indirectly;
(c) make a declaration about the compliance of the provisions of this Act and a statement to
the effect that nothing in the prospectus is contrary to the provisions of this Act, the
Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the SEBI Act, 1992
Securities and Exchange Board of India(15 of 1992) and the rules and regulations made
thereunder; and
(d) state such other matters and set out such other reports, as may be prescribed.58
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(2) Nothing in sub-section (1) shall apply—

(a) to the issue to existing members or debenture-holders of a company, of a prospectus or
form of application relating to shares in or debentures of the company, whether an
applicant has a right to renounce the shares or not under sub-clause (ii) of clause (a) of
sub-section (1) of section 62 in favour of any other person; or
(b) to the issue of a prospectus or form of application relating to shares or debentures which
are, or are to be, in all respects uniform with shares or debentures previously issued and
for the time being dealt in or quoted on a recognised stock exchange.
(3) Subject to sub-section (2), the provisions of sub-section (1) shall apply to a prospectus or a
form of application, whether issued on or with reference to the formation of a company or
subsequently.
Explanation.—The date indicated in the prospectus shall be deemed to be the date of its
publication.
(4) No prospectus shall be issued by or on behalf of a company or in relation to an intended

company unless on or before the date of its publication, there has been delivered to the
Registrar for registration, a copy thereof signed by every person who is named therein as a
director or proposed director of the company or by his duly authorised attorney.
(5) A prospectus issued under sub-section (1) shall not include a statement purporting to be
made by an expert unless the expert is a person who is not, and has not been, engaged or
interested in the formation or promotion or management, of the company and has given his
written consent to the issue of the prospectus and has not withdrawn such consent before the
delivery of a copy of the prospectus to the Registrar for registration and a statement to that
effect shall be included in the prospectus.
(6) Every prospectus issued under sub-section (1) shall, on the face of it,—
(a) state that a copy has been delivered for registration to the Registrar as required under
sub-section (4); and
(b) specify any documents required by this section to be attached to the copy so delivered or
refer to statements included in the prospectus which specify these documents.
(7) The Registrar shall not register a prospectus unless the requirements of this section with
respect to its registration are complied with and the prospectus is accompanied by the
consent in writing of all the persons named in the prospectus.
(8) No prospectus shall be valid if it is issued more than ninety days after the date on which a
copy thereof is delivered to the Registrar under sub-section (4).
(9) If a prospectus is issued in contravention of the provisions of this section, the company shall
be punishable with fine which shall not be less than fifty thousand rupees but which may
extend to three lakh rupees and every person who is knowingly a party to the issue of such
prospectus shall be punishable with imprisonment for a term which may extend to three years
or with fine which shall not be less than fifty thousand rupees but which may extend to three
lakh rupees, or with both.
NOTES
Section 26 of the 2013 Act corresponds to sections 55, 56, 57, 58, 59 and 60 and Schedule II of the
1956 Act.
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as follows:
Clause 26.—This clause corresponds to section 56 and Schedule II of the Companies Act, 1956 and seeks to provide
for the matters to be stated and information to be given in the prospectus. Prospectus shall not be issued before the
date of its publication. No statement of an expert shall be included in the prospectus unless he is engaged or interested
in formation of a company and has given his written consent to the issue of prospectus before the delivery of a copy of
the prospectus to the Registrar for registration. Registrar shall register the prospectus only after the registration
requirements are complied with. Prospectus is to be issued within ninety days from the date of delivery of prospectus
to the Registrar. The clause further provides that if the prospectus is issued in contravention of this clause the
company and every person who is knowingly a party to the issue of such prospectus shall be punishable with fine on
imprisonment.
In addition to the above, it is noted that section 26 of the 2013 Act also combines sections 55, 57, 58,
59 and 60 of the 1956 Act. Section 55 dealt with dating of prospectus, section 57 provided that the
expert was to be unconnected with formation or management of the company, section 58 dealt with
expert’s consent, section 59 dealt with the provisions relating to penalty and section 60 dealt with
registration of prospectus. All these sections have been combined in the new section 26 of the 2013
Act.
[s 26.2] Content and Dating of Prospectus [Section 26(1)]
Sub-section (1) of section 26 lays down the various disclosures that need to be made by a company
in its prospectus. These disclosures include various disclosures regarding the company, its
management, promoters, capital structure, litigation, objects, risks and details of the issue as well as
particulars regarding the financial information of the company. As clarified in sub-section (c), the
company is bound to ensure that its prospectus is compliant not only with the requirements laid down
under the 2013 Act, but also with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and
the SEBI Act, 1992 (15 of 1992), and the rules and regulations made thereunder including SEBI
(Issue of Capital And Disclosure Requirements) Regulations, 2009.
Previously, the Securities Appellate Tribunal (SAT) had taken a view in Sahara Real Estate Corp Ltd
v SEBI,59 that in the absence of a reference to the Companies Act, 1956, the SEBI Act, 1992 (15 of
1992), cannot be considered as affiliated to the Companies Act, 1956. However, this sub-section (c)
is a reflection of the Supreme Court decision in the case of Sahara India Real Estate Corp Ltd v
SEBI,60 which clarified that, in addition to the provisions of the Companies Act, 1956, the provisions of
the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and the SEBI Act, 1992 (15 of 1992),
will have to be complied with by a company issuing a prospectus.
This sub-section also lays down that each prospectus must also be signed and dated.
[s 26.3] Issue and Invitation
As used in sub-section (1), the word “issued” means issued to the public. A circular placed in the
hands of friends of the proposed directors and intended to be shown to their friends has been held
not an invitation to the public.61 For instance, in the case of Sherwell v Combined Incandescent
Mantles Syndicate,62 the director of the company sent a prospectus to his friends and marked it as
“strictly private and confidential.” Such a circulation was held not to amount to an invitation to the
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public. A proof prospectus circulated before incorporation may not amount to an issue of the
prospectus.63
[s 26.4] Statement In Lieu of Prospectus
A public company which does not offer shares to the public for subscription and raises its capital by
private approach and placement shall not allot any of its shares or debentures unless it has delivered
to the Registrar a statement in lieu of prospectus.
As per sub-section (1), a prospectus is to be issued by a public company. A private company cannot
issue prospectus as its Articles of Association, prohibit invitation to the public to subscribe for shares
in, or debentures of, the private company.
[s 26.6] Cases where Disclosure Requirements Need not be Followed [Section 26(2)]
Sub-section (2) of section 26 of the 2013 Act lays down the following two instances where the
disclosure requirements are provided under sub-section (1) are exempted:
(i) Where the issue is to existing members or debenture-holders of a company, of a prospectus

or form of application relating to shares in or debentures of the company; and
(ii) Where the issue relates to securities that are ranked pari passu with securities that are
already issued and are traded on a recognized stock exchange.
[s 26.7] Date of Publication [Section 26(3)]
As explained in sub-section (3) of section 26 of the 2013 Act, the date indicated on the prospectus is
deemed to be the date of its publication. Moreover, this sub-section also provides that the disclosure
requirements of sub-section (1) will apply to a prospectus of a form of application, whether issued on
or with reference to the formation of a company or subsequently.
[s 26.8] Prospectus to be Signed [Section 26(4)]
This provision requires every prospectus that is issued by a company, before its publication, to be
duly signed. The signature requirements as provided under this sub-section are that the prospectus
must be signed by every director or by their duly authorised signatories. As previously explained,
section 25(4) of the 2013 Act also lays down that a prospectus must be signed by at least two
directors of a company, personally. These two provisions will therefore have to be read harmoniously
to mean that every director must sign the prospectus with at least two directors signing the
prospectus personally, while the rest may sign through duly appointed signatories.
[s 26.9] Expert Statement and Consent [Section 26(5)]
Sub-section (5) of section 26 of the 2013 Act provides that only an expert, who is independent, i.e.,
not engaged or interested in the formation or promotion of the company or its management, can duly
provide a statement with respect to the company’s prospectus. Moreover, such an expert should
have provided written consent to provide such a statement, and such consent should be valid till the
date of the delivery of a copy of the prospectus to the Registrar for registration. This sub-section
intends to protect an intending investor by making the expert a party to the issue of the prospectus
and making him liable for untrue statements.
[s 26.10] Expert Liable for Untrue Statements
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This is a wholesome rule intended to protect an intending investor by making the expert a party to the
issue of the prospectus and making him liable for untrue statements. If the prospectus is based upon
the report of an expert which contains false statements of facts, a person who applied for shares
relying on the report may rescind the contract unless the directors had clearly warned the public that
they did not vouch for the accuracy of the report.64 However, as per sub-section (5), the expert does
not undertake liability in respect of anything in the prospectus except his own statement.
[s 26.11] Timeline for Validity of a Prospectus [Section 26 (8)]
Sub-section (8) of section 26 of the 2013 Act provides that no prospectus will be valid if it is issued
more than 90 days after the date on which copy was delivered to the Registrar under sub-section (4)
of section 26.
[s 26.12] Registration Requirements
As prescribed under sub-sections (6) and (7) of the 2013 Act, the Registrar will not register a
prospectus unless all the requirements of this section are complied with and all the necessary
consents have been provided.
[s 26.13] Prospectus must be true and accurate
A prospectus must give a full, accurate and fair picture of the state of affairs and prospects of the
Company as laid down by Kindersley, V.C., in the case of New Brunswick and Canada Railway and
Land Co v Muggeridge.65
[s 26.14] Filing of Prospectus in Form MGT 14
As per section 117 of the 2013 Act, a company must file its prospectus with the Registrar of
Companies by way of a form MGT 14.66
[s 26.15] Inspection
Any member of the public may have inspection of all the documents mentioned in the prospectus at
the office of the Registrar and also at the registered office of the company. If a person wants
inspection of the prospectus after 14 days of the publication of the prospectus, he must apply to the
Regional Director.
[s 26.16] Penalty for Contravention [Section 26(9)]
As provided, for any contravention under this section, the 2013 Act imposes punishment on both the
company and every person who is “knowingly a party to the issue.” The penalty imposed on the
company is a fine of not less than Rs 50,000 and not more than Rs 3,00,000. Every person who is
knowingly a party to the issue is liable to be punished with imprisonment for a term which may extend
to three years or with fine which shall not be less than Rs 50,000 but which may extend to Rs
3,00,000, or with both.
See the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, and SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015.67
[s 26.17] Remedies [s 26.17.1] Remedy of Aggrieved Person
Normally a person who has relied on the prospectus and has taken shares from the company will
have a remedy against the company. However, the company will not be liable if the prospectus is
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intended to induce purchasers to buy the shares from the market.68
The remedies available are rescission of the contract to buy shares; if the shares have been
purchased, return of the purchase money and damages suffered.
[s 26.17.2] Action for Mis-statement in Prospectus
It is open to a subscriber to take an action for mis-statement in the prospectus in addition to what is
contemplated under sections 34 and 35 of the 2013 Act.
[s 26.17.3] Writ Petition
As held in the case of Federal Bank Ltd v Shamrao Vithal Co-operative Bank Ltd,69 where a
prospectus was issued without complying with the disclosure requirements of the 1956 Act or the
SEBI Act, a writ petition seeking an order for SEBI to revoke its consent was held to be maintainable.
See detailed Notes under section 24 of the 2013 Act—Powers of SEBI.
[s 55] Dating of Prospectus.—A prospectus issued by or on behalf of a company or in relation to an intended

company shall be dated, and that date shall, unless the contrary is proved, be taken as the date of publication of the
prospectus. The Companies Act, 1956 provision
NOTES
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on Clauses explained the provisions of this Part as
follows:
It is considered desirable to put the provisions relating to prospectuses and allotment of shares, and the issue of
shares at a commission or discount etc. in a separate Part. The place assigned to these provisions in the Bill
corresponds to the place which has been assigned to them in the English Act. The provisions relating to prospectuses
and allotment are mostly based on the drafts suggested by the Company Law Committee at pages 375 to 389 of the
Report. These in their turn are largely modelled on the provisions of the English Act (sections 37 to 52). [Part III of the
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The Notes on Clauses explained the provisions of section 55 as follows:
See section 92 of the Company Law Committee’s draft and section 37 of the English Act. [Clause 50 of the Companies
Bill, 1953 (46 of 1953)].
For the Statement of Objects and Reasons appended to the principal and Amending Bills, see
Legislative History in Notes under section 1.
[s 26.19] Dating of Prospectus
Section 55 of the 1956 Act is covered under sub-section (3) of section 26 of the 2013 Act, as
explained in the commentary above.
[s 56] Matters to be stated and reports to be set out in prospectus.—(1) Every prospectus issued— The
(a) by or on behalf of a company, or
(b) by or on behalf of any person who is or has been engaged or interested in the formation of a company, shall
state the matters specified in Pt I of Schedule II and set out the reports specified in Pt II of that Schedule; and
the said Pts I and II shall have effect subject to the provisions contained in Pt III of that Schedule.
(2) A condition requiring or binding an applicant for shares in or debentures of a company to waive compliance with
any of the requirements of this section, or purporting to affect him with notice of any contract, document or matter not
specifically referred to in the prospectus, shall be void.
(3) No one shall issue any form of application for shares in or debentures of a company, unless the form is
accompanied 70[by a memorandum containing such salient features of a prospectus as may be prescribed] which
complies with the requirements of this section:
71[Provided that a copy of the prospectus shall, on a request being made by any person before the closing of the
subscription list, be furnished to him:
Provided further that] this sub-section shall not apply if it is shown that the form of application was issued either—
(a) in connection with a bona fide invitation to a person to enter into an underwriting agreement with respect to the
shares or debentures; or
(b) in relation to shares or debentures which were not offered to the public.
If any person acts in contravention of the provisions of this sub-section, he shall be punishable with fine which may
extend to 72[Rs 50,000].
(4) A director or other person responsible for the prospectus shall not incur any liability by reason of any non-
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compliance with, or contravention of, any of the requirements of this section, if—
(a) as regards any matter not disclosed, he proves that he had no knowledge thereof; or
(b) he proves that the non-compliance or contravention arose from an honest mistake of fact on his part; or
(c) the non-compliance or contravention was in respect of matters which, in the opinion of the Court dealing with
the case, were immaterial, or was otherwise such as ought, in the opinion of that Court, having regard to all
the circumstances of the case, reasonably to be excused:
• Provided that no director or other person shall incur any liability in respect of the failure to include in a
prospectus a statement with respect to the matters specified in clause 18 of Schedule II, unless it is proved
that he had knowledge of the matters not disclosed.
(5) This section shall not apply—
(a) to the issue to existing members or debenture holders of a company of a prospectus or form of application
relating to shares in or debentures of the company, whether an applicant for shares or debentures will or will
not have the right to renounce in favour of other persons; or
(b) to the issue of a prospectus or form of application relating to shares or debentures which are, or are to be, in
all respects uniform with shares or debentures previously issued and for the time being dealt in or quoted on
a recognised stock exchange;
but, subject as aforesaid, this section shall apply to a prospectus or a form of application, whether issued on or with
reference to the formation of a company or subsequently.
(6) Nothing in this section shall limit or diminish any liability which any person may incur under the general law or under
this Act apart from this section.
NOTES
See section 93 of the Company Law Committee’s redraft and section 38 of the English Act. Section 39 of the English
Act having been omitted by the Committee, the words ‘Subject to the provisions of the next following section’ have had
to be omitted from sub-clause (1) of clause 51. It is considered desirable to retain the provision contained in sub-
section (5)(b) of section 38 of the English Act. Where the new shares or debentures are to be uniform in all respects
with previous issues and they are also dealt in on a recognised stock exchange, there seems to be no reason for
applying the provisions of the clause. [Clause 51 of the Companies Bill, 1953 (46 of 1953)].
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[s 26.21] Matters to be Stated in the Prospectus [Sub-Section (1)]
This provision has been dealt with under sub-section (1) of section 26 of the 2013 Act, as explained
in the commentary above.
[s 26.22] Void Stipulation [Sub-section (2)]
This provision has not been expressly stated under section 26 of the 2013 Act. This provision stated
that a condition requiring or binding an applicant for shares in or debentures of a company to waive
compliance with any of the requirements of the section 56 of the 1956 Act, or purporting to affect him
with notice of any contract, document or matter not specifically referred to in the prospectus, is void.
This provision has been discussed under sub-section (9) of section 26 of the 2013 Act, in the
commentary above. The penalty under the 2013 Act is a fine of Rs 50,000 up to Rs 3,00,000.
[s 26.24] Defences [Sub-section (4)]
This provision has not been expressly mentioned in section 26 of the 2013 Act. As per this provision,
a director or other person responsible for the prospectus shall not incur any liability for non-
compliance or contravention of this section, if he proves that (a) he had no knowledge of any matter
not disclosed in the prospectus; or (b) that the non-compliance or contravention arose from an honest
mistake of fact on his part or (c) the non-compliance or contravention was in respect of matters
which, in the opinion of the Court, were immaterial or he ought reasonably to be excused under the
circumstances.
No director or other person shall incur any liability in respect of failure to include in prospectus a
statement with respect to matters specified in clause 18 of Sch. II of the 1956 Act, unless it is proved
that he had knowledge of the matters not disclosed.
[s 26.25] Section does not Apply [Sub-section (5)]
This sub-section has been discussed under sub-section (2) to section 26 of the 2013 Act in the
commentary above.
[s 26.26] Offences Cognisable Only on Complaint [Section 621]
No Court shall take cognisance of any offence against this Act by a company or any officer, except
on the complaint in writing of the Registrar, a shareholder or a person authorised by the Central
Government [section 621(1) of the 1956 Act].
As per proviso to section 621(1) of the 1956 Act inserted by the Companies (Amendment) Act, 2000
(w.e.f. 13 December 2000), the court may take cognisance of offence relating to issue and transfer of
securities and non-payment of dividend on a complaint in writing by a person authorised by the SEBI
(SEBI).
See detailed Notes under sections 621 and 621A of the 1956 Act (corresponding to section 439 of
the 2013 Act).
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[s 26.27] Complaint by SEBI [Section 621(1), second proviso to the 1956 Act]
The Offences against the 1956 Act relating to Issue and Transfer of Securities and non-payment of
Dividend are, inter alia, also cognisable on a complaint in writing by a person authorised by the SEBI
(SEBI).
[s 57] Expert to be unconnected with formation or management of company.—A prospectus inviting persons to
subscribe for shares in or debentures of a company shall not include a statement purporting to be made by an expert,
unless the expert is a person who is not, and has not been, engaged or interested in the formation or promotion, or in
the management, of the company.
NOTES
OF 1956).—This section was enacted on the recommendation of the Joint

THE COMPANIES ACT, 1956 (1
Committee, which observed as follows:
Committee are of the view that no person who is connected either with the formation or with the management of a
company should function as an ‘expert’. This is provided for in clause 56 [section 57]. [Report: para 25].
[s 26.29] Expert to be Unconnected
This provision has been covered under sub-section (5) of section 26 of the 2013 Act, as explained in
the commentary above.
[s 58] Expert’s consent to issue of prospectus containing statement by him.—A prospectus inviting persons to
subscribe for shares in or debentures of a company and including a statement purporting to be made by an expert shall
not be issued, unless—
(a) he has given his written consent to the issue thereof with the statement included in the form and context in
which it is included, and has not withdrawn such consent before the delivery of a copy of the prospectus for
registration; and
(b) a statement that he has given and has not withdrawn his consent as aforesaid appears in the prospectus.
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NOTES
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on Clauses explained as follows:
“See section 94 of the Company Law Committee’s redraft and section 40 of the English Act. Only some verbal
improvements have been sought to be effected.” [Clause 52 of the Companies Bill, 1953 (46 of 1953)].
The Company Law Committee explained as follows:
This new section follows section 40 of the English Act, under which restrictions are imposed on the issue of a
prospectus containing statements by an expert unless his written consent is obtained. This section enacts a
wholesome rule intended to protect an intending investor by making the expert a party to the issue of the prospectus
and making him liable for untrue statements. [Report: para 59].
[s 26.31] Expert’s Consent
This provision has been covered under sub-section (5) of section 26 of the 2013 Act, as explained in
[s 59] Penalty and interpretation.—(1) If any prospectus is issued in contravention of section 57 or 58, the company,
and every person, who is knowingly a party to the issue thereof, shall be punishable with fine which may extend to
73[Rs 50,000].
(2) In sections 57 and 58, the expression “expert” includes an engineer, a valuer, an accountant and any other person
whose profession gives authority to a statement made by him.
NOTES
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THE COMPANIES ACT, 1956 (1 OF 1956).—See Legislative History in Notes under section 55.
The Companies (Amendment) Act, 2000 (53 of 2000).—The Notes on Clauses explained as follows:
This clause seeks to enhance the fine specified in sub-section (1) of section 59 of the Act from five thousand rupees to
fifty thousand rupees. [Clause 20 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
[s 26.33] Penalty [Section 59(1)]
This section has been dealt with under sub-section (9) of section 26 of the 2013 Act in the
commentary above.
[s 26.34] Offences Cognisable Only on Complaint [Section 621 of the 1956 Act]
No Court shall take cognisance of any offence against this Act by a company or any officer, except
on the complaint in writing of the Registrar, a shareholder or a person authorised by the Central
Government [section 621(1) of the 1956 Act].
securities and non-payment of dividend on a complaint in writing by a person authorised by the SEBI
(SEBI).
In 2012, SEBI issued Circular No. CIR/OIAE/2/2011 dt. 03-06-2011 regarding redressal of investor
grievances against listed companies in SEBI Complaints Redress System (SCORES). Through this
circular, SEBI advised all companies whose securities are listed on various stock exchanges to
comply with the provisions of the said circular. The circular pertains to a centralised web-based
complaints redressal system named “SCORES.” This web-based complaints redressal system
provides a centralised platform for aggrieved investors whose grievances, after having approached
the concerned listed company or registered intermediary directly, still remain unresolved. SCORES
therefore provides a platform, overseen by SEBI, through which investors can approach the
concerned listed company or SEBI registered intermediary for speedy redressal of grievances. The
salient features of SCORES are:
(i) Centralised database of investor complaints.

(ii) Online movement of complaints to the concerned listed company or SEBI registered
intermediary.
(iii) Online upload of Action Taken Reports (ATRs) by the concerned listed company or SEBI
registered intermediary. Failure on the part of the company to update the ATR in SCORES
will be treated as non-redressal of investor complaints by the company.
(iv) Online viewing by investors of actions taken on the complaint and its current status.
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[s 26.35] Meaning of “Expert”
As stated in sub-section (2) of section 59 of the 1956 Act, an expert includes an engineer, a valuer,
an accountant and any other person whose profession gives authority to a statement made by him.
[s 60] Registration of prospectus.—(1) No prospectus shall be issued by or on behalf of a company or in relation to

an intended company unless, on or before the date of its publication, there has been delivered to the Registrar for
registration a copy thereof signed by every person who is named therein as a director or proposed director of the
company or by his agent authorised in writing, and having endorsed thereon or attached thereto—
(a) any consent to the issue of the prospectus required by section 58 from any person as an expert; and
(b) in the case of a prospectus issued generally, also—
(i) a copy of every contract required by clause 16 of Schedule II to be specified in the prospectus, or, in the
case of a contract not reduced into writing, a memorandum giving full particulars thereof; and
(ii) where the persons making any report required by Pt II of that Schedule have made therein, or have,
without giving the reasons, indicated therein, any such adjustments as are mentioned in clause 32 of that
Schedule, a written statement signed by those persons setting out the adjustments and giving the
reasons therefor.
(2) Every prospectus to which sub-section (1) applies shall, on the face of it,—
(a) state that a copy has been delivered for registration as required by this section; and
(b) specify any documents required by this section to be endorsed on or attached to the copy so delivered, or
refer to statements included in the prospectus which specify those documents.
74[(3) The Registrar shall not register a prospectus unless the requirements of sections 55, 56, 57 and 58 and sub-
sections (1) and (2) of this section have been complied with and the prospectus is accompanied by the consent in
writing of the person, if any, named therein as the auditor, legal adviser, attorney, solicitor, banker or broker of the
company or intended company, to act in that capacity.]
(4) No prospectus shall be issued more than 90 days after the date on which a copy thereof is delivered for
registration; and if a prospectus is so issued, it shall be deemed to be a prospectus a copy of which has not been
delivered under this section to the Registrar.
(5) If a prospectus is issued without a copy thereof being delivered under this section to the Registrar or without the
copy so delivered having endorsed thereon or attached thereto the required consent or documents, the company, and
every person who is knowingly a party to the issue of the prospectus, shall be punishable with fine which may extend
to 75[Rs 50,000].
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Page 15 of 18
NOTES
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on Clauses explained thus:
See section 95 of the Company Law Committee’s redraft and section 41 of the English Act. A few drafting changes of
no great consequence have been made. [Clause 53 of the Companies Bill, 1953 (46 of 1953)].
This section deals with the registration of prospectuses and follows s.41 of the English Act in important respects. We
have also made certain additions by providing that where a prospectus names any person as auditor, attorney,
solicitor, banker or broker of the company, the written consent of these persons should be filed at the time of
registration. We would point out that the mere giving of this consent would not subject such persons to any liability
unless any of them is acting as an expert. The need for the above provision arises out of the necessity for
circumspection on the part of these persons before they permit their names to be cited in a prospectus. They should
remember that the public attaches importance to the presence of well-known and respected names on the face of a
prospectus and they should be careful not to allow themselves to be associated with enterprises about whose merits
they have not made some serious enquiry. Sub-section (4) prohibits the issue of a prospectus more than 90 days after
it had been filed with the Registrar. The English Act contains no such restriction, but we think it desirable to insert such
a provision. If the issue is too long delayed, conditions may alter and what appears in the prospectus when registered
may no longer be valid at the end of such a long period. [Report : para 60].
THE COMPANIES (AMENDMENT) ACT, 1960 (65 OF 1960).—The Notes on Clauses explained the amendments in
This amendment is based on the recommendation in para 40 of the Report that the circumstances in which the
Registrar may refuse to register a prospectus may be clarified. [Clause 18 of the Companies (Amendment) Bill, 1959
(37 of 1959)].
The recommendations of the Companies Act Amendment Committee, 1957, are reproduced below:
Section 55 requires every prospectus to be dated and provides that the date should be presumed to be the date of the
Mr. Laghir1 Rabari

Page 16 of 18
publication of the prospectus. Section 60 provides that no prospectus shall be issued unless, on or before the date of
its publication, there has been delivered to the Registrar for registration a copy thereof signed by the persons named
therein as directors or proposed directors of the company. The filing of the prospectus with the Registrar should
precede its publication and the date of its publication is the date it bears. It may not always be possible for companies
to file the prospectus with the Registrar on the same date as it bears. In practice, it appears that prospectuses are
prepared and printed a few days previous to the date they bear. In other words, a prospectus is given a date posterior
to the date when its form and contents are settled by the promoters or directors and the document is printed. This
enables the prospectus to be filed with the Registrar before the date of its publication which would be the date it bears.
There is nothing objectionable in a prospectus bearing a date posterior to its presentation for registration.
It appears that in some cases Registrars have refused to register prospectuses on grounds other than those referred to
in section 60(3)(a) and (b) of the Act. There is no express provision requiring the Registrar to register a prospectus if
the requirements of section 60(3)(a) and (b) are complied with, but that is the effect of section 60(3) by implication. In
our opinion, it should not be within the province of the Registrar to refuse registration of a prospectus on the ground
that the company is directly or indirectly contravening the policy of the Act or that its business is sought to be carried on
in a manner contrary to law though it will be in order for him to point out the defects in the documents on scrutiny. To
make this clear section 60(3) of the Act might be amended. [Report : para 40].
THE COMPANIES (AMENDMENT) ACT, 2000 (53 OF 2000).—The Notes on Clauses explained as follows:
[s 26.37] Registration of Prospectus
The registration requirements of a prospectus, along with the timelines, have been discussed under
sub-sections (6) and (7) of section 26 of the 2013 Act as explained in the commentary above.
While the 1956 Act also contained similar provisions, section 26 of the 2013 Act has consolidated
various sections of the1956 Act, as stated above, and is a more detailed representation of the old
provisions. Section 26 of the 2013 Act describes the content of the prospectus in detail with respect
to all the information and reports of the company which was not mentioned in the 1956 Acts. Further,
the penalty for contravention prescribed under section 26 of the 2013 Act is higher since the
maximum fine that can be imposed is Rs 3,00,000 as against the old provision which prescribed a
maximum fine of Rs 50,000. Section 56 of 1956 Act provided for conditions under which
directors/persons responsible for issue of the prospectus will not incur liability. Such a provision is not
present in section 26 of the 2013 Act. Further while section 56(2) of the 1956 Act expressly provided
that any stipulation inducing investors to agree to waive compliance with any of the requirements of
section 56 of the 1956 Act as void, no such express provision has been provided for in the 2013 Act.
45 Notified by Notification S.O. 902 (E) dt. 26 March 2014, w.e.f. 01 April 2014 and correspond to sections 55, 56, 57, 58,
59 and 60 and Schedule II of the 1956 Act.
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46 Rule 3(1)(a) of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
47 Rule 3(1)(b) and (c) of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
48 Rule 3(1)(d) and (e) of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
49 Rule 3(1)(f) of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
50 Rule 3(1)(g) of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
51 Rule 3(2) of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
52 Rule 3(3) and (4) of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
54 Rule 3(1) and (6) of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
57 Rule 4(1) proviso of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
58 Rule 5 of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
59 Sahara Real Estate Corp Ltd v SEBI, 2 (2011) 110 SCL 217 (SAT).
61 Sleigh v Glasgow and Transvaal Options, (1904) 6 Fraser 420 (Court of Sessions).
62 Sherwell v Combined Incandescent Mantles Syndicate, (1907) WN 110 : 51 SJ 446 : LR 2 HL 99 : 36 LJ Ch. 849 : 16
LT 500 (HL) Co.
63 Baty v Keswick, (1901) WN 167 : 85 LT 18 : 50 WR 14 : 17 TLR 664 : 45 SJ 672.
64 Oakes v Turquand & Harding, (1867) LR 2 HL 325 : 36 LJ Ch. 949 (HL); Aaron’s Reefs Ltd v Twiss, (1896) AC 273 :
65 LJ PC 54 : 74 LT 794 (HL); Re, Scottish Petroleum Co., Re, (1883) 23 ChD. 413; Mair v Rio Grande Rubber Estates
Ltd, (1913) AC 853 : 83 LJ PC 35 : 109 LT 610 (HL); Re, Pacaya Rubber and Produce Co. Ltd, Re, (1914) 1 ChD 542 :
83 LJ Ch. 432 : 110 LT 578.
65 New Brunswick and Canada Railway and Land Co v Muggeridge, (1860) 1 Dr. & Sm. 381.
66 Rule 24 of the Companies (Management and Administration) Rules, 2014.
67 For full text of the Regulations, see Appendices 104 and 106, respectively. See also Notes under sections 55, 55A, 61,
62, 63 and 72.
68 Akerhielm (Baron Uno Carl Samuel) v Rolf De Mare, (1959) AC 789 : (1959) 3 All ER; Andrews v Mockford, (1896) 1
QB 372.
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69 Federal Bank Ltd v Shamrao Vithal Co-op Bank Ltd, (2001) 106 COMP CAS 419 (Kar).
70 Substituted for “by a prospectus” by the Companies (Amendment) Act, 1988 (31 of 1988), section 8 (w.e.f. 31 May
1991).
71 Substituted for “provided that” by the Companies (Amendment) Act, 1988 (31 of 1988), section 8 (w.e.f. 31 May 1991).
72 Substituted for “Rs 5,000” by the Companies (Amendment) Act, 2000 (53 of 2000), section 17 (w.e.f. 13 December
2000).
2000). This amending act has been repealed by the Repealing and Amending Act, 2016.
74 Substituted by the Companies (Amendment) Act, 1960 (65 of 1960), section 17 (w.e.f. 28 December 1960). This
amending Act has been repealed by the Repealing and Amending Act, 2016.
2000). This amending Act has been repealed by the Repealing and Amending Act, 2016.
End of Document
Mr. Laghir1 Rabari

76 Notified by Notification S.O. 902(E) dt. 26 March 2014, w.e.f. 01 March
2014 and corresponds to section 61 of the 1956 Act. [s 27] Variation in
terms of contract or objects in prospectus.—
PUBLIC OFFER
76[s 27] Variation in terms of contract or objects in prospectus.—
(1) A company shall not, at any time, vary the terms of a contract referred to in the prospectus or
objects for which the prospectus was issued, except subject to the approval of, or except
subject to an authority given by the company in general meeting by way of special resolution:
Provided that the details, as may be prescribed,77 of the notice in respect of such
resolution to shareholders, shall also be published78 in the newspapers (one in English
and one in vernacular language) in the city where the registered office of the company is
situated indicating clearly the justification for such variation:
Provided further that such company shall not use any amount raised by it through
prospectus for buying, trading or otherwise dealing in equity shares of any other listed
company.
(2) The dissenting shareholders being those shareholders who have not agreed to the proposal
to vary the terms of contracts or objects referred to in the prospectus, shall be given an exit
offer by promoters or controlling shareholders at such exit price, and in such manner and
conditions as may be specified by the Securities and Exchange Board by making regulations
in this behalf.
NOTES
as follows:
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76 Notified by Notification S.O. 902(E) dt. 26 March 2014, w.e.f. 01 March 2014 and corresponds to section 61
of the 1956 Act. [s 27] Variation in terms of con....
shall not vary terms of a contract referred to in the prospectus or objects for which the prospectus was issued except
by way of special resolution. Dissenting shareholders shall be given an exit offer by promoters or controlling
shareholders subject to such manner and conditions as may be specified by SEBI.
[s 27.2] Conditions in Relation to Variation of Terms of a Contract or Objects in the

Prospectus [Section 27(1)]
Sub-section (1) of section 27 specifically provides that terms of a contract or objects in the
prospectus can be varied only upon a special resolution by the shareholders in a general meeting.
Moreover, the notice of such a resolution must also be published in at least one English newspaper
and one vernacular language newspaper where the registered office of the company is located. The
second proviso to this sub-section contains a general prohibition on the use of amounts raised
through the prospectus for buying, trading or otherwise dealing in equity shares of any other listed
company.
[s 27.3] Rules
Rule 7 (1) of the Companies (Prospectus and Allotment of Securities) Rules, 2014, requires passing
of a special resolution to vary terms of contracts or objects of the prospectus. This rule lays down a
requirement to disclose the following in the notice in relation to the special resolution:
i. the original objects of the issue,

ii. the money raised,
iii. the unutilised amounts,
iv. the extent to which the objects have been achieved,
v. the particulars of variation in the terms,
vi. reasons and justifications for variation,
vii. risks factors
viii. the proposed time limit within which the proposed varied objects would be achieved;
ix. any other information necessary for shareholders to make a decision.
The appropriate form, in this regard, as provided for in rule 7(2) of the Companies (Prospectus and
Allotment of Securities) Rules, 2014, is form PAS–1.
As per rule 7(3) of the Companies (Prospectus and Allotment of Securities) Rules, 2014, the notice
must be published on the website of the company.
[s 27.4] Variation in the Terms of a Contract Referred to in the Prospectus or Objects
This provision relates to changes in the terms of material contracts and objects of the prospectus.
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This provision secures the interest of public shareholders in situations where the company intends to
change its objects or vary its key agreements. After the company has raised money from the public, it
is bound by its statements in the prospectus regarding use of funds i.e., its objects as well as the
terms of its key agreements and any change in this regard must be made only after approval from its
shareholders in a general meeting.
[s 27.5] Resolution for Change in Utilisation of Funds
Where letters of offer for allotment of shares stated that the money collected from the issue would be
utilised for some specified purposes, the shareholders by a resolution may permit the company to
use the money for some other purposes.79
[s 27.6] Exit Option to Dissenting Shareholders [Section 27(2)]
Shareholders who have not agreed to the proposal to vary the terms of contracts or objects of the
prospectus must be given an exit offer by promoters or controlling shareholders at such exit price and
in such manner and conditions as may be specified by the SEBI. Therefore, this provision provides
enhanced rights to shareholders as they can demand their shares to be bought in case of
disagreement regarding variation in terms of contract or objects of the prospectus.
Section 13(8) of the 2013 Act also provides that a company which has raised money from public
through a public offering and changes its objects post that must give the dissenting shareholders an
opportunity to exit in accordance with the regulations laid down by SEBI.
Chapter VI-A of the SEBI (Issue of Capital and Disclosure) Regulations, 2009 (introduced by
amendment dt. 17 February 2016), specifically deals with the conditions and manner of providing exit
opportunities to dissenting shareholders. As per regulation 69A, this chapter applies to an exit offer
made by a promoter or a shareholder under section 27(2) of the 2013 Act. This chapter will not apply
when there are neither any identifiable promoters nor shareholders in control of the listed issuer.
regulation 69B defines “dissenting shareholders” to mean those shareholders who have voted
against the resolution for change in objects or variation in terms of a contract, referred to in the
prospectus of the issuer. The conditions that trigger an exit offer are provided for in regulation 69C as
follows:
a) the public issue has opened after 1 April 2014;

b) the proposal for change in objects or variation in terms of a contract, referred to in the
prospectus is dissented by at least 10% of the shareholders who voted in the general
meeting; and
c) the amount to be utilized for the objects for which the prospectus was issued is less than 75%
of the amount raised (including the amount earmarked for general corporate purposes as
disclosed in the offer document).
Further, regulations 69E, 69F and 69G provide details regarding the exit offer price, manner of
providing exit to dissenting shareholders and also provide that the offer must not exceed maximum
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Page 4 of 5
permissible non-public shareholding. See Chapter VI-A of the SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 200980 (introduced by amendment dt. 17 February 2016).
Matters relating to violation of the terms of a contract mentioned in prospectus or statement can be
agitated by a regular suit before ordinary civil court.81
[s 27.8] Criminal Liability
Where a Company did not convert debentures into equity shares as stated in the prospectus, the said
act was illegal and contrary to the provisions of the 1956 Act and entailed criminal liabilities under
various sections of the 1956 Act and the Indian Penal Code.82
The SEBI (Issue of Capital and Disclosure) Regulations, 2009, provides for disclosures that are
required to be made in the offer document in relation to the objects of the offer. In this regard, Pt A of
Schedule VIII, paragraph (VII), provides disclosures regarding fund requirement, schedule of
implementation, sources of finance, fund deployment and implementation, etc.
Section 61 of the 1956 Act prohibited variation of the terms of contract or objects in a prospectus
without prior approval of shareholders. However, the provision did not provide a procedure with
respect to shareholder approval and did not lay down the rights of dissenting shareholders. Sections
27 and 13(8) of the 2013 Act lay down the procedure with respect to shareholder’s approval as well
as lay down the rights of dissenting shareholders. Further, while the 1956 Act allowed such variations
to be made by passing of an ordinary resolution, the 2013 Act specifically requires the shareholders
to pass a special resolution.
[s 61] Terms of contract mentioned in prospectus or statement in lieu of prospectus, not to be varied.—A
company shall not, at any time, vary the terms of a contract referred to in the prospectus or statement in lieu of
prospectus, except subject to the approval of, or except on authority given by, the company in general meeting.
NOTES
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See section 96 of the Company Law Committee’s redraft and section 42 of the English Act. It may be noted that the
Company Law Committee’s redraft makes the provisions applicable to all companies whether or not they have a share
capital and the exemption contained in section 42(2) of the English Act in regard to private companies has also been
omitted. Clause 54 in both respects follows the Company Law Committee’s redraft. [Clause 54 of the Companies Bill,
1953 (46 of 1953)].
[s 27.11] Shifting of Office after Issue of Prospectus
Shifting of the Registered Office from a place mentioned in the prospectus to another place before
allotment of shares may not be proper. Where a resolution was passed for shifting of registered office
from the NCT of Delhi to the State of Maharashtra and petition for confirmation of the Company Law
Board filed under section 17 of the 1956 Act, the alteration was confirmed as majority of the new
shareholders were from Maharashtra and the resolution was a mere formality. The Company Law
Board directed the company to seek consent of new the shareholders, since the variation of
registered office of the company after issue of prospectus and before allotment was in violation of the
spirit behind section 61 of the 1956 Act.83
[s 27.12] Consent order cannot be Varied
It has been held that a consent order passed by a court cannot be varied by the Central Government
or SEBI after the said order has been made public and third parties have acted on it and acquired
rights thereon.84
76 Notified by Notification S.O. 902(E) dt. 26 March 2014, w.e.f. 01 March 2014 and corresponds to section 61 of the
1956 Act.
78 Rule 7(2) and Form PAS-1 of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
79 Maxwell Dyes and Chemicals Pvt Ltd v Kothari Industrial Corp Ltd, (1996) 85 COMP CAS 111 (Mad.) (DB). See
detailed Notes under section 73.
80 For full text of the Regulations, See Appendix 104.
81 Poonamchand Kothari v Rajasthan Tube Mfg. Co Ltd, (1996) 87 COMP CAS 842 (Raj.).
82 Anil D. Ambani v Santosh Tyagi, (2000) 99 COMP CAS 334 (Raj.).
83 In Re, Pal-Peugeot Ltd, (1997) 89 COMP CAS 808 (CLB).
84 N. Parthasarathy v Controller of Capital Issues, (1991) 72 COMP CAS 651 (SC) : AIR 1991 SC 1420.
End of Document
Mr. Laghir1 Rabari

85 Notified vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014. [s 28]
Offer of Sale by Certain Members of Company.—
PUBLIC OFFER
85[s 28] Offer of Sale by Certain Members of Company.—
(1) Where certain members of a company propose, in consultation with the Board of Directors to
offer, in accordance with the provisions of any law for the time being in force, whole or part of
their holding of shares to the public, they may do so in accordance with such procedure as
may be prescribed.86
(2) Any document by which the offer of sale to the public is made shall, for all purposes, be
deemed to be a prospectus issued by the company, and all laws and rules made thereunder
as to the contents of the prospectus and as to liability in respect of mis-statements in and
omission from prospectus or otherwise relating to prospectus shall apply as if this is a
prospectus issued by the company.
(3) The members, whether individuals or bodies corporate or both, whose shares are proposed
to be offered to the public, shall collectively authorise the company, whose shares are offered
for sale to the public, to take all actions in respect of offer of sale for and on their behalf and
they shall reimburse the company all expenses incurred by it on this matter.
NOTES
Section 28 of the 2013 Act is a new provision and does not correspond to any provision of the 1956
Act.
THE COMPANIES ACT,2013 (18 OF 2013).—The Notes on Clauses appended to the Companies Bill, 2011,
explained as follows:
Clause 28.—This is a new clause and seeks to provide for that member or members of a company, in consultation with
Board of Directors, may offer a part of their holding of shares to the public. The document by which the offer of sale to
the public is made shall be treated as prospectus issued by company.
[s 28.2] Scope
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85 Notified vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014. [s 28] Offer of Sale by Certain Members of
Company.—
Section 28 is a new section that has been introduced in the 2013 Act. This provision enables
members who hold shares in a company to offer the same for sale to the public in accordance with
the procedure provided under this section as well as the Companies (Prospectus and Allotment of
Securities) Rules, 2014. An offer for sale is covered under the definition of an “initial public offer” as
well as a “further public offer” as defined under the SEBI (Issue of Capital and Disclosure)
Regulations, 2009.87
The document under which such an offer for sale is made is deemed to be a prospectus issued by
the company and therefore all the provisions of the 2013 Act as well as applicable rules relating to
the content and liability with respect to issuance of a prospectus apply to such a document. In this
regard, Rule 8 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, states that all
the provisions and rules in relation to Part I of Chapter III of the 2013 Act will apply to an offer for
sale. However, the rules exclude the applicability of the following requirements to an offer for sale:
a. Provisions relating to minimum subscription: As provided under the SEBI (Issue of Capital
and Disclosure) Regulations, 2009, in case of a fresh issue, if the company does not receive
a minimum subscription of 90% of the offer, within 60 days from the bid/offer closing date, the
company is obligated to refund the entire subscription amount received in the proportion of
the shares offered for sale. However, this requirement does not apply to an offer for sale;
b. Provisions relating to minimum application value;
c. Provisions requiring any statement to be made by the board of directors in respect of the
utilization of money; and
d. Any other provisions or information which cannot be complied or gathered by the offer or, with
reasons for the same. For instance, an offer for sale does not require the company to appoint
a monitoring agency for monitoring the utilization of funds nor does the company need to
state the “objects” of the issue.
[s 28.3] Offer of Shares to the Public by Certain Members of a Company [Section 28(1)]
Certain shareholders, if they wish to offer to the public, whole or part of their shares, may do so in
consultation with the board of directors in accordance with the provisions of any law for the time
being in force and any procedure as may be prescribed. The provisions of the Companies
(Prospectus and Allotment of Securities) Rules, 2014, shall also apply.
[s 28.4] Deemed to be a Prospectus
Sub-section (2) of section 28 states that any document by which the offer of sale to the public is
made is deemed to be a prospectus issued by the company. Consequently, all laws and rules made
thereunder as to the contents of the prospectus and as to liability in respect of mis-statements and
omissions or otherwise relating to a prospectus will apply as if this document is a prospectus issued
by the company. The rules as detailed in the Companies (Prospectus and Allotment of Securities)
Rules, 2014, will apply.
[s 28.5] Reimbursement of Expenses
Sub-section (3) of section 28 provides that the members whose shares are proposed to be offered to
the public shall authorise the company whose shares are being offered to take all actions in respect
of the offer of sale. The members shall also reimburse the company all expenses incurred by it in this
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Page 3 of 4
Company.—
regard. The Members can either be individuals or body corporate.
[s 28.6] Offer for Sale of Listed Companies
Promoters88 of listed companies can sell their shares in the company in the secondary market
through the “Stock Exchange Mechanism” approved by SEBI in its meeting dt. 3 January 2012.89 The
main features of this mechanism are as follows:
• Promoter and non-promoter shareholders can offer shares;

• Available to top 200 companies (based on average market capitalisation), by SEBI Circular
No. CIR/MRD/DP/24/2014 dt. 08-08-2014, the number of companies eligible to sell shares
using the offer for sale mechanism through the stock exchanges was increased from the top
100 to 200 companies by market capitalisation in any of the last four completed quarters;
• Minimum 10% offer size reserved for retail investors and if sellers deems, he can offer
discount or an option to place a bid at cut off price along with placing price bids;
• Minimum 25% reserved for mutual funds and insurance companies, no other bidder can bid
for an offer size larger than 25%.
The margin requirements in relation to the offer for sale mechanism through stock exchange are as
follows:
• Clearing house is required to collect 100% of the order value in cash from non-institutional
investors at the order level for every buy order/bid;
• Institutional investors have an option to pay either 25% or 100% of the order value in cash at
the order level for every buy order/bid;
• Modification/ Cancellation of orders/ bids will be allowed only for bids for which 100% upfront
margin has been received.
85 Notified vide S.O. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014.
87 SEBI (Issue of Capital and Disclosure) Regulations, 2009, under regulation 2(1)(p) defines “initial public offer” to mean
“an offer of specified securities by an unlisted issuer to the public for subscription and includes an offer for sale of
specified securities to the public by any existing holders of such securities in an unlisted issuer,” and regulation 2(1)(n)
defines “further public offer” to mean “an offer of specified securities by a listed issuer to the public for subscription and
includes an offer for sale of specified securities to the public by any existing holders of such securities in a listed
issuer.”.
88 The term “promoter” for the purpose of this mechanism has been defined under the SEBI (Issue of Capital and
Disclosure) Regulations, 2009, under regulation 2(za). A “promoter” includes:
(i) the person or persons who are in control of the issuer;
(ii) the person or persons who are instrumental in the formulation of a plan or programme pursuant to which specified securities
are offered to public;
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Company.—
(iii) the person or persons named in the offer document as promoters:
• Provided that a director or officer of the issuer or a person, if acting as such merely in his professional capacity,
shall not be deemed as a promoter:
• Provided further that a financial institution, scheduled bank, foreign portfolio investor other than Category III
foreign portfolio investor and mutual fund shall not be deemed to be a promoter merely by virtue of the fact that
10% or more of the equity share capital of the issuer is held by such person;
• Provided further that such financial institution, scheduled bank and foreign portfolio investor other than Category III
foreign portfolio investor shall be treated as promoter for the subsidiaries or companies promoted by them or for
the mutual fund sponsored by them;
89 SEBI Circular No. CIR/MRD/DP/18/2012 dt. 18 July 2012.
End of Document
Mr. Laghir1 Rabari

90 Enforced by Notification No. S.O. 2754(E), dt. 12 September 2013, w.e.f.
12 September 2013 and corresponds to section 68B of the 1956 Act. See the
Depositories Act, 1996 (22 of 1996). [s 29] Public offer of securities to be in
dematerialised form.—
PUBLIC OFFER
90[s 29] Public offer of securities to be in dematerialised form.—
(1) Notwithstanding anything contained in any other provisions of this Act,—

(a) every company making public offer; and
(b) such other class or classes of public companies as may be prescribed, shall issue the
securities only in dematerialised form by complying with the provisions of the Depositories
Act, 1996 (22 of 1996) and the regulations made thereunder.
(2) Any company, other than a company mentioned in sub-section (1), may convert its securities
into dematerialised form or issue its securities in physical form in accordance with the
provisions of this Act or in dematerialised form in accordance with the provisions of the
Depositories Act, 1996 (22 of 1996) and the regulations made thereunder.
NOTES
Section 29 of the 2013 Act corresponds to section 68B of the 1956 Act.
THE COMPANIES ACT,2013 (18 OF 2013).—The Notes on clauses appended to the Companies Bill, 2011,
Clause29.—This clause corresponds to section 68B of the Companies Act, 1956 and seeks to provide that public
company making public offer and such other class or classes of companies as may be prescribed, shall issue the
securities only through dematerialised form. Other companies may issue securities in physical form or in
dematerialised form.
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90 Enforced by Notification No. S.O. 2754(E), dt. 12 September 2013, w.e.f. 12 September 2013 and
corresponds to section 68B of the 1956 Act. See the Depositor....
[s 29.2] Issue of Shares Only in Dematerialised Form
Every company making a public offer shall issue securities only in dematerialised form. This also
applies to any other class or classes of public companies as may be prescribed. As per rule 9 of the
Companies (Prospectus and Allotment of Securities) Rules, 2014, every public company making a
public offer of any convertible securities may hold securities in dematerialised form, provided the
entire holding of convertible securities of the company held by the promoters in physical form up to
the date of the draft red herring prospectus should be converted into dematerialised form before such
offer is made and the promoters shareholding should be held in dematerialised form. The securities
shall be issued in dematerialised form by complying with the provisions of the Depositories Act, 1996,
and the regulations made thereunder. This section has an overriding effect over anything else
contained in the 2013 Act.
[s 29.3] Any other Company may Convert Its Securities into Dematerialised Form
Any company, other than a company mentioned in sub-section (1) of section 29 of the 2013 Act may
convert its securities into dematerialised form or issue its securities in physical form in accordance
with the provisions of the 2013 Act or in dematerialised form in accordance with the provisions of the
Depositories Act, 1996, and the regulations made thereunder.
[s 29.4] The Depositories Act, 1996
The statement of objects and reasons appended to the Depositories Bill, 1996 (29 of 1996),91
explained the object of the Depositories Act, 1996 (22 of 1996),92 as follows:
Paper based ownership and transfer of securities has been a major drawback of the Indian securities market as this
often results in delay in settlement and transfer of securities, leads to ‘bad delivery’, theft, forgery, etc., causing
hardship to the investor. In order to enable safe and speedy transfer of securities, it has become essential to enact a
law which provides a legal framework for establishment of depositories.
The depositories legislation, inter alia, provides for:
a) a legal framework for establishment of depositories for maintenance of ownership records of

securities and effect changes in ownership records through book entry;
b) dematerialisation of securities in the depositories mode. It provides the option to the investor
to hold securities in physical form as at present or in a dematerialised form in depository;
c) enabling free transferability of securities; and
d) exempting all transfers of shares within a depository from stamp duty.
[s 29.5] Dematerialisation
Dematerialised securities are fungible. “Fungible” means that all the holdings of a particular security
are identical. They are interchangeable. They do not have any distinctive number or certificate
number or folio number. The Investor can choose not to opt for the depository system. The investor
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can withdraw securities from the depository by requesting to issue a physical certificate. This is called
rematerialisation of electronic holdings. The right in respect of securities held in the depository is with
the Investor and not with the depository. The depository acts as the registered owner only. An
investory in transacting through a depository is not required to pay stamp duty on the transfer of
shares or the units of mutual funds within the depository. The depository deals with investors through
the market intermediaries called depository participants (DPs). The depository holds beneficial
owner-level information through its network of DPs. The Depository has to provide information to the
issuer company or its Registrar and Transfer Agents at regular intervals, which facilitates proper
distribution of benefits arising out of investors’ holdings. The benefits are dividend, interest, bonus
and rights on a given record date by the issuer company or its Registrar and Transfer Agent. Equity
Shares, Debentures, Warrants, Bonds, Units of Mutual Funds are part of list of eligible securities for
dematerialisation.
The relationship between the issuer company, National Securities Depository Ltd (NSDL) and Central
Depository Services Ltd (CDSL) is governed by the Depositories Act, 1996, the Securities Exchange
Board of India (Depositories and Participants) Regulations, 1996, bye-laws of NSDL and CDSL as
approved by the SEBI and business rules of NSDL and CDSL.
[s 29.6] Transfer and Transmission of Securities
In case of transfer of securities between persons whose names are entered as holders of beneficial
interest in the records of a depository where no proper instrument of transfer is prescribed,
applicability of the requirements of section 56 of the 2013 Act is exempted. Section 56 of the 2013
Act deals with transfer and transmission of securities. It requires execution of a proper instrument for
effecting a transfer of transmission of securities, except in cases where the securities are held in
dematerialised form. In case of securities held in dematerialised form, details of allotment of
securities should be intimated to the respective depository immediately after the allotment of such
securities.
See also notes under section 56 of the 2013 Act.
[s 29.7] Powers of the SEBI
As per section 24 of the 2013 Act, the provisions in Chapter III, Chapter IV and in section 127 of the
2013 Act, in so far as they relate to the issue and transfer of securities, among other things, by listed
companies or companies which intend to list their securities on a recognised stock exchange in India,
they will be governed by the SEBI. In the exercise of this power, the SEBI (Issue of Capital and
Disclosure Requirements Regulations), 2009 was issued of which Schedule VIII(XII)(B)(2)(a)
provides that a company shall make a public issue or a rights issue or an offer for sale of securities in
dematerialised form.
[s 29.8] Review of Dematerialisation Charges
The SEBI exercising powers conferred by section 11(1) of the SEBI Act, 1992, issued Circular No.
MRD/DoP/SE/Dep/Cir-4/2005 dt. 08-01-2005 rationalising the tariff structure with regard to account
opening charges, custody charges and transaction charges towards the credit of securities. This
circular made entry into the dematerialised environment free except from applicable statutory
charges. The SEBI issued Circular No. MRD/DoP/Dep/Cir-22/05 dt. 09-11-2005. According to this
circular, from January 2006, no charges were decided to be levied by a depository on DPs and
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consequently, by a DP on a Beneficiary Owner (BO) when a BO would transfer all the securities lying
in his/her account to another branch of the same DP or to another DP of the same depository or
another depository. This is subject to the BO Account(s) at transferee DP and at transferor DP being
one and the same, i.e., identical in all respects. In case the BO Account at transferor DP was a joint
account, the BO Account at transferee DP would also be a joint account in the same sequence of
ownership.
[s 29.9] Supervision of Branches of DPs
regulation 46 of the SEBI (Depositories and Participants) Regulations, 1996, requires every DP to
have adequate mechanism for the purpose of reviewing, monitoring and evaluating its internal
accounting controls and systems. Further, clause 19 of the Code of Conduct for Participants
contained in the Third Schedule to the SEBI (Depositories and Participants) Regulations, 1996, inter
alia states that the DP has to ensure that it has satisfactory internal control procedure in place.
Further, this regulation mandated internal control systems to ensure that all branches are exercising
due diligence in opening accounts, complying with know your customer requirements, in ensuring the
safety of the systems in complying with client instructions, manner of uploading client instructions, in
verifying signatures and among other things, in maintaining client records.
[s 29.10] Stamp Act
A reading of section 8A of the Indian Stamp Act, 1899, inserted by the Depositories Act, 1996, and
amended by the Depositories Related Laws (Amendment) Act, 1997, provides that dematerialised
securities being transferred are not liable to be stamped. In case of allotment securities in
dematerialised form, the stamp duty is paid on the letter of allotment.
[s 29.11] Benami Transactions
Another legislation that has been amended to carve out an exception for securities issued in
dematerialised form is the Benami Transactions (Prohibition) Act, 1988, which makes it inapplicable
to depositories.
93[s68B] Initial offer of securities to be in dematerialised form in certain cases.—Notwithstanding anything

contained in any other provisions of this Act, every listed public company, making initial public offer of any security for a
sum of Rs 10 crores or more, shall issue the same only in dematerialised form by complying with the requisite
provisions of the Depositories Act, 1996 (22 of 1996) and the regulations made thereunder.]
NOTES
Sections 68B of the 1956 Act corresponds to section 29 of the Companies Act, 2013, which was
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notified w.e.f. 12 September 2013.
OF 2000).—This section inserted by the Companies (Amendment)

Act, 2000 (53 of 2000), w.e.f. 13 December 2000, did not find place in the Companies (Second
Amendment) Bill, 1999 (139 of 1999), as originally introduced.
[s 29.13] Issue of Shares in Dematerialised Form
Except for the threshold requirement, as explained in the para below, the provisions of this section
have been covered under section 29 of the 2013 Act, as explained in the commentary above.
Section 68B of the 1956 Act stated that any company making an initial public offer of any security for
a sum of Rs 10 crore or more shall issue the same only in dematerialised form. There is no such
threshold under section 29 of the 2013 Act, and the requirement to issue shares to the public in
dematerialised form is applicable to every public company. Further, the 2013 Act requires additional
class of companies to issue shares in dematerialised form.
90 Enforced by Notification No. S.O. 2754(E), dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to
section 68B of the 1956 Act. See the Depositories Act, 1996 (22 of 1996).
91 Gazette of India, Extraordinary, Pt II, section 2; (1996) 87 COMP CAS (St.) 51; see the Depositories Act, 1996 (22 of
1996).
92 See Depositories Act, 1996 (22 of 1996) in Appendix 91.
93 Inserted by the Companies (Amendment) Act, 2000 (53 of 2000), section 26 (w.e.f. 13 December 2000). This
End of Document
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94 Notified by Notification No. S.O. 2754(E), dt. 12-09-13 w.e.f. 12
September 2013 and corresponds to section 66 of the 1956 Act. [s 30]
Advertisement of prospectus.—
PUBLIC OFFER
94[s 30] Advertisement of prospectus.—
Where an advertisement of any prospectus of a company is published in any manner, it shall be

necessary to specify therein the contents of its memorandum as regards the objects, the liability of
members and the amount of share capital of the company, and the names of the signatories to the
memorandum and the number of shares subscribed for by them, and its capital structure.
NOTES
Clause 30.—This clause corresponds to section 66 of the Companies Act, 1956 and seeks to provide that where an
advertisement of any prospectus of a company is published, it shall specify therein the contents of memorandum as
regards to the objects, the liability of members and the amount of share capital, the names of the signatories and the
number of shares subscribed by them and also its capital structure, etc.
[s 30.2] Scope of the Section
This section lays down that for any publication of an advertisement related to the prospectus, such
advertisement should contain the contents of its memorandum as regards the objects, the liability of
members, the amount of share capital of the company, the names of the signatories to the
memorandum and the number of shares subscribed for by them, and its capital structure.
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94 Notified by Notification No. S.O. 2754(E), dt. 12-09-13 w.e.f. 12 September 2013 and corresponds to
section 66 of the 1956 Act. [s 30] Advertisement of pros....
The obligation imposed under this provision pertains to the publication of a “prospectus,” and this
term has been defined under section 2(70) of the 2013 Act to include a red herring prospectus and a
shelf prospectus or any notice, circular, advertisement or other document inviting offers from the
public for the subscription or purchase of any securities of a body corporate. Therefore, the obligation
to advertise does not arise in the case of a draft red herring prospectus.
It is pertinent to note that the disclosures that are required to be made as per this provision are
significant. Disclosure of such information in the advertisement enables ready and concise access to
such information. For instance, the objects of the issue contain important information regarding how
the company intends to use the money that it raises through the public offer.
[s 30.3] Advertisement
The SEBI (Issue of Capital and Disclosure) Regulations, 2009, define an “advertisement” under
regulation 2(1)(b) to include:
notices, brochures, pamphlets, show cards, catalogues, hoardings, placards, posters, insertions in newspaper, cover
pages of offer documents, pictures and films in any print media or electronic media, radio, television programme.
Moreover, as per regulation 60 of the SEBI (Issue of Capital and Disclosure) Regulations, 2009,
contents of the advertisement can relate only to facts that match the information contained in the
prospectus and cannot include projections, estimations or futuristic statements. It has been
specifically provided in sub-regulation (8) of regulation 60 that no advertisement should state or
provide an impression that the offer is fully subscribed or oversubscribed during the period the issue
is open for subscription.
Moreover, regulation 60 (7) provides that any advertisement issued must comply with the following:
(a) it shall be truthful, fair and shall not be manipulative or deceptive or distorted and it shall not contain any
statement, promise or forecast which is untrue or misleading;
(b) if it reproduces or purports to reproduce any information contained in an offer document, it shall reproduce
such information in full and disclose all relevant facts and not be restricted to select extracts relating to that
information;
(c) it shall be set forth in a clear, concise and understandable language;
(d) it shall not include any issue slogans or brand names for the issue except the normal commercial name of the
issuer or commercial brand names of its products already in use;
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(e) if it presents any financial data, data for the past three years shall also be included alongwith particulars
relating to sales, gross profit, net profit, share capital, reserves, earnings per share, dividends and the book
values;
(f) no advertisement shall use extensive technical, legal terminology or complex language and excessive details
which may distract the investor;
(g) no issue advertisement shall contain statements which promise or guarantee rapid increase in profits;
(h) no issue advertisement shall display models, celebrities, fictional characters, landmarks or caricatures or the
likes;
(i) no issue advertisement shall appear in the form of crawlers (the advertisements which run simultaneously with
the programme in a narrow strip at the bottom of the television screen) on television; in
(j) any issue advertisement on television screen, the risk factors shall not be scrolled on the television screen and
the advertisement shall advise the viewers to refer to the red herring prospectus or other offer document for
details;
(k) no issue advertisement shall contain slogans, expletives or non-factual and unsubstantiated titles;
(l) if an advertisement or research report contains highlights, it shall also contain risk factors with equal
importance in all respects including print size of not less than point seven size;
(m) an issue advertisement displayed on a billboard shall not contain information other than that specified in Parts
A, B and C of Schedule XIII, as applicable; and
(n) an issue advertisement which contains highlights or information other than the details contained in the format
as specified in Pts A and B of Schedule XIII shall contain risk factors.
[s 30.4] Pre-issue Advertisement for Public Issue
Upon registering the red herring prospectus (in case of a book built issue) or a prospectus (in case of
a fixed issue), regulation 47 of the SEBI (Issue of Capital and Disclosure) Regulations, 2009, requires
the issuer to make a pre-issue advertisement in one English national daily newspaper, one Hindi
national daily newspaper and one regional language newspaper, with wide circulation, at the place
where the registered office of the issuer is situated.
[s 30.5] Misleading Advertisements
As per regulation 60(13), Explanation II of the SEBI (Issue of Capital and Disclosure) Regulations,
2009, an advertisement is mis-leading if it contains:
(a) Statements made about the performance or activities of the issuer without necessary
explanatory or qualifying statements, which may give an exaggerated picture of such
performance or activities.
(b) An inaccurate portrayal of past performance or its portrayal in a manner which implies that
past gains or income will be repeated in the future.
Moreover, misleading advertisements are actionable. An action may be grounded on the principle of
estoppel for claiming the benefits advertised. This is apart from any other liability under the 2013 Act
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or other laws.
While section 66 of the 1956 Act stated that where the prospectus is published as a newspaper
advertisement, it shall not be necessary to specify the contents of its memorandum; section 30 of the
2013 Act, on the other hand, expressly requires that the advertisement shall contain the contents of
the memorandum, the liability of members, the amount of share capital of the company, the names of
the signatories to the memorandum and the number of shares subscribed by them.
[s 66] Newspaper advertisements of prospectus.—Where any prospectus is published as a newspaper

advertisement, it shall not be necessary in the advertisement to specify the contents of the memorandum or the
signatories thereto, or the number of shares subscribed for by them.
NOTES
[s 30.7] Unfair and Restrictive Trade Practices
On complaint under the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969), the
MRTPC could grant injunction.
The MRTP Act, 1969 (54 of 1969), has since been repealed by the Competition Act, 2002 (12 of
2003). The MRTP Commission has been replaced by the CCI. The remedy for unfair trade practices
shall now lie with the Consumer Forum under the Consumer Protection Act, 1986 (68 of 1986).
94 Notified by Notification No. S.O. 2754(E), dt. 12-09-13 w.e.f. 12 September 2013 and corresponds to section 66 of the
1956 Act.
End of Document
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95 [s 31] Shelf Prospectus.—
PUBLIC OFFER
95[s 31] Shelf Prospectus.—
(1) Any class or classes of companies, as the Securities and Exchange Board may provide by
regulations in this behalf, may file a shelf prospectus with the Registrar at the stage of the first
offer of securities included therein which shall indicate a period not exceeding one year as the
period of validity of such prospectus which shall commence from the date of opening of the
first offer of securities under that prospectus, and in respect of a second or subsequent offer
of such securities issued during the period of validity of that prospectus, no further prospectus
is required.
(2) A company filing a shelf prospectus shall be required to file an information memorandum
containing all material facts relating to new charges created, changes in the financial position
of the company as have occurred between the first offer of securities or the previous offer of
securities and the succeeding offer of securities and such other changes as may be
prescribed,96 with the Registrar within the prescribed time, prior to the issue of a second or
subsequent offer of securities under the shelf prospectus:
Provided that where a company or any other person has received applications for the
allotment of securities along with advance payments of subscription before the making of
any such change, the company or other person shall intimate the changes to such
applicants and if they express a desire to withdraw their application, the company or other
person shall refund all the monies received as subscription within fifteen days thereof.
(3) Where an information memorandum is filed, every time an offer of securities is made under
sub-section (2), such memorandum together with the shelf prospectus shall be deemed to be
a prospectus.
Explanation.—For the purposes of this section, the expression “shelf prospectus” means
a prospectus in respect of which the securities or class of securities included therein are
issued for subscription in one or more issues over a certain period without the issue of a
further prospectus.
NOTES
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Clause 31.—This clause corresponds to section 60A of the Companies Act, 1956 and seeks to provide that any class
or classes of companies prescribed by the Securities and Exchange Board of India may file a shelf prospectus with the
registrar of companies at the stage of the first offer of securities for a period of one year. No further issue of prospectus
is required in respect of a second or subsequent offer of securities included in such prospectus for a period of one
year. Company shall also file information memorandum on new charges created, of any change in financial position
with the registrar of companies prior to the issue of a second or subsequent offer under shelf prospectus.
This section enables certain companies to make multiple public offers of securities through filing a
single document called a shelf prospectus within the time period of the validity of the shelf
prospectus. However, companies issuing shelf prospectus are obligated to periodically file
information memorandums containing all the material facts relating to new charges created, changes
in the financial position of the company that have occurred between the first offer of securities or the
previous offer of securities and the succeeding offer of securities. The shelf prospectus together with
the information memorandum is deemed to be the prospectus issued by the company.
However, as per Schedule VIII of the SEBI (Issue of Capital and Disclosure) Regulations, 2009, the
requirements and disclosures in relation to a shelf prospectus are the same as for a prospectus.
[s 31.3] Shelf Prospectus definition [Explanation to Section 31]
Shelf prospectus has been defined in the explanation to this provision as a prospectus in respect of
which the securities or class of securities are issued for subscription in one or more issues over a
certain period without the issue of a further prospectus.
[s 31.4] Filing a Shelf Prospectus [Section 31(1)]
This section provides that any class or classes of companies, as the Securities and Exchange Board
may provide by regulations, may file a shelf prospectus with the Registrar at the stage of the first offer
of securities. The prospectus shall indicate a period not exceeding one year as the period of validity
of such prospectus. The date of validity shall commence from the date of opening of the first offer of
securities under that prospectus.
It is to be noted that the SEBI is empowered to prescribe the class or classes of companies that are
permitted to file shelf prospectus. In order to determine this, the SEBI held a meeting on this agenda
on 24 December 2013 (PR No. 125/2013) and determined the following:
“While Companies Act, 1956 had allowed only Banks and Public Financial institutions to file Shelf Prospectus, the
Companies Act, 2013 enables SEBI, to specify the class of the companies which can be allowed to file Shelf
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Prospectus. In this regard, the SEBI has decided to allow the following class of entities to file Shelf Prospectus for
public issuance of non-convertible debt securities:
a) Public financial institutions and Scheduled Banks;
b) Issuers authorized by the notification of CBDT to make public issue tax free secured bonds;
c) Infrastructure Debt Funds – Non-Banking Financial Companies;
d) NBFCs, registered with RBI, Housing Finance Companies registered with National Housing Bank (NHB) and
entities which have listed their shares/debentures in the stock exchanges for at least three years complying
with the following criteria:
i. net worth of Rs 500 Crores,
ii. track record of three years of distributable profits,
iii. having a credit rating of not less than “AA-,”
iv. having no default history or regulatory action pending with RBI, SEBI or NHB;
It is also proposed to specify that the information memorandum/tranche prospectus filed in all the aforesaid cases
should contain the disclosures prescribed by Companies Act, 1956, Companies Act, 2013 and rules made thereunder
and shall also contain all material updations including revision in ratings. Further, it may also be specified that the
information memorandum/ tranche prospectus shall also contain a “summary term sheet”, as specified in SEBI (Issue
and Listing of Debt Securities) Regulations, 2008. To avoid fragmentation of the issues, which will affect the floating
stock and thereby liquidity, it is further stipulated that only a maximum of four issuances can be made under a Shelf
Prospectus.
Further, companies filing a shelf prospectus with the Registrar of Companies are not required to file prospectus afresh
at every stage of offer of securities, within the period of validity of such shelf prospectus i.e. one year. They are
required to file only an information memorandum, containing material updates, with respect to subsequent issues.”
Further, as per SEBI (Issue and Listing of Debt Securities) Regulations, 2008, certain companies are
permitted to file a “shelf prospectus” in relation to non-convertible debt securities, as per regulation
6A –
a. Public financial institutions as defined under clause (72) of section 2 of the Companies Act, 2013, and
scheduled banks as defined under clause (e) of section 2 of the Reserve Bank of India Act, 1934; or
b. Issuers authorized by the notification of Central Board of Direct Taxes to make public issue of tax free secured
bonds, with respect to such tax free bond issuances; or
c. Infrastructure Debt Funds – Non-Banking Financial Companies regulated by Reserve Bank of India; or
d. Non-Banking Financial Companies registered with Reserve Bank of India and Housing Finance Companies
registered with National Housing Bank complying with the following criteria:
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i. having a net worth of at-least Rs .500 crore, as per the audited balance sheet of the preceding financial
year;
ii. having consistent track record of distributable profit for the last three years;
iii. securities issued under the shelf prospectus have been assigned a rating of not less than “AA-” category
or equivalent by a credit rating agency registered with the Board;
iv. no regulatory action is pending against the company or its promoters or directors before the Board,
Reserve Bank of India or National Housing Bank;
v. the issuer has not defaulted in the repayment of deposits or interest payable thereon, redemption of
debentures or preference shares or payment of dividend to any shareholder, or repayment of any term
loan or interest payable thereon to any public financial institution or banking company, in the last three
financial years.
e. Listed entities complying with the following criteria:
i. whose public issued equity shares or debt securities are listed on recognized stock exchange for a
period of at least three years immediately preceding the issue and have been complying with the listing
agreement entered into between the issuer and the recognized stock exchanges where the said
securities of the issuer are listed;
ii. having a net worth of at-least Rs 500 crore, as per the audited balance sheet of the preceding financial
year;
iii. having consistent track record of distributable profit for the last three years;
iv. securities issued under the shelf prospectus have been assigned a rating of not less than “AA-” category
or equivalent by a credit rating agency registered with the Board;
v. no regulatory action is pending against the company or its promoters or directors before the Board,
Reserve Bank of India or National Housing Bank;
vi. the issuer has not defaulted in the repayment of deposits or interest payable thereon, redemption of
debentures or preference shares or payment of dividend to any shareholder, or repayment of any term
loan or interest payable thereon to any public financial institution or banking company, in the last three
financial years.
[s 31.5] No Filing of Fresh Prospectus at Every Stage
The advantage of a shelf prospectus is that a company filing a shelf prospectus with the Registrar of
Companies will not be required to file fresh prospectus at every stage of offer of securities. However,
this exemption is available only for the period of the validity of such shelf prospectus. The securities
can be offered in tranches for a period of one year.
[s 31.6] Information Memorandum and Refund [Section 31(2)]
An information memorandum containing all material facts relating to new charges created, changes in
the financial position of the company as have occurred between the first offer of securities or the
previous offer of securities and the succeeding offer of securities and such other changes as may be
prescribed, are to be filed with the Registrar within the prescribed time, prior to the issue of a second
or subsequent offer of securities under the shelf prospectus.
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Any change made by the company shall be intimated to those applicants who have applied for the
allotment of securities and have made the advance payments of subscription. Thereafter, if such
applicant expresses a desire to withdraw his/her application, the company or any other person who
has received the application money shall refund all the monies received as subscription within 15
days thereof. In case the application money is not refunded within the stipulated time period, the
directors of the company who are officers in default shall be jointly and severally liable to repay the
money with interest at a rate of 15% per annum.
[s 31.7] Deemed Prospectus [Section 31(3)]
Where an information memorandum is filed, every time an offer of securities is made under sub-
section (2), such memorandum together with the shelf prospectus shall be deemed to be a
prospectus.
[s 31.8] Companies (Prospectus and Allotment of Securities) Rules, 2013
Rule 10 of these rules prescribes that the information memorandum is to be filed as per Form PAS-2
within one month before the issue of the subsequent offer of securities. The payment of fees is as
prescribed in the Companies (Registration Office and Fees) Rules, 2014. Form PAS-2 requires the
company to disclose several material information, such as change in share capital, change in risk
factors, economic changes that may affect income, etc.
[s 31.9] Penalty
Section 31 does not specifically prescribe a penalty for a contravention of the provisions laid down in
this section. Consequently, the provisions of section 450 of the 2013 Act will apply in the event of a
default, and the company and every officer who is in default will be liable to be punished with a fine
that may extend to Rs 10,000, and where the contravention is a continuing one, with a further fine
97[s60A] Shelf prospectus.—(1) Any public financial institution, public sector bank or scheduled bank whose main
object is financing shall file a shelf prospectus.
(2) A company filing a shelf prospectus with the Registrar shall not be required to file prospectus afresh at every stage
of offer of securities by it within a period of validity of such shelf prospectus.
(3) A company filing a shelf prospectus shall be required to file an information memorandum on all material facts
relating to new charges created, changes in the financial position as have occurred between the first offer of securities,
previous offer of securities and the succeeding offer of securities within such time as may be prescribed by the Central
Government, prior to making of a second or subsequent offer of securities under the shelf prospectus.
(4) An information memorandum shall be issued to the public along with shelf prospectus filed at the stage of the first
offer of securities and such prospectus shall be valid for a period of one year from the date of opening of the first issue
of securities under that prospectus:
Provided that where an update of information memorandum is filed every time an offer of securities is made, such
memorandum together with the shelf prospectus shall constitute the prospectus.
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Explanation.—For the purpose of this section,—
(a) “financing” means making loans to or subscribing in the capital of, a private industrial enterprise engaged in
infrastructural financing or, such other company as the Central Government may notify in this behalf;
(b) “shelf prospectus” means a prospectus issued by any financial institution or bank for one or more issues of the
securities or class of securities specified in that prospectus.]
NOTES
Section 60A of the 1956 Act has been repealed with the notification of section 31 of the 2013 Act,
w.e.f. 12 September 2013.
THE COMPANIES (AMENDMENT) ACT, 2000 (53OF 2000).—This section was inserted by the Companies
(Amendment) Act, 2000, w.e.f. 13 December 2000. This section did not find place in the Companies
(Second Amendment) Bill, 1999 (139 of 1999), as originally introduced.
[s 31.11] Filing of Shelf Prospectus by Public Financial Institutions and Banks [1956 Act—
Section 60A(1)]
A public financial institution, public sector bank or scheduled bank whose main object is financing
shall file with the Registrar a shelf prospectus.
A Shelf Prospectus is a Prospectus for the issue of securities mentioned therein. This prospectus has
to be filed with the Registrar of Companies (ROC). However, filing of such a Shelf Prospectus with
the Registrar of Companies shall not be required at every stage of the offer of securities within the
validity period of the first Shelf Prospectus already filed. See sub-sections (2) to (4) and Explanations
below.
As explained in the commentary above, SEBI has specified a list of certain companies that can issue
a shelf prospectus.
[s 31.12] No Filing of Fresh Prospectus at Every Stage [Sub-section (2)]
This sub-section is covered under sub-section (1) of section 31 of the 2013 Act, as explained in the
commentary above.
[s 31.13] Filing of Information Memorandum [Sub-section (3)]
commentary above.
[s 31.14] Validity of Shelf Prospectus [Sub-section (4)]
The validity period of a shelf prospectus is the same under both the 1956 Act and the 2013 Act. For
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details, refer to the commentary above.
[s 31.15] Meaning of Financing [ Explanation (a)]
Financing means making loans to, or subscribing in the capital of, a private industrial enterprise
engaged in infrastructural financing or such other company as the Central Government may notify.
[s 31.16] Meaning of Shelf Prospectus [ Explanation (b)]
Shelf prospectus means a prospectus issued by any financial institution or bank for one or more
issues of the securities or class of securities specified in that prospectus. This definition is slightly
different under the 2013 Act as explained in the commentary above.
A significant difference between section 31 of the 2013 Act and section 60A of the 1956 Act is that as
per section 31 of the 2013 Act, any class or classes of companies, as SEBI may provide by a
regulation, may file a shelf prospectus with the Registrar. However, under section 60A of the 1956
Act, a self prospectus was to be filed only by public financial institutions, public sector banks or
scheduled bank whose main object is financing. Further, section 31 of the2013 Act provides for
refund of subscription amount within 15 days under circumstances described above. No provision for
refund was provided for under section 60A of the 1956 Act.
For further details, see the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.98
95
96 Rule 10 and Form PAS-2 of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
98 For full text of the Regulations, see Appendix 104.
End of Document
Mr. Laghir1 Rabari

99 Notified by Notification No. S.O. 2754(E), dt. 12 September 2013 w.e.f. 12
September 2013 and corresponds to section 60B of the 1956 Act. [s 32] Red
herring prospectus.—
PUBLIC OFFER
99[s 32] Red herring prospectus.—
(1) A company proposing to make an offer of securities may issue a red herring prospectus prior
to the issue of a prospectus.
(2) A company proposing to issue a red herring prospectus under sub-section (1) shall file it with
the Registrar at least three days prior to the opening of the subscription list and the offer.
(3) A red herring prospectus shall carry the same obligations as are applicable to a prospectus
and any variation between the red herring prospectus and a prospectus shall be highlighted
as variations in the prospectus.
(4) Upon the closing of the offer of securities under this section, the prospectus stating therein
the total capital raised, whether by way of debt or share capital, and the closing price of the
securities and any other details as are not included in the red herring prospectus shall be filed
with the Registrar and the Securities and Exchange Board.
Explanation.—For the purposes of this section, the expression “red herring prospectus”
means a prospectus which does not include complete particulars of the quantum or price
of the securities included therein.
NOTES
Section 32 of the 2013 Act corresponds to section 60B of the 1956 Act.
as follows:
Clause 32.—This clause corresponds to section 60B of the Companies Act, 1956 and seeks to provide for issue of red-
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99 Notified by Notification No. S.O. 2754(E), dt. 12 September 2013 w.e.f. 12 September 2013 and
corresponds to section 60B of the 1956 Act. [s 32] Red herring....
herring prospectus prior to issue of a prospectus. A company proposing to issue a red herring prospectus shall file it
with Registrar at least three days prior to the opening of the subscription list and the offer. Upon closing of the offer of
securities, the details of information to be filed with the Registrar and SEBI
[s 32.2] Issuance of a Red Herring Prospectus [Section 32(1)]
Section 32(1) provides that a company proposing to make a public offer may issue a red herring
prospectus prior to the issue of the prospectus.
The red herring prospectus is an important document that enables merchant bankers handling the
public offer to test the demand for the securities proposed to be offered and the price that investors
are willing to quote. The explanation to section 32 defines a “red herring prospectus” to mean a
prospectus which does not include complete particulars of the quantum or price of securities
included.
[s 32.3] Timeline for Filing [Section 32(2)]
The red herring prospectus is to be filed with the registrar at least three days before the offer is
opened for subscription.
[s 32.4] Obligations
Section 32(3) states that all the obligations that are applicable to the prospectus will be applicable to
the red herring prospectus. Moreover, any variation between the red herring prospectus and a
prospectus must be highlighted as variations in the prospectus.
[s 32.5] Details to be Provided upon Closing of the Offer [Section 32(4)]
When the offer closes and material particulars not included in the red herring prospectus such as
total capital raised, the nature of capital raised, pricing of securities etc. must be filed with the
registrar of companies and the SEBI (SEBI).
[s 32.6] Process of Public Issue of Equity and Debt Securities
The different stages before the filing of a prospectus of a company making a public issue of equity
and convertible securities are regulated by the SEBI (Issue of Capital and Disclosure Requirements)
Regulations, 2009, and the 2013 Act.1 Though it is not mandated to file a red herring prospectus as
per the 2013 Act, it is mandated to be filed as per SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2009. The first stage of offer document involves filing of the draft red
herring prospectus. Thereafter, within 12 months of filing of the draft red herring prospectus, the
company is required to file its red herring prospectus. A delay beyond 12 months will result in the
company having to re-file its draft red herring prospectus with the SEBI. After filing the red herring
prospectus with the SEBI and registrar of companies, the company is required to file its prospectus
with the SEBI and registrar of companies.
With respect to debt securities, non-convertible securities including debentures, the process is
provided for in the SEBI (Issue and Listing of Debt Securities) Regulations, 2008. A debenture is
defined under section 2(30) of the 2013 Act to include debenture stock, bonds or any other
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instrument of a company evidencing a debt, whether constituting a charge on the assets of the
company or not.
For details with respect to issuance of debt securities, see the SEBI (Issue and Listing of Debt
Securities) Regulations, 20082 and NOTES under section 71 of 2013 Act.
[s 32.7] Draft Red Herring Prospectus
Schedule VIII of the SEBI (Issue of Capital and Disclosure) Regulations, 2009, provides the
disclosure requirements that are required to be made by a company in its draft red herring
prospectus which is filed prior to the filing of a red herring prospectus. The draft red herring
prospectus contains historical information regarding the history, management, financials, business
etc. of the company. This document also contains information regarding the eligibility of the issuer
either under regulation 26(1) or 26(2) of the SEBI (Issue of Capital and Disclosure Requirements)
Regulations, 2009. Based on the eligibility of the issuer company, the allotment of securities in net
offer to public (securities offered other than to employees of the company and/or employees of its
promoter company and subsidiaries) is determined as per regulation 43 of the SEBI (Issue of Capital
and Disclosure) Regulations, 2009. The filing of the draft red herring prospectus is therefore the first
step towards an initial public offer or a further public offer. Thereafter, the offer document is revised in
terms of: (a) incorporation of observations provided by SEBI, (b) inclusion of the upper and lower
price band, (c) recording of the conversion of convertible securities, if any and to reflect any
additional changes in the disclosures mentioned in the draft red herring prospectus. The updated
draft red herring prospectus reflecting such changes is submitted with the SEBI. The draft red herring
prospectus upon revision and being approved by the SEBI is termed as red herring prospectus. The
final prices of securities are determined on completion of the bidding process and determination of
basis of allotment (published on finalisation of allotment of shares as per regulations issued by SEBI)
in case of a book building issue.3 The final prices of securities are determined at the stage of filing the
draft red herring prospectus or a filing of prospectus with the registrar of companies, in case of fixed-
price issue.4
[s 32.8] SEBI Regulations
The SEBI (Issue of Capital Disclosure Requirements) Regulations, 2009, in relation to the issuance
of a red-herring prospectus, inter alia, provide for the following matters:
(i) A company issuing a red herring prospectus must adhere to the disclosures provided for
under Pt A of Schedule VIII of the SEBI (Issue of Capital and Disclosure Requirements)
Regulations, 2009;5
(ii) A company (issuing the red herring prospectus) along with the lead merchant banker, should
ensure and carry out changes in the red herring prospectus, prospectus or shelf prospectus,
as the case may be, as per specific changes suggested and adhere to observations (if any)
on the draft red herring prospectus issued by the SEBI before registering with the registrar of
companies;6
(iii) A company issuing the red herring prospectus (in case of a book building issue) and
prospectus (in case of a fixed price issue) should file with SEBI through the lead merchant
bankers, an updated offer document highlighting all changes made in the offer document,
before registering the red herring prospectus or prospectus with the registrar of companies or
designated stock exchange as the case may be;7
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(iv) A company should ensure that all fully paid-up convertible securities should be converted
before registering the red herring prospectus with the registrar of companies (in case of a
book building issue) and prospectus with the designated stock exchange (in case of fixed-
price issue); and8
(v) A company issuing a red herring prospectus (in case of a book-building issue) and
prospectus with the designated stock exchange (in case of fixed-price issue) may mention the
price or price band respectively before registering with registrar of companies.9
[s 32.9] Availability of the Prospectus
As per Schedule XIII of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009,
full copies of the prospectus should be made available on the SEBI website, and the websites of the
company issuing the prospectus, lead merchant bankers and the stock exchanges. Schedule XIII
also specifies the format and contents in relation to advertising for public issues which includes a
requirement that the company must inform the public that a full prospectus is available on the
websites of the company issuing the prospectus, the lead merchant bankers and the stock
exchanges.
[s 32.10] Mis-representation in Red Herring Prospectus
In the case of Kimsuk Krishna Sinha v SEBI,10 it has been held that SEBI is empowered to examine
the offer document and insist on truthful disclosure even after the public issue is closed. S Murlidhar J
has observed as follows, “SEBI is enabled and empowered to examine the draft red herring
prospectus and insist on complete and truthful disclosure of all relevant facts therein. The very
purpose of having an independent regulatory authority like SEBI, and vesting it with statutory powers
of inquiry, is to enable it to take prompt action in matters relating to issue and transfer of shares.
Particularly, SEBI is expected to be the sentinel, read the fine print of prospectuses keeping the
investors’ interests in view. It has both a preventive and corrective role to perform. Therefore, it is not
possible to place a narrow interpretation on the words “issue and transfer of securities” occurring in
Section 55-A of the Companies Act. Given the object and purpose of the provision, it should be
broadly construed.”11
Section 32 of the 2013 Act requires a company proposing to make an offer of securities to issue a red
herring prospectus prior to the issue of a prospectus. However, section 60B of the 1956 Act provided
that a public company must circulate to the public an information memorandum in addition to a red
herring prospectus before making an offer of securities. Further, any variations between the
information memorandum and the red herring prospectus could be individually intimated to person
concerned; however, such a provision has been done away with under section 32 of the 2013 Act.
Section 60B of the 1956 Act also provided for withdrawal of application and cancellation of post-dated
cheques etc. in case of variation within seven days from the date of such intimation. Failure to
provide information regarding such variation would result in refund of the subscription amount with
15% interest from the date of encashment until the date of realisation. This arrangement is absent
under section 32 of the 2013 Act. As per section 70 of 1956 Act, a public company was liable to
submit a statement in lieu of prospectus to the registrar of companies for registration, in case of
allotment of securities either in case of non-issuance of prospectus or in case of issuance of
prospectus and non-allotment of securities pursuant to issuance of a prospectus. Such a statement in
lieu of prospectus was to be submitted at least three days before the first allotment of the securities.
However, as per the 2013 Act, there is no corresponding provision, hence not mandating the
requirement for the public companies.
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12[s
60B] Information memorandum.—(1) A public company making an issue of securities may circulate information
memorandum to the public prior to filing of a prospectus.
(2) A company inviting subscription by an information memorandum shall be bound to file a prospectus prior to the
opening of the subscription lists and the offer as a red herring prospectus, at least three days before the opening of the
offer.
(3) The information memorandum and red herring prospectus shall carry same obligations as are applicable in the
case of a prospectus.
(4) Any variation between the information memorandum and the red herring prospectus shall be highlighted as
variations by the issuing company.
Explanation.—For the purposes of sub-sections (2), (3) and (4), “red herring prospectus” means a prospectus which
does not have complete particulars on the price of the securities offered and the quantum of securities offered.
(5) Every variation as made and highlighted in accordance with sub-section (4) above shall be individually intimated to
the persons invited to subscribe to the issue of securities.
(6) In the event of the issuing company or the underwriters to the issue have invited or received advance subscription
by way of cash or post-dated cheques or stock-invest, the company or such underwriters or bankers to the issue shall
not encash such subscription moneys or post-dated cheques or stock-invest before the date of opening of the issue,
without having individually intimated the prospective subscribers of the variation and without having offered an
opportunity to such prospective subscribers to withdraw their application and cancel their post-dated cheques or stock-
invest or return of subscription paid.
(7) The applicant or proposed subscriber shall exercise his right to withdraw from the application on any intimation of
variation within seven days from the date of such intimation and shall indicate such withdrawal in writing to the
company and the underwriters.
(8) Any application for subscription which is acted upon by the company or underwriters or bankers to the issue without
having given enough information of any variations, or the particulars of withdrawing the offer or opportunity for
cancelling the post-dated cheques or stock-invest or stop payments for such payments shall be void and the applicants
shall be entitled to receive a refund or return of its post-dated cheques or stock-invest or subscription moneys or
cancellation of its application, as if the said application had never been made and the applicants are entitled to receive
back their original application and interest at the rate of 15%. from the date of encashment till payment of realisation.
(9) Upon the closing of the offer of securities, a final prospectus stating therein the total capital raised, whether by way
of debt or share capital and the closing price of the securities and any other details as were not complete in the red
herring prospectus shall be filed in a case of a listed public company with the SEBI and Registrar, and in any other
case with the Registrar only.]
NOTES
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Section 60B of the 1956 Act has been repealed with the notification of section 32 of the 2013 Act,
w.e.f. 12 September 2013.
THE COMPANIES (AMENDMENT) ACT, 2000 (53OF 2000).—This section was inserted by the Companies
(Amendment) Act, 2000 w.e.f. 13 December 2000. This section did not find place in the Companies
(Second Amendment) Bill, 1999 (139 of 1999) as originally introduced.
[s 32.13] Information Memorandum by Public Company [Section 60B(1)]
A public company making an issue of securities may circulate an information memorandum to the
public prior to filing of a prospectus.
[s 32.14] Filing of Red Herring Prospectus [Sub-section (2)]
A company inviting subscription by an information memorandum shall be bound to file a prospectus

prior to the opening of the subscription lists and the offer as a red herring prospectus, at least three
days before the opening of the offer.
[s 32.15] Obligations of Prospectus Applicable [Sub-section (3)]
The information memorandum and red herring prospectus shall carry same obligations as are
applicable in the case of a prospectus.
99 Notified by Notification No. S.O. 2754(E), dt. 12 September 2013 w.e.f. 12 September 2013 and corresponds to
section 60B of the 1956 Act.
1 See regulation 11(1)(a) the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, and section 26(8)
of the 2013 Act.
3 Book building is a process undertaken by which a demand for the securities proposed to be issued by a body
corporate is elicited and built up and the price for such securities is assessed for the determination of the quantum of
such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer
document.
4 Fixed-price issue is the process of public issue where the price of the securities or the price band is either disclosed
in a draft red herring prospectus or while registering the prospectus with the registrar of companies.
5 Regulation 57(2)(a) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.
6 Regulation 6(3) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.
8 Regulation 26(5)(c) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.
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10 Kimsuk Krishna Sinha v SEBI, (2010) 155 Com Cas 295.

11 Kimsuk Krishna Sinha v Securities & Exchange Board of India, (2010) 155 Com Cas 295.
End of Document
Mr. Laghir1 Rabari

13 Sub-sections (1) and (2) were notified by Notification No. S.O. 2754(E),
dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to
section 56(3) of the 1956 Act. [s 33] Issue of application forms for
securities.—
PUBLIC OFFER
13[s 33] Issue of application forms for securities.—
(1) No form of application for the purchase of any of the securities of a company shall be issued
unless such form is accompanied by an abridged prospectus:
Provided that nothing in this sub-section shall apply if it is shown that the form of
application was issued—
(a) in connection with a bona fide invitation to a person to enter into an underwriting
agreement with respect to such securities; or
(b) in relation to securities which were not offered to the public.
(2) A copy of the prospectus shall, on a request being made by any person before the closing of
the subscription list and the offer, be furnished to him.]
14[(3) If a company makes any default in complying with the provisions of this section, it shall be
liable to a penalty of fifty thousand rupees for each default.]
NOTES
Clause 33.—This clause corresponds to sub-section (3) of section 56 of the Companies Act, 1956 and seeks to
provide that every form of application issued for purchase of any securities of a company shall be accompanied by an
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13 Sub-sections (1) and (2) were notified by Notification No. S.O. 2754(E), dt. 12 September 2013, w.e.f. 12
September 2013 and corresponds to section 56(3) of....
abridged prospectus. If a company makes any default the company shall be punishable with fine.
Section 33(1) mandates that an application for the purchase of any security of a company shall be
accompanied by an abridged prospectus and shall not be issued otherwise, unless the proviso to this
section is attracted.
[s 33.3] Abridged Prospectus Defined [Section 2(1)]
An “abridged prospectus” is defined as a memorandum containing such salient features of a

prospectus as may be specified by the Securities and Exchange Board (“SEBI”) by making
regulations in this behalf.
SEBI Circular No. CIR/CFD/DIL/7/2015, dt. 30-10-2015, the SEBI (SEBI) has prescribed disclosure
requirements in abridged prospectus in accordance with regulation 58(1) and Part D of Schedule VIII
of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, and the 2013 Act.
Previously, the abridged prospectus was very voluminous thereby defeating the purpose of a concise
document that was investor reader friendly. Therefore, through this circular, SEBI has prescribed
disclosure requirements that improves readability and contain relevant information for investors to
make informed decisions.
The abridged prospectus contains certain key details of the prospectus including name of the issuer
company, details of the promoters of the issuer company, issue details, eligibility of the issuer to
conduct the issue, indicative timeline of the issue, details of price information of the past issues
handles by the merchant bankers, business overview and strategies of the issuer company, details of
board of directors of the issuer company, objects of the issue, particulars of the pre-issue and post-
issue shareholding of the promoters and promoter group of the issuer company, brief of the financial
information of the issuer company, summary of top five to 10 risk factors involving the issuer
company, total number of outstanding litigation of the issuer company and details of top five litigation
against the issuer company including brief details of criminal litigation against the promoters of the
issuer company.
[s 33.4] Exceptions to Abridged Prospectus [Section 33(1), Proviso]
There will be no need for an abridged prospectus if it is shown that the form of application was
issued:
• In connection with a bona fide invitation to a person to enter into an underwriting agreement
with respect to such securities; or
• In relation to securities which were not offered to the public.
[s 33.5] Copy of the Abridged Prospectus to be given on Request [Section 33(2)]
A copy of the prospectus shall, on a request being made by any person before the closing of the
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subscription list and the offer, be furnished to him.
If a company makes any default in complying with the provisions of this section, it shall be liable to a
penalty of Rs 50,000 for each default.
[s 33.7] Compounding the Offence
Given that the penalty prescribed for this offence is a fine, the offence may be compounded under
See detailed notes under section 441 of the 2013 Act (corresponding to section 621A of the 1956
Act).
[s 56] Matters to be stated and reports to be set out in prospectus.—(1) Every prospectus issued— The
(a) by or on behalf of a company, or
(b) by or on behalf of any person who is or has been engaged or interested in the formation of a company, shall
state the matters specified in Part I of Schedule II and set out the reports specified in Part II of that Schedule;
and the said Parts I and II shall have effect subject to the provisions contained in Part III of that Schedule.
(2) A condition requiring or binding an applicant for shares in or debentures of a company to waive compliance with
any of the requirements of this section, or purporting to affect him with notice of any contract, document or matter not
specifically referred to in the prospectus, shall be void.
(3) No one shall issue any form of application for shares in or debentures of a company, unless the form is
accompanied 15[by a memorandum containing such salient features of a prospectus as may be prescribed] which
complies with the requirements of this section:
16[Provided that a copy of the prospectus shall, on a request being made by any person before the closing of the
subscription list, be furnished to him:
Provided further that] this sub-section shall not apply if it is shown that the form of application was issued either—
(a) in connection with a bona fide invitation to a person to enter into an underwriting agreement with respect to the
shares or debentures; or
(b) in relation to shares or debentures which were not offered to the public.
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If any person acts in contravention of the provisions of this sub-section, he shall be punishable with fine which may
extend to 17[fifty thousand rupees].
(4) A director or other person responsible for the prospectus shall not incur any liability by reason of any non-
compliance with, or contravention of, any of the requirements of this section, if—
(a) as regards any matter not disclosed, he proves that he had no knowledge thereof; or
(b) he proves that the non-compliance or contravention arose from an honest mistake of fact on his part; or
(c) the non-compliance or contravention was in respect of matters which, in the opinion of the Court dealing with
the case, 18[were immaterial], or was otherwise such as ought, in the opinion of that Court, having regard to
all the circumstances of the case, reasonably to be excused:
Provided that no director or other person shall incur any liability in respect of the failure to include in a prospectus a
statement with respect to the matters specified in clause 18 of Schedule II, unless it is proved that he had knowledge of
the matters not disclosed.
(5) This section shall not apply—
(a) to the issue to existing members or debenture-holders of a company of a prospectus or form of application
relating to shares in or debentures of the company, whether an applicant for shares or debentures will or will
not have the right to renounce in favour of other persons; or
(b) to the issue of a prospectus or form of application relating to shares or debentures which are, or are to be, in
all respects uniform with shares or debentures previously issued and for the time being dealt in or quoted on
a recognised stock exchange;
• but, subject as aforesaid, this section shall apply to a prospectus or a form of application, whether issued on or
with reference to the formation of a company or subsequently.
(6) Nothing in this section shall limit or diminish any liability which any person may incur under the general law or
under this Act apart from this section.
NOTES
Section 56(3) of the 1956 Act has been repealed with the notification of section 33 of the 2013 Act,
w.e.f. 1 April 2014.
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See section 93 of the Company Law Committee’s redraft and section 38 of the English Act. Section 39 of the English
Act having been omitted by the Committee, the words ‘Subject to the provisions of the next following section’ have had
to be omitted from sub-clause (1) of clause 51. It is considered desirable to retain the provision contained in sub-
section (5)(b) of section 38 of the English Act. Where the new shares or debentures are to be uniform in all respects
with previous issues and they are also dealt in on a recognised stock exchange, there seems to be no reason for
applying the provisions of the clause. [Clause 51 of the Companies Bill, 1953 (46 of 1953)].
This clause empowers a company to furnish along with the application for shares/debentures an abridged form of
prospectus, instead of the full prospectus, which is to be furnished on demand with a view to reducing the cost of public
issue of capital. [Clause 8 of the Companies (Amendment) Bill, 1987 (32 of 1987)].
THE COMPANIES (AMENDMENT) ACT, 2000 (53 OF 2000).—The Notes on Clauses explained as follows:
The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009,19 provides that an
abridged prospectus must contain the disclosures as specified in Pt D of Schedule VIII which include
disclosures regarding history of the company, promoters, management, business, financial
information, risk factors, basis of issue price other statutory disclosures, detailing of bidding centres
etc. Additionally, the abridged letter of offer should also contain the disclosures as specified in Pt F of
Schedule VIII, which include disclosures such as:
(a) Provisions pertaining to applications referred to in sub-regulations (2), (3) and (4) of
regulation 54;
(b) Rights entitlement ratio;
(c) Fractional entitlements;
(d) Renunciation;
(e) Application for additional equity shares;
(f) Intention of promoters to subscribe to their rights entitlement;
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(g) Statement that a copy of the offer document of the immediately preceding public or rights
issue is made available to the public as specified under sub-regulation (1) of regulation 61
and also as a document for public inspection.
[s 33.9] Abridged Prospectus to Accompany Application Form [Section 56(3)]
This sub-section, being substantially the same as section 33(1) and (2) of the 2013 Act, has been
[s 33.10] Abridged Prospectus [Section 2(1)]
The definition and disclosure requirements in relation to an abridged prospectus have been explained
[s 33.11] Abridged Form of Prospectus
As per Rule 4CC of the Companies (Central Government’s) General Rules and Forms, 1956, the
memorandum containing salient features of prospectus for the purposes of sub-section (3) of section
56 of the 1956 Act shall be in Form No. 2Aof the Companies (Central Government’s) General Rules
and Forms, 1956. SEBI Circular No. CIR/CFD/DIL/7/2015, dt. 30-10-2015, explained in the
commentary above, provides for details regarding the contents of the abridged prospectus.
[s 33.12] Penalty
Sub-section 3, being substantially the same as section 33(1) and (2) of the 2013 Act, has been
[s 33.13] Offences Cognisable Only on Complaint [Section 621]
No court shall take cognisance of any offence against the 1956 Act by a company or any officer,
except on the complaint in writing of the registrar, a shareholder or a person authorised by the
Central Government. [Corresponding to section 441 of the 2013 Act]
securities and non-payment of dividend on a complaint in writing by a person authorised by the SEBI.
The position of law under section 56(3) of the 1956 Act has been carried forward under section 33 of
the 2013 Act.
13 Sub-sections (1) and (2) were notified by Notification No. S.O. 2754(E), dt. 12 September 2013, w.e.f. 12 September
2013 and corresponds to section 56(3) of the 1956 Act.
14 Sub-section (3) notified by Notification No. S.O. 902(E), dt. 26 March 2014, w.e.f. 01 April 2014.
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15 Substituted by the Companies (Amendment) Act, 1988 (31 of 1988), section 8, for “by a prospectus” (w.e.f. 31 May
1991).
16 Substituted by Act 31 of 1988, section 8, for “Provided that” (w.e.f. 31 May 1991).
17 Subs. by the Companies (Amendment) Act, 2000 (53 of 2000), section 17 (w.e.f. 13 December 2000), for “Rs 5,000”.
This amending Act has been repealed by the Repealing and Amending Act, 2016.
18 Substituted by the Repealing and Amending Act, 1964 (52 of 1964), section 3 and Sch. II, for “was immaterial.”
19 regulation 58 of SEBI (Issue of Capital and Disclosure) Regulations, 2009.
End of Document
Mr. Laghir1 Rabari

20 Notified by Notification No. S.O. 2754(E), dt. 12 September 2013, w.e.f.
12 September 2013. [s 34] Criminal liability for mis-statements in
prospectus.—
PUBLIC OFFER
20[s 34] Criminal liability for mis-statements in prospectus.—
Where a prospectus, issued, circulated or distributed under this Chapter, includes any statement
which is untrue or misleading in form or context in which it is included or where any inclusion or
omission of any matter is likely to mislead, every person who authorises the issue of such prospectus
shall be liable under Section 447:
Provided that nothing in this section shall apply to a person if he proves that such statement or
omission was immaterial or that he had reasonable grounds to believe, and did up to the time of
issue of the prospectus believe, that the statement was true or the inclusion or omission was
necessary.
NOTES
Section 34 of the 2013 Act was enforced with effect from 12 September 2013 and corresponds to
follows in respect of section 34 of the 2013 Act:
Clause 34.—This clause corresponds to Section 63 of the Companies Act, 1956 and provides for criminal liability for
mis-statements in prospectus. The person who authorises the issue of such prospectus shall be punishable for fraud.
[s 34.2] Untrue and Misleading Statements
Where a prospectus is issued, circulated or distributed and such a prospectus contained untrue or
misleading statements, every person who has authorised the issue of such a prospectus is liable
under section 447 of the 2013 Act. Section 447 of the 2013 Act deals with punishment for fraud21
committed by any person. In a case where such fraud involves public interest, the minimum term of
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20 Notified by Notification No. S.O. 2754(E), dt. 12 September 2013, w.e.f. 12 September 2013. [s 34] Criminal
imprisonment is for a period of three years as opposed to a minimum period of six months of
imprisonment for committing any kind of fraud.
For details, see commentary under section 447 of the 2013 Act.
In Progressive Aluminium Ltd v Registrar of Cos,22 a company had issued a prospectus containing a
statement that the company had 25 years of experience in the field. However, it was established that
such experience was of the partners of a firm that was taken over by this company. The Andhra
Pradesh High Court in this case ruled that since the omission was not mala fide and the statement
was not altogether false, the petitioners would not be liable under the provisions of the 1956 Act.
In Anil D. Ambani v Santosh Tyagi,23 the Rajasthan High Court held that since the company had not
converted debentures into shares as stated in the prospectus, the said act was illegal and contrary to
the provisions of the 1956 Act and entailed criminal liabilities under various sections of the 1956 Act
and the Indian Penal Code, 1860.
[s 34.3] Defences Available
The defences available to a person who authorised the issue24 of such prospectus are as follows:
i. The statement or omission was immaterial or
ii. He has reasonable grounds to believe and did believe that the statement was true or the
inclusion/omission was necessary at the time of issue of the prospectus.
[s 34.4] Director’s Liability
Section 25(4) of the Companies Act, 2013 requires two directors or not less than one-half of the
partners of the firm to sign the deemed prospectus authorizing its issue. Section 26(4) of the
Companies Act, 2013 mandates every director or his duly authorized attorney to sign the prospectus
before the issue of the prospectus. Therefore, the directors could be directly held liable for
misstatement or an untrue statement in the prospectus. In I.B. Rao v Registrar of Cos,25 the Andhra
Pradesh High Court observed that a specific averment had been made in the complaint against all
the directors for the mis-statements in the prospectus which led the public to subscribe the shares of
the company. Furthermore, the petitioner (one of the directors) had not specifically denied, in the
reply to the show-cause notice issued to the company and the directors, that he was not the officer in
default within the meaning of section 5 of the 1956 Act (which defines officer in default). Therefore,
there was no merit in the contention that he was not liable for any lapses on the part of the managing
director of the company who was looking after its affairs.
[s 34.5] Penalty for Criminal Liability
As discussed above, section 34 of the 2013 Act provides that contravention of the provision attracts
liability under section 447 of the 2013 Act. Attaching criminal liability to such misstatement or untrue
statement implies the perception of such an act as being a deliberate action or omission on the part
of a person. This is intended to instill a sense of responsibility in the issuers’ statements in the
prospectus.
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Section 447 of the 2013 Act prescribes imprisonment of at least six months, extendable to 10 years,
and also a fine of an amount which is at least that involved in the fraud, extendable up to three times
of the amount. Section 447 of the 2013 Act further provides that in the event fraud involves “public
interest,” the minimum imprisonment will be of at least three years. Since a prospectus is in relation to
public offer of securities, a mis-statement or an untrue statement can be construed as fraud involving
public interest, thereby attracting a minimum of three years of imprisonment.
See also NOTES under sections 448, 439 of the 2013 Act (corresponding to sections 628, 621 and
621A of the 1956 Act).
See detailed notes under sections 2(60), 34, 36 and 448 of the 2013 Act (corresponding to sections
5, 63, 68 and 628 of the 1956 Act).
[s 63] Criminal liability for mis-statements in prospectus.—(1) Where a prospectus issued after the
commencement of this Act includes any untrue statement, every person who authorised the issue of the prospectus
shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to
26[fifty thousand rupees], or with both, unless he proves either that the statement was immaterial or that he had
reasonable ground to believe, and did up to the time of the issue of the prospectus believe, that the statement was
true.
(2) A person shall not be deemed for the purposes of this section to have authorised the issue of a prospectus by
reason only of his having given—
(a) the consent required by section 58 to the inclusion therein of a statement purporting to be made by him as an
expert, or
(b) the consent required by 27[***] sub-section (3) of section 60.
NOTES
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See section 98 of the Company Law Committee’s redraft and section 44 of the English Companies Act. No changes of
substance have been made [Clause 56 of the Companies Bill, 1953 (46 of 1953)].
The section 98 of the Company Law Committee’s redraft followed section 44 of the English Companies Act, which was
a new section. Under the provisions of this section, once the prosecution establishes the falsity of a statement in a
prospectus signed by a director, etc., the onus is shifted to the defendant of proving either that the statement was
immaterial or that he believed it to be true. An expert who has given the consent required by the section 94 [Section 58
of Companies Act, 1956] of the Company Law Committee’s redraft is not deemed to be ipso facto a person who
authorised the issue of the prospectus (Report : para 62).
The Companies (Amendment) Act, 1960 (65 of 1960).—The amendment is consequential to the
amendment made in section 60 of the 1956 Act (Joint Committee Report : para 24). See also
Legislative History in Notes under section 60 of the 1956 Act.
The Companies (Amendment) Act, 2000 (53 of 2000).—The Notes on Clauses explained the
amendments in this section as follows:
This clause seeks to enhance the fine specified in sub-section (1) of section 63 of the Companies Act, 1956 from five
thousand rupees to fifty thousand rupees [Clause 22 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
See detailed Notes under sections 34, 36 and 448 of the 2013 Act (corresponding to sections 63, 68
and 628 of the 1956 Act, respectively).
Section 34 of the 2013 Act punishes not only for statements that are untrue, as provided for under
section 63 of the 1956 Act, but also for statements that are misleading. Further, punishment under
the 2013 Act, in terms of both term of imprisonment and fine, are stricter than that under section 63 of
the 1956 Act. The Companies (Amendment) Act, 2000, also enhanced the penalty from Rs 5,000 to
Rs 50,000. Additionally, unlike section 63 of the 1956 Act, section 34 of the 2013 Act provides
defenses, as explained above, to the person accused to have authorised the issue. Section 63 of the
1956 Act laid down the punishment for untrue statements. It provided that every person who
authorised the issue would be punishable with imprisonment which may extend to two years or with
fine which may extend to Rs 50,000 or with both. Additionally, section 63 of the 1956 Act specifically
excluded the liability of any person other than the directors, such as an expert, auditor, legal adviser,
attorney, solicitor, banker or broker. While section 34 of the 2013 Act does not specifically exclude
the liability of such persons, it does so implicitly. The liability, as per the provision, is of those who
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authorise the prospectus, which would be only directors.
[s 34.8] Untrue Statements
Sub-section (1) of section 63 of the 1956 Act corresponds to sub-section (1) of section 34 of the 2013
Act, as explained in the commentary above.
[s 34.9] Compounding of Offences
In a case before the Company Law Board, there was mis-statement in the prospectus and a petition
was filed for compounding the offences. The Company Law Board held that the power of
compounding vested in the Company Law Board (now the Central Government or NCLT as the case
may be) was discretionary and could not be refused in the absence of evidence supporting grave
consequences arising from violations of the provisions of the law.28
[s 34.10] Who can Take Action
In Kisan Mehta v Universal Luggage Mfg. Co Ltd,29 the Bombay High Court held that that a person
who is not interested in the company does not have locus to pursue action under sections 62 and 63
of the 1956 Act (corresponding to sections 34 and 35 of the 2013 Act). Further, the court observed
that the person cannot successfully contend that a future investor might be duped by them and that
he might suffer, and, therefore, the company should be restrained from acting in any particular
manner. Here, the plaintiffs were public spirited individuals who alleged that the company had not
given a fair and true picture of the status of the company in the prospectus. Even certain liabilities
were disguised as profits. The plaintiffs contended that such misleading statements in the prospectus
could lead to the public being deceived into investment which might cause public injury.
[s 34.11] Terms of Prospectus and Consent Cannot be Varied
In N. Parthasarathy v Controller of Capital Issues,30 the appellants had questioned the validity and
legality of the consent of the Controller of Capital Issues (CCI) to the proposed issue of convertible
secured debentures in so far as the issue sought to offer these securities to persons other than the
existing shareholders. This order of the CCI was questioned mainly on the ground of non-application
of mind and undue haste in reaching the decision without considering its effects. It is evident from a
consideration of sections 55, 61, 62, 63 and 72 of the 1956 Act that the terms of contract mentioned
in the prospectus or the statements in lieu of the prospectus cannot be varied except with the
approval of and on the authority given by the company in the general meeting. The terms of
prospectus and consent order passed by the erstwhile CCI (See Powers of the SEBI (SEBI) under
section 24 of the 2013 Act) cannot be varied and is binding on the company. The power of erstwhile
CCI (now SEBI) is a statutory power vested in a statutory authority under the 1956 Act and the court
has no power or jurisdiction to step into the shoes of the statutory authority. Moreover, the consent
order cannot be varied after the said order (now prospectus/offer document duly approved/registered)
has been made public and third parties have acted on it and acquired rights thereon.31
[s 34.12] Quashing the Criminal Complaint
In A.V. Mohan Rao v M. Kishan Rao,32 the Supreme Court had to consider whether a case for
quashing the complaint under section 482 of the Code of Criminal Procedure, 1973, was made out.
The complaint was filed under sections 60, 63, 68 and 68A read with section 621 of the 1956 Act.
The court observed that the power of quashing a criminal complaint is to be exercised very sparingly
and with circumspection and in the rarest of rare cases. The court held that from a reading of the
complaint and the materials produced it could not be said that the allegations taken in entirety did not
make out, prima facie, any of the offences alleged in the complaint. The court further observed that
the allegations in relation to the joint venture company registered under the 1956 Act were serious in
nature. The court held that questions raised required an enquiry into facts which could not be
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considered at the preliminary stage. On these grounds, the court upheld order of the High Court of
not quashing the complaint and directed to initiate the proceedings.
[s 34.13] Relief under Section 633 of the 1956 Act
In Progressive Aluminium Ltd v Registrar of Cos,33 the court held that the petitioners’ statement in the
prospectus was not made with a mala fide intention of luring the public for subscribing to the shares
of the company. Though there was an omission by the petitioners to clarify the statement pertaining
to the experience of the company in the prospectus, it could not be regarded as a mala fide intention
of suppressing truth from the public. Hence, the petitioners were granted protection under section
633(2) of the 1956 Act as they had a legitimate apprehension that the prosecution would be launched
against them.
[s 34.13.1] Department’s View—SEBI to exercise concurrent authority with DCA for punishing
companies in certain cases
“The Department of Company Affairs (DCA) issued a notification under sub-section (1) of section 621 of the
Companies Act, 1956 (corresponding to section 439 of Companies Act, 2013), conferring the power on 12 officials of
the SEBI established under the SEBI Act, 1992, to punish companies for their mis-statement in prospectus, non-issue
of prospectus, non-issue of shares and non-payment of dividends. These offences are punishable under sub-section
(3) of section 56, sub-section (1) of section 59, sections 63 and 68, sub-sections (2) and (2B) of section 73, sub-section
(2) of section 113 and section 207 of the Companies Act, 1956 (corresponding to section 33, section 59, section 34,
section 36, section 40, section 56 and section 127 of Companies Act, 2013).
Hereafter, the power to punish companies in the corporate sector was exercised concurrently by both the SEBI and the
Department of Companies Affairs. The power of the Central Government vested in the Department of Companies
Affairs was also vested in the SEBI by the impugned notification.
The officials conferred the powers to punish companies and their directors for such offences as mentioned in this
notification are: Shri A. Chandra Sekhar Rao, Sharad Bansode, K.R.C.V. Seshachalam, Sudip Bandyopadhyay, D.
Rajesh Kumar, Krishnanand Raghavan, Jayanta Jash, Biju S., Amit Pradhan, Sharad K. Sharma, Smt. Barnali
Mukherjee and Smt. G.V. Chitra.
In this connection, the Department of Companies Affairs superseded its earlier Notification (No. G.S.R. 94(E)) of 26
February 1997.” (PIB Press Release, New Delhi, dt. 5 October 2000 : (2000) 102 Comp. Cas. (St.) 121).
See also Notes under section 621 of the 1956 Act (corresponding to section 439 of the 2013 Act).
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20 Notified by Notification No. S.O. 2754(E), dt. 12 September 2013, w.e.f. 12 September 2013.
21 Fraud in relation to affairs of a company or any body corporate includes any act, omission, concealment of any fact or
abuse of position committed by any person or any person with the connivance in any manner, with intent to deceive, to
gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other
person, whether or not there is any wrongful gain or wrongful loss as explained in Section 447 of the 2013 Act.
22 Progressive Aluminium Ltd v Registrar of Cos, (1997) 89 COMP CAS 147 (AP).
23 Anil D. Ambani v Santosh Tyagi, [2000] 99 COMP CAS 334 (Raj).
24 Section 25(4) of the 2013 Act requires two directors or not less than one-half of the partners of the firm to sign the
deemed prospectus authorising its issue. Section 26(4) of the 2013 Act mandates every director or his duly authorised
attorney to sign the prospectus before the issue of the prospectus. Therefore, the directors could be directly held liable
for misstatement or an untrue statement in the prospectus.
25 I.B. Rao v Registrar of Cos, (2007) 137 COMP CAS 469 (AP).
26 Substituted by the Companies (Amendment) Act, 2000 (53 of 2000), section 23 (w.e.f. 13 December 2000), for “Rs
5,000”. This amending Act has been repealed by the Repealing and Amending Act, 2016.
27 The words, brackets and letter “clause (b) of” omitted by the Companies (Amendment) Act, 1960 (65 of 1960), section
19. This amending Act has been repealed by the Repealing and Amending Act, 2016.
28 In Re, Ritesh Polysters Ltd, (2005) 123 COMP CAS 348 (CLB). Section 441 of the 2013 Act, which provides for
compounding of offences, has not been notified yet.
29 Kisan Mehta v Universal Luggage Mfg. Co Ltd, (1988) 63 COMP CAS 398 (Bom.).
31 Ibid.
32 A.V. Mohan Rao v M. Kishan Rao, (2002) 111 COMP CAS 390 (SC).
End of Document
Mr. Laghir1 Rabari

34 Sub-sections (1), (2) and (3) were notified by Notification No. S.O. 2754
(E), dt. 12 September 2013 w.e.f. 12 September 2013. Sub-section (1)(e) was
notified by Notification No. S.O. 902 (E), dt. 26 March 2014 w.e.f. 1 April
[s 35] Civil liability for mis-statements in prospectus.—
PUBLIC OFFER
34[s 35] Civil liability for mis-statements in prospectus.—
(1) Where a person has subscribed for securities of a company acting on any statement
included, or the inclusion or omission of any matter, in the prospectus which is misleading
and has sustained any loss or damage as a consequence thereof, the company and every
person who—
(a) is a director of the company at the time of the issue of the prospectus;
(b) has authorised himself to be named and is named in the prospectus as a director of the
company, or has agreed to become such director, either immediately or after an interval
of time;
(c) is a promoter of the company;
(d) has authorised the issue of the prospectus; and
(e) is an expert referred to in sub-section (5) of section 26, shall, without prejudice to any
punishment to which any person may be liable under section 36, be liable to pay
compensation to every person who has sustained such loss or damage.
(2) No person shall be liable under sub-section (1), if he proves—
(a) that, having consented to become a director of the company, he withdrew his consent
before the issue of the prospectus, and that it was issued without his authority or consent;
or
(b) that the prospectus was issued without his knowledge or consent, and that on becoming
aware of its issue, he forthwith gave a reasonable public notice that it was issued without
his knowledge or consent.
(3) Notwithstanding anything contained in this section, where it is proved that a prospectus has
been issued with intent to defraud the applicants for the securities of a company or any other
person or for any fraudulent purpose, every person referred to in sub-section (1) shall be
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34 Sub-sections (1), (2) and (3) were notified by Notification No. S.O. 2754 (E), dt. 12 September 2013 w.e.f.
12 September 2013. Sub-section (1)(e) was notifi....
personally responsible, without any limitation of liability, for all or any of the losses or
damages that may have been incurred by any person who subscribed to the securities on the
basis of such prospectus.
NOTES
as follows:
Clause 35.—This clause corresponds to Section 62 of the Companies Act, 1956 and seeks to provide that in case any
person subscribes for securities on the basis of misleading statements or inclusion or omission of any matter in the
prospectus resulting in any loss or damage, the person who has authorised the issue of such prospectus or a director,
promoter, whosoever is liable, shall have to compensate every person who has sustained such loss or damage.
[s 35.2] Persons Liable for Mis-statement in Prospectus [Section 35(1)]
As per sub-section (1), the following persons are liable for mis-statement in the prospectus:
i. The company;
ii. Directors of the company at the time of issue;
iii. Every person who was authorised/agreed to named as a director either immediately or after
an interval of time;
iv. Every promoter of the company;
v. Every person who authorised the issue of the prospectus; and
vi. Every expert35 having meaning under section 26(5) of the 2013 Act.
[s 35.3] Exemption from Liability [Section 35(2)]
Following defences are available to the persons mentioned in sub-section (1)–
i. Having consented to become a director, the person withdrew his consent before the
prospectus was issued; and
ii. The prospectus was issued without his knowledge or consent, and on becoming aware of
this, gave a reasonable public notice stating that it was issued without his knowledge or
consent.
The Companies (Amendment) Bill, 2016 has added an additional defence under the provision that
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states as follows:
In section 35 of the principal Act, in sub-section (2), after clause (b), the following clause shall be inserted:—
That, as regards every misleading statement purported to be made by an expert or contained in what purports to be a
copy of or an extract from a report or valuation of an expert, it was a correct and fair representation of the statement, or
a correct copy of, or a correct and fair extract from, the report or valuation ; and he had reasonable ground to believe
and did up to the time of the issue of the prospectus believe, that the person making the statement was competent to
make it and that the said person had given the consent required by sub-section 5) of section 26 to the issue of the
prospectus and had not withdrawn that consent before delivery of a copy of the prospectus for registration or, to the
defendant’s knowledge, before allotment thereunder
[s 35.4] Intentional Misrepresentation [Section 35(3)]
Where misleading and untrue statements have been made intentionally, then sub-section (3) makes
every person liable for all the losses and damages that may have occurred on the basis of such
statements mentioned in the prospectus. It appears from the language of this section that the
provision is intended to be restitutory in nature as it would be applicable to the extent of loss suffered
only to the person who has suffered losses due to mis-statements in the prospectus.
s 62] Civil liability for mis-statements in prospectus.—(1) Subject to the provisions of this section, where a
prospectus invites persons to subscribe for shares in or debentures of a company, the following persons shall be liable
to pay compensation to every person who subscribes for any shares or debentures on the faith of the prospectus for
any loss or damage he may have sustained by reason of any untrue statement included therein, that is to say,— The
(a) every person who is a director of the company at the time of the issue of the prospectus;
(b) every person who has authorised himself to be named and is named in the prospectus either as a director, or
as having agreed to become a director, either immediately or after an interval of time;
(c) every person who is a promoter of the company; and
(d) every person who has authorised the issue of the prospectus:
Provided that where, under section 58, the consent of a person is required to the issue of a prospectus and he has
given that consent, or where, under 36[***] sub-section (3) of section 60, the consent of a person named in a prospectus
is required and he has given that consent, he shall not, by reason of having given such consent, be liable under this
sub-section as a person who has authorised the issue of the prospectus except in respect of an untrue statement, if
any, purporting to be made by him as an expert.
(2) No person shall be liable under sub-section (1), if he proves—
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(a) that, having consented to become a director of the company, he withdrew his consent before the issue of the
prospectus, and that it was issued without his authority or consent;
(b) that the prospectus was issued without his knowledge or consent, and that on becoming aware of its issue, he
forthwith gave reasonable public notice that it was issued without his knowledge or consent;
(c) that, after the issue of the prospectus and before allotment thereunder, he, on becoming aware of any untrue
statement therein, withdrew his consent to the prospectus and gave reasonable public notice of the
withdrawal and of the reason therefor; or
(d) that—
(i) as regards every untrue statement not purporting to be made on the authority of an expert or of a public
official document or statement, he had reasonable ground to believe, and did up to the time of the
allotment of the shares or debentures, as the case may be, believe, that the statement was true; and
(ii) as regards every untrue statement purporting to be a statement by an expert or contained in what
purports to be a copy of or an extract from a report or valuation of an expert, it was a correct and fair
representation of the statement, or a correct copy of, or a correct and fair extract from, the report or
valuation; and he had reasonable ground to believe, and did up to the time of the issue of the prospectus
believe, that the person making the statement was competent to make it and that that person had given
the consent required by section 58 to the issue of the prospectus and had not withdrawn that consent
before delivery of a copy of the prospectus for registration or, to the defendant’s knowledge, before
allotment thereunder; and
(iii) as regards every untrue statement purporting to be a statement made by an official person or contained
in what purports to be a copy of or extract from a public official document, it was a correct and fair
representation of the statement, or a correct copy of, or a correct and fair extract from, the document:
• Provided that this sub-section shall not apply in the case of a person liable, by reason of his having given
a consent required of him by section 58, as a person who has authorised the issue of the prospectus in
respect of an untrue statement purporting to be made by him as an expert.
(3) A person who, apart from this sub-section, would, under sub-section (1), be liable by reason of his having given a
consent required of him by section 58 as a person who has authorised the issue of a prospectus in respect of an
untrue statement purporting to be made by him as an expert, shall not be so liable, if he proves—
(a) that, having given his consent under section 58 to the issue of the prospectus, he withdrew it in writing before
delivery of a copy of the prospectus for registration;
(b) that, after delivery of a copy of the prospectus for registration and before allotment thereunder, he, on
becoming aware of the untrue statement, withdrew his consent in writing and gave reasonable public notice
of the withdrawal and of the reason therefor; or
(c) that he was competent to make the statement and that he had reasonable ground to believe, and did up to the
time of the allotment of the shares or debentures, believe, that the statement was true.
(4) Where—
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(a) the prospectus specifies the name of a person as a director of the company, or as having agreed to become a
director thereof, and he has not consented to become a director, or has withdrawn his consent before the
issue of the prospectus, and has not authorised or consented to the issue thereof; or
(b) the consent of a person is required under section 58 to the issue of the prospectus and he either has not given
that consent or has withdrawn it before the issue of the prospectus;
the directors of the company excluding those without whose knowledge or consent the prospectus was issued, and
every other person who authorised the issue thereof, shall be liable to indemnify the person referred to in clause (a) or
clause (b), as the case may be, against all damages, costs and expenses to which he may be made liable by reason of
his name having been inserted in the prospectus or of the inclusion therein of a statement purporting to be made by
him as an expert, as the case may be, or in defending himself against any suit or legal proceeding brought against him
in respect thereof:
Provided that a person shall not be deemed for the purposes of this sub-section to have authorised the issue of a
prospectus by reason only of his having given the consent required by section 58 to the inclusion therein of a
statement purporting to be made by him as an expert.
(5) Every person who, becomes liable to make any payment by virtue of this section, may recover contribution, as in
cases of contract, from any other person who, if sued separately, would have been liable to make the same payment,
unless the former person was, and the latter person was not, guilty of fraudulent misrepresentation.
(6) For the purposes of this section—
(a) the expression “promoter” means a promoter who was a party to the preparation of the prospectus or of the
portion thereof containing the untrue statement, but does not include any person by reason of his acting in a
professional capacity for persons engaged in procuring the formation of the company; and
(b) the expression “expert” has the same meaning as in section 58.
NOTES
See section 97 of the Company Law Committee’s redraft and section 43 of the English Act. Some minor drafting
changes have been made. [Clause 55 of the Companies Bill, 1953 (46 of 1953)].
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The recommendations of the Company Law Committee were as follows:
This follows English section 43 and seeks to amend section 100 of the Companies Act, 1913. Two principal
amendments may be noted. Under sub-clause (ii) of clause (d) to sub-section (2), the onus of proving that there was
reasonable ground to believe that the expert was competent to make the statement contained in the prospectus shifted
from the plaintiff to the defendant. This gave effect to an important recommendation made in para 43 of the Cohen
report. The other amendment is contained in sub-section (3) which regulates the expert’s liability. Under this sub-
section, the expert is liable as a person authorising the issue of a prospectus, unless he can establish his bona fides
under any of the pleas available to him under the sub-section. [Report : para 61].
The Companies (Amendment) Act, 1960 (65 of 1960).—The amendment is consequential to the amendment made in
section 60. [Joint Committee Report: para 24].
See also Legislative History under section 60 of the 1956 Act (now section 26 of 2013 Act).
[s 35.6] Interpretation [Section 65]
For interpretation of “true statement deemed untrue” and “included” see notes under section 65 of the
1956 Act. See also criminal liability for mis-statements in prospectus [Section 63 of the 1956 Act] and
penalty for fraudulently inducing persons to invest money [Section 68 of the 1956 Act].
The position of law under section 62 of the 1956 Act has been substantially carried forward under
section 35 of the 2013 Act. The differences in the scope of the two provisions have been discussed
below:
a. Fraudulent intention.—Section 35 of the 2013 Act also covers the liability attracted when
the prospectus is issued with a fraudulent purpose. In such cases, every person who is liable
becomes personally responsible without any limitation of liability. The liability is for all or any
of the losses or damages that are incurred by any subscriber based on such prospectus.
Consequences of such fraudulence were not specifically provided for under section 62 of the
1956 Act.
b. Defences available under the provisions.—Section 62 of the 1956 Act provided for a wide
array of defences that could be availed. Some of these defences, as enumerated below, have
been done away with in the corresponding section 35 of the 2013 Act.
i. after the issue of the prospectus and before allotment, the director, on becoming aware of
any untrue statement therein, withdrew his consent to the prospectus and gave
reasonable public notice; and he had reasonable ground to believe, and did up to the time
of the allotment of the shares or debentures believe, that the statement was true;
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ii. liability will not be attracted if there was reliance placed on an untrue statement by an
expert, provided it was a correct and fair representation of the statement, or a correct
copy of, or a correct and fair extract from, the report or valuation; and the director had
reasonable ground to believe, and did believe, that the person making the statement was
competent to make it and had given the consent required by section 58 of the 1956 Act
and had not withdrawn that consent before delivery of a copy of the prospectus for
registration or, to the defendant’s knowledge, before allotment thereunder; and
iii. as regards untrue statement by an official person or contained in a public official

document, it was a correct and fair representation, copy or extract from the document,
provided that it shall not apply in case of a person liable, by reason of him giving his
consent under section 58 of the 1956 Act as a person who has authorised the issue of a
prospectus in respect of an untrue statement purporting to be made by him as an expert.
The Companies Amendment Bill, 2016 has reintroduced this clause as a defence to be
included to the 2013 Act.
c. Promoter.—Section 62 of the 1956 Act itself contains the meaning of the term “promoter” as
applicable to this provision. According to section 62(6) of the 1956 Act, a promoter means a
promoter who was a party to the preparation of the prospectus or portion containing untrue
statement, but does not include any person acting in a professional capacity for persons
engaged in the formation of the company. However, under section 35 of the 2013 Act, there
is no specific definition for “promoter” and encompasses a wider understanding of the term
under section 2(69) of the 2013 Act as discussed above.
d. Expert.—The defences and liability available under section 62 of the 1956 Act were broader
in scope than those provided under section 35 of the 2013 Act read with section 26(5) of the
2013 Act. These have been discussed below:
i. Defences under the 2013 Act.—An expert should not be someone who was or is
engaged or interested in the formation or promotion or management of the company.
Further, the liability of such an expert would not be attracted if the written consent to the
issue of the prospectus was withdrawn before the delivery of a copy of the prospectus to
the registrar for registration.37
ii. Defences under the 1956 Act.—In addition to defences available under the 2013 Act,
section 62 of the 1956 Act provided for the following situations in which liability of an
expert would not arise:
a. after delivery of copy to the registrar and before allotment, a director, on becoming
aware of the untrue statement, withdraws his consent in writing and give reasonable
public notice; or
b. he was competent to make the statement and had reasonable ground to believe, and
did up to the time of the allotment of the shares or debentures, believe, that the
statement was true.
iii. Liability of an Expert
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• An expert escapes liability even though his belief was not based on reasonable grounds,38
the question is not whether the defendant in any given case honestly believed the
representation to be true in the sense assigned to it by the court on an objective
consideration of its truth or falsity, but whether he honestly believed the representation to
be true in the sense in which he understood it albeit erroneously when it was made,39 or
he may prove that the plaintiff was not in fact misled but the defendant cannot take the
plea that the plaintiff was put to an enquiry and could ascertain that the statement was
false if he had enquired.40
• It is no defence on a charge of non-disclosure of a material contract, the existence of

which a director knew to say that he was ignored of its contents or that it was not material,
or that he left the matter to his legal advisers.41 He must prove to escape liability that he
was not responsible for the prospectus and he was deceived in giving his consent to it.42 If
he knew about the issue of the prospectus but abstained from looking into it, he will be
liable.43
e. Indemnity.—The 1956 Act provided for indemnifying those persons who would have
otherwise been liable for compensation. This has not been retained in section 35 of the 2013
Act. Section 62(4) of the 1956 Act provided that, where consent is withdrawn—(a) by a
director; or (b) an expert, the remaining directors excluding those without whose knowledge
or consent the prospectus was issued and persons who authorised the issue of an untrue
prospectus shall be liable to indemnify the persons who withdrew their consent against all
damages, costs and expenses that they may incur in defending themselves against any suit
or legal proceeding brought against them.
f. Contribution.—While the 1956 Act provided for a discussion on recovering contributions from
persons who would have been liable had they been sued separately, section 35 of the 2013
Act does not include this in the scope of the provision. Under the 1956 Act, every person who
becomes liable to make payment by virtue of this section, may recover contribution, as in
cases of contract, from other persons who, if sued separately, would have been liable to
make the same payment, unless the other person was not guilty of fraudulent
misrepresentation.
• If any subscriber realises any damages from any director or officer of the company for untrue
statement in the prospectus, the other directors and officers who authorised the issue of the
untrue prospectus shall contribute and pay their share of damages to the director who has
made the payment.44
[s 35.8] Promoter
Under the 1956 Act, the term “promoter” applied to those who set in motion the machinery by which
the 1956 Act enabled them to create an incorporated company or float it. This involves the idea of
exertion for setting up and starting the company.45 A person who does not take a prominent part may
so act in the formation of the company as to bring himself under the term “promoter.”46
[s 35.9] Liability of a Promoter
A promoter is personally liable for contracts entered into on behalf of the proposed company47 and a
person who procures the incorporation of a company may be liable even though he acts through an
agent.48 A promoter stands in a fiduciary relationship towards his company. A contract made between
him and the company is voidable at the company’s option unless he has disclosed all material facts
relating to the contract to an independent board, and the company has freely agreed to the terms.49
[s 35.10] Onus of Proof
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An allottee must prove that (i) the misrepresentation was of fact, (ii) the misrepresentation was in
respect of a material fact, (iii) he acted on the misrepresentation, and (iv) he has suffered damages in
consequence. It will be sufficient if the allottee shows that the misrepresentation was one of the facts
relied on. The question on what a material statement of fact is will depend upon the circumstances of
each case.
In a case wherein the subscriber claimed relief on the basis of damages resulting from the
misrepresentation in the prospectus, a statement that more than half of the first issue of shares had
already been subscribed for50; that a particular mine was in operation and making large returns51; that
patented articles were a commercial success and beyond the experimental stage52; that a promoter
who was to get part of the purchase money was himself one of the sellers of the assets to the
company53; that the company was the sole manufacturer of asbestos in a particular country and it had
practically a monopoly54; that no promotion money was to be paid55; were held to be material
statements of fact and the liability attached for making untrue statements.
A statement referring to persons who are to be directors is a material one.56 It will be a

misrepresentation to state that the company has contracted for the purchase of a property when
there was only negotiation.57
See also notes on misrepresentation in prospectus and department’s views on unsound practices
disclosed in prospectuses under sections 26 and 33 of the 2013 Act (corresponding to section 56 of
the 1956 Act).
[s 35.11] Damages
The measure of damages is the loss suffered by reason of the untrue statement, the difference
between the value which the shares would have had but for such statement and the true value of the
shares at the time of allotment.58
If a person establishes his claim in tort of deceit then an alleged contributory negligence will not
reduce the quantum of damages.59
[s 35.12] Untrue Statement
A company had issued a prospectus containing a statement that the company had 25 years of
experience in the field. However, it was established that such experience was of the partners of a firm
that was taken over by this company. The Andhra Pradesh High Court ruled that since the omission
was not mala fide and the statement was not altogether false, the petitioners would not be liable
under the provisions of the 1956 Act. 60
[s 35.13] Construction
Where there has been an actual fraud, and the language used by the person making the statement, if
taken in its natural sense conveys a wrong impression, it cannot be argued that there was no
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intention to deceive.61
[s 35.14] Terms of Prospectus and Consent cannot be Varied
It is evident from a consideration of sections 55, 61, 62, 63 and 72 of the 1956 Act that the terms of
contract mentioned in the prospectus or the statements in lieu of the prospectus cannot be varied
except with the approval of and on the authority given by the company in the general meeting. The
terms of prospectus and consent order passed by the erstwhile Controller of Capital Issues (now
SEBI) cannot be varied and is binding on the company. The power is a statutory power vested in a
statutory authority under the 1956 Act and the court has no power or jurisdiction to step into the
shoes of the statutory authority. Moreover, the consent order cannot be varied by the Central
Government or the erstwhile Controller of Capital Issues [now SEBI] after the said order [now
prospectus/offer document duly approved/ registered] has been made public and third parties have
acted on it and acquired rights thereon.62
[s 35.15] Who can Take Action
It is open to a subscriber to take action for mis-statement in the prospectus in addition to what is
contemplated under sections 62 and 63 of the 1956 Act (now sections 34 and 35 of the 2013 Act).
But that does not mean that any other person who is not interested in the company at all can ever
come forward and say that the statements contained in the prospectus were false and that they are
void, and that a future investor might be duped by them and that he might suffer, and, therefore, the
company should be restrained from acting in any particular manner.63
An action for compensation under section 62 of the 1956 Act can be brought within three years under
Article 113 of the Limitation Act, 1963 (36 of 1963). Cause of action first arises, when shares are
allotted to the plaintiff. In case of fraud, the time begins to run when the fraud was discovered or
might have been discovered with reasonable diligence.64
[s 35.17] Survival of Action
Where the cause of action is against a director or any other person covered by the section and he
dies, the cause of action survives if his estate has derived any benefit. Where action has been
pending on the date of the director’s death the action may continue against his legal representatives
and compensation can be recovered from the deceased’s estate.65
[s 35.18] Misleading Prospectus or Advertisement may be Actionable
An action may be grounded on the principle of estoppel for claiming the benefits advertised. In a suit
by a shareholder, creditor and persons interested the Civil Court or on an application the Company
Law Board [now the Tribunal (NCLT)] may issue an order of injunction and grant consequential
reliefs. This is apart from any other liability under the 1956 Act or other laws. A decree may be
passed against the company and the persons who actively took part in the publication of the false or
misleading advertisements.
See also notes under sections 26 and 33 of the 2013 Act (corresponding to section 56 of the 1956
Act), viz., misrepresentation in prospectus, unsound practices disclosed in prospectuses and
remedies of aggrieved persons.
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[s 35.19] Unfair and Restrictive Trade Practices
The MRTP Commission has been replaced by the CCI. The remedy for unfair trade practices shall
now lie with the Consumer Forum under the Consumer Protection Act, 1986 (68 of 1986).
See detailed notes under sections 430, 408 and 430 of the 2013 Act (corresponding to sections 10,
10FB and 10GB of the 1956 Act).
[s 35.20] Misleading Prospectus or Advertisement
Where a company issued advertisements about public issue of debenture-linked shares claiming
increase in turnover, gross fixed assets and net worth of the company which were found to be
unrealistic and a complaint was made to the erstwhile MRTP Commission which restrained the
company from making the misrepresentation in its future advertisements and publicity materials and
from claiming to be an established dividend paying company.66 Where a company made misleading
representation about guaranteed returns against investment, the erstwhile MRTP Commission was to
issue an injunction so that the advertisement likely to induce people in ignorance of the true facts to
invest may not be repeated.67 Where a corporation offered high rate of interest against deposits and
free gold sovereign on deposits of Rs 30,000 and on enquiry it was revealed that the claims made in
the advertisements were incredible, that some persons had been lured to part with various amounts
and there was no knowing whether they would receive the promised rate of interest and whether the
deposits were secured and that the loss or injury of such investors was patent since the corporation
had not started its business venture, an order of injunction was issued restraining the corporation
from indulging in the unfair trade practice.68
Remedy for unfair trade practices now lie with the Consumer Forums under the Consumer Protection
Act, 1986 (68 of 1986). See detailed notes under sections 430, 408 and 430 of the 2013 Act
(corresponding to sections 10, 10FB and 10GB of the 1956 Act).
See also notes on the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, and
the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets)
Regulations, 2003, under sections 55A, 56 and 66 of the 1956 Act (now sections 24, 26 and 30 of the
2013 Act).
[s 35.21] Consumer Forum
Consumer Forums cannot grant injunction against public issue. Shares or Debentures are not goods
before allotment. Applicant for shares or debentures is not a consumer. Raising of share capital or
debentures by a company is not a trading activity and there is no question of any unfair trade
practice. The Consumer Disputes Redressal Forum has no jurisdiction to entertain the matters of this
kind. The issue of shares or debentures does not come under the Consumer Protection Act, 1986 (68
of 1986), or the MRTP Act, 1969 (54 of 1969), [now the Competition Act, 2002 (12 of 2003)].69
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34 Sub-sections (1), (2) and (3) were notified by Notification No. S.O. 2754 (E), dt. 12 September 2013 w.e.f. 12
September 2013. Sub-section (1)(e) was notified by Notification No. S.O. 902 (E), dt. 26 March 2014 w.e.f. 1 April
35 As per section 2(38) of the 2013 Act, an expert includes an engineer, a valuer, a chartered accountant, a company
secretary, a cost accountant and any other person who has the power or authority to issue a certificate in pursuance of
any law for the time being in force.
36 The words, brackets and letter “clause (b) of” omitted by the Companies (Amendment) Act, 1960 (65 of 1960), section
18 (w.e.f. 28 December 1960). This amending Act has been repealed by the Repealing and Amending Act, 2016.
37 Section 26(5) of the 2013 Act.
38 Derry v Peek, (1889) 14 AC 337 : 58 LJ Ch. 864 : 61 LT 265 : 5 Tax LR 625 (HL).
39 Akerhielm (Baron Uno Carl Samuel) v Rolf De Mare, (1959) AC 789 : (1959) 3 All ER 485 : (1959) 3 WLR 108 : (1960)
30 Comp. Cas. 1 (PC).
40 Aaron’s Reefs Ltd v Twiss, (1896) AC 273 : 65 LJ PC 54 : 74 LT 794 : 44 WR 30 (HL).
41 Watts v Bucknall, (1903) 1 ChD 766 : 72 LJ Ch. 447 : 88 LT 845 : 51 WR 433 (CA); Shepheard v Broome, (1904) AC
342 : 73 LJ Ch. 608 : 91 LT 178 (HL).
42 Watts v Bucknall, (1903) 1 ChD 766 : 72 LJ Ch. 447 : 88 LT 845 : 51 WR 433 (CA); Hoole v Speak, (1904) 2 ChD 732 :
73 LJ Ch. 719 : 91 LT 183 : 20 TLR 649.
43 Drincqbier v Wood, (1899) 1 ChD 393 : 68 LJ Ch. 181 : 79 LT 548 : 47 WR 252.
44 Gerson v Simpson, (1903) 2 KB 197 : 72 LJ KB 603 : 89 LT 117 : 51 WR 610 (CA).
45 Erlanger v New Sombrero Phosphate Co, (1878) 3 AC 1218 : 48 LJ Ch. 73 : 39 LT 269 (HL).
46 National L.S. Registration Bank v Velu Mudaliar, AIR 1938 Mad. 192; S.S. Somayajulu v Hope Prudhomme & Co Ltd,
(1963) 2 Comp. LJ 6.
47 D.R. Patel v A.S. Dimellow, AIR 1961 MP 4.
48 Phosphate Sewage Co v Hartmont, (1877) 5 ChD. 394 : 46 LJ Ch. 661 : 37 LT 9 (CA); Jubilee Cotton Mills Ltd v Lewis,
(1924) AC 958 : 93 LJ Ch. 414 : 131 LT 579 (HL).
49 Erlanger v New Sombrero Phosphate Co., (1878) 3 AC 1218 : 48 LJ Ch. 73 : 39 LT 269 (HL).
50 Ross v Estates Investment Co, (1868) 3 Ch. App. 682 : 37 LJ Ch. 873 : 19 LT 61; Henderson v Lacon, (1867) LR 5 Eq.
249 : 17 LT 527 : 16 WR 328.
51 Reese River Silver Mining Co v Smith, (1869) LR 4 HL 64 : 39 LJ Ch. 849 (HL).
52 Greenwood v Leather Shod Wheel Co, (1900) 1 ChD 421 : 69 LJ Ch. 131 : 81 LT 595 (CA).
53 Capel & Co v Sim’s Ships Compositions Co Ltd, (1888) 57 LJ Ch. 713 : 58 LT 807.
54 Hyde v New Asbestos Co, (1891) 8 Tax LR 121.
55 Lodwick v Earl of Perth, (1884) 1 Tax LR 76.
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56 Re, Scottish Petroleum Co, (1883) 23 ChD. 413 : 49 LT 348 : 31 WR 846 (CA).
57 Ross v Estates Investment Co, (1868) 3 Ch. App. 682 : 37 LJ Ch. 873 : 19 LT 61.
58 McConnel v Wright, (1903) 1 ChD 546 : 72 LJ Ch. 347 : 88 LT 431 (CA); but see Clark v Urquhart, (1930) AC 28 : 99
LJ PC 1 : 141 LT 641 (HL).
59 Standard Chartered Bank v Pakistan National Shipping Corp (No. 2), (2000) 1 Lloyd’s Rep. 218; Royscot Trust Ltd v
Rogerson, (1991) 3 WLR 57; Possfund Custodian Trust Ltd v Diamond, (1996) 2 BCLC 665; Galoc Ltd v Bright
Grahaem Murray, (1994) 2 BCLC 492.
61 Arnison v Smith, (1889) 41 ChD. 348 : (1886–90) All ER Rep. Ext. 1332 : 61 LT 63 (CA); Arkwright v Newbold, (1881)
17 ChD. 301 : 50 LJ Ch. 372 : 44 LT 393 : 29 WR 455 (CA); Smith v Chadwick, (1884) 9 AC 187 : (1881–85) All ER
Rep. 242 : 53 LJ Ch. 873 (HL); MacLeay v Tait, (1906) AC 24 : 75 LJ Ch. 90 : 94 LT 68 : 54 WR 365 : 22 Tax LR 149
(HL).
63 Kisan Mehta v Universal Luggage Mfg. Co Ltd, (1988) 63 COMP CAS 398 (Bom.).
64 Gibbs v Guild, (1882) 9 QBD 59 : 52 LJ QB 313 : 46 LT 248 : 30 WR 591; Oelkers v Ellis, (1914) 2 KB 139 : 83 LJ KB
658 : 110 LT 332.
65 Geipel v Peach, (1917) 2 Ch. 108: 86 LJ Ch. 745 : 117 LT 84 : 61 SJ 460; Official Liquidator v P.A. Tendolkar, (1973).
43 COMP CAS 382 (SC) : AIR 1973 SC 1104; but see In Re, Peerdan Juharmal Bank, (1958) 28 COMP CAS 546
(Mad.) (DB) : AIR 1958 Mad. 583 (DB).
66 Director-General v Universal-Luggage Mfg. Co Ltd, (1987) 62 COMP CAS 184 (MRTPC).
67 Director-General v Asian Townville Farms Ltd, (1986) 60 COMP CAS 1008 (MRTPC).
68 In Re, Mangalore Bankers & Financial Corpn., (1988) 63 COMP CAS 679 (MRTPC).
69 Morgan Stanley Mutual Fund v Kartick Das, (1994) 81 COMP CAS 318 (SC); R.D. Goyal v Reliance Industries Ltd,
(2003) 113 COMP CAS 1 (SC).
End of Document
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70 Notified by Notification No. S.O. 2754(E) dt. 12-09-2013, w.e.f. 12
Punishment for fraudulently inducing persons to invest money.—
PUBLIC OFFER
70[s 36] Punishment for fraudulently inducing persons to invest money.—
Any person who, either knowingly or recklessly makes any statement, promise or forecast which is
false, deceptive or misleading, or deliberately conceals any material facts, to induce another person
to enter into, or to offer to enter into,—
(a) any agreement for, or with a view to, acquiring, disposing of, subscribing for, or underwriting
securities; or
(b) any agreement, the purpose or the pretended purpose of which is to secure a profit to any of
the parties from the yield of securities or by reference to fluctuations in the value of securities;
or
(c) any agreement for, or with a view to obtaining credit facilities from any bank or financial
institution, shall be liable for action under section 447.
NOTES
as follows:
Clause 36.—This clause corresponds to Section 68 of the Companies Act, 1956 and seeks to provide that such
persons who fraudulently induces persons to invest money by making a statement which is false, deceptive,
misleading or deliberately conceals any facts, shall be punishable for fraud.
[s 36.2] Scope of Section
This section deals with mis-statements that are not confined to those made in the prospectus but to
any proposal or offer for sale of any securities by anybody whatsoever. In this regard, any person
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70 Notified by Notification No. S.O. 2754(E) dt. 12-09-2013, w.e.f. 12 September 2013 and corresponds to
section 68 of the 1956 Act. [s 36] Punishment for frau....
who recklessly makes a statement, promise or forecast, that is false or deceptive or deliberately
conceals a material fact, would be liable under section 447. Moreover, the liability arises when such a
statement should induce another person to enter into, or to offer to enter into:
i. any agreement for, or with a view to, acquiring, disposing of, subscribing for, or underwriting
securities; or
ii. any agreement, the purpose or the pretended purpose of which is to secure a profit to any of
the parties from the yield of securities or by reference to fluctuations in the value of securities;
or
iii. any agreement for or with a view to obtaining credit facilities from any bank or financial
institution.
The essential feature of this offence is that there must be an intention of knowingly or recklessly
making a statement that is deceptive or misleading or conceals material fact. The penalty is for
fraudulently inducing persons to invest money and therefore the intention behind the act or omission
of making a statement is relevant.
In Hemendra Prasad Nag Chowdhary v Registrar of Cos,71 the complainant alleged that he had relied
upon the representation in the prospectus of the Company’s expected future results which was a mis-
statement for attracting investments. The court held that the company was merely being optimistic,
and had not defrauded the investors by mentioning definite expected future results; hence, the
prospectus was not full of false promises and inducements. The Andhra Pradesh High Court
observed that, “The only allegation against the company is that the company had given a rosy picture
in the prospectus and in the letter of offer attracting the public and shareholders to subscribe for
shares and debentures in the company, by mentioning expected future results. One has to be
optimistic in life and cannot be expected to be pessimistic. No one can expect future gloomy picture
in the prospectus or letter of offer. At the same time, the subscribers will decide on subscribing for
shares and debentures having regard to market instabilities and other risks involving in the
subscription. Simply because the company expected to give more dividend and expected to earn
more profit which the company could not achieve in future years, it cannot be said that the contents
of the prospectus and letter of offer were full of false promises and false inducements.”72
[s 36.3] Meaning of Knowingly or Recklessly
The term “knowingly” signifies knowledge of the facts on which the contravention of the provisions
takes place.73 The word “recklessly” unlike “negligently” does not connote a legal duty but must be
taken at its ordinary meaning that is with gross carelessness.74
[s 36.4] Fraudulent Inducement
The provision contemplates a criminal offence. Further, fraudulently inducing a person to invest
money is an integral feature of this section. Fraudulent inducement in turn requires specific
ingredients described in the section. These are knowledge or recklessness in connection with regard
to the false, deceptive, misleading nature of a statement or deliberate connection. Where a company
could not come out with a public issue because of a merger with another company, the court held
that the offence under section 68 of the 1956 Act (corresponding to section 36 of the 2013 Act) would
not be triggered. In the absence of any evidence produced and the fact of the merger, it could not be
held that the non-fulfilment of the assurance of public issue would be fraudulent.75
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[s 36.5] Scope of the Term “person”
This term shall include a company or association or body of individuals whether incorporated or not.76
A person will be liable under this section if he induces another person by making false statement to
enter into any agreement (a) to acquire, dispose of, subscribe or underwrite shares or debentures; or
(b) for the purpose of securing profit to any of the parties from the yield of shares or debentures or by
reference to fluctuations in their value.
[s 36.6] Nature of Statement, Promise or Forecast
In order to attract this section, the statement should be false or deceptive or misleading. The maker
of the statement knew it to be so or made the statement recklessly without caring to know whether it
was false or true. The statement, promise or forecast must be false, deceptive or misleading or there
should be dishonest concealment of material facts. “Actual inducement,” “an attempt to induce to
enter into an agreement” and “to offer to enter into an agreement” are treated as of the same gravity.
[s 36.7] Comparison with Section 448 of the 2013 Act
While section 36 of the 2013 Act deals with fraudulently inducing persons to invest money by making
a statement, promise or forecast, section 448 of the 2013 Act deals with statements made in any
return, report, certificate, financial statement, prospectus, statement or other document required
under the 2013 Act or any rules made thereunder. Section 36 of the 2013 Act deals with fraudulently
inducing a person to enter into, or to offer to enter into any of three types of agreements (as
discussed above) by knowingly or recklessly making any statement, promise or forecast which is
false, deceptive or misleading or deliberately conceals any material facts. Under section 448 of the
2013 Act, the statement which is either knowingly false in any material particulars or which knowingly
omits any material fact is by itself punishable and does not require such a statement to be directed at
achieving something, for instance, as is the case under section 36 of the 2013 Act, at inducing
somebody to enter into any agreement. Liability under section 447 of 2013 Act gets triggered due to
contravention under sections 36 and 448 of 2013 Act, respectively.
Section 36 of the 2013 Act provides that violation of the provision attracts liability under section 447
of 2013 Act. Punishment here is of imprisonment of at least six months, extendable to 10 years, and
also a fine of an amount which is at least that involved in the fraud, extendable up to three times of
the amount. If public interest is involved in the fraud committed, the imprisonment will not be less
than 3 years.
[s 36.9] The SEBI (Prohibition of Insider Trading) Regulations, 2015
The regulations prohibit individuals and entities with access to unpublished price-sensitive
information about the company from trading or agreeing to trade in its securities. An “insider” is a
person who is either in possession of or having access to unpublished price-sensitive information or a
connected person, i.e., any person who has, within 6 months of the concerned dealing, been
associated with the company either directly or indirectly, and whether through a formal association or
informally becomes acquainted with sensitive information on account of frequent communication with
the company. Further, information is characterised as “unpublished” and “price sensitive” where the
information relates either directly or indirectly to the company or its securities, such that it is generally
not known or available to the public and is capable of materially affecting the price of the securities.
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A restriction is placed on an insider from communicating or allowing access to unpublished price-

sensitive information except to the extent that the communication is required under law. The
regulations do not bar an insider from trading, and instead provides that an insider is entitled to
formulate a “trading plan” which, upon approval of the compliance officer and subject to public
disclosure, allows him to trade in the company’s securities in accordance with the plan.
The regulations mandate the company to lay down an internal code of conduct and appoint an official
qualified to implement the regulations. Whilst individual persons are responsible for non-compliance,
it is the duty of the officer to monitor the activities of the employees. There are both initial and
continuous disclosures to ensure material information about transactions by insiders is notified to the
SEBI and the public. Specifically, there is a continuous obligation on the directors, promoters and
employees of the company to disclose to the company and the stock exchange, the details of
securities traded by them.
Any violation of the regulations is penalised at the higher of either Rs 250,000,000 or three times the
profit made out of insider trading. The delinquent insider is also liable to be barred from investing in or
dealing in securities.
[s 68] Penalty for fraudulently inducing persons to invest money.—Any person who, either by knowingly or
recklessly making any statement, promise or forecast which is false, deceptive or misleading, or by any dishonest
concealment of material facts, induces or attempts to induce another person to enter into, or to offer to enter into—
(a) any agreement for, or with a view to, acquiring, disposing of, subscribing for, or underwriting shares or
debentures; or
(b) any agreement the purpose or pretended purpose of which is to secure a profit to any of the parties from the
yield of shares or debentures, or by reference to fluctuations in the value of shares or debentures;
shall be punishable with imprisonment for a term which may extend to five years, or with fine which may extend to
77[one lakh rupees], or with both.
NOTES
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The COMPANIES ACT, 1956 (1 of 1956).—The Notes on Clauses explained as follows:
See section 99 of the Company Law Committee’s redraft. Only a few drafting improvements have been effected. This
clause corresponded to section 12 of the British Prevention of Frauds (Investment) Act, 1939 (2 and 3 Geo 6 Chapter
16). [Clause 62 of the Companies Bill, 1953 (46 of 1953)]
Section 99 deals with fraudulent inducements to persons to invest in shares of a company and is enacted on the lines
of section 12 of the Prevention of Frauds (Investment) Act, 1939, which has for the first time in the history of company
law of the United Kingdom penalised the reckless making of any statement, promise or forecast which was misleading,
false or deceptive and thereby induced a person to subscribe to any issue of capital. We trust that these two sections
between them will constitute a sufficient deterrent to unscrupulous company promoters against making untrue and
deceptive statements in prospectuses with a view to obtaining capital from the public. [Report: para 62]
The Notes on Clauses explained the amendments as follows:
This clause seeks to enhance the fine specified in section 68 of the Companies Act, 1956 from ten thousand rupees to
one lakh rupees. [Clause 24 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)]
[s 36.12] Directors as Officer in Default
In I.B. Rao v Registrar of Cos,78 the Andhra Pradesh High Court observed that a specific averment
had been made in the complaint against all the directors for the mis-statements in the prospectus
which led the public to subscribe to the shares of the company. Furthermore, the petitioner (one of
the directors) had not specifically denied in the reply to the show-cause notice issued to the company
and the directors that he was not the officer in default within the meaning of section 5 of the 1956
Act.79 Therefore, there was no merit in the contention that he was not liable for any lapses on the part
of the managing director of the company who was looking after its affairs.80
Here, it was alleged that the appellants had induced certain non-resident Indians to pay money on
the pretext of investing into a company on whose behalf they claimed to be collecting the amount.
However, the money was siphoned-off to bogus off-shore entities which in turn invested into the
company. Hence, the original investors did not receive shares against which they had made
payments, and it was alleged that the company in whose name the money was being collected was
Mr. Laghir1 Rabari

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defrauded. The court observed that the power of quashing a criminal complaint is to be exercised
very sparingly and with circumspection and in the rarest of rare cases. The court held from a reading
of the complaint and the materials produced, it could not be said that the allegations taken in entirety
did not make out, prima facie, any of the offences alleged in the complaint. The court further
observed that the allegations in relation to the joint venture company registered under the 1956 Act
were serious in nature. The court held that questions raised required an enquiry into facts which
could not be considered at the preliminary stage. On these grounds, the court upheld order of the
high court of not quashing the complaint and the initiated proceedings.
Where there was a sponsorship agreement between two companies for the purpose of raising
finance, investors subscribed to equity shares in sponsored company on the representation that
shares would be arranged to be sold to public by certain date. A further agreement was arrived at
between sponsor and sponsored company that sale to the public will be at date determined by the
sponsor. The investors complained of false representation and cheating. It was held that the court
must be satisfied that there was deception at the time of representation. But that cannot be gauged
only on the basis of the earliest representation alone. The intention of the accused depends upon the
inducement, which may be judged by his subsequent conduct also. In the facts of the case, there was
a chain of events taking place. Consequently, there was sufficient ground for the Magistrate to take
cognisance of the offence as against the accused. For offence under the 1956 Act, the complaint
ought to have been filed by the Registrar. But, as none of the parties had stated under what section
the Magistrate had taken cognisance, this was a matter which could be raised at the time of framing
charges by the Magistrate. The complaint could not be quashed.82
See detailed Notes under sections 5, 63, 68 and 628.
[s 36.14] False Statement in Prospectus—Prosecution for—Limitation—Power of Attorney—

Resignation by Director
A complaint was filed after seven years from the date of issue of the 1956 Act (corresponding to
sections 2(60), 34, 36 and 448 of the 2013 Act).
[s 36.15] Compounding of Offences
A petition was filed for compounding of the offences alleged in the prosecution case initiated by the
SEBI. The petition for compounding of offences was allowed. The violations alleged were committed
in March 1995, and the criminal action was taken in March 2003. The purported graveness of the
offence was lost. The power of compounding of the offence vested in the Company Law Board [now
the Central Government] was discretionary and could not be refused in the facts and circumstances
of the case in the absence of evidence supporting grave consequences of the violations made of the
provisions of the law. A person cannot be subjected to penalty greater than that is applicable when
alleged offence took place.83
See detailed Notes under sections 63, 68 and 621A of the 1956 Act (corresponding to sections 34,
36 and 439 of the 2013 Act).
[s 36.16] Relief
Where notices were issued to the company by the Registrar of Companies (ROC) as a “vanishing
company” for non-compliance. The Registrar of Companies had not pointed out any specific
instances stating which false or deliberate statements were made in the prospectus to induce the
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public to subscribe for shares in the company. If any action is taken without any basis, the Court has
every power to entertain an application for relief under section 633(2) of the 1956 Act. In the instant
case, sanctioning of loan by the financial institutions, granting licenses by the respective authorities
and furnishing returns and statements before the statutory authorities under the Excise and other
laws were sufficient to reveal that the company had made all attempts to adhere to the assurances
and promises given in the prospectus. If something was lacking somewhere, no motive could be
attributed to that only with a view to bring the case within the purview of sections 63, 68 or 628 of the
1956 Act. That there was no satisfactory explanation for non-fulfilment of assurances and promises
should not entitle initiation of action under sections 63, 68 or 628 of the 1956 Act. On facts, the
applicants had acted bona fide and there was no deliberate intention on their part to defraud the
public and there was no false or deliberate statement in prospectus. Therefore, the notices issued by
the Registrar of Companies were liable to be set aside.84
See detailed Notes under sections 63, 68, 628 and 633 of the 1956 Act (corresponding to s. 463 of
the 2013 Act).
[s 36.17] Comparison with 2013 Act
The position of law under section 62 of the 1956 Act has been substantially carried forward under
section 36 of the 2013 Act. While section 68 of the 1956 Act was limited to shares and debentures,
section 36 of the 2013 Act is applicable to any kind of securities. Further, the differences between the
two provisions in terms of the penalty applicable and the scope of offences are discussed below.
Section 36 of the 2013 Act provides that violation of the provision attracts liability under section 447
of the 2013 Act. Punishment here is of imprisonment of at least six months, extendable to 10 years,
and also a fine of an amount which is at least that involved in the fraud, extendable up to three times
of the amount. Under section 68 of the 1956 Act, punishment is of imprisonment up to five years or of
fine up to Rs 1,00,000 or with both. Evidently, the punishment attracted under the 2013 Act is stricter
than that under the 1956 Act.
The two provisions also highlight certain other differences in the scope of offences. First, even an
attempt to induce was punishable under section 68 of the 1956 Act which has not been retained
under section 36 of the 2013 Act which requires the actual act of inducing to take place. Secondly,
the 2013 Act contains an agreement relating to obtaining credit facilities from any bank or financial
institution.85
See also Notes under section 439 of the 2013 Act (corresponding to sections 621 and 621A of the
1956 Act).
70 Notified by Notification No. S.O. 2754(E) dt. 12-09-2013, w.e.f. 12 September 2013 and corresponds to section 68 of
the 1956 Act.
71 Hemendra Prasad Nag Chowdhary v Registrar of Cos, [2010] 158 COMP CASES 21 (AP).
72 Hemendra Prasad Nag Chowdhary v Registar of Cos, [2010] 158 COMP CASES 21 (AP).
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73 Burton v Bevan, (1908) 2 Ch. 240 : 77 LJ Ch. 591 : 99 LT 342; Lomas v Peck, (1947) 2 All ER 574.
74 Bholasons Exports v Oriental Insurance Co Ltd, IV (2006) CPJ 434 (NC); Air India Ltd v India Everbright Shipping &
Trading Co., I (2002) CPJ 51 (NC).
75 Dilip S. Dahanukar v Padam Kumar Khaitan, `996 Cr LJ 1569 (Raj.).
76 Section 3(42) of the General Clauses Act, 1897.
79 For the purpose of any provision in the 2013 Act which enacts that an officer of the company who is in default shall be
liable to any punishment or penalty, whether by way of imprisonment, fine or otherwise, the expression “officer who is in
default” means all the following officers of the company, namely, (a) the managing director or managing directors; (b)
the whole-time director or whole-time directors; (c) the manager; (d) the secretary; (e) any person in accordance with
whose directions or instructions the board of directors of the company is accustomed to act; (f) any person charged by
the board with the responsibility of complying with that provision: Provided that the person so charged has given his
consent in this behalf to the board; (g) where any company does not have any of the officers specified in clauses (a) to
(c), any director or directors who may be specified by the board in this behalf or where no director is so specified, all the
directors: Provided that where the board exercises any power under clause (f) or clause (g), it shall, within 30 days of
the exercise of such powers, file with the Registrar a return in the prescribed form.
82 Sundaram Finance Services Ltd v Grandtrust Finance Ltd, (2002) 112 COMP CAS 361 (Mad.).
83 In Re, Ritesh Polysters Ltd ; In Re: Shri Shiv Shanker Agarwal; In Re: Shri Surender Kumar Agarwal ; In Re: Shri
Mahender Kumar Agarwal; In Re: Shri Roop Rekha Agarwal, (2005) 123 COMP CAS 348 (CLB).
84 Hafez Rustom Dalal v Registrar of Cos, (2005) 128 COMP CAS 883 (Guj.). See also, G. Ramesh v Registrar of Cos,
(2007) 135 COMP CAS 655 (Mad.).
85 Section 36(c) of the 2013 Act.
End of Document
Mr. Laghir1 Rabari

86 Notified by Notification No. S.O. 2754(E) dt. 12 September 2013, w.e.f. 12
September 2013. [s 37] Action by affected persons.—
PUBLIC OFFER
86[s 37] Action by affected persons.—
A suit may be filed or any other action may be taken under section 34 or section 35 or section 36 by
any person, group of persons or any association of persons affected by any misleading statement or
the inclusion or omission of any matter in the prospectus.
NOTES
Section 37 of the 2013 Act is a new provision and does not correspond to any section in the 1956
Act.
as follows:
This is a new clause which seeks to provide that a suit may be filed or any other action may be taken by any person,
group of persons or any association of persons who have been affected by any misleading statement or the inclusion
or omission of any matter in the prospectus.
[s 37.2] Locus Standi
Section 37 of the 2013 Act allows only “persons affected” by any misleading statement or omissions
in the prospectus to bring an action. The phrase “persons affected” denotes that the person or
persons must have suffered loss due to the mis-statements or omissions of any matter in the
prospectus. Therefore, liability to pay damages arises only if the persons claiming can show that they
have been affected by reason of the omission or mis-statement. The measure of damages for loss
suffered by reason of the untrue statement or omission has been held to be the difference between
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86 Notified by Notification No. S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013. [s 37] Action
by affected persons.—
the value of the shares (had such a statement or omission not been made) and the true value of the
shares at the time of allotment.87 As held, mis-statements and omissions give rise to an action of tort,
i.e., an action for a wrong done by which the plaintiff was deceived. In this regard, in the case of
McConnel v Wright, it was held that the highest limit of a person’s damage is the whole extent of his
loss, and that loss is measured by the money which was with him but due to the mis-representation is
now with the company.88
[s 37.3] Mis-statements or Omissions
Instances of mis-statements/omissions include untrue statements about persons who are the
directors of the company,89 non-disclosure of the fact that dividends were paid out of realised capital
profits,90 promoters and directors promising to subscribe to a certain amount of shares but
subscribing to much less,91 mis-representations as to working capacity and scale of operations,92 etc.
Section 37 of the 2013 Act enables any person, group of persons or any association of persons who
have suffered a loss due to mis-statements or omissions in a prospectus to file a civil suit. This
provision is an exception to the general rule regarding civil courts jurisdiction laid down in section
43093 of the 2013 Act. Section 430 excludes the jurisdiction of civil courts for any suit or proceeding in
respect of which the NCLT94 has jurisdiction. Since section 37 of the 2013 Act allows persons
affected to file a civil suit, this section provides civil courts with the jurisdiction in relation to such suits.
See also notes on section 430 of the 2013 Act.
Moreover, the person or persons affected by mis-statements or omissions in a prospectus also have
the option of taking other actions as per sections 34 (criminal liability for mis-statement in
prospectus), 35 (civil liability for mis-statements in prospectus) and 36 (punishment for fraudulently
inducing persons to invest money) of the 2013 Act. See notes on sections 34, 35 and 36 of the 2013
Act.
86 Notified by Notification No. S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013.
87 McConnel v Wright (1903) 1 ChD546.
88 (1903) 1 ChD 546.
89 Re, Scottish Petroleum Co., (1883) 23 ChD 413.
90 R v Kylsant, (1932) 1 KB 442.
91 Shiromani Sugar Mills v Debi Prasad, AIR 1950 All 508.
92 Reese River etc. v Smith (1869) LR HL 64.
93 Notified by Notification No. S.O. 1934 (E) dt. 01 June 2016, w.e.f. 01 June 2016.
94 Constituted by Notification No. S.O. 1935 (E) dt. 01 June 2016, w.e.f. 01 June 2016.
End of Document
Mr. Laghir1 Rabari

September 2013 and corresponds to section 68A of the 1956 Act. [s 38]
Punishment for personation for acquisition, etc., of securities.—
PUBLIC OFFER
95[s 38] Punishment for personation for acquisition, etc., of securities.—
(1) Any person who—

(a) makes or abets making of an application in a fictitious name to a company for acquiring,
or subscribing for, its securities; or
(b) makes or abets making of multiple applications to a company in different names or in
different combinations of his name or surname for acquiring or subscribing for its
securities; or
(c) otherwise induces directly or indirectly a company to allot, or register any transfer of,
securities to him, or to any other person in a fictitious name, shall be liable for action
under section 447.
(2) The provisions of sub-section (1) shall be prominently reproduced in every prospectus issued
by a company and in every form of application for securities.
(3) Where a person has been convicted under this section, the Court may also order
disgorgement of gain, if any, made by, and seizure and disposal of the securities in
possession of, such person.
(4) The amount received through disgorgement or disposal of securities under sub-section (3)
shall be credited to the Investor Education and Protection Fund.
NOTES
as follows:
Clause 38.—This clause corresponds to section 68A of the Companies Act, 1956 and seeks to provide that those
persons who apply in fictitious name or makes multiple applications or otherwise induces companies to allot shares in
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95 Notified by Notification No. S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and
corresponds to section 68A of the 1956 Act. [s 38] Punishment ....
fictitious name, shall be punishable for fraud. The clause further provides that Court may order disgorgement of any
gains and seizure and disposal of such securities.
Section 38 prohibits impersonation in relation to offering securities and criminalises the making of
fictitious accounts. As per this section, any
i. creation of fictitious name;

ii. making of multiple applications to a company in different names; or
iii. otherwise inducing directly or indirectly a company to allot, or register any transfer of,
securities to him, or to any other person in a fictitious name,
will attract liability under section 447.
Further, as per sub-section (2), the provisions in relation to sub-section (1) are to be prominently
reproduced on the prospectus and in the application form.
[s 38.2] Offences Cognisable only on Complaint [Section 439 of 2013 Act]
No Court shall take cognisance of any offence against the 2013 Act by a company or any officer,
except on the complaint in writing of the Registrar, a shareholder or a person authorised by the
Central Government. The court may also take cognisance of offence relating to issue and transfer of
securities and non-payment of dividend on a complaint in writing by a person authorised by the SEBI.
This provision corresponds to section 621 of the 1956 Act.
[s 38.3] Punishment for Personation under Section 57 of the 2013 Act
While section 38 of the 2013 Act deals with personation for acquisition of securities, section 57
provides for punishment for personation of shareholder. Here, if a person deceitfully personates as a
shareholder or as having an interest in a company, or as having any share warrant or coupon, or
receives or attempts to receive any money due to any such owner, punishment of a term not less
than a year and extendable to three years and with fine not less than Rs 1,00,000 and which may
extend to Rs 5,00,000 will be attracted.
See detailed notes on punishment for personation under section 57 of the 2013 Act.
96[s 68A] Personation for acquisition, etc., of shares.—(1) Any person who— The Companies Act, 1956 provision
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Page 3 of 5
(a) makes in a fictitious name an application to a company for acquiring, or subscribing for, any shares therein, or
(b) otherwise induces a company to allot, or register any transfer of, shares therein to him, or any other person in
a fictitious name, shall be punishable with imprisonment for a term which may extend to five years.
(2) The provisions of sub-section (1) shall be prominently reproduced in every prospectus issued by the company and
in every form of application for shares which is issued by the company to any person.]
NOTES
Section 68A of the 1956 Act corresponds to section 38 of the 2013 Act.
THE COMPANIES (AMENDMENT) ACT, 1965 (31 OF 1965).—The Notes on Clauses explained this section as follows:
This clause is based on the recommendation contained in para 11 of the Commission’s Report. It seeks to make it an
offence to make applications for shares in the name of, or to induce the allotment of shares to, fictitious persons.
[s 38.5] Scope of Section 68A of the 1956 Act
Any person who (a) makes in a fictitious name an application to a company for acquiring, or
subscribing for, any shares therein, or (b) otherwise induces a company to allot, or register any
transfer of, shares therein to him, or any other person in a fictitious name, is punishable. As
mentioned, this section applies only to shares and not any other securities.
While section 68A of the 1956 Act dealt with acquiring or subscribing only to shares of a company by
an application in a fictitious name, section 38 of the 2013 Act deals with acquiring or subscribing to
any kind of securities in a fictitious name. Further, the punishment under section 68A of the 1956 Act
was a maximum of 5 years, whereas under section 38 of the 2013 Act, the maximum punishment is
10 years (as per section 447 of the 2013 Act). Another significant difference between the two
provisions is that unlike section 68A of 1956 Act, section 38 of 2013 Act also provides for punishment
in case a person makes multiple applications to a company in different names or in different
combinations of names for acquiring or subscribing to the securities of the company. Additionally, as
per sub-sections (3) and (4) of s. 38 of the 2013 Act, where a person is convicted by a court, the
court may also order disgorgement of gain, with the proceeds being credited to the Investor
Education and Protection Fund.
[s 38.7] Commissions Reports
Two reports relevant to the genesis of section 68A of the 1956 Act are the Vivian Bose Commission
Report and the Daphtary-Sastri Committee Report. These have been discussed below.
[s 38.8] Vivian Bose Commission Report
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The recommendation contained in para 11 of the Commission of Inquiry on the Administration of

Dalmia-Jain Companies or the Vivian Bose Commission Report is reproduced below:
“Issue and allotment of shares in the names of fictitious or non-existing persons.—11. An instance came to the notice
of the Commission where shares of a public company to the extent of Rs 16 lakhs were applied for on behalf of 114
non-existing shareholders. Although it cannot be stated that this practice is of widespread usage, still any instance of
such practice should be dealt with severely. At one time the Commission thought that it might be possible to obtain
application forms to be attested by a Magistrate or a Justice of the Peace or a Gazetted Officer of Government; but it
was felt that this practice would result in inconvenience to genuine applicants and bring out, particularly within the
confines of a small community, the private affairs of individuals. However, in order to eradicate such a practice, even
though fortunately not widespread, it is recommended that—
(i) A provision should be made in the Companies Act, whereby any person who, either makes an application to
the company or otherwise induces the company to allot or transfer its shares in the names of fictitious or,
non-existent persons, shall be punishable with imprisonment which may extend to five years.
(ii) The penal provision suggested in item (i) above shall be inserted at a prominent place—(a) in every
prospectus issued by a company; and (b) in every form of application for shares that is issued to any person.”
[Report : para 11].
[s 38.9] b. Daphtary-Sastri Committee Recommendations
Holding of shares in fictitious names.—The Commission has adverted to a case where shares to the extent of 16 lakhs
in a public company were applied for on behalf of non-existing shareholders. Benami shareholding and shareholding in
the names of fictitious or non-existing persons are common. The object is to avoid tax and defraud the revenue in
cases where the super-tax limit is reached. A provision should be made in the Companies Act making it a punishable
offence for a person to apply for or get an allotment of shares or get a transfer of shares registered in the names of
fictitious or non-existing persons or benamidars and a clause to this effect should be inserted in every prospectus
issued by the company and applications for shares or registration of transfer of shares. [Daphtary-Sastri Committee
Report : relevant para].
[s 38.10] Provisions of Section 68A(1) to be Prominently Reproduced in Prospectus and

Form of Application [Section 68A(2)]
The provisions of section 68A(1) shall be prominently reproduced in every prospectus and form of
application for shares issued by the company.
See detailed Notes on Prospectus under section 56 of the 1956 Act (corresponding to section 26 of
the 2013 Act).
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The court observed that the power of quashing a criminal complaint is to be exercised very sparingly
and with circumspection and in the rarest of rare cases. The court held from a reading of the
complaint and the materials produced that it could not be said that the allegations taken in entirety did
not make out, prima facie, any of the offences alleged in the complaint. The court further observed
that the allegations in relation to the joint venture company registered under the 1956 Act were
serious in nature. The court held that questions raised required an enquiry into facts which could not
be considered at the preliminary stage. On these grounds, the court upheld order of the high court of
not quashing the complaint and the initiated proceedings.2
[s 38.12] Penalty
A person who makes an application in a fictitious name for acquiring or subscribing shares shall be
liable to imprisonment which may extend to 5 years. A person who induces a company to allot any
shares or to register any transfer of shares in a fictitious name is also liable to the same punishment.
See also Notes under sections 621 and 621A of the 1956 Act (corresponding to section 439 of the
2013 Act).
95 Notified by Notification No. S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to
section 68A of the 1956 Act.
96 Inserted by the Companies (Amendment) Act, 1965 (31 of 1965), section 8 (w.e.f. 15 October 1965). This amending
Act has been repealed by the Repealing and Amending Act, 2016.
End of Document
Mr. Laghir1 Rabari

September 2013 and corresponds to sections 69 and 75 of the 1956 Act. [s
39] Allotment of securities by company.—
PUBLIC OFFER
3[s 39] Allotment of securities by company.—
(1) No allotment of any securities of a company offered to the public for subscription shall be
made unless the amount stated in the prospectus as the minimum amount has been
subscribed and the sums payable on application for the amount so stated have been paid to
and received by the company by cheque or other instrument.
(2) The amount payable on application on every security shall not be less than five per cent. of
the nominal amount of the security or such other percentage or amount, as may be specified
by the Securities and Exchange Board by making regulations in this behalf.
(3) If the stated minimum amount has not been subscribed and the sum payable on application is
not received within a period of thirty days from the date of issue of the prospectus, or such
other period as may be specified by the Securities and Exchange Board, the amount received
under sub-section (1) shall be returned within such time and manner as may be prescribed.4]
5[(4) Whenever a company having a share capital makes any allotment of securities, it shall file
with the Registrar a return of allotment in such manner as may be prescribed.6]
7[(5) In case of any default under sub-section (3) or sub-section (4), the company and its officer
who is in default shall be liable to a penalty, for each default, of one thousand rupees for each
day during which such default continues or one lakh rupees, whichever is less.]
NOTES
Section 39 of the 2013 Act corresponds to sections 69 and 75 of the 1956 Act.
follows:
This clause corresponds to Sections 69 and of the Companies Act, 1956 prohibiting allotment of securities where the
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3 Notified by Notification No. S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds
to sections 69 and 75 of the 1956 Act. [s 39] Allot....
minimum amount has not been subscribed, the amount is to be refunded to all the applicants within a given time frame.
This clause further provides that whenever a company having a share capital makes any allotment of securities, it shall
file return of allotment with the registrar. In case of any default under sub-clause (3) and (4) the company and its
officers who are in default shall be liable to fine.
[s 39.2] Minimum Subscription
As per sub-section (1) of section 39 of the 2013 Act, there can be no allotment of shares, unless the
minimum subscription amount as provided for in the prospectus has been subscribed. Further, if such
a minimum amount is subscribed but is not received, then also no allotment of shares can be made.
[s 39.3] Minimum Subscription under the SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2009
regulation 14 provides that the minimum subscription shall not be less than 90% of the offer through
the offer document. If the minimum subscription is not received, the subscription money shall be
returned within:
a. Non-underwritten issue: 15 days of the closure of the issue; and
b. Underwritten issue: 70 days of the closure of the issue, in the case of an underwritten issue
where minimum subscription including devolvement obligations paid by the underwriters is
not received within 60 days of the closure of the issue.
regulation 14 further clarifies that the SEBI (Issue of Capital and Disclosure Requirements)
Regulations, 2009 do not apply to offer for sale of specified securities unless it is in relation to the
requirement relating to allotment of minimum number of specified securities.
[See regulations 14 and 99 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations,
20098]
[s 39.4] Application Money
As per sub-section (2) of section 39 of the 2013 Act, the minimum amount of application money that
must be paid is 5% of the nominal amount of the security or such amount as the SEBI (SEBI)
provides.
[s 39.5] Scheduled Bank(s) which are Bankers to the Issue
Application money may be kept in a Scheduled Bank. But where the shares or debentures are to be
dealt with on Stock Exchange, the application money must be kept in a separate Bank Account.
Scheduled Bank in sections 39 and 40 of the 2013 Act (corresponding to sections 69(4), 73(3) and
(3A) of the 1956 Act) must be taken as Scheduled Bank(s) which are Bankers to the Issue. Monies
must be so kept with Bankers to the Issue and not in any Scheduled Bank of company’s choice. It is
only the bankers to the issue who are subject to the statutory control of the SEBI through the SEBI
(Bankers to an Issue) Rules and Regulations. Monies must be so kept till all the mandatory
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requirements of sections 39 and 40 of the 2013 Act (corresponding to 69 and 73 of the 1956 Act) are
complied with and till the company can proceed to make valid allotment of shares. The direction by
the appellate authority, the SEBI, to transfer all monies or funds from the Scheduled Bank to Bankers
to the Issue was therefore held to be proper. On the company failing to do so, the Stock Exchange
refusing listing permission was also proper.9
See detailed Notes under section 73 of the 1956 Act (corresponding to section 40 of the 2013 Act).
[s 39.6] Refund
As per sub-section (3) of section 39 of the 2013 Act, if the total money received is below the minimum
threshold as provided for in sub-section (1) of section 39 of the 2013 Act and the sum payable on
application is not received within a period of 30 days from the date of issue of the prospectus, in such
cases, the money received is to be refunded. The manner of refund is specified by the Central
Government, and the SEBI is given the power to fix timelines. Additionally, rule 11 of the Companies
(Prospectus and Allotment of Securities) Rules, 2014, provides that the application money has to be
repaid within a period of 15 days from the closure of the issue, not happening which, the directors of
the company who are officers in default will be jointly and severally liable to repay that money with
interest at the rate of 15% per annum.
[s 39.7] Unclaimed Application Moneys due for Refund to be Transferred to Investor

Education and Protection Fund
Section 125 of the 2013 Act (corresponding to section 205C of the 1956 Act) provides for an Investor
Education and Protection Fund.
As per the 2013 Act, the application moneys received by companies for allotment of any securities
and due for refund and the interest accrued thereon shall be transferred to the Investor Education
and Protection Fund.
See detailed Notes, rules, Form and Procedure and Department’s views under section 125 of the
2013 Act (corresponding to section 205C of the 1956 Act).
[s 39.8] Allotment
It means and implies a division of the share capital into definite shares of a particular value or of
different classes and assignment of such shares to different persons by the Board of directors. While
no time limit per se is specifically mentioned for allotment of shares under this Section, as per the
Companies (Acceptance of Deposits) Rules, 2014 if the securities for which application money or
advance for such securities was received cannot be allotted within 60 days from the date of receipt of
the application money or advance for such securities and such application money or advance is not
refunded to the subscribers within 15 days from the date of completion of 60 days, then such amount
will be treated as a “deposit” under the 2013 Act and the company will have to comply with the
Deposit Rules accordingly. A return of allotment shall be filed with the Registrar of Companies in
Form PAS-3 (corresponding to Form 2 under the 1956 Act) for the allotments made. Allotment does
not include a re-issue of forfeited shares and therefore filing of a Return of re-allotment of such
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shares with the Registrar of Companies is not necessary.10
[s 39.9] Return of Allotment to be Filed
When the subscription amount reaches the minimum threshold, the company is required to file a
return of allotment under section 39(3) of the 2013 Act. Rule 12 of the Companies (Prospectus and
Allotment of Securities) Rules, 2014, provides that within 30 days of allotment of securities, the
company is required to file a return of allotment in Form PAS-3 with the Registrar, along with the fee
as specified in the Companies (Registration Offices and Fees) Rules, 2014.
[s 39.10] Penalty
In case of contravention of sub-sections (3) and (4) of section 39 of the 2013 Act, the company as
well as the officer who was in default will be liable to a penalty of Rs 1,000 for each day during which
such default continues or Rs 1,00,000, whichever is less.
[s 69] Prohibition of allotment unless minimum subscription received.—(1) No allotment shall be made of any
share capital of a company offered to the public for subscription, unless the amount stated in the prospectus as the
minimum amount which, in the opinion of the Board of directors, must be raised by the issue of share capital in order to
provide for the matters specified in clause 5 of Schedule II has been subscribed, and the sum payable on application
for the amount so stated has been paid to and received by the company, whether in cash or by a cheque or other
instrument which has been paid.
(2) The amount so stated in the prospectus shall be reckoned exclusively of any amount payable otherwise than in
money, and is in this Act referred to as “the minimum subscription.”
(3) The amount payable on application on each share shall not be less than five per cent. of the nominal amount of the
share.
11[(4) All moneys received from applicants for shares shall be deposited and kept deposited in a Scheduled Bank—
(a) until the certificate to commence business is obtained under section 149, or
(b) where such certificate has already been obtained, until the entire amount payable on applications for shares in
respect of the minimum subscription has been received by the company, and where such amount has not
been received by the company within the time on the expiry of which the moneys received from the
applicants for shares are required to be repaid without interest under sub-section (5), all moneys received
from applicants for shares shall be returned in accordance with the provisions of that sub-section.
In the event of any contravention of the provisions of this sub-section, every promoter, director or other person who is
knowingly responsible for such contravention shall be punishable with fine which may extend to 12[fifty thousand
rupees].]
(5) If the conditions aforesaid have not been complied with on the expiry of one hundred and twenty days after the first
issue of the prospectus, all moneys received from applicants for shares shall be forthwith repaid to them without
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interest; and if any such money is not so repaid within one hundred and thirty days after the issue of the prospectus,
the directors of the company shall be jointly and severally liable to repay that money with interest at the rate of six per
cent. per annum from the expiry of the one hundred and thirtieth day:
Provided that a director shall not be so liable if he proves that the default in the repayment of the money was not due to
any misconduct or negligence on his part.
(6) Any condition purporting to require or bind any applicant for shares to waive compliance with any requirement of
this section shall be void.
(7) This section, except sub-section (3) thereof, shall not apply in relation to any allotment of shares subsequent to the
first allotment of shares offered to the public for subscription.
NOTES
See Section 101A of the Company Law Committee’s redraft and Section 47 of the English Act. [Clause 63 of the
The Joint Committee recommended further changes and explained as follows:
In order to cover all kinds of instruments by means of which payments may be made, the words ‘or by other instrument’
have been added after the word ‘cheque’ in sub-clause (1).
The period provided in this clause for repayment by the Company of the moneys to the applicants for shares has been
increased from 90 to 120 days. As a consequential change, the period on the expiry of which the liability of the
directors to repay the moneys will arise has been extended from 100 to 130 days. On the other hand, the rate of
interest fixed under the clause has been raised from 5 to 6 per cent. [Joint Committee Report: para 29].
The Notes on Clauses explained the amendments as follows:
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This clause is based on the recommendation made by the Vivian Bose Commission and the Daphtary-Sastri
Committee. This is intended to safeguard the amounts paid by the applicants for shares until such time as the
minimum subscription is collected by the company. The proposed amendment to Section 69(4) is on the lines indicated
by the Daphtary-Sastri Committee. [Clause 9 of the Companies (Second Amendment) Bill, 1964 (64 of 1964)].
The recommendations contained in paras 57 to 59 of the Report of the Commission of Inquiry on the
Administration of Dalmia-Jain Companies (Vivian Bose Commission) are reproduced below:
“Prohibition of allotment until receipt of minimum subscription.—57. Under the existing provisions of Section 69 of the
Companies Act, 1956 (1 of 1956) a company cannot allot any of its share capital offered to the public for subscription,
unless the amount stated in the Prospectus as minimum subscription has been received by the company. Sub-section
(4) of the same section provides that all moneys received from applicants for shares shall be deposited, and kept
deposited, in a scheduled bank until either they are returned to the applicants or the certificate to commence business
is obtained under Section 149.
58. An instance came to the notice of the Commission where a company obtained its certificate to commence business
by filing a Statement in lieu of Prospectus. Thereafter, further capital was offered to the public, and the moneys
received from applicants were not deposited in a scheduled bank but were allowed to remain in the hands of a sister
company, which had also acted as underwriters. The company was enabled to do this, because under the provisions of
Section 101(2B) of the Indian Companies Act, 1913, analogous to Section 69(4) of the Companies Act, 1956, the
moneys received from applicants were required to be deposited in a scheduled bank until required to be returned to the
applicants or until the certificate to commence business was obtained. Since, in this instance, the company had
already obtained the certificate to commence business after filing the Statement in lieu of Prospectus, it was not
obliged to keep the moneys in a scheduled bank when these were received as a result of the Prospectus subsequently
issued.
59. In view of this, we recommend that—The words “until the certificate to commence business is obtained under
Section 149” be deleted from Section 69(4) and instead the following words be added, namely, “till the amount stated
in the Prospectus as the “minimum subscription” is raised”.” [Commission’s Report: paras 57 to 59].
[s 39.14] Daphtary-Sastri Committee Recommendations
“Minimum subscription: An instance came to the notice of the Commission of Inquiry where a company obtained its
certificate to commence business by filing a statement in lieu of prospectus. Therefore, further capital was offered to
the public but the monies received from the applicants were not deposited in a scheduled bank but were allowed to
remain in the hands of a sister company. Since it had already obtained a certificate the company was not obliged under
Section 101(2)(b) of the Indian Companies Act, 1913, which corresponds to Section 69(4) of the Act of 1956, to deposit
the monies in an account with a scheduled bank. In order that the amounts paid by applicants are safeguarded until
such time as the minimum subscription is received by the company, Section 69(4) should be amended by adding at the
end of the first para the words “or till the amount stated in the prospectus as the minimum subscription is raised,
whichever is later”.” [Report: para 7].
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The Joint Committee further recommended as follows: “The Committee noted that the entire amount of the minimum
subscription for shares is not invariably called for at one time and feel that the proposed new sub-section (4)(b) should
apply only to the amount payable on applications in respect of the minimum subscription. The Committee also feel that
the punishment clause in the existing sub-section (4) of Section 69 of the principal Act should be retained. The clause
has been amended accordingly.” [Report: para 14].
The Notes on Clauses explained as follows:
“This clause seeks to enhance the fine specified in sub-section (4) of Section 69 of the Act from Rs 5,000 to Rs
50,000.” [Clause 25 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
[s 39.16] No Allotment Unless Minimum Subscription Received
No allotment of shares offered to public shall be made unless (i) minimum subscription, viz., amount
stated in prospectus as minimum which in the opinion of Board of directors must be raised to provide
for matters specified in clause 5 of Schedule II [see substituted Schedule II (w.e.f. 1 November
1991)], has been subscribed, and (ii) Application Money in respect of the amount so stated has been
received by the company in cash or by a cheque or other instrument which has been paid.
[s 39.17] Application Money
The amount payable on application on each share shall not be less than 5% of the nominal amount of
the share.
[s 39.18] Allotment
This is covered in the discussion under the 2013 Act, as explained in the commentary above.
[s 39.19] Section not Applicable after First Allotment
The provisions of this section, except sub-section (3) of section 69 of the 1956 Act relating to
application money, do not apply to allotment subsequent to the first allotment.
[s 39.20] Principles of Allotment and Oversubscription
Where allotment is made against assets and liabilities taken over of an existing business, verification
of assets and liabilities should be done and enclosed with the return filed with the Registrar. While
allotting shares, the Board of directors should ensure that the interests of the genuine small investors
are promoted and the widest possible dispersal of the shareholders takes place.
[s 39.21] Two Conditions Precedent for Valid Allotment [Sections 69 and 73]
In Rich Paints Ltd v Vadodara Stock Exchange Ltd,13 the company had made a public issue of equity
shares, and according to the terms of prospectus, the shares were to be listed on three stock
exchanges including the BSE. However, the BSE changed its listing conditions which were not met
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by the company. In light of this, the court held that under sections 69 and 73 of the 1956 Act when
shares are to be dealt with on recognised stock exchange(s), for valid allotment of shares, inter alia,
two conditions precedent are: (i) Minimum Subscription and (ii) Listing Permission by each of the
recognised stock exchanges specified in prospectus. Minimum subscription precedes listing
permission. Therefore, where minimum subscription has not been received, the Stock Exchange may
refuse to grant listing permission.
[s 39.22] Allotment Void on Refusal by One Stock Exchange
In case of refusal by one recognised stock exchange out of the several recognised stock exchanges
specified in Prospectus, the application for the entire allotment shall become void unless the refusal
by the Stock Exchange was set aside on an appeal.14
[s 39.23] Allotment Binding Contract
To obtain a binding allotment, there must be application, an allotment and a communication of that
allotment.15 If the notice of allotment is sent by post, the acceptance is deemed to be notified when
the notice is posted, even though it never reaches the applicant, provided the offer is one which can
be accepted by a letter sent through post.16
The provisions of the deemed delivery cannot be relied upon where it was established that document
was not delivered and the postman had testified that he had returned the letter to the company’s
office. The directors knew that the letter had not been delivered and the shareholders wanted to take
up the allotment.17
A formal notice of allotment is not necessary for a binding allotment if enough was done to notify the
allottee of the fact.18 The allotment should be made within a reasonable time, and a person is not
bound to accept an allotment made after the lapse of a reasonable time.19 An offer to take shares
may be withdrawn before the allotment is communicated or posted.20 A contract to take shares or
debentures or to allot shares can be specifically enforced.21
[s 39.24] Oral Application and Allotment
The provisions of the 1956 Act nowhere provide that there must be a written application for allotment
of shares and, therefore, an allotment can be made on the basis of an oral application. If there had
been an oral offer for allotment of shares which had been accepted by the company, the allotment
made on the basis of that offer cannot later on be questioned on the ground that there was no
application in writing. In this case, the allotment had been made unanimously in a board meeting, the
validity of which has not been questioned. Where the directors have power under the articles of
association of the company to issue and allot shares in the capital of the company either as fully paid
up or partly paid in full payment or part payment to director-creditors for any property, goods,
machinery supplied or services rendered to the company in or about the formation or promotion of
the company or the conduct of the business and if an allotment of shares is made in pursuance of
this power, such allotment will not come under the scope of section 81 of the 1956 Act which applies
when the company proposes to increase its subscribed capital by allotment of shares to the public.22
[s 39.25] Written Application for Allotment in a winding up Case
In a case before the Delhi High Court, the petitioner prayed for a direction to the official liquidator,
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involved in the winding up process, for removing his name from the list of contributories. This was on
the ground that he did not hold 50,000 shares mentioned in the register of members and held only
500 equity shares in the company. Here, the court held that a written application for allotment of
shares is necessary before a person can be entered as a member in the register of shareholders and
consequently be placed on the list of contributories in case of winding up.23
[s 39.26] Condition Waiving Compliance Void
Any condition purporting to require or bind any applicant for shares to waive compliance with any
requirement of this section shall be void.
[s 39.27] Issue of Refund Orders, Allotment Letters, Etc.
See Department’s views below. See also Notes under sections 39, 53, 73 and 113 of the 2013 Act
(corresponding to sections 69, 79, 58A and 187 of the 1956 Act).
[s 39.28] Effect of not Receiving Minimum Subscription [Sub-section (5)]
Where such minimum amount has not been received by the company within 120 days from the first
issue of prospectus, all moneys received from applicants for shares shall be repaid without interest. If
the amount is not repaid within 130 days, the directors shall be jointly and severally liable to repay
that money with interest at the rate of 6% per annum from the 131st day of the issue of the
prospectus.
[s 39.29] Application Money to be Kept in Scheduled Bank
All moneys received from applicants for shares are to be deposited and kept deposited in a
Scheduled Bank24 (a) until the certificate to commence business is obtained under section 149 of the
1956 Act, or (b) where certificate has already been obtained, until the entire amount payable on
applications for shares in respect of minimum subscription has been received. Where minimum
subscription has not been received, all moneys received from applicants for shares are to be returned
in accordance with sub-section (5) of section 69 of the 1956 Act.
[s 39.30] Membership of a Company
As per section 41 of the 1956 Act, only a person who agrees in writing to become a member and
whose name is entered in the register of members of the company shall be a member.
See detailed Notes under section 41 of the 1956 Act (corresponding to section 2(55) of the 2013 Act).
[s 39.31] Writ Jurisdiction
In this writ petition filed under Article 226 of the Constitution of India, the court held that the
application money beyond a certain limit cannot be paid in cash. The limit under s. 40A of the
Income-Tax Act, 1961 (43 of 1961), is Rs 20,000. Here, the company had under general instructions
of its letter of offer clearly mentioned that any application effected in cash amounting to Rs 20,000
would be refunded. Subsequently, the company rejected an application and refunded the application
money of Rs 21,600 on this ground. The complaint made by the petitioner to the SEBI was rejected.
On a writ petition, the court held that allotment of shares is a matter of contract, the remedy for which
lies within the framework of the 1956 Act to be adjudicated through a civil suit. Order of the SEBI is
appealable under section 20 [now sections 15T to 15Z]. Therefore, such a question cannot be
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agitated by a writ petition.25
Where in a public issue of shares by a company, the SEBI ordered investigation into grey market
operations. On the basis of the report, the SEBI issued directions to the company to return
application moneys. On appeal by the company, the appeal was decided ex parte. However, on a
further application, the court decided to offer another opportunity of hearing the company on the
condition it deposited a sum of Rs 50 lakhs with SEBI. The appellant filed a writ petition against this
condition. The Gujarat High Court held since the funds were raised and dealt with in non-compliance
of provisions of the 1956 Act and in the absence of requisite permission, a condition of furnishing a
deposit is valid.26
In order to bring greater transparency and impartiality of appellate bodies, the securities laws,
including the SEBI Act, 1992, have been amended to empower the Securities Appellate Tribunal to
dispose of all appeals under these legislations instead of Central Government/ SEBI.
[s 39.32] Penalty
For contravention of the provisions of sub-section (4) of section 69 of the 1956 Act, i.e., omitting to
deposit and keep deposited in a scheduled bank moneys received from applicants for shares until
returned or the certificate to commence business is obtained. And also making allotment of shares
before minimum subscription is received, every promoter, director or other person knowingly
responsible for the contravention shall be punishable with fine up to Rs 50,000.
See also Notes under sections 621 and 621A of the 1956 Act (corresponding to section 439 of the
2013 Act).
[s 39.33] Prosecution under the Indian Penal Code
Non-refund of subscription money in violation of section 69(4) of the 1956 Act may amount to an
offence by the promoters and directors under sections 405 and 409 of the Indian Penal Code, 1860.
On an application for quashing the proceedings, the question of mens rea has to be decided by the
trial court and not by the High Court or the Supreme Court. Persons in contravention of sections 69
and 73 of the 1956 Act are not immune from the provisions of the Indian Penal Code, 1860 (45 of
1860). If the promoters, directors or those in charge of managing the affairs of the company are found
to have committed offences like cheating, criminal breach of trust, criminal misappropriation or the
like, these persons cannot use the juristic entity and corporate personality of the company as a shield
to evade themselves from prosecution for offences under the Indian Penal Code, if it is established
that the primary object of the incorporation and existence of the company is to defraud the public.
Such persons cannot claim that the only remedy of the investor is under the 1956 Act. But for framing
a charge for an offence under the Penal Code, the traditional rule of existence of mens rea is to be
followed.27
[s 39.34] Defence
A director who proves that the default in repayment was not due to misconduct or negligence on his
part shall not be liable.
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[s 39.35] Effect of Allotment Contrary to this Section
An allotment not in accordance with the provisions of this section is voidable at the option of the
allottee. But an allotment to director-creditors in payment for property, goods, machinery supplied or
services rendered to the company on their oral application is valid.28
[s 39.36] Allotment to Underwriter
An underwriting agreement for a particular number of shares should be treated not merely as a
guarantee but also as an application for allotment of so many shares as could not be applied for by
the public. Underwriting agreement entitles the company to allot the shares in terms of the
underwriting agreement to the underwriter.29
regulation 2 of the SEBI (Underwriters) Regulation, 1993, defines an “underwriter” and “underwriting.”
Underwriter means a person who engages in the business of underwriting of an issue of securities of
a body corporate. Further, underwriting is defined as an agreement with or without conditions to
subscribe to the securities of a body corporate when the existing shareholders of such body
corporate or the public do not subscribe to the securities offered to them.
Where underwriters do not procure subscription to the extent agreed upon, shares of the company for
the remaining amount are allotted to them as per the agreement and a return of allotment is
submitted to the Registrar under section 75.30
Such allotment may be avoided within two months after the statutory meeting or the allotment,
whichever is later. A suit for damages by the allottee against the company or any officer of the
company must be filed within two years of the allotment.
See Notes under section 71 of the 1956 Act—Effect of irregular allotment of the 1956 Act (no
corresponding to the 2013 Act).
[s 39.38] Only a Company Limited by Shares can Issue Share Capital
“Share,” as defined in the 1956 Act and as understood in company law, means share in the capital of
a company. It is a tangible property. The words “capital” and “share capital” are synonymous. It may
mean nominal or authorised capital, issued capital or paid-up capital. Meaning depends in the context
in which that term is used. A company having share capital is a company registered with a nominal or
authorised capital, which is divided into shares of a fixed amount. Only a company which has an
authorised capital, i.e., share capital, can issue share capital. Where a company has no authorised
capital, it cannot be said to be a company limited by shares, but is a company limited by guarantee
as mentioned in section 12(2)(b) of the 1956 Act. Therefore, an application under sections 397 and
398 of the 1956 Act can only be made by requisite number of members.31
[s 39.39] Practice Notes: Prospectus, Allotment and Issue of Shares or Debentures
Before prospectus, shares and debentures are issued, the promoters must have a clear picture as to
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the capital requirement of the company and what will be the capital structure—how much capital is to
be raised by issue of shares and how much by borrowing and what will be the proportion between
ordinary and preference shares.
Again in borrowing in what form the capital should be raised will be important in view of the liability to
pay interest and the principal and furnishing of securities. Then again there are the statutory
restrictions.
See detailed Notes under sections 55 to 123 of the 1956 Act (corresponding to pt III of the 2013 Act).
[s 39.40] Prospectus and Allotment, and Other Matters Relating to Issue of Shares or
Debentures
Part III of the 1956 Act consisting of sections 55 to 81 of the 1956 Act contains the provisions relating
to “Prospectus and Allotment, and other matters relating to Issue of Shares or Debentures.”
[s 39.41] Share Capital and Debentures
Part IV of the 1956 Act consisting of sections 82 to 123 of the 1956 Act contains the provisions
relating to “Share Capital and Debentures.”
See detailed Notes under sections 55 to 123 of the 1956 Act (corresponding to pt III of the 2013 Act).
[s 39.42] Other Statutory Restrictions
Apart from the foregoing sections of the 1956 Act (1 of 1956), certain other Acts, e.g., the Securities
Contracts (Regulation) Act, 1956 (42 of 1956), the SEBI Act, 1992 (15 of 1992), the Depositories Act,
1996 (22 of 1996), the Foreign Exchange Management Act, 1999 (42 of 1999), and rules, regulations
and guidelines relating to Share Capital, Debentures, Listing, etc. are also required to be complied.
These provisions are also dealt with in Notes under sections 55 to 123 of the 1956 Act
(corresponding to pt III of the 2013 Act).
[s 39.43] Ex parte Injunctions
Invariably, suits are filed seeking to injunct the allotment of shares. The court must ensure that the
plaintiff comes to the court well in time so that notice may be served on the defendant, and he may
have his say before any interim order is passed. It may be sometimes difficult to undo the damage
done by such an interim order. The Supreme Court sets out reasons in relation to the factors which
should weigh with the court in the grant of ex parte injunctions. Normally, cases should be filed only
where the registered office of the company is situated.32
[s 39.44] Public issue undersubscribed
Where the Legislature has not specified any statutory time limit, the claim has to be filed within a
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reasonable period of time. What is reasonable time to lay a claim depends upon the facts of each
case. Where the public issue of the petitioner-company was floated in 1995. As the subscription was
below 90% within 30 days of the closing of the public issue, the public issue devolved on the
underwriters. The underwriters failed to make payment of the amounts under the underwriting
agreements within the stipulated period of closure whereupon the petitioner had to return the entire
amount received from the public. Relying on the arbitration clause in the underwriting agreements,
the company filed petitions under section 20 of the Arbitration Act, 1940 (10 of 1940) [now the
Arbitration and Conciliation Act, 1996 (26 of 1996)]. The petitioner also filed a large number of
compensation applications under section 12B of the Monopolies and Restrictive Trade Practices
Commission Act, 1969 (54 of 1969), before the Monopolies and Restrictive Trade Practices
Commission on the ground of deficiency of service by the underwriters who offered their underwriting
and/or procurement of services for the public issue of the company. The Monopolies and Restrictive
Trade Practices Commission dismissed the petitions holding that the petitions were barred by
limitation as the petitions were filed beyond the reasonable period of three years. On writ petitions,
dismissing the petitions, it was held that the cause of action arose in the year 1995 and the
applications under section 12B of the Monopolies and Restrictive Trade Practices Commission Act,
1969, had been filed more than five years thereafter. The company had calculated the claims for
exact amounts due to deficiency of services by the undertakers/brokers who offered their
underwriting and/or procuring services for public issue of the company in 1995. As no limitation was
prescribed for preferring claims for compensation under section 12B of the Monopolies and
Restrictive Trade Practices Act, 1969, the claim had to be filed within a reasonable period of time.
The reasonable time depended on the facts of each case. As the claim in all cases by the petitioner
was for money, the reasonable period to raise a claim in a matter of this nature was three years.
Therefore, the judgment of the MRTPC dismissing the petition was not to be interfered with.33
Consumer Forums cannot grant injunction against public issue. Shares and debentures are not
goods before allotment. Applicant for shares or debentures is not a consumer. Raising of share
capital and debentures by company is not a trading activity, and there is no question of any unfair
trade practice. The Consumer Disputes Redressal Forum has no jurisdiction to entertain the matters
of this kind. The issue of shares or debentures does not come under the Consumer Protection Act,
1986 (68 of 1986), or the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969) [now the
Competition Act, 2002 (12 of 2003)].34
The Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969), has since been repealed by
the Competition Act, 2002 (12 of 2003), section 66.
The Monopolies and Restrictive Trade Practices Commission has been replaced by the CCI. The
remedy for unfair trade practices shall now lie with the Consumer Forum under the Consumer
Protection Act, 1986 (68 of 1986).
See detailed Notes under sections 10, 10FB, 10GB, 56 and 66 of the 1956 Act.
See detailed Notes on Accounting Provisions under Chapter IX, and specifically section 133 and the
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Companies (Indian Accounting Standards) Rules, 2015, and the Indian Accounting Standards issued
under section 133 by the Central Government along with the National Advisory Committee on
Accounting Standards, 2013 Act.
See detailed Notes on Audit and Auditors under Chapter X, and the Auditing, Review and other
Standards under section 143 (10) issued by the Institute of Chartered Accountants of India.
[s 75] Return as to allotments.—(1) Whenever a company having a share capital makes any allotment of its shares,
the company shall, within 30 days thereafter, -
(a) file with the Registrar a return of the allotments, stating the number and nominal amount of the shares
comprised in the allotment, the names, addresses and occupations of the allotees, and the amount, if any,
paid or due and payable on each share:
• Provided that the company shall not show in such return any shares as having been allotted for cash if cash
has not actually been received in respect of such allotment;
(b) in the case of shares (not being bonus shares) allotted as fully or partly paid up otherwise than in cash,
produce for the inspection and examination of the Registrar a contract in writing constituting the title of the
allottee to the allotment together with any contract of sale, or a contract for services or other consideration in
respect of which that allotment was made, such contracts being duly stamped, and file with the Registrar
copies verified in the prescribed manner of all such contracts and a return stating the number and nominal
amount of shares so allotted the extent to which they are to be treated as paid up, and the consideration for
which they have been allotted; and
(c) file with the Registrar –
(i) in the case of bonus shares, a return stating the number and nominal amount of such shares comprised
in the allotment and the names, addresses and occupations of the allottees and a copy of the resolution
authorising the issue of such shares;
(ii) in the case of issue of shares at a discount a copy of the resolution passed by the company authorising
such issue together with a copy of the order of the Tribunal sanctioning the issue and where the
maximum rate of discount exceeds 10%, a copy of the orders of the Central Government permitting the
issue at the higher percentage.
(2) Where a contract such as is mentioned in clause (b) of sub-section (1) is not reduced to writing, the company shall,
within 30 days after the allotment, file with the Registrar the prescribed particulars of the contract stamped with the
same stamp duty as would have been payable if the contract had been reduced to writing; and those particulars shall
be deemed to be an instrument within the meaning of the Indian Stamp Act, 1899 (2 of 1899), and the Registrar may,
as a condition of filing the particulars, require that the duty payable thereon be adjudicated under section 31 of that Act.
(3) If the Registrar is satisfied that in the circumstances of any particular case the period of 30 days specified in sub-
sections (1) and (2) for compliance with the requirements of this [is or was inadequate, he may on application made in
that behalf by the company, whether before or after the expiry of the said period, extend that period as he thinks fit;
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and if he does so, the provisions of sub-sections (1) and (2) shall have effect in that particular case as if for the said
period of [30 days] the extended period allowed by the Registrar were substituted.
(4) If default is made in complying with this section, every officer of the company who is in default shall be punishable
with fine which may extend to Rs 5,000 for every day during which the default continues:
Provided that in case of contravention of the proviso to clause (a) of sub-section (1), every such officer, and every
promoter of the company who is guilty of the contravention shall be punishable with fine which may extend to Rs
50,000.
(5) Nothing in this section shall apply to the issue and allotment by a company of shares which under the provisions of
its articles were forfeited for non-payment of calls.
NOTES
Compare section 104 of the Indian Act and section 52 of the English Act. As recommended by the Company Law
Committee (page 299 of the Report) a separate provision has been made for the case of bonus shares. In their case,
no contract in writing need be filed with the Registrar. [Clause 69 of the Companies Bill, 1953 (46 of 1953)].
The recommendations of the Company Law Committee are as follows:
A separate clause under this sub-section should be inserted to deal with bonus shares and to distinguish them from
shares issued otherwise than for cash. It should be laid down that no contract need be filed in respect of bonus shares.
[Report : page 299].
The Notes on clauses explained the amendments in this section as follows:
Section 75 provides that whenever a company having a share capital makes any allotment of its shares, the company
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shall within one month thereafter file with the Registrar, inter alia, a return of allotment stating the number and nominal
amount of the shares comprised in the allotment, etc. The amendment seeks to make it clear that similar particulars in
respect of bonus shares should also be filed with the Registrar together with the details envisaged in clause (a) of sub-
section (1). [Clause 20 of the Companies (Amendment) Bill, 1959 (37 of 1959)].
The Joint Committee explained as follows: “This clause has been recast to make the intention clear.”
[Report : para 25].
The Notes on clauses explained the amendments as follows:
The amendment to clause (a) of sub-section (1), which is based on the recommendation of the Daphtary-Sastri
Committee, seeks to impose a duty on the promoters and directors of a company to ensure that the share capital
reflects cash or other valuable assets and is not supported by merely book adjustments. The amendment to section
75(3) empowers the Registrar of Companies to grant, in appropriate cases, such extension of time as he thinks fit for
filing the return of allotment even when the application for the extension is made after the expiry of one month specified
in sub-sections (1) and (2). Simultaneously, it is also proposed to delete the existing proviso to sub-section (4) which
gives power to the court to grant extension of time when the delay exceeds one month. The amendment is designed to
save companies from the expenses involved in applying to a court, and help them in obtaining extension of time
speedily from the Registrars. [Clause 11 of the Companies (Second Amendment) Bill, 1964 (64 of 1964)].
Share Capital.—The share capital of a company must be supported by and be reflective of the existence of cash or
valuable assets and should not represent mere book adjustments based on promissory notes or the taking over by
another of the liability to pay. Auditors must inquire, wherever it is stated that cash has been paid towards subscriptions
to share capital, whether cash has, in fact, passed, and if cash has not, in fact, so passed they should satisfy
themselves that the position as stated in the account books and the balance sheet is correct, regular and not
misleading. Corresponding changes must be made in the Form of the Balance-sheet and the Form of Annual Return.
Strict duties must be imposed on the promoters and directors not to show shares as having been allotted for cash if
cash has actually not been received and only book adjustments are made without there being any intention that cash
should pass. Any breach of duty in this respect should be penalised by a heavy fine on the delinquent promoters or
directors. [Report : paras 8 and 9].
The Joint Committee recommended further changes and explained as follows:
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The Committee feel that in sub-clause (a) of the clause, the words “and only book adjustment has been made without
cash having passed” are redundant and should be omitted. The clause has been amended accordingly. [Report : para
15].
The Notes on clauses explained the amendments in this section as follows:
This clause seeks to enhance the fine specified in sub-section (4) from five hundred rupees to five thousand rupees
and in the proviso to that sub-section from five thousand rupees to fifty thousand rupees of section 75 of the Act.
[s 39.52] The Companies (Second Amendment) Act, 2002 (11 of 2003)
The Notes on clauses explained the amendments as follows:
This clause seeks to amend sub-section (1) of section 75 of the Companies Act, 1956 relating to returns as to
allotments. The provisions contained in the existing section, inter alia, require a company to file return of allotment of
issue of shares at discount with a copy of the order of the court sanctioning such issue. It is proposed to confer this
power of sanctioning the issue upon the Tribunal. This amendment is of consequential nature. [Clause 10 of the
[s 39.53] Allotment
Allotment, in company law, means the appropriation out of the previously unappropriated capital of a
company, of a certain number of shares. Till such allotment the shares do not exist as such. It is on
allotment that the shares come into existence. Reissue of forfeited shares is not allotment within the
meaning of section 75(1) of the 1956 Act and a company need not file any Return in respect of the
reissue of forfeited shares.35 Issue of capital means creation of securities and not merely subsequent
allotment. Pending application before the Controller of Capital Issues [now SEBI or SAT] for the
proposed issue of equity shares a resolution of the Board of Directors allotting shares subject to the
sanction was void.36
[s 39.54] Bonus Shares
Ordinary shareholders become owners of the bonus shares from the date of the resolution. Actual
issue of share certificate is not essential.37
[s 39.55] SEBI (DIP) Guidelines
The SEBI (Disclosure and Investor Protection) Guidelines, 2000, inter alia, provide for:
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Chapter XV—Guidelines for Bonus Issues.—A listed company proposing to issue bonus shares shall
comply with these guidelines [Clauses 15.0 – 15.1.8].
See detailed Notes and List of SEBI Act, Rules, Regulations and Guidelines along with Appendices
101 to 103 under sections 55A and 205(3) of the 1956 Act proviso.
[s 39.55.1] Department’s view—Holders of coupons for fractional shares not allottees
“The holders of coupons for fractional shares cannot be said to be allottees of any shares by the strength of holding
those coupons till they actually receive communication of the allotment of any share from the company in their favour in
exchange of the said coupons. Any dividend declared in the meantime in respect of the “capital” represented by the
coupons should not be treated as dividend declared in favour of any particular holder of a share as such, but as
dividend kept earmarked for whoever may acquire full shares in exchange of the coupons.” [F. No. 8/31(75)/63-PR, dt.
27 March 1963 : Govt. of India publication, Clarifications and Circulars on Company Law, 1977 Edition, page 52].
[s 39.56] Form and Procedure (w.e.f. 10 February 2006)
Return of allotments to be submitted pursuant to section 75(1) shall be in e-Form No. 2* of the
Companies (Central Government’s) General Rules and Forms, 1956. Particulars of contract relating
to shares, pursuant to section 75(2) shall be in e-Form No. 3*. Rule 5* of the Companies (Central
Government’s) General Rules and Forms, 1956 prescribes that the copies of contract required to be
filed by a company with the Registrar in pursuance of section 75, sub-section (1), clause (b), shall be
verified by an affidavit of a responsible officer of the company stating that they are true copies.
[s 39.57] Filing of Return
(1) A company having a share capital shall file with the Registrar a Return of allotment within 30 days
of the allotment in e-Form No. 2. Return shall state number, nominal amount of shares, names,
addresses and occupations of the allottees and amount paid in cash or due and payable. [Sub-
section (1)(a)].
(2) If any shares are allotted as fully or partly paid-up for consideration other than cash, the company
shall produce the relative contracts before the Registrar of Companies. Copies of such contracts and
a Return showing the number and nominal amount of shares so allotted and the extent to which they
are treated as paid-up should also be filed. [Sub-section (1)(b)].
(3) In case of Bonus Shares a Return stating the number of shares, nominal amount, the names,
addresses and occupations of the allottees and the copy of the resolution authorising the issue of
such shares shall be filed. [Sub-section (1)(c)(i)].
(4) In case of shares issued at a discount a copy of the resolution, a copy of the Court [CLB now the
Tribunal (NCLT)/Central Government] Order sanctioning the issue and a copy of the permission, if
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any, granted by the Central Government shall be filed. [Sub-section (1)(c)(ii)].
(5) No Return is required to be filed for issue of forfeited shares. [Sub-section (5)].
[s 39.58] Filing Fees
Filing Fees as per Existing Practice of levying Fee shall be payable along with e-Form 2 “Return of
Allotment”. Fees as prescribed in Schedule X to the Companies Act, 1956, based on Authorised
Capital, shall be payable along with e-Form 2.
[s 39.59] No written Contract [Sub-section (2)]
In case of allotment under section 75(1)(b), if there is no written contract the company shall file with
the Registrar the prescribed particulars of the contract in e-Form No. 338 on a paper properly
stamped. This is also to be filed within 30 days of the allotment.
Section 75(1)(b) does not prohibit the allotment of shares for consideration other than cash. But such
a contract is to be filed within 30 days of the allotment. Such a contract need not always be in writing
as is clear from section 75(2) of the Act. The Government itself has prescribed e-Form No. 3 to be
filed with the Registrar of Companies in case the contract is not reduced to writing.39
[s 39.60] Registrar’s Powers
Under regulation 17 of the Companies Regulations, 195640 the Registrar of Companies is required to
examine or cause to be examined documents received in his office. He may refuse to register a
document if it is defective or incomplete. If the document accords with the actual facts and otherwise
complete, the Registrar cannot refuse to register the document. He may call for information under
section 234 of the 1956 Act with respect to any matter to which such document purports to relate but
the Registrar of Companies cannot enquire into the validity of the transactions, such as allotment of
shares to a minor, covered by the document for the purpose of registering it.41
[s 39.61] Extension of Time [Sub-section (3)]
The Return of allotment is to be filed within 30 days from the date of allotment. On the application
made by the company within this period of 30 days or thereafter, the Registrar may extend the time
for filing such Returns. The Registrar is expected to exercise his discretion bona fide.
If the Registrar refuses to extend such time, the company may make an application to the Central
Government under section 637B of the Act. If the Central Government is satisfied that reasonable
grounds have been made out it may extend the time for filing the Returns. See detailed Notes under
section 637B.
[s 39.62] Filing of Incomplete Documents with Registrar of Companies
See Department’s views in Notes under section 628.
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If default is made in complying with this section, i.e., for failure to file with the Registrar return of
allotments, every officer of the company who is in default, shall be punishable with fine up to Rs
5,000 for every day of default. [Sub-section (4)]. For showing shares as allotted for cash in return of
allotment when the allotment has been merely by book adjustments in contravention of the proviso to
clause (a) of sub-section (1), every such officer and promoter of the company who is guilty of the
contravention, shall be punishable with fine up to Rs 50,000. [Proviso to sub-section (4)].
[s 39.64] Payment in Cash
Cash is the actual money or instruments or claims which are generally used and accepted as money.
It is immediately available for disbursement. Securities, deposits under restrictions and accounts not
immediately collectable are not cash. But whatever constitutes the cancellation of a genuine debt due
by the company and whatever payment is presently enforceable against the company, viz., loan
amount or consideration payable for property purchased, etc., will constitute payment in cash.42
[s 39.65] Stamp Duty
An agreement to allot shares or an allotment of shares is not a transfer of property as the company is
not the owner of the share; such an agreement is not liable to stamp duty as a conveyance.43
When a company takes over assets and liabilities of an existing business and allots shares to the
owners, the Return in Form 3 to be filed with the Registrar of Companies should be stamped as a
conveyance of the assets.44
See detailed Notes on Allotment under section 69.
[s 39.66] Shares Allotted in Joint Names—Return of Allotment
Section 75 of the 1956 Act provides for the names and addresses of the allottees of the shares by the
company. Once the share is allotted in joint names both persons are allottees and are required to be
mentioned in the Return of Allotment under Section 75 of the Act. Where the Return of Allotment
showed that the shareholder was holding the shares singly. The company’s claim that the shares
were held jointly was rejected. Records of the company were held to be not reliable. Finding of the
CLB based on Records with the Registrar of Companies (ROC), i.e., Return of Allotment, that the
shares were held singly was proper. In the facts of the case, the Company Law Board was justified in
relying on the independent and unchallenged evidence in the form of the Return of Allotment to hold
that the shareholder had held the shares singly. Further, since the share certificates were admittedly
in the custody of the company, the company was not entitled to contend that the share certificates
should have accompanied the Transfer document for seeking registration of the transfer. Moreover,
the shareholder had asked for duplicate certificates which the company had not issued. The company
itself not having complied with the provisions of the Act, it was not entitled to raise a hyper-technical
plea that there was no valid application because the stamps had not been cancelled. This was not a
case where by virtue of the non-cancellation of the stamps the substantial rights of the respondent in
the shares should be defeated.45
[s 39.67] Forfeiture of Shares [Sub-section (5)]
This section shall not apply to the issue and allotment by a company of shares which under the
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provisions of its Articles were forfeited for non-payment of calls.
See detailed Notes on Forfeiture of Shares under section 100.
[s 39.68] Reissue of Forfeited Shares
Reissue of forfeited shares is not allotment and a company need not file any Return in respect of
reissue of forfeited shares.46
[s 39.69] Subscription in Cash and Kind
The law requires a distinction to be made between shares subscribed for in cash and shares
subscribed for consideration other than in cash. Shares subscribed for in cash should include only
the following kinds of subscription :—
(a) where the subscription amount is received either in cash or by cheque;
(b) where the amount is adjusted against a bona fide debt payable in money at once by the
company.
There might be situations where a company has taken a loan under a stipulation that in case of
default in repayment of the loan, the loan would get converted into shares. In such a situation, on a
default in repayment of the loan by the company, if the loan gets converted into shares in the
company, such shares would be considered as having been allotted for cash. Where shares are
allotted against credit balance in a person’s account, inquiry should be made as to how the credit
balance in that account has arisen, whether it was for a valid consideration and whether the amount
was due for payment at the time of issue.
While the scope of section 69 of the 1956 Act was in relation to shares only, the 2013 Act has been
widened to cover all securities. Further, the time period for receipt of application money has been
shortened under the 2013 Act. Additionally, the subscription and allotment processes have been
regulated more closely under section 39 of the 2013 Act as compared to section 69 of the 1956 Act.
The 2013 Act has not retained the detailed procedure of filing of return of allotment provided for in
section 75 of the 1956 Act. This is now dealt with by rule 12 of the Companies (Prospectus and
Allotment of Securities) Rules, 2014.
3 Notified by Notification No. S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to
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5 Notified by Notification No. S.O. 902(E) dt. 26 March 2014, w.e.f. 01 April 2014.
6 Rule 12 and Form PAS-3 of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
7 Notified by Notification No. S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013.

9 Universal Incast Ltd v Appellate Authority, SEBI, (2002) 108 COM CAS 248 (P&H) (DB); Rich Paints Ltd v Vadodara
Stock Exchange Ltd. (1998) 92 COMP CAS 282 (Guj); see also Notes under section 73 ; see List of SEBI Act, rules,
regulations and Guidelines in Notes under section 55A.
10 In Re, Calcutta Stock Exchange Association Ltd, (1957) 27 COMP CAS 559 (Cal.) : AIR 1957 Cal. 438.
11 Substituted by the Companies (Amendment) Act, 1965 (31 of 1965), section 9 (w.e.f. 15 October 1965). For sub-
section (4) as it stood prior to substitution see, Annexure at the end of this Volume. This amending Act has been
13 Rich Paints Ltd v Vadodara Stock Exchange Ltd, (1998) 92 COMP CAS 282 (Guj.).
14 Rishyashringa Jewellery Ltd v Stock Exchange, Bombay, (1996) 85 COMP CAS 479 (SC) : AIR 1996 SC 480; Rich
Paints Ltd v Vadodara Stock Exchange Ltd, (1998) 92 COMP CAS 282 (Guj.); Jaltarang Motels Ltd v UOI, (1999) 95
Comp. Cas. 339 (Guj).
15 Re, Universal Banking Co., Roger’s Case, (1868) 3 Ch. App. 633 : 18 LT 779; Nicol’s Case, (1885) 29 ChD. 421 : 52
LT 933 : 1 Tax LR 221; Re, Richmond Hill Hotel Co., Pellatt’s Case, (1867) LR 2 Ch. App. 527 : 36 LJ Ch. 613.
16 Re, Imperial Land Co. of Marseilles, Harris’ Case, (1872) LR 7 ChD 587 : 41 LJ Ch. 621. Household Fire and Carriage
Accident Insurance Co v Grant, (1879) LR 4 Ex.D. 216 : 48 LJ Ex. 577 : 41 LT 298 : 27 WR 858 (CA); Henthorn v
Fraser, (1892) 2 ChD 27; Bruner v Moore, (1904) 1 ChD 305; but see Re, Constantinople and Alexandria Hotel Co.,
Reidpath’s Case, (1870) LR 11 Eq. 86 : 40 LJ Ch. 39 : 23 LT 834 : 19 WR 219.
17 Re, Thundercrest Ltd, (1995) 1 BCLC 117.
18 Here, the allotment was contingent on the applicant’s appointment as district-manager. The appointment was made
and was accepted by the applicant. The court held that this communication of appointment should constitute a sufficient
notification of the allotment of shares, Re, Richards Home Assurance Assn., (1871) LR 6 CP 591 : 40 LJ CP 290 : 24
LT 752. Also see Re, Universal Banking Corpn., Gunn’s Case, (1867) LR 3 ChD 40 : 37 LJ Ch. 40 : 17 LT 365.
19 Indian Co-operative Navigation & Trading Co. Ltd v Padamsey Premji, (1934) 4 Comp. Cas. 110 (Bom.) : AIR 1934
Bom 97.
20 Pentelow’s Case, (1869) 4 Ch. App. 178; A. Sirkar v Parjoar Hosiery Mills, AIR 1933 Rang. 388; Re, Universal Non-
Tariff Fire Insurance Co., Ritso’s Case, (1877) 4 ChD. 774 (CA) : (1877) 25 WR Dig. 51 (CA).
21 Section 14 of the Specific Relief Act, 1963 (47 of 1963); Odessa Tramways Co v Mendel, (1878) 8 ChD. 235 : 47 LJ
Ch. 505 : 38 LT 731 (CA); Ferguson v Wilson, (1866) LR 2 ChD 77 : 36 LJ Ch. 67 : 15 LT 230.
22 Sree Ayyanar Spinning & Weaving Mills Ltd v V.V.V. Rajendran, (1973) 43 COMP CAS 225 (Mad.). But see H.H.
Manabendra Shah v Official Liquidator, (1977) 47 COMP CAS 356 (Del.) dealt with below.
23 H.H. Manabendra Shah v Official Liquidator, (1977) 47 COMP CAS 356 (Delhi).
24 See section 2(43). For List of Scheduled Banks, see Second Schedule to the Reserve Bank of India Act, 1934 (2 of
1934) in Appendix 191.
25 Mohd. Rafeek v SEBI, (1999) 98 COMP CAS 802 (Ker.).
26 Jaltarang Motels Ltd v UOI, (1999) 95 COMP CAS 339 (Guj.).
27 Radhey Shyam Khemka v State of Bihar, (1993) 77 COMP CAS 356 (SC). See also Notes under sections 5, 34, 73
and 621.
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28 Sree Ayyanar Spinning & Weaving Mills Ltd v V.V.V. Rajendran, (1973) 43 COMP CAS 225 (Mad.). See also Notes
under sections 72 and 81 of the 1956 Act (corresponding to section 62 of the 2013 Act).
29 Pioneer Co v Kaithal Cotton and General Mills Ltd, (1970) 40 COMP CAS 562 (P&H). See also Notes under section 72
of the 1956 Act (corresponding to section 62 of the 2013 Act).
30 Kaithal Cotton and General Mills Co. Ltd v Pioneer & Co, (1961) 31 COMP CAS 138 (Punj.). See also Notes under
sections 75 and 76 of the 1956 Act (corresponding to section 39 and 40 of the 2013 Act).
31 In re, S.N.D.P. Yogam, Quilon, (1970) 40 COMP CAS 60 (Ker.).
32 Morgan Stanley Mutual Fund v Kartick Das, (1994) 81 COMP CAS 318 (SC); Bloom Dekor Ltd v Subhash Himatlal
Desai, (1995) 82 COMP CAS 591 (SC).
33 M.S. Shoes East Ltd v MRTP Commission, (2005) 128 COMP CAS 945 (Delhi) (DB); Corporation Bank v Navin J.
Shah, (2000) 100 COMP CAS 160 (SC) : (2000) 2 SCC 628.
34 Morgan Stanley Mutual Fund v Kartick Das, (1994) 81 COMP CAS 318 (SC); R.D. Goyal v Reliance Industries Ltd,
(2003) 113 COMP CAS 1 (SC).
35 Sri Gopal Jalan & Co v Calcutta Stock Exchange Association Ltd, (1963) 33 COMP CAS 862 (SC) : AIR 1964 SC 250 :
(1963) 2 Comp. LJ 198 (SC). See also Notes u/s. 75(5).
36 Industrial Development Bank of India v B. Ananthaswami, (1986) 60 COMP CAS 99 (Mad.) (DB); Koffyfontein Mines
Ltd v Moseley, (1911) AC 409 : 80 LJ Ch. 668 : 105 LT 115 (HL). See also Notes under sections 55, 55A, 69, 72 and
73.
37 Shree Gopal Paper Mills Ltd v CIT, AIR 1970 SC 1750 : (1970) 77 ITR 543 (SC). See also Notes under sections 84
and 113.
38 See the Companies (Central Government’s) General Rules and Forms, 1956 in Appendix 73.
39 Dr. Kamal K. Dutta v Ruby General Hospital Ltd, (2002) 108 COMP CAS 312 (CLB); Kamal Kumar Datta v Ruby
General Hospital Ltd, (2006) 134 COMP CAS 678 (SC).
40 See regulation 17 of the Companies Regulations, 1956.
41 Golconda Industries Pte. Ltd v Registrar of Cos, (1968) 38 COMP CAS 165 (Delhi) (FB) : AIR 1968 Del 170 (FB) :
(1968) 1 Comp. LJ 245 (Delhi) (FB). See also Notes under Sections 234 and 235.
42 Spargo’s Case, Re, Harmony & Montague Tin and Copper Mining Co., (1873) 8 Ch. App. 407 : (1861-73) All ER Rep.
261 : 42 LJ Ch. 488 : 28 LT 153; Larocque v Beauchemin, (1897) AC 358 : 66 LJ PC 59 : 76 LT 473: 45 WR 639 (PC);
North Sydney Investment and Tramway Co v Higgins, (1899) AC 263 (PC) : 68 LJ PC 42; Thodapuzha Rubber Co v
Registrar of Cos, (1918) ILR 41 Mad. 307.
43 Secretary, Board of Revenue v Madura Mills Co Ltd, AIR 1937 Mad. 259; Sri Raj Suchdeva v Board of Revenue, AIR
1959 All 595 (SB).
44 Sudarshan Talkies (Delhi) Pvt Ltd v Chief Controlling Revenue Authority, (1978) 48 COMP CAS 591 (Delhi).
45 Shree Shanti Textile Mills Pvt Ltd v Siddharth N. Shah, (2005) 125 COMP CAS 576 (Bom.).
46 Sri Gopal Jalan & Co v Calcutta Stock Exchange Association Ltd, (1963) 33 COMP CAS 862 (SC) : AIR 1964 SC 250.
See also Notes under section 75(1).
End of Document
Mr. Laghir1 Rabari

47 Sub-sections (1) to (5) were notified by Notification No. S.O. 2754 (E) dt.
12 September 2013, w.e.f.12 September 2013 and sub-section (6) was
notified by Notification No. S.O. 902 (E) dt. 26-03-2014, w.e.f. 1 April 2014.
Section 40 corresponds to sections 73 and 76 of the 1956 Act. [s 40]
Securities to be dealt with in stock exchanges.—
PUBLIC OFFER
47[s 40] Securities to be dealt with in stock exchanges.—
(1) Every company making public offer shall, before making such offer, make an application to
one or more recognised stock exchange or exchanges and obtain permission for the
securities to be dealt with in such stock exchange or exchanges.
(2) Where a prospectus states that an application under sub-section (1) has been made, such
prospectus shall also state the name or names of the stock exchange in which the securities
shall be dealt with.
(3) All monies received on application from the public for subscription to the securities shall be
kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose
other than--
(a) for adjustment against allotment of securities where the securities have been permitted to
be dealt with in the stock exchange or stock exchanges specified in the prospectus; or
(b) for the repayment of monies within the time specified by the Securities and Exchange
Board, received from applicants in pursuance of the prospectus, where the company is for
any other reason unable to allot securities.
(4) Any condition purporting to require or bind any applicant for securities to waive compliance
with any of the requirements of this section shall be void.
(5) If a default is made in complying with the provisions of this section, the company shall be
punishable with a fine which shall not be less than five lakh rupees but which may extend to
fifty lakh rupees and every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to one year or with fine which shall not be less
than fifty thousand rupees but which may extend to three lakh rupees, or with both.
(6) A company may pay commission to any person in connection with the subscription to its
securities subject to such conditions as may be prescribed.48
NOTES
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47 Sub-sections (1) to (5) were notified by Notification No. S.O. 2754 (E) dt. 12 September 2013, w.e.f.12
September 2013 and sub-section (6) was notified by N....
as follows:
Clause 40.—This clause corresponds to section 73 of the Companies Act, 1956 and seeks to provide that prospectus
has to mention the name of the stock exchange where the securities are to be dealt with. Any allotment without
permission of the stock exchange shall be void. All moneys received on application from the public for subscription to
the securities shall be kept in a separate bank account. After allotment of shares, a return shall be filed with the
Registrar. In case of default, the company and every officer of the company who is in default shall be punishable with
fine or with imprisonment or with both. A company may pay commission to any person in connection with the
subscription to its securities.
[s 40.2] Application to Stock Exchanges [Section 40(1) and (2)]
Every company, before making a public offer of securities, must apply to one or more recognised
stock exchange or exchanges and obtain permission from such stock exchanges for the securities to
be dealt with in such stock exchange or exchanges. Further, as per sub-section (2), the prospectus of
a company is required to state the names of the stock exchanges in which the securities will be dealt.
[s 40.3] Recognised Stock Exchange
As per section 2(73) of the 2013 Act, a “recognised stock exchange” means a recognised stock
exchange as defined in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42
of 1956). As per section 2(f) of the Securities Contracts (Regulation) Act, 1956, a “recognized stock
exchange” means a stock exchange which is for the time being recognised by the Central
Government.
[s 40.4] Refusal by Stock Exchange
If listing permission is denied by any stock exchange the company has made an application, the
company cannot proceed with the allotment of shares. However, the company may file an appeal
before SEBI under section 22 of the Securities Contracts (Regulation) Act, 1956.
[s 40.5] Application Made on the Basis of Prospectus
Sub-sections (1) and (2) relate to application which has been made on the basis of a prospectus. The
said sub-sections will not apply to applications received independent of the prospectus.
[s 40.6] Writ Against Stock Exchange
A stock exchange is a “State or other authority” under Article 12 of the Constitution of India. It would
therefore be amenable to writ jurisdiction of the high court under Article 226 of the Constitution of
India.49 The jurisdiction of the high court under Article 226 can be exercised against any person or
authority rendering a public utility service.
However, it will have to be shown that the stock exchange was performing a statutory/public duty cast
on it under the statute, rules and bye-laws giving rise to an obligation which it owes to the aggrieved
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party and which has been breached in some manner.50
[s 40.7] Writ
It has been held that the company and stock exchange alone are necessary parties before the
Securities Appellate Tribunal (SAT) and reliefs claimed by share applicants can be granted in suits
but can only be granted under a writ.51
[s 40.8] Locus Standi— Aggrieved Party
An application by investors where listing is cancelled by the concerned recognised stock exchange is
not maintainable as the aggrieved party is the company.52
[s 40.9] Utilisation of Application Money [Section 40(3)]
As per sub-section (3), all application money received is to be kept in a separate bank account in a
scheduled bank and can be used only for the following specific purposes:
i. for adjustment against allotment of securities where the securities have been permitted to be
dealt with in the stock exchange or stock exchanges specified in the prospectus; or
ii. for the repayment of monies within the time specified by the Securities and Exchange Board
(SEBI), received from applicants in pursuance of the prospectus, where the company is for
any other reason unable to allot securities.
The company has no right to deal with the money in any other manner or keep it longer than
permitted by the section. The money so kept in the separate bank account is held by the company for
and on behalf of the subscribers in a fiduciary capacity. Such amounts do not form part of the general
assets of the company. The relationship between the applicants and the company in respect of the
application money so held in accordance with section 73(3) is that of “bailors and bailee and not of
creditors and debtor.”53
[s 40.10] Scheduled Bank(s) which are Bankers to the Issue
Section 2(80) of the 2013 Act defines a schedule bank to mean the scheduled bank as defined in
clause (e) of section 2 of the Reserve Bank of India Act, 1934 (2 of 1934). As per s. 2(e) of the
Reserve Bank of India Act, 1934, “scheduled bank” means a bank included in the Second Schedule
to the Reserve Bank of India Act, 1934. The direction by the appellate authority, the SEBI, to transfer
all monies or funds from the Scheduled Bank to Bankers to the Issue has been held as proper since
the bankers to the issue are subject to the statutory control of SEBI through the SEBI (Bankers to an
Issue) Rules and Regulations.54
The Bank, i.e., Banker to the Issue, cannot part with the collected monies for any other purpose than
to return the money to the Applicants for the Shares. The basis of the allotment and actual allotment
are not the same. The basis of allotment is determined by the concerned Stock Exchange in
consultation with other parties. Allotment is made after the basis of allotment is decided. The Bank
can release the monies only after allotment has been validly made after receiving the listing approval
mentioned in the prospectus. Where the Bank did not wait for the decision of the BSE and released
the monies, the BSE rejected the application for the approval of allotment by the company. The Bank
was in breach of trust and the statutory duties. The monies should not be handled by the company
until it is entitled to make valid allotment of the shares. The Banker to the Issue holds the money as
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the Trustee for the applicants and is bound to refund their monies.55
Banker to the Issue receiving application and subscription monies holds such monies in trust. The
application monies do not form part of the general assets of the company or of the bank. Provisional
liquidator was appointed in respect of the Bank on winding up petition. Such monies are not part of
general assets of the Bank. The Court can direct the Bank to reimburse the money to the company.
The monies would continue to be impressed with trust for the purposes specified in section 73(3A) of
the 1956 Act (now section 40 of the 2013 Act) in the hands of the company or another banker.56
[s 40.11] Return of Excess Application Money
Where permission has been obtained from the recognised stock exchange(s) for dealing in shares or
debentures and monies received from applicants are in excess of the application monies relating to
the shares or debentures, after allotments, the company has to repay the excess monies forthwith
without interest to the applicants.
[s 40.12] Private Placement
The liability to pay interest when the application money is to be returned by the company arises only
when applications for allotment of shares are invited from the general public. In case of private
placement, the liability of the company to pay the interest will depend upon the terms of the Letter of
Offer. Where application monies were returned without undue delay, the company was not liable to
pay interest. Petition for winding up for inability to pay debt was dismissed.57
[s 40.13] Waiver of Rights Void [Section 40(4)]
Sub-section (4) is a statutory restriction on contracting out of the provisions of this section. Any
condition which aims at waiving the requirements of this provision will be deemed void.
[s 40.14] Allotment Timelines
As per SEBI Circular No. CIR/CFD/POLICYCELL/11/2015 dt.10-11-2015, SEBI has reduced the time
taken for listing after the closure of issue to 6 working days as against the previous requirement of 12
working days.
In case of default, sub-section (5) not only makes the company liable but also every officer of the
company who is in default is also liable. The company is liable to be punished with a minimum fine of
Rs 5,00,000 up to a maximum fine of Rs 50,00,000. The officer of the company who is in default is
liable to be punished with imprisonment for a maximum term of one year or with a fine which may
range from Rs 50,000 to Rs 3,00,000 or with both.
[s 40.16] Commission
As provided for under section 40(6) and the Companies (Prospectus and Allotment of Securities)
Rules, 2014, Rule 13, a company may pay commission to any person in connection with the
subscription or procurement of subscription to its securities, whether absolute or conditional, subject
to the following conditions, namely:
(a) the payment of such commission shall be authorised in the company’s articles of association;
(b) the commission may be paid out of proceeds of the issue or the profit of the company or both;
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(c) the rate of commission paid or agreed to be paid shall not exceed, in case of shares, 5% of
the price at which the shares are issued or a rate authorised by the articles, whichever is less,
and in case of debentures, shall not exceed 2.5% of the price at which the debentures are
issued, or as specified in the company’s articles, whichever is less;
(d) the prospectus of the company shall disclose—
(i) the name of the underwriters;
(ii) the rate and amount of the commission payable to the underwriter; and
(iii) the number of securities which is to be underwritten or subscribed by the underwriter

absolutely or conditionally.
(e) there shall not be paid commission to any under writer on securities which are not offered to
the public for subscription;
(f) a copy of the contract for the payment of commission is delivered to the Registrar at the time
of delivery of the prospectus for registration.
Companies (Indian Accounting Standards) Rules, 2015, and the Indian Accounting Standards (Ind
AS) issued under section 133 by the Central Government along with the National Advisory
Committee on Accounting Standards, 2013 Act.
Standards under section 143 (10) issued by the Institute of Chartered Accountants of India (ICAI).
[s 73] Allotment of shares and debentures to be dealt in on stock exchange.—58[(1) Every company intending to
offer shares or debentures to the public for subscription by the issue of a prospectus shall, before such issue, make an
application to one or more recognised stock exchanges for permission for the shares or debentures intending to be so
offered to be dealt with in the stock exchange or each such stock exchange.]
59[60[(1A)] Where a prospectus, whether issued generally or not, states that an 61[application under sub-section (1) has
been] made for permission for the shares or debentures offered thereby to be dealt in one or more recognised stock
exchanges, such prospectus shall state the name of the stock exchange or, as the case may be, each such stock
exchange, and any allotment made on an application in pursuance of such prospectus shall, whenever made, be void
62[***] if the permission has not been granted by the stock exchange or each such stock exchange, as the case may
be, before the expiry of ten 10 weeks from the date of the closing of the subscription lists:
Provided that where an appeal against the decision of any recognized stock exchange refusing permission for the
shares or debentures to be dealt in on that stock exchange has been preferred under section 22 of the Securities
Contracts (Regulation) Act, 1956 (42 of 1956), such allotment shall not be void until the dismissal of the appeal.]
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(2) Where the permission has not been 63[applied under sub-section (1)], 64[or, such permission having been applied
for, has not been granted as aforesaid], the company shall forthwith repay without interest all moneys received from
applicants in pursuance of the prospectus, and, if any such money is not repaid within eight days after the company
becomes liable to repay it, 65[the company and every director of the company who is an officer in default shall, on and
from the expiry of the eighth day, be jointly and severally liable to repay that money with interest at such rate, not less
than four per cent. and not more than fifteen per cent., as may be prescribed, having regard to the length of the period
of delay in making the repayment of such money.]
66[ ***]
67[(2A) Where permission has been granted by the recognised stock exchange or stock exchanges for dealing in any
shares or debentures in such stock exchange or each such stock exchange and the moneys received from applicants
for shares or debentures are in excess of the aggregate of the application moneys relating to the shares or debentures
in respect of which allotments have been made, the company shall repay the moneys to the extent of such excess
forthwith without interest, and if such money is not repaid within eight days, from the day the company becomes liable
to pay it, 68[the company and every director of the company who is an officer in default shall, on and from the expiry of
the eighth day, be jointly and severally liable to repay that money with interest at such rate, not less than four per cent.
and not more than fifteen per cent., as may be prescribed, having regard to the length of the period of delay in making
the repayment of such money.]
69[ ***]
(2B) If default is made in complying with the provisions of sub-section (2A), the company and every officer of the
company who is in default shall be punishable with fine which may extend to 70[fifty thousand rupees], and where
repayment is not made within six months from the expiry of the eighth day, also with imprisonment for a term which
may extend to one year.]
(3) All moneys received as aforesaid shall be kept in a separate bank account maintained with a Scheduled Bank
71[until the permission has been granted, or where an appeal has been preferred against the refusal to grant such
permission, until the disposal of the appeal, and the money standing in such separate account shall, where the
permission has not been applied for as aforesaid or has not been granted, be repaid within the time and in the manner
specified in sub-section (2)]; and if default is made in complying with this sub-section, the company, and every officer
of the company who is in default, shall be punishable with fine which may extend to 72[fifty thousand rupees].
73[(3A)Moneys standing to the credit of the separate bank account referred to in sub-section (3) shall not be utilised for
any purpose other than the following purposes, namely:—
(a) adjustment against allotment of shares, where the shares have been permitted to be dealt in on the stock
exchange or each stock exchange specified in the prospectus; or
(b) repayment of moneys received from applicants in pursuance of the prospectus, where shares have not been
permitted to be dealt in on the stock exchange or each stock exchange specified in the prospectus, as the
case may be, or, where the company is for any other reason unable to make the allotment of share.]
(4) Any condition purporting to require or bind any applicant for shares or debentures to waive compliance with any of
the requirements of this section shall be void.
74[(5)
For the purposes of this section, it shall be deemed that permission has not been granted if the application for
permission, where made, has not been disposed of within the time specified in sub-section (l).]
(6) This section shall have effect—
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(a) in relation to any shares or debentures agreed to be taken by a person underwriting an offer thereof by a
prospectus, as if he had applied therefor in pursuance of the prospectus; and
(b) in relation to a prospectus offering shares for sale, with the following modifications, namely,—
(i) references to sale shall be substituted for references to allotment;
(ii) the persons by whom the offer is made, and not the company, shall be liable under sub-section (2) to
repay money received from applicants, and references to the company’s liability under that sub-section
shall be construed accordingly; and
(iii) for the reference in sub-section (3) to the company and every officer of the company who is in default,
there shall be substituted a reference to any person by or through whom the offer is made and who is
knowingly guilty of, or willfully authorises or permits, the default.
(7) No prospectus shall state that application has been made for permission for the shares or debentures offered
thereby to be dealt in on any stock exchange, unless it is a recognised stock exchange.
NOTES
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on Clauses explained the provisions of this section as
follows:
See section 101E of the Company Law Committee’s redraft and section 51 of the English Act. One change of
substance has been made; it is laid down that permission to deal in the stock exchange should have been granted in
respect of shares and debentures. The mere fact that the permission has not been refused will not be sufficient.
[s 40.20] Compulsory Listing of all Public Issues with Recognised Stock Exchanges [Sub-
section (1)]
This provision is covered under sub-sections (1) and (2) of section 40 of the 2013 Act, as explained in
[s 40.21] Void Allotment [Sub-section (1A)]
Section 40 of the 2013 Act retains the requirement with respect to the prospectus stating the
name/names of stock exchanges in which the securities are to be dealt with. However, section 40 of
the 2013 Act does not state that any allotment made on applications pursuant to such prospectus
shall be void if no permission has been granted by the stock exchange(s) before the expiry of 10
weeks from the date of closing of the subscription lists. This sub-section was inserted to overcome
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the decision of the Supreme Court in UOI v Allied International Products Ltd.75 As held “It will be a
mechanical interpretation wholly divorced from the true object and intendment of the Act to hold that
even if permission is secured for quotation of shares in an Exchange, the allotment will be invalid
because another exchange has not granted the permission. That this is the true meaning of section
73(1) is clear from the fact that the penalty of avoidance of allotment of shares is attracted not only
where the permission’ applied for has not been granted, but where no application has been made
within the prescribed period. ‘If applications are made to several exchanges, some within the period
of 10 days after the first issue of the prospectus, and some beyond, or that one or more applications,
but not all, is or are defective, and the error is not rectified, it would be unreasonable to hold that
because some of the applications made beyond the 10th day after the first issue of the prospectus, or
are defective, are liable to be rejected, the applications properly made before some of the Exchanges
are ‘also ineffective and the allotment made may be invalid.”
However, the consequence stated in this sub-section is postponed till the dismissal of any appeal
preferred under section 22 [see also section 22A] of the Securities Contracts (Regulation) Act, 1956
[section 73(1A), proviso]. Nevertheless, the permission, if not obtained within 10 weeks, is deemed
not to have been granted [section 73(5) of the 1956 Act]. If the permission for listing sought under
sub-section (1) of section 73 is not granted, the interest payable under sub-section (2) is attracted.
Sub-section (2) says that the liability to repay the money received from applicants arises forthwith
either where the permission has not been sought or, having been sought, it has not been granted.
The fact that an appeal is pending does not postpone the result contemplated in sub-section (2) in
regard to the liability to repay the amounts and interest accruing thereon if the amounts are not repaid
within eight days after the liability arose. The accrual of interest under sub-section (2) is not
dependent or consequent on the nullity postulated in sub-section (1A).76
[s 40.22] Appeal Against Refusal [Proviso to Section 73(1A)]
Where an appeal against the decision of recognised stock exchange refusing permission for shares
or debentures to be dealt in is preferred under section 22 of the Securities Contracts (Regulation)
Act, 1956 (42 of 1956), such allotment shall not be void until dismissal of appeal.
Section 22 of the Securities Contracts (Regulation) Act, 1956, conferring the power of appeal to the
Central Government is not applicable from the commencement of the Securities Laws (Second
Amendment) Act, 1999 (32 of 1999). Appeal now lies to the SAT established under section 15K(1) of
the SEBI Act, 1992 (15 of 1992).
Where on failure of a stock exchange to dispose of the application, the company appealed to the
Central Government under section 22 of the Securities Contracts (Regulation) Act, 1956 [now Appeal
lies to the SAT under section 22A], and the Central Government [now SAT] directed the stock
exchange for listing the issue. In view of the proviso to section 73(1A) of the 1956 Act, the listing was
obtained upon appeal to the Central Government under section 22 [now appeal lies to SAT section
22A] of the Securities Contracts (Regulation) Act, 1956, the question of the public issue being
declared void did not arise.77
[s 40.23] Repayment of Application Money [Sub-section (2)]
If application for permission has not been made in time or permission has not been granted, the
company has to repay without interest all monies received from applicants pursuant to prospectus.
This sub-section has been covered under section 40(3)(b) of the 2013 Act as explained in the
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commentary above.
[s 40.24] Penalty [Sub-section (2B)]
This provision has been covered under sub-section (5) of section 40 of the 2013 Act, as explained
above. However, the penalty provided under section 40(5) of the 2013 Act is higher than that
previously provided under the sub-section (2B) of the 1956 Act.
The prospectus shall contain the following:
6.13.2 Issue Procedure
6.13.2.17 Other instructions:
(a) Joint bids in the case of individuals.
(b) Multiple bids.
(c) Instruction to applicants to disclose Permanent Account Number [PAN] in the Application Form, irrespective of
the amount for which application/bid is made, along with the instruction that applications without Permanent
Account Number [PAN] would be rejected.
(d) Issuer company’s right to reject bids.
(e) Equity shares in Demat form with NSDL or CDSL.
(f) The investor’s attention shall also be invited to contact the Compliance Officer in case of any pre-issue/post-
issue-related problems such as non-receipt of letters of allotment/share certificates/refund orders, etc.
[Clause 6.13.2.17(c) substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/28/ 2007/29/11 dt. 29 November 2007:
Addressed to All Registered Merchant Bankers/Stock Exchanges : Issued by the SEBI, Corporation Finance
Department, Division of Issues and Listing : SEBI website http://www.sebi.gov.in].
6.13.2.18 Disposal of Application and application Monies.
6.13.2.24 Letters of allotment or refund orders.
6.13.2.25 Mode of making refunds:
The Company shall disclose the mode in which it shall make refunds to applicants in case of oversubscription, in the
prospectus and in the abridged prospectus:
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Provided that where the company proposes to make use of more than one mode of making refunds to applicants, the
respective cases where each such mode will be adopted shall be disclosed.
Explanation.—The permissible modes of making refunds are as follows:
(a) In case of applicants residing in any of the centres specified by the Board (SEBI)—by crediting of Refunds to
the bank accounts of applicants through electronic transfer of funds by using ECS (Electronic Clearing
Service), Direct Credit, RTGS (Real Time Gross Settlement) or NEFT (National Electronic Funds Transfer),
as is for the time being permitted by the Reserve Bank of India;
(b) In case of other applicants—by despatch of Refund orders by Registered Post, where the value is Rs 1500/-
or more, or under certificate of posting in other cases, (subject however to Postal Rules); and
(c) In case of any category of applicants specified by the Board—crediting of refunds to the applicants in any
other electronic manner permissible under the banking laws for the time being in force which is permitted by
the Board from time to time.
[Clause 6.13.2.25 substituted vide SEBI Circular No. SEBI/CFD/DIL/DIP/18/ 2006/20/1 dt. 20 January 2006 : SEBI
website http://www.sebi.gov.in].
6.13.2.26 Interest in case of Delay in Despatch of Allotment Letters/Refund Orders in Case of Public Issues:
The caption “Interest in Case of Delay in Despatch of Allotment Letters/Refund Orders in Case of Public Issues” shall
appear and shall contain the following statement:
(a) Where it is a fixed price issue:
• “The company agrees that as far as possible allotment of securities offered to the public shall be made within
30 days of the closure of public issue. The company further agrees that it shall pay interest @15% per annum
if the allotment letters/refund orders have not been despatched to the applicants (or if, in a case where the
refund or portion thereof is made in electronic manner, the refund instructions have not been given to the
clearing system in the disclosed manner) within 30 days from the date of the closure of the issue. However
applications received after the closure of issue in fulfilment of underwriting obligations to meet the minimum
subscription requirement, shall not be entitled for the said interest.”
(b) Where It Is a Book-built Issue:
• “The company agrees that allotment of securities offered to the public shall be made not later than 15 days of
the closure of public issue. The company further agrees that it shall pay interest @15% per annum if the
allotment letters/refund orders have not been despatched to the applicants (or if, in a case where the refund
or portion thereof is made in electronic manner, the refund instructions have not been given to the clearing
system in the disclosed manner) within 15 days from the date of the closure of the issue.”
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[Bracketed words in sub-clauses (a) and (b) inserted vide SEBI Circular No. SEBI/CFD/DIL/DIP/18/2006/20/1 dt. 20
January 2006 : SEBI (SEBI) website http://www.sebi.gov.in].
Section II—Contents of Abridged Prospectus
[Section II of Chapter VI substituted vide SEBI Circular No. SEBI/CFD/DIL/ DIP/14/2005/25/1 dt. 25 January 2005 :
Addressed to All Registered Merchant Bankers : Issued by the SEBI, Corporation Finance Department, Division of
Issues and Listing : (2005) 123 Comp. Cas. (St.) 128 and (2005) 124 Comp. Cas. (St.) 10 : SEBI website
http://www.sebi.gov.in (As amended up to 1 August 2007)].
6.16 General Instructions: The information to be provided that the company and every officer who is in default shall
be punishable with fine up to Rs 50,000, and where the repayment is not made within six months from the expiry of the
8th day, also with imprisonment up to one year.
[s 40.25] Punishment in Addition to Interest
This provision has not been expressly carried forward under section 40 of the 2013 Act; however,
sub-section (5) of section 40 is worded broadly to cover such punishment as well. Sub-section (2B) of
section 73 provides for punishment. This sub-section is concerned solely with default of compliance
with the requirement of sub-section (2A), namely, repayment of excess money. Failure to repay the
excess money as required by sub-section (2A) visits the company and every officer of the company
who is in default (as defined under section 5 of the 1956 Act) with the stipulated punishment. This is,
of course, in addition to the payment of interest prescribed in sub-section (2A) of section 73.78
[s 40.26] Complaint
Section 73(2B) stipulates that the company and every officer of the company who is an “officer in
default” shall be punished. An officer in default has been defined in section 5 of the 1956 Act. Under
section 621 of the Act, the court cannot take cognisance of any offence under section 73 of the Act,
unless the complaint is filed in writing by the Registrar or by a shareholder of the company or by a
person authorised by the Central Government [now also SEBI] in that behalf. A debenture holder has
no locus standi to file a complaint. In case any person is aggrieved of any act of the company and he
is not a shareholder of the company, then the only remedy open to him is to approach the Registrar
of Companies, who shall file the complaint in a court of law, if any offence was committed by the
company. The only exception to section 621 of the Act is when the prosecution for the offence
happens to be under section 545 of the Act, which is available during the course of winding up of a
company.79
When no shares or debentures were allotted to the respondents and the money was refunded, the
applicants were not competent to file the complaint as shareholders in view of the provisions of
[s 40.27] Continuing Offence
Default in complying with requirements of section 73(2A) is a continuing offence, and period of
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limitation starts every day the default continues.81
[s 40.28] Prosecution for Offence under Section 73(2B)—Complaint—Limitation
Section 621 of the 1956 Act prohibits taking cognisance of the offence alleged to have been
committed by a company or any officer, except on the complaint in writing of the Registrar of
Companies (ROC), or a shareholder of the company, or of a person authorised by the Central
Government or the SEBI. The subscribers can make a complaint to the Stock Exchange where they
have subscribed the equity shares and, in turn, the Stock Exchange informs the same to the ROC,
who can initiate the prosecution for violations. The petitioner-company issued a prospectus to the
public offering shares in 1993. A complaint was filed to the Hyderabad Stock Exchange in 1998 by
the respondents alleging that though they applied for shares during the public issue, the shares were
neither allotted to them nor was the money refunded. The complaint was forwarded to the ROC and
he issued a show-cause notice to the petitioner. As the petitioners did not respond to the notice, they
were prosecuted for the offence under section 73(2B) of the 1956 Act. On a petition under section
482 of the Code of Criminal Procedure, 1973 (2 of 1974), contending that the complaint was barred
by limitation as the public issue was closed in February 1993 and the complaint was filed in April
1998. Dismissing the petition, it was held that the offence committed by the petitioners had come to
the knowledge of the ROC for the first time in 1998 when the complaint was received from the Stock
Exchange. Under section 469(1)(b) of the Code of Criminal Procedure, 1973, the period of limitation
would commence from the day on which such offence comes to the knowledge of the prosecuting
agency. The prosecution was launched against the petitioners soon after the offence had come to the
knowledge of the ROC. Therefore, the proceedings could not be quashed on the ground of
limitation.82
[s 40.29] Applicants’ Money to be kept in a Scheduled Bank [Sub-section (3)]
This sub-section has been covered under section 40(5) of the 2013 Act.
[s 40.30] Utilisation of Monies in Separate Account
Sub-section (3A) has been covered under section 40 (3) of the 2013 Act as explained in the
commentary above.
[s 40.31] No Waiver
Sub-section (4) has been covered under section 40(4) of the 2013 Act as explained in the
commentary above.
[s 40.32] Deemed Refusal [Sub-section (5)]
This provision has not been carried forward under the 2013 Act. If the application for permission
made within time is not disposed of before expiry of 10 weeks from the date of the closing of the
subscription list, then it will be deemed that permission has not been granted. This deeming provision
is only for the purpose of the present section.
This means that the permission for listing is deemed not to have been granted, i.e., impliedly refused,
if the application for permission filed by the company has not been disposed of before the expiry of
10 weeks from the date of the closing of the subscription lists, as mentioned in sub-section (1A).83
This deeming provision was introduced by the Companies (Amendment) Act, 1974 (41 of 1974), to
provide protection to the investing public as well as underwriting institutions, which they were likely to
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lose by the Supreme Court decision in UOI v Allied International Products Ltd, (1971) 41 Comp. Cas.
127 (SC).84 By sub-section (5) as substituted by the Companies (Amendment) Act, 1974, the
Supreme Court decision has been superseded.
[s 40.33] Applicability to Underwriters and Offer for Sale [Sub-section (6)]
This provision has not been carried forward under the 2013 Act. The provisions of this section apply
also to (a) shares or debentures agreed to be taken by a person underwriting an offer by a
prospectus, in such a case the underwriter will be treated as if he had applied for shares or
debentures in pursuance of the prospectus; and (b) a prospectus offering shares for sale with the
modifications, namely, (i) references to “sale” shall be substituted for “allotment”; (ii) the persons by
whom the offer is made, and not the company, shall be liable under section 73(2) to repay money
received from applicants, and (iii) any person by or through whom the offer is made and who is
knowingly guilty of, or willfully authorises or permits, the default shall be liable under section 73(3)
and not the company and officers in default.
This provision is meant for underwriters, the brokers and similar other persons who may sell the
shares on behalf of the company, but the company or its officers are not directly involved.
[s 40.34] Recognised Stock Exchange [Sub-section (7)]
This provision has been stated under section 40(1) of the 2013 Act.
[s 76] Power to pay certain commissions and prohibition of payment of all other commissions, discounts,
etc.—(1) A company may pay a commission to any person in consideration of— The Companies Act, 1956 provision
(a) his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares in, or debentures
of, the company, or
(b) his procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares in, or
debentures of, the company, if the following conditions are fulfilled, namely:
(i) the payment of the commission is authorised by the articles;
(ii) the commission paid or agreed to be paid does not exceed in the case of shares, 5%. of the price at
which the shares are issued or the amount or rate authorised by the articles, whichever is less, and in
the case of debentures, 2½ per cent. of the price at which the debentures are issued or the amount or
rate authorised by the articles, whichever is less;
(iii) the amount or rate per cent. of the commission paid or agreed to be paid is—
• in the case of shares or debentures offered to the public for subscription, disclosed in the prospectus;
and
• in the case of shares or debentures not offered to the public for subscription, disclosed in the statement
in lieu of prospectus, or in a statement in the prescribed form signed in like manner as a statement in lieu
of prospectus and filed before the payment of the commission with the Registrar and, where a circular or
notice, not being a prospectus inviting subscription for the shares or debentures, is issued, also
disclosed in that circular or notice; 85[***]
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(iv) the number of shares or debentures which persons have agreed for a commission to subscribe
absolutely or conditionally is disclosed in the manner aforesaid; 86[and]
87[(v) a copy of the contract for the payment of the commission is delivered to the Registrar at the time of
delivery of the prospectus or the statement in lieu of prospectus for registration.]
(2) Save as aforesaid and save as provided in section 79, no company shall allot any of its shares or debentures or
apply 88[any of its moneys], either directly or indirectly, in payment of any commission, discount or allowance, to any
person in consideration of—
(a) his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares in, or debentures
of, the company, or
(b) his procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares in, or
debentures of, the company, whether the shares, debentures or money be so allotted or applied by being
added to the purchase money of any property acquired by the company or to the contract price of any work to
be executed for the company, or the money be paid out of the nominal purchase money or contract price, or
otherwise.
(3) Nothing in this section shall affect the power of any company to pay such brokerage as it has heretofore been
lawful for a company to pay.
(4) A vendor to, promoter of, or other person who receives payment in shares, debentures or money from, a company
shall have and shall be deemed always to have had power to apply any part of the shares, debentures or money so
received in payment of any commission the payment of which, if made directly by the company, would have been legal
under this section.
89[(4A) For the removal of doubts it is hereby declared that no commission shall be paid under clause (a) of sub-section
(1) to any person on shares or debentures which are not offered to the public for subscription:
Provided that where a person has subscribed or agreed to subscribe under clause (a) of sub-section (1) for any shares
in, or debentures of, the company and before the issue of the prospectus or statement in lieu thereof any other person
or persons has or have subscribed for any or all of those shares or debentures and that fact together with the
aggregate amount of commission payable under this section in respect of such subscription is disclosed in such
prospectus or statement, then, the company may pay commission to the first-mentioned person in respect of such
subscription.]
(5) If default is made in complying with the provisions of this section, the company, and every officer of the company
who is in default, shall be punishable with fine which may extend to 90[Rs 5,000].
NOTES
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This corresponds to section 105 of the Indian Act and section 53 of the English Act. As suggested by the Company
Law Committee (page 300 of the Report), it has been laid down that the rate of the commission should not exceed 10
per cent. and a maximum penalty of 500 rupees has also been imposed. [Clause 70 of the Companies Bill, 1953 (46 of
1953)].
[s 40.36] Conditions for Payment of Commission [Sub-section (1)]
A company may pay commission to any person in consideration of his (a) subscribing or agreeing to
subscribe, (b) procuring or agreeing to do so for the company’s shares or debentures if the following
conditions are fulfilled: (i) payment of commission must be authorised by the articles; (ii) rate of
commission must not exceed 5% of the price of shares and 2.5% of the price of debentures at which
they are issued or the rate or amount authorised by the articles, whichever is less; (iii) amount or rate
per cent of the commission should be disclosed in the prospectus or statement in lieu of prospectus
or other specified document; (iv) number of shares or debentures which a person has agreed to
subscribe should also be disclosed and (v) a copy of the contract for the payment of the commission
should be delivered to the Registrar along with the prospectus or the statement in lieu of prospectus.
[s 40.37] Filing
The prospectus or statement in lieu of prospectus along with a copy of the contract for payment of
commission should be filed with the Registrar. Where necessary, a statement of the amount or rate
per cent of the Commission payable in respect of shares/debentures and of the number of
shares/debentures for which persons have agreed for a Commission to subscribe for Absolutely or
Conditionally as mentioned in section 76(1)(b)(iii) should be filed in e-Form No. 4 of the Companies
(Central Government’s) General Rules and Forms, 1956.
[s 40.38] Directly or Indirectly [Sub-section (2)]
Except as above and as provided in section 79 of the 1956 Act, no company shall allot any shares or
debentures or pay directly or indirectly any commission, discount or allowance for subscribing or
procuring subscriptions for shares or debentures.
[s 40.39] Commission
The word “commission” is not restricted to payment of money out of capital only, it includes payments
from profits also. There is no doubt that the limit imposed on the payment of commission in respect of
shares and debentures applies to commissions paid out of capital or profits.91
[s 40.40] Underwriting
A person underwrites when he agrees to take up shares specified in the underwriting agreement if
the public or other persons fail to subscribe for the shares. An “underwriting” is in the nature of an
insurance against the possibility of inadequate subscriptions. The underwriting agreement being a
contract that the underwriter will either himself purchase or procure purchasers for the shares
underwritten by him, it is no concern of the company as to how the underwriter procures the
purchasers.92
[s 40.41] Contract of Underwriting Enforceable Against Executors
The contract of underwriting is enforceable against the executors of the deceased underwriter.93
[s 40.42] Underwriting Commission
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An underwriting commission is paid to a person who subscribes or agrees to subscribe. Such

commission cannot be paid to the person who purchases shares. Underwriting commission is income
of the assessee, but it is not income if having underwritten he himself has to purchase shares to the
extent of public default. Underwriting commission in respect of shares subscribed by assessee is not
assessable as income. Underwriting commission on such shares not taken to profit and loss account
but adjusted to reduce the cost of shares to the assessee would be in accordance with the principles
of accounting.94
See detailed Notes on Accounting Provisions under Chapter IX, and specifically section 133 of the
2013 Act and the Companies (Indian Accounting Standards) Rules, 2015, and the Indian Accounting
Standards (Ind AS) issued under section 133 by the Central Government along with the National
Advisory Committee on Accounting Standards, 2013 Act.
See detailed Notes on Audit and Auditors under Chapter X, and the auditing, review and other
standards under section 143 (10) of the 2013 Act issued by the ICAI.
For failure to comply with the provisions of section 76 of the 1956 Act relating to commission and
discount, the company and every officer who is in default shall be punishable with fine up to Rs
5,000.
The position of law under section 73 of the 1956 Act has been carried forward under section 40 of the
2013 Act.
47 Sub-sections (1) to (5) were notified by Notification No. S.O. 2754 (E) dt. 12 September 2013, w.e.f.12 September
2013 and sub-section (6) was notified by Notification No. S.O. 902 (E) dt. 26-03-2014, w.e.f. 1 April 2014. Section 40
corresponds to sections 73 and 76 of the 1956 Act.
49 C. Mackertich Ltd v Custodian, (2002) 108 COMP CAS 811 (Cal.); Rajendra Rathor v M.P. Stock Exchange, (2000)
102 COMP CAS 300 (MP) (DB); B. Srinivasa Rao v NSE of India Ltd, (2000) 100 Comp. Cas. 600 (AP); Rashtreeya
Ispat Nigam Ltd v State of Andhra Pradesh, (1999) 96 COMP CAS 645 (AP) (DB); A. Vaidyanathan v UOI, (2000) 101
COMP CAS 224 (Mad.). See also Notes under sections 2(39) and 29; Trilochana K. Doshi v Stock Exchange of India,
(2000) 100 COMP CAS 649 (Bom.) (DB); Mrs. Sejal Rikeeh Dalal v Stock Exchange, Bombay, (1990) 69 Comp. Cas.
709 (Bom.).
50 C. Mackertich Ltd v Custodian, (2002) 108 COMP CAS 811 (Cal.); Rajendra Rathor v M.P. Stock Exchange, (2000)
102 COMP CAS 300 (MP) (DB); B. Srinivasa Rao v NSE of India Ltd, (2000) 100 COMP CAS 600 (AP); Rakesh Gupta
v Hyderabad Stock Exchange Ltd, (1999) 96 COMP CAS 645 (AP) (DB); A. Vaidyanathan v UOI, (2000) 101 COMP
CAS 224 (Mad.). See also Notes under sections 2(39) and 29.
51 Smt. Urmila Bharuka v UOI, (1999) 97 COMP CAS 16 (Cal.).
52 Thomas, ex-parte, (1993) 1 All ER 420 : (1994) 3 Comp LJ 559.
53 See Raymond Synthetics Ltd v UOI, (1992) 73 COMP CAS 762 (SC) : AIR 1992 SC 847; Re, Nanwa Gold Mines Ltd,
(1955) 3 All ER 219 : (1955) 1 WLR 1080 (ChD). See also Notes under section 73(2A) herein before.
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54 Universal Incast Ltd v Appellate Authority, SEBI, (2002) 108 Comp. Cas. 248 (P&H) (DB); Rich Paints Ltd v Vadodara
Stock Exchange Ltd, (1998) 92 COMP CAS 282 (Guj.).
55 Bank of Baroda v SEBI, (2000) 38 CLA 226 (Bom.); Universal Incast Ltd v Appellate Authority, SEBI, (2002) 108
COMP CAS 248 (P&H) (DB).
56 RBI v Bank of Credit and Commerce International (Overseas) Ltd, (No. 2), (1993) 78 COMP CAS 230 (Bom.).
57 Dr. J.S. Sodhi v C.T. Scan Research Centre Pvt Ltd, (1995) 83 COMP CAS 762 (P&H); Pritam Singh Batra v Deol
Agro Oil Ltd, (1995) 82 COMP CAS 685 (P&H). See also Notes under sections 433 and 434.
58 Inserted after renumbering the existing sub-section (1) as sub-section (1A) by the Companies (Amendment) Act, 1988
(31 of 1988), section 10 (w.e.f. 15 June 1988).
59 Substituted by the Companies (Amendment) Act, 1974 (41 of 1974), section 8 (w.e.f. 01 Feburary 1975). For original
sub-section (1), which was earlier amended by Act 65 of 1960, section 20, as it stood prior to its substitution, see
Annexure at the end of this Volume.
60 Sub-section (1) renumbered as sub-section (1A) by Act 31 of 1988, section 10 (w.e.f. 15 June 1988).
61 Substituted by Act 31 of 1988, section 10, for “application has been, or will be,” (w.e.f. 15 June 1988).
62 The words “if the permission has not been applied for before the 10th day after the first issue of the prospectus, or,
where such permission has been applied for before that day,” omitted by Act 31 of 1988, section 10 (w.e.f. 15 June
1988).
63 Substituted by Act 31 of 1988, section 10, for “applied for as aforesaid” (w.e.f. 15 June 1988).
64 Substituted by the Companies (Amendment) Act, 1974 (41 of 1974), section 8, for “or has not been granted as
aforesaid” (w.e.f. 01 Feburary 1975).
65 Substituted by Act 31 of 1988, section 10, for “the directors of the company shall be jointly and severally liable to repay
that money with interest at the rate of 12%. per annum from the expiry of the eighth day:” (w.e.f. 15 June 1988). Earlier
the words “12%.” were substituted for “5%.” by Act 41 of 1974, section 8 (w.e.f. 01 Feburary 1975).
66 Proviso omitted by Companies (Amendment) Act, 1988 (31 of 1988), section 10 (w.e.f. 15 June 1988). Prior to its
omission, the proviso stood as under:
“Provided that a director shall not be liable if he proves that the default in the repayment of the money was not due to any
misconduct or negligence on his part.”
67 Sub-sections (2A) and (2B) inserted by Act 41 of 1974, section 8 (w.e.f. 01 Feburary 1975).
68 Substituted by Act 31 of 1988, section 10, for “the directors of the company shall be jointly and severally liable to repay
the money with interest at the rate of 12%. per annum from the expiry of the said eighth day:” (w.e.f. 15 June 1988).
69 Proviso omitted by Companies (Amendment) Act, 1988 (31 of 1988), section 10 (w.e.f. 15 June 1988). Prior to its
omission, the proviso stood as under :
“Provided that a director shall not be liable if he proves that the default in the repayment of the money was not due to any
misconduct or negligence on his part.”
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71 Substituted by Act 41 of 1974, section 8 (w.e.f. 01-02-1975), for the words, brackets and figure “so long as the
company may become liable to repay it under sub-section (2).”
5,000”. This amending act has been repealed by the Repealing and Amending Act, 2016.
73 Inserted by the Companies (Amendment) Act, 1974 (41 of 1974), section 8 (w.e.f. 1 Feburary 1975).
74 Substituted by the Companies (Amendment) Act, 1974 (41 of 1974), section 8 (w.e.f. 01 Feburary 1975). For sub-
section (5) as it stood prior to its substitution, see Annexure at the end of this Volume.
75 UOI v Allied International Products Ltd, (1971) 41 COMP CAS 127 (SC).
76 See Raymond Synthetics Ltd v UOI, (1992) 73 COMP CAS 762 (SC) : AIR 1992 SC 847. See also Notes under sub-
sections (2A) and (5) hereinafter.
77 Smt. Urmila Bharuka v Coventry Spring and Engineering Co Ltd, (1997) 88 COMP CAS 197 (Cal.) (DB).
78 See Raymond Synthetics Ltd v UOI, (1992) 73 COMP CAS 762 (SC) : AIR 1992 SC 847. See also Notes under
section 73(2A).
79 S.C. Bhatia v P.C. Wadhawa, (1998) 92 COMP CAS 511 (P&H). See also Notes under sections 5, 621 and 545.
80 Herdillia Unimers Ltd v Arun Bansal, (1999) 96 COMP CAS 521 (Raj.).
81 Bausch and Lomb (I) Ltd v ROC, (2000) 38 CLA 13 (Del.).
82 Rank Industries Ltd v Registrar of Cos, (2007) 135 COMP CAS 601 (AP).
83 Raymond Synthetics Ltd v UOI, (1992) 73 COMP CAS 762 (SC). See fuller discussion in Notes under sections 73(1A)
and (2A).
84 UOI v Allied International Products Ltd, (1971) 41 COMP CAS 127 (SC) : AIR 1971 SC 251. Superseded by section
73(5) as substituted by the Companies (Amendment) Act, 1974.
85 The word “and” omitted by Act 31 of 1965, section 12 (w.e.f. 15 October 1965). This amending Act has been repealed
by the Repealing and Amending Act, 2016.
88 Substituted by Act 65 of 1960, section 22, for “any of its capital moneys”. This amending Act has been repealed by the
500”. This amending Act has been repealed by the Repealing and Amending Act, 2016.
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91 Madanlal Fakirchand Dudhediya v Sri Changdeo Sugar Mills Ltd, (1962) 32 COMP CAS 604 (SC): AIR 1962 SC 1543 :
(1962) Supp. 3 SCR 973.
92 Naini Gopal Lahiri v State of U.P., (1965) 35 COMP CAS 30 (SC).
93 Warner Engineering Co. Ltd v Brennan, (1914) 30 Tax LR 191 (DC); Worthington, Re ex p. Pathe Freres, (1914) 2 KB
299 : 83 LJ KB 885 : 110 LT 599 (CA).
94 CIT v U.P. State Industrial Development Corp, AIR 1997 SC 2214 : (1997) 225 ITR 703 (SC).
End of Document
Mr. Laghir1 Rabari

95 Notified by Notification No. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014.
[s 41] Global depository receipt.—
PUBLIC OFFER
95[s 41] Global depository receipt.—
A company may, after passing a special resolution in its general meeting, issue depository receipts in
any foreign country in such manner, and subject to such conditions, as may be prescribed.96
NOTES
Section 41 of the 2013 Act is a new provision and does not correspond to any provision under the
1956 Act.
as follows:
“This is a new clause which provides that a company may issue global depository receipts to be dealt with, in a
depository mode in any foreign country.”
[s 41.2] Global Depository Receipts (GDRs)
A “global depository receipt” has been defined under section 2(44) of the 2013 Act to mean
any instrument in the form of a depository receipt, by whatever name called, created by a foreign depository outside
India and authorised by a company making an issue of such depository receipts.
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95 Notified by Notification No. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014. [s 41] Global depository receipt.—
The term “depository receipt” is defined under the Depository Receipts Scheme, 2014 (“2014
Scheme”) to mean a
foreign currency denominated instrument, whether listed on an international exchange or not, issued by a foreign
depository in a permissible jurisdiction on the back of permissible securities issued or transferred to that foreign
depository and deposited with a domestic custodian and includes ‘global depository receipt’ as defined in section 2(44)
of the Companies Act, 2013.1
[s 41.3] Background
Prior to the enactment of section 41 of the 2013 Act, global depository receipts were issued under the
Foreign Currency Convertible Bonds and Ordinary Shares (through depository receipt mechanism)
Scheme, 1993 (“1993 Scheme”). However, in 2014, the Ministry of Finance by notification dt. 21
October 2014 issued the Depository Receipts Scheme, 2014 (“2014 Scheme”) which repealed the
1993 Scheme. The scheme of laws that therefore governs the eligibility as well as manner of
issuance of GDRs is the 2014 Scheme read with section 41 of the 2013 Act and rules made
thereunder.
[s 41.4] Comparison between the 2014 Scheme and the 1993 Scheme
The 2014 Scheme intends to liberalise the manner of accessing global capital markets by Indian
companies. The following are certain differences between the 1993 Scheme and the 2014 Scheme:
[s 41.5] Issuance of GDRs
The 2014 Scheme provides that Indian companies whether listed or unlisted, public or private, which
have not specifically been prohibited from accessing capital markets or dealing in securities are
eligible to issue global depository receipts. This signifies a change in regime since under the 1993
Scheme (as amended in 2005 by the Ministry of Finance), whereby unlisted Indian companies were
not allowed to list on foreign stock exchanges without prior or simultaneous listing in the Indian
markets. This regime was reflected even in the foreign direct investment policies issued by the
Department of Industrial Policy & Promotion from the years 2005 to 2013. As worded in the foreign
direct investment policy of 2013—”unlisted companies, which have not yet accessed the ADR2/GDR
route for raising capital in the international market, would require prior or simultaneous listing in the
domestic market, while seeking to issue such overseas instruments. Unlisted companies, which have
already issued ADRs/GDRs in the international market, have to list in the domestic market on making
profit or within three years of such issue of ADRs/GDRs, whichever is earlier.”3 However, as per the
2014 Scheme, both listed and unlisted Indian companies may issue GDRs.
[s 41.6] Permissible Securities
The 2014 Scheme expands the kinds of permissible securities that can be issued against depository
receipts. Under the 1993 Scheme, Indian companies could issue depository receipts only against
their equity shares. However, the 2014 Scheme permits the issuance of all kinds of permissible
securities including shares, debentures, bonds, derivatives, units of a mutual fund, collective
investment schemes, government securities and right or interest in securities.4
[s 41.7] Approval
Unlike the 1993 Scheme, a company did not require approval from the Ministry of Finance before
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Page 3 of 5
issuing depository receipts. However, if an approval is required under FEMA/FDI policy for transfer or
issue of securities to a non-resident, then such approval will be required under the current regime.
[s 41.8] Unsponsored Depository Receipts
Under the 1993 Scheme, companies were allowed to issue only sponsored depository receipts, i.e.,
depository receipts issued with the specific approval of the issuer of the underlying permissible
securities. However, as per clause 3(2) of the 2014 Scheme, depository receipts can either be
sponsored by the issuer company or unsponsored, i.e., depository receipts issued without the
specific approval of the issuer of the underlying permissible securities.5
The 2014 Scheme also provides for limits on foreign holdings of such securities as well as pricing
and other obligations, as explained below.
[s 41.9] GDRs under the 2013 Act [Section 41)]
Section 41 empowers the central government to regulate the issue of global depository receipts in a
foreign country by prescribing the terms and manner of issuance of such instruments. In exercise of
this power, the Companies (Issue of Global Depository Receipts) Rules, 2014 (“GDR Rules”), have
been issued. These rules inter alia provide for eligibility, conditions of issuance, voting rights in the
underlying shares and manner of use of proceeds.
[s 41.10] Eligibility
Rule 3 of the GDR Rules provides that a company may issue global depository receipts if it is eligible
to do so under the 2014 Scheme and as per the provisions of the foreign exchange management
rules and regulations. The eligibility criterion set out under the 2014 Scheme as per clause 3(1) is as
follows:
(a) any Indian company listed or unlisted, private or public;

(b) any other issuer of permissible securities;
(c) any person holding permissible securities;
which has not been specifically prohibited from accessing the capital market or dealing in securities.
Clause 3(2) relates to unsponsored depository receipts and provides that unsponsored depository
receipts can be issued only if such depository receipts:
(a) give the holder the right to issue voting instruction; and
(b) are listed on an international exchange.
[s 41.11] Conditions
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Rule 4 of the GDR Rules provides various conditions that are required to be fulfilled by a company
issuing global depository receipts. These include obtaining prior approval of the shareholders by a
special resolution and appointing a merchant bank or a chartered account or a company secretary to
oversee compliances related to the issue of depository receipts. In this regard, a compliance report is
to be submitted to the board of directors or to a committee of the board of directors, immediately after
the closure of all formalities and compliances with respect to the issue. Further, the company must
also ensure that the provisions of the 2013 Act as well as the 2014 Scheme are complied with in
relation to such issuance. With regard to the special resolution, rule 4(2) of the GDR Rules provides
that a special resolution passed under section 62 of the 2013 Act for issue of shares underlying the
depository receipts will be deemed to be a special resolution under section 41.
[s 41.12] Manner of Issue
Rule 5 of the GDR Rules provides that depository receipts can be issued by way of public offering or
private placement or in any other manner prevalent abroad and may be listed on an international
stock exchange. Moreover, such receipts may be issued against new securities or sponsored against
existing shares of the company.
[s 41.13] Limits and Pricing
As per clause 5 of the 2014 Scheme, the aggregate of permissible securities which may be issued or
transferred to foreign depositories for issue of depository receipts, along with permissible securities
already held by persons resident outside India, shall not exceed the limit on foreign holding of such
permissible securities under the Foreign Exchange Management (Transfer or issue of Security by a
Person Resident outside India) Regulations, 2000, as amended. Further, clause 6 of the 2014
Scheme provides that the price of depository receipts should not be less than the price applicable to
the corresponding mode of issue or transfer of such securities to domestic investors under the
Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India),
2000, as amended.
[s 41.14] Voting Rights
Rule 6 of the GDR Rules provides that a holder of a depository receipt may become a member of the
company and will be entitled to vote only on conversion of the depository receipts into the underlying
security. Until conversion, the foreign depository, defined under clause 2(1)(c) of the 2014 Scheme
as a person who is (a) not prohibited from acquiring permissible securities; (b) is regulated in a
permissible jurisdiction and (c) has legal capacity to issue depository receipts in the permissible
jurisdiction, will be entitled to vote on behalf of the holder of such an instrument in accordance with
the agreement between the depository, the holder and the company.
[s 41.15] Remittance
As per rule 7 of the GDR Rules, the proceeds of issues of depository receipts are to be remitted to a
bank account in India or deposited in an Indian bank operating abroad or any foreign bank (which is a
Scheduled Bank under the Reserve Bank of India Act, 1934) having operations in India with an
agreement that the foreign bank having operations in India shall take responsibility for furnishing all
the information which may be required, and in the event of a sponsored issue of depository receipts,
the proceeds of the sale shall be credited to the respective bank account of the shareholders.
[s 41.16] Non-applicability of Certain Provisions
The GDR Rules clarify among other things that the provisions of the 2013 Act in relation to public
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Page 5 of 5
issue of shares or debentures do not apply to the issue of global depository receipts.
95 Notified by Notification No. 902(E) dt. 26 March 2014, w.e.f. 1 April 2014.
96 Companies (Issue of Global Depository Receipts) Rules, 2014.
1 Clause 2(1)(a) of the Depository Receipts Scheme, 2014.
2 As per regulation 2(1)(j) of the SEBI (Listing Obligations and Disclosures Requirement) Regulations, 2014, “American
Depository Receipts” (ADRs) shall have the same meaning as assigned to “global depository receipts” in the 2013 Act.
3 See, Ministry of Commerce and Industry, Consolidated Foreign Investment Policy, 05 April 2013.
4 Clause 2(1)(h) of the Depository Receipts Scheme, 2014.
5 Clause 2(1)(k) of the Depository Receipts Scheme, 2014, defines “unsponsored depository receipts” to mean
depository receipts issued without specific approval of the issuer of the underlying permissible securities.
End of Document
Mr. Laghir1 Rabari

6 Notified by Notification No. S.O. 902(E), dt. 26 March 2014, w.e.f. 1 April
2014 and corresponds to section 67 of the 1956 Act. [s 42] Offer or
invitation for subscription of securities on private placement.—
Company Law > CHAPTER III PROSPECTUS AND ALLOTMENT OF SECURITIES > PART II:
PRIVATE PLACEMENT
PART II: PRIVATE PLACEMENT
6[s42] Offer or invitation for subscription of securities on private

placement.—
(1) Without prejudice to the provisions of section 26, a company may, subject to the provisions of
this section, make private placement through issue of a private placement offer letter.7
(2) Subject to sub-section (1), the offer of securities or invitation to subscribe securities, shall be
made to such number of persons not exceeding fifty or such higher number as may be
prescribed,8 [excluding qualified institutional buyers and employees of the company being
offered securities under a scheme of employees stock option as per provisions of clause (b)
of sub-section (1) of section 62], in a financial year and on such conditions (including the form
and manner of private placement) as may be prescribed.9
Explanation I.—If a company, listed or unlisted, makes an offer to allot or invites

subscription, or allots, or enters into an agreement to allot, securities to more than the
prescribed number of persons, whether the payment for the securities has been received
or not or whether the company intends to list its securities or not on any recognised stock
exchange in or outside India, the same shall be deemed to be an offer to the public and
shall accordingly be governed by the provisions of Part I of this Chapter.
Explanation II.—For the purposes of this section, the expression—
(i) “qualified institutional buyer” means the qualified institutional buyer as defined in the
Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements)
Regulations, 2009 as amended from time to time.
(ii) “private placement” means any offer of securities or invitation to subscribe securities to a
select group of persons by a company (other than by way of public offer) through issue of
a private placement offer letter and which satisfies the conditions specified in this section.
(3) No fresh offer or invitation under this section shall be made unless the allotments with respect
to any offer or invitation made earlier have been completed or that offer or invitation has been
withdrawn or abandoned by the company.
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6 Notified by Notification No. S.O. 902(E), dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to section 67
of the 1956 Act. [s 42] Offer or invitation fo....
(4) Any offer or invitation not in compliance with the provisions of this section shall be treated as
a public offer and all provisions of this Act, and the Securities Contracts (Regulation) Act,
1956 (42 of 1956) and the SEBI Act, 1992 Securities and Exchange Board of India(15 of
1992) shall be required to be complied with.
(5) All monies payable towards subscription of securities under this section shall be paid through
cheque or demand draft or other banking channels but not by cash.
(6) A company making an offer or invitation under this section shall allot its securities within sixty
days from the date of receipt of the application money for such securities and if the company
is not able to allot the securities within that period, it shall repay the application money to the
subscribers within fifteen days from the date of completion of sixty days and if the company
fails to repay the application money within the aforesaid period, it shall be liable to repay that
money with interest at the rate of twelve per cent. per annum from the expiry of the sixtieth
day:
Provided that monies received on application under this section shall be kept in a
separate bank account in a scheduled bank and shall not be utilised for any purpose other
than—
(a) for adjustment against allotment of securities; or

(b) for the repayment of monies where the company is unable to allot securities.
(7) All offers covered under this section shall be made only to such persons whose names are
recorded by the company prior to the invitation to subscribe, and that such persons shall
receive the offer by name, and that a complete record of such offers shall be kept by the
company in such manner as may be prescribed10 and complete information about such offer
shall be filed with the Registrar within a period of thirty days of circulation of relevant private
placement offer letter.
(8) No company offering securities under this section shall release any public advertisements or
utilise any media, marketing or distribution channels or agents to inform the public at large
about such an offer.
(9) Whenever a company makes any allotment of securities under this section, it shall file with
the Registrar a return of allotment in such manner as may be prescribed, including the
complete list of all security-holders, with their full names, addresses, number of securities
allotted and such other relevant information as may be prescribed.11
(10)If a company makes an offer or accepts monies in contravention of this section, the company,
its promoters and directors shall be liable for a penalty which may extend to the amount
involved in the offer or invitation or two crore rupees, whichever is higher, and the company
shall also refund all monies to subscribers within a period of thirty days of the order imposing
the penalty.
NOTES
Section 42 of the 2013 Act corresponds partially to section 67 of the 1956 Act.
as follows:
Clause 42.—This clause corresponds to Section 67 of the Companies Act, 1956 and seeks to provide that without
prejudice to provisions of section 25, a company may make an offer or invitation of securities by way of Private
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Placement. The clause further provides the conditions through which invitation can be made. The clause also provides
that no fresh allotment to be made unless earlier allotment is completed, provisions of this Act, SCRA, SEBI shall apply
to this placement. The monies payable on subscription of securities not to be made in cash. The clause further
provides that company shall allot securities within 60 days from date of receipt of application money, if does not allot
within 60 days then repay application money within 15 days after expiry of 60 days and if company does not pay
money after the aforesaid period the company is liable to repay the money with interest at 12% per annum from expiry
of 60th day. The monies received shall be kept in separate bank account with a scheduled bank and to be used for
some specific purposes only. The clause further provides that offer to be made only to such persons whose name is
recorded prior to the invitation to subscribe, and complete record of offer and acceptance shall be given to Registrar
within period of 30 days of circulation of private placement offer. Public at large about the offer and file a return of
allotment with registrar in the prescribed manner. The clause further provides that Central Government may make rules
under this clause.
[s 42.2] Private Placement and Public Issue
The Supreme Court in the case of Sahara India12 held that circulation of an offer through an
information memorandum for the subscription of optionally fully convertible bonds to more than 50
persons was held to be a public issue under section 67 of the 1956 Act. The Supreme Court further
held that the duty of listing flows from the act of issuing securities to the public, if such offer is made
to 50 or more persons. The Explanation I to section 42 of the 2013 Act attempts to bridge this gap
which existed under the 1956 Act and clarifies that if a listed or unlisted company, makes an offer to
allot or invites subscription, or allots, or enters into an agreement to allot, securities to more than the
prescribed number of persons, this will be deemed to be an offer to the public, whether the payment
for the securities has been received or not or whether the company intends to list its securities or not
on any recognised stock exchange within or outside India.
[s 42.3] Offer or Invitation to Public
[s 42.4] Crowd Funding
The SEBI Consultation Paper published by SEBI in 201414 describes crowdfunding as solicitation of
funds (small amount) from multiple investors through a web-based platform or social networking site
for a specific project, business venture or social cause. The consultation paper discusses the creation
of a regulatory framework for, inter alia, equity and debt based crowd funding. Other kinds of crowd
funding identified by the consultation paper are:
(i) Donation crowd funding: where funds are solicited for philanthropic purposes, and not for any
tangible result;
(ii) Reward crowd funding: where investors receive a tangible existing or future reward in
exchange for the funds;
(iiii) Peer to peer lending: where an online platform matches lenders / investors with
borrowers/issuers for unsecured loans.
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Through PR No. 137/2016 dt. 30 August 2016, SEBI issued the following caution to investors:
It has also come to the notice of SEBI that certain electronic platforms are facilitating fund raising on digital platforms
like websites and other internet platforms, which are similar to the platforms of stock exchanges. These digital
platforms are neither authorized nor recognized under any law governing the securities market. The electronic
platforms are allegedly facilitating investment in the form of private placement with companies, as the offer is open to
all the investors registered with the platform amounting to a contravention of the provisions of Securities Contract
(Regulation) Act, 1956 (SCRA) and the Companies Act, 2013. Only recognized stock exchanges provide a platform
where equity and other securities issued by companies are listed and traded in accordance with the provisions of the
SCRA. The details of SEBI recognized stock exchanges are available on the SEBI website www.sebi.gov.in. Investors
are hereby cautioned that all dealings on such unauthorized electronic platforms would be in contravention of the
relevant securities laws.
Given this notification, it has been clarified that the current regulatory regime in India does not permit
a company to issue securities from using an electronic platform such as a website or other internet
platforms. Companies that wish to raise funds either through equity or debt may:
(i) issue securities to the public in compliance with Chapter III the Companies Act, 2013 and the
Companies (Prospectus and Allotment) Rules, 2014;
(ii) issue securities to identified persons through a private placement in accordance with Section
42 of the Companies Act, 2013 and Rule 14 of the Companies (Prospectus and Allotment)
Rules, 2014;
(iii) rights issue to existing shareholders in accordance with Section 62 of the Companies Act,
2013; or
(iv) issue debentures in accordance with Section 71 of the Companies Act, 2013 and Rule 18 of
the Companies (Share Capital and Debentures) Rules, 2014, in addition to any applicable
SEBI regulations.
Companies that seek to accept funds in the nature of deposits will have to comply with the provisions
of Chapter V of the Companies Act and the Companies (Acceptance of Deposits) Rules, 2014. Under
Rule 2 (1)(c), amounts that are (i) received by the company, whether in the form of instalments or
otherwise, from a person with promise or offer to give returns, in cash or in kind, on completion of the
period specified in the promise or offer, or earlier, accounted for in any manner whatsoever, or (ii) any
additional contributions, over and above the amount under item (i) above, made by the company as
part of such promise or offer, are treated as deposits. Under Section 73, companies are only
permitted to accept deposits from the public in a manner compliant with the provisions of the
Companies Act, 2013. Under Section 73, private companies are only permitted to accept deposits
from its members. Public companies meeting the eligibility requirements set out in Section 76,
Companies Act, 2013 may accept deposits from the public. Listed companies will also additionally
have to comply with appropriate SEBI regulations on the subject.
See notes under Section 73, Companies Act, 2013, SEBI (Issue of Capital and Disclosure
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Requirements) Regulations, 2009, and SEBI (Issue and Listing of Debt Securities) Regulations,
2008.
[s 42.5] When offer or Invitation not to Public
Where the invitation or offer of shares or debentures made to a section of the public does not entitle
other than those who received the invitation or offer, it will not be an invitation or offer to the public.
The offering of shares to the kith and kin of a director is not an invitation to the public to buy shares.15
However, this would not exclude the application of the threshold of 200 set out in the 2013 Act and
rules. A private communication is not a prospectus. Whether circulation among friends of the
directors a document headed “strictly private and confidential” amounts to a prospectus will depend
upon the facts and circumstances of each case.16
[s 42.6] Private Placement and Preferential Allotment
Pursuant to the Companies (Share Capital and Debentures) Rules, 2014, issued with regard to
section 62 of the 2013 Act (Further Issue of Share Capital), any offer made pursuant to section
62(1)(c) on a preferential basis to any person other than an existing shareholder is also required to
comply with the conditions laid down in section 42 (Private Placement). Consequently, every
preferential allotment under section 62(1)(c), even if to a single investor will also need to be
accompanied by the offer letter in the prescribed Form PAS-4.
[s 42.7] Private Placement Offer Letter [Section 42(1)]
Section 42(1) allows a company to make a private placement through an offer letter. Such offer letter
is to be made by the company in the prescribed Form PAS-4. A copy of Form PAS-5 containing the
record of the private placement offers is also required to be filed with the jurisdictional registrar (and
SEBI, where the company is listed) along with the Form PAS-4, within a period of 30 days from the
circulation of the private placement offer letter.
In the event that the company is undertaking a preferential offer of securities to one or more of its
existing members, the company will not be required to issue the offer letter in Form PAS-4 to such
members or make subsequent filing with the jurisdictional registrar of companies.17
[s 42.8] Restriction on the Number of Persons to whom an Offer or Invitation is Made

[Section 42(2)]
Section 42(2) further restricts the number of persons to whom an offer or invitation to subscribe
securities can be made. A private placement is not permitted to be made to more than 200 persons
(excluding offers to qualified institutional buyers and employees of the company being offered
securities under an employees stock option scheme) in aggregate in a financial year.18 This
restriction will be considered individually for each different kind of security be it equity share,
preference share or debenture.19
Further, the explanation to sub-section (2) of section 42 defines “private placement” to mean any
offer of securities or invitation to subscribe to securities to a select group of persons by a company
(other than by way of a public offer) through issue of a private placement offer letter. This explanation
also defines the term qualified institutional buyer to mean such term as defined under the SEBI (Issue
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of Capital and Disclosure Requirements) Regulations, 2009.
[s 42.9] Company Restrained from Making an Offer in Certain Situations [Section 42(3)]
Sub-section (3) of section 42 restricts a company from making an offer for private placement till such
time the allotments with respect to any such offer or invitation made earlier have been completed or
until such earlier offer or invitation has been withdrawn or abandoned by the company.
[s 42.10] Certain Offers Treated as a Public Offer [Section 42(4)]
As per sub-section (4) of section 42, an offer for private placement by a company that is not in
compliance with the requirements of section 42 is treated as a “public offer” and all provisions of the
2013 Act and the Securities Contract (Regulation) Act, 1992 (15 of 1992), and the SEBI Act, 1992 (15
of 1992), will need to be complied with.
[s 42.11] Private Placement Offers to be Made Only to Specific Persons [Section 42(7)]
As per sub-section (7) of section 42, such offers shall be made only to such persons whose names
are recorded by the company in Form PAS-5, prior to the invitation to subscribe.
[s 42.12] Approval by Special Resolution
The proposed offer or invitation to subscribe to securities under private placement is required to be
approved by the shareholders through a special resolution for each such offer or invitation to
subscribe. This resolution will be valid for a period of one year from the date of the resolution. In this
period, the company may make a private placement.
[s 42.13] Issue Size
The value of the offer or invitation per person is required to be with an investment size of not less
than Rs 20,000 of face value of the securities.20
[s 42.14] Separate Bank Account and Receipt of Subscription Monies
The Company will have to open a separate bank account where the payments made towards the
security will be deposited. The payment to be made for subscription to securities shall be made from
the bank account of the person subscribing to such securities and the company shall keep the record
of the bank account from which such payments for subscriptions have been received.
[s 42.15] Payment [Section 42(5)]
Sub-section (5) of section 42 further permits the monies towards subscription of securities to be paid
only through cheque or demand draft or other banking channels. Payment cannot be made by cash.
[s 42.16] Utilisation of the Money [Section 42(6)]
Sub-section (6) of section 42 further limits the end use of the monies received under a private
placement offer to (a) adjustment against allotment of securities; or (b) repay monies where the
company is unable to allot securities. Therefore, till the time the allotment of the securities is
complete, the securities subscription monies cannot be used for any other purpose other than for
refund of the subscription monies.
[s 42.17] Allotment of Securities [Section 42(6)]
Sub-section (6) of section 42 requires that the allotment of securities under a private placement offer
must be completed within 60 days of the date on which the application money is received. If the
allotments are not completed, the amounts must be repaid by the company within 15 days of the
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expiry of 60 days, i.e., within 75 days of the date the application money is received. If the company
fails to repay the application money within the aforesaid period, it will be liable to repay that money
with interest at the rate of 12% per annum from the expiry of the 60th day from the date on which the
application money is received.
[s 42.18] Filings with the Registrar
Sub-section (9) of section 42 requires a return of allotment of securities to be filed with the
jurisdictional registrar of companies within 30 days of allotment. This return will need to be filed in
Form PAS-3 along with a complete list of all security holders, containing the details prescribed. As
annexures to the form PAS-3, the Forms PAS-4 and PAS-5 will also need to be filedwithin 30 days of
circulation of the private placement offer letter.21
[s 42.19] Private Placement of Securities to Non-residents/ Issue by Listed Companies
Listed companies will also be required to comply with SEBI (ICDR) Regulations, 2009. (Please see
regulations 70 to 79 of the SEBI (ICDR) Regulations, 200922) and the listing agreement of the
relevant stock exchange on which the shares of the company are listed. The previous listing
agreement have been replaced by a uniform listing agreement which requires listed companies to
comply with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The
issuing company must also comply with the FEMA (Transfer of Issue of Security by a Person
Resident Outside India) Regulations, 2000, with respect to issuance of shares to persons resident
outside India.
[s 42.20] Nidhi Companies
Excluding sub-section (1), Explanation (II) to sub-section (2), sub-sections (4), (6), (8), (9) and 10 of
section 42, the provisions of section 42 do not apply to Nidhi companies.23
[s 42.21] FCCBs and FCBs
The provisions of section 42 are not applicable to Foreign Currency Convertible Bonds and Foreign
Currency Bonds issued exclusively to persons resident outside India.24
A contravention of the procedure prescribed for private placement exposes the directors and
promoters to the risk of a penalty which may extend to the amount involved in the offer or invitation or
Rs 2 crores, whichever is higher. The company will also be required to refund [all monies] to
subscribers within 30 days of the order imposing penalty. If the contravention is that the offer and/or
allotment was made to more than the prescribed number of persons, the statute does not clarify if the
amount to be refunded includes amounts paid by those subscribers who would fall under the
prescribed number of persons.
Additionally, sub-section (4) of section 42 of the 2013 Act creates a slight discrepancy in the
consequences of the contravention of section 42 of the 2013 Act in relation to public and private
companies. While sub-section (4) of section 42 provides that any private placement not undertaken in
accordance with section 42 will be treated as a public offer, sub-section (1) of section 23 of the 2013
Act provides that only a “public company” can make a public offer. Therefore, in the event that a
private company undertakes a private placement that is not in conformity with the conditions
prescribed under section 42 of the 2013 Act, such offer will also be deemed to be a “public offer.”
Consequently, if a private company makes a public offer, a penalty for such a violation will be both
under section 450 of the 2013 Act (as there is no specific penalty for a contravention of section 23) in
addition to the penalty prescribed under section 42(10). A public company that violates the provisions
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of section 42 of the 2013 Act will be liable to be punished under section 42(10), in addition to the
penalties prescribed for a contravention of sections 25–40 of the 2013 Act (in relation to matters
pertaining to prospectus) and those prescribed under the Securities Contract (Regulation) Act, 1992
(15 of 1992), and the SEBI Act, 1992 (15 of 1992).
[s 42.23] Compounding
As the penalty prescribed under this section is a fine, the offence may be compounded under section
[s 67] Construction of references to offering shares or debentures to the public, etc.—(1) Any reference in this
Act or in the articles of a company to offering shares or debentures to the public shall, subject to any provision to the
contrary contained in this Act and subject also to the provisions of sub-sections (3) and (4), be construed as including a
reference to offering them to any section of the public, whether selected as members or debenture holders of the
company concerned or as clients of the person issuing the prospectus or in any other manner. The Companies Act,
1956 provision
(2) Any reference in this Act or in the articles of a company to invitations to the public to subscribe for shares or
debentures shall, subject as aforesaid, be construed as including a reference to invitations to subscribe for them
extended to any section of the public, whether selected as members or debenture holders of the company concerned
or as clients of the person issuing the prospectus or in any other manner.
(3) No offer or invitation shall be treated as made to the public by virtue of sub-section (1) or sub-section (2), as the
case may be, if the offer or invitation can properly be regarded, in all the circumstances—
(b) otherwise as being a domestic concern of the persons making and receiving the offer or invitation:
25[Providedthat nothing contained in this sub-section shall apply in a case where the offer or invitation to subscribe for
shares or debentures is made to fifty persons or more:
Provided further that nothing contained in the first proviso shall apply to the non-banking financial companies or public
financial institutions specified in section 4A of the Companies Act, 1956 (1 of 1956).]
26[(3A) Notwithstanding anything contained in sub-section (3), the Securities and Exchange Board of India shall, in
consultation with the Reserve Bank of India, by notification in the Official Gazette, specify the guidelines in respect of
offer or invitation made to the public by a public financial institution specified under section 4A or non-banking financial
company referred to in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934)]
(4) Without prejudice to the generality of sub-section (3), a provision in a company’s articles prohibiting invitations to
the public to subscribe for shares or debentures shall not be taken as prohibiting the making to members or debenture
holders of an invitation which can properly be regarded in the manner set forth in that sub-section.
(5) The provisions of this Act relating to private companies shall be construed in accordance with the provisions
contained in sub-sections (1) to (4).
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NOTES
Section 67 of the 1956 Act has been repealed with the notification of section 42 of the 2013 Act,
This corresponds to section 55 of the English Act. The insertion of this provision has been recommended by the
Company Law Committee. See pages 298 and 299 of the report. An endeavour has been made to simplify the drafting
of the clause so as to bring out the meaning quite clearly. [Clause 61 of the Companies Bill, 1953 (46 of 1953)].
The recommendations of the Company Law Committee are as follows: “One of the methods by which savings are
attracted from the public is through “placings” by a broker’s or issuing office or investing syndicates. While it will be
hard to provide statutorily that every placing must be deemed to be an offer for sale, such placings as are to all intents
and purposes “offers to the public” should be brought indisputably within the provisions of the Act (vide
recommendations of the Cohen Committee). The object of this section is to cover such placings.” [Report : pages 298
and 299].
This clause, inter alia, seeks to amend section 67 of the Act to provide that offer of securities to more than fifty persons
in a financial year will be treated as public offer. [Clause 23 of the Companies (Second Amendment) Bill, 1999 (139 of
1999)].
[s 42.25] Offer to Public [Section 67(1)]
It will include offer of shares or debentures to a section of the public or to one’s clients. This language
is not mentioned in section 42 of the 2013 Act.
[s 42.26] Invitation to Subscribe [Section 67(2)]
It will include invitation to a section of the public or to one’s own clients inviting them to buy shares or
debentures. This language is not mentioned in section 42 of the 2013 Act.
[s 42.27] Offer or Invitation not to Public [Section 67(3)]
No offer or invitation shall be treated as made to public by virtue of sub-section (1) or (2), if the offer
or invitation can be regarded as—(a) not calculated to result, directly or indirectly, in shares or
debentures becoming available for subscription or purchase by persons other than those receiving
the offer or invitation; or (b) a domestic concern of the persons making and receiving the offer or
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invitation. This sub-section is not covered under section 42 of the 2013 Act, as explained in the
commentary above.
[s 42.28] Calculated
It suggests design, forethought or intention to accomplish a purpose. When applied to a human

action it is used in the sense to intend, to design, to plan or to adapt to achieve a purpose.27
[s 42.29] Offer or Invitation to 50 or more Persons Treated as Public [Section 67(3), First
Proviso]
Section 67(3) is covered under sub-section (2) of section 42 of the 2013 Act, as explained in the
commentary above.
[s 42.30] Private Placement and Public Issue
Section 67 of the 1956 Act gives an indication of the difference between private placement and public
issue. Section 67(3) is clear and categorical. The first proviso to section 67(3) inserted by the
Companies (Amendment) Act, 2000 (53 of 2000) (w.e.f. 13 December 2000), sets at rest the question
by stating that if an invitation to subscription is made to 50 or more persons, it ceases to be a private
placement.28
Government has (i) declared the companies specified in Schedules I and II as Nidhi and Mutual
Benefit Societies respectively; and (ii) directed that the provisions of specified Sections of the Act
the Notification as follows:
Section 67(3) proviso.—Shall not apply.
[Notification No. G.S.R. 978, dt. 28 May 1963, Schedule III as substituted by Notification No. G.S.R. 517 (E), dt. 31
August 2006, published in the Gazette of India, Extraordinary, No. 402, Pt II, Section 3(i) : (2006) 133 Comp. Cas. (St.)
24]. See commentary above for the notification granting an exemption under the 2013 Act.
[s 42.32] NBFCs or Financial Institutions [Sub-section (3), Second Proviso]
The deeming first proviso to sub-section (3) shall, however, not apply to non-banking financial
companies (NBFCs) or public financial institutions specified in section 4A of the 1956 Act (1 of 1956).
[s 42.33] SEBI in Consultation with RBI may Specify Guidelines [Sub-section (3A)]
The SEBI shall in consultation with the RBI by notification specify the guidelines in respect of offer or
invitation made to the public by a public financial institution specified under section 4A of the 1956
Act or NBFCs referred to in section 45-I(f) of the Reserve Bank of India Act, 1934. This sub-section is
not covered under sub-section 42 of the 2013 Act, as explained in the commentary above.
[s 42.34] Private Company [Section 67(4) and (5)]
Without prejudice to the generality of section 67(3), a provision in a company’s articles prohibiting
invitations to the public to subscribe for shares or debentures shall not be taken as prohibiting the
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making to members or debenture holders of an invitation in the manner set forth in section 67(3).
The provisions of this Act relating to private companies shall be construed in accordance with the
provisions contained in section 67(1) to (4).
A private company may sell further issue of shares to outsiders on refusal by the existing members to
subscribe. Such issue to outsiders will not be treated as offer to the public.
[s 42.35] Legislative History Department’s View—Private placement of equity shares
“It has come to the notice of the Government that some companies utilise the services of brokers and other
intermediaries for private placement of equity shares, out of promoters’ quota or otherwise, insert advertisements in the
print media and also mass-mail literature/material/brochures superscribed by the caption “Confidential/For private
circulation only.” It is also noticed that the rights of renunciation are floated in the market by the companies themselves,
charging unofficial premia from the investing public. Under Section 67(3) of the Companies Act, 1956, no offer or
invitation shall be treated as made to the public, only if the same can be regarded, in all the circumstances—
(b) otherwise as being a domestic concern of the persons making and receiving the offer or invitation.
In the context of the above provisions of law, such offers cannot be treated as private placement and provisions
relating to prospectus under the Companies Act, 1956, are applicable. The companies concerned, their promoters and
their intermediaries are hereby warned that making of so-called private placement of shares or collecting unofficial
premia without recording the same in the books of account of the company, are serious contraventions of the
Companies Act, 1956 and will invite penal action under the Act by the Government. It may be noted that marketing of
rights of renunciation by a private company is prohibited under section 3(1)(iii)(c) of the Companies Act, 1956, as it
cannot make any invitation to the public to subscribe for its shares.” [Clarification F. No. 17/6/92-CL-V, dt. 6 July 1992:
Chartered Secretary, August 1992, page 719 : (1992) 75 Comp. Cas. (St.) 25].
[s 42.36] Penalty
Where the transferor company had engaged in private placement of shares in contravention of
sections 67 and 68 of the 1956 Act. The scheme of amalgamation under sections 391–394 was
made effective after one year as represented by the Central Government to allow the registrar of
companies or the Central Government to take necessary action against the said company in regard
to violations complained of sections 67 and 68 of the 1956 Act.
The 1956 Act did not use the expression “private placement,” however, the purchase or subscription
of shares or debentures only by certain identified persons were not considered to be a “public issue,”
and were commonly referred to as private placement.
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Under the 1956 Act, an offer of securities to less than 50 persons was not considered as a “public
offer.” The 2013 Act provides that a private placement of securities can be made to not more than
200 persons29 (excluding offers to qualified institutional buyers and employees of the company being
offered securities under an employees stock option scheme) in a financial year. However, sub-
section (4) of section 42 of the 2013 Act provides that any offer or invitation not in compliance with
the provisions of section 42 of the 2013 Act will be treated as a public offer and all provisions of the
Securities Contract (Regulation) Act, 1992 (15 of 1992), and the SEBI Act, 1992 (15 of 1992), will
need to be complied with.
Further, sub-section (8) of section 42 specifically restricts the company which is making an offer for
private placement from releasing any public advertisements or utilise any media, marketing or
distribution channels or agents to inform the public at large about such an offer.
See “public offer” under section 23 of the 2013 Act.
While section 67 of the 1956 Act only provided for preferential placement of shares or debentures,
section f42 of the 2013 Act clarifies that a private placement may be made of any securities thus
widening the scope of instruments that come within its purview.
The 2013 Act has laid down prescribed forms in which an offer for private placement has to be made
apart from laying down detailed procedures including requiring the opening of a separate bank
account to receive the share application money. Such detailed procedures were not prescribed under
the 1956 Act.
6 Notified by Notification No. S.O. 902(E), dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to section 67 of the
1956 Act.
7 See rule 14(1)(a) and Form PAS-4 of the Companies (Prospectus and Allotment of Securities) rules, 2014.
8 Rule 14(2)(b) of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
9 Rule 14(2)(a) of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

13 Nash v Lynde, (1929) AC 158 : 98 LJ KB 127 : 140 LT 146 : 45 Tax LR 42 (HL).
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14 Consultation Paper on Crowd funding in India, dt. 17 July 2014.

15 Rattan Singh v Moga Transport Co., AIR 1959 Punj. 196.
16 Sherwell v Combined Incandescent Mantles Syndicate, (1907) WN 110 : 51 SJ 446; Re, South of England Natural Gas
& Petroleum Co., (1911) 1 ChD 573 : 80 LJ Ch. 358; Nash v Lynde, (1929) AC 158 : 98 LJ KB 127 : 140 LT 146 : 45
TLR 42 (HL).
17 As per proviso to rule 13 of the Companies (Share Capital and Debentures) Rules, 2014 (inserted by notification of the
Companies (Share Capital and Debentures) Amendment Rules, 2015, notified by G.S.R. 210(E), dt. 18 March 2015).
18 As per rule 14(5) of the Companies (Prospectus and Allotment of Securities) Rules, 2014, this condition will not be
applicable to non-banking financial companies registered with the RBI and housing finance companies which are
registered with the National Housing Bank.
19 Explanation (i) to rule 14(2)(b) and Form PAS-4 of the Companies (Prospectus and Allotment of Securities) Rules,
2014.
20 As per rule 14(2)(b) of the Companies (Prospectus and Allotment of Securities) Rules, 2014.
23 See Notification No. GS.R. 465 (E), dt. 05 June 2015 regarding exemption to Nidhi Companies under section 462 of
the 2013 Act.
24 See MCA General Circular No. 43 of 2014 dt. 13 November 2014 regarding clarification on exemption to FCCBs.
27 Rattan Singh v Moga Transport Co., AIR 1959 Punj. 196.

28 Toubro Infotech and Industries Ltd v SEBI, (2005) 123 COMP CAS 75 (SAT).
29 Sub-section 2 of section 42, provides that an offer of securities or an invitation to subscribe to securities may be made
to such number of persons not exceeding 50 or such higher number that may be prescribed. As per rule 14(2)(b) of the
Companies (Prospectus and Allotment of Securities) Rules, 2014, this threshold has been increased to not more than
200 persons.
End of Document
Mr. Laghir1 Rabari

1 Notified by Notification S.O. 902(E) dt. 26-03-2014, w.e.f. 01 April 2014 and
corresponds to sections 85 and 86 of the 1956 Act. [s 43] Kinds of share
capital.—
Company Law > CHAPTER IV SHARE CAPITAL AND DEBENTURES
CHAPTER IV SHARE CAPITAL AND DEBENTURES
1 [s 43] Kinds of share capital.—
The share capital of a company limited by shares shall be of two kinds, namely:—
(a) equity share capital—

(i) with voting rights; or
(ii) with differential rights as to dividend, voting or otherwise in accordance with such rules as
may be prescribed;2 and
(b) preference share capital:
Provided that nothing contained in this Act shall affect the rights of the preference shareholders who
are entitled to participate in the proceeds of winding up before the commencement of this Act.
Explanation.—For the purposes of this section,—
(i) “equity share capital,” with reference to any company limited by shares, means all share
capital which is not preference share capital;
(ii) “preference share capital,” with reference to any company limited by shares, means that part
of the issued share capital of the company which carries or would carry a preferential right
with respect to—
(a) payment of dividend, either as a fixed amount or an amount calculated at a fixed rate,
which may either be free of or subject to income-tax; and
(b) repayment, in the case of a winding up or repayment of capital, of the amount of the share
capital paid-up or deemed to have been paid-up, whether or not, there is a preferential
right to the payment of any fixed premium or premium on any fixed scale, specified in the
memorandum or articles of the company;
(iii) capital shall be deemed to be preference capital, notwithstanding that it is entitled to either or
both of the following rights, namely:—
(a) that in respect of dividends, in addition to the preferential rights to the amounts specified
in sub-clause (a) of clause (ii), it has a right to participate, whether fully or to a limited
extent, with capital not entitled to the preferential right aforesaid;
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1 Notified by Notification S.O. 902(E) dt. 26-03-2014, w.e.f. 01 April 2014 and corresponds to sections 85 and
86 of the 1956 Act. [s 43] Kinds of share capita....
(b) that in respect of capital, in addition to the preferential right to the repayment, on a
winding up, of the amounts specified in sub-clause (b) of clause (ii), it has a right to
participate, whether fully or to a limited extent, with capital not entitled to that preferential
right in any surplus which may remain after the entire capital has been repaid.
NOTES
as follows:
Clause 42.—This clause corresponds to section 85 and seeks to provide that there shall be two kinds of share capital
namely equity share capital (includes equity shares with voting rights or equity shares with differential rights as to
dividend, voting or otherwise) and preference share capital. Preferential share capital carries a preferential right with
respect to payment of dividend and also for repayment of capital at the time of winding up. [Clause 43 of the
Companies Bill, 2011 (121 of 2011)]
[s 43.2] Applicability of the Section
The section applies to companies limited by shares. Under section 462 of the 2013 Act, the Central
Government may in public interest, by notification, exempt any class or classes of companies from
the application of the 2013 Act. Through a circular dt. 5-6-2015,3 the Ministry of Corporate Affairs has
exempted private companies from the application of this section, where there is a specific exemption
under the memorandum and articles of a private company.
[s 43.3] Two Kinds of Shares
The share capital of a company limited by shares shall comprise shares of two kinds only, viz. (a)
equity shares and (b) preference shares.
[s 43.4] Kinds and Class of Shares
The distinguishing factor between kinds and class of shares is that different kinds of shares have
different inherent characteristics, and the 2013 Act only recognises two kinds of shares, equity and
preference. Different classes of shares retain that inherent characteristic while varying the rights
attached to such shares. It is not uncommon for companies to issue different classes of preference
shares with varying rights attached or dividends payable.
[s 43.5] Equity Share Capital [Section 43(a), Read with Explanation (i)]
Equity share capital means all share capital which is not preference share capital.
[s 43.6] Equity Share Capital with Differential Rights
Equity share capital can be issued (i) with voting rights or (ii) with differential rights as to dividend,
voting or otherwise in accordance with prescribed rules. The holders of the equity shares with
Mr. Laghir1 Rabari

Page 3 of 13
differential rights shall enjoy all other rights such as bonus shares, rights shares, etc., which the
holders of equity shares are entitled to, subject to the differential rights with which such shares have
been issued.4
Equity shares with differential rights issued by any company under the provisions of the 1956 Act and
the rules made thereunder will continue to be regulated under such provisions and rules.5
Existing equity share capital with voting rights cannot be converted into equity share capital carrying
differential voting rights and vice versa.6
[s 43.7] Conditions for the Issue of Equity Shares with Differential Voting Rights
The issue of equity shares with differential voting rights must comply with the following conditions:7
(i) the articles of association of the company must authorise the issue of shares with differential
rights;
(ii) the issue of shares must be authorised by an ordinary resolution passed at a general meeting
of the shareholders: Provided that where the equity shares of a company are listed on a
recognised stock exchange, the issue of such shares shall be approved by the shareholders
through postal ballot;
(iii) the shares with differential rights must not exceed 26% of the total post-issue paid up equity
share capital including equity shares with differential rights issued at any point of time;
(iv) the company should have a consistent track record of distributable profits for the last three
years;
(v) the company should not have defaulted in filing financial statements and annual returns for
three financial years immediately preceding the financial year in which such shares are to be
issued;
(vi) the company must not have a subsisting default in the payment of a declared dividend to its
shareholders or repayment of its matured deposits or redemption of its preference shares or
debentures that have become due for redemption or payment of interest on such deposits or
debentures or payment of dividend;
(vii) the company should not have defaulted in payment of the dividend on preference shares or
repayment of any term loan from a public financial institution or state-level financial institution
or scheduled bank that has become repayable or interest payable thereon or dues with
respect to statutory payments relating to its employees to any authority or default in crediting
the amount in Investor Education and Protection Fund to the Central Government; and
(viii) the company should not have been penalised by a Court or Tribunal during the last three
years of any offence under the Reserve Bank of India Act, 1934, the SEBI Act, 1992, the
Securities Contracts Regulation Act, 1956, the Foreign Exchange Management Act, 1999, or
any other special Act, under which the company is being regulated by sectoral regulators.
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As per the Companies (Share Capital and Debentures Rules), 2014, the issue of shares with
differential voting rights may be made by an ordinary resolution or by postal ballot. As per the
Secretarial Standards on General Meetings, every company, except a company having less than or
equal to 200 members (this excludes private companies and closely held public companies), can
issue shares with differential voting rights only by postal ballot.8
[s 43.8] Preference Share Capital [Clause (b), Read with Explanation (ii)]
Preference share capital is that part of share capital which carries a preferential right as to the
payment of dividend, either as a fixed amount or an amount calculated at a fixed rate, and also a
preferential right to repayment of the paid-up capital. Preference share capital may participate in
surplus dividend or capital if the terms of the issue so provide. Companies can also issue convertible
preference shares which convert into equity share capital. The other type of preference shares are
redeemable preference shares, which can be redeemed to distribute surplus funds available with the
company. Preference shares may also be on cumulative or non-cumulative basis. Cumulative
preference shares accrue dividend and which will be paid to such preference shareholders out of the
profits of the company. A non-cumulative preference shares does not accumulate dividend.
[s 43.9] Preference in Payment in a Winding up Proceeding
One of the characteristics of preference shares is that on a winding up, it has a preferential right to
repayment of capital and a right to participate whether fully or to a limited extent.
[s 43.10] Registers
Where a company issues equity shares with differential rights, the Register of Members maintained in
Form MGT-1 under section 88 of the 2013 Act is required to contain all the relevant particulars of the
shares so issued along with details of the shareholders.
Committee on Accounting Standards, Companies Act, 2013.
Standards under section 143(10) issued by the Institute of Chartered Accountants of India (ICAI).
Section 43 of the 2013 Act is substantially similar to the corresponding sections 85 and 86 under the
1956 Act. Section 85 of the 1956 Act did not apply to a private company. While section 43 as
originally enacted applied to private companies as well as to public companies, the MCA had issued
a notification exempting private companies from the applicability of section 43.
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Sections 85 and 86 of the 1956 Act have been repealed with the notification of section 43 of the 2013
Act, w.e.f. 1 April 2014.
[s 85] Two kinds of share capital.—(1) “Preference share capital” means, with reference to any
company limited by shares, whether formed before or after the commencement of this Act, that part
of the share capital of the company which fulfils both the following requirements, namely:—
(a) that as respects dividends, it carries or will carry a preferential right to be paid a fixed amount
or an amount calculated at a fixed rate, which may be either free of or subject to income-tax;
and
(b) that as respects capital, it carries or will carry, on a winding up or repayment of capital, a
preferential right to be repaid the amount of the capital paid up or deemed to have been paid
up, whether or not there is a preferential right to the payment of either or both of the following
amounts, namely:—
(i) any money remaining unpaid, in respect of the amounts specified in clause (a), up to the
date of the winding up or repayment of capital; and
(ii) any fixed premium or premium on any fixed scale, specified in the memorandum or
articles of the company.
Explanation.—Capital shall be deemed to be preference capital, notwithstanding that it is entitled to

either or both of the following rights, namely:—
(i) that, as respects dividends, in addition to the preferential right to the amount specified in
clause (a), it has a right to participate, whether fully or to a limited extent, with capital not
entitled to the preferential right aforesaid;
(ii) that, as respects capital, in addition to the preferential right to the repayment, on a winding
up, of the amounts specified in clause (b), it has a right to participate, whether fully or to a
limited extent, with capital not entitled to that preferential right in any surplus which may
remain after the entire capital has been repaid.
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(2) “Equity share capital” means, with reference to any such company, all share capital which is not
preference share capital.
(3) The expressions “preference share” and “equity share” shall be construed accordingly.
NOTES
These clauses [Sections 85 to 90] are based on the recommendations of the Company Law Committee in paragraphs
47 to 49 of the Report. See also the summary of the recommendations at pages 241 to 244 of the Report. [Clauses 79
to 83 of the Companies Bill, 1953 (46 of 1953)].
“47. The Indian Companies Act, 1913, makes no specific provision about the classes of shares, which a company can
issue, or the rights attaching to shares of different classes. It would be convenient if we discussed this subject at this
stage. Some witnesses appearing before us commented adversely on three practices—(a) the conferment of voting
rights on preference shareholders in the same way and on the same terms as for ordinary shareholders, (b) the
absolute denial of voting rights to preference shareholders, and (c) the more recent practice of issuing deferred shares
with disproportionate voting rights which grew up rapidly since the outbreak of World War II. We were given to
understand that these practices were prevalent more or less all over India. We do not consider it necessary to go into
the motives underlying these practices but the only argument in favour of the practice of conferring disproportionate
voting rights on deferred shares is that they provide an incentive for the investment of capital into certain types of
enterprises, generally of a risky and speculative nature—which would not otherwise be attracted to them. The history
underlying most recent issues of deferred shares, however, belies this theory, and even if in some exceptional cases,
additional inducements to investors are considered necessary, it is difficult to justify such differential treatment to
certain classes of investors as a matter of general policy. On the contrary, the issue of deferred shares with
disproportionate voting rights has often resulted in the control of an undertaking by a minority of shareholders, and by
the undesirable repercussions which they produce on investment markets more often than not impede capital
formation. Indeed, in our view, deferred shares with disproportionate voting rights have, as a rule, little to commend
themselves; and except in very rare cases are merely a legal device for securing control over an undertaking, with a
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comparatively small holding of share capital.
As regards preference shares it is not now common to find absolute voting rights being granted to
this class of capital. As the learned editor of Palmer’s Company Precedents observes—
Formerly it was not usual to distinguish between the preference shares and the ordinary shares as regards voting.
They were all treated as interested alike in the company and given the same right of voting, but for many years past, it
has been customary to give only qualified voting rights to preference shares ………. the matter is one of great
importance, for if preference shares have full voting rights they may be able to direct the proceedings of the company
in a manner opposed to the interests of the ordinary shareholders; they may be in a position, for instance, to elect
directors and to control their proceedings, and to restrict the development of the business; and they may unduly
exercise their powers in their own favour, and in a selfish spirit, for the interests of the two classes are very commonly
more or less in conflict, the interest of the preference shareholders being to preserve the business on a safe basis
sufficient to produce their preference dividend, whereas the interest of the ordinary shareholders is to increase it, and
for that purpose to incur some risks, if necessary. [Palmer’s Company Precedents—Sixteenth Edition, page 693].
48. Our recommendations on this subject are broadly as follows:—
(i) the capital of a company should, as regards issues made after the date of the publication of the Report, be divided
into two broad categories namely, equity capital and preference capital. We have already defined equity capital in our
redraft of section 105C [Section 81]. We suggest that all share capital of a company other than equity capital should be
deemed to be preference capital;
(ii) preference shares should, in future, have only qualified voting rights, i.e., in the following contingencies:—
(a) during such period as the preference share dividend or any part thereof remains in arrears and unpaid, such
period starting from a day not more than a year or such lesser period, as the articles might provide, after the
due date of the dividend; and
(b) in regard to any resolution passed, which directly affects any of the rights attached to such shares or the
interests of the holders thereof including any resolution for the winding-up or reduction of capital of the
company.
In the case of non-cumulative preference shares the voting rights of holders of such shares should be exactly on the
lines of those given to cumulative preference shareholders, subject, however, to the exception that non-cumulative
preference shareholders shall not be entitled to vote unless their dividends have remained unpaid for a successive
period of two years. Such voting rights shall be exercisable only when payment has not been made for two successive
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Page 8 of 13
years;
(iii) voting rights in the case of all shares—equity as well as preference, when such rights become operative in the case
of preference shares—should be strictly in proportion to the capital paid or credited as paid up thereon;
(iv) no class of shares other than a preference share carrying a fixed dividend should be issued, which confers any
rights as to dividend, capital or voting power of the company, disproportionate to the rights attaching to the ordinary
shares without the prior consent of the Central Authority;
(v) as regards existing companies which have issued any shares, by whatever name called, conferring on the holders
thereof voting rights more favourable than those which we propose should be conferred in future on the holders of
equity capital, it should be provided in the Act that the companies must, within a period of three years from the passing
of the Act, bring the voting rights in respect of such shares in proportion to the amount of capital paid up or credited as
paid up thereon.
Provided, however, that during this interim period such disproportionate voting rights should not be exercised on any
resolution relating to the appointment or reappointment of a managing agent or any variation in the managing agency
agreement, the appointment of buying or selling agents, the grant of loans to any company under the same
management as that of the managing agent of the company or the managing agent’s associates. On resolutions
relating to these matters, the voting rights should be strictly in proportion to the capital paid up on such shares;
(vi) the Central Authority should, however, have the power to exempt any company from the requirement of the last
preceding clause if it thinks that there are special reasons for doing so, but we would add that we do not recommend
the grant of the exemption suggested above to any company which has issued shares with disproportionate voting,
dividend or other rights after the 1st December 1949, when the Government of India’s Memorandum on the
Amendment of the Indian Companies Act was made known to the public;
(vii) existing dividend or other rights attaching to any shares should not be affected by the Act.
49. We consider that the above recommendations will adequately safeguard the interests of both preference and
ordinary shareholders, so far as voting rights are concerned. At the same time, flexibility is ensured by the authority
proposed to be conferred on the Central Authority. This will meet the requirements of those special cases where it is
obviously in the interest of the company as a whole that the general rules laid down above should be relaxed, but
shareholders will be able to rest assured that directors will not be able to issue shares with disproportionate voting or
other rights, unless the issue has been considered and approved by an independent body on the merits of the case.
Our above recommendations apply only to public companies, although private companies which are converted into
public companies or are subsidiaries of public companies would automatically come within their purview.
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There is one small point to which we would refer in this context. We recommend that when calls are made they must
be made on a uniform basis for the amount so called on each share in any particular class.” [Company Law Committee
Report : paras 47 to 49].
The original clauses 79 to 83 were re-drafted by the Joint Committee which explained as follows:
“40. The Committee are of the view that “preference shares” should be more precisely defined and that the tests
should be (i) whether there is security of income; and (ii) whether there is a preferential right to the repayment of the
capital on a winding up. Clause 84 [Section 85] has been recast accordingly.
It has also been made clear in the clause that the dividend on preference shares may be either free of or subject to
income-tax. The facts (a) that a preference share is entitled in addition to the preferential right to the fixed dividend, to
a portion of the dividend depending upon the quantum of the profits, or (b) that on a winding up it carries in addition to
the preferential right to repayment of capital, a right to participate in the surplus assets after the entire capital has been
paid in full will not have the effect of making the definition of “preference capital” inapplicable to the case.
41. The Bill as introduced (clause 80) [Section 87] provided that failure to pay the fixed dividend on the preference
capital for a period of two consecutive years in the case of non-cumulative preference shares, and for a period of one
year in the case of cumulative preference shares, should enable the holders of the preference shares to vote on all
resolutions placed before the general meeting of the company, instead of only on resolutions which affect their special
rights as preference shareholders. The Committee have altered this portion of original clause 80 [Section 87] so as to
provide instead for general voting rights if at any time the dividend is in arrear in the case of cumulative preference
shares, for an aggregate period of not less than two years (which need not be consecutive) or in the case of non-
cumulative preference shares, either for a period of two years immediately preceding or for an aggregate period of not
less than three years comprised in the six preceding years.
The definition of “cumulative preference shares” has also been amplified so as to make it more accurate and applicable
to all the cases which it is intended to cover.
It has been made clear that dividend should be deemed to be due within the meaning of this clause, although no
dividend has, in fact been declared on or before the last date on which the dividend has to be paid according to the
articles or other instruments governing the matter.
42. Original clause 81 [Section 88].—The Committee consider that there should be an absolute prohibition against the
issue of shares with disproportionate voting rights after the coming into force of this Bill. The clause has been amended
accordingly.
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43. Original clause 82 [Section 89].—The Committee have provided for every order of exemption from the provisions of
sub-clause (1), (2) or (3) being laid before both Houses of Parliament.
The recommendation of the Company Law Committee in para 48(vi) of their report with regard to shares issued with
disproportionate voting rights before the 1st December, 1949, has also been given effect to in this clause.” [Joint
Committee Report : paras 40 to 43].
[s 43.15] Cumulative Preference Shares may Claim Arrears of Dividend
A cumulative preference shareholder may claim arrears of dividend in winding up even though no
dividend had ever been declared.9
[s 43.16] Redeemable Preference Shareholders not Creditors
The holders of redeemable preference shares, even where the shares are not redeemed by the
company at the appropriate time, continue to be shareholders. They do not become creditors and
cannot, therefore, apply for winding up of the company on the ground that the company is unable to
pay its debts.10
[s 43.17] One Class of Shares
Where there is only one class of shares, there is no question of preferential treatment of one class of
shareholders over any other class in the matter of payment of dividends or in the matter of fixed
dividends to be so preferentially paid. Shares of a single type issued by a State Financial Corporation
providing for minimum and maximum dividend were not preference shares.11
[s 43.18] Participation in Surplus Capital
If the articles or the terms of issue of preference shares do not specifically allow participation in
surplus capital, the onus is on preference shareholders to prove that they are entitled to share in the
surplus on winding up of the company.12
[s 43.19] Power to Issue Shares
The directors are not justified in acting on an old resolution authorising the issue of shares after the
particular purpose for which the authority was given has ceased to be available, nor in issuing shares
for the express purpose of creating votes to influence a coming general meeting.13
[s 43.20] Share Register
A company with a share capital consisting of different classes of shares is under a duty to specify in
the Register of Members the class of share held by each member and not merely the number of
shares held by him. A company like the Society with no share capital but with members who were
divided into different classes was not under a duty to specify in the register the class of membership
of each member. The court would not order the society to divulge the contents of other documents
which the applicant had no right to see.14
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15[s 86] New issues of share capital to be only of two kinds.—The share capital of a company
limited by shares shall be of two kinds only, namely:— The Companies Act, 1956 provision
(a) equity share capital—
(i) with voting rights; or

(ii) with differential rights as to dividend, voting or otherwise in accordance with such rules
and subject to such conditions as may be prescribed;
(b) preference share capital.]
NOTES
OF 2000).—The substituted section provides that equity share

capital can be issued (i) with voting rights; or (ii) with differential rights as to dividend, voting or
otherwise in accordance with such rules and subject to such conditions as may be prescribed.
THE COMPANIES ACT, 1956 (1 OF 1956).—See

Legislative History of the original section in Notes under section
85 of the Companies Act, 1956 above.
[s 43.22] Two Kinds of Shares
The share capital of a company limited by shares shall comprise shares of two kinds only, viz., (a)
equity shares (i) with voting rights or (ii) with differential rights as to dividend, voting or otherwise in
accordance with such rules as may be prescribed; and (b) preference shares. There must be two
kinds of shares in order for preference shares to exist—the Patna High Court has stated:
it would be seen, therefore, that there must be at least two classes of dividends governing two such classes of shares
in which one class is given a preferential treatment over the other and the rate of dividends once being fixed to be
preferentially paid to such a class of shareholders, those shareholders are not entitled to participate in the profits to any
extent more than that which is fixed. In the instant cases, it will be noticed that there is only one class of shares.
Therefore, there is no question of preferential treatment of one class of shareholders over any other class either in the
matter of payment of dividends or in the matter of fixed dividends to be so preferentially paid.16
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Page 12 of 13
1 Notified by Notification S.O. 902(E) dt. 26-03-2014, w.e.f. 01 April 2014 and corresponds to sections 85 and 86 of the
1956 Act.
2 Rule 4 of the Companies (Share Capital and Debentures) Rules, 2014.
3 Notified by Notification No. G.S.R 464(E) dt. 05 June 2015, w.e.f. 05 June 2015.
4 Rule 4(5) of the Companies (Share Capital and Debentures Rules), 2014.
5 Explanation to rule 4 of the Companies (Share Capital and Debentures Rules), 2014 (inserted by notification of the
Companies (Share Capital and Debentures) Amendment Rules, 2014, notified by G.S.R. 413.(E) dt. 18 June 2014).
6 Rule 4(3) of the Companies (Share Capital and Debentures Rules), 2014.
7 Rule 4 of the Companies (Share Capital and Debentures Rules), 2014.
8 . See SS-2, Secretarial Standards on General Meetings notified by Notification No. ISCI NO.1 (SS) dt. 23 April 2015,
w.e.f. 23- April 2015.
9 . Globe Motors Ltd v Globe United Engg. and Foundry Co Ltd, (1975) 45 COMP CASES 429 (Delhi) (DB). See also
Notes under sections 9, 36 and 205.
10 . Lalchand Surana v Hyderabad Vanaspathy Ltd, (1990) 68 COMP CASES 415 (AP). See also Notes under sections 80
and 433(e).
11 . Bihar State Financial Corp v CIT, (1976) 46 COMP CASES 155 (Pat.) (DB) : (1976) 102 ITR 517 (Pat.) (DB) ;
Rajasthan Financial Corp v CIT, (1987) 163 ITR 278 (Raj.)(DB).
12 . Smith’s John Tadcaster Brewery Co Ltd v Gresham Life Assurance Society Ltd, (1953) ChD 308 : (1953) 1 All ER 518
: (1953) 2 WLR 516 : 97 SJ 150 (CA). See also Notes under sections 87, 94 and 106.
13 . Fraser v Whalley, (1864) 2 Hem. & M. 10 : (1861–79) All ER Rep. Ext. 1456 : 11 LT 175.
14 . Re, Performing Right Society Ltd, (1978) 3 All ER 972 : 1 WLR 1197 : 122 SJ 729 (CA).
15 Substituted by Companies (Amendment) Act, 2000 (53 of 2000), section 38 (w.e.f. 13 December 2000). This amending
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16 . Bihar State Financial Corp v CIT. Bihar, (1976) 46 Com Cas 155 (Pat-DB).
End of Document
Mr. Laghir1 Rabari

17 Notified by Notification No. S.O. 2754(E) dt. 12-09-2013, w.e.f. 12
Nature of shares or debentures.—
17 [s 44] Nature of shares or debentures.—
The shares or debentures or other interest of any member in a company shall be movable property
transferable in the manner provided by the articles of the company.
NOTES
as follows:
Clause 44.—This clause corresponds to section 82 of the Companies Act, 1956 and seeks to provide that the shares
and debentures are movable property transferable in a manner provided in the articles of a company. [Clause 44 of the
[s 44.2] Share [Section 2(84)]
As per section 2(84), “share” means a share in the share capital of a company and includes stock.
[s 44.3] Shares and Debentures Movable Property
The shares or debentures in a company having a share capital and the interest of members in a
company having no share capital are movable property. Such property is transferable according to
the provisions of the Articles of Association of the company. The articles can impose restrictions and
regulate the transfer but cannot prohibit transfer.18
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Page 2 of 9
section 82 of the 1956 Act. [s 44] Nature of shares or....
Though the shares of a company are movable property, unless there is a valid deed of transfer, the
transferee cannot claim to have his name entered in the Register of Members of the company.19
See sections 2(20), 44, 56, 58 and 59.
[s 44.4] Share is an Interest in the Company
A share is an expression of proprietary partnership or relationship between a shareholder and the

company.20 But a share in the company is a legal entity distinct from the assets of the company it
represents. A share in a company is to be regarded as the interest of the shareholder in the company
measured, for the purpose of liability and dividend, by a sum of money, but consisting of a series of
mutual covenants entered into by all the shareholders inter se in accordance with the provisions of
the Companies Act, Memorandum and Articles of Association and made up of various rights.21
[s 44.5] Shareholder’s Right in the Assets of the Company
The shareholder has no interest in the assets of the company till its liquidation. The share of any
member is movable property and transferable in the manner provided by the articles of the company.
A share represents a bundle of rights which includes, inter alia, the rights (i) to elect directors; (ii) to
vote on resolutions at meetings of the company; (iii) to enjoy the profits of the company, if and when
dividends are declared and distributed; and (iv) to share in the surplus assets, if any, on liquidation
limited to the proportion of his shareholding.22 A shareholder has no property in the company’s
assets, and he has no insurable interest therein.23
[s 44.6] Distribution of Assets on Liquidation
A share in a company is the expression of proprietary relationship between the shareholder and the
company. The shareholder is the proportionate owner of the company, but he does not own the
company’s assets which belong to the company as a separate and independent legal entity. A share
represents a bundle of intangible rights against the company. On liquidation, voluntary or compulsory,
the shareholder’s ownership over those rights is neither extinguished nor obliterated, and only the
contents of those rights and the manner of their exercise become altered. The distribution of the
assets of a company in liquidation does not amount to a transaction of sale, exchange,
relinquishment or transfer of the capital asset, and no capital gains arise to the shareholder of the
company therefrom.24
Section 46(1) of the Income-tax Act, 1961, provides that such distribution of assets on liquidation
shall not be regarded as transfer. However, under section 46(2), the shareholder may be chargeable
to capital gains tax in respect of money or market value of the other assets distributed in specie on
liquidation.
[s 44.7] Shares are Goods
“Goods” means every kind of movable property other than actionable claims and money, and
includes stocks and shares. The definition of “Goods” in the Sale of Goods Act, 1930 (3 of 1930),
Mr. Laghir1 Rabari

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specifically includes stocks and shares.25 Shares are not actionable claims but movable property.26
[s 44.8] Shares and Debentures not Goods before Allotment
A share is not merely a chose-in-action, but also movable property. Shares and debentures are
equivalent to goods. However, such shares and debentures are equivalent to goods only after
allotment or issue. A prospective allottee or investor is not a buyer of the goods and he is not a
consumer within the meaning of the Consumer Protection Act, 1986. Consumer forums cannot grant
injunction against public issue. Shares and debentures are not goods before allotment. Applicant for
shares or debentures is not a consumer. Raising of share capital and debentures by company is not
a trading activity, and there is no question of any unfair trade practice. The Consumer Disputes
Redressal Forum has no jurisdiction to entertain the matters of this kind. The issue of shares or
debentures does not come under the Consumer Protection Act, 1986 (68 of 1986), or the MRTP Act,
1969 (54 of 1969) [now the Competition Act, 2002 (12 of 2003)].27
[s 44.9] Shares are Transferable Like any other Movable Property
Restrictions on transferability of shares in any form other than mentioned in the Articles of
Association of the company cannot prevent the company from accepting a transfer and cannot
deprive the shareholders of their rights to transfer the shares. Stipulation in franchise agreement
governs relationship between the parties to the agreement and shall not be a restraint on
shareholders” right to transfer shares.28
[s 44.10] Debenture [Section 2(30)]
As per section 2(30):
“debenture” includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether
constituting a charge on the assets of the company or not.
See sections 2(30) and 71.
[s 44.11] Transfer of Shares
Shares, debentures or other interests of a member in a company are transferable in the manner set
out in the 2013 Act and the articles of the company. The shares of a public company are freely
transferable, and a public company can not contain any restrictions on transferability in its articles.
Any such restrictions shall be considered void to that extent. However, the proviso to section 58(2) of
the 2013 Act now clarifies that a contract or arrangement between two or more persons in respect of
transfer of shares shall be enforceable amongst such persons as a contract.
See Notes under section 58.
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[s 44.12] Articles of Public Company That Restrict Free Transferability Void
A Public Company cannot have provisions in its articles that restrict the free transferability of the
shares. A public company cannot provide that its directors will decide the price of such shares by
negotiation and on failure through arbitration.29
[s 44.13] Act to Override Articles
Any stipulation in the articles that restricts the free transferability of shares of a public company would
be violative of the provisions of the act dealing with free transferability and therefore, void.30
[s 44.14] True Position of a Shareholder
A share is a right to a specified amount of the share capital of a company carrying with it certain
rights and liabilities while the company is a going concern and in its winding up. A shareholder who
buys shares does not buy any interest in the property of the company. The true position of a
shareholder in a company is that on buying shares, an investor becomes entitled to participate in the
profits of the company if and when the company declares, subject to articles, that the profits or any
portion thereof should be distributed by way of dividends among the shareholders. He has
undoubtedly a further right to participate in the assets of the company which would be left over after
winding up. The shares or other interest of any member in a company are personal estate
transferable in the manner provided by its articles, and are not of the nature of real estate. The
undertaking of the company is something different from the totality of shareholdings. It is the
company which owns the property and not the shareholders. The shareholders are not in the eye of
the law part-owners of the undertaking. The shareholders in a company are not partners inter se.31
[s 44.15] Transfer in Strict Compliance with Articles of Private Company
Transfer of shares of a private company must be in strict compliance with the Articles of Association
of the company, failing which the transfer will be liable to be set aside. Transfer of shares in violation
of articles of a private company is not permissible. Articles permitted transfer to outsiders only where
no member was willing to purchase. In case of pledge of shares to supplier as security for payment
for goods without any notice to the members, the Board of Directors were right in refusing to transfer
the shares in his name.32
Where the articles of a private company required shares to be offered to existing shareholders in the
first instance, the transfer of shares by the Board of Directors to others without offering them to the
existing members was in violation of the articles, and the register of members was ordered to be
rectified under section 111(4) of the 1956 Act and shares were to be transferred back to original
shareholder. The duplicate share certificates issued were invalid as there was no material on record
to show that the Board of Directors had any satisfactory evidence for issuing duplicate share
certificates.33
Where articles of a private company prohibited transfer of shares to non-members, the Board of
Directors shall be entitled to refuse to register the shares to a non-member, even if the transfer of the
shares was pursuant to a court auction.34
[s 44.16] Shares of Private Company not “Marketable Security”
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The shares of a private company are not “marketable security” as defined in section 2(h) of the
Securities Contracts (Regulation) Act, 1956 (42 of 1956). A contract for sale and purchase of shares
in a private company is thus not governed by the provisions of the Securities Contracts (Regulation)
Act, 1956.35
[s 44.17] Shares or other Interest in the Company
In the absence of any specific provisions in the company’s articles, a member can transfer not only
his shares but any other interest in the company to a third person. A Guarantee Company may have
special provisions in its Articles of Association for suspension of membership, resignation, nomination
and assignment of interest. A transfer in accordance with the provisions in its articles will be valid
even though it is inconsistent with Table C of Schedule I to the 1956 Act.36
[s 44.18] Situs of Shares
Transfer of shares or debentures in a company can be effected only by a change in the Register of
Members of the Company. The place where the Register is required to be kept determines the situs
of the shares or debentures. The place of residence of the company determines the situs of shares
and debentures. The situs of shares and debentures is where the Register of Shares of the company
is kept.37 The situs of shares is normally the place where they can be effectively dealt with.38 The
situs of shares is the place where register of shares is maintained. The place where duplicate register
is kept is not the situs of shares. The holding of share certificates in a particular place or share
certificates being lost with a Bank in a particular place does not give the shares situs of that place.
However, the shares may have situs of the place where a branch register is maintained.39
[s 44.19] Rights of Transferor and Transferee

of dividends; (iv) to apply to the Court [now the NCLT (NCLT)] for relief in the case of oppression; (v)
to apply to the Court (now the NCLT) for relief in the case of mismanagement; (vi) to apply to the
Court [now the NCLT] for winding up of the company and (vii) to share in the surplus on winding up.
A share is transferable, but while a transfer may be effective between transferor and transferee from
in the company’s register.40
[s 44.20] “Share” in a Company Denotes Rights and Obligations
When a member transfers his shares he transfers all his rights and obligations from the date of the
transfer. As between the transferor and transferee of shares, after the sale the transferor holds all
beneficial interest in respect of the shares for the transferee and is bound to do all such things as are
necessary to enable the transferee to get himself registered as a member.41A “share” in a company
denotes rights and obligations. When a member transfers his shares, he transfers all his rights and
obligations from the date of the transfer. He does not transfer rights to dividends or bonuses already
declared nor his liabilities in respect of calls already made.42
[s 44.21] Only a Company Ltd by Shares can Issue Share Capital
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“Share,” as defined in the Act and as understood in company law, means share in the capital of a
company. It is a tangible property. The words “capital” and “share capital” are synonymous. It may
mean nominal or authorised capital, issued capital or paid-up capital. Meaning depends in the context
in which that term is used. A company having share capital is a company registered with a nominal or
authorised capital, which is divided into shares of a fixed amount. Only a company which has an
authorised capital, i.e., share capital, can issue share capital. Where a company has no authorised
capital, it cannot be said to be a company limited by shares, but is a company limited by guarantee
as mentioned in section 12(2)(b). Therefore, an application under sections 397 and 398 of the Act
(now sections 241--244 of the 2013 Act) can only be made by requisite number of members.43
[s 44.22] Specific Performance
In the case of a contract to transfer movable property, normally specific performance is not granted
except in circumstances specified in the Explanation to section 10 of the Specific Relief Act, 1963.
One of the exceptions is where the property is “of special value or interest to the plaintiff, or consists
of goods which are not easily obtainable in the market.” It has been held by a long line of authority
that shares in a Pvt Ltd company would come within the phrase “not easily obtainable in the
market.”44 A contract or agreement to sell shares is capable of being specifically performed,45 so also
a contract to take a transfer of shares on which no payment has been made.46 The court may make
the order for specific performance, even though during the pendency of the suit, the company has
gone into liquidation.47 And such a contract for sale of shares may be made orally.48
[s 44.23] Producer Company—Transferability of Shares [1956 Act, section 581ZD(1)]
Normally, shares of a Member of a Producer Company are not transferable.
However, this is save as otherwise provided in sub-sections (2) to (4), i.e., Transfer of shares to
Active Member [1956 Act—s. 581ZD(2)], Nomination by Member [1956 Act— section 581ZD(3)] and
Nominee of deceased Member [1956 Act—s. 581ZD(4)],
See also Nominee not Producer—To surrender shares [1956 Act—s. 581ZD(4), proviso] and
Member ceasing to be Primary Producer [1956 Act—s. 581ZD(5)].
Section 44 of the 2013 Act is identical to section 82 of the 1956 Act. Therefore, the interpretation and
principles governing section 82 of the 1956 Act should apply to section 44 as well.
[s 82] Nature of 49[shares or debentures].—The 50[shares or debentures] or other interest of any member in a
company shall be movable property, transferable in the manner provided by the articles of the company. The
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NOTES
w.e.f. 12-09-2013
“This clause corresponds to section 28(1) of the Indian Act and section 73 of the English Act.” [Clause 76 of the
17 Notified by Notification No. S.O. 2754(E) dt. 12-09-2013, w.e.f. 12 September 2013 and corresponds to section 82 of
the 1956 Act.
18 . Ontario Jockey Club v McBridge, (1927) AC 916 (PC) : AIR 1928 PC 291.
19 . S. Sundaram Pillai v P. Govindaswami, (1987) 62 COMP CASES 414 (Mad.). See detailed Notes under sections 46
20 CIT v Associated Industrial Development Co Pvt Ltd, (1969) 39 COMP CASES 401 (Cal.) (DB). See detailed Notes
under Distribution of assets on liquidation hereinafter.
21 Borland’s Trustee v Steel Bros. & Co Ltd, (1901) 1 ChD 279 : 70 LJ Ch. 51 : 49 WR 120 : 17 TLR 45.
22 Hindustan Lever Employees’ Union v Hindustan Lever Ltd, (1995) 83 COMP CASES 30 (SC) : AIR 1995 SC 470.
23 . Macaura v Northern Assurance Co, (1925) AC 619 : 133 LT 152 : 69 SJ 777 (HL).
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24 CIT v Madurai Mills Co Ltd, AIR 1973 SC 1357 : (1973) 89 ITR 45 (SC) ; CIT v Associated Industrial Development Co
Pvt Ltd, (1969) 39 COMP CASES 401 (Cal.) (DB) : (1969) 73 ITR 50 (Cal.) (DB) : (1969) 2 Comp. LJ 19 (Cal.) (DB) ;
Re, C.A. Pacific Finance Ltd, (2000) 1 BCLC 494 ; Hunter v Moss, (1994) 3 All ER 215; Re, Harvard Securities Ltd. (In
liquidation) v Newbury, (1997) 2 BCLC 369.
25 Section 2(7) of the Sale of Goods Act, 1930 (3 of 1930); Hindustan Lever Employees’ Union v Hindustan Lever Ltd,
(1995) 83 COMP CASESCOMP CASES 30 (SC) : AIR 1995 SC 470.
26 Chiranjit Lal Chowdhury v UOI, (1951) 21 COMP CASESCOMP CASES 33 (SC) : AIR 1951 SC 41 : 1950 SCR 869;
Vasudev Ramchandra Shelat v Pranlal Jayanand Thakar, (1975) 45 COMP CASES COMP CASES 43 (SC) : AIR 1974
SC 1728 : (1975) 1 SCR 534; Rup Chand v Kamal Kumari, AIR 1955 (NOC) 5348; but see Re, V.G.M. Holdings Ltd,
(1942) ChD 235 : (1942) 1 All ER 224 : 111 LJ Ch. 145 (CA).
27 . Hindustan Lever Employees’ Union v Hindustan Lever Ltd, (1995) 83 COMP CASESCOMP CASES 30 (SC) : AIR
1995 SC 470; Morgan Stanley Mutual Fund v Kartick Das, (1994) 81 COMP CASESCOMP CASES 318 (SC); R.D.
Goyal v Reliance Industries Ltd, (2003) 113 COMP CASESCOMP CASES 1 (SC); Director-General v Deepak
Fertilizers and Petrochemicals Corpn. Ltd, (1994) 81 COMP CASESCOMP CASES 341 (MRTPC) (FB); Sakthi Sugars
Ltd v District Consumer Grievances Redressal Forum, (2000) CLC 1283 (Mad.).
28 . Gujarat Bottling Co Ltd v Coca Cola Co, (1995) 84 COMP CASESCOMP CASES 618 (SC) : AIR 1995 SC 2372; Usha
Drager Pvt Ltd v Draegerwerk Aktiengesellschaft, (2006) 132 COMP CASESCOMP CASES 198 (Delhi).
29 . Arjun S. Kalro v Shree Madhu Industrial Estates Ltd, (1997) 1 Comp. LJ 318 (CLB).
30 . Master Gautam R. Padival (Minor) v Karnataka Theatres Ltd, (2000) 100 COMP CASESCOMP CASES 124 (CLB).
This case held that such a restriction being violative of section 111A of the 1956 Act would violate section 9 of the 1956
Act. As a result of violating section 9 of the 1956 Act, these provisions of the articles would be void.
31 Mrs. Bacha F. Guzdar v CIT, (1955) 25 COMP CASESCOMP CASES 1 (SC) : AIR 1955 SC 74 : (1955) 27 ITR 1 (SC)
: (1955) 1 SCR 876; Chiranjit Lal Chowdhury v UOI, (1951) 21 COMP CASESCOMP CASES 33 (SC) : AIR 1951 SC 41
: [1950] 1 SCR 869; H.C. Shastri v Dolphin Canpack Pvt Ltd, (1998) 93 COMP CASESCOMP CASES 201 (Delhi). See
also Notes under sections 2(46), 34 and 41.
32 . Satyanarayana Rathi v Annamalaiar Textiles Pvt Ltd, (1999) 95 COMP CASESCOMP CASES 386 (CLB);
Cruickshank Co Ltd v Stridewell Leather Pvt Ltd, (1996) 86 COMP CASESCOMP CASES 439 (CLB).
33 . Stridewell Leathers Pvt Ltd v Shoe Specialities Pvt Ltd, (2003) 115 COMP CASES 318 (CLB).
34 . S.A. Padmanabha Rao v Union Theatres Pvt Ltd, (2002) 108 COMP CASES 108 (Kar.).
35 . DahibenUmedbhai Patel v Norman James Hamilton, (1985) 57 COMP CASES 700 (Bom.)(DB).
36 . Narendera Kumar Agrawal v Smt. Saroj Maloo, (1996) 85 COMP CASES 172 (SC).
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37 . Releigh Investment Co Ltd v G.G. in Council, (1943) 13 COMP CASES 265 (Cal.) (FB); R. Viswanathan v Rukn-ul-
Mulk Syed Abdul Majid, AIR 1963 SC 1 : (1963) 3 SCR 22.
38 . R. Viswanathan v Rukn-ul-Mulk Syed Abdul Majid, AIR 1963 SC 1 : (1963) 3 SCR 22.
39 . Standard Chartered Bank Ltd v IRC, (1978) 3 All ER 644.
40 . L.I.C. v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370.
41 . R. Mathalone v Bombay Life Assurance Co Ltd, (1954) 24 COMP CASES 1 (SC) : AIR 1953 SC 385 : 1954 SCR 117;
Kedar Nath Agarwal v Jay Engineering Works Ltd, (1963) 33 COMP CASES 102 (Cal.) : 66 Cal WN 1049; Chunilal
Khushaldas Patel v H.K. Adhyaru, (1956) 26 COMP CASES 168 (SC) : AIR 1956 SC 655; Vasudev Ramchandra
Shelat v Pranlal Jayanand Thakar, (1975) 45 COMP CASES 43 (SC) : AIR 1974 SC 1728 : (1975) 1 SCR 534.
42 . Dovey v Cory, (1901) AC 477 : 70 LJ Ch. 753 : 85 LT 257 (HL).
43 . In Re, S.N.D.P. Yogam, Quilon, (1970) 40 COMP CASES 60 (Ker.).
44 . M.S. Madhusoodhanan v Kerala Kaumudi Pvt Ltd, (2004) 9 SCC 204.
45 Brooke Bond India Ltd v U.B. Ltd, (1994) 79 COMP CASES 346 (Bom.); Grant v Cigman, (1996) 2 BCLC 24; Duncuft v
Albrecht, (1841) 12 Sim. 189; Woodlands v Hind, (1955) 2 All ER 604 : (1955) 1 WLR 688 : 99 SJ 418; Poole v
Middleton, (1861) 29 Beav. 646 : 4 LT 631 : 9 WR 758; see also Langen and Wind Ltd v Bell, (1972) ChD 685 : (1972)
1 All ER 296 : (1972) 2 WLR 170; BOI v A.H. Chinoy, AIR 1950 PC 90.
46 . Cheale v Kenward, (1858) 3 De. G. & J. 27 : 27 LJ Ch. 784 : 6 WR 810.
47 . Paine v Hutchinson, (1868) 3 ChD App. 388 : 37 LJ Ch. 485 : 18 LT 380 : 16 WR 553; contra in Sullivan v Henderson,
(1973) 1 All ER 48 : (1973) 1 WLR 333 : (1972) 116 SJ 969.
48 . Watson v Spratley, (1854) 10 Exch. 222 : 24 LJ Ex. 53 : 2 WR 627.
49 Substituted by the Companies (Amendment) Act, 1999 (21 of 1999), section 8, for “share” (w.e.f. 3 October 1998). This
50 Substituted by the Companies (Amendment) Act, 1999 (21 of 1999), section 8, for “share” (w.e.f. 31 October 1998).
End of Document
Mr. Laghir1 Rabari

Numbering of shares.—
51 [s 45] Numbering of shares.—
Every share in a company having a share capital shall be distinguished by its distinctive number:
Provided that nothing in this section shall apply to a share held by a person whose name is entered
as holder of beneficial interest in such share in the records of a depository.
NOTES
THE COMPANIES ACT, 2013 (18 OF 2013).—The Notes on Clauses explained the section as follows:
Clause 45.—This clause corresponds to section 83 of the Companies Act, 1956 and seeks to provide that every share
in a company having a share capital shall be distinguished by distinctive number. This clause does not apply to shares
held with the depository. [Clause 45 of the Companies Bill, 2011 (121 of 2011)].
[s 45.2] Distinctive Number [Section 45]
Each share issued by the company is required to be distinguished by a distinctive number. This is in
consonance with the requirements set out under the Companies (Share Capital and Debentures)
Rules, 2014, which prescribes that distinctive numbers of the shares be mentioned on the share
certificate. This however must not be confused with the share certificate number which in itself is
distinctive and a record of the certificates issued by a company.
[s 45.3] Depository [Proviso]
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corresponds to section 83 of the 1956 Act. [s 45] Numbering of....
The proviso to section 45 clarifies that the rule in section 45 does not apply to shares held by a
person whose name is entered as the holder of beneficial interest in such share, in the records of the
depository. The proviso is necessary as a company may issue shares either in physical form or
dematerialised form (which in some cases is mandatory, see Notes under section 29), and if it
chooses to issue them in dematerialised form, then a distinctive number need not be included. In this
context, section 9 of the Depositories Act, 1996, provides that all securities held by a depository shall
be dematerialised and will be in a fungible form.
[s 45.4] Depository [Section 2(33)]
Depository means a depository as defined in clause (e) of sub-section (1) of section 2 of the
Depositories Act, 1966. Section 2(1)(e) of the Depositories Act states that “depository” means a
company formed and registered under the 1956 Act (l of 1956) and which has been granted a
certificate of registration under sub-section (1A) of section 12 of the SEBI Act, 1992 (15 of 1992).
Amendments consequential to enactment and enforcement of the 2013 Act in respect of the
Depositories Act, 1996 (22 of 1996), are yet to be made.
[s 45.5] Penalty
default, and the company and every officer who is in default will be liable to be punished with a fine
Section 45 of the 2013 Act is similar to section 83 of the 1956 Act. However, section 45 of the 2013
Act states that every share is required to be distinguished by its distinctive number, while section 83
of the 1956 Act provided that every share be distinguished by its appropriate number. Section 83 of
the 1956 Act further provided that an exemption to all shares held with a depository, and section 45
of the 2013 Act provides clarity that the section does not apply to a share held by any person whose
name has been entered as a holder of beneficial interest in such shares in the record of the
depository.
Section 83 of the 1956 Act has been repealed with the Notification of section 45 of the 2013 Act,
w.e.f. 12-9-2013.
52[s 83] Numbering of shares.—Each share in a company having a share capital shall be distinguished by its
Mr. Laghir1 Rabari

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appropriate number: The Companies Act, 1956 provision
Provided that nothing in this section shall apply to the shares held with a depository.]
NOTES
OF 1997).—This new section 83 was inserted by the

THE DEPOSITORIES RELATED LAWS (AMENDMENT) ACT, 1997 (8
Depositories Related Laws (Amendment) Act, 1997 (8 of 1997), section 9 (w.r.e.f. 15-1-1997).
The original section 83 was earlier omitted by the Depositories Act, 1996 (22 of 1996), section 30 and
Sch. (w.r.e.f. 20-9-1995).
Legislative History of original section 83 is as follows:
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on clauses explained the original section as follows:
This clause corresponds to section 28(2) of the Indian Act and section 74 of the English Act. The proviso, which is
found in the English section has been incorporated. It is clearly unnecessary that fully paid up shares which rank alike
in all respects should have separate distinguishing numbers. [Clause 77 of the Companies Bill, 1953 (46 of 1953)].
The Joint Committee recommended as follows:
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The proviso to the original clause would have enabled companies, under certain circumstances, to issue shares
without numbers. The Committee consider that there is no necessity for this proviso and it has accordingly been
deleted in the new clause. [Report : para 39].
OF 1996).—The original section was omitted by the Depositories Act, 1996

THE DEPOSITORIES ACT, 1996 (22
(22 of 1996), section 30 and Sch. (w.r.e.f. 20-9-1995).
The Notes on clauses explained as follows: “Clause 30 provides for amendment to certain provisions
of the Companies Act, 1956 provided in the Schedule to the Bill.” [Clause 30 of the Depositories Bill,
1996 (29 of 1996)].
[s 45.8] Shares may be Numbered with Letters and Figures [Section 83]
Each share shall be distinguished by its appropriate number.
51 Notified by Notification No. S.O. 2754(E) dt. 12 September 2013, w.e.f. 12 September 2013 and corresponds to section
83 of the 1956 Act.
52 Inserted by the Depositories Related Laws (Amendment) Act, 1997 (8 of 1997), section 9 (w.r.e.f. 15-01-1997). Earlier
the original section 83 was omitted by the Depositories Act, 1996 (22 of 1996), section 30 and Sch. (w.r.e.f. 20-09-
1995). For the original section 83, as it stood prior to its omission, see Annexure at the end of this volume.
End of Document
Mr. Laghir1 Rabari

53 Notified by Notification No. S.O. 902(E) dt. 26 March 2014 w.e.f. 1 April
2014 and corresponds to section 84 of the 1956 Act. [s 46] Certificate of
shares.—
53 [s 46] Certificate of shares.—
(1) A certificate, 54[issued under the common seal, if any, of the company or signed by two
directors or by a director and the Company Secretary, wherever the company has appointed
a Company Secretary] specifying the shares held by any person, shall be prima facie
evidence of the title of the person to such shares.
(2) A duplicate certificate of shares may be issued, if such certificate—
(a) is proved to have been lost or destroyed; or
(b) has been defaced, mutilated or torn and is surrendered to the company.
(3) Notwithstanding anything contained in the articles of a company, the manner of issue of a
certificate of shares or the duplicate thereof, the form of such certificate, the particulars to be
entered in the register of members and other matters shall be such as may be prescribed.55
(4) Where a share is held in depository form, the record of the depository is the prima facie
evidence of the interest of the beneficial owner.
(5) If a company with intent to defraud issues a duplicate certificate of shares, the company shall
be punishable with fine which shall not be less than five times the face value of the shares
involved in the issue of the duplicate certificate but which may extend to ten times the face
value of such shares or rupees ten crores whichever is higher and every officer of the
company who is in default shall be liable for action under section 447.
NOTES
Clause 46.—This clause corresponds to section 84 of the Companies Act, 1956 and seeks to provide that a certificate
issued by a company shall be prima facie evidence of the title of the person to such shares. It provides the manner for
issuance of duplicate share certificate and the particulars to be entered in the register of members. If a company issues
duplicate shares with an intention to defraud public, penal provisions for fraud would be attracted for such violations.
Mr. Laghir1 Rabari

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53 Notified by Notification No. S.O. 902(E) dt. 26 March 2014 w.e.f. 1 April 2014 and corresponds to section 84
of the 1956 Act. [s 46] Certificate of shares.—....
The seal is to be affixed and attested in accordance with the provisions of the articles. It is not
necessary to prove the seal by calling attesting witnesses. It is for the person to prove that the seal is
not of the company who so alleges. Proof of the seal may be given by anyone who knows it.56 The
Companies (Amendment) Act, 2015, has made it optional for companies to adopt a common seal.
Consequently, companies which choose not to adopt a common seal are not required to affix the
common seal on the share certificates.57
For further details, refer to “Conditions for the issue of share certificates” below.
Ordinary shareholders become owners of the bonus shares from the date of resolution and actual
issue of share certificate is not essential.58
[s 46.4] Share Certificate and Register of Members
Under the 2013 Act, a member is defined under section 2(55) to include “every other person who
agrees in writing to become a member of the company and whose name is entered in the register of
members of the company.” The Companies Act provides that the register of members is prima facie
evidence of matters contained therein. It also provides that the share certificate is prima facie
evidence of title of a shareholder to the shares indicated therein. In normal circumstances, the
provisions of both the sections can be read harmoniously. However, when a dispute arises,
especially in cases of oppression/ mismanagement, courts have held that the share certificates take
precedence over the register of members, as the register of members, being under the control of the
company, is susceptible to manipulations. The question of whether share certificates are genuine or
not to ascertain locus standi for a petition for oppression/mismanagement requiring detailed inquiry
has to be decided by the NCLT along with the question of maintainability of petition.59
[s 46.5] Share Certificate Specifying Fully Paid— Estoppel as to Forfeiture
A share certificate under the common seal of the company specifying shares held by a member is
prima facie evidence of the title of the members to such shares, where share certificates indicated
that the shares were fully paid. The member had availed a loan from financial institutions on the basis
of these share certificates. It was held that the company cannot, after a gap of a long period of time,
dispute the amount paid on the shares and ask the shareholder to forfeit the shares. The company
was estopped from disputing the amount indicated in the share certificates as fully paid. Even when
the calls were not paid, the forfeiture must be within the period of limitation of three years from date of
allotment. The company can sue for the sums due and would not be entitled to treat shares as not
fully paid.60
[s 46.6] Priority—Duplicate vis-à-vis Original Share Certificate
A duplicate share certificate issued by the company bona fide may have priority over the original
share certificate in the hands of a purchaser for value without notice in certain cases.61
[s 46.7] Procedure for Issuance [Section 46(1)]
A share certificate should be issued, specifying the number of shares held by a person, under the
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common seal (if any) of the company and should be signed by at least two directors of the company
and the company secretary, where a company secretary has been appointed. For further details, see
the content relating to Secretarial Compliances below. The amendment carried out in 2015 takes into
account the possibility that every company may not possess a common seal.
[s 46.8] Issuance of Duplicate Share Certificates [Section 46(2)]
A duplicate share certificate may be issued: (a) where the certificate has been proved to be lost or
destroyed or (b) where the certificate has been defaced, mutilated or torn and is surrendered to the
company.
[s 46.9] Conditions for Issue of Share Certificates (Where Shares are not in Dematerialised
Form)
Share certificates may only be issued:
(a) in pursuance of a resolution passed by the board62 and
(b) on surrender to the company of the letter of allotment or fractional coupons of requisite value,
except in cases of issues against letters of acceptance or of renunciation, or in cases of issue
of bonus shares. If the letter of allotment is lost or destroyed, the board may impose such
reasonable term, if any, as to seek supporting evidence and indemnity and the payment of
out-of-pocket expenses incurred by the company in investigating evidence, as it may think
fit.63
(c) Every certificate is required to be issued under the seal of the company, if any. The seal is
required to be affixed in the presence of, and signed by, (i) two directors duly authorized and
(ii) the company secretary, or any other authorized person.64
(d) The Companies (Amendment) Act, 2015, has made it optional for companies to adopt a
common seal. Consequently, companies which choose not to adopt a common seal are not
required to affix the common seal on the share certificates. For such companies without a
common seal, the share certificate should be signed by two directors or by a director and a
company secretary (if the company has appointed a company secretary).65
(e) If the composition of the board permits, at least one of the two directors shall be a person
other than a managing director or a whole time director.66
(f) In case of a One Person Company, every share certificate shall be issued under the seal, if
any, which shall be affixed in the presence of and signed by one director or a person
authorised for the purpose by the board of directors of the company. In case of a One Person
Company which does not have a common seal, the share certificate must be signed by the
persons in the presence of one director or a person authorised for the purpose by the board
of directors of the company.67
See Notes under section 29 for issue of dematerialised shares.
[s 46.10] Format for Issuing Share Certificates
Certificates are to be issued in Form SH.1 or as similar to as possible to this form and shall specify
the name(s) of the person(s) in whose favour the certificate is issued, the shares to which it relates
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and the amount paid-up thereon.68
[s 46.11] Entries in the Register of Members
The company is required to make suitable entries in its register of members, to reflect the particulars
of every share issued, along with the name of the person to whom the share has been issued, and
the date of issue.69
[s 46.12] Share Certificates in Case of Sub-division, Consolidation or other Replacement
A share certificate can be issued in exchange for those which are sub-divided or consolidated or in
replacement of those which are defaced, mutilated, torn or old, decrepit, worn out or where the pages
on the reverse for recording transfers have been duly utilised, when the certificate in lieu of which it is
issued is surrendered to the company.
In this regard, the board has the discretion to charge a fee, not exceeding Rs 50 per certificate issued
on splitting or consolidation of share certificate(s) or in replacement of share certificates that are
defaced, mutilated, torn or old, decrepit or worn out. Such certificate is required to predominantly
state that it is “Issued in lieu of share certificate No…sub-divided/replaced/on consolidation.” No fee
is payable for such fresh share certificate issued pursuant to the scheme of arrangement sanctioned
by the High Court or the Central Government.
A company may replace all the existing certificates by new certificates upon sub-division or
consolidation of shares or merger or demerger or any reconstitution without requiring old certificates
to be surrendered subject to compliance with provisions of rule 5 in respect of issuance of share
certificate.70 The particulars of this certificate are required to be maintained in a Register of Renewed
and Duplicate Share Certificates.71 (See Notes under “Conditions for issue of share certificates”
above.)
[s 46.13] Loss or Destruction
The duplicate share certificate shall be not issued in lieu of those that are lost or destroyed, unless
the following conditions are complied with:
(a) Obtaining the prior consent of the board;
(b) Payment of such fees as the board thinks fit, not exceeding INR 50 per certificate, and on
such reasonable terms, such as furnishing supporting evidence and indemnity and the
payment of out-of-pocket expenses incurred by the company in investigating the evidence
produced.
Every duplicate share certificate is required to prominently state that it is a “duplicate issued in lieu of
share certificate No. …,” with the word “duplicate” stamped or printed prominently on the face of the
share certificate.72
[s 46.14] Time Period for the Issuance of Duplicate Share Certificates
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In the case of unlisted companies, duplicate share certificates are required to be issued within three
months and in case of listed companies within 45 days of the date of submission of complete
documents with the company.73
See Notes under section 56 for time period on the issue of debenture certificates.
[s 46.15] Company must Investigate before Issuing Duplicate Certificates
When a duplicate share certificate is issued, the original certificate has to be destroyed or cancelled.
The company must be fully satisfied that the original share certificate was lost or destroyed or
defaced or mutilated or torn and ascertain the genuineness of the reason, before a supplicate
certificate can be issued. The company is bound to investigate or call for evidence of loss to
safeguard from any fraudulent dealings in duplicates.74 When there was no material on record to
show that the board of directors had satisfactory evidence required for issuing duplicate share
certificates and it had not satisfied itself that the original certificates had been destroyed or cancelled,
the issue of duplicate share certificates was not valid.75
[s 46.16] Issue of Duplicate Share Certificates Valid
A decision taken by the board of directors to issue duplicate share certificates in place of the lost
ones would not be rendered invalid merely because the election of some of these directors was
subsequently set aside.76
[s 46.17] Share Certificates or Duplicates Only to Registered Shareholders
A company can issue share certificates or duplicate share certificates only to registered
shareholders. Before issuing duplicate share certificates, advertisements in newspapers can be
issued only upon receipt of an application by the registered shareholder or in case of his death by his
heir and legal representatives. An unauthorised advertisement would render the issue of duplicate
share certificates invalid specially if it is found that the shareholder is alive. The absence of response
to unauthorised issuance of advertisements in newspapers cannot justify such application and cannot
make the issue of duplicate share certificates valid or proper particularly when the registered
shareholder is alive at the time the company is considering the approval of transfer of shares by
him.77
[s 46.18] True Owner Entitled to Compensation
A true owner is entitled to compensation from the company and its share transfer agents if such
shares are registered in the name of any other person on the basis of duplicate share certificates.
The company and the agents however can claim from the share broker necessary compensation for
sending false papers on the basis of which the duplicates were issued.78
[s 46.19] Refusal to Issue Duplicate Share Certificates
Under the 1956 Act, for refusal to issue duplicate share certificates, the aggrieved person was
permitted to file an application to the company court in its inherent jurisdiction under rule 9 of the
Companies (Court) Rules, 1959, or the Company Law Board. A writ petition cannot be made for relief
in such a case unless special circumstances exist.79 The NCLT does not have jurisdiction to hear an
application on the refusal to issue a duplicate share certificate.
Where the transferor had complied with all the requirements for issue of duplicate certificates, on a
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petition by the transferee for rectification of register, the CLB (now the NCLT) ordered that it would be
appropriate that a duplicate share certificate be issued in the name of the transferor company first
and thereafter such a certificate be endorsed in favour of the transferee company.80
[s 46.21] Maintenance of Share Certificate Forms and Related Books and Documents
(a) All blank forms to be used for issue of share certificates shall be printed and the printing shall
be done only on the authority of a board resolution and the blank form must be consecutively
machine-numbered and the forms and the blocks, engravings, facsimiles and hues relating to
the printing of such forms must be kept in the custody of the secretary or such other person
authorised for this purpose by the board; and the company secretary or such other person is
responsible for rendering an account of these forms to the board.81
(b) The following persons shall be responsible for the maintenance, preservation and safe
custody of all books and documents relating to the issue of share certificates, including the
blank forms of share certificates referred to above, namely:82
(i) the committee of the board, if so authorized by the board or where the company has a
company secretary, the company secretary; or
(ii) where the company has no company secretary, a director specifically authorised by the
board for such purpose.
(c) All books referred to above must be preserved in good order for a period not less than 30
years and in case of disputed cases shall be preserved permanently, and all certificates
surrendered to a company must immediately be defaced by stamping or printing the word
“cancelled” in bold letters and may be destroyed after the expiry of three years from the date
of surrender, under the authority of a board resolution and in the presence of a person
appointed by the board in this behalf.83 These conditions do not apply in the case of
cancellation of the certificates of securities, under sub-section (2) of section 6 of the
Depositories Act, 1996 (22 of 1996), when such certificates are cancelled in accordance with
sub-regulation (5) of regulation 54 of the SEBI (Depositories and Participants) Regulations,
1996, made under section 30 of the SEBI Act, 1992 (15 of 1992) read with section 25 of the
Depositories Act, 1996 (22 of 1996).84
[s 46.22] Effect of Issue of Share Certificate
The share certificate is a documentary evidence of the shareholder.85 It is not a negotiable instrument
or warranty or title by the company.86 But if a bona fide purchaser for value acquires the shares
relying on a certificate, the company will be estopped from denying the validity of the amount shown
as paid up,87 or the validity of the certificate, even if the transfer is a forged one.88
If the company authorises the issue of a certificate to a person, it is, however, estopped from denying
his title and if the company is unable to give him the shares it will be liable for damages.89 Where an
officer of the company issues certificate without authority there will be no estoppel. Payment of
dividend does not estop the company from denying the payee’s title to the share,90 and the company
will not be liable thereon.91 The company may however be liable for damages for the fraud of its
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officers committed within the scope of their authority.92
An important limitation on the doctrine of estoppel is that a share certificate is not a representation of
continuing ownership so long as the certificate remains in existence and this is so even if the
certificate has an endorsement on it that transfer will not be registered unless the certificate is
produced.93
[s 46.23] Stamp Duty on Share Certificates
Stamp duty on share certificates is paid based on rate in the State Stamp Act.
[s 46.24] Stamp Duty on Counterpart or Duplicate
Stamp duty on counterpart or duplicate (share certificates), shall be: counterpart or duplicate of any
instrument chargeable with duty and in respect of which the proper duty has been paid: (a) If the duty
with which the original instrument is chargeable does not exceed one rupee: The same duty as is
payable on the original. (b) In any other case: One rupee. [Article 25 of Schedule I to the Indian
Stamp Act, 1899 (2 of 1899)].
[s 46.25] Stamp Duty on Depository
See section 8A of the Indian Stamp Act, 1899, inserted by the Depositories Act, 1996, in Notes under
[s 46.26] Register of Renewed and Duplicate Share Certificates
The company is required to maintain a register in Form SH-2 “Register of Renewed and Duplicate
Share Certificates” containing the particulars of all share certificates issued in accordance with rule
6.94
Where the company issues duplicate certificates of shares with the intent to defraud, then the
company is liable to pay a penalty between five and 10 times the value of the shares involved with
the issue of duplicate shares, or Rs 10 crores, whichever is higher, and every officer of the company
who is in default is punishable as fraud under section 447 of the 2013 Act. (See commentary under
section 447 for further details.)
[s 46.28] Remedy for Refusal to Issue Certificate
The NCLT does not have jurisdiction to decide matters relating to failure/refusal to issue a share
certificate. Under the 2013 Act, the appropriate remedy was to make complaint to the Company Law
Board after service of notice to the company [Section 113(3)]. The CLB did not have the power to ask
the applicant to seek remedy in a civil court.
[s 46.29] Delay in Issuing Share Certificates
Mere delay in issuing share certificates does not amount to fraudulent conduct of the company’s
affairs and investigation under section 213 of the 2013 Act cannot be ordered.95
As the consequences for contravention of section 46 of the 2013 Act include imprisonment, an
offence under this section cannot be compounded under section 441 of the 2013 Act. Section 441
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permits compounding of offences which were punishable only with a fine or with
imprisonment or a fine. The NCLT has been invested with the power, authority and jurisdiction to
compound offences.
Where applications were filed by a company, its directors, secretary, assistant vice-president and the
company’s share transfer agents for compounding the offence of issuing duplicate share certificates
with intent to defraud rendering them liable to penal action under section 46(5) of the 2013 Act. It was
contended that the duplicate share certificates were issued inadvertently owing to pressure of work.
The shares were either cancelled or lying with the BSE and were not in circulation and therefore
there was no possibility of any loss to anybody. The registrar of companies had no objection to
compounding. Such an offence came to notice for the first time. Therefore, compounding was
permitted under the 1956 Act.1
[s 46.31] Model Articles
Every person whose name is entered into the register of members is entitled to one certificate for all
shares issued to such member, without payment, or upon payment of Rs 20 for every certificate after
the first, several certificates each for one or more shares held. Where shares are jointly held by
several persons, the company is not obligated to issue separate share certificates to each such
holder, and the issue of a share certificate to one of the several joint holders shall be considered to
be sufficient delivery to all. Duplicate share certificates may be issued to replace previously issued
share certificates on the payment of Rs 20 for each certificate.
See regulations 2–3, Schedule I, Table “F”, 2013 Act, for Issue of Share Certificates.
See detailed notes under sections 26–31 and Schedule I, 2013 Act.
[s 84] Certificate of shares.—2[(1)] A certificate, under the common seal of the company, specifying any shares held
by any member, shall be prima facie evidence of the title of the member to such shares. The Companies Act, 1956
provision
3[(2) A certificate may be renewed or a duplicate of a certificate may be issued if such certificate—
(a) is proved to have been lost or destroyed, or
(b) having been defaced or mutilated or torn is surrendered to the company.
(3) If a company with intent to defraud renews a certificate or issues a duplicate thereof, the company shall be
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punishable with fine which may extend to 4[one lakh rupees] and every officer of the company who is in default shall be
punishable with imprisonment for a term which may extend to six months, or with fine which may extend to 5[one lakh
rupees], or with both.
(4) Notwithstanding anything contained in the articles of association of a company, the manner of issue or renewal of a
certificate or issue of a duplicate thereof, the form of a certificate (original or renewed) or of a duplicate thereof, the
particulars to be entered in the register of members or in the register of renewed or duplicate certificates, the form of
such registers, the fee on payment of which, the terms and conditions, if any (including terms and conditions as to
evidence and indemnity and the payment of out-of-pocket expenses incurred by a company in investigating evidence)
on which a certificate may be renewed or a duplicate thereof may be issued, shall be such as may be prescribed.]
NOTES
THE COMPANIES (AMENDMENT) ACT, 1960 (65 OF 1960).—The Notes on Clauses explained the amendments
in this section as follows:
This amendment gives effect to the recommendation made in para 48 of the Report that necessary provisions should
be made in the Act so as to prevent fraudulent issue of duplicate shares [Clause 24 of the Companies (Amendment)
Bill, 1959 (37 of 1959)].
The recommendations of the Companies Act Amendment Committee, 1957, are reproduced below:
With a view to preventing fraudulent dealings with duplicate shares, the Department suggests the addition of a sub-
section to section 84 in these terms: ‘New scrips shall not be issued in the place of old ones unless the latter are
proved to have been lost or are defaced or surrendered.’ This might be done [Report : para 48].
Sub-sections were redrafted by Joint Committee which recommended:
The Committee are of the view that a penalty of a fine up to one thousand rupees is not a sufficient deterrent to prevent
fraudulent duplication of shares especially when shares involving large amounts are concerned. They, therefore, feel
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that where such duplicates are issued for a fraudulent purpose, the penalty should extend up to a fine of ten thousand
rupees [now one lakh rupees] in the case of the company issuing the duplicates and in respect of every officer of the
company who is responsible for it, the penalty should be a fine opto the extent mentioned above or imprisonment opto
six months or both. They further feel that manner of issue or renewal of a certificate or issue of a duplicate thereof etc.,
payment of fees for the same, should be regulated by rules to be prescribed by the Central Government. The clause
has been amended accordingly. [Report : para 27].
The Companies (Amendment) Act, 2000 (53 of 2000).—The Notes on Clauses explained as follows:
“This clause seeks to enhance the fine specified in sub-section (3) of section 84 of the Act from Rs 10,000 to Rs 1
lakh” [Clause 35 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
[s 46.33] Share Certificates—Evidentiary Value—Proof of [Section 84(1)]
A share certificate with the common seal of the company specifying the shares held by any member
shall be prima facie evidence and as such rebuttable evidence of the title of the member to such
shares.6 Section 84(1) of the 1956 Act is covered under section 46(1) of the 2013 Act, as explained in
The seal is to be affixed and attested in accordance with the provisions of the articles. It is not
necessary to prove the seal by calling attesting witnesses. It is for the person to prove that the seal is
not of the company who so alleges. Proof of the seal may be given by anyone who knows it. Section
84(1) of the 1956 Act is covered under section 46(1) of the 2013 Act, as explained in the commentary
above.
[s 46.35] Form and Procedure [Section 84(4)]
Notwithstanding any provisions in the company’s articles, the manner of issue or renewal of a
certificate or issue of a duplicate certificate and the form of such certificates shall be in accordance
with the provisions of the Companies (Issue of Share Certificates) Rules, 1960.
Section 84(4) of the 1956 is covered under section 46(3) of the 2013 Act, as explained in the
commentary above.
[s 46.36] Duplicate Share Certificates [Section 84(2)]
A share certificate may be renewed or a duplicate of a share certificate may be issued if such
certificate—(a) is proved to have been lost or destroyed, or (b) having been defaced or mutilated or
torn is surrendered to the company. Section 84(2) of the 1956 Act is covered under section 46(2) of
the 2013 Act, as explained in the commentary above.
[s 46.37] Model Articles [Schedule I, Table A]
See regulation 8 of Table A of Schedule I to the 1956 Act for issue of duplicate share certificates.
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If a company with intent to defraud renews a certificate or issues a duplicate thereof, the company
shall be punishable with fine up to Rs 1,00,000. In addition, every officer of the company who is in
default shall be punishable with imprisonment up to 6 months or with fine up to Rs 1,00,000 or with
both. Section 84(3) is covered under section 46(5) of the 2013 Act, as explained in the commentary
above.
[s 46.39] Transfer of Shares in Favour of Pledgee
In a case where the shares in the respondent company had been pledged in favour of the applicant,
on a default by the company, the applicant sought registration of the shares in its name. The
applicant then sought enforcement of the order directing the respondent company to register the
transfer of shares within 30 days, upon which the respondent company registered the shares in the
name of the applicant company with an endorsement on the share certificate stating that the transfer
was subject to the final decision in the civil suit for injunction and the final decision on the suit for
redemption pending before the High Court. The applicant sought a direction to cancel the
endorsement made in the share certificate on the grounds that: (a) the appeals filed before the High
Court against the final order passed directing register of transfer of shares in the name of the
applicant were dismissed and the special leave petition (SLP) before the Supreme Court was also
dismissed; (b) the order passed by the CLB was not subject to any restrictions and therefore the
transfer ought not to have been made subject to any endorsement; (c) the endorsement made was
contrary to the orders passed as the applicant was not in a position to exercise its legitimate right to
enforce the securities in realisation of its dues, thereby restricting the applicant to demat the shares
with an ulterior motive to delay the recovery process. The respondent contended that the prayer for
removal of the endorsement if granted would enable the applicant to dematerialise the shares and
sell them to realise the dues of the company in violation of sections 176 and 177 of the Indian
Contract Act, 1872, against the interest of the company and the pledgers. The court held that the
respondent ought to have transferred the shares in terms of the order of the CLB which was not
couched with any condition or restriction. An executing court cannot go beyond the order wherein the
respondent was directed to transfer the shares in the name of the applicant without any rider. The
endorsement made in the share certificate was not in accordance with the order passed. The Bench
Officer was directed to cancel the endorsement contained on the reverse of the share certificates.7
In addition to share certificates, section 46 of the 2013 Act provides that the record of the depository,
in case of shares that are maintained in a dematerialised form, is prima facie title to the shares.
Additionally, section 46 also enhances the penalty for shares that are issued with the intent to
defraud to a fine as well as imprisonment for the officers in default.
w.e.f. 1-4-2014.
53 Notified by Notification No. S.O. 902(E) dt. 26 March 2014 w.e.f. 1 April 2014 and corresponds to section 84 of the
1956 Act.
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54 Substituted for “issued under the common seal of the company” by the Companies (Amendment) Act, 2015 (21 of
2015) w.e.f. 29-05-2015.
55 Rules 5, 6 and 7 of the Companies (Share Capital and Debentures) Rules, 2014.
56 . Moises v Thornton, (1799) 8 TR 307; Clarke v Imperial Gas Light and Coke Co, (1832) 4 B. & Ad.315 : 2 LJ KB 30.
57 First proviso to rule 5(3) of the Companies (Share Capital and Debentures) Rules, 2014.
58 . Shree Gopal Paper Mills Ltd v CIT, AIR 1970 SC 1750 : (1970) 77 ITR 543 (SC). See also Notes under sections 82,
205 and 206A.
59 . Scientific Instrument Co Ltd v Rajendra Prasad Gupta, (1999) 95 COMP CASES 615 (All.); Satish Chand Sanwalka v
Tinplate Dealers Association Pvt Ltd, (1998) 93 COMP CASES 70 (CLB); Radhe Shyam Tulsian v Panchmukhy
Investments Ltd, (2003) 113 COMP CASES 298 (CLB).
60 . K. Md. Farooq Ahmed v FortranCirkit Electronics Pvt Ltd, (1998) 92 COMP CASES 498 (CLB). See also Notes under
Sections 100, 111, 111A and Sch. I, Table A, regulations 29-31.
61 . London v P. Telegraph Co, (1870) 16 Tax LR 112.
62 Rule 5(1) of the Companies (Share Capital and Debentures) Rules, 2014.
65 First proviso to rule 5(3) of the Companies (Share Capital and Debentures) Rules, 2014.
66 Second proviso to rule 5(3) of the Companies (Share Capital and Debentures) Rules, 2014.
67 Third proviso to rule 5(3) of the Companies (Share Capital and Debentures) Rules, 2014.
70 Rule 6(1)(c) of the Companies (Share Capital and Debentures) Rules, 2014.
71 Rule 6(3)(a) of the Companies (Share Capital and Debentures) Rules, 2014.
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74 . Shoe Specialities Ltd v Tracstar Investment Ltd, (1997) 88 COMP CASES 471 (Mad.) (DB).
75 . Stridewell Leathers Pvt Ltd v Shoe Specialities Pvt Ltd, (2003) 115 COMP CASES 318 (CLB).
76 . Westfort Hi-Tech Hospital Ltd v V.S. Krishnan, (2007) 137 COMP CASES 151 (Ker.) (DB).
77 . Pradip Kumar Sarkar v Luxmi Tea Co Ltd, (1990) 67 COMP CASES 491 (Cal.); Luxmi Tea Co Ltd v Pradip Kumar
Sarkar, (1990) 67 COMP CASES 518 (SC). See detailed Notes under sections 111 and 111A.
78 . Royal Bank of Scotland v Sandstone Properties Ltd, (1998) 2 BCLC 429.
79 . United India Insurance Co Ltd v Esettrae Finance and Investments Corp Ltd, (1998) 2 Comp. LJ 94 (Delhi); Maharaj
Kumar Mahendra Singh v Lake Palace Hotels and Motels Pvt Ltd, (1985) 58 COMP CASES 805 (Raj.).
80 . In Re, Morgardshammar India Ltd, (2000) 100 COMP CASES 131 (CLB).
84 Proviso, rule 7(3) of the Companies (Share Capital and Debentures) Rules, 2014.
. Charanjit Singh Ghumman v Dr. Reddy’s Laboratories Ltd, (1999) 97 COMP CASES 360 (CLB).
85 . Re, A.W. Hall & Co, (1887) 37 ChD 712 : 57 LJ Chapter 288 : 58 LT 156 : 4 TLR 227.
86 . Longman v Bath Electric Tramways Ltd, (1905) 1 ChD 646 : 74 LJ Ch. 424 (CA); Hazari Mull v Satish, (1918) ILR 46
Cal. 331. See also Notes under sections 112 and 113.
87 . Bloomenthal v Ford, (1897) AC 156 : (1895–99) All ER Rep. 1845 : 66 LJ Ch. 253 (HL); Parbury’s Case, (1896) 1 ChD
100 : 65 LJ Ch. 104 : 73 LT 506.
88 . Re, Bahia and San Francisco Rly. Co, (1868) LR 3 QB 584 : 37 LJ QB 176 : 18 LT 467; Ruben v Great Fingall
Consolidated, (1906) AC 439 : (1904–07) All ER Rep. 460 : 75 LJ KB 843 : 95 LT 214 (HL).
89 . Dixon v Kennaway& Co, (1900) 1 ChD 833 : 69 LJ Ch. 501 : 82 LT 527 : 16 Tax LR 329; Balkis Consolidated Co v
Tomkinson, (1893) AC 396 : (1891–94) All ER Rep. 982 (HL) : 63 LJ QB 134 : 69 LT 598 (HL).
90 . Foster v Tyne Pontoon and Dry Docks Co and Renwick, (1893) 63 LJ QB 50 : 9 Tax LR 450.
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91 . Ruben v Great Fingall Consolidated, (1906) AC 439 : (1904–07) All ER Rep. 460 : 75 LJ KB 843 : 95 LT 214 (HL).
See also notes under section 113.
92 . Lloyd v Grace Smith & Co, (1912) AC 716 : 81 LJ KB 1140 : 107 LT 531 (HL). See also NOTES under section 2(45).
93 . Rainford v James Keith & Blackman Co Ltd, (1905) 2 ChD 147 : 74 LJ Ch. 531 (CA); Longman v Bath Electric
Tramways Ltd, (1905) 1 ChD 646 : 74 LJ Ch. 424 (CA); Guy v Waterlow Bros. and Layton Ltd, (1909) 25 Tax LR 515.
See also notes under section 153.
95 Charanjit Singh Ghumman v Dr. Reddy’s Laboratories Ltd, (1999) 97 COMP CASES 360 (CLB). See also notes under
sections 111, 111A, 113 and 237.
1 In Re, Reliance Industries Ltd, (1997) 89 COMP CASES 67 (CLB).
2 Original section 84 re-numbered as sub-section (1) thereof and sub-sections (2) to (4) inserted by the Companies
(Amendment) Act, 1960 (65 of 1960), section 25. This amending Act has been repealed by the Repealing and
Amending Act, 2016.
3 Sub-sections (2) to (4) inserted by the Companies (Amendment) Act, 1960 (65 of 1960), section 25. This amending Act
has been repealed by the Repealing and Amending Act, 2016.
4 Subs. by the Companies (Amendment) Act, 2000 (53 of 2000), section 37 (w.e.f. 13 December 2000), for “Rs 10,000.”
5 Subs. by the Companies (Amendment) Act, 2000 (53 of 2000), section 37 (w.e.f. 13 December 2000), for “Rs 10,000.”
6 . Re New Monkhooshi Tea Co Ltd,, AIR 1967 Cal. 196.
7 . Gujarat Industrial Investment Corp Ltd v Sterling Holiday Resorts (India) Ltd, (2007) 137 COMP CASES 801 (CLB).
End of Document
Mr. Laghir1 Rabari

8 Notified by Notification No. S.O. 902 (E), dt. 26 March 2014, w.e.f. 1 April
2014 and corresponds to section 87 of the 1956 Act. [s 47] Voting rights.—
8 [s 47] Voting rights.—
(1) Subject to the provisions of section 43 and sub-section (2) of section 50,—
(a) every member of a company limited by shares and holding equity share capital therein,
shall have a right to vote on every resolution placed before the company; and
(b) his voting right on a poll shall be in proportion to his share in the paid-up equity share
capital of the company.
(2) Every member of a company limited by shares and holding any preference share capital
therein shall, in respect of such capital, have a right to vote only on resolutions placed before
the company which directly affect the rights attached to his preference shares and, any
resolution for the winding up of the company or for the repayment or reduction of its equity or
preference share capital and his voting right on a poll shall be in proportion to his share in the
paid-up preference share capital of the company:
Provided that the proportion of the voting rights of equity shareholders to the voting rights
of the preference shareholders shall be in the same proportion as the paid-up capital in
respect of the equity shares bears to the paid-up capital in respect of the preference
shares:
Provided further that where the dividend in respect of a class of preference shares has
not been paid for a period of two years or more, such class of preference shareholders
shall have a right to vote on all the resolutions placed before the company.
NOTES
“Clause 47.—This clause corresponds to section 87 of the Companies Act, 1956 and seeks to provide that every
member who is a holder of equity share shall have the right to vote on every resolution placed before the company. His
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8 Notified by Notification No. S.O. 902 (E), dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to section
voting right on a poll shall be in proportion to his share in the paid up equity share.” [Clause 47 of the Companies Bill,
2011 (121 of 2011)].
[s 47.2] Voting Right [Section 2(93)]
Section 2(93) of the 2013 Act defines “voting right” to mean the “right of a member to vote in any
meeting of the company or by means of postal ballot.”
[s 47.3] Total Voting Power [Ssection 2(89)]
Section 2(89) of the 2013 Act defines “total voting power” to mean “the total number of votes that may
be cast in regard to that matter on a poll at meeting of the company if all members thereof or their
proxies having a right to vote on that matter are present at the meeting and cast their votes.”
[s 47.4] Rights of Equity Shareholders [Section 47 (1)]
Subject to sections 43 and 50(2) of the 2013 Act, the holder of every equity share, in respect of a
company limited by shares, has the right to vote on every resolution placed before the company.9 The
voting rights on a poll, are in proportion to the member’s share in the paid-up equity share capital of
the company.
[s 47.5] Exemption for a Private Company
In exercise of the powers conferred by section 462 read with section 406 of the 2013 Act, the Central
Government has declared that section 47 does not apply to a private company where the
memorandum and articles of association of the company provide for such exemption.10
The restrictions relating to the nature of shares and the voting rights attached to them applicable to
public companies do not apply to a private company.11
[s 47.6] Exemption for Nidhi Companies
Government has declared that section 47(1)(b) shall apply subject to the modification that no member
shall exercise voting rights in excess of 5% of total voting rights of equity shareholders.12
[s 47.7] Articles Providing Full Voting Rights on Poll Void
The amendment of the articles of association of the company providing for full voting rights in the
case of partly paid shares is against the provisions of section 87(1)(b) of the 1956 Act (now section
47 of the 2013 Act) according to which the voting right on poll shall be in proportion to one’s share of
the paid-up capital of the company. Under section 9 of the 1956 Act (now section 6 of the 2013 Act),
any provision in the articles which is in derogation of the provisions of the Act is void.13
See Notes under section 109 of the 2013 Act for circumstances in which a poll may be ordered.
[s 47.8] Rights of Preference Shareholders [Section 47(2)]
Every preference shareholder has the right to vote on resolutions which directly affect the rights
attached to his preference shares. In addition, such shareholder has the right to vote on any
resolution for: (a) the winding up of the company, or (b) for the repayment or reduction of the
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company’s equity or preference shares. The holder’s rights are in proportion to his share in the paid-
up preference share capital of the company. In the event dividend has not been paid for two years or
more, then the preference shareholder will have the right to participate and vote on all resolutions.14
[s 47.9] Rights of Preference Shareholders “Affected”
The word “affect” has a wide connotation.15 Rights of preference shareholders are “affected” by the
issue of additional equity shares. Such issue, however, does “vary” their class rights and does not
amount to variation of class rights under section 106 of the 1956 Act (now section 48 of the 2013
Act), though, in fact, it lessens the latter’s voting power.16
[s 47.10] Preference Shareholders upon Unpaid Dividend Entitled to Vote on Every

Resolution at Meeting of Members Not Creditors
Under section 87(2)(b) (now section 47(2)(b) of the 2013 Act), if dividend in respect of preference
shares is unpaid for a period of more than 2 years, the preference shareholders would be entitled to
vote on every resolution at any meeting of the company. The meeting of the company means
meeting of the members and not the creditors. A preference share is not a debt instrument.
Preference shareholders were therefore not entitled to attend and vote at the meeting of the creditors
under section 391 of the 1956 Act and are not entitled to object to sanction being granted to the
scheme of arrangement or compromise.17
[s 47.11] Vote Share of Equity Shareholders as against Preference Shareholders [First

Proviso to section 47]
The proportion of the voting rights of equity shareholders to the voting rights of the preference
shareholders, is the same as the proportion of equity shares to preference shares in the paid-up
capital of the company.
[s 47.12] Differential Voting Rights
As a result of section 43(1) of the 2013 Act, holders of equity shares with differential voting rights may
vote on resolutions, subject to the conditions attached to the shares held by them.
[s 47.13] Restrictions on Voting Rights
As every member holding equity shares is entitled to vote (subject to any conditions attached to such
shares), a company cannot limit or deny voting rights to shareholders in its articles or otherwise.
However, a company may, in its articles, restrict voting rights on any shares in respect of which any
calls or other sums that are payable by such shareholder have not been paid or if the company has a
right of lien in relation to such shares and has exercised such right.
[s 47.14] Shareholders’ Pooling Agreement
This agreement between one or more shareholders provides that in exercising any voting rights in the
manner stated in the agreement each shareholder retains the sole ownership of the shares binding
himself to vote for a specific person or in a certain way. Such an agreement is valid.18
[s 47.15] Injunction against use of Voting Rights
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The court has inherent jurisdiction to restrain a shareholder from doing something to the assets of the
company which is detrimental to the interests of the creditors. In exceptional circumstances, the court
may restrain a shareholder from voting in a particular way if it appears to be injurious to a creditor’s
interests. Where the shareholder has some ulterior motive for putting pressure on the creditor such
restraint order would be made by the court.19
See detailed notes under section 106 of the 2013 Act.
[s 47.16] Model Articles [Schedule I, Table F]
See regulations 50 to 56 of Table F of Schedule I for Voting Rights. See detailed notes under
Schedule I, Table F and section 114.
[s 47.17] Penalty
this section. Consequently, the provisions of section 450 will apply in the event of a default and the
company and every officer who is in default, will be liable to be punished with a fine that may extend
to Rs 10,000, and where the contravention is a continuing one, with a further fine which may extend
to Rs 1,000 for every day after the first for which the contravention continues.
[s 87] Voting rights.—(1) Subject to the provisions of section 89 and sub-section (2) of section 92— The Companies
Act, 1956 provision
(a) every member of a company limited by shares and holding any equity share capital therein shall have a right
to vote, in respect of such capital, on every resolution placed before the company; and
(b) his voting right on a poll shall be in proportion to his share of the paid-up equity capital of the company.
• (2)(a) Subject as aforesaid and save as provided in clause (b) of this sub-section, every member of a company
limited by shares and holding any preference share capital therein shall, in respect of such capital, have a
right to vote only on resolutions placed before the company which directly affect the rights attached to his
preference shares.
• Explanation.—Any resolution for winding up the company or for the repayment or reduction of its share capital
shall be deemed directly to affect the rights attached to preference shares within the meaning of this clause.
(b) Subject as aforesaid, every member of a company limited by shares and holding any preference share capital
therein shall, in respect of such capital, be entitled to vote on every resolution placed before the company at
any meeting, if the dividend due on such capital or any part of such dividend has remained unpaid—
(i) in the case of cumulative preference shares, in respect of an aggregate period of not less than two years
preceding the date of commencement of the meeting; and
(ii) in the case of non-cumulative preference shares, either in respect of a period of not less than two years
ending with the expiry of the financial year immediately preceding the commencement of the meeting or
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in respect of an aggregate period of not less than three years comprised in the six years ending with the
expiry of the financial year aforesaid.
Explanation.—For the purposes of this clause, dividend shall be deemed to be due on preference shares in respect of
any period, whether a dividend has been declared by the company on such shares for such period or not,—
(a) on the last day specified for the payment of such dividend for such period, in the articles or other instrument
executed by the company in that behalf; or
(b) in case no day is so specified, on the day immediately following such period.
(c) Where the holder of any preference share has a right to vote on any resolution in accordance with the
provisions of this sub-section, his voting right on a poll, as the holder of such share, shall, subject to the
provisions of section 89 and sub-section (2) of section 92, be in the same proportion as the capital paid up in
respect of the preference share bears to the total paid-up equity capital of the company.
NOTES
THE COMPANIES ACT, 1956 (1 OF 1956).—See

Legislative History in notes under sections 85 and 86. Sections
85 and 86 now correspond to section 43 of the 2013 Act.
[s 47.19] Voting Right of Equity Shareholders [Sub-section (1)]
Section 87(1) of the 1956 Act is covered under sub-section (1) of section 47 of the 2013 Act, as
[s 47.20] Voting Right of Preference Shareholders [Sub-section (2)(a)]
Section 87(2)(a) of the 1956 Act is covered under section 47(2) of the 2013 Act, as explained in the
commentary above.
[s 47.21] Resolutions for Winding Up/Reduction of Capital [ Explanation ]
Section 87(2)(a) of the 1956 Act is covered under section 47(2) of the 2013 Act, as explained in the
commentary above.
[s 47.22] Non-payment of Dividend to Preference Shareholder [Sub-section (2)(b)]
A preference-shareholder-member will have a right to vote on all resolutions if dividend due on such
capital or any part of such dividend has not been paid (i) on cumulative preference shares for two
years preceding the meeting; and (ii) on non-cumulative preference shares for two years preceding
the financial year ending with the expiry of the financial year immediately preceding the
commencement of the meeting or for a total period of three years during the last six years. The
differences in the effects of the non-payment of dividend for cumulative and non-cumulative
preference shares have not been included in section 47 of the 2013 Act, as explained in the
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commentary above.
[s 47.23] Dividend Should not Remain Unpaid [ Explanation ]
The dividend shall be deemed to be due on preference shares (a) on the day mentioned in the
articles or any other document or (b) the day following the period of two years or three years as the
case may be. Declaration of dividend is not enough, it should not remain unpaid. This provision has
not been included in section 47 of the 2013 Act.
[s 47.24] Foreign Company Holding Preference Shares Bound by Conditions of Permission
Under section 87(2)(b)(ii) of the Act, dividend in respect of preference shares was unpaid for three
years. The preference shareholder was a foreign company holding the shares with the permission of
the Reserve Bank of India (RBI). It was bound by conditions of such permission. The permission set
out a 49% cap on foreign shareholding and the management control to remain with the Indian
shareholders. Permitting voting on preference shares would amount to violation of condition.
Therefore, relief could not be granted.
[s 47.25] Voting Rights of Preference Shares on a Poll [Sub-section (2)(c)]
Where a preference shareholder has a right to vote, on a show of hands, he will have only one vote
irrespective of the number of shares he holds. This position has changed under section 47(2) of the
2013 Act, as explained in the commentary above.
If a poll is taken, then the preference shareholder’s vote will be in the proportion that the paid-up
preference capital bears to the paid-up equity capital.
The calculation of the voting right of a preference shareholder appears to be complicated, especially
so when different amounts have been paid up on the shares. Where a company has 15% 3,000
preference shares of Rs 100 each fully paid up and 60,000 equity shares of Rs 10 each fully paid up,
the preference share capital comes to Rs 3 lakhs and the equity paid up capital comes to Rs 6 lakhs.
The proportion of paid-up preference capital to paid-up equity capital is 1:2. The voting right will be in
that proportion. The calculation will be simplified if one vote is allotted for each Rs 10 paid up. If this
is done, then the preference capital will have (3,00,000 ÷ 10) 30,000 votes and the equity capital will
have (6,00,000 ÷ 10) 60,000 votes, the proportion being 1:2. Though for each equity share there will
be one vote and for each preference share there will be 10 votes on a poll, the total of votes is in
proportion of paid-up preference capital to paid-up equity capital.
The complications in calculation in the case of partly paid-up shares can be avoided by allotting one
vote for the share on which the least amount has been paid up and making that as the unit to allot
voting rights on other shares. The company has 15% 3,000 preference shares of Rs 100 each of
which 1,000 shares are paid up to the extent of Rs 30 each and 2,000 preference shares are paid-up
in full and 60,000 equity shares of Rs 10 each of which 20,000 shares are paid to the extent of Rs 5
each and 40,000 equity shares are fully paid up. The preference paid up capital is (30,000 +
2,00,000) Rs 2,30,000. The equity paid-up capital is (1,00,000 + 4,00,000) Rs 5,00,000. The
proportion is 23:50. In this case, the calculation would be simple if one vote is allotted for each Rs 5
paid up. In that event, the 20,000 equity shares paid up to the extent of Rs 5 each will have 20,000
votes. The 40,000 equity shares paid up to the extent of Rs 10 each will have (40,000 × 2) 80,000
votes. The total votes for 60,000 equity shares will be 1,00,000. The 1,000 preference shares paid up
to the extent of Rs 30 each will have 6 votes (30 ÷ 5) for each such share amounting to 6,000 votes
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and the remaining 2,000 preference shares will have 20 votes (100 ÷ 5) for each fully paid-up share
amounting to 40,000 votes. Therefore, the total preference shares votes will be 6,000 plus 40,000
aggregating 46,000. The proportion of preference and equity votes is 46,000:1,00,000 = 23:50. The
proportion of voting rights of the preference shareholders and the equity shareholders is the same as
the proportion of preference paid-up capital to equity paid-up capital.
[s 47.26] Civil Suit
jurisdiction of the civil court in appropriate cases is not barred where complicated questions of law
and fact arise. The civil court also has power to suspend voting rights by way of interim order where
shares were acquired in breach of SEBI regulations and were void. The court may also define terms
used in the SEBI Regulations, such as “acquirer,” “person acting in concert” etc.20
It was contended that in a scheme of arrangement or compromise the disputed shares which were
subject matter of SEBI enquiry should not be taken into account for reckoning the majority, the court
held that in view of section 87 voting rights could not be denied to any person holding shares. Even
otherwise disputed shares formed small percentage.21
[s 47.28] Injunction against use of Voting Rights
The court has inherent jurisdiction to restrain a shareholder from doing something to the assets of the
company which is detrimental to the interests of the creditors. In exceptional circumstances, the court
may restrain a shareholder from voting in a particular way if it appears to be injurious to a creditor’s
interests. Where the shareholder has some ulterior motive for putting pressure on the creditor such
restraint order would be made by the court.22
[s 47.29] Ordinary and Special Resolutions
See detailed notes on provisions as to ordinary resolutions and special resolutions and list of matters
requiring sanction of shareholders by ordinary and special resolution under section 189.
This section does not apply to a private company which is not a subsidiary of a public company [s.
90(2)].The exemption for private companies under the 2013 Act has been notified separately by the
Central Government, as explained in the commentary above.
Government has (i) declared the companies specified in Schedules I and II as Nidhis and Mutual
Benefit Societies respectively; and (ii) directed that the provisions of specified sections of the Act
the notification as follows:
[s 47.32] Section 87(1)(b)
Shall apply subject to the modification that no member shall exercise voting rights in excess of 5% of
total voting rights of equity shareholders.
[Notification No. G.S.R. 978, dt. 28-05-1963, Schedule III as substituted by Notification No. G.S.R.
517(E), dt. 31-08-2006, published in the Gazette of India, Extraordinary, No. 402, Pt II, section 3(i) :
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(2006) 133 COMP CASES (St.) 24].
See full text of notification in notes under section 620A.
The exemption for Nidhi Companies under the 2013 Act has been notified separately by the Central
Government, as explained in the commentary above.
[s 47.33] Producer Company
Special provisions for producer companies in sections 581A to 581ZT of the 1956 Act, inter alia,
provide as follows:
[s 47.33.1] Voting Rights of Members [Section 581Z]
Every member of producer company shall have one vote irrespective of the number of shares he
holds.
[s 47.33.2] Exceptions
There may be some exceptions in case of producer institution membership as provided in section
581D(1) and (3) as follows.
[s 47.33.3] Voting Rights [Section 581D(1)]
(a) An individual member shall have one voting right irrespective of the shares held by him. (b) In
case of a producer institution member its voting rights will be determined by the articles of
association. (c) If there are individual members in producer institution membership, then each
member will have one vote irrespective of his shareholding.
[s 47.33.4] Articles may Restrict Voting Rights [Section 581D(3)]
The articles of association of the producer company may restrict the voting rights of active members
in any special or general meeting.
[s 47.33.5] Share Capital, Members Rights in Producer Company [Section 581ZB]
Share capital of a producer company shall consist of equity shares only held by a member in a
producer company in proportion to the patronage [section 581ZB].
See also special user rights [section 581ZC] and transferability of shares and attendant rights
[section 581ZD].
See detailed notes under sections 581ZB to 581ZD.
[s 47.33.6] Comparison with the 2013 Act
Section 47 of the 2013 Act is substantially similar to the provisions of section 87 of the 1956 Act.
However, section 87 only carved out an exception that holders of preference shares were entitled to
vote in the event that the dividend due on such preference shares (separately for cumulative and
non-cumulative preference shares) or any part thereof remained unpaid for the period specified.
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Section 47 now provides that holders of preference may vote on any resolutions directly affecting the
rights attached to such shares, in addition to any resolution on winding up or repayment or reduction
of equity or preference share capital.
w.e.f. 1-4-2014.
8 Notified by Notification No. S.O. 902 (E), dt. 26 March 2014, w.e.f. 1 April 2014 and corresponds to section 87 of the
1956 Act.
9 . See Dinesh Vrajlal Lakhani v Parke Davis (India) Ltd, (2005) 124 COMP CASES 728 (Bom.) (DB).
10 Notification No. G.S.R. 464(E), dt. 05 June 2015.
11 . Hotel Queen Road Pvt Ltd v Hill Crest Realty SDN.BHD, (2006) 130 COMP CASES 59 (Del.); Hill Crest Realty
SDN.BHD v Hotel Queen Road Pvt Ltd, (2006) 133 COMP CASES 742 (CLB). See detailed notes under sections 87,
90(2), 169, 205, 300, 397 and 398.
13 . S. Ajit Singh v DSS Enterprises Pvt Ltd, (2002) 109 COMP CASES 597 (CLB).
14 Surya Kant Gupta v Rajaram Corn Product (Punjab) Pvt Ltd, (2008) 84 CLA 310 (CLB).
15 . Smith’s John Tadcaster Brewery Co Ltd v Gresham Life Assurance Society Ltd, (1953) ChD 308 : (1953) 1 All ER 518
: (1953) 2 WLR 516 : 97 SJ 150 (CA). See also notes under sections 85, 94 and 106.
16 . White v Bristol Aeroplane Co Ltd, (1953) ChD 65 : (1953) 1 All ER 40 (CA). See also notes under sections 94 and
106.
17 . State Bank of India v Alstom Power Boilers Ltd, (2003) 116 COMP CASES 1 (Bom.) (DB).
18 . Rolta India Ltd v Venire Industries Ltd, (2000) 100 COMP CASES 19 (Bom.) (DB). See also notes under section 290.
19 . Standard Chartered Bank v Walker, (1992) BCLC 603 (ChD).
20 Shirish Finance and Investment Pvt Ltd v M. Sreenivasulu Reddy, (2002) 109 COMP CASES 913 (Bom.) (DB). See
detailed notes under sections 10 and 111A.
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21 . Re Jaypee Cement Ltd, (2004) 122 COMP CASES 854 (All.).
22 . Standard Chartered Bank v Walker, (1992) BCLC 603 (ChD).
End of Document
Mr. Laghir1 Rabari

23 [s 48] Variation of shareholders' rights.—
(1) Where a share capital of the company is divided into different classes of shares, the rights
attached to the shares of any class may be varied with the consent in writing of the holders of
not less than three-fourths of the issued shares of that class or by means of a special
resolution passed at a separate meeting of the holders of the issued shares of that class,—
(a) if provision with respect to such variation is contained in the memorandum or articles of
the company; or
(b) in the absence of any such provision in the memorandum or articles, if such variation is
not prohibited by the terms of issue of the shares of that class:
Provided that if variation by one class of shareholders affects the rights of any other class of
shareholders, the consent of three-fourths of such other class of shareholders shall also be
obtained and the provisions of this section shall apply to such variation.
(2) Where the holders of not less than ten per cent. of the issued shares of a class did not
consent to such variation or vote in favour of the special resolution for the variation, they may
apply to the Tribunal to have the variation cancelled, and where any such application is
made, the variation shall not have effect unless and until it is confirmed by the Tribunal:
Provided that an application under this section shall be made within twenty-one days after
the date on which the consent was given or the resolution was passed, as the case may
be, and may be made on behalf of the shareholders entitled to make the application by
such one or more of their number as they may appoint in writing for the purpose.
(3) The decision of the Tribunal on any application under sub-section (2) shall be binding on the
shareholders.
(4) The company shall, within thirty days of the date of the order of the Tribunal, file a copy
thereof with the Registrar.
(5) Where any default is made in complying with the provisions of this section, the company shall
be punishable with fine which shall not be less than twenty-five thousand rupees but which
may extend to five lakh rupees and every officer of the company who is in default shall be
punishable with imprisonment for a term which may extend to six months or with fine which
shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees,
or with both.
NOTES
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THE COMPANIES ACT, 2013 (18 OF 2013).—The Notes on Clauses explained section 48 as follows:
“Clause 48.—This clause corresponds to sections 106 and 107 of the Companies Act, 1956 and seeks to provide that
where share capital is divided into different classes of shares, the rights attached to any class of shares may be varied
with the written consent of the holders of not less than three-fourths of the issued shares or by special resolution.
Where the holders of ten per cent. of the issued share capital did not consent to such variation, they may apply to
Tribunal to have the variation cancelled. If default is made in complying with the provision of this clause the company
and every officer of the company who is in default shall be punishable with fine or imprisonment or with both.” [Clause
48 of the Companies Bill, 2011 (121 of 2011)].
[s 48.2] Variation of Shareholders’ Rights
Where the share capital of a company is divided into different classes of shares, in accordance with
section 43 of the 2013 Act, the rights attached to a class can only be varied with the consent of at
least three-fourths of the shareholders of that class, in writing, or by a special resolution passed by
the members of that class. While the 2013 Act does not clarify what “in writing” means, this should
include both consent obtained through letters and through electronic communication. Section 3(65) of
the General Clauses Act, 1897, states that expressions referring to “writing” shall be construed as
including references to printing, lithography, photography and other modes of representing or
reproducing words in a visible form. Section 4 of the Information Technology Act, 2000, dealing with
legal recognition of electronic records states that Where any law provides that information or any
other matter shall be in writing or in the typewritten or printed form, then, notwithstanding anything
contained in such law, such requirement shall be deemed to have been satisfied if such information
or matter is (a) rendered or made available in an electronic form and (b) accessible so as to be
usable for a subsequent reference.
The rights may only be varied, either where the variation is permitted by the memorandum or articles
of association of the company, or where the variance is not contrary to the terms of issue. This would
imply that the memorandum or articles of association of the company should either specifically permit
such variation, or should not expressly prohibit such a variation. Further, the conditions set out in the
terms of the issue would need to create a higher threshold, in order to prevent a variation in
accordance with section 48 of the 2013 Act.
[s 48.3] Variation in Rights of Affected Shareholders [Section 48(1), Proviso]
The proviso to section 48(1) of the 2013 Act provides that in the event the variation of rights for one
class of shareholders affects another class of shareholders, then such variation will also need the
consent of at least three-fourths of the shareholders of such other class of shareholders.
[s 48.4] Rights of Dissentient Shareholders [Section 48(2)]
In the event not less than 10% of the issued capital of a class did not consent to the variation, or did
not vote in favour of the special resolution for such variation, such shareholders may apply to the
tribunal to have the variation cancelled, and such challenged variation does not take effect until it is
confirmed by the tribunal. Such application should be made within 21 days after the date the consent
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was given, or the resolution was passed, by such 10% of the shareholders.
[s 48.5] Filing of the Order [Section 48(4)]
The copy of the order passed by the tribunal should be filed with the registrar within 30 days in Form
INC.
Non-compliance with section 48(5) of the 2013 Act carries a penalty of a fine of between Rs 25,000
and Rs 5 lakh for the company, and every officer in default would additionally be liable with
imprisonment up to six months, and fine between Rs 25,000 and Rs 5 lakh, or both.
[s 48.7] Quorum
To every such separate meeting, the provisions of regulations of Table F of Schedule I to the Act
relating to general meetings shall mutatis mutandis apply. But at such a meeting, the quorum shall be
two persons at least holding or representing by proxy one-third of the issued shares of the class in
question [regulation 6(i) of Table F of Schedule I of the 2013 Act].
To alter the rights of holders of special classes of shares a special resolution by such shareholders is
required to be passed.
For provisions relating to special resolution and matters requiring sanction of shareholders by special
resolution see section 114 of the 2013 Act.
[s 48.9] Resolution by Postal Ballot
As per the Secretarial Standards for General Meetings SS-1 (adherence to which is mandatory as
per the provisions of section 118 (10) of the 2013 Act), every company, except one having 200 or
lesser members, shall transact the specified items of business, including a resolution for variation in
the rights attached to a class of shares or debentures or other securities only through postal ballot.
See section 118 of the 2013 Act.
[s 48.10] Filing
A copy of the special resolution has to be filed with the registrar of companies in Form MGT-14of the
Companies (Management and Administration) Rules, 2014, within 30 days. See Notes under section
117, 2013 Act. Private companies have been exempted from the application of the provisions of
section 117 and filing Form MGT-14.24
Preferential rights are not necessarily varied by the creation and issue of further shares ranking pari
passu with the shares to which such rights are attached.
See regulations 6–7 of Table F of Schedule I to the 2013 Act for variation of class rights. See detailed
notes under sections 5, 7 and 14 and Schedule I, Table F 2013 Act (sections 26–31 and Schedule I,
Table A, 1956 Act).
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25[s 106] Alteration of rights of holders of special classes of shares.—Where the share capital of a company is
divided into different classes of shares, the rights attached to the shares of any class may be varied with the consent in
writing of the holders of not less than three-fourths of the issued shares of that class or with the sanction of a special
resolution passed at a separate meeting of the holders of the issued shares of that class— The Companies Act, 1956
provision
(a) if provision with respect to such variation is contained in the memorandum or articles of the company, or
(b) in the absence of any such provision in the memorandum or articles, if such variation is not prohibited by the
terms of issue of the shares of that class.]
NOTES
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on Clauses explained sections 106 and 107 as follows:
See section 66A of the Indian Act and section 72 of the English Act. Regulation 4 of Table A of the Indian Act has been
embodied in clause 99 [Section 106]. The time-limit laid down in sub-section (2) of the Indian section has been
extended to 21 days. See sub-clause (2) of clause 100 [Section 107]. These changes are based on the
recommendations of the Company Law Committee. [Clauses 99 and 100 of the Companies Bill, 1953 (46 of 1953)].
THE COMPANIES (AMENDMENT) ACT, 1960 (65 OF 1960).—The Notes on Clauses explained the substituted section
as follows:
As pointed out in paragraph 52 of the Report the amendment seeks to correct inconsistency between the provisions of
section 106(1) and (2) and those contained in Regulation 3(1) of Table A in Schedule I. [Clause 26 of the Companies
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It has been pointed out by some representative bodies that in view of the poor attendance at meetings of a class of
shareholders, the consent of the majority of the shareholders present at a meeting should be sufficient for authorising
the variation of the rights attaching to any class of shares in the company. Another suggestion was that the consent of
50% of the holders in the class of the shares affected should be sufficient. Yet another suggestion was that the votes
cast in favour of the proposed variation should be three times the votes cast against it. As the section stands, an
absolute majority of 3/4ths of all the shareholders of the class affected is required. In view of the fact that, a remedy is
given to the dissentient shareholders by an application to the Court [now the Tribunal (NCLT)] under section 107 there
need not be an insistence of an absolute majority of 3/4ths of the shareholders belonging to the class. The provisions
of section 106(1) and (2) are in any case inconsistent with Regulation 3(1) of Table ‘A’ in Schedule I, which provides
that the rights attached to any class, of shares may be varied with the sanction of a special resolution passed at a
separate general meeting of the holders of the shares of that class. We recommend that Regulation 3(1) of Table ‘A’
may be substituted for section 106(1) and (2) with some amendments. [Report : para 52].
[s 48.13] Procedure for Variation of Class Rights
The rights of the holders of a class of shares may be varied with the written consent of the holders of
at least three-fourths of the issued shares of that class. Such rights can also be varied by a special
resolution passed at a separate meeting of such shareholders provided that (a) the memorandum or
articles provide for such variation, or (b) where there is no such provision, at least such variation is
not prohibited by the terms of issue of the shares.
[s 48.14] Proper Resolution
Where the articles of association in conformity with the provisions of section 106(a) provides that
special resolution is required for variation of class rights, any other resolution will not be valid for
affecting the class rights.26
[s 48.15] Class Rights
Where the rights contained in the articles in question could be divided into three categories. There
were certain rights annexed to particular shares such as voting rights. These were rights attached to
a class of shares. The second category of right was rights conferred on an individual not as a
member of the company but in an individual capacity. These rights could not be regarded as class
rights. A third class of rights were rights conferred on the beneficiary as a member of the company
but which were not attached to any particular class of shares. Where specific rights conferred on
members in their capacity as members, the shares held by those persons constituted a “class of
shares.” The third category rights should be categorised as “class rights.” A contract by a company
not to alter its articles does not deprive the members of their power to alter the articles. If a company
enters into a contract not to alter its articles, company’s members are nevertheless entitled to
requisition a meeting and alter its articles and the company cannot be prevented from acting on the
altered articles even though this may involve a breach of contract.27
[s 48.16] Changes not Amounting to Variation
A variation which affects the enjoyment of a right without modifying the right itself is not a variation
within the meaning of section 106. Issue of additional equity shares is not a variation in rights. A
company can increase the number of shares for raising capital or otherwise which may affect the
voting power of the existing members by diminishing it in number but it does not amount to variation
of their rights attached to each particular share.28
[s 48.17] Issue of Additional Equity Shares not a Variation in Rights
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The rights attached to ordinary equity shares include a right to vote, right to receive dividends, right to
maintain their face value, and right to transfer them freely, without restrictions, to another. Unless
such rights are altered or varied by the company by the resolution of the shareholders in accordance
with section 106, no action lies under section 107 (now section 48 of the 2013 Act). Issue of
additional equity shares is not a variation in rights. Petition to cancel it is not maintainable under
section 107 of the Act.29
[s 48.18] Strengthening Position of Ordinary Shareholders
Strengthening the position of ordinary shareholders as compared to preference shareholders by

issuing further shares to them and increasing their voting rights is not a transaction affecting rights of
preference shareholders though, in fact, it lessens the latter’s voting power.30
[s 48.19] Sub-division of Shares
Sub-division of any shares which has the effect of diminishing the voting power of other shares does
not amount to variation of rights of any shareholder. However, an alteration of articles must be bona
fide in the interest of the general body of shareholders. There must be honesty in what is done. An
alteration of articles in fraud of the minority may be challenged in a suit.31
[s 48.20] Variation of Rights in a Scheme
Where the variation of rights is a part of a scheme or arrangement with the intervention of the court
under section 391 of the 1956 Act (now section 230, 2013 Act) the provisions of section 106, 1956
Act (s. 48, 2013 Act) will not apply.32
[s 48.21] Scheme of Reduction of Share Capital—Confirmation of Restructuring
Where resolution in respect of the proposal to reduce the share capital of the petitioner company was
passed by the requisite majority of its shareholders. In a petition filed under sections 100 to 104 of
the 1956 Act (now section 66, 2013 Act) seeking the confirmation of the restructuring package
pertaining to the shareholders of the petitioner by cancellation of part of equity share capital and
issuing in its place cumulative redeemable preference shares, the Gujarat Industrial Investment
Corporation (GIIC), a shareholder objected on the ground that it would suffer heavy loss and variation
of rights. It was held the special resolution was passed by the requisite majority of the shareholders
at the annual general meeting. Scheme specifically dealt with shareholders and it was stated that for
every 10 equity shares of Rs 10 each held by the equity shareholders the petitioner would cancel four
equity shares and in lieu of such cancellation create, issue and allot four non-cumulative redeemable
preference shares of Rs 10 each with a coupon of 0.01% redeemable in four equal yearly instalments
starting from October 2017 and the existing equity shareholders would continue to hold the remaining
six equity shares held by them as equity shares of Rs 10 each fully paid, without any alterations to
the rights attached thereto. Therefore, it was not correct to state that by virtue of such reduction of
equity share capital the equity shareholders including the objector would suffer very heavy loss. The
court had no jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of
persons who with their eyes open had given their approval to the scheme. The bona fides of the
majority acting as a group have to be examined, vis-à-vis the scheme in question and not the bona
fides from the interests of the voters as a class. The bona fides of a person can only be relevant if it
can be established with reasonable certainty that he represents the majority or is the controller of the
majority. The objections raised were not sustainable as the objector was not present at the meeting
nor did it represent the majority of the equity shareholders. Further, the variation referred to in section
106 was variation to the prejudice of any class of shareholders and not any variation adding to or
enhancing rights of any class. It is only where a variation involves the curtailment of the rights of any
class or classes of shareholders, that consent or sanction of such class or classes would be
necessary. The section relates to variation and abrogation of rights attached to shares and had no
application to cancellation of shares or reduction of capital. As per the restructuring package
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approved, unsecured loans of Rs 200 crores from the promoters would be converted into equity and
would be subject to write down by 40 %. The equity share capital existing or proposed to be
converted by the promoters would be written down by 40% by allotment of 0.01% cumulative
redeemable preference shares. Likewise, the company was under an obligation to allot equity shares
at par to financial institutions or banks by way of conversion of a part of assistance to the extent of Rs
175 crores. Thus, the simultaneous exercise of increasing the equity share capital as a result of the
restructuring package approved and the reduction of equity share capital in no way could be
considered as the variation of the rights by the equity shareholders including the objector. The
proposal was likely to improve the financial resources of the company and to increase the share of
profit available for expansion and growth. The proposal did not involve diminution of any liability in
respect of unpaid capital or the payment to any shareholder of any paid-up share capital.
Accordingly, the scheme of reduction of share capital was confirmed.33
See detailed notes under sections 48, 52 and 66 of the 2013 Act (sections 106 and 107, 78, 100–
104, of the 1956 Act).
[s 48.22] Dividend in Different Currency
The mode of payment of dividend in a different currency on all classes of shares will not amount to
variation of rights of any class.
For payment of dividend to non-resident shareholders and the Foreign Exchange Management Act,
1999 (15 of 1999), see notes under section 123, 2013 Act (s. 205, 1956 Act).
[s 48.23] Sections 31(1), 106 and 107 of the 1956 Act [Sections 14 and 48 of the 2013 Act
Where the government held equity shares in a company and the articles provided for the state to
nominate three directors, one of them as chairman of the board of directors and the company issued
further shares which the state did not subscribe and its shareholding was reduced to one-fifth of the
subscribed capital, an objection by the state to restrain the company from amending the articles
taking away the right of the state to nominate directors was not maintainable under sections 106 and
107. The proposed amendment in articles did not affect any class of shareholders.34
But if the right to nominate directors is contained in an agreement or in a statute, then such a change
would not be lawful.
[s 48.24] “Variation” [Section 2(50), 1956 Act]
“Variation” shall include abrogation and “vary” shall include abrogate. These terms include
modification and alteration. There is no corresponding provision in the 2013 Act.
[s 48.25] Penalty [Section 629A, 1956 Act; section 450, 2013 Act]
For variation or alteration of rights of holders of different classes of shares in manner other than those
specified in section 106, the company and every officer who is in default, shall be punishable under
section 629A, with fine up to Rs 5,000 and where the contravention is a continuing one, with a further
fine up to Rs 500 for every day of default.
See also notes under sections 5, 621, 621A and 629A, 1956 Act and sections 2(60), 439, 441 and
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450, 2013 Act.
[s 48.26] Department’s view— Section 106 vis-à-vis Preference Shares (Regulation of

Dividends) Act, 1960
In reply to a query: After the passing of the Preference Shares (Regulation of Dividends) Act, 1960 the rates of
dividend payable, whether less tax or free of tax, to Preference shareholders have been amended. As a result of this,
the rights of shareholders have been altered. Since there is a special procedure provided for alteration of rights of
holders of special classes of shares under Section 106 of the Companies Act, 1956, if a company merely relying on the
provisions of the Preference Shares (Regulation of Dividends) Act, 1960 declares a higher dividend, will it not be a
contravention of the provisions of the Companies Act? Incidentally it is still practicable to convene class meetings of
Preference and Equity Shareholders in a company where it is possible to secure 3/4ths majority either by proxy or by
consent letter of members on the rolls of the company. Amendment to section 106 has still not solved the problem as
substitution of this procedure by a special resolution involves a change of Memorandum and Articles of Association
which again involves the company in applying to the Court for sanction. This cumbersome procedure could have been
avoided by a straight forward amendment of section 106 enabling companies to secure variation of rights by special
resolution without qualifying it by reference to Memorandum and articles having to be altered.
The Department has expressed the following views: By virtue of sections 3 and 5(1) of the Preference Shares
(Regulation of Dividends) Act, 1960 (63 of 1960), preference shares issued and subscribed for before the 1st April,
1960 shall carry a right to be paid income-tax free dividend of 30 per cent notwithstanding anything contained in
section 106 of the Companies Act, 1956. If any company wants to pay more to its preference shareholders
requirements of section 106 of the Companies Act should be followed. It is not possible to liberalise the provision of
section 106 further as the financial interest of various classes of shareholders are involved. It may however be
mentioned that as presumed in the query, alteration in Memorandum will not be necessary except where the capital
clause needs to be changed. [F. No. 8/16(1)-61-PR : Government of India publication, Clarifications and Circulars on
Company Law, 1977 edition, page 58].
[s 48.27] Conversion of Preference Shares into Equity
When the articles of association of the company do not contain any provision for conversion of
preference shares into equity shares, a private agreement between the parties cannot override the
provisions of the articles. The redemption of preference shares should be only by way of cash and
any scheme of conversion would require compliance with the provisions of sections 81, 106, 391 and
392 of the 1956 Act (now sections 62, 48, 230 and 231, 2013 Act).35
[s 107] Rights of dissentient shareholders.—(1) If, in pursuance of any provision such as is referred to in section
106, the rights attached to any such class of shares are at any time varied, the holders of not less in the aggregate
than ten per cent. of the issued shares of that class, being persons who did not consent to or vote in favour of the
resolution for the variation, may apply to the 36[Tribunal] to have the variation cancelled, and where any such
application is made, the variation shall not have effect unless and until it is confirmed by the 37[Tribunal]. The
(2) An application under this section shall be made within twenty-one days after the date on which the consent was
given or the resolution was passed, as the case may be, and may be made on behalf of the shareholders entitled to
make the application by such one or more of their number as they may appoint in writing for the purpose.
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(3) On any such application, the 38[Tribunal], after hearing the applicant and any other persons who apply to the
39[Tribunal] to be heard and appear to the 40[Tribunal] to be interested in the application, may, if it is satisfied, having
regard to all the circumstances of the case, that the variation would unfairly prejudice the shareholders of the class
represented by the applicant, disallow the variation; and shall, if not so satisfied, confirm the variation.
(4) The decision of the 41[Tribunal] on any such application shall be final.
(5) The company shall, within 42[thirty] days after the service on the company of any order made on any such
application, forward a copy of the order to the Registrar; and if default is made in complying with this provision, the
company, and every officer of the company who is in default, shall be punishable with fine which may extend to 43[five
hundred rupees].
NOTES
THE COMPANIES ACT, 1956 (1 OF 1956).—See Legislative History in notes under section 106.

specified in the schedule. [Clause 62 of the Companies (Second Amendment) Bill, 1964 (64 of
1964)].
THE COMPANIES (AMENDMENT) ACT, 2000 (53 of 2000).—The Notes on Clauses explained the amendments as
follows:
“This clause seeks to enhance the fine specified in sub-section (5) of section 107 of the Act from Rs 50 to Rs 500.”
of 2003).—Sections 100 to 104 and 107 were amended by

Act 11 of 2003 conferring powers of “Court” upon “Tribunal.” See Legislative History under sections
10FB and 104.
[s 48.29] Dissentient Shareholders’ Remedy [1956 Act, section 107(1); 2013 Act, section 48(2)]
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An application for cancellation of the variation can be made by members holding not less than 10% of
the issued shares of that class provided that they did not consent or vote in favour of the resolution
for variation.
[s 48.30] Variation Takes Effect on Confirmation
If such an application is made to the court [now the tribunal (NCLT)], the variation purported to be
made according to the provisions of section 106 will not take effect unless and until it is confirmed by
the court [now the tribunal (NCLT)].
[s 48.31] Requisite Authority for Application for Cancellation of Variation
The application must show that the applicant is authorised by the required percentage of the
dissenting shareholders. Such authority should be communicated to the petitioner before the
application is made.44
[s 48.32] Petitions to Court [Till Constitution of Tribunal]
Until the notification of section 48, Companies Act, 2013, under section 10FB of the 1956 Act, the
petition shall be made to the court as per rule 66 of the Companies (Court) Rules, 1959. Letter of
authority signed by shareholders entitled to make the application authorising the petitioner to present
the petition on their behalf shall be annexed to the petition, and the names and addresses of all the
said shareholders and the number of shares held by each of them shall be set out in the schedule to
the petition.
See detailed notes under the 1956 Act, section 106 of the 2013 Act, section 48.
[s 48.33] Limitation [1956 Act, section 107(2); 2013 Act, section 48(2) Proviso]
The application must be made within 21 days of the passing of the resolution varying the class rights.
[s 48.34] Court’s powers [1956 Act, section 107 (3)]
On such application the court may disallow the variation if it thinks that such variation would unfairly
prejudice the shareholders of the particular class.45
[s 48.35] Class Meeting
The court may allow the variation if it would be fair to the particular class without requiring a class
meeting.46
See Notes on class meetings above, under section 106.
[s 48.36] Issue of Additional Equity Shares not Variation in Rights
The rights attached to ordinary equity shares include a right to vote, right to receive dividends, right to
maintain their face value, and right to transfer them freely, without restrictions, to another. Unless
such rights are altered or varied by the company by the resolution of the shareholders in accordance
with the provisions of section 106 of the Act, no action lies under section 107. Issue of additional
equity shares is not a variation in rights. Therefore, a petition to cancel was not maintainable.47
[s 48.37] Decision Final [1956 Act, section 107(4)]
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The decision of the court under section 107(3) shall be final.
[s 48.38] Filing [1956 Act, section 107(5)]
Within 30 days of the service on the company of an order of the court [now the tribunal (NCLT)] under
section 107(3) the company shall forward a copy of the order to the registrar of companies in Form
INC-28.
Section 48 of the 2013 Act substantially corresponds to sections 106 and 107 of the 1956 Act.
Section 48 additionally provides that where the variation of rights is in one class of shareholders, and
another class is also affected, then the consent of that class should also be obtained. The penalty for
a contravention of this provision has also been enhanced under the 2013 Act.
As on the date of going to press, section 48 of the 2013 Act has not yet been notified. Consequently,
sections 106 and 107 of the 1956 Act are still in force.
23
25 Substituted by the Companies (Amendment) Act, 1960 (65 of 1960), section 26. This amending Act has been repealed
by the Repealing and Amending Act, 2016. For section 106 as it stood prior to its substitution see annexure at the end
of this volume.
26 . Sitarama Reddy v Bellari Spg. and Wvg. Co Ltd, (1984) 56 COMP CASES 281 (Kar.).
27 Cumbrian Newspapers Group Ltd v Cumberland and Westmorland Herald Newspaper and Printing Co Ltd, (1987) ChD
1 : (1986) 2 All ER 816 : (1986) BCLC 286.
28 Girish Kumar Kharia v Industrial Forge and Engineering Co Ltd, (2001) 103 COMP CASES 150 (Patna); Hindusthan
Commercial Bank Ltd v Hindusthan General Electrical Corp, (1960) 30 COMP CASES 367 (Cal.) (DB) : AIR 1960 Cal
637 (DB).
29 Girish Kumar Kharia v Industrial Forge and Engineering Co Ltd, (2001) 103 COMP CASES 150 (Patna).
30 White v Bristol Aeroplane Co Ltd, (1953) ChD 65 : (1953) 1 All ER 40 (CA); Smith’s John Tadcaster Brewery Co Ltd v
Gresham Life Assurance Society Ltd, (1953) ChD 308 : (1953) 1 All ER 518 : (1953) 2 WLR 516 (CA); Re, Saltdean
Estate Co Ltd, (1968) 3 All ER 829 : (1968) 1 WLR 1844 : (1968) 112 SJ 798 : (1969) 39 COMP CASES 386 (ChD).
31 Greenhalgh v Arderne Cinemas Ltd, (1951) 1 ChD 286 : (1950) 2 All ER 1120 : 94 SJ 855 (CA).
32 Hindusthan Commercial Bank Ltd v Hindusthan General Electrical Corp, (1960) 30 COMP CASES 367 (Cal.) (DB) :
AIR 1960 Cal 637 (DB).
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33 In Re, Essar Steel Ltd, (2006) 130 COMP CASES 123 (Guj.) applying Miheer H. Mafatlal v Mafatlal Industries Ltd,
(1996) 87 COMP CASES 792 (SC) : AIR 1997 SC 506 : (1996) 4 Comp. LJ 124 (SC) (a decision on Scheme of
Amalgamation dealt with in notes under section 391391, 1956 Act – now section 230, 2013 Act).
34 . State of Karnataka v Mysore Coffee Curing Works Ltd, (1984) 55 COMP CASES 70 (Kar.)
35 Radhe Shyam Tulsian v Panchmukhy Investments Ltd, (2003) 113 COMP CASES 298 (CLB). The 2013 Act, sections
62, 230 and 231.
36 Substituted by the Companies (Second Amendment) Act, 2002 (11 of 2003), section 14, for “Court”. (Enforcement date
not notified). This amending Act has been repealed by the Repealing and Amending (Second) Act, 2015.
41 Substituted by the Companies (Second Amendment) Act, 2002 (11 of 2003), section 14, for “Court”. This amending Act
42 Substituted by the Companies (Amendment) Act, 1965 (31 of 1965), section 62 and sch., for “fifteen” (w.e.f. 15
October 1965). This amending Act has been repealed by the Repealing and Amending Act, 2016.
43 Substituted by the Companies (Amendment) Act, 2000, (53 of 2000), section 43, for “Rs 50” (w.e.f. 13 December
44 Re, Suburban & Provincial Stores Ltd, (1943) ChD 156 : (1943) 1 All ER 342 : 112 LJ Chapter 145 (CA); Re, Sound
City (Films) Ltd, (1947) ChD 169 : (1946) 2 All ER 521 : 176 LT 28.
45 . Re, Hellenic and General Trust Ltd, (1975) 3 All ER 382 : 119 SJ 845 : (1976) 1 WLR 123; Re, Holders Investment
Trust Ltd, (1971) 2 All ER 289 : (1971) 1 WLR 583 : 115 SJ 202.
46 Re, William Jones & Sons Ltd, (1969) 1 All ER 913 : (1969) 1 WLR 146 : (1969) 39 COMP CASES 821 (ChD) See also
notes under section 100.
47 . Girish Kumar Kharia v Industrial Forge and Engineering Co Ltd, (2001) 103 COMP CASES 150 (Patna).
End of Document
Mr. Laghir1 Rabari

48 Notified by Notification No. S.O. 2754(E), dt. 12 September 2013 w.e.f. 12
September 2013 and corresponds to section 91 of the 1956 Act. [s 49] Calls
on shares of same class to be made on uniform basis.—
48 [s 49] Calls on shares of same class to be made on uniform basis.—
Where any calls for further share capital are made on the shares of a class, such calls shall be made
on a uniform basis on all shares falling under that class.
Explanation.—For the purposes of this section, shares of the same nominal value on which different
amounts have been paid-up shall not be deemed to fall under the same class.
NOTES
Clause 49.—This clause corresponds to section 91 of the Companies Act, 1956 and seeks to provide that where any
calls for further share capital are made on the shares of a class, such call shall be made on uniform basis on all shares
falling under that class. [Clause 49 of the Companies Bill, 2011 (121 of 2011)].
[s 49.2] Calls on Shares to be Uniform [Section 49]
Any calls for further share capital made on the shares of a class are required to be made on a
uniform basis on all shares falling under that class. A company cannot, therefore, differentiate or
discriminate between the same class of shareholders as regards the amount or time of payment of
calls.49
[s 49.3] Shares with Different Amount Paid up Different Classes [Section 49, Explanation ]
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corresponds to section 91 of the 1956 Act. [s 49] Calls on sha....
Shares though of the same nominal value will belong to different classes if the amount paid up on the
shares are different. Consequently, shares of the same nominal value on which the same amount
has been paid up will be considered to be of the same class of shares.
No call in respect of any monies unpaid on shares may exceed one-fourth of the nominal value of the
shares payable at less than one month from the date of the payment of the preceding call. Notice of
at least 14 days is required to be given to members in respect of any such calls. Joint shareholders
shall be jointly and severally liable to pay any unpaid amounts due on such shares that are jointly
held by them. Failure to pay any amounts called up may render such person liable to pay interest of
10% per annum or such lower rate as the board may determine.
See regulations 13 to 18 of Table “F” of Schedule I to the 2013 Act for calls on shares and detailed
notes under Schedule I, Table F.
[s 49.5] Members Liability
A member’s liability is limited to the extent of the share capital he has agreed to contribute.
Therefore, a member is liable to contribute on such unpaid share capital in accordance with the call
notice.
[s 49.6] Penalty
default and the company and every officer who is in default, will be liable to be punished with a fine
The language of section 49 of the 2013 Act is similar to section 91 of the 1956 Act.
[s 91] Calls on shares of same class to be made on uniform basis.—Where after the commencement of this Act,
any calls for further share capital are made on shares, such calls shall be made on a uniform basis on all shares falling
under the same class. The Companies Act, 1956 provision
Explanation.—For the purposes of this section, shares of the same nominal value on which different amounts have
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been paid up shall not be deemed to fall under the same class.
NOTES
“See recommendation (viii) at page 244 of the Report of the Company Law Committee.” [Clause 84 of the Companies
Bill, 1953 (46 of 1953)].
The recommendations of the Committee form part of the section.
The Joint Committee added the Explanation and observed:
“An Explanation has been added, making it clear that shares though of the same nominal value, will belong to different
classes, if the amounts paid up on the shares are different.” [Report : para 44].
48 Notified by Notification No. S.O. 2754(E), dt. 12 September 2013 w.e.f. 12 September 2013 and corresponds to section
91 of the 1956 Act.
49 Major Teja Singh v Liquidator, (1961) 31 COMP CASES 573 (Punj.).
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End of Document
Mr. Laghir1 Rabari

50 Notified by Notification No. S.O. 2754 (E), dt. 12 September 2013 w.e.f.
12 September 2013 and corresponds to section 92 of the 1956 Act. [s 50]
Company to accept unpaid share capital, although not called up.—
50 [s 50] Company to accept unpaid share capital, although not called up.—
(1) A company may, if so authorised by its articles, accept from any member, the whole or a part
of the amount remaining unpaid on any shares held by him, even if no part of that amount
has been called up.
(2) A member of the company limited by shares shall not be entitled to any voting rights in
respect of the amount paid by him under sub-section (1) until that amount has been called up.
NOTES
THE COMPANIES ACT, 2013 (18 OF 2013).—The Notes on Clauses in respect of this clause explained the
provisions of this section as follows:
can accept from any member the whole or a part of the amount remaining unpaid on any shares without being called
up and he will not be entitled to any voting rights on the amount paid by him unless amount has been called up.
[s 50.2] Acceptance of Amount Remaining Unpaid [Section 50(1)]
A company is permitted to accept from any member, the whole or a part of the amount remaining
unpaid on any shares held by such person, even if no part of that amount has been called up.
However, this is only permitted where authorised by the articles of the company.
[s 50.3] Voting Rights [Section 50(2)]
A member who makes the payments referred to in section 50(1) of the 2013 Act is not entitled to
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50 Notified by Notification No. S.O. 2754 (E), dt. 12 September 2013 w.e.f. 12 September 2013 and
corresponds to section 92 of the 1956 Act. [s 50] Company to ....
voting rights in respect of these shares unless the unpaid amount has been called up by the
company. A shareholder cannot claim any extra voting rights because of such advance payments
being made.51
See detailed notes under section 47 for voting rights on shares.
The board of a company may accept from any member any part of the monies that are uncalled and
unpaid on any shares held by such member. The board may pay interest on such monies advanced
at a rate not exceeding 12% per annum unless a higher rate has been approved by the company in a
general meeting, as agreed between the board and the concerned member.
See regulation 18 of Table “F” of Schedule I of the 2013 Act for calls on shares.
[s 50.5] Penalty
Section 50 of the 2013 Act does not specifically prescribe a penalty for a contravention of the
provisions laid down in this section. Consequently, the provisions of section 450 of the 2013 Act will
apply in the event of a default and the company and every officer who is in default, will be liable to be
punished with a fine that may extend to Rs 10,000, and where the contravention is a continuing one,
with a further fine which may extend to Rs 1,000 for every day after the first for which the
contravention continues.
Section 50 of the 2013 Act is substantially similar in its phrasing to section 92 of the 1956 Act.
Therefore, the jurisprudence under section 92 will be relevant in understanding section 50.
w.e.f. 12-9-2013.
[s 92] Power of company to accept unpaid share capital, although not called up.—(1) A company may, if so
authorised by its articles, accept from any member the whole or a part of the amount remaining unpaid on any shares
held by him, although no part of that amount has been called up.
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(2) The member shall not however be entitled, where the company is one limited by shares, to any voting rights in
respect of the moneys so paid by him until the same would, but for such payment, become presently payable.
NOTES
follows:
See section 49 of the Indian Act and section 59 of the English Act. The provision in clause (a) of those sections, which
authorises the company to differentiate between the shareholders in the amounts and times of payment of calls, has
not been embodied in this clause, as it is considered that this power is open to abuse. It does not also seem to be
necessary that when shares are issued at the same time, different provision should be made in regard to the amounts,
or the times of payment, of calls on the shares. [Clause 85 of the Companies Bill, 1953 (46 of 1953)].
The Joint Committee made further changes and explained as under:
The Committee have added a sub-clause to this clause making it clear that the payment of any amount voluntarily,
towards the uncalled share capital, will not give voting rights in respect of that amount. [Report : para 45].
w.e.f.
50 Notified by Notification No. S.O. 2754 (E), dt. 12 September 2013 w.e.f. 12 September 2013 and corresponds to
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51 . Girish Gupta v Tirupati Roller Flour Mills Pvt Ltd, (2007) 138 COMP CASES 549 (CLB).
End of Document
Mr. Laghir1 Rabari

52 Notified by Notification No. S.O. 2754(E) dt. 12-09-2013, w.e.f 12-09-2013
and corresponds to section 93 of the 1956 Act. [s 51] Payment of dividend
in proportion to amount paid-up.—
52 [s 51] Payment of dividend in proportion to amount paid-up.—
A company may, if so authorised by its articles, pay dividends in proportion to the amount paid-up on
each share.
NOTES
follows:
This clause corresponds to section 93 of the Companies Act, 1956 and seeks to provide that a company, if authorised
by its articles, pay dividends in proportion to the amount paid up on each share. [Clause 51 of the Companies Bill,
2011 (121 of 2011)]
[s 51.2] Scope
This section permits the company to pay dividend in proportion to the amount paid up per share,
where such action is authorised by the articles of the company. Such flexibility is not permitted under
Clauses 80–88 of Table F of Schedule I of the 2013 Act, which deal with the declaration of dividend.
[s 51.3] Dividend on Nominal Value of Shares
In the absence of such a provision in the articles of the company irrespective of the paid-up amount
of each share the dividend will have to be paid in proportion to the nominal value of the shares.53
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52 Notified by Notification No. S.O. 2754(E) dt. 12-09-2013, w.e.f 12-09-2013 and corresponds to section 93 of
the 1956 Act. [s 51] Payment of dividend in prop....
[s 93] Payment of dividend in proportion to amount paid up.—A company may, if so authorised by its articles, pay
dividends in proportion to the amount paid up on each share where a larger amount is paid up on some shares than on
others.
NOTES
THE COMPANIES ACT, 1956 (1 OF 1956).—Section

93 was inserted by the Joint Committee on the Companies
Bill, 1953 (46 of 1953), which explained as follows:
“A new clause has been added providing for payment of dividends in proportion to the amount paid up on each share
where a larger amount is paid up on some shares than on others, if so authorised by the articles of the company. Such
a provision occurs in the existing Act [section 49(3)] and should, in the opinion of the Committee, be retained to remove
all doubts on the point. [Report : para 46].
[s 51.5] Dividend Proportionate to Paid-up Amount
Section 93 of the 1956 Act provides that if the company has power under its articles of association,
the company may pay dividends in proportion to the amount paid-up on each share, in case a larger
amount is paid-up on some shares than on others. The rationale is that the economic return must
only be on the paid-up amount.
Section 51 of the 2013 Act is similar to section 93 of the 1956 Act in all material respects. While
section 93 also stated that such differential dividend could be paid where a larger amount is paid up
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52 Notified by Notification No. S.O. 2754(E) dt. 12-09-2013, w.e.f 12-09-2013 and corresponds to section 93 of
the 1956 Act. [s 51] Payment of dividend in prop....
on some shares than on others, the deletion of these words in section 51 does not appear to change
the meaning or application of this section in any material way.
w.e.f. 12-09-2013.
52 Notified by Notification No. S.O. 2754(E) dt. 12-09-2013, w.e.f 12-09-2013 and corresponds to section 93 of the 1956
Act.
53 Oakbank Oil Co v Crum, (1882) 8 App. Cas. 65 : 48 LT 537 : 31 WR Dig. 37 (HL). .
End of Document
Mr. Laghir1 Rabari

54 Notified by Notification No. S.O. 902 (E), dt. 26-03-2014 w.e.f. 1 April
2014 and corresponds to section 78 of the 1956 Act. [s 52] Application of
premiums received on issue of shares.—
54 [s 52] Application of premiums received on issue of shares.—
(1) Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to
the aggregate amount of the premium received on those shares shall be transferred to a
“securities premium account” and the provisions of this Act relating to reduction of share
capital of a company shall, except as provided in this section, apply as if the securities
premium account were the paid-up share capital of the company.
(2) Notwithstanding anything contained in sub-section (1), the securities premium account may
be applied by the company—
(a) towards the issue of unissued shares of the company to the members of the company as
fully paid bonus shares;
(b) in writing off the preliminary expenses of the company;
(c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of
shares or debentures of the company;
(d) in providing for the premium payable on the redemption of any redeemable preference
shares or of any debentures of the company; or
(e) for the purchase of its own shares or other securities under section 68.
(3)
The securities premium account may, notwithstanding anything contained in sub-sections (1)
and (2), be applied by such class of companies, as may be prescribed and whose financial
statement comply with the accounting standards prescribed for such class of companies
under section 133,—
(a) in paying up unissued equity shares of the company to be issued to members of the
company as fully paid bonus shares; or
(b) in writing off the expenses of or the commission paid or discount allowed on any issue of
equity shares of the company; or
(c) for the purchase of its own shares or other securities under section 68.
NOTES
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54 Notified by Notification No. S.O. 902 (E), dt. 26-03-2014 w.e.f. 1 April 2014 and corresponds to section 78
of the 1956 Act. [s 52] Application of premiums ....
follows:
shall transfer the amount received by it as securities premium to securities premium account and state the means in
which the amount in the account can be applied. Provisions on reduction of share capital shall apply to securities
premium account. This Clause also seeks to provide the purpose for which Securities Premium Account can be applied
by companies. [Clause 52 of the Companies Bill, 2011 (121 of 2011)]
The 57th report of the Standing Committee on Finance (201–12) on the Companies Bill, 2011,
explains the reason for the inclusion of sub-clause (3):
Provisions of clauses 52(2) and 52(3) may be seen together which would clarify the intention. The intention is to
provide flexibility to companies and distinguish companies which are required to follow IFRS converged standards and
companies which are to follow Indian non converged standards.
[s 52.2] Scope
Section 52(1) of the 2013 Act creates restrictions on the manner of utilisation of a premium received,
when a company issues shares on a premium, whether for cash or otherwise. The premium received
must be transferred to a separate “securities premium account.” The transfer of the premium to the
“securities premium account” will be treated as a “reduction of share capital” and the provisions of the
2013 Act in this regard will apply, as if this amount was the company’s paid up share capital. (See
Notes on section 66 of the 2013 Act.)
[s 52.3] Securities Premium Account
Securities premium account will form a class of capital which cannot be distributed as dividend
except on winding up.55
Shares may be issued at a premium. Ordinarily, premium at a uniform rate would be charged from all
the applicants for the shares. But, law does not prohibit against charging differential premiums. On
principle, there is no objection to the charging of varying rates of premiums for shares issued under a
single resolution if all the parties concerned agree.56 Where a company issues shares at a premium,
even though the consideration may be other than cash a sum equal to the amount or value of the
premium must be transferred to the securities premium account.57
[s 52.4] Reduction of Securities Premium Account
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The provisions relating to reduction of share capital shall apply as if the securities premium account
were paid-up share capital of the company. For cancellation or reduction of the securities premium
account the court [now the NCLT] will follow certain principles in sanctioning the scheme.58
See detailed notes under section 66.
[s 52.5] Utilisation of the Securities Premium Account [Section 52(2)]
The funds in the securities premium account may be utilised for the following purposes:
(a) towards the issue of unissued shares of the company to the members of the company as fully
paid bonus shares;
(c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of
shares or debentures of the company;
(d) in providing for the premium payable on the redemption of any redeemable preference shares
or of any debentures of the company; or
(e) for the purchase of its own shares or other securities under section 68.
[s 52.6] Distribution of Premium as Dividend not Permissible
Premium is not revenue but capital receipt. Section 78 of the 1956 Act (now section 52 of the 2013
Act) treats premium as a special class of capital; the distribution of premium by way of dividend is not
permissible.59 Prior to the enactment of section 78 of the 1956 Act, a company could distribute
premiums received on the issue of shares by way of dividend.60
[s 52.7] Use of Securities Premium Account for other Purposes
The redemption in the Capital Redemption Reserve Fund or share premium account [securities
premium account] by way of a special resolution can be only for the purposes authorised under
section 78(2) of the 1956 Act (now section 52 of the 2013 Act) and section 100 of the 1956 Act (now
section 66 of the 2013 Act). However, there can be a variety of situations where the company may be
required to use the securities premium account, reserve or reserve fund for such lawful purpose as it
may consider necessary. For utilisation of the securities premium account for purposes mentioned in
section 78(2) of the 1956 Act, no approval or sanction of the court is required. It is well settled that
the company court [now the NCLT] does not exercise any appellate power over the decision of the
company or its management. The company court in its equity jurisdiction is required to satisfy itself
and see that the procedure by which the resolution is carried through is legally correct and the
shareholders and creditors are not prejudiced. It is the duty of the court to see that the scheme is fair
and equitable between the different classes of shareholders. It is also the duty of the court to protect
the interests of the creditors and it must be safeguarded. Public interest is also a paramount
consideration. The company sought to adjust loss on investment made in shares of another company
against its share premium account. The articles of the company enabled the company by special
resolution to reduce the share premium account. Reduction of capital did not involve either diminution
of liability in respect of unpaid capital or payment to any shareholder of paid-up capital. No objections
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were raised by the creditors or shareholders. Reduction of share capital was approved.61
[s 52.8] Utilisation of the Securities Premium Account by Notified Companies [Section 52(3)]
In addition, notified classes of companies,62 whose financial statements are in compliance with the
accounting standards prescribed in respect of financial statements, are permitted to use the amount
in the securities premium account for the following purposes:
(a) in paying up unissued equity shares of the company to be issued to members of the company
as fully paid bonus shares; or
(b) in writing off the expenses of or the commission paid or discount allowed on any issue of
equity shares of the company; or
(c) for the purchase of its own shares or other securities under section 68.
[s 52.9] Penalty
Given that the general penalty prescribed under section 450 for this offence is a fine, the offence may
be compounded under section 441 of the 2013 Act.
[s 78] Application of premiums received on issue of 63[securities].—(1) Where a company issues 63[securities] at
a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those
63[securities] shall be transferred to an account, to be called “the 63[securities] premium account”; and the provisions of
this Act relating to the reduction of the 63[securities] capital of a company shall, except as provided in this section, apply
as if the 63[securities] premium account were paid-up 63[securities] capital of the company.
(2) The 63[securities] premium account may, notwithstanding anything in sub-section (1), be applied by the company—
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(a) in paying up unissued 63[securities] of the company to be issued to members of the company as fully paid
bonus 63[securities];
(c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of 64[securities] or
debentures of the company; or
(d) in providing for the premium payable on the redemption of any redeemable preference 64[securities] or of any
debentures of the company.
(3) Where a company has, before the commencement of this Act, issued any 64[securities] at a premium, this section
shall apply as if the 64[securities] had been issued after the commencement of this Act:
Provided that any part of the premiums which has been so applied that it does not at the commencement of this Act
form an identifiable part of the company’s reserves within the meaning of Schedule VI, shall be disregarded in
determining the sum to be included in the 64[securities] premium account.
NOTES
This corresponds to section 56 of the English Act and its incorporation is based on the Company Law Committee’s
recommendation (page 300 of the Report). [Clause 72 of the Companies Bill, 1953 (46 of 1953)].
The recommendations of the Company Law Committee are as follows:
There is no specific provision in the Act regarding the application of premiums received on the issue of shares with the
result that misuse of the funds thus collected has not been lacking. The object of this new section is to lay down
specifically how the premiums collected on the issue of shares should be utilised. [Report : page 310].
THE COMPANIES (AMENDMENT) ACT, 1999 (21 OF 1999).—In this section for the word “share” wherever it occurs,
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the word “securities” has been substituted.
[s 52.12] Application of Premium Amount [Sub-section (1)]
Section 78(1) of the 1956 Act is covered under section 52(1) of the 2013 Act, as explained in the
commentary above.
[s 52.13] Exceptions [Sub-section (2)]
Section 78(2) of the 1956 Act is covered under section 52(2) of the 2013 Act, with some additional
grounds, as explained in the commentary above.
[s 52.14] Share Capital—Reduction of Securities Premium Account—Restructuring
Where adjustment of loss was made from the securities premium account with the resolution of
majority shareholders. The resolution and proposed reduction were approved and confirmed by the
court. There was no cash outflow to the shareholders. Restructuring did not affect the creditors.
Therefore the words “and reduced” were not to be added to the name of the company and were
dispensed with. The company passed a special resolution which showed that restructuring would not
be prejudicial to the interests of the creditors as the reduction would not involve either the diminution
of any liability in respect of unpaid capital or the payment to any shareholder of any paid-up capital.
There was no reduction in the amount payable to any creditor. All the creditors consented to the
restructuring. It was a business decision on commercial principles and there would be no cash
outflow. Resolution was passed unanimously by more than the required majority. The court
dispensed with the drawing-up of list of creditors as all the secured creditors signified their consent to
the proposed reduction. The words “and reduced” need not be added to the name of the company as
there was no cash-flow from the company to shareholders and secured creditors consented to the
proposal. The requirement of rule 62(b) and (c) of the Companies (Court) Rules, 1959, were
dispensed with. The ordinary operations of the company in ordinary course of business need not be
affected. The special resolution passed by company was approved and the reduction to the Security
Premium Account was confirmed.65
[s 52.15] Reduction of Share Capital—Securities Premium Account
The company made an application for sanction of reduction of share capital and several adjustments
in securities premium account. The creditors of the petitioner company were not affected by the
proposed reduction. The objections raised were not bona fide but only for extraneous purposes.
There was no violation or breach of any legal provisions and the reduction claimed was fair, just and
proper in the facts and circumstances of the case and also within the framework of law and as such,
the prayer for such reduction was allowed. Application was made for the sanction of reduction of
securities premium account. Shareholders right to the inspection of records of company was not
exercised after the notice of reduction of securities premium account was received. The respondents
raised the objection only at the final stage of the hearing. Such objections were not bona fide. The
experts unanimously decided that the scheme was fair, just and proper. The court was also
convinced of the bona fide of the applicant and sanctioned the reduction. The court considered that
the shareholders had full right of inspection as admittedly notices were issued and published with
details of requisite materials and explained their scheme in compliance with the law. The court found
that there was no illegality or breach of any law in the scheme and the purpose of reduction of
securities premium account was fair, just and proper and within the framework of the law.66
[s 52.16] Scheme of Arrangement—Reduction of Capital by Special Resolution
That the members of the company in a general meeting could approve reduction of the share capital
by a special resolution if it was passed by a statutory majority and while approving the scheme, the
members simultaneously approve reduction of the share capital by a special resolution. The
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procedure prescribed in the 1956 Act had been carried out by the company.67
[s 52.17] Scheme and Reduction of Capital
The procedure prescribed under the 1956 Act was complied with by the company. The scheme was
approved by the shareholders and creditors of the company by requisite statutory majority. The
scheme and reduction of capital were approved simultaneously.68
passed by the requisite majority of its shareholders. In a petition filed under sections 100 to 104 of
the 1956 Act (now section 66 of the 2013 Act), seeking the confirmation of the restructuring package
pertaining to the shareholders of the petitioner by cancellation of part of equity share capital and
issuing in its place cumulative redeemable preference shares, the Gujarat Industrial Investment
Corporation (GIIC), a shareholder objected on the ground that it would suffer heavy loss and variation
of rights. It was held the special resolution was passed by the requisite majority of the shareholders
at the annual general meeting. Scheme specifically dealt with shareholders and it was stated that for
every 10 equity shares of Rs 10 each held by the equity shareholders the petitioner would cancel four
equity shares and in lieu of such cancellation create, issue and allot four non-cumulative redeemable
preference shares of Rs 10 each with a coupon of 0.01% redeemable in four equal yearly instalments
starting from October 2017 and the existing equity shareholders would continue to hold the remaining
six equity shares held by them as equity shares of Rs 10 each fully paid, without any alterations to
the rights attached thereto. Therefore, it was not correct to state that by virtue of such reduction of
equity share capital the equity shareholders including the objector would suffer very heavy loss. The
court had no jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of
persons who with their eyes open had given their approval to the scheme. The bona fides of the
majority acting as a group have to be examined, vis-à-vis the scheme in question and not the bona
fides from the interests of the voters as a class. The bona fides of a person can only be relevant if it
can be established with reasonable certainty that he represents the majority or is the controller of the
majority. The objections raised were not sustainable as the objector was not present at the meeting
nor did it represent the majority of the equity shareholders. Further, the variation referred to in section
106 was variation to the prejudice of any class of shareholders and not any variation adding to or
would be subject to write down by 40%. The equity share capital existing or proposed to be converted
by the promoters would be written down by 40% by allotment of 0.01% cumulative redeemable
preference shares. Likewise the company was under an obligation to allot equity shares at par to
financial institutions or banks by way of conversion of a part of assistance to the extent of Rs 175
crores. Thus, the simultaneous exercise of increasing the equity share capital as a result of the
[s 52.19] Banking Company—Reduction of Securities Premium Account
Under the 1956 Act, a company cannot set off its loss or cumulative loss as against the share or
securities premium account, because the share premium account or security premium account,
though treated as paid-up capital of the company for a limited purpose, i.e., getting approval of the
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company court (now the NCLT)cannot be treated as a reserve fund, nor is there a concept like share
premium account in future. Section 17(1) of the Banking Regulation Act, 1949 (10 of 1949), requires
a banking company incorporated to create a reserve fund and to transfer 20% of balance of profit
each year as disclosed in the profit and loss account to such reserve fund. Section 17 does not
authorise a banking company to transfer its share premium account to the reserve fund. The reserve
fund created under section 17(1) of the Banking Regulation Act, 1949, and the share or securities
premium account created under section 78(1) of the 1956 Act are different. Though section 78
introduces a legal fiction and hypothetically deems the share premium as paid-up share capital of the
company, the legal fiction created by statute must not be enlarged so as to enable the banking
company to transfer its share premium account to the reserve fund as required under section 17(1) of
the Banking Regulation Act. If a banking company writes off its losses and or bad debts as against a
statutory reserve, this would result in losing capital and only in such an event can there be reduction
of capital. Where a banking company sought confirmation of the court of its resolution for utilisation of
its share premium account for making provision for bad and doubtful debts and for writing off
irrecoverable debts: Dismissing the petition, it was held that a company is a juristic person with
perpetual succession and it should also mould and take its decisions keeping in view the future of its
shareholders. If a company is allowed to eat into its share premium account, which is deemed to be
paid up share capital for a limited purpose, it would weaken the fundamentals of the company and
would be unfair to persons who deal with the company as either customers or depositors or creditors.
All the affairs of such company have public character, and any action of the banking company which
is derogatory to public interest gives rise to a situation of distrust by the public. The company court
cannot mechanically approve the minutes of the banking company to adjust its cumulative loss from
the share premium account, especially when such company had already appropriated all the
reserves for writing off its losses and bad debts. If such course was permitted by the company court
[the Tribunal (NCLT)], it might, in a given situation, result in manipulation of accounts of the company
and artificially bolstering the book value or market value of the stock of the company. Articles of
association of the company did not authorise or permit the petitioner company, a banking company,
to write off its losses or bad debts against share premium account. The rules under the 1956 Act did
not permit a banking company to do so. Section 209 read with Schedule VI to the 1956 Act, which
deals with books of account to be kept with the company, does not permit the company to treat the
share premium account as reserve fund.70
[s 52.20] Writ
A writ petition seeking general directions to the SEBI not to grant approval to public or rights issues
where premium was more than face value of the share was not granted. Such matters are essentially
policy matters which lie exclusively within the domain of the government. The court can only examine
specific or particular action or transaction falling within four corners of the court’s writ jurisdiction.71
[s 52.21] Penalty [Section 629A]
For failure to transfer premium received on issue of shares to “the securities premium account” or
applying it for unspecified purposes, the company and every officer who is in default shall be
punishable under section 629A, with fine up to Rs 5,000 and where the contravention is a continuing
one, with a further fine up to Rs 500 for every day of default. The penalty for failure to transfer
premium as per section 52 of the 2013 Act is now dealt with under section 450 of the 2013 Act, as
[s 52.22] Balance Sheet
Securities Premium Account is required to be shown separately in the balance sheet. See sections
2(2), 129 and Schedule III, the 2013 Act (sections 211 and Schedule VI, the 1956 Act).
[s 52.23] Transitional Provision [Sub-section (3)]
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This section also applies to premium on shares issued before commencement of this Act. However,
any part of the premiums which had been applied and did not at the commencement of the Act form
an identifiable part of company’s reserves within the meaning of Schedule VI is disregarded in
determining the sum to be included in share premium account. Section 52 of the 2013 Act has no
such similar transitional provision.
[s 52.24] Tax Effect of Expenses/Income Adjusted Directly against the Reserves and/or
Securities Premium Account
“1. It has been noticed that some companies are charging certain expenses, which are otherwise required to be
charged to the profit and loss account, directly against Reserves and/or Securities Premium Account pursuant to the
Court orders. In such a case, while the expenses are charged to Reserves and/or Securities Premium Account, the tax
benefit arising from admissibility of such expenses for tax purposes is not recognised in the Reserves and/or Securities
Premium Account. Such a situation may also arise where an enterprise adjusts its reserves to give effect to a change,
if any, in accounting policy consequent upon adoption of an Accounting Standard, in accordance with the transitional
provisions contained in the Standard. Further, a company may adjust an expense against the Securities Premium
Account as allowed under the provisions of section 78 of the Companies Act, 1956. A similar situation may arise
where, pursuant to a Court order or under transitional provisions prescribed in an Accounting Standard, an income,
which should have otherwise been credited to the Profit and loss account in accordance with the requirements of
generally accepted accounting principles, may have been directly credited to a reserve account or a similar account
and the tax effect thereof is not recognised in the reserve account or a similar account.
2. Not recognising the tax benefit, arising from admissibility of expense charged to the Reserves and/or Securities
Premium Account, in the Reserves and/or Securities Premium Account is contrary to the generally accepted
accounting principles because it results in recognition and presentation of tax effect of an expense in a manner which
is different from the manner in which the expense itself has been recognised and presented. Similarly, recognising and
presenting the tax effect of an income in a manner which is different from the manner in which income itself has been
recognised and presented is contrary to the generally accepted accounting principles. Accordingly, any expense
charged directly to Reserves and/or Securities Premium Account should be net of tax benefits expected to arise from
the admissibility of such expenses for tax purposes. Similarly, any income credited directly to a Reserve account or a
similar account should be net of its tax effect.
3. In view of the above, any item of income or expense adjusted directly to Reserves and/or Securities Premium
Account should be net of its tax effect.” [Chartered Accountant, Journal of the ICAI, September 2005, page 495].
Section 52 of the 2013 Act only seeks to cover a situation where shares are issued at a premium,
whereas section 78 of the 1956 Act deal with securities that were issued at a premium. The current
position under section 52 reverts to the position prior to the Companies (Amendment) Act, 1999,
where the term “shares” was substituted by “securities.” An additional ground for the utilisation of the
securities premium account has been included for the purchase of the company’s own shares or
securities. The additional grounds listed under section 52(3) for such notified class of companies is
also a new provision.
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w.e.f. 1-4-2014.
54 Notified by Notification No. S.O. 902 (E), dt. 26-03-2014 w.e.f. 1 April 2014 and corresponds to section 78 of the 1956
Act.
55 Re, Duff’s Settlement, (1951) ChD 923 : (1951) 2 All ER 534 : (1951) 95 SJ 595 (CA); CIT v Allahabad Bank Ltd, (1969)
39 COMP CASES 760 (SC) : AIR 1969 SC 1058 : (1969) 73 ITR 745 (SC) : (1969) 3 SCR 722.
56 CIT v Standard Vacuum Oil Co, AIR 1966 SC 1393 : (1966) 59 ITR 685 (SC).
57 Head (Henry) & Co Ltd v Ropner Holdings Ltd, (1952) ChD 124 : (1951) 2 All ER 994.
58 Re OCL India Ltd, (1999) 95 COMP CASES 429 (Orissa) : AIR 1998 Orissa 153; Re, Ransomes plc, (1999) 2 BCLC
591; Re, B. Quayle Monro Ltd, (1994) 1 BCLC 410.
59 Addl. CIT v Om Oils & Oil Seeds Exchange Ltd, (1985) 57 COMP CASES 592 (Del.) (DB).
60 Bharat Fire and General Insurance Ltd v CIT, (1964) 34 COMP CASES 683 (SC) : AIR 1964 SC 1800 : (1964) 53 ITR
108 (SC).
61 In Re, Hyderabad Industries Ltd. (No. 2), (2005) 123 COMP CASES 458 (AP) (DB).
62 As on the date of going to press, no class of companies has been notified under section 52(3).
63 Substituted by the Companies (Amendment) Act, 1999 (21 of 1999), section 5, for the word “share” (w.r.e.f. 31 October
64 Substituted by the Companies (Amendment) Act, 1999 (21 of 1999), section 5, for the word “share” (w.r.e.f. 31 October
65 Re Parrys Confectionery Ltd, (2004) 122 COMP CASES 900 (Mad.).
66 Re Zee Telefilms Ltd, (2005)124 COMP CASES 102 (Bom.) : (2004) 3 Comp. LJ 422 (Bom.).
67 Re Core Healthcare Ltd, (2007) 138 COMP CASES 204 (Guj.).
68 Re Comat Infoscribe Pvt Ltd, (2005) 128 COMP CASES 152 (Kar.).
69 Re Essar Steel Ltd, (2006) 130 COMP CASES 123 (Guj.) applying Miheer H. Mafatlal v Mafatlal Industries Ltd, (1996)
87 COMP CASES 792 (SC) : AIR 1997 SC 506 : (1996) 4 Comp. LJ 124 (SC) (a decision on Scheme of Amalgamation
dealt with in notes under section 391).
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70 Re Global Trust Bank Ltd, (2005) 127 COMP CASES 604 (AP).
71 Murlidhar Sodani v SEBI, (2001) 105 COMP CASES 815 (MP).
End of Document
Mr. Laghir1 Rabari

72 Notified by Notification No. S.O. 902 (E), dt. 26 March 2014 w.e.f. 01 April
2014 and corresponds to section 79 of the 1956 Act. [s 53] Prohibition on
issue of shares at discount.—
72 [s 53] Prohibition on issue of shares at discount.—
(1) Except as provided in section 54, a company shall not issue shares at a discount.
(2) Any share issued by a company at a discounted price shall be void.
(3) Where a company contravenes the provisions of this section, the company shall be
punishable with fine which shall not be less than one lakh rupees but which may extend to
five lakh rupees and every officer who is in default shall be punishable with imprisonment for
a term which may extend to six months or with fine which shall not be less than one lakh
rupees but which may extend to five lakh rupees, or with both.
NOTES
follows:
Clause 53.—This clause corresponds to section 79 of the Companies Act, 1956 and seeks to provide that companies
are prohibited from issuing shares at a discount except in the case of issue of sweat equity shares and also provides
that where a company contravenes the provisions of this clause, the company and every officer of the company in
default shall be punishable with fine and imprisonment.[Clause 53, Companies Bill, 2011 (121 of 2011)]
[s 53.2] Meaning of “Discount”
This term means “at a price less than the nominal value.” Issue of shares at a price lower than the
market price but not lower than the nominal value of shares is not an issue at a discount.
[s 53.3] Shares Issued at a Discount to be Void [Section 53(1) and (2)]
Except in the case of sweat equity shares, a company is prohibited from issuing shares at a discount.
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72 Notified by Notification No. S.O. 902 (E), dt. 26 March 2014 w.e.f. 01 April 2014 and corresponds to section
79 of the 1956 Act. [s 53] Prohibition on issue....
Any such issue of shares at a discounted price is void.
In the event of a contravention of section 53, the company is liable to be punished with a fine ranging
from Rs 1 lakh to 5 lakhs, and every officer in default is liable to be punished with imprisonment up to
six months, or a fine between Rs 1 lakh and 5 lakhs, or both.
As the consequences for contravention of section 53 include imprisonment, an offence under this
section cannot be compounded under section 441 of the 2013 Act.
[s 79] Power to issue shares at a discount.—(1) A company shall not issue shares at a discount except as provided
in this section. The Companies Act, 1956 provision
(2) A company may issue at a discount shares in the company of a class already issued, if the following conditions are
fulfilled, namely:
(i) the issue of the shares at a discount is authorised by a resolution passed by the company in general meeting,
and sanctioned by the 73[Central Government];
(ii) the resolution specifies the maximum rate of discount 74[***] at which the shares are to be issued:
• 75[Provided that no such resolution shall be sanctioned by the 76[Central Government] if the maximum rate of
discount specified in the resolution exceeds ten per cent. 77[unless the Central Government is of opinion] that
a higher percentage of discount may be allowed in the special circumstances of the case;]
(iii) not less than one year has at the date of the issue elapsed since the date on which the company was entitled
to commence business; and
(iv) the shares to be issued at a discount are issued within two months after the date on which the issue is
sanctioned by the 76[Central Government] or within such extended time as the 76[Central Government] may
allow.
(3) Where a company has passed a resolution authorising the issue of shares at a discount, it may apply to the
76[Central Government] for an order sanctioning the issue; and on any such application, the 76[Central Government], if,
having regard to all the circumstances of the case, it thinks proper so to do, may make an order sanctioning the issue
on such terms and conditions as it thinks fit:
78[Provided that in the case of revival and rehabilitation of sick industrial companies under Chapter VIA, the provisions
of this section shall have effect as if for the words “Central Government.” the word “Tribunal” had been substituted.]
(4) Every prospectus relating to the issue of the shares shall contain particulars of the discount allowed on the issue of
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the shares or of so much of that discount as has not been written off at the date of the issue of the prospectus.
If default is made in complying with this sub-section, the company, and every officer of the company who is in default,
shall be punishable with fine which may extend to 79[five hundred rupees].
NOTES
See section 105A of the existing Act and section 57 of the English Act. Only a few drafting changes have been made.
The provision that the maximum rate of discount should not exceed 10 per cent. is found in the Indian but not in the
English Act. The Indian Act has been followed. [Clause 73 of the Companies Bill, 1953 (46 of 1953)].
The changes recommended by the joint committee and reasons therefore are as follows:
A new sub-clause (1) has been inserted, restricting the power of a company to issue shares at a discount except as
provided in this clause. The Committee consider that a discount higher than ten per cent. should also be allowable in
proper cases, but that the permission of the Central Government should be obtained therefor. The clause has been
OF 1974).—The powers of the court were conferred on the

Company Law Board. See Legislative History in notes under section 17. Now powers of CLB have
been transferred to Central Government and, in the case of sick companies, to Tribunal (NCLT) as
explained hereinafter.
THE COMPANIES (AMENDMENT) ACT, 2000 (53 OF 2000).—The Notes on Clauses explained the amendments as
follows:
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“Clause 32 seeks to enhance the fine specified in sub-section (4) of section 79 of the Act from Rs 50 to Rs 500.”
amendments in this section as follows:
This clause seeks to amend section 79 of the Companies Act, 1956 relating to power to issue shares at a discount.
The provisions contained in the existing section empower the Company Law Board to sanction issue of shares at a
discount. It is proposed to confer the said power upon the Tribunal [conferred upon the Central Government in the Act
and on Tribunal in the case of Sick Companies]. This amendment is of consequential nature. [Clause 11 of the
[s 53.7] Issue of Shares at Discount [Sub-section (1)]
A company shall not issue shares at a discount except as provided in section 79. This sub-section is
covered under sub-section (1) of section 53 of the 2013 Act. However, as explained in the
commentary above except for the issue of sweat equity shares, section 52 does not provide for any
other exceptions such as those laid down in section 79 of the 1956 Act.
[s 53.8] Conditions for Issue at a Discount [Sub-section (2)]
Shares of a class which has already been issued previously by the company can be issued at a
discount, if the following conditions are fulfilled: (i) such issue is authorised by a resolution of
shareholders, and sanction of the CLB [now the Central Government] is obtained; (ii) resolution
should specify the maximum discount which shall not generally exceed 10%, but the CLB [now the
Central Government] can sanction a higher rate also; (iii) one year has elapsed since the company
was entitled to commence business; and (iv) shares are issued within two months of the sanction by
the CLB [now the Central Government] or such extended time as the CLB [now the Central
Government] may allow.
This sub-section is not covered under section 53 of the 2013 Act.
To issue the shares at a discount an Ordinary Resolution is required to be passed. [s. 79(2)].
Sanction of the Company Law Board [now the Central Government] is also required.
[s 53.10] Sweat Equity Shares [Section 79A]
Restrictions under section 79 will not apply to issue of Sweat Equity Shares in view of non-obstante
clause in section 79A. This sub-section is covered under sub-section (2) of section 53 of the 2013
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Act.
[s 53.11] Powers of Central Government [Sub-section (3)]
The Companies (Amendment) Act, 1974 (41 of 1974) had transferred the jurisdiction from the Court
to the CLB to give a cheaper and quicker relief to the applicant.
The CLB may sanction the issue of shares at a discount conditionally or unconditionally or it may not
sanction the issue at discount at all. The Company Law Board may decide as to the reasonableness
of discount for issue of the shares and where necessary impose certain conditions.80
[s 53.12] Disclosures in Prospectus [Sub-section (4)]
Every prospectus relating to issue of shares at a discount shall contain particulars of the discount
allowed or of so much of the discount as has not been written off on the date of issue of prospectus.
Every prospectus relating to the issue of shares shall contain particulars of the discount allowed on
the issue of shares or of so much of that discount as has not been written off at the date of the issue
of the prospectus. For failure to include these particulars in the prospectus, the company and every
officer who is in default, shall be punishable with fine up to Rs 500.
The offence under section 79 of the 1956 Act was a failure to include the requisite details in a
prospectus for the issue of the shares at a discount. However, under section 53 of the 2013Act, the
issue of shares at a discount (except for sweat equity shares) is punishable in accordance with sub-
section (3) of section 53, as explained in the commentary above.
[s 53.14] Sanction of Scheme on Winding up
The further issue of shares to unsecured creditors in satisfaction of their claims as provided in the
scheme cannot be said to be issue of shares either at a discount or on misrepresentation or for no
consideration or for consideration other than cash.81
[s 53.15] Reissue or Sale of Forfeited Shares
Sale of forfeited shares is not issue of shares or allotment thereof. Sale of forfeited shares for
recovery of the balance amount is not issue of the shares at a discount as the company received the
full face value from the original allottee and the second purchaser. The right of forfeiture is provided
in the Articles of Association of the company which provisions have to be followed in forfeiting the
shares and the shareholder must be informed of the exact amount he is required to pay for call,
interest and expenses, if any. A slight defect in the notice will invalidate it and would be fatal to the
forfeiture.82
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Where partly-paid shares are forfeited for non-payment of call money and they are re-allotted as fully-
paid shares the re-allotment will be allotment at a discount and will be invalid unless the procedure
laid down in section 79 is followed.83
Return of the forfeited shares need not be filed under section 75(1) of the Act when the shares are
reissued. When a share is forfeited and reissued, there is no allotment, in the sense of appropriation
of shares out of the authorised and unappropriated capital. On such forfeiture all that happens is that
the right of the particular shareholder disappears but the share considered as a unit of issued capital
continues to exist and is kept in suspense until another shareholder is found for it. The shares so
forfeited may not be “allotted” in the sense in which that word is understood in the Companies Act.
Reissue of forfeited shares is not allotment of the shares but only a sale, for, if it were not so the
forfeiture even for non-payment of call would be invalid as involving an illegal reduction of capital.
The share after forfeiture in the hands of the company is subject to an obligation to dispose it of. On
that account there is no reduction of capital by mere forfeiture. A forfeited share is, therefore, merely
a share available to the company for sale and remains vested in the company for that purpose only.
By forfeiting a share pursuant to the authority of the Articles of Association of the company, no
reduction of capital is achieved. Subject to the provisions of the Companies Act the company and the
members are bound by the provisions contained in the Articles of Association. The Articles regulate
the internal management of the company and define the powers of its officers. They also establish a
contract between the company and the members and between the members inter se. The contract
governs the ordinary rights and obligations incidental to membership in the company. In the absence
of any provisions contained in the Companies Act prohibiting a company from forfeiting a share for
failure on the part of the member to carry out an undertaking or an engagement the Articles of a
company which provide that in certain events membership rights of the shareholder including his right
to the share will be forfeited are binding.84
Where the shareholders agree to carry on business in two groups and one group suffers loss, the
company cannot forfeit shares of that group to set off the loss. Forfeiture of shares can be done only
in accordance with the provisions of the Companies Act and the articles of association of the
company.85
[s 53.16] Banking Company
A banking company shall not pay more than 2.5% of the paid-up value of the shares by way of
commission, brokerage or discount. [section 13 of the Banking Regulation Act, 1949 (10 of 1949)].
[s 53.17] Issue of Shares by Tender
In issuing capital public companies have faced two major problems. First, how to fix the price of issue
of shares and second, how to scale down large number of applications where the issue is over-
subscribed. The fixing of too high a price may result in an inadequate response from the public
resulting in a large quantity of shares being left with the underwriters and consequent sale of those
shares at a discount. If the price is too low, there will be difficulty in scaling down of applications and
the likelihood of the shares being dealt with at a premium even before allotments are made. Either of
these two conditions may create disturbing market conditions. This is attributable to some extent to
the activities of speculators (stags) who apply for a large number of new issues in anticipation that if
applications are scaled down they will receive some allotments which can be sold at a profit. Many of
the applications made by the stags are accompanied by cheques which are dishonoured. These
problems do not arise when an issue is made by tender. The company offers for sale certain number
of ordinary shares of a nominal value at a minimum specified price and invites applications with
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cheques for the price at which the applicant is agreeable to buy but not below the minimum fixed by
the company. The company gets applications offering prices higher than the minimum. From these
applications, the company takes that price at which sufficient applications were received to cover the
total number of shares offered. All applications for shares at the optimum price and above are
considered for allotment and the scaling down is effected on the basis of an allotment in full up to a
figure, say 500 shares, and thereafter at a percentage, say 90%., of the number applied for. All
applications below the optimum price are rejected. By this process the successful applicants receive
mostly the number of shares applied for; the company is spared from dealing with too many
applications and dishonoured cheques; a realistic price for the shares is obtained; speculative
transactions are kept to the minimum and the shares get a respectable place in the stock exchange.
Some people, however, think it is unfair that investors having no expert knowledge should be asked
to offer a price and in fact it is found that experts in the share market who offer a realistic price gain
most.
Section 53 of the 2013 Act now places a complete prohibition on the issue of shares at a discount,
except for sweat equity shares. Section 78 of the 1956 Act previously permitted the issue of shares at
a discount in a class of shares already issued, provided that the issue met the procedural
requirements, including approval of the shareholders at a general meeting and the approval of the
Central Government. The failure to include the requisite details in a prospectus for the issue of the
shares at a discount was punishable under section 79 of the 1956 Act. As section 53 of the 2013 Act,
now prohibits the issue of shares at a discount (except for sweat equity shares) a violation is
punishable in accordance with sub-section (3) of section 53.
Section 79 of the 1956 Act has been repealed with the notification of section 53 of the 2013 Act w.e.f.
1-4-2014.
72 Notified by Notification No. S.O. 902 (E), dt. 26 March 2014 w.e.f. 01 April 2014 and corresponds to section 79 of the
1956 Act.
73 Substituted by the Companies (Second Amendment) Act, 2002 (11 of 2003), section 12, for “Company Law Board”.
(Enforcement date not notified). This amending Act has been repealed by the Repealing and Amending (Second) Act,
2015. Earlier the words “Company Law Board” were substituted by Act 41 of 1974, section 9, for “Court” (w.e.f. 1
Feburary 1975).
74 The words and brackets “(not exceeding 10% or such higher percentage as the Central Government may permit in any
special case)” omitted by the Companies (Amendment) Act, 1974 (41 of 1974), section 9 (w.e.f. 1 Feburary1975).
75 Proviso inserted by Act 41 of 1974, section 9 (w.e.f. 1 Feburary 1975).
2015.
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77 Substituted by the Companies (Second Amendment) Act, 2002 (11 of 2003), section 12, for “unless that Board is of
opinion” Enforcement date not notified). This amending Act has been repealed by the Repealing and Amending
(Second) Act, 2015.
78 Proviso inserted by Act 11 of 2003, section 12. (Enforcement date not notified). This amending Act has been repealed
by the Repealing and Amending (Second) Act, 2015.
50.” This amending Act has been repealed by the Repealing and Amending Act, 2016.
80 Re Mare Steel Castings Pvt Ltd, (1994) 79 COMP CASES 485 (CLB); Re, Jersey India Ltd, (1997) 88 COMP CASES
864 (CLB). See also notes under sections 73 and 81.
81 Re Maneckchowk and Ahmedabad Mfg. Co Ltd, (1970) 40 COMP CASES 819 (Guj.) : (1970) 2 Comp. LJ 300 (Guj.).
See also notes under sections 81 and 391–393.
82 Public Passenger Service Ltd v M.A. Khadar, (1966) 36 COMP CASES 1 (SC) : AIR 1966 SC 489 : (1966) 1 Comp. LJ
1 (SC). See also notes under sections 100, 111 and Schedule I, Table A, regulation 31.
83 Biochemical and Synthetic Products Ltd v Registrar of Cos, (1962) 32 COMP CASES 654 (AP) : AIR 1962 AP 459.
422. See also notes under sections 26, 100 and Schedule I, Table A, regulations 24 and 31.
85 Dilbhajan Singh v New Samundri Transport Co Pvt Ltd, (1985) 58 COMP CASES 247 (P&H) (DB).
End of Document
Mr. Laghir1 Rabari

86 Notified by Notification No. S.O. 902 (E), dt. 26 March 2014 w.e.f. 01 April
2014 and corresponds to section 79A of the 1956 Act. [s 54] Issue of sweat
equity shares.—
86 [s 54] Issue of sweat equity shares.—
(1) Notwithstanding anything contained in section 53, a company may issue sweat equity shares
of a class of shares already issued, if the following conditions are fulfilled, namely:—
(a) the issue is authorised by a special resolution passed by the company;
(b) the resolution specifies the number of shares, the current market price, consideration, if
any, and the class or classes of directors or employees to whom such equity shares are
to be issued;
(c) not less than one year has, at the date of such issue, elapsed since the date on which the
company had commenced business; and
(d) where the equity shares of the company are listed on a recognised stock exchange, the
sweat equity shares are issued in accordance with the regulations made by the Securities
and Exchange Board in this behalf and if they are not so listed, the sweat equity shares
are issued in accordance with such rules as may be prescribed.87
(2) The rights, limitations, restrictions and provisions as are for the time being applicable to
equity shares shall be applicable to the sweat equity shares issued under this section and the
holders of such shares shall rank pari passu with other equity shareholders.
NOTES
follows:
Clause This clause corresponds to section 79A of the Companies Act, 1956 and seeks to provide that on fulfilling
certain conditions, a company may issue sweat equity shares of a class of shares already issued. The rights,
limitations, restrictions and provisions applicable to equity shares shall be applicable to sweat equity shares and
holders of such shares rank pari passu with other equity shareholders. [Clause 54 of the Companies Bill, 2011 (121 of
2011)]
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79A of the 1956 Act. [s 54] Issue of sweat equi....
[s 54.2] Conditions for the Issue of Sweat Equity Shares [Section 54(1) Read with Rule 8 of
the Companies (Share Capital and Debentures) Rules, 2014]
Sweat equity shares may be issued by a company to its directors or employees at a discount or for
consideration other than cash, for their providing know-how or making available rights in the nature of
intellectual property rights or value additions, by whatever name called. The issue of the sweat equity
shares will have to comply with the following conditions:
1. the issue is authorised by a special resolution.
2. the resolution must specify the number of shares, the current market price, consideration, if
any, and the class or classes of directors or employees to whom such equity shares are to be
issued;
3. the company should have commenced business not less than one year prior to the date of
such issue; and
4. listed companies must comply with the applicable SEBI regulations issued in this behalf;
5. unlisted companies must comply with the rules prescribed under the 2013 Act.
[s 54.3] Rights of Holders of Sweat Equity Shares
Holders of sweat equity shares rank pari passu with other equity shareholders. The rights, limitation
and restrictions that are applicable to equity share holders will apply equally to the holders of sweat
equity shares.
[s 54.4] Employees [Companies (Share Capital and Debentures) Rules, 2014, Rule 8(1)
Explanation]
An employee has been defined to mean:
1. a permanent employee of the company who has been working in India or outside India, for at
least last one year; or
2. a director of the company, whether a whole time director or not; or
3. an employee or a director as defined in (1) or (2) of a subsidiary, in India or outside India, or

of a holding company of the company.
[s 54.5] Validity of Special Resolution [Rule 8(3)]
The special resolution authorising the issue of sweat equity shares will be valid for making the
allotment within 12 months from the date of passing such resolution.
[s 54.6] Cap on Issue of Sweat Equity Shares [Rule 8(4)]
A company cannot issue sweat equity shares for more than 15% of the existing paid-up equity share
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capital, or shares of the issue value of Rs 5 crores, whichever is higher. The issuance of sweat equity
shares in the company is not permitted to exceed 25% of the paid-up equity capital of the company at
any time.
The rules also provide for an exemption for start up companies, as defined in notification number
G.S.R. 180(E) dt. February 17, 2016 issued by the Department of Industrial Policy and Promotion,
Ministry of Commerce and Industry, Government of India. Start up companies are permitted to issue
sweat equity shares not exceeding 50% of its paid up capital upto five years from the date of its
incorporation or registration.
[s 54.7] Lock in Period for Shares Issued [Rule 8(5)]
Sweat equity shares issued to directors or employees are locked-in and not transferable for a period
of three years from the date of allotment. The share certificate must record the fact that the shares
are locked-in and the period of expiry of the lock-in, in bold or any other prominent manner.
[s 54.8] Valuation [Rule 8(6)–(8)]
The sweat equity shares to be issued must be valued at a price determined by a registered valuer as
the fair price giving justification for such valuation. The valuation of intellectual property rights or of
know how or value additions for which sweat equity shares are to be issued, must be carried out by a
registered valuer, who shall provide a proper report addressed to the board of directors with
justification for such valuation. A summary of the valuation report, along with critical elements of the
valuation report, obtained shall be sent to the shareholders with the notice of the general meeting.
[s 54.9] Value Additions
The term value additions means actual or anticipated economic benefits derived or to be derived by
the company from an expert or a professional for providing know-how or making available rights in
the nature of intellectual property rights, by such person to whom sweat equity is being issued for
which the consideration is not paid or included in the normal remuneration payable under the contract
of employment, in the case of an employee.
[s 54.10] Issue for Consideration other than Cash [Rule 8(9)]
Where sweat equity shares are issued for a non-cash consideration on the basis of a valuation report
in respect thereof obtained from the registered valuer, such non-cash consideration shall be treated
in the following manner in the books of account of the company:
(a) where the non-cash consideration takes the form of a depreciable or amortisable asset, it
shall be carried to the balance sheet of the company in accordance with the accounting
standards; or
(b) where clause (a) is not applicable, it shall be expensed as provided in the accounting
standards.
[s 54.11] Sweat Equity as Managerial Remuneration [Rule 8(10)]
The amount of sweat equity shares issued shall be treated as part of managerial remuneration for the
purposes of sections 197 and 198 of the 2013 Act if the following conditions are fulfilled, namely:
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(a) the sweat equity shares are issued to any director or manager and
(b) they are issued for consideration other than cash, which does not take the form of an asset
which can be carried to the balance sheet of the company in accordance with the applicable
accounting standards.
[s 54.12] Accounting Value [Rule 8(11) and (12)]
In respect of sweat equity shares issued during an accounting period, the accounting value of sweat
equity shares must be treated as a form of compensation to the employee or the director in the
financial statements of the company, if the sweat equity shares are not issued pursuant to acquisition
of an asset. If the shares are issued pursuant to the acquisition of an asset, the value of the asset, as
determined by the valuation report, shall be carried in the balance sheet as per the accounting
standards and such amount of the accounting value of the sweat equity shares that is in excess of
the value of the asset acquired, as per the valuation report, shall be treated as a form of
compensation to the employee or the director in the financial statements of the company. The
accounting value shall be the fair value of the sweat equity shares as determined by the registered
valuer.
[s 54.13] Disclosures in the Directors’ Report [Rule 8(13)]
The board of directors must, inter alia, disclose in the Directors' Report for the year in which such
shares are issued, the following details of issue of sweat equity shares namely:
(a) the class of director or employee to whom sweat equity shares were issued;
(b) the class of shares issued as sweat equity shares;
(c) the number of sweat equity shares issued to the directors, key managerial personnel or other
employees showing separately the number of such shares issued to them, if any, for
consideration other than cash and the individual names of allottees holding 1% or more of the
issued share capital;
(d) the reasons or justification for the issue;
(e) the principal terms and conditions for issue of sweat equity shares, including pricing formula;
(f) the total number of shares arising as a result of issue of sweat equity shares;
(g) the percentage of the sweat equity shares of the total post issued and paid-up share capital;
(h) the consideration (including consideration other than cash) received or benefit accrued to the
company from the issue of sweat equity shares;
(i) the diluted Earnings Per Share (EPS) pursuant to issuance of sweat equity shares.
[s 54.14] Secretarial Compliances
Explanatory Statement [Rule 8(2)].—The explanatory statement to be annexed to the notice of the
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general meeting pursuant to section 102 shall contain the following particulars, namely:
(a) the date of the board meeting at which the proposal for issue of sweat equity shares was
approved;
(b) the reasons or justification for the issue;
(c) the class of shares under which sweat equity shares are intended to be issued;
(d) the total number of shares to be issued as sweat equity;
(e) the class or classes of directors or employees to whom such equity shares are to be issued;
(f) the principal terms and conditions on which sweat equity shares are to be issued, including
basis of valuation;
(g) the time period of association of such person with the company;
(h) the names of the directors or employees to whom the sweat equity shares will be issued and
their relationship with the promoter or/and key managerial personnel;
(i) the price at which the sweat equity shares are proposed to be issued;
(j) the consideration including consideration other than cash, if any to be received for the sweat
equity;
(k) the ceiling on managerial remuneration, if any, be breached by issuance of such sweat equity
and how it is proposed to be dealt with;
(l) a statement to the effect that the company shall conform to the applicable accounting
standards; and
(m) diluted EPS pursuant to the issue of sweat equity shares, calculated in accordance with the
applicable accounting standards.
[s 54.15] Forms and Registers [Rule 8(14)]
The company is required to maintain a register of sweat equity shares in Form SH.3 containing the
particulars of the sweat equity shares issued under section 54. The register of sweat equity shares is
required to be maintained at the registered office of the company or such other place as the board
may decide. The entries in the register are required to be authenticated by the company secretary of
the company or by any other person authorised by the board.
[s 54.16] SEBI (Issue of Sweat Equity) Regulations, 2002
In relation to listed companies, the SEBI (Issue of Sweat Equity) Regulations, 2002 apply. These
regulations provide, inter alia, for the following matters:
• “Sweat equity shares” means sweat equity shares as defined in Explanation II to sub-section
(1) of section 79A of the 1956 Act [regulation 2(p)].
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• “ESOS” means an Employees Stock Option Scheme as defined in the SEBI (Employees
Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999 [regulation
2(h)].
• These regulations shall not apply to an unlisted company: Provided the unlisted company
coming out with initial public offering and seeking listing of its securities on the stock
exchange, pursuant to issue of sweat equity shares, shall comply with the SEBI (Disclosure
and Investor Protection) Guidelines, 2000 [regulation 3].
• Issue of sweat equity by a listed company [regulations 4 to 14]. Sweat equity shares may be
issued to employee, promoter. A company whose equity shares are listed on a recognised
stock exchange may issue sweat equity shares in accordance with section 79A of the 1956
Act and these regulations to its—(a) employees; (b) directors [regulation 4].
• For passing a special resolution under section 79A(1)(a) of the 1956 Act, the explanatory
statement to be annexed to the notice for the general meeting pursuant to section 173 of the
1956 Act shall contain disclosures as specified in the schedule [regulations 5(1) and 6(4)].
• Issue of sweat equity shares to promoters [regulation 6].
• Pricing of sweat equity shares [regulation 7].
• Valuation of intellectual property [regulation 8].
• Accounting treatment [regulation 9].
• Placing of Auditors’ Certificate before annual general meeting [regulation 10].
• Ceiling on managerial remuneration—Amount of sweat equity shares issued shall be treated

as part of managerial remuneration for the purposes of sections 198, 309, 310, 311 and 387
of the 1956 Act, if the following conditions are fulfilled: (i) the sweat equity shares are issued
to any director or manager; and (ii) they are issued for non-cash consideration, which does
not take the form of an asset which can be carried to the balance-sheet of the company in
accordance with the relevant accounting standards [regulation 11].
• Lock-in of sweat equity shares [regulation 12].
• Listing [regulation 13].
• Applicability of takeover—Any acquisition of sweat equity shares shall be subject to the

provision of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
[regulation 14].
• Obligations of the company [regulation 15].
• Action against intermediaries [regulation 16].
• Penalties and procedure [regulations 17 to 20].
88[s
79A] Issue of sweat equity shares.—(1) Notwithstanding anything contained in section 79, a company may issue
sweat equity shares of a class of shares already issued if the following conditions are fulfilled, namely:— The
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(a) the issue of sweat equity shares is authorised by a special resolution passed by the company in the general
meeting;
(b) the resolution specifies the number of shares, current market price, consideration, if any, and the class or
classes of directors or employees to whom such equity shares are to be issued;
(c) not less than one year has, at the date of the issue elapsed since the date on which the company was entitled
to commence business;
(d) the sweat equity shares of a company, whose equity shares are listed on a recognised stock exchange, are
issued in accordance with the regulations made by the Securities and Exchange Board of India in this behalf:
Provided that in the case of a company whose equity shares are not listed on any recognised stock exchange, the
sweat equity shares are issued in accordance with the guidelines as may be prescribed.
Explanation I.—For the purposes of this sub-section, the expression “a company” means the company incorporated,
formed and registered under this Act and includes its subsidiary company incorporated in a country outside India.
Explanation II.—For the purposes of this Act, the expression “sweat equity shares” means equity shares issued by the
company to employees or directors at a discount or for consideration other than cash for providing know-how or
making available right in the nature of intellectual property rights or value additions, by whatever name called.
(2) All the limitations, restrictions and provisions relating to equity shares shall be applicable to such sweat equity
shares issued under sub-section (1).]
NOTES
Section 79A of the 1956 Act corresponds to section 54 of the 2013 Act
THE COMPANIES (AMENDMENT) ACT, 1999 (21OF 1999).—The Statement of Objects and Reasons explained the
reasons for insertion of this section as follows:
“(e) to provide for issue of sweat equity subject to fulfilment of certain conditions;” [Extracts from Statement of Objects
and Reasons appended to the Companies (Amendment) Bill, 1998 (174 of 1998)].
[s 54.18] Issue of Sweat Equity Shares [Section 79A(1) and Proviso to Sub-clause (d)]
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Section 79A(1) of the 1956 Act is covered under section 54(1) of the 2013 Act, as explained in the
commentary above.
[s 54.19] Company [Section 79A(1) , Explanation I]
For purposes of section 79A(1) of the 1956 Act, the term company means a company incorporated,
formed and registered under the Indian law and includes its subsidiary incorporated in a foreign
country. This provision has not been included in section 54 of the 2013 Act.
[s 54.20] Sweat Equity Shares [Section 79A(1) , Explanation II]
This term means equity shares issued by the company to employees or directors at a discount or for
consideration other than cash for providing know-how, intellectual property rights or value additions.
While this provision has not been included in section 54 of the 2013 Act, it is covered under rule 8 of
the Companies (Share Capital and Debentures) Rules, 2014, with some modifications, as explained
[s 54.21] Provisions of Equity Shares to Apply [Section 79A(2)]
Section 79A(2) of the 1956 Act is covered under section 54(2) of the 2013 Act, as explained in the
commentary above.
Section 54 of the 2013 Act has set out procedural requirements for the issue of sweat equity which
are similar to the provisions of section 79A of the 1956 Act. Section 54(4) is a new insertion to the
2013 Act. Section 54 has also done away with the specific reference to regulations created by the
SEBI in respect of listed companies. Additionally, the scope of whom the sweat equity shares can be
issued has also been expanded to include employees and directors of a subsidiary of the company in
India or outside India, or of a holding company of the concerned company.
Section 79A of the 1956 Act has been repealed with the notification of section 54 of the 2013 Act,
with effect from 1-4-2014.
86 Notified by Notification No. S.O. 902 (E), dt. 26 March 2014 w.e.f. 01 April 2014 and corresponds to section 79A of the
1956 Act.
88 Inserted by the Companies (Amendment) Act, 1999 (21 of 1999), section 6 (w.r.e.f. 31 October 1998). This amending
End of Document
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89 Sub-sections (1) and (2) were notified by Notification No. S.O. 902(E). dt.
27 March 2014, w.e.f. 1 April 2014. Section 55 corresponds to sections 80
and 80A of the 1956 Act. [s 55] Issue and redemption of preference
shares—
89 [s 55] Issue and redemption of preference shares—
(1) No company limited by shares shall, after the commencement of this Act, issue any
preference shares which are irredeemable.
(2) A company limited by shares may, if so authorised by its articles, issue preference shares
which are liable to be redeemed within a period not exceeding twenty years from the date of
their issue subject to such conditions as may be prescribed:90
Provided that a company may issue preference shares for a period exceeding twenty
years for infrastructure projects, subject to the redemption of such percentage of shares
as may be prescribed on an annual basis at the option of such preferential shareholders:
(a) no such shares shall be redeemed except out of the profits of the company which would
otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for
the purposes of such redemption;
(b) no such shares shall be redeemed unless they are fully paid;
(c) where such shares are proposed to be redeemed out of the profits of the company, there
shall, out of such profits, be transferred, a sum equal to the nominal amount of the shares to
be redeemed, to a reserve, to be called the Capital Redemption Reserve Account, and the
provisions of this Act relating to reduction of share capital of a company shall, except as
provided in this section, apply as if the Capital Redemption Reserve Account were paid-up
share capital of the company; and
(d)
(i) in case of such class of companies, as may be prescribed and whose financial statement
comply with the accounting standards prescribed for such class of companies under
section 133, the premium, if any, payable on redemption shall be provided for out of the
profits of the company, before the shares are redeemed:
Provided also that premium, if any, payable on redemption of any preference shares
issued on or before the commencement of this Act by any such company shall be
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89 Sub-sections (1) and (2) were notified by Notification No. S.O. 902(E). dt. 27 March 2014, w.e.f. 1 April
2014. Section 55 corresponds to sections 80 and 80....
provided for out of the profits of the company or out of the company's securities
premium account, before such shares are redeemed.
(ii) in a case not falling under sub-clause (i) above, the premium, if any, payable on
redemption shall be provided for out of the profits of the company or out of the company's
securities premium account, before such shares are redeemed.]
91[(3) Where a company is not in a position to redeem any preference shares or to pay dividend,
if any, on such shares in accordance with the terms of issue (such shares hereinafter referred
to as unredeemed preference shares), it may, with the consent of the holders of three-fourths
in value of such preference shares and with the approval of the Tribunal on a petition made
by it in this behalf, issue further redeemable preference shares equal to the amount due,
including the dividend thereon, in respect of the unredeemed preference shares, and on the
issue of such further redeemable preference shares, the unredeemed preference shares shall
be deemed to have been redeemed:
Provided that the Tribunal shall, while giving approval under this sub-section, order the
redemption forthwith of preference shares held by such persons who have not consented
to the issue of further redeemable preference shares.
Explanation.—For the removal of doubts, it is hereby declared that the issue of further
redeemable preference shares or the redemption of preference shares under this section
shall not be deemed to be an increase or, as the case may be, a reduction, in the share
capital of the company.]
92[(4) The capital redemption reserve account may, notwithstanding anything in this section, be
applied by the company, in paying up unissued shares of the company to be issued to
members of the company as fully paid bonus shares.
Explanation.—For the purposes of sub-section (2), the term “infrastructure projects”

means the infrastructure projects specified in Schedule VI.]
NOTES
Section 55 of the 2013 Act corresponds to sections 80 and 80A of the1956 Act.
Clause 55.—This clause corresponds to section 80 and 80A of the Companies Act, 1956 and seeks to provide that no
company limited by shares shall issue irredeemable preference shares. A company may issue preference shares for a
period not exceeding twenty years. However, for infrastructural project preference shares can be issued for more than
twenty years. [Clause 55 of the Companies Bill, 2011 (121 of 2011)].
[s 55.2] Prohibition on Issue of Irredeemable Preference Shares [Section 55(1)]
A company limited by shares is not permitted to issue preference shares which are irredeemable.
Subject to the foregoing, redeemable preference shares may be of two kinds (i) redeemable after a
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period and (ii) redeemable at the option of the company, without any obligation on the company to
redeem on a particular date, provided that the term does not extend beyond 20 years (or 30 years as
applicable).
[s 55.3] Validity of Irredeemable Preference Shares [Section 55(2)]
Irredeemable preference shares issued after 1 April 2014 are necessarily redeemable 20 years from
the date of issue. The process of redemption is also set out in the rules.
[s 55.4] Exemption for Infrastructure Projects [Section 55(2), First Proviso]
A company may issue preference shares for a period exceeding 20 years for infrastructure projects,
subject to redemption of such percentage of shares as may be prescribed on an annual basis, at the
option of the preferential shareholders. “Infrastructure projects” are those that are specified in
Schedule VI of the 2013 Act.
[s 55.5] Conditions for the Redemption of Preference Shares [Section 55(2), Second Proviso]
(a) Preference shares may only be redeemed out of the profits of the company, which would
otherwise be available for dividend, or out of the proceeds of a fresh issue of shares made for
the purposes of such redemption;
(b) Only fully paid-up preference share may be redeemed;
(c) Where shares are proposed to be redeemed out of the profits of the company, the company
must transfer a sum equal to the nominal amount of the shares to be redeemed from such
profits to a capital redemption reserve account. The provisions of the 2013 Act relating to
reduction of share capital of a company apply as if the capital redemption reserve account
were paid-up share capital of the company, except in the manner provided in section 55 (see
detailed notes under section 56 of the 2013 Act for reduction of the share capital).
(d) In case of such class of companies as are notified, and whose financial statement complies
with the accounting standards prescribed for such class of companies under section 133, the
premium, if any, payable on redemption shall be provided for out of the profits of the
company, before the shares are redeemed. Further, the premium, if any, payable on
redemption of any preference shares issued on or before the commencement of the 2013 Act
by any such company shall be provided for out of the profits of the company or out of the
company's securities premium account, before such shares are redeemed. Where the
company has not been notified, and its financial statements do not comply with the
accounting standards prescribed under section 133 of the 2013 Act, the premium, if any,
payable on redemption shall be provided for out of the profits of the company or out of the
company's securities premium account, before such shares are redeemed.
(e) Preference shares may only be redeemed on the terms on which they were issued or as
varied after due approval of preference shareholders under section 48 of the 2013 Act.93 See
detailed notes under section 48 of the 2013 Act for variation of the rights of shareholders.
(f) The preference shares may be redeemed: (i) at a fixed time or on the happening of a
particular event; (ii) any time, at the option of the company; or (iii) any time, at the option of
the shareholder.94
[s 55.6] Conditions for the Issue of Preference Shares1
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A company may issue preference shares, provided that:
(a) the articles of the company permit the issuance of preference shares;
(b) the issue of the preference shares has been authorised by passing a special resolution in the
general meeting of the company; and
(c) the company, at the time of such issue of preference shares, has no subsisting default in the
redemption of preference shares issued either before or after the commencement of the 2013
Act or in payment of dividend due on any preference shares.
[s 55.7] Conversion of Preference Shares
Preference shares may be convertible or non-convertible. A convertible preference share gives the
holder the right to convert the preference share into equity. It is necessary for the company to include
the terms of conversion in the notice issued at the time of issuance of preference shares.2
[s 55.8] Redemption of Preference Shares or Reduction of Share Capital
Section 80 of the 1956 Act (now section 55 of the 2013 Act) offers special provisions for redemption
of preference share capital. Two independent procedures are available to a company for redemption
of preference shares. It may redeem the shares by following the procedure laid down under section
80 of the 1956 Act, which is a special provision meant for redemption of preference shares or it may
have recourse to the general provision under section 100 of the Act (now section 66 of the 2013 Act)
which is applicable for reduction of any capital, including preference capital, in any manner. Section
80 of the 2013 Act operates in a limited field. It covers only the case of reduction of share capital
arising out of redemption of preference shares. Preference shares can be redeemed either out of the
proceeds of a fresh issue of capital or out of the profits of a company which would otherwise be
available for payment of dividend. Section 100 of the 1956 Act may be invoked for reduction of any
capital including the preference shares, subject to approval of the court with the object that the
company may pay back to the shareholders any paid-up share capital which is in excess of the its
wants. The redemption of preference shares is nothing but repayment of the preference capital and
amounts to reduction of share capital. The three methods mentioned in section 100 of the 1956 Act
are only illustrative and are not exhaustive. A company may seek to redeem the share capital in any
way and even in a manner not covered by section 100 of the 1956 Act. The words “pay off any paid
up capital” appearing in clause (c) indicate that even the preference share capital can be paid off
subject to the conditions laid down in section 100 of the 1956 Act. Section 100 makes no distinction
between preference share capital and equity share capital. Thus, the equity share capital as well as
the preference share capital of a company can be reduced in any way, if authorised by the articles,
by a special resolution of the company subject to sanction of the court. The preference shares could
be redeemed by the directors or the shareholders. The company passed special resolution for
reduction of share capital by refunding to the shareholders. The shareholders gave their consent for
redemption of preference shares. The court granted the sanction for redemption of preference
shares. Further for payment to the preference shareholders, permission of the court will be necessary
if the repayment is not out of profit or issue of fresh shares. The sanction of the court will also be
necessary if the redemption is to be of preference shares out of the capital redemption reserve
account created out of profits of the company.3
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See detailed notes on reduction of capital under section 66.
[s 55.9] Redeemable Preference Shareholder not “Creditor”
Proviso (a) to section 80(1) of the 1956 Act (now section 55(1), proviso (a) of the 2013 Act) shows
that where redeemable preference shares are issued but not honoured when they are ripe for
redemption, the holder of those shares does not automatically assume the character of a “creditor.”
The reason is that his shares can be redeemed only out of the profits of the company which would
otherwise be available for dividend, or by a fresh issue of shares. This is a limitation which is not
applicable to an ordinary creditor. Therefore, the holders of redeemable preference shares, even
where shares are not redeemed by the company at the appropriate time, continue to be
shareholders. They do not become the creditors, and cannot apply for winding up of the company.4
[s 55.10] SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009
The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 [which have replaced
the SEBI (Disclosure and Investor Protection) Guidelines, 2000], inter alia, provide that the tenure of
convertible instruments issued by listed companies must not be for a period exceeding 18 months.
See regulation 75, Chapter VII of the SEBI (Issue of Capital and Disclosure Requirements)
Regulations, 2009. Also see Chapters IV and VIII of the SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2009.
See detailed notes and list of SEBI Act, Rules, Regulations, Guidelines and Schemes under sections
24, 43 and 62 of the 2013 Act.
[s 55.11] Retractable Shares
In some countries, companies are allowed to issue “retractable shares,” i.e. shares which are issued
under certain circumstances subject to the condition that the shareholder may compel the company
to buyback these shares on the fulfilment of certain terms. The rights of such a shareholder are
different from the equity shareholders and are enumerated at the time of issue of the shares. In India,
however, buyback of shares is governed by section 68 of the 2013 Act.
[s 55.12] Remedy
Redeemable preference shareholder is not a creditor but is only a shareholder and he cannot sue the
company or file any winding-up petition against the company. The holders of redeemable preference
shares, even where the shares are not redeemed by the company at the appropriate time, continue
to be shareholders. They do not become creditors and cannot, therefore, apply for winding up of the
company on the ground that the company is unable to pay its debts.5
[s 55.13] Compensation for Failure to Redeem
For failure to redeem shares in violation of the terms of issue, a shareholder may claim compensation
from the company.6
[s 55.14] Scheme of Arrangement
The company, however, may apply to the NCLT for a scheme for conversion of preference shares
into loans. Where the company was not running profitably, a scheme of arrangement with preference
shareholders to convert preference shares into loans with the consent of such shareholders was
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sanctioned by the NCLT. The provisions contained in section 80(1) of the 1956 Act (now section 55
of the 2013 Act) are to protect the preferential shareholders and their interests from any unilateral
action of the company and the equity shareholders. When the company unilaterally, without the
participation of the preferential shareholders, decides to redeem their stake, naturally, it shall be in
terms of section 80(1) and not otherwise. Where arrangement under the provisions of the Companies
Act was proposed to release the preferential shareholders by converting their stake as loan, the
meeting of the preferential shareholders was held and all of them including the equity shareholders
and the secured creditors consented for the arrangement. The preferential shareholders who were, if
at all adversely affected, had no objection in the arrangement proposed by the company. In such
circumstances, it was not prejudicial to the interest of such shareholders but it was as consented to
by them. Therefore, there was no reason to withhold the sanction in terms of the Companies Act.7
[s 55.15] Amalgamation—Redemption of Preference Shares
The regional director raised an objection that the transferor company in the scheme of arrangement
or amalgamation had issued preference shares. Consequent to that scheme, those shares were
being transferred back in the same form to the transferee company in the amalgamation scheme.
Some of the preference shares were already due for redemption by the transferor company. In the
opinion of the registrar of companies, in view of the provisions of section 80 of the 1956 Act, these
preference shares should be redeemed without issue by the transferee company. The transferor
company had outstanding redeemable preference shares to the tune of Rs 80 lakhs. In view of the
losses suffered by the transferor company and in view of the pendency of the present proceedings,
the transferor company had not been able to redeem the said preference share. However, the
transferee company undertook to redeem all the preference shares which had fallen due for
redemption within 30 days from the date of final order being passed in these petitions. Having regard
to undertakings, the court sanctioned the scheme of arrangement or amalgamation.8
See detailed notes under sections 230 and 232 of the 2013 Act.
When there was no stipulation that on redemption, the preference shares would be converted into
equity shares, a petition by erstwhile holders of redeemable preference shares questioning the
validity of the redemption was dismissed as the redemption was proper. It is an established legal
position that a petition filed with a view to achieve some ulterior objective/collateral purpose should
not be entertained.9
[s 55.17] Income-tax
Redemption of preference shares by the company is the same thing as the company buying its own
shares, and is an exception to the restrictions on buyback. It would be sale or relinquishment of asset
by shareholders for gain and taxable as capital gains in the hands of preference shareholders.10
[s 55.18] Issue and Redemption of Preference Shares by Company in Infrastructure Projects11
A company engaged in the setting up and dealing with infrastructural projects may issue preference
shares for a period between 20 and 30 years, subject to the redemption of a minimum 10% of such
preference shares per year from the 21 year onwards or earlier, on a proportionate basis, at the
option of the preference shareholders.
[s 55.19] Instances where the Company is Unable to Redeem Shares, or Pay Dividend
[Section 55(3)]
As on the date of going to press, this sub-section has not been notified. In the event that a company
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is either unable to redeem any preference shares, or is unable to pay dividend in accordance with the
terms of issue, the company may, with the consent of the holders of three-fourths in value of such
preference shares, and with the approval of the tribunal (following a petition made by it in this behalf),
issue further redeemable preference shares on the amount due, including the dividend, in respect of
the unredeemed preference shares. Upon the issue of such fresh preference shares, the
unredeemed preference shares will be deemed to have been redeemed. In respect of the holders
who have not consented to the issue of further preference shares, the tribunal shall order the
immediate redemption of such preference shares.
[s 55.20] Not Deemed to be a Variation of Share Capital of the Company [Section 55(3),
Explanation]
The issue of further preference shares or the redemption of preference shares in accordance with
section 55 of the 2013 Act is not deemed to be an increase or a reduction in the share capital of the
company.
[s 55.21] Inability to Redeem Preference Shares
If a company cannot redeem its preference shares under section 80A of the 1956 Act [now section
55(3) of the 2013 Act], it may apply for sanction of scheme for issue of fresh preference shares in lieu
of existing preference shares. The only condition in the proviso to section 80A(1) [now section 55(3)],
which provides for the extension of time for redemption by issue of fresh preference shares, is that
the company should prove its inability to redeem the preference shares on the due dates. The
consent of the preference shareholders is not a pre-condition.12
However, if the company’s financial condition permits it to redeem its preference shares, then the
company law board (CBL) (now the NCLT) will not give its permission for postponement by way of re-
issue of the shares.13
[s 55.22] Powers of the NCLT
Analysis of sections 80 and 80A of the 1956 Act (now section 55 of the 2013 Act) shows that the
latter provision [now section 55(3)] was enacted by Parliament to bail out those companies which are
facing financial crunch and are not in a position to redeem the preference shares. For achieving this
object, the NCLT is vested with the power to give consent to the company’s proposal for issuance of
further redeemable preference shares equal to the amount due including the dividend in respect of
the unredeemed preference shares. The nature of power vested in the NCLT under section 80A [now
section 55(3)] to give consent for issuance of redeemable preference shares is very wide and
pervasive and is not hedged in with any restriction. This implies that the tribunal can give consent
with or without conditions and the court can interfere with the discretion exercised by it only if the
conditions are arbitrary, unreasonable or capricious.14
[s 55.23] Dividend on Existing Shares
Where permission is granted for fresh issue to redeem existing shares, the value of dividend on
existing shares will be included in the face value of further shares to be issued whether the dividend
has been declared or not.15 The subsidiary company was unable to redeem preference shares, and
the entire preference shares were held by the holding company. Holding company agreed to forego
arrears of dividend. Permission was granted to issue fresh redeemable cumulative preference
shares.16
[s 55.24] Consent of CLB after Issuance of Redeemable Preference Shares
Under the proviso to section 80A(1) of the 1956 Act [now section 55(3) of the 2013 Act] it is stated
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that where a company is not in a position to redeem irredeemable preference shares within the
period mentioned in section 80A(1) and to pay the dividend, if any, due thereon, it may, with the
consent of the CLB (now the NCLT), on a petition made by it in that behalf, issue further redeemable
preference shares equal to the amounts due inclusive of the dividend thereon, in respect of the
unredeemed preference shares. The proviso to section 80A(1) only states that the consent of the
CLB for issuance of redeemable shares may be obtained by the company. The expression “previous”
or “prior” or “subject to consent” has been omitted. While the consent of the CLB may have to be
obtained by a company, by virtue of the stipulations contained in section 80A of the 1956 Act, it
cannot be held that such a consent should have been mandatorily obtained in advance and that in
the absence of any such prior consent, any company could be wholly prevented from applying for
such consent after the issuance of the redeemable preference shares. If any strict construction is
made, that would virtually defeat the very object and purpose for which the amendment came to be
introduced. The consent to be obtained under the proviso to section 80A(1) from the CLB could
equally be obtained after the issuance of the redeemable preference shares in lieu of the
irredeemable preference shares already issued, so long as such issuance was bona fide and in order
to fulfil the object and purpose of the amendment with which section 80A of the Act came to be
introduced.17
[s 55.25] Issue of Fully Paid up Bonus Shares [Section 55(4)]
The capital redemption reserve account is permitted to be used by the company, in paying up
unissued shares of the company to be issued to members of the company, as fully paid-up bonus
shares, notwithstanding anything else in section 55 of the 2013 Act. This will not be treated as
reduction of capital in view of clause (d) of proviso to sub-section (1).
[s 55.26] Filing
Redemption of shares should be notified to the registrar of companies within one month in Form SH-
7. See rule 15 of the Companies (Share Capital and Debentures) Rules, 2014, and Notes under
section 64, of the 2013 Act.
[s 55.27] Penalty
Given that the general penalty prescribed under section 450 for this offence is a fine, the offence may
be compounded under section 441 of the 2013 Act. However, as on the date of going to press,
section 441 has not been notified. Consequently, the offence may be compounded under section
621A of the 1956 Act until such time that section 441 of the 2013 Act is notified.
(1) The resolution issuing the preference shares is required to contain the following particulars:
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(a) the priority with respect to payment of dividend or repayment of capital vis-à-vis equity
shares;
(b) the participation in surplus fund;
(c) the participation in surplus assets and profits, on winding-up which may remain after the
entire capital has been repaid;
(d) the payment of dividend on cumulative or non-cumulative basis;
(e) the conversion of preference shares into equity shares;
(f) the voting rights;
(g) the redemption of preference shares.18
(2) The explanatory statement to be annexed to the notice of the general meeting pursuant to
section 102 is required to, inter alia, provide complete material facts concerned with the issue
of these shares, including:
(a) the size of the issue and number of preference shares to be issued and nominal value of
each share;
(b) the nature of such shares i.e. cumulative or non-cumulative, participating or non-
participating, convertible or non-convertible
(c) the objectives of the issue;
(d) the manner of issue of shares;
(e) the price at which such shares are proposed to be issued;
(f) the basis on which the price has been arrived at;
(g) the terms of issue, including terms and rate of dividend on each share, etc.;
(h) the terms of redemption, including the tenure of redemption, redemption of shares at
premium and if the preference shares are convertible, the terms of conversion;
(i) the manner and modes of redemption;
(j) the current shareholding pattern of the company;
(k) the expected dilution in equity share capital upon conversion of preference shares.19
[s 55.30] Register of Members20
The details of the preference shareholder in the case of issue of preference shares should be
recorded in the register of members.
[s 55.31] Listing of Preference Shares21
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A company intending to list its preference shares on a recognized stock exchange shall issue such
shares in accordance with the regulations made by the SEBI in this behalf.
See regulation 8 of Table F of Schedule I to the 2013 Act for issue of redeemable preference shares.
Also see detailed notes under Schedule I, Table F and section 5, 2013 Act.
See detailed notes on accounting provisions under Chapter IX, and specifically section 133 of the
standards under section 143(10) issued by the Institute of Chartered Accountants of India (ICAI).
[s 55.35] Powers of SEBI [Section 24 of the 2013 Act]
As per section 24 of the 2013 Act, inter alia, powers under Chapter IV of the Companies shall, in so
far as they relate to issue and transfer of securities or non-payment of dividend, in case of (a) listed
public companies; (b) public companies which intend to get their securities listed on any recognized
stock exchange in India, be administered by the SEBI; and (c) in any other case, by the Central
Government. Powers relating to prospectus, return of allotment, redemption of preference shares and
other specified matters shall be exercised by the Central Government, the tribunal (NCLT) or the
registrar of companies, as the case may be.
See detailed Notes and List of SEBI Act, Rules, Regulations and Guidelines along with Appendices
101 to 103 under section 24.
[s 80] Power to issue redeemable preference shares.—(1) Subject to the provisions of this section, a company
limited by shares may, if so authorised by its articles, issue preference shares which are, or at the option of the
company are to be liable, to be redeemed: The Companies Act, 1956 provision
Provided that—
(a) no such shares shall be redeemed except out of profits of the company which would otherwise be available for
dividend or out of the proceeds of a fresh issue of shares made for the purposes of the redemption;
Mr. Laghir1 Rabari

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(c) the premium, if any, payable on redemption shall have been provided for out of the profits of the company or
out of the company’s 22[security premium account], before the shares are redeemed;
(d) where any such shares are redeemed otherwise than out of the proceeds of a fresh issue, there shall, out of
profits which would otherwise have been available for dividend, be transferred to a reserve fund, to be called
23[the capital redemption reserve account], a sum equal to the nominal amount of the shares redeemed; and
the provisions of this Act relating to the reduction of the share capital of a company shall, except as provided
in this section, apply as if 23[the capital redemption reserve account] were paid-up share capital of the
company.
(2) Subject to the provisions of this section, the redemption of preference shares thereunder may be effected on such
terms and in such manner as may be provided by the articles of the company.
(3) The redemption of preference shares under this section by a company shall not be taken as reducing the amount of
its authorised share capital.
(4) Where in pursuance of this section, a company has redeemed or is about to redeem any preference shares, it shall
have power to issue shares up to the nominal amount of the shares redeemed or to be redeemed as if those shares
had never been issued; and accordingly the share capital of the company shall not, for the purpose of calculating the
fees payable under 24[section 611], be deemed to be increased by the issue of shares in pursuance of this sub-section:
Provided that, where new shares are issued before the redemption of the old shares, the new shares shall not, so far
as relates to stamp duty, be deemed to have been issued in pursuance of this sub-section unless the old shares are
redeemed within one month after the issue of the new shares.
(5) 25[The capital redemption reserve account] may, notwithstanding anything in this section, be applied by the
company, in paying up unissued shares of the company to be issued to members of the company as fully paid bonus
shares.
26[(5A)
Notwithstanding anything contained in this Act, no company limited by shares shall, after the commencement of
the Companies (Amendment) Act, 1996 (5 of 1997), issue any preference share which is irredeemable or is
redeemable after the expiry of a period of twenty years from the date of its issue.]
(6) If a company fails to comply with the provisions of this section, the company, and every officer of the company who
is in default, shall be punishable with fine which may extend to 27[ten thousand rupees].
NOTES
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THE COMPANIES ACT, 1956 (1 of 1956).—The Notes on Clauses explained thus:
See section 105B of the Indian Act and section 58 of the English Act. As suggested by the Company Law Committee
(page 300 of the Report), the penal provisions have been extended to the whole section, and the provision in sub-
section (3) of section 58 of the English Act has been embodied as sub-clause (3) of the clause. [Clause 74 of the
THE COMPANIES (AMENDMENT) ACT, 1960 (65 of 1960).—The Notes on Clauses explained the amendments
in section 80 as follows:
The amendments proposed in section 80 seek to bring the wording of sub-sections (1)(d) and (5) of section 80 into
accord with modern commercial and accountancy practice and rectify a drafting mistake in sub-section (4). (para 45 of
the Report).[Clause 22 of the Companies (Amendment) Bill, 1959 (37 of 1959)].
“Section 80(1)(d) and (5) refer to ‘capital redemption reserve fund’. According to modern commercial and accountancy
practice, the word ‘fund’ is used in connection with reserves only when the funds constituting the reserves are invested
outside the business. The word ‘account’ may be substituted for the word ‘fund’ in sub-sections (1)(d) and (5). The
figure ‘“601” occurring in sub-section (4) in the printed edition is a mistake for “611” and the mistake may be rectified.”
[Report : para 45].
THE COMPANIES (AMENDMENT) ACT, 1996 (5 of 1997).—The Statement of Objects and Reasons explained
the amendments as follows:
“(iii) to simplify some procedural and legal requirements in the interest of corporate sector.” [Extracts from SOR
appended to the Companies (Amendment) Bill, 1996 (34 of 1996)].
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1999 (21 of 1999).—The words “security premium account” have been

THE COMPANIES (AMENDMENT) ACT,
substituted for “share premium account.” The Companies (Amendment) Act, 2000 (53 of 2000).—The
Notes on Clauses explained the amendments in section 80 as follows:
“Clause 33 seeks to enhance the fine specified in sub-section (6) of section 80 of the Act from Rs 1,000 to Rs 10,000.”
[s 55.37] Articles Must Authorise [Sub-section (1)]
commentary above.
[s 55.38] Redemption [Sub-section (1), Proviso]
Section 80(1) is covered under sub-section (2) of section 55 of the Companies Act, 2013, as
[s 55.39] Terms of Articles [Sub-section (2)]
commentary above.
[s 55.40] Authorised Capital [Sub-section (3)]
Section 80(3) of the 1956 Act is covered under the proviso to section 55(3) of the 2013 Act, as
[s 55.41] Fees [Sub-section (4)]
The company has power to issue shares up to the nominal amount of the shares redeemed or about
to be redeemed. Issue of shares to redeem preference shares is not an increase in capital. No fee is
payable under section 611 of the 1956 Act. This has not been covered under section 55 of the 2013
Act.
[s 55.42] Stamp Duty [Sub-section (4), Proviso]
If the preference shares are redeemed within one month of the issue of the new shares, no stamp
duty would be payable on issue of new shares. This has not been covered under section 55 of the
2013 Act.
[s 55.43] Fully Paid Bonus Shares [Sub-section (5)]
commentary above.
[s 55.44] Irredeemable Preference Shares Cannot be Issued [Sub-section (5A)]
Section 80(5A) of the 1956 Act is covered under section 55(1) of the 2013 Act, as explained in the
commentary above.
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There is no conflict between sections 80 and 120 of the 1956 Act. Section 120 deals with
irredeemable or perpetual debentures.
Section 80(5A) of the 1956 Act was originally inserted by the Companies (Amendment) Act, 1988,
and prohibited issue of irredeemable preference shares or preference shares redeemable after 10
years. All existing irredeemable preference shares at the commencement of the Companies
(Amendment) Act, 1988, were to be redeemed within five years.
See Redemption of irredeemable preference shares [section 80A].
[s 55.45] Conversion
It has been held that perpetual preference shares already issued cannot be converted to redeemable
preference shares.28 However, after the commencement of the Companies (Amendment) Act, 1988,
a company is not permitted to issue irredeemable preference shares. Such shares issued prior to the
commencement of the said Act were required to be redeemed within a period of five years.
For non-compliance with the provisions of section 80 of the 1956 Act, the company and every officer
of the company who is in default shall be liable to a fine which may extend to Rs 10,000. Section 55
of the 2013 Act does not have a specific penalty provision.
29[s80A] Redemption of irredeemable preference shares, etc.—(1) Notwithstanding anything contained in the
terms of issue of any preference shares, every preference share issued before the commencement of the Companies
(Amendment) Act, 1988 (31 of 1988),— The Companies Act, 1956 provision
(a) which is irredeemable, shall be redeemed by the company within a period not exceeding five years from such
commencement, or
(b) which is not redeemable before the expiry of ten years from the date of issue thereon in accordance with the
terms of its issue and which had not been redeemed before such commencement, shall be redeemed by the
company on the date on which such share is due for redemption or within a period not exceeding ten years
from such commencement, whichever is earlier:
• Provided that where a company is not in a position to redeem any such share within the period aforesaid and
to pay the dividend, if any, due thereon (such shares being hereinafter referred to as unredeemed preference
shares), it may, with the consent of the 30[Tribunal], on a petition made by it in this behalf and notwithstanding
anything contained in this Act, issue further redeemable preference shares equal to the amounts due
(including the dividend thereon), in respect of the unredeemed preference shares, and on the issue of such
further redeemable preference shares, the unredeemed shares shall be deemed to have been redeemed.
(2) Nothing contained in section 106 or any scheme referred to in sections 391 to 395, or in any scheme made under
section 396, shall be deemed to confer power on any class of shareholders by resolution or on 31[any court or the
Tribunal] or the Central Government to vary or modify the provisions of this section.
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(3) If any default is made in complying with the provisions of this section,—
(a) the company making such default shall be punishable with fine which may extend to 32[ten thousand rupees]
for every day during which such default continues; and
(b) every officer of the company who is in default shall be punishable with imprisonment for a term which may
extend to three years and shall also be liable to fine.]
NOTES
[s 55.47 ] Legislative History
THE COMPANIES (AMENDMENT) ACT, 1988 (31 of 1988).—The Notes on Clauses explained this section as
follows:
Irredeemable preference shares in which substantial resources remain locked up have been working as a damper to
further investments. A new provision is sought to be introduced in the Act to ensure that all existing preference shares
which are irredeemable or redeemable not earlier than ten years, are compulsorily redeemed within five years. Further,
companies can issue only such preference shares in future as are redeemable within ten years [now 20 years]. It is
also sought to be provided that irredeemable preference shares can be redeemed by issue of redeemable preference
shares with the approval of the Company Law Board [now Tribunal (NCLT)]. Failure to redeem would attract penal
provisions. [Clauses 12 to 14 of the Companies (Amendment) Bill, 1987 (32 of 1987)].
THE COMPANIES (AMENDMENT) ACT, 2000 (53 of 2000).—The Notes on Clauses explained the amendments
in this section as follows:
“Clause 34 seeks to enhance the fine specified in clause (a) of sub-section (3) of section 80A of the Act from Rs 1,000
to Rs 10,000.” [Clause 34 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
THE COMPANIES (SECOND AMENDMENT) ACT, 2002 (11 of 2003).—The Notes on Clauses explained the
This clause seeks to amend section 80A of the Companies Act, 1956 relating to redemption of irredeemable
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preference shares, etc. Under the existing provisions contained in this section where a company is not in a position to
redeem any such shares within the period specified in that section and pay dividend thereon, such company may with
the consent of the Company Law Board issue further redeemable preference shares equal to the amount due in
respect of the unredeemed preference shares. It is proposed to confer the said power upon the Tribunal. This
amendment is of consequential nature. [Clause 12 of the Companies (Amendment) Bill, 2001 (80 of 2001)].
[s 55.48] Irredeemable Preference Shares Cannot be Issued [Section 80(5A)]
Section 80(5A) of the 1956 Act is covered under sub-sections (1) and (2) of section 55 of the 2013
Act, 2013, as explained in the commentary above.
Section 80A(5A) of the 1956 Act was originally inserted by the Companies (Amendment) Act, 1988,
and prohibited issue of irredeemable preference shares or preference shares redeemable after 10
years. All irredeemable preference shares existing at the commencement of the Companies
(Amendment) Act, 1988, were to be redeemed within five years.
[s 55.49] Irredeemable or Redeemable Preference Shares to be Redeemed [Section 80A(1)]
All irredeemable preference shares existing on the commencement of the Companies (Amendment)
Act, 1988, were to be redeemed by the company within five years from 15 June 1988 notwithstanding
the terms of issue of the preference shares. Likewise, existing redeemable preference shares, which
were not redeemable before 10 years from the date of issue, were to be redeemed by the company
on the due date of redemption or within 10 years from 15 June 1988, whichever was earlier. There is
no corresponding provision under section 55 of the 2013 Act.
[s 55.50] Extension of Time for Redemption by Fresh Issue [Proviso]
commentary above.
[s 55.51] Overriding Effect [Sub-section (2)]
The court, or the tribunal, or the Central Government or the shareholders cannot modify or vary the
provisions of section 80A of the 1956 Act. This section has overriding effect over the provisions of
sections 106, 391 to 395 and 396 of the 1956 Act. There is no corresponding provision under section
55 of the 2013 Act.
If default is made in complying with the provisions of section 80A of the 1956 Act, the company shall
be punishable with fine up to Rs 10,000 for every day during which the default continues and every
officer who is in default shall be punishable with imprisonment up to three years and also fine.
Section 55 of the 2013 Act does not have a specific penalty provision.
Section 55 of the 2013 Act is substantially different from section 80 of the 1956 Act. However, it does
continue the position created by section 80A of the 1956 Act. Section 55 now prohibits the issue of
irredeemable preference shares and caps the period for which shares may be redeemed at 20 years.
Further, section 55 of the 2013 Act grants a specific exemption from this restriction to companies
engaged in infrastructure projects which may issue preference shares which may be redeemed after
30 years. Section 55 also does not contain an overriding provision in line with that provided under
section 80A, which stated that the court, tribunal, Central Government or the shareholders cannot
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modify or vary the provisions of section 80A.
Sections 80 and 80A of the 1956 Act have been repealed to the extent of their overlap with section
55 of the 2013 Act, upon the notification of section 55 of the 2013 Act, w.e.f. 1-4-2014.
89 Sub-sections (1) and (2) were notified by Notification No. S.O. 902(E). dt. 27 March 2014, w.e.f. 1 April 2014. Section
55 corresponds to sections 80 and 80A of the 1956 Act.

91 Sub-section (3), notified by Notification No. S.O. 1934(E), dt. 01-06-2016, w.e.f. 01 June 2016.
92 Sub-section (4), notified by Notification No. S.O. 902(E). dt. 27-03-2014 w.e.f. 1 April 2014.
3 In Re, Birla Global Finance Ltd, (2005) 126 COMP CASES 647 (Bom.) : (2004) 1 Comp. LJ 430 (Bom.).
4 Lalchand Surana v Hyderabad Vanaspathy Ltd, (1990) 68 COMP CASES 415 (AP).
5 Lalchand Surana v Hyderabad Vanaspathy Ltd, (1990) 68 COMP CASES 415 (AP).
6 Barclays Bank plc v. British and Commonwealth Holdings plc, (1996) 1 All ER 381 : (1996) 1 BCLC 1.
7 Re PSI Data Systems Ltd, (1999) 98 COMP CASES 1 (Ker.) : AIR 2000 Ker. 23.
8 Re Glofame Cotspin Industries Ltd, (2006) 130 COMP CASES 334 (Guj.).
9 Vijayan Rajes v M.S.P. Plantations Pvt Ltd, (1999) 95 COMP CASES 482 (CLB); Re, Bellador Silk Ltd., (1965) 1 All ER
667 (ChD). See also notes under sections 397 and 398.
10 Anarkali Sarabhai v CIT, (1997) 89 COMP CASES 28 (SC) : (1997) 224 ITR 422 (SC).
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12 Re Mangalore Chemicals and Fertilizers Ltd., (1994) 79 COMP CASES 551 (CLB); Re, British India Corporation Ltd.,
(1994) 79 COMP CASES 688 (CLB); Re, Kalyanpur Cements Ltd., (1993) 3 Comp. LJ 109 (CLB).
13 Re Kettlewell Bullen and Co Ltd., (1995) 84 COMP CASES 757 (CLB); Re Auckland Holdings Ltd., Re, (1995) 82
COMP CASES 622 (CLB).
14 Raja Ram Corn Products (Punjab) Ltd v Co Law Board, (2001) 106 COMP CASES 563 (P&H) (DB).
15 Re Rishi Gases Pvt Ltd, (1995) 83 COMP CASES 589 (CLB); Re Caledonian Jute and Industries Ltd., (1996) 85
16 Re Madras Valves Ltd., (1995) 84 COMP CASES 511 (CLB).
17 Sahu Cylinders and Udyog Pvt Ltd v Registrar of Cos, (2007) 138 COMP CASES 385 (Mad.) (DB).
22 Substituted by the Companies (Amendment) Act, 1999 (21 of 1999), section 7 (w.r.e.f. 31 October 1998), for “share
premium account.” This amending Act has been repealed by the Repealing and Amending Act, 2016.
23 Substituted by Act 65 of 1960, section 23, for “the capital redemption reserve fund.” This amending Act has been
24 Substituted by the Companies (Amendment) Act, 1960 (65 of 1960), section 23, for “section 601.” This amending Act
26 Substituted by the Companies (Amendment) Act, 1996 (5 of 1997), section 5 [(w.e.f. 1 March 1997) vide Notification
No. G.S.R. 78(E), dt. 15 Feburary 1997 : (1997) 88 COMP CASES (St.) 228]. For sub-section (5A), which was earlier
inserted by Act 31 of 1988, section 13 (w.e.f. 15-6-1988), as it stood prior to its substitution, see Annexure at the end of
this Volume.
1,000” (w.e.f. 13- December 2000). This amending Act has been repealed by the Repealing and Amending Act, 2016.
28 Re Saint James’ Court Estate Ltd., (1944) ChD 6 : 112 LJ Chapter 193 : 170 LT 179.
29 Inserted by the Companies (Amendment) Act, 1988 (31 of 1988), section 14 (w.e.f. 15 June 1988).
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2015.
31 Substituted by Act 11 of 2003, section 13, for “any court”. (Enforcement date not notified). This amending Act has been
repealed by the Repealing and Amending (Second) Act, 2015.
1,000.” This amending Act has been repealed by the Repealing and Amending Act, 2016.
End of Document
Mr. Laghir1 Rabari

33 Notified by Notification No. S.O. 902(E), dt. 26 March 2014 w.e.f. 01 April
2014 and corresponds to sections 108, 109B, 110 and 113 of the 1956 Act. [s
56] Transfer and transmission of securities.—
33 [s 56] Transfer and transmission of securities.—
(1) A company shall not register a transfer of securities of the company, or the interest of a
member in the company in the case of a company having no share capital, other than the
transfer between persons both of whose names are entered as holders of beneficial interest
in the records of a depository, unless a proper instrument of transfer, in such form as may be
prescribed,34 duly stamped, dated and executed by or on behalf of the transferor and the
transferee and specifying the name, address and occupation, if any, of the transferee has
been delivered to the company by the transferor or the transferee within a period of days from
the date of execution, along with the certificate relating to the securities, or if no such
certificate is in existence, along with the letter of allotment of securities:
Provided that where the instrument of transfer has been lost or the instrument of transfer
has not been delivered within the prescribed period,35 the company may register the
transfer on such terms as to indemnity as the Board may think fit.
(2) Nothing in sub-section (1) shall prejudice the power of the company to register, on receipt of
an intimation of transmission of any right to securities by operation of law from any person to
whom such right has been transmitted.
(3) Where an application is made by the transferor alone and relates to partly paid shares, the
transfer shall not be registered, unless the company gives the notice of the application, in
such manner as may be prescribed,36 to the transferee and the transferee gives no objection
to the transfer within two weeks from the receipt of notice.
(4) Every company shall, unless prohibited by any provision of law or any order of Court, Tribunal
or other authority, deliver the certificates of all securities allotted, transferred or transmitted—
(a) within a period of two months from the date of incorporation, in the case of subscribers to
the memorandum;
(b) within a period of two months from the date of allotment, in the case of any allotment of
any of its shares;
(c) within a period of one month from the date of receipt by the company of the instrument of
transfer under sub-section (1) or, as the case may be, of the intimation of transmission
under sub-section (2), in the case of a transfer or transmission of securities;
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33 Notified by Notification No. S.O. 902(E), dt. 26 March 2014 w.e.f. 01 April 2014 and corresponds to sections
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
(d) within a period of six months from the date of allotment in the case of any allotment of
debenture:
Provided that where the securities are dealt with in a depository, the company shall intimate
the details of allotment of securities to depository immediately on allotment of such securities.
(5) The transfer of any security or other interest of a deceased person in a company made by his
legal representative shall, even if the legal representative is not a holder thereof, be valid as if
he had been the holder at the time of the execution of the instrument of transfer.
(6) Where any default is made in complying with the provisions of sub-sections (1) to (5), the
company shall be punishable with fine which shall not be less than twenty-five thousand
rupees but which may extend to five lakh rupees and every officer of the company who is in
default shall be punishable with fine which shall not be less than ten thousand rupees but
which may extend to one lakh rupees.
(7) Without prejudice to any liability under the Depositories Act, 1996 (22 of 1996), where any
depository or depository participant, with an intention to defraud a person, has transferred
shares, it shall be liable under section 447.
NOTES
Section 56 of the 2013 Act corresponds to sections 108, 109B, 110 and 113 of the 1956 Act. For
notes on section 109B of the 1956 Act see Notes under section 72 of the 2013 Act.
This clause corresponds to section 108, 109B and 110 of the Companies Act, 1956 and seeks to provide that transfer
of securities/interest of a member not to be registered except on production of instrument of transfer duly stamped,
dated and executed. In case of loss of the instrument, the company may register the transfer in terms of indemnity.
Where an application relates to partly paid up shares, the transfer shall not be registered unless a notice is issued to
the transferee. In case of refusal of transfer of shares, transferee may appeal to the Tribunal. [Clause 56 of the
[s 56.2] Registration of Transfer of Shares [Section 56(1)]
A company is not permitted to register a transfer of securities of the company, or an interest of the
member (where the company has no share capital), unless a proper instrument of transfer, in the
prescribed form, has been delivered to the company. The instrument of transfer must be duly
stamped, dated and executed by the transferor and the transferee containing the name, address and
occupation, if any, of the transferee, within a period of 60 days of the date of execution, along with
the certificate relating to the securities. If there is no certificate in existence, then the letter of
allotment may be submitted. This procedure is not required in respect of a transfer between persons,
both of whose names are entered as holders of the beneficial interest in the records of the
depository. When the instrument of transfer has been lost or the instrument of transfer has not been
delivered within the prescribed period, then the company is permitted to register the transfer, subject
to the terms of indemnity as it thinks fit.
[s 56.3] Instrument of Transfer
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108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
An instrument of transfer of securities held in physical form must be in Form No. SH.437 and every
instrument of transfer with the date of its execution, as specified on the instrument, should be
delivered to the company within 60 days from the date of such execution.38
Where the company does not have share capital, then the transfer in question will be of the interest
of the member in the company, rather than of the securities.39
[s 56.4] Instrument of Transfer to be Produced
For transfer of shares or debentures (1) an instrument in the prescribed form, (2) duly stamped, (3)
executed by or on behalf of the transferor and the transferee, (4) specifying the name, address and
occupation, if any, of the transferee, and (5) together with the certificate relating thereto or if no
certificate has been issued, the letter of allotment therefor, should be submitted to the company. If
these conditions are not fulfilled, the board of directors will not be competent to register the transfer.40
In the case of dematerialised shares, a depository slip is sufficient, and a share transfer form does
not require to be executed.
[s 56.5] Provisions of section 108 [Now Section 56] Mandatory
The provision contained in section 108 that a company shall not register a transfer of shares in the
company unless a proper instrument of transfer duly stamped and executed by or on behalf of the
transferor and the transferee has been delivered to the company along with the certificate of shares,
is mandatory in character. The prohibition against transfer without complying with the provisions of
section 108 of the 1956 Act is emphasised by the negative language used in the section. Where the
transfer of shares was registered pending attachment of shares in a tax recovery proceedings, the
Supreme Court held that the registration of transfers contrary to mandatory provisions of section 108
of the 1956 Act and pending attachment of the shares was illegal. When the receiver held the scrips
and blank transfers it was not open to the persons in whose names the shares originally stood to
exercise the right of ownership in respect of such shares or transfer that ownership to anyone else.41
Where the company contended that the transfer instruments were found defective as they did not
indicate the consideration for the shares nor the dates of execution. These were two very essential
requirements to make transfer instruments valid in terms of section 108 of the 1956 Act. Only when
the instruments of transfer are in accordance with the law, the question of considering the registration
of transfer would arise and, therefore, no direction for registration of transfer could be granted.42
Section 108(1) of the 1956 Act is mandatory. Unless the procedural requirements including
remittance of the fee for registration of the transfer of shares as specified by the articles of
association of the company are fully complied with, transfer of shares cannot be valid.43
[s 56.6] Non-Compliance with section 108 (Now section 56) not a Technicality—Private
Company
Non-compliance with section 108 of the 1956 Act is not a technicality. Transfer of shares in a private
company must be as per articles of the company.
As per the articles of a company, the founder and his wife or their nominee were to have first right of
pre-emption. On the death of the founder, the executors held the shares as joint shareholders. The
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108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
widow exercised the right of pre-emption but disputed the value fixed for the shares. No time was
fixed in the articles for completion of the contract. There was no right in the directors to unilaterally fix
the time and treat the contract as repudiated upon the expiry of time. There was no repudiation of
contract. There was no right in the directors to transfer the shares to the outsiders. transfer to
outsiders was not valid. further, the provisions as to transfer deed and stamp duty in section 108 of
the 1956 Act (corresponding to section 56 of the 2013 Act) are mandatory. The executors/trustees
are ordinary shareholders. Resolution among trustees authorising one of them to transfer the shares
cannot override the provisions of the 1956 Act. The transfer of shares not signed by all the executors
was not valid. The power to act by majority qua executors and authorising someone to act as a
shareholder on another’s behalf are distinct. There is no question of transferring shares by signature
of a majority. Whatever the agreement between executors, inter se, the agreement cannot override
the provisions of the 1956 Act and under section 108 the company is bound to recognise only those
transfers for the purpose of registration which are executed in terms of that section. The company
does not take notice of any Trust, and must act in accordance with the Act under which it is
constituted, with regard to placing persons upon the register. Ratification is possible in respect of an
act which is incompetent, by a person who would have been competent to do such act. A violation of
section 108 cannot be ratified by the board of directors, as the act was one which the board was
incompetent to allow. Where no time is fixed for completion of a transfer of shares, it is not open to
either the vendor or purchaser to serve notice limiting a time at the expiration of which he will treat
the contract as at an end. For an act to constitute a repudiation of a contract it must be such an act
indicating an intention to refuse to perform the contract and to set the other party free from
performing his part. That in any event the executors’ resolution authorising one of them to effect the
transfer of the shares could not override the provisions of section 108 of the 1956 Act which prohibit a
company from registering or transferring shares in the company unless a proper instrument of
transfer duly stamped and executed by and on behalf of the transferor and by and on behalf of the
transferee and specifying the name, address and occupation if any of the transferee, has been
delivered to the company. Even if the four executors had wanted registration only in the capacity of
executors and the company also acquiesced in it, the four executors would continue to be ordinary
shareholders and a transfer by one of them alone would be an invalid transfer.44
See detailed notes on restrictions and special procedure in articles of private company binding
(sections 2(68), 58 and 59 of the 2013 Act), articles of private company prohibiting transfer to non-
members, shares of private company not “marketable security,” articles of private company cannot
prohibit transfer, pre-emption clause or pre-emptive rights in articles of a private company, appeal
against refusal by private company (sections 58 and 59 of the 2013 Act), etc. dealt with later in this
section.
[s 56.7] Transfer of Some Shares Covered by Composite Certificate
Where an application for registration of transfer of shares is accompanied by the transfer deed as
well as a composite certificate for a larger number of shares than those transferred, it would be in full
compliance of section 108 of the 1956 Act. The company in due course issues to the transferor a
fresh certificate for the balance; or, according to the practice of some companies, indorses on the
deposited certificate particulars of the shares transferred, and then returns the certificate to the
depositor. Sometimes on the deposit and before the issue of a fresh certificate, the depositor is given
a balance ticket. The certificate, in effect, means a statement by the company that certain documents
have been delivered to the company for the purpose of transfer of shares. It is a kind of receipt. It is a
representation by the company to any person acting on the faith of such certificate that documents
show a prima facie title to the shares in the transferor’s name in the instrument of transfer. There is
no necessity for prior application for sub-division of the certificate. The provisions of section 112 of
the 1956 Act laying down the procedure for certification of transfers have been made to facilitate the
sale of a smaller number of shares in case the share certificate is for a larger number of shares.45
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Page 5 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
[s 56.8] Transferor or Attorney must Sign
Instrument of transfer is to be executed by or on behalf of the transferor and the transferee. The
provisions of section 108 of the 1956 Act are mandatory. Therefore, the transferor or duly constituted
attorney must sign the transfer deed. Where the power of attorney holder of the shareholder was not
given authority under the document to transfer shares and third party signed as delegate of the power
of attorney holder, the transfer was held to be invalid. As the transfer was effected in contravention of
mandatory provisions of the Act, the petitioner continued to be member and could take action for
relief against oppression and mismanagement.46
[s 56.9] Authorisation in Writing
Transfer deed must be executed by or on behalf of the transferor. When the instrument of transfer is
executed by a person on behalf of the transferor there must be authorisation in writing by the
shareholder.47
[s 56.10] Change in Specimen Signature
Where the transferor after lodging documents with the company intimated a change in his specimen
signature. The company is not expected to suspect the genuineness of the transaction merely on this
ground.48
[s 56.11] Attestation of Transferor’s Signature
The requirement of the attestation of the transferor’s signature may be necessary when the signature
does not tally with or that it is done by means of thumb impression only. Insufficient notarial stamps
would not invalidate the instrument as not duly stamped.49
[s 56.12] Transfer of Letter of Allotment
Letters of allotment in the absence of share certificates or bonds may be transferred. But, they are
not negotiable instruments and cannot be equated with shares, bonds or debentures.50
[s 56.13] Transfer Deed must be Duly Stamped
Transfer deed in order to be registered must be “duly stamped.” As per section 12 of the Indian
Stamp Act, 1899 (2 of 1899), cancellation of the stamps has to be done either when the stamps are
affixed or when the instrument is executed, i.e., when the executant affixes his signature to the
instrument. An instrument in order to be produced in evidence, registered or acted upon, must be
duly stamped. Therefore, if the instrument is not properly executed or the stamp affixed to the
instrument is not cancelled before execution or at least at the time of execution, the said instrument
must be deemed to be unstamped. Refusal to register the transfer of shares or debentures is
mandatory where the transfer deed is not “duly stamped.” Where adhesive stamps were not
cancelled at the time of execution but at the time of lodgement the transfer deed was not duly
stamped. Transfer fee was also not paid. There was no valid lodgement. Therefore, refusal to register
the transfer by the board of directors was valid. The court [the CLB now the Tribunal (NCLT)] cannot
direct the registration of transfer of shares unless the instrument of transfer is duly stamped and the
stamp is cancelled as required by the statute.51
[s 56.14] Stamp Duty on Transfer of Shares
The stamp duty on Transfer of shares or the Instrument of transfer varies from time to time. Share
transfers are a central subject and are dealt with under the provisions of the Indian Stamp Act, 1899.
[s 56.15] Stamp Duty on Transfer of Debentures
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Page 6 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
For Stamps on Transfer of Debentures see Article 62(b), Schedule I of the Indian Stamp Act, 1899 (2
of 1899).
[s 56.16] Liability to Pay Stamp Duty
Liability to pay stamp duty is on the transferor unless otherwise agreed [s. 29 of the Indian Stamp
Act, 1899 (2 of 1899)].52
[s 56.17] Stamp on Value/Consideration
Where instruments of transfer were uniformly affixed with a Rs 2 stamp irrespective of the value of
the consideration noted on the transfer instruments. On the basis of the value indicated on the
instrument the stamp duty should have been very much higher than Rs 2. The instruments of transfer
were not “duly stamped” and the company could not be ordered to rectify the register.53
[s 56.18] Company cannot Impound Documents
The company cannot impound any documents for reason of insufficient stamp or for non-cancellation
of stamps. Such documents should be immediately returned to the person who lodged the same
pointing out the defects for rectification. The board of directors of a company cannot be treated as an
authority empowered to impound within the meaning of section 33(1) of the Indian Stamp Act, 1899,
which clearly specifies “authorities” as only those who have authority to receive evidence by virtue of
any law or by consent of parties.54
[s 56.19] Transfer Registered with Insufficient Stamps
Where a transfer with insufficient or inadequate stamps has been registered by the company, the
name of the transferee cannot be removed from the register of members if the proper stamp duty and
penalty thereon have been paid.55
[s 56.20] Company cannot Claim Registration Invalid
The company after registering the transfer cannot itself later claim the registration invalid for failure to
cancel stamps. When there was no provision in the articles of a public company that the transfers
must have sanction of the board of directors. The company cannot claim the transfer void for lack of
resolution of the board of directors.56
[s 56.21] Stamp Duty on Depositories
Section 8A of the Indian Stamp Act, 1899 (2 of 1899), inserted by the Depositories Act, 1996 (22 of
1996), and subsequently amended provides as follows:
Section 8A. Securities dealt in depository not liable to stamp duty.—(1) Notwithstanding anything contained in this
Act or any other law for the time being in force,—
(a) an issuer, by the issue of securities to one or more depositories, shall, in respect of such issue, be chargeable
with duty on the total amount of security issued by it and such securities need not be stamped;
(b) where an issuer issues certificate of security under sub-section (3) of section 14 of the Depositories Act, 1996
(22 of 1996), on such certificate duty shall be payable as is payable on the issue of duplicate certificate under
this Act;
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Page 7 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
(c) the transfer of—
(i) registered ownership of securities from a person to a depository or from a depository to a beneficial
owner;
(ii) beneficial ownership of securities, dealt with by a depository;
(iii) beneficial ownership of units, such units being units of a Mutual Fund including units of the Unit Trust of
India established under sub-section (1) of section 3 of the Unit Trust of India Act, 1963 (52 of 1963),
dealt with by a depository,
• shall not be liable to duty under this Act or any other law for the time being in force.
Explanation 1.—For the purposes of this section, the expressions “beneficial ownership,” depository” and “issuer” shall
have the meanings respectively assigned to them in clauses (a), (e) and (f) of sub-section (1) of section 2 of the
Depositories Act, 1996 (22 of 1996).
Explanation 2.—For the purposes of this section, the expression “securities” shall have the meaning assigned to it in
clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).
[s 56.22] Transfer Fees
As per Regulation 22(a) of Table A of Schedule I to the 1956 Act, the board of directors may decline
to recognise any instrument of transfer unless a fee of Rs 2 is paid to the company in respect thereof.
Where transfer fees prescribed in the articles was not paid. It was held that there was no valid
lodgement and refusal to register the transfer by the board was valid.57
However, transfer fee though not deposited at the time of lodgement of shares but paid before the
board meeting to consider the transfer was held to be valid. Where, by the time the board of directors
of the company consider the transfers, the transfer fee is paid, non-receipt of the fee along with the
instruments of transfer cannot be a material factor for declining the registration.58
[s 56.23] Registration of Transfer of Shares—Requirement as to Lodgement
A company may refuse to register transfer of shares for various reasons. Where the shares are freely
transferable refusal to transfer can be only on limited grounds. Some such grounds may be that the
transfer is mala fide or the transferee is not a bona fide investor or the transfer is not permissible in
terms of one or the other provisions of the articles of association or is otherwise prohibited in law.
However, before the company can be asked to perform its duties in terms of the said provisions, the
procedural requirements contained in section 108 of the 1956 Act, are required to be complied with.
Section 108 of the 1956 Act requires the applicant desiring to obtain registration of transfer of shares
in its favour to comply with the provisions contained therein. It is, therefore, ordinarily for the applicant
to comply with all formalities. If it does not do so it cannot make the company bound to effect the
transfer, unless sufficient and cogent reasons are assigned. The time is specified in the provisions for
filing of such an application in the prescribed form and upon complying with the requirements
prescribed therein. Whether a statute would be directory or mandatory will depend upon the scheme
thereof. Ordinarily a procedural provision would not be mandatory even if the word “shall” were
employed therein unless a prejudice is caused. However, even if a statute is directory in nature it
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Page 8 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
should be substantially complied with. What would satisfy the requirements of substantial
compliance, however, would depend upon the facts of each case. Where shares were transferred to
the Financial Corporation pledged to it as security. It was contended that the corporation lodged the
documents with the company beyond prescribed time. The corporation ought ordinarily to have
lodged the said shares with the company for registration of the transfer by 8 December 1999, but it
had done so only on 2 January 2001. The High Court directed the company to register the transfer.
On appeal, the Supreme Court dismissing the appeal, held that the company did not state how they
would be prejudiced by the act of the corporation in not filing the application for registration of transfer
of shares within the prescribed period. The pledge of shares was not in dispute. Furthermore, by
reason of the judgment of the High Court no injustice as such had been done to the appellants and in
that view of the matter the Supreme Court in exercise of its jurisdiction under Article 136 of the
Constitution of India would not interfere, even if it might be lawful to do so.59
See grounds of refusal and rectification of register on transfer in case of private company under
section 58 of 2013 Act of this commentary.
It is well-settled that blank transfers of shares are valid.60
The position of a shareholder who gets dividend when his name stands in the register of members of
the company causes no difficulty whatever. But transfers of shares are common, and they take place
either by a fully executed document contemplated by regulation 19 of Table A of Schedule I to the
1956 Act or by what are known as “blank transfers.” In such blank transfers, the name of the
transferor is entered, and the transfer deed signed by the transferor is handed over with the share
scrip to the transferee, who, if he so chooses, completes the transfer by entering his name and then
applying to the company to register his name in place of the previous holder of the share. The
company recognises no person except one whose name is on the register of members, upon whom
alone calls for unpaid capital can be made and to whom only the dividend declared by the company
is legally payable. Of course, between the transferor and the transferee, certain equities arise even
on the execution and handing over of “a blank transfer,” and among these equities is the right of the
transferee to claim the dividend declared and paid to the transferor who is treated as a trustee on
behalf of the transferee. These equities, however, do not touch the company, and no claim by the
transferee whose name is not in the register of members can be made against the company, if the
transferor retains the money in his own hands and fails to pay it to him.61
[s 56.25] Blank Transfer Effective when Registered
Even where the holder of a share whose name is entered in the register of members hands over his
shares with blank transfer forms duly signed, the transferee would not be able to claim the rights of a
member as against the company concerned until his name is entered in the register of members. In
case of blank transfer, the company is not bound to recognise the transferee until the transfer form
duly filled in is submitted and his name is registered.62
In case of blank transfer, the company is not bound to recognise the transferee until the transfer form
duly filled in is submitted and his name is registered. Where a blank transfer is involved a right may
arise between the transferor and the transferee, inter se. When a transfer is registered it relates back
to the time when the transfer was made.63
[s 56.27] Rights of Transferee if Transfer not Registered
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Page 9 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
The company is entitled to deal with the shareholder who is on the register of members, and only a
person who is on the register is in the full sense of the word owner of the share. But the title to get on
the register consists in the possession of a certificate, together with a Transfer Instrument signed by
the registered holder.
There is a distinction between “the title to get on the register” and “the full property in the shares in a
company.” The first right is acquired by mere delivery, with the required intention, of the share
certificate and a blank transfer form signed by the transferor. The second right is only obtained when
the transferee in exercise of his right to become a shareholder gets his name on the register in place
of the transferor. The antecedent right in the person to whom the share certificate is given with a
signed blank transfer form under a transaction meant to confer a right or title upon him to become a
shareholder is enforceable so long as no obstacle to it is shown to exist in any of the articles of
association of a company or a person with a superior right or title, legal or equitable, does not appear
to be there.
Such a splitting up of right is contemplated by section 6 of the Transfer of Property Act, 1882 (4 of
1882). The requirements of form or mode of transfer are intended to ensure that the substantial
requirements of the transfer have been satisfied. They subserve an object. The right of the donee to
obtain the share certificates in accordance with the provisions of the company law is in itself a
“property” and separable from the technical legal ownership of the shares. The subsequent or “full
rights of ownership” of shares would follow as a matter of course by compliance with the provisions of
the company law. In other words, a transfer of “property” rights in shares, recognised by the transfer
of property Act, may be antecedent to the actual vesting of all or the full rights of ownership of shares
and exercise of the rights of shareholders in accordance with the provisions of the company law.
The companies Act is mainly concerned with the acts and proceedings relating to the formation,
running and extinction of companies, with rights, duties, and liabilities of those who are either
members or officers of such companies and all those who deal with the companies in their capacities.
Its subject matter is not transfer of property in general. It deals with transfers of shares only because
they give certain rights to the legally recognised shareholders and imposes some obligations upon
them with regard to the companies in which they hold shares. A share certificate not merely entitles
the shareholder whose name is found on it to dividend on the share held but also to participate in
certain proceedings relating to the company concerned.
See detailed notes under sections 2(55) and 56, 2013 Act (sections 41 and 108, 1956 Act).
[s 56.28] Manner of Transfer of Shares to be Provided by Articles
Section 108 of the 1956 Act does not really prescribe the mode of transfer but lays down the
provisions for “registration” of a transfer. In other words, it presupposes that a transfer has already
taken place. The manner of transfer of shares for the purposes of company law has to be provided by
the articles of the company and in the absence of such specific provisions, on the subject, regulations
contained in Table “A” of Schedule I to the companies act apply. There is nothing in the company law
to indicate that without strict compliance with some rightly prescribed form, the transaction must fail to
achieve its purpose. The subservience of substance of a transaction to some rightly prescribed form
required to be meticulously observed savours of archaic and outmoded jurisprudence.64
Mr. Laghir1 Rabari

Page 10 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
[s 56.29] Right of Ownership
When receiver held the scrips and blank transfers it was not open to the persons in whose names
shares originally stood to exercise the right of ownership in respect of such shares or transfer that
ownership to anyone else.65
[s 56.30] Transfer of Shares—Gift—Blank Transfer Form
In a petition filed under the 1956 Act, on the ground that the shares held by the petitioner in the first
respondent company had been illegally transferred in the name of the second respondent, the
petitioner sought rectification of the register of members to insert his name in the place of the second
respondent. The respondents contended that the petition was time barred as the transfer took place
on 31 December 1997, whereas the petition was filed only in June 2001 and that the shares were
gifted to the third respondent by the petitioner by executing blank instruments of transfer along with
undated letter of resignation as a director of the company. It was held (i) That there was nothing on
record to show that either verbally or in writing the petitioner had gifted the shares. From the copies
of the transfer deeds enclosed with the petition it was understood that except for the name of the
company all other details in the instruments of transfer had been filled in by someone else. The name
of the third respondent did not appear in the transfer instruments at all. When the petitioner denied
that he ever made a gift of the shares, the stand of the third respondent that the shares were gifted
on the sole ground that the petitioner had handed over blank forms could not be accepted. When
there was no evidence of gift and in the absence of share certificates, there was no question of the
petitioner doubting his continuing membership in the company. Therefore, when he discovered that
his shares had been transferred to the second respondent in March 2001 that was the date on which
the cause of action to file the petition arose. Hence, the petition was not time barred. (ii) That since
the factum of gift had not been established, the shares could not have been transferred without
consideration even assuming that handing over of blank forms indicated the intention of the petitioner
to transfer the shares. Transfer of shares without consideration was null and void. Therefore, the
prayer of the petitioner for rectification of register of members deserved to be granted. However, as
the relationship between the third respondent and the petitioner had soured, rectification of register of
members would not be in the interest of the company. Therefore, a direction was given to pay the
petitioner the consideration for the shares at the price on or before 31 May 2005, failing which the
company was to rectify the register by removing the name of the second respondent and inserting the
name of the petitioner in respect of the shares.66
See detailed notes on grounds of refusal and rectification of register on transfer in case of private
company under section 58 of the 2013 Act.
[s 56.31] Gift—Private Company not Issuing Share Certificates—Letter
Where the share certificates were admittedly in the custody of the private company, the company
was not entitled to contend that the share certificates should have accompanied the transfer
document and letter of gift for seeking registration of the transfer. Moreover, the shareholder Kamla
Shah had asked for duplicate certificates which the company had not issued. In the absence of
possession of the share certificates with the shareholder K and they being in the custody of the
company, the mere fact of addressing a letter to the company that the shares were transferred by her
by way of gift to Siddharth Shah, would constitute a valid gift to S. Moreover, the company was a
separate entity, it was not open to it to challenge the validity of the gift. The company itself not having
complied with the provisions of the Act, it was not entitled to raise a hyper-technical plea that there
was no valid application because the stamps had not been cancelled. This was not a case where by
virtue of the non-cancellation of the stamps the substantial rights of the respondent in the shares
should be defeated.67
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Page 11 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
[s 56.32] Transfer Effective Only when Registered
in the company’s register. A transfer effective between the transferor and the transferee is not
effective as against the company and persons without notice of the transfer until the transfer is
registered in the company’s register. Until the transfer is registered in the books of the company, the
person whose name is found in the register alone is entitled to receive the dividends, notwithstanding
that he has already parted with his interest in the shares. However, as between the transferor and
transferee of shares, on the transfer of shares, the transferee becomes the owner of the beneficial
interest though the legal title continues with the transferor. After the sale the transferor holds all
beneficial interest in respect of the shares for the transferee and is bound to do all such things as are
necessary to enable the transferee to get himself registered as a member. The relationship of trustee
and “cestui que trust” is established and the transferor is bound to comply with all the reasonable
directions that the transferee may give. He also becomes a trustee of the dividends as also of the
right to vote. It is well-settled that equity exists between a transferor and a transferee of shares and
the transferor is obliged to exercise voting rights in accordance with the directions or wishes of the
transferee. However, the right of the transferee “to get on the register” must be exercised with due
diligence and the principle of equity which makes the transferor a constructive trustee does not
extend to a case where a transferee takes no active interest “to get on the register.”68
[s 56.33] “Share” Denotes Rights and Obligations
A “share” in a company denotes rights and obligations. When a member transfers his shares he
transfers all his rights and obligations from the date of the transfer. He does not transfer rights to
dividends or bonuses already declared nor his liabilities in respect of calls already made.69
However, ordinary shareholders become owners of bonus shares from the date of resolution. It is
erroneous to hold that a share cannot be held to have been issued to a person until a share
certificate is given to him.70
[s 56.35] Right to Dividend, Rights Shares and Bonus Shares to be Held in Abeyance Pending
Registration of Transfer of Shares [Section 126]
Section 126 of the 2013 Act provides that where an instrument of transfer of shares has been
delivered to a company for registration and the transfer has not been registered by the company, it
shall, notwithstanding anything contained in any other provision of this Act—(a) transfer the dividend
in relation to such shares to the unpaid dividend account referred to in section 125 of the 2013 Act
unless the company is authorised by the registered holder of such share in writing to pay such
dividend to the transferee specified in such instrument of transfer; and (b) keep in abeyance in
relation to such shares any offer of rights shares under section 62(1)(a) and any issue of fully paid-up
bonus shares in pursuance of section 123(3) of the 1956 Act.
See detailed notes under section 126.
[s 56.36] Dividend, Rights/Bonus Shares
The board of directors must either register or refuse to register the transfer within the time limits. In
case of lack of information whether the transferee was an investment company there was no option
with the board of directors to retain the securities beyond the time limits. The liquidator empowered
by resolution to take action in all outstanding matters can move the CLB [now the Tribunal (NCLT)]
Mr. Laghir1 Rabari

Page 12 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
for rectification. The shares were ordered to be registered in the company’s name. The company was
entitled to arrears of dividend, rights shares/debentures issued in the interregnum.71
[s 56.37] Transfer when Complete
Transfer of shares is complete when duly executed and stamped transfer deed along with concerned
share certificate is delivered to the company irrespective of the fact whether the company registers it
or not. When the transfer is registered in the books, the transferee gets full title for the purposes of
the companies Act. Even in cases where the company refuses to register the transfer, the transferee
becomes the owner of the shares in equity, with a right to claim dividends from the transferor when
they are declared by the company and also a right to give directions to the transferor as to how he
should vote at the meetings of members.72
Requirements of section 108 (now section 56 of the 2013 Act) are mandatory. After the transfer deed
is executed and documents are delivered the transferee becomes the owner as against the
transferor. As between the transferor and transferee, the transfer is complete when the documents
are duly executed. After the transferee submits his documents with the company for registering his
name and the company registers his name the transferee becomes a member and not before that.
The transferee becomes a shareholder only when the transfer is registered in the company’s register.
In the interim period the transferee is the real legal owner as far as other persons are concerned
excepting the company. Transfer deed has to be lodged with the company. Transfer is complete only
after acceptance by the company as proper lodgement. Until the company registers the same the
legal title remains with the transferor so far as the company is concerned. Where adhesive stamps
were not cancelled at the time of execution but at the time of lodgement the transfer deed was not
duly stamped. Transfer fee was also not paid. There was no valid lodgement. The refusal to register
the transfer by the Board was valid.73
Where all formalities have been completed as between the transferor and the transferee, the shares
should be taken to have been transferred to the transferee though until the name of the transferee is
entered in the books of the company, he will not be able to exercise the rights of a shareholder.74
[s 56.38] Both Transferor and Transferee may Seek Registration of Transfer
Under sections 108 and 110 of the 1956 Act, both the transferor and the transferee may seek the
registration of transfer of shares subject to the conditions and restraints imposed by these sections.
Once the transferor had signed the instrument of transfer and it was duly stamped, title in the shares
passed on to the transferee. The pendency of partition suit among the transferee’s family members
would not justify the company to refuse to register the transfers of shares. A third party might
question the title of the transferee but the company cannot question the title if the transferee submits
duly executed transfer deeds.75
[s 56.39] Transferor Treated as Trustee for the Transferee
In transferring shares the transferor makes an implied representation that the company will register
the shares. If the company refuses to register the transfer for no fault or default of the transferee, the
transferor shall be treated as trustee for the transferee and would be bound to act in accordance with
the directions of the transferee and for his benefit in respect of the shares unless the transferee has
rescinded the contract and sought to recover the consideration money.76
[s 56.40] Shares Transferable Like Movable Property [Section 44]
Restrictions on transferability of shares in any form other than those mentioned in the articles of
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Page 13 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
association of the company cannot prevent the company from accepting a transfer and cannot
deprive the shareholders of their rights to transfer the shares. Stipulation in franchise agreement
governs relationship between the parties to the agreement and shall not be a restraint on
shareholders’ right to transfer shares.77
[s 56.41] Sections 82 and 108 [Now Sections 44 and 56 of the 2013 Act]
The combined effect of sections 82 and 108 is that though the shares of a company are movable
property, unless there is a valid deed of transfer, the transferee cannot claim to have his name
entered in the register of members of the company. Similarly, the right to a duplicate share is
regulated by section 84. Where the company was not a party to the proceedings and no agreement
could be shown, it was held that mandatory injunction issued against the company was not justified.78
[s 56.42] Sufficient Cause
In case of a public company, the grounds mentioned in section 111A (now section 58 of the 2013
Act) would constitute a sufficient cause on which the CLB [now the Tribunal] can order rectification of
the register of members under sub-section (3) of section 111A. The CLB [now the Tribunal] may
order rectification of register on transfer or order registration of a transfer. The proviso to sub-section
(2) of section 111A relates to pre-registration issues, while sub-section (3) relates to post-registration
issues.79
[s 56.43] Refusal by Public Company on no other ground
The entire scheme of section 111A (now section 58 of the 2013 Act) is in two parts, namely (a)
section 111A(2) proviso deals with appeals on refusal or delay in registration of transfer or
transmission without sufficient cause, (b) section 111A(3) deals with rectification of the register of
members on transfer on three specified grounds only. Barring this, the general tenor of law as applied
to public companies is that the securities of public companies shall be freely transferable. No general
power of rectification of register on any other ground has been conferred on the CLB [now the
Tribunal (NCLT)].80
Section 111A (now section 58 of the 2013 Act) of the 1956 Act stipulates that the shares of a public
company are freely transferable and any stipulation in the articles of public companies contrary to the
same, putting fetters on the free transferability, would be hit by the provisions of section 9 of the 1956
Act.81
[s 56.45] Petition Wrongly Filed
Petition wrongly filed under section 111 (now section 58 of the 2013 Act) in respect of a public
company was treated as filed under section 111A (now section 58 of the 2013 Act) of the 1956 Act.82
[s 56.46] Restrictions in Articles of Private Company Binding [Section 58]
Under the companies Act, the requirements of free transferability shall not affect the right of a private
company under its articles of association to enforce the restrictions regarding transfer of shares of the
private company.
The conditions imposed by the articles of a private company read with provisions of the companies
Act are mandatory. If the articles of a private company provide that every instrument of transfer must
be accompanied by the certificate for the shares to be transferred and a fee for the registration of
transfer and an application for registration of transfer of shares is made without complying with these
Mr. Laghir1 Rabari

Page 14 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
requirements, which are mandatory, the board of directors is well justified in rejecting the transfer.83
[s 56.47] Restrictions Only in Articles of Private Company Binding
Restrictions contained only in the articles of association of a private company are binding. Additional
company. In spite of such an agreement the company can transfer the shares at the request of a
member.84
Where the articles of association of a private company prohibited any transfer of shares without the
previous sanction of the directors. There should be a written resolution of the board of directors
passed at the meeting of the board accepting the transfer. Such previous sanction should precede
the handing over of the shares.85
Where transfer of shares are required by the articles of a private company to be sanctioned by
unanimous decision of all directors, in absence of a director at a meeting the resolution sanctioning
the transfer is invalid.86
Transfer of shares of a private company must be in strict compliance with the articles of association
violation of articles of a private company is not permissible. Where articles of a private company
permitted transfer to outsiders only where no member was willing to purchase. In case of pledge of
shares to supplier as security for payment for goods without any notice to the members, the board of
directors were right in refusing to transfer the shares in his name.87
[s 56.49] Special Procedure in Articles of Private Company
Where pursuant to section 108(1) of the 1956 Act proper instruments of transfer duly stamped and
executed on behalf of the transferor or transferee had not been delivered to the private company
along with the share certificates. The special procedure for transfer of shares in the articles of
association of the private company had not been followed, the company was directed to rectify the
register.88
[s 56.50] Articles of Private Company Prohibiting Transfer to Non-members
Where articles of a private company prohibited transfer of shares to non-members. The court auction
does not remove this prohibition and the board of directors shall be entitled under Articles to refuse to
register the shares to a non-member.89
[s 56.51] Shares of Private Company not “Marketable Security.”
The shares of a private company are not “marketable security” as defined in section 2(h) of the
Securities Contracts (Regulation) Act, 1956 (42 of 1956). A contract for sale and purchase of shares
in a private company is thus not governed by the provisions of the Securities Contracts (Regulation)
Act, 1956.90
[s 56.52] Articles of Private Company Cannot Prohibit Transfer
Articles of association of a private company can impose restrictions and regulate the transfer but
cannot prohibit transfer. But, a restriction that gives a right of pre-emption is a valid restriction and
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Page 15 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
does not amount to prohibition.91
Where absolute discretion is given to the board of directors to refuse sanction for transfer,
disapproval must be personal to particular transferee. Absolute ban on transfer, e.g., to corporate
bodies would not be valid.92
[s 56.53] Pre-emption Clause in Articles of a Private Company
Generally articles of association of a private company contain a pre-emption clause. If the company’s
articles provide for the right of pre-emption, then the shares are to be first offered to the existing
members. Where the widow of the founder of company was given pre-emptive rights to purchase
shares from members. There was proposal to sell shares held in trust under the Will of the founder.
The widow did not agree to the price fixed by the auditors. The trustees sold the shares to non-
members. Three trustees out of four signed the transfer deeds. The defect was curable. Though it is
desirable that the transfer of shares should be an item in the agenda of the board of directors under
section 286 of the 1956 Act, in the absence of such an Agenda the board of directors may take up
the matter. The transfer was held to be valid.93
[s 56.54] Pre-emptive Rights in Private Company
Pre-emptive rights contained in a private company’s articles could be exercised in case of voluntary
transfer of shares as also in case of succession of such shares on the death of a member.94
Where a shareholder appointed a bank as executor of a will and directed transfer of a share to a
named person, the pre-emption clause in the articles of the company may not be attracted when the
bank transfers the shares to the named person.95
[s 56.55] Deemed Waiver of Pre-emptive Rights
As has been held, once a director transferred his shares to third parties, he was not allowed to claim
pre-emptive rights as a shareholder.96
[s 56.56] Private Company—Shares Transferable Subject to Restrictions in Articles
Shares are movable property and are transferable. As far as private companies are concerned, the
articles of association restrict the shareholder’s right to transfer shares and prohibit any invitations to
the public to subscribe for any shares in, or debentures of, the company. Subject to this restriction, a
holder of shares in a private company may agree to sell his shares to a person of his choice. Such
agreements are specifically enforceable under section 10 of the Specific Relief Act, 1963 (47 of
1963). The section provides that specific performance of such contracts may be enforced when there
exists no standard for ascertaining the actual damage caused by the non-performance of the act
agreed to be done; or when the act agreed to be done is such that compensation in money for its
non-performance would not afford adequate relief. Shares in a Pvt Ltd company would come within
the phrase “not easily obtainable in the market.” There is a distinction between the issue of new
shares by a company and the transfer of shares already issued by a shareholder. In the first case, it
is the company which issues and allots the new shares. In the second, the transaction is a private
arrangement and the company comes into the picture only for the purposes of recognition of the
transferee as the new shareholder. Therefore, while it is imperative that the company should be a
party to any agreement relating to the allotment of new shares, before such an agreement can be
enforced, it is not necessary for the company to be a party in any agreement relating to the transfers
of issued shares for such agreement to be specifically enforced between the parties to the transfer. A
transfer of shares agreed to between shareholders inter se can bind them and be enforced like any
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Page 16 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
other agreement. Subject to restrictions upon the shareholder’s right to transfer shares as may be
specified in the articles of association of a private company, the holder of shares may agree to sell
shares to any person of his choice and any such agreement to sell shares is specifically enforceable.1
[s 56.57] Family Company—Transfer of Shares Contrary to section 108 [Now section 56 of the
2013 Act]
Allegations were made that the share transfer forms were not properly stamped and as such section
108 of the 1956 Act was not complied with. As transfer of shares in a family company between
brothers and their family members was pursuant to company’s board decision the decision was held
to be valid. The transfer was entered in the shares transfer certificate ledger. There was documentary
evidence of completed transfer though the share transfer form was not produced. There was also no
evidence that the transfer of the shares was in favour of “MA” in violation of section 108 of the 1956
Act.2
[s 56.58] Transfer of Shares—Family Concern—Absence of Proper Requirement
The respondent company was a family concern and there were transfer of shares between the
brothers and the family members pursuant to decision of the board of directors. The minutes of board
meeting showed transfer of shares in question and that said transfer of shares were recorded in the
share certificate ledger. The minutes of board meeting were approved and signed by the chairman of
the meeting. The minutes of board meeting formed conclusive evidence of proceedings being
entered thereto. It was presumed that the meeting of the board of directors was duly called and the
proceedings there taken place and this fact had not been disproved in fact. The Supreme Court held
that transfer of shares was effected in compliance with the provisions of the 1956 Act.3
[s 56.59] Transfer of Shares [Sections 53, 108, 164, 189(2)(a); (Now Sections 20, 56, 95 and
114 of the 2013 Act)]
maintainable and the company need not be a party to such agreement. A resolution passed by the
board of directors of the company indicated that the transfer deeds were duly approved. In this case
presumption is that the transfer of shares were properly executed and such transfer is valid even
though the price should be determined at a later date. For alteration of the articles of the company
Notice period is 21 days. Notice specifying the intention to pass special resolution by requisite
majority is required. Deletion of any particular article providing that certain shareholder shall be a
permanent managing director of the company was held not valid as the said notice did not specify the
intention of altering the said article. Despatch of such notice of convening the meeting of board of
directors of the company was not proved. The despatch register did not contain details of such
despatch. As such, the said meeting was not validly held and the resolutions passed were of no
effect. The minute book must be properly maintained and would be sufficient evidence of
proceedings of such meeting. Annual return has to contain full particulars mandatorily required.4
[s 56.60] Allotment of Additional Shares [Sections 53 and 108 (Now Sections 20 and 56 of the
2013 Act)]
The respondents decided to increase the share capital and to allot additional shares to its
shareholders. Notice was not given to appellant and his group who were all shareholders. The
certificate of posting of notice was suspected and it did not amount to conclusive proof of such
posting of notice. Further nobody on behalf of respondent gave any evidence that the notice of
proceedings was sent through post to the appellant. As certificate of posting of notice could not be
proved, the allotment of additional shares was invalid. It was further held that subsequent allotment of
shares to other shareholders and affirmation of such allotment of shares were also invalid. The
appellant was not served with notice according to provisions of section 53 of the 1956 Act or the
articles of association of the company. It was not proved that the sealed envelope contained such
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Page 17 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
notice or that the envelope was ultimately received by the appellant. The affidavit on behalf of the
respondent indicated entry in the local delivery book. As the service of Notice to the appellant was
not proved it was held that the allotment of shares was invalid.5
[s 56.61] Company Petition—Service of Notice [Sections 53, 108 and 189 (Now Sections 20, 56
and 114 of the 2013 Act)]
Service of notice must be personal service. Sufficient proof has to be shown that notice was duly
served personally. There was an entry in the local delivery book acknowledged to have been
received by personal assistant of the addressee concerned. It was further stated that the said notice
was sent by a peon. No evidence was produced that the letter was served to the addressee. The
court held that there was no service done. It was contended that proper documents were not
executed for transfer of the shares. The company, however, produced documents that the transfer
was approved by the board of directors and annual returns were filed showing such transfer, and
such transfer of the shares was admitted in counter-affidavit filed on behalf of transferor and
transferor received the consideration. The transfer was valid.6
[s 56.62] Validly of Transfer of Shares—Shares Transferred by Children
The shares were duly transferred by CHILDREN of “M” in favour of “MA”. “M” contended that the
children were only minor and had not knowledge of such transfer and as such, their transfer to “MA”
was invalid. However, it was found that a child “V” who was admittedly a major at the time of transfer
of the shares and was therefore competent to enter into a contract for sale of her shares to MA. The
shares of the child “S” were transferred by his mother and natural guardian to his father and the
father transferred the shares to “MA”. Such a transfer of shares was not a nullity.7
[s 56.63] Valuation of Transfer of Shares—Determination of Consideration Later
Section 9 of the Sale of Goods Act, 1930 (3 of 1930), allows parties not to fix the price at the time of
transfer of shares and to leave the determination of amount of consideration to a later date. The
petitioner alleged that condition for transfer was neither agreed to nor any consideration has in fact
been paid. It was held that transfer of shares is not void for uncertainty because of price not being
fixed or paid. Section 9 of the Sale of Goods Act, 1930, allows the parties not to fix the price at the
time of transfer and to leave determination of amount of consideration to a later date. The said
transaction was valid.8
[s 56.64] Instrument of Transfer not Duly Stamped—Consideration
If an instrument of transfer is not duly stamped, it would not invalidate the transaction between the
parties to such instrument. Rectification was sought by the transferor on the ground of failure of
consideration. The question as to whether there was consideration was not the concern of the
Company Law Board (CLB) [the Tribunal (NCLT)]. Transferor and transferee were the group
companies. No evidence was adduced by producing the original instruments of transfer. No inference
could be drawn that the transfer deeds were not duly stamped. Rectification was not ordered. The
petitioner company filed the petition under section 111(4) of the 1956 Act, but subsequently filed an
application under section 111A(3) of the 1956 Act seeking rectification of register of members of the
company. There was no legal impediment for treating the company petition as one filed under section
111A of the 1956 Act and passing appropriate order thereon in accordance with law. Quoting a wrong
section would not be a ground for rejecting an application in case it was otherwise maintainable.9
[s 56.65] Pre-emption not Enforceable in Public Company
In view of free transferability of shares of a public company as embodied the Act, the pre-emption
right is not enforceable under section 111A. Even in private company, the right of pre-emption can be
enforced only if it is incorporated in the articles of the private company. Remedy relating to transfer of
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Page 18 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
shares can be granted by the CLB [now the Tribunal (NCLT)] under sections 111 and 111A (now
section 58 of the 2013 Act). Jurisdiction of the CLB [now the Tribunal (NCLT)] is not merely of a
summary nature but includes within its compass power to hold a full-fledged enquiry in respect of title
to shares and decide questions in connection with the application for rectification. The right of pre-
emption flows from general law. Therefore, civil court can also try the issue whether the right existed.
However, even if the right existed, as the right of pre-emption is not enforceable in view of free
transferability of shares of a public company, the suit was not maintainable.10
[s 56.66] Powers of Board of Directors
The directors are not bound to register a transfer unless the application complies with the
requirement of section 108.11 If an instrument of transfer does not bear the stamp or is not duly
stamped, the directors are under no obligation to register the transfer. They must reject in limine.12
The directors may refuse to register a transfer where to their knowledge the stated consideration is
less than the real one.13
If a transfer is registered in contravention of this section, the register may be rectified by the court [the
CLB now the Tribunal)].14 But, until that is done the transfer remains valid. And the transferor will be
treated as trustee for the transferee in respect of the rights relating to the shares so transferred.15
[s 56.67] Discretion of Board of Directors
Where the directors have absolute discretion under the articles to refuse registration of transfer, this
discretionary power should not be exercised arbitrarily or mala fide or for collateral motive but in the
general interest of shareholders and the company.16 The decision of the directors is liable to be set
aside if they acted oppressively, capriciously, corruptly or mala fide.17
The exercise of discretion by the board of directors in refusing to register the transfer of shares must
be bona fide and in the interest of the company or general body of shareholders. Merely because the
transferees wanted to increase the shareholding or that the two companies would in future become
interconnected cannot by itself be a ground in law for refusing to transfer the shares unless there is
ulterior or oblique motive of the transferees or contravention of law.18 Cornering of shares is no
ground for refusal to transfer.19
[s 56.68] No Inherent Power in Board of Directors
There is no inherent power in the board of directors to refuse registration of transfer. The power must
emanate from the articles or the Act. Powers given under the articles cannot be exercised arbitrarily
or for collateral purpose and transfer can be refused only for a bona fide reason in the interest of the
company and the general interest of the shareholders.20
[s 56.69] Articles of Public Company Putting Fetters on Free Transferability Void
Section 111A of the 1956 Act (now section 58 of the 2013 Act) stipulates that the shares of a public
company are freely transferable. Therefore, any stipulation in the articles of public companies
contrary to the same, putting fetters on the free transferability, would be void and hit by the provisions
of section 9 of the Act.21
[s 56.70] Securities Contracts (Regulation) Act, 1956
The Securities Contracts (Regulation) Act, 1956 (42 of 1956), applies to quoted and unquoted shares
of a public company. Unquoted shares of public limited companies are also marketable securities. [s.
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Page 19 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
2(h) of the SCRA, 1956].22
A contract for sale of shares in a private company is not governed by the provisions of this Act
(SCRA). The definition of “securities” in section 2(h) of the 1956 Act will only take in shares of a
public limited company or other body corporate. In a suit by the plaintiff to recover the balance of the
consideration for the sale of certain shares in a private company, the defendant cannot claim a
declaration that the agreement for sale is illegal or void on the ground that it was in contravention of
section 13 of the Securities Contracts (Regulation) Act, 1956.23
[s 56.71] Marketable Lots
Under standard listing agreement of stock exchanges, securities must be in the marketable lots.
Therefore, the board of directors may refuse transfer or splitting of share certificates in less than
marketable lots. Refusal on the ground that the transfer of shares would split the shares into below
the marketable lots was justified in view of restriction under the standard listing agreement. Refusal is
to splitting of the shares and not to transferring them.24
[s 56.72] Transfer of Odd Lots
However, articles of association of a company putting restrictions on free transferability of shares or

restricting transfer of odd lots would not be binding. Articles running counter to the statute are not
binding.25
[s 56.73] Non-Resident Shareholder
A non-resident or a foreigner can subscribe to the memorandum and become a member with
necessary permission of the Reserve Bank of India under the Foreign Exchange Management Act,
1999 (42 of 1999).
[s 56.74] Transfer of Shares to Non-Resident Indians (NRIs)
Where the transfer of shares is regulated by a Statute, as in the case of a transfer of shares to a non-
resident which is regulated by the Foreign Exchange Regulation Act, 1973 (46 of 1973) [now the
FEMA, 1999], the permission, if any, prescribed by the statute must be obtained. In the absence of
the permission, the transfer will not clothe the transferee with the right “to get on the register” unless
and until the requisite permission is obtained. A transferee who has the right to get on the register,
where no permission is required or where permission has been obtained, may ask the company to
register the transfer and the company may not refuse to register the transfer except for a bona fide
reason, neither arbitrarily nor for any collateral purpose. The paramount consideration is the interest
of the company and the general interest of the shareholders. On the other hand, where the requisite
permission under the FERA [now FEMA] is not obtained, it is open to the Indian company and,
indeed, it is bound to refuse to register the transfer of shares of an Indian company in favour of a
non-resident. But once permission is obtained, whether before or after the purchase of the shares,
the company cannot, thereafter, refuse to register the transfer of shares. Nor is it open to the
company or any other authority or individual to take upon itself or himself, thereafter, the task of
deciding whether the permission was rightly granted by the Reserve Bank. The permission of the RBI
could be ex post facto and conditional. Where under the portfolio investment scheme, any foreign
company whose shares were owned to the extent of more than 60% by persons of Indian nationality
or origin could avail of the facility irrespective of the fact whether the same group of shareholders
figured in the different companies. The Reserve Bank was not guilty of any mala fides or non-
application of mind in granting permission to the Caparo Group of companies. No mala fides could be
attributed to the Union of India either.26
[s 56.75] Foreign Exchange Management Act
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Page 20 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
Section 2(za) of the Foreign Exchange Management Act, 1999 (42 of 1999), defines “security” to
include shares, stocks, bonds and debentures, government securities, etc. Section 3 seeks to prohibit
dealings in foreign exchange except through an authorised person. Section 6(2) enables the Reserve
Bank of India in consultation with the Central Government to specify the permissible class of
transactions and the limits up to which foreign exchange shall be admissible for such transactions.
Section 6(3) enables the RBI to prohibit, restrict or regulate by regulations framed under the FEMA:
(a) transfer or issue of any foreign security by a person resident in India; (b) transfer or issue of any
security by a person resident outside India; (c) transfer or issue of any security or foreign security by
any branch, office or agency in India of a person resident outside India; (d) any borrowing or lending
in foreign exchange in whatever form or by whatever name called, etc.
[s 56.76] Transfer of Shares—Rectification of Register of Members— Locus Standi
Rectification of register of members in contravention of requirements of section 108 of the 1956 Act is
invalid. There was transfer of shares held by German Company in Indian Company in favour of
American Company. Share transfer form was executed without express authority of German
Company favouring executant on behalf of German Company. As such, requirements of section 108
of the 1956 Act was not satisfied. The manner in which registration of transfer was approved by the
Transfer Committee of Indian Company in favour of American company raised doubts about the bona
fide of the entire transaction. The authority empowering executant to sign share transfer form on
behalf of German Company was without any legal basis and Indian Company acted in contravention
of section 108(1) of the 1956 Act. Therefore, German Company was entitled to apply for rectification
of register of members of the Indian Company. Transfer of shares in favour of American Company by
Indian Company was held to be invalid. The Indian Company was directed to rectify its register of
members by cancelling the transfer made in favour of American Company, order was made to restore
the name of German Company within 30 days. The directors nominated by the American Company
on board of the Indian Company ceased to be directors of Indian company. Locus standi of a German
Company to apply for restoration of its name on the register of members of Indian Company was
questioned. There was a continued contract of sale of shares between the German Company and
purchaser Amazeum. The property in share would stand transferred only on approval of creditors of
German Company. Such approval could not be produced. The title to the shares remained vested in
German Company and as such it was entitled to file the petition for restoration of its name on register
of members in spite of the claim that transfer of shares was to take immediate effect. Further, parties
excluded applicability of Indian law to enforce the agreement and transfer of shares in favour of
Amazeum not registered under the Indian law. As such title to shares remained vested in German
Company. Therefore, the German Company had locus standi to make the petition for restoration of
its name on register of members of the Indian Company.27
[s 56.77] Transfer without Deed Void or Illegal
Under section 108 of the 1956 Act and articles for a transfer inter vivos or a private transfer the
company cannot register a transfer of shares unless a proper instrument of transfer duly stamped
and executed is submitted to the company. Where the board of directors rectified the register of
members without duly executed transfer deed contrary to the scheme of section 108 and the articles,
the registration of transfer was void.28
[s 56.78] Company Cannot Go beyond Transfer Deed
Section 45 of the Indian Contract Act, 1872 (9 of 1872), is not relevant as between the company and
transferee of shares. The company cannot go beyond the transfer deed and inquire into validity
thereof.29
[s 56.79] Contract between Transferor and Transferee
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Page 21 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
Transfer when accepted and registered by the company completes the sale of shares. The contract
between the transferor and the transferee is binding on them. Non-payment of full price or share
scrips with the transferor or non-signing of the transfer deed by the transferee would not make the
transfer void or non-existent.30
[s 56.80] Fraudulent or Forged Transfer Ab Initio Void
Where a public company following listing agreement [Clause 12A] and Circular No. 3 of 1993, dt. 22-
3-1993 registered the transfer when the documents were duly executed and lodged with the
signature of the transferor attested by proper authority and company found no difference in the
signature. Transfers were registered in accordance with requirements before the stop order from the
transferor. The registration was not illegal or improper. The transferor after losing share certificates
did not lodge complaint with the police. The transferor did not implead transferees as parties to the
petition. In view of this, the order of rectification could not be passed. As the transferor alleged that
shares were fraudulently transferred under forged signature and attestation and were void ab initio
strict time limit under section 111A could not be enforced. Petition wrongly filed under section 111 in
respect of the public company was treated as filed under section 111A of the 1956 Act.31
Schedule VII B of the Securities And Exchange Board of India (Listing Obligations and Disclosure
Requirements) Regulations, 2015, deal with registration of a transfer in cases of differences in
signature.
[s 56.81] Share Certificates Sent to Company for Splitting—Fraudulent Transfer
Share Certificates were sent to the company for splitting and for endorsements as to calls. While in
the custody of the company, there was fraudulent transfer of the shares. The applicant took various
steps to redress his grievances. The objection of limitation or that the petition was made by the
second named joint shareholder were overruled. The fraudulent transfer was due to company’s
inaction. The company was held liable. The company was directed to pay the price of the shares to
the shareholder.32
[s 56.82] Compensation for Fraudulent Transactions
For depriving a member of his shares by an injurious falsehood or suppressing all material facts in
buying shares from another member or for breach of warranty an action for damages is
maintainable.33
[s 56.83] Consideration—Instrument Duly Stamped
The board of directors have the power to go into the question whether the transfer deeds were duly
stamped. But, when there was no proof that the price paid for the shares was higher than that stated
in the transfer deeds, the transfer deeds could not be treated as not duly stamped and section 108 of
the 1956 Act could not be invoked to refuse registration of transfer of the shares in question.34
[s 56.84] Consideration did not Pass
It is well-settled that the company cannot reject the transfer of shares on the ground that the
transferor has not received consideration or the consideration did not pass. The duty of the company
under the law is only to ensure that the instrument of transfer is duly stamped and duly executed.35
[s 56.85] Transfer without Consideration Void Contract
But, where blank transfer deeds coupled with the share certificates were handed over by the husband
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Page 22 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
to the transferee without any specific authority by the owner of the shares, i.e., the wife. Neither the
husband nor the transferee got any right and title in the shares. Under section 25(1) of the Contract
Act, 1872 (9 of 1872), when a transfer is without consideration, it is a void contract. There should be
consensus ad idem for a concluded contract. The acquiescence of wife did not amount to consent
unless she expressly authorised her husband to transfer her shares. The transfer as contemplated in
this case was only for a sum of Re. 1. As a consequence, in the eye of law, there was no
consideration and, therefore, the transfer agreement was void.36
[s 56.86] Blank Transfer Forms with Agreement to Transfer Duly Lodged
Where, however, pursuant to an agreement to transfer, the shares with blank transfer forms were
lodged with the company and the transferor received and retained the consideration in respect of the
shares. The documents were proper and complying with section 108 of the 1956 Act. The CLB [now
the Tribunal (NCLT)] would not consider whether the agreement to transfer was rendered infructuous
owing to breach of terms. The transfer was valid and rectification was refused.37
[s 56.87] Transfer Instruments Found Defective
Where the transfer instruments were found defective as they did not indicate the consideration for the
shares nor the dates of execution. These were two very essential requirements to make transfer
instruments valid in terms of section 108 of the 1956 Act. Only when the instruments of transfer are in
accordance with the law, the question of considering the registration of transfer would arise.38
[s 56.88] Transfers Duly Executed
Where the board resolution showed that the transfer deeds were placed before the board for
approval. It would be presumed that the transfers were duly executed and mandatory requirements
were satisfied. The price of the shares may be determined later. It would not render the transfers
void.39
[s 56.89] Spot Delivery Contract
Section 108 of the 1956 Act and the Securities Contracts (Regulation) Act, 1956, are not applicable
to a transfer under a “spot delivery” transaction. Where the transferors do not come forward to
challenge the consideration, the company cannot challenge it alleging it as illegal arrangement to
corner or get control of the company.40
Unless the plaintiff is diligent and shows his bona fides the court will not grant interim injunction in a
suit for specific performance.41
Where the state financial corporation bought shares in a Pvt Ltd company. The director present at
meeting approving the transfers under buy-back arrangement to promoters seeking interim injunction
to restrain transferees’ rights. The question whether minutes of meeting were properly recorded and
whether transfers and the buy-back agreement were violative of articles was a matter for trial. No
prima facie case was made out for the grant of interim injunction.42
The broker who was not a party to the suit or even a necessary or proper party was not entitled to
seek vacation of injunction. The broker was not entitled to be examined “pro interesse suo” as he had
no right, title or interest in the property.43
[s 56.91] Specific Performance
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Page 23 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
A contract or agreement to sell shares is capable of being specifically performed.44
[s 56.92] Private Company—Agreement to Sell Shares—Specific Performance
Subject to restrictions upon the shareholder’s right to transfer shares as may be specified in the
articles of association of a private company, the holder of shares may agree to sell shares to any
person of his choice and any such agreement to sell shares is specifically enforceable.45
[s 56.93] Agreement to Transfer Shares
A transfer of shares would become complete between the transferee and the transferor only when
the instruments of transfer are signed and the share certificates handed over and a company could
take cognisance of the same only when the transfer instruments along with the shares scrips are
lodged with the company. Mere entering into an agreement to sell shares does not deprive a member
from exercising his rights as a member, e.g., right to receive notice of meetings of the company. The
non-disclosure of the fact of sale agreement cannot be fatal to petition for oppression and
mismanagement.46
An agreement to transfer shares accompanied with the actual instrument of transfer which had not
been completed so far as the transferor could complete it, did not amount to a transfer deed sufficient
to cause title to pass. As there was mere agreement to sell, no transfer deed was executed, shares
were not handed over, price was not received, there was no complete transfer. There was
subsequent settlement of the agreement by the purchasers paying the difference in market price. The
difference was assessable as income of that assessment year.47
[s 56.94] Unpaid Seller of Shares
An unpaid seller of shares can exercise his voting rights in respect of such shares which remain
registered in his name and he is not bound to comply with the directions of the purchaser. An unpaid
seller is also entitled to receive dividends and rights shares.48
[s 56.95] Compulsory Transfer of Shares
The articles of company are in the nature of a contract. The rights and liabilities of the members of a
company are regulated by the articles. A person on becoming the member of the company agrees to
be bound by such a contract. Alteration of the articles is permitted under section 31 of the 1956 Act.
Section 31(2) declares that the alteration so made shall be as valid as if originally contained in the
articles subject, of course, to the provisions of the companies Act. A power to expel a member upon
terms to get rid of a member as shareholder is a power that might be resorted in the articles of
association. The amendment of the articles to provide for compulsory transfer of the shares against
the wishes of some of the existing members of the company was held permissible. Section 108 of the
1956 Act recognises that the instrument of transfer could be executed by or on behalf of the
transferor. Such an execution could be on behalf of the transferor if it is authorised by the transferor
or by law. In the instant case, the articles authorised the execution of the instrument of transfer by
one of the directors in case of compulsory transfer. The company appointed a director as agent of the
shareholder who signed the documents. Therefore, transfer of shares in question was not in
contravention of section 108 of the Act.49
[s 56.96] Acquisition of Company’s Assets
A person in acquiring the assets of a company cannot claim that he has acquired the shares held by
the company’s members. Without proper transfer forms his name cannot be entered in the register of
members in place of the existing members. It may be presumed that circumstances were present
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when the formalities have been complied with and a purchaser may be entitled to have his name
entered in the register of members.50
[s 56.97] Transfer of Shares under Scheme of Arrangement
That the order of the court under section 391 or section 394 itself has to be construed as an
instrument of transfer and there is no need for separate or fresh instruments of transfer as
contemplated under section 108 of the 1956 Act. It is immaterial as to whether the transfer was by
operation of law or by contractual/consensual arrangement. Application for mutation with a copy of
the court order is sufficient to get the name of the transferee company entered in the register of
members. The contention that compliance with the provisions of section 108 was necessary was not
sustainable.51
[s 56.98] Scheme of Arrangement, Compromise or Amalgamation
In the appeal before the Supreme Court, the question whether for registration of transfer of shares
effected under a scheme of arrangement or compromise or amalgamation sanctioned by a
competent court under the Companies Act, it is necessary to execute a further instrument of transfer
as contemplated the 1956 Act was raised. As, during the pendency of the appeal, the appellant-
company had complied with the direction of the High Court and had registered the original shares in
the name of the first respondent the question raised in the appeal was rendered academic and the
appeal had become infructuous. Since the second respondent had not preferred any appeal against
the order of the CLB, its contention that the decision of the CLB, as applicable to the first respondent
would operate in its favour, was not acceptable. Till such time as the shares were registered in the
name of the first respondent the application of the second respondent for subsequent registration of
the same shares in its name could not be considered.52
[s 56.99] Amalgamation—Transfer of Shareholding—Valuation
A dispute was settled whereby respondents agreed to purchase shares of petitioner in two
companies. The petitioner challenged the validity of valuation report. The objection was raised that
the value of two brands were not taken into account, the ownership which was pending in suits. In
view of deferring propositions of the parties, the court held that the valuer had chosen the best
possible method of evaluation of capitalising the past profits. Future maintainable profits or future
earnings were also taken into account. The court passed an order to give effect to such settlement.
The terms of settlement provided for valuation of intrinsic value of company as a going concern and
thereafter value of shareholding of petitioners. Objection was raised that in the valuation value of two
Brands were not taken into account. It was held that the valuation without taking Brands into
consideration was not erroneous. The valuation on the basis of capitalisation of past profits and
further earnings were taken into consideration and it could not be questioned, it was not prejudicial.
Directions were given to purchase shares at the valuation made and to pay interest. Disputes
amongst the shareholders were mutually settled by which the respondents agreed to purchase 4.91%
of shares of the petitioner in two different companies. The valuation report said that the value of
shares was Rs 8.24 crores. The petitioner further objected to the valuation on the ground that
“Control Premium” was not added in the valuation report. The settlement made did not provide that
the Control Premium was to be added to the valuation report. There was no provision for “Control
Premium.” According to the terms of the settlement the valuation of shares was to be of intrinsic
worth of the two companies as going concerns and the value of the shares was to be worked out on
that basis alone. The objection to valuation was rejected.53
[s 56.100] Valuation of Shares—Non-inclusion of some Assets/Brands
Under a mutual settlement of the disputes between parties, a portion of the petitioner’s shares in two
companies was agreed to be purchased by the respondents. The valuer submitted his valuation
report. The petitioner objected to the valuation report for the non-inclusion of the two brands of
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company, while valuing the intrinsic worth of the company. The valuer, however, stated that these
two brands did not actually exist and also did not form assets of the company. As earlier Suit for
deletion of the two brands stating that assets belonged to the company was by mutual consent
withdrawn and according to records of the company the valuer made proper valuation. The two
brands were rightly excluded from assets of the company.54
[s 56.101] “Holder of Shares,” “Shareholder” and “Member”
The transferee company in amalgamation whose name is not borne on the register of members
cannot be treated as contributory by operation of law. A “contributory” is defined under the Act. The
term “contributory” under section 428 of the 1956 Act includes the holder of any shares which are
fully paid up. The courts have held that the words, “holder of shares,” “shareholder” and “member”
are synonyms in so far as the companies Act are concerned and the said expressions have been
interchangeably used. Merely being contributory shall not clothe the petitioner to maintain the petition
for winding up order unless the conditions in section 439(4)(b) of the 1956 Act are met. Clause (b) of
sub-section (4) of section 439 provides that a contributory shall not be entitled to present the petition
for winding up a company unless, the shares of which he is a contributory or some of them (i) were
originally allotted to him or (ii) have been held by him and registered in his name for at least six
months during the 18 months immediately before the commencement of the winding up or (iii) have
devolved on him through the death of a former holder. The category, “or have devolved on him
through the death of former holder” in section 439(4)(b) is applicable only to personal representative
of a person holding shares in the company in his individual capacity. The said expression applies to
devolution of rights on the death of a natural person and has no application to a corporate entity or a
juristic person. If the words “or have devolved on him through the death of former holder” could also
be applied to a company which has ceased to exist on amalgamation, it would be tampering with the
plain language used in section 439(4)(b) which is not permissible.55
Pendency of petition seeking relief from oppression and mismanagement under section 397/398 of
the 1956 Act (Now sections 241 and 242 of the 2013 Act) is not a ground for staying proceeding on
petition for rectification of register under section 111/111A (now section 58 of the 2013 Act).56
[s 56.103] Cancellation of Membership after Transfer
In a petition for relief against oppression and mismanagement under sections 397 and 398 (now
sections 241 and 242 of the 2013 Act) of the 1956 Act, the petitioners sought (i) proportional
representation on the board of directors of the company, and (ii) a declaration that the appointment of
the second respondent as the managing director was illegal. During the pendency of the petition, the
company rectified the register of members of the company by removing the names of the petitioners
on the ground that the transfer instruments by which they became shareholders on transfer of shares
had not been properly stamped. In the facts and circumstances of the case it was held that the
provisions of section 108 of the Act could be invoked to reject a request for registration of transfer on
the ground that the instruments were unstamped but once the company had registered the transfer, it
could not invoke the provisions of section 108 of the 1956 Act. The company had recognised the
petitioners as members of the company for over 20 years and therefore the board was not justified in
taking the decision of cancelling the membership. Further, Article 24 of the articles of association of
the company specified that registration of transfer would be conclusive evidence of the approval by
the board of directors of the transfer meaning thereby that the board would have ensured compliance
with the provisions of law in regard to the registration of transfers. The very fact that during the
pendency of the petition, the board of the company had chosen to remove the names of the
petitioners from the register of members that too without relying on the original documents showed
that the board of directors had not only acted in a mala fide manner but also in a manner grossly
oppressive to the petitioners. Therefore, the petitioners had to be continued as members of the
company. The company was to rectify the register of members by restoring the names of the
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petitioners as members within a period of 20 days of the order.57
[s 56.104] Cancellation of Transfers of Shares—Appeal—Matter Remanded
A company held certain shares which were transferred to the director at an under value. The sale
was for consideration prejudicial to the interests of the company. On an application made the CLB set
aside the sale. The company was directed to return the consideration money to the director. The
name of company should be entered in the register of members of the company in whose shares the
company had invested. in other words, the status quo ante was to be arrived at. On appeal, the High
Court held that a validly constituted board of directors took a decision to sell the shares of the
company on business considerations. This decision cannot be interfered with lightly merely because
another view is possible. Whether the decision of board of directors was purely on business
considerations is a question of law. In the facts of the case, it was held that the CLB did not decide
the validity of the board resolution in a legal manner and failed to consider the relevant materials on
records. The relevant factors necessary for setting aside the sale of shares were not considered by
the CLB. The order of cancellation of transfers of the shares in question passed by the CLB was set
aside and the matter was remanded for fresh consideration.58
[s 56.105] Articles cannot be Altered Retrospectively
The articles cannot be so altered as to deprive the minority of their rights. No majority of shareholders
can, by altering the articles, retrospectively, affect, to the prejudice of the non-consenting owners of
shares, the rights already existing under a contract, nor take away the rights already accrued, e.g.,
after a transfer of shares is lodged, the company cannot have a right of lien so as to defeat the
transfer.59
[s 56.106] Estoppel—Company Estopped from Challenging Transfer
Where the company registered the shares, endorsed the share certificates in favour of the transferee,
entered his name in the register of members and communicated the same to the transferee, the
company is estopped from challenging the transfer as being in violation of the provisions of section
108 of the 1956 Act, whatever might be the correct version of the minutes of the meeting. The
transferee thus fulfilled the requirements of section 399 of the 1956 Act for maintainability of petition
for relief against oppression and mismanagement.60
[s 56.107] Winding up—Transfer of Shares by Official Liquidator
Where a company was directed to be wound up and thereafter a scheme of arrangement was framed
and under an agreement shares of the company were transferred for consideration, it was held that
the transaction in shares was bona fide and beneficial for the company and that the official liquidator
assumed the powers of the board of directors and could effect the transfer even though certain share
certificates were not available. The court [now the Tribunal (NCLT)] directed the transfer of shares to
be effected by the official liquidator. The winding-up court [now the Tribunal (NCLT)] can give
appropriate directions for the benefit of the company.61
[s 56.108] Sale in Enforcement of Company’s Right of Lien
Section 108 of the 1956 Act providing for production of instrument of transfer is not applicable to
transfer of shares by the company in exercise of its right of lien or in case of involuntary transfers. For
a sale in enforcement of the company’s right of lien such instrument is not necessary.62
A contrary view had been expressed in an earlier Calcutta case where it has been held that on the
sale on enforcement of lien it is necessary to have a proper instrument for the purpose of transfer of
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shares.63
[s 56.109] Forfeiture and Sale of Shares in Exercise of Right of Lien
Regulation 10 of Table A of Schedule I to the 1956 Act mandates that in order to exercise a lien and
sell the shares of a member, the debt or sum in respect of which the lien exists must be presently
payable and a minimum 14 days’ notice in writing demanding payment of such amount must made. If
no such notice is given or the debt claimed by the company is disputed then the forfeiture of shares in
exercise of the right of lien and sale of the shares would be void. No sale can be made unless both
the requirements are complied with. The transferee of such shares cannot derive any right for the
shares, at best he can claim refund of money paid by him.64
[s 56.110] Lien on Partly Paid-up Shares
Where under articles of association of the company regulation 9 of Table A of Schedule I to the 1956
Act was applicable, the company could exercise its lien only in respect of partly paid-up shares and
not on fully paid-up shares.65
[s 56.111] Lien Lost
The registration of transfer of shares cannot be refused by a public company. The company is bound
to accept the transfer. It can refuse only if there is sufficient cause, e.g., violation of section 108 of the
1956 Act or section 22A(3) of the Securities Contracts (Regulation) Act, 1956 [corresponding to
section 111A of the Companies Act, 1956]. Where the company refused to register the transfer of
shares on one ground or another. The respondent-company was directed to rectify the register and
pay dividends and costs for refusing to enter the name of the petitioner in the register without
sufficient cause. When the company sought to exercise its lien and appropriate the amount payable
as dividend towards any of the amounts due to the company from its earlier managing director whose
shares in question were transferred by the legal heirs after his death, the court held that it was illegal
and without any authority of law.66
Where the shares were issued as fully paid-up the same cannot be forfeited in the absence of any
proof that there was a call and default in payment of call money and the claim was well within the
limitation period and that the company had followed the procedure for forfeiture. The shares
certificates indicated that the shares were fully paid. The member availed loan facilities from financial
institutions on the strength of the same. There was no fraud on the part the holders. It was held that
the company cannot, after a gap of a long period of time, dispute the amount paid on the shares and
forfeit the same. The company was estopped from disputing the amount indicated in the share
certificates as fully paid. Even when the calls were not paid, the forfeiture must be within the period of
limitation of three years from date of allotment. The company can sue for the sums due and was not
entitled to treat shares as not fully paid.67
[s 56.112] Purchaser of Shares not Expected to Find out Lien
The purchaser of shares of a public company is not expected to find out if lien exists on such shares.
Registration of transfer cannot refused on this ground.68
[s 56.113] Forfeiture of Shares
See detailed notes on forfeiture of shares under section 66, regulation 28 to 34 of Table F of
Schedule I to 2013 Act (s. 100 and Schedule I, Table A, regulations 29–35, 1956 Act).
[s 56.114] Trust as Member
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Shares of a public company are freely transferable as per section 111A of the 1956 Act (now section
58 of the 2013 Act). A public company cannot refuse transfer of shares on the ground that some of
the shares were part of a trust.69
[s 56.115] Shares to be held in Name of Trustees
Trustee(s) can be registered as member in respect of the shares held by him as trustee. The shares
of the trust should thus be held in the name of the trustees.
[s 56.116] Transfer of Corpus of the Trust
Where the beneficiary of the trust sought to transfer the shares held in Trust in his own name.
Though there was no allegation of breach of duty by the trustee, whether beneficiary had an
unfettered right to demand the transfer of corpus of the trust was question of law which could not and
ought not to be decided at the interlocutory stage. The court refused to stay the transfer.70
[s 56.117] Transfer in Favour of HUF
In the case of transfer of shares by a shareholder to another the only question to be examined is
whether the transfer deed has been validly executed in accordance with the provisions of section 108
of the 1956 Act and application has been made to the company for registration of the transfer as
provided in section 110 of the 1956 Act. Section 108 enables execution of a transfer deed by or on
behalf of the transferor or the transferee. In the case of a Hindu undivided family (HUF), it is
represented by its karta. Under section 153 of the 1956 Act, a company cannot take notice of any
trust on its register of members. In the case of a HUF, if the shares are held in the name of the karta
of the HUF it cannot be equated with trust property held by a trustee. In respect of shares held by a
minor, it has been held in a number of cases that there is nothing objectionable if the shares are
registered in the name of the minor represented by his guardian. Similar is the position in the case of
a HUF and the shares can be registered in the name of the karta of the HUF.71
[s 56.118] Gift of Shares—Proper Execution of Transfer Form
Even in the case of a gift there should be proper execution of transfer form by the owner.72 The gift of
shares is complete as soon as the shares with duly filled in and signed transfer form are handed over
to the donee irrespective of registration by the company.73
[s 56.119] Gift Deed with Blank Forms—Donee’s Right to Obtain Transfer
Where the donor executed a registered gift deed and handed over the deed and share certificates to
the donee and also executed blank transfer forms. The donor died before the registration of the
transfer of shares in the register of the company. The donee had the right to obtain the transfer of
shares.74
See detailed notes on blank transfers and gift earlier in this section.
[s 56.120] Stamped Gift Deed to Avoid Fraud and Forgery
Where shares were transferred by way of a gift on the basis of letter written on plain paper and
without stamped gift deed or resolution of the transferor company. Registration of transfer was
fraudulent and based on forgery. It was held that when forgery is alleged the question of limitation is
to be viewed liberally. In practice, gifts of substantive property are not made orally, they are backed
by a gift deed to avoid any conflict or controversy in future. There was nothing besides a letter to give
a legal right to the shares. It was therefore an instrument in writing within the meaning of the stamp
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Act and should have been stamped with appropriate stamp duty.75
[s 56.121] Pledge or Mortgage of Shares
Transfer of shares of a company takes place by executing the documents prescribed under section
108 and contemplated in regulation 18 of Table A of Schedule I to the 1956 Act. It is a common
practice that shares are pledged while taking a loan and blank transfer forms are signed and handed
over to the pledgee. Whenever such blank transfer forms are given the transferor passes the
authority to the transferee or pledgee to fill in the blank forms. Where share certificates and blank
transfer forms were delivered against advance of loan. There was intention that the shares were to
be transferred if loan was not repaid. In case of a public limited company the provisions of the
Securities Contracts (Regulation) Act, 1956, are applicable. Therefore, pledge of shares is a contract
to sell and title passes upon the delivery of certificates and blank transfer forms. The company was
therefore bound to register the transfer in favour of the pledgee.76
[s 56.122] Transfer and Retransfer of Shares Pledged and Registered by Bank
When the shares are pledged with the bank or a creditor as security for overdraft or loan and they are
got registered in the name of the bank or creditor. It is a complete transfer. The shareholder,
however, is entitled to redeem such shares by paying the debt of the bank or creditor and thereafter
the shareholder may claim the shares to be retransferred in his name. Where the bank released the
security and executed transfer documents in the petitioner’s favour, which the petitioner lodged with
the company with the share certificates for transfer in his favour, the company was directed to
register the transfer subject to restriction in the articles that shares held by a member in excess of
10% shall not count for voting rights.77
[s 56.123] Pledgee’s Rights Dependent upon Rights of Pledgor
Where the allotment and issue of shares which were pledged were set aside by CLB [now the
Tribunal (NCLT)], the pledge became a nullity even though the name of the lender was registered in
the books of the company. The pledgee’s rights were dependent upon the rights of the pledger and
as allotment and issue of such shares were set aside neither the shareholder nor the lender derived
any legal right on the shares.78
[s 56.124] Pledge of Shares, Transfer and Registration Independent
Where the shares were pledged with third party. The holder sold the shares. No application for
transfer was made to the company. It was held that transfer of shares is independent of registration
under the Act. The company cannot be compelled to register transfer until mandatory requirements of
section 108 are complied with.79
Where the decision to transfer shares was taken by all the members and the transfer was registered
in accordance with section 108. The registration cannot be said to be without sufficient cause. The
question of offering the shares to a member in the first instance as required by the company’s articles
did not arise. The transfers could not be said to be vitiated by failure to comply with the articles.
Failure by purchasers to discharge liabilities of the company to bank under the agreement of
purchase of entire shares and takeover of assets and liabilities could not be a ground for
rectification.80
[s 56.125] Transfer of Shares in the Name of Pledgee
Section 111A(2) provides that the shares of a public limited company shall be freely transferable.
However, if a company without “sufficient cause” refuses to register transfer of shares, the transferee
may appeal to the CLB [now the Tribunal (NCLT)]. A pledgee is entitled to invoke the proviso to sub-
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section (2) of section 111A of the 1956 Act. The refusal by the company to register the transfer of
shares in the name of the pledgee would not fall within the meaning of “sufficient cause.”81
[s 56.126] Transfers of Shares under Bank Loans
“Every commercial bank in granting loan over Rs 50,000 against the security of shares to a borrower,
shall stipulate that the shares shall be transferred to its name and that it shall have exclusive voting
rights in respect thereof which it may exercise in any manner whatsoever and get the shares
transferred to its name expeditiously. If shares form a security composite with any other security, the
advance limit against shares shall be segregated and the provisions of the directive will become
applicable to the segregated limit. Further, no commercial bank shall hereafter make advances
against the security of partly paid shares without the prior approval of the Reserve Bank of India. No
commercial bank shall exercise voting rights in respect of shares held by it as a pledgee except with
the prior approval of the Reserve Bank of India and in accordance with such directions as may be
given by the Reserve Bank. In the case of shares lodged by a share-broker as security against
advances, the provisions of the directive will apply if the shares are held for a period longer than
three months.” [Circular Letter No. F/250-A(373), dt. 30-9-1970, issued by the BCCI to its Members].
As per Reserve Bank Circulars, in case of acquisition of shares equivalent to and over 1% of the total
paid-up capital of a bank, the bank should make a reference to the Reserve Bank of India within three
days of the lodgement and the bank should await an acknowledgment from the Reserve Bank of
India before effecting the transfer of shares. The intention of RBI circulars is that the controlling
interest in the bank is not passed on without the knowledge and approval of the Reserve Bank of
India. However, there is nothing in these RBI circulars to indicate that no one should acquire shares
beyond 1%. Thus, refusal on the ground of violation of the Reserve Bank of India circulars could not
be sustained. The transfer of shares is to be registered after an acknowledgement from the Reserve
Bank of India.82
[s 56.128] Transfer or Pledge of Shares in Dematerialised Form
Transfer or pledge of shares in dematerialised form is governed entirely by sections 10 and 12 of the
Depositories Act, 1996, and not by sections 148 and 172 of the Contract Act, 1872. Transferee
holding shares with depository as beneficial owner passes good title to bona fide purchasers for
value. The transferor would be estopped from asserting title against bona fide purchaser for value
without notice of any defect in title.83
[s 56.129] Transfer of Shares in Dematerialised Form under Loan Agreement
The plaintiff transferred shares under agreement of obtaining loan. The facts established that there
was transfer of shares in favour of the defendant. It was not a pledge of shares. The defendant
obtained a good title. The defendant sold the shares to different parties. The transfer of shares was in
dematerialised Form. The transactions were governed by the Depositories Act, 1996 (22 of 1996),
and not by the Indian Contract Act, 1872 (9 of 1872). The plaintiff was estopped from asserting the
title against bona fide purchasers from the defendant for value without noticing any defect.84
[s 56.130] Transfer of Share or Interest by Member
Section 28 of the 1956 Act provides that the articles of association of a company limited by shares
may adopt all or any of the regulations contained in Table A in Schedule I to the 1956 Act. Section 29
of the 1956 Act provides that the articles of association of other companies shall be in one of such
forms in Tables C, D and E in Schedule I as may be applicable or in a form as near thereto as
circumstances admit. In the case of Magadh Stock Exchange Association (MSEA), registered under
section 25, Table C was applicable. If Tables A and C are compared it becomes apparent that there
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are material differences between the two. Where, the High Court disposed of the matter by merely
observing that no distinction can be made in the matter of transfer of shares or other interest between
a company limited by shares and a company limited by guarantee, the Supreme Court set aside the
judgment and order passed by the High Court and remitted the matter back to the High Court for
deciding the appeal afresh after hearing both the sides and considering all the relevant aspects and
fulfilment of the requirements of section 108.85
[s 56.131] Guarantee Company
The existing shareholders or members cannot be compelled to transfer their shares to the Public.
They are the full owners and are entitled to transfer their shares to persons of their own choice.86
[s 56.132] Bad Delivery
Where the petitioner having purchased shares lodged them with the company for transfer. But, the
company returned the documents with endorsement: “bad delivery” as signatures of transferor differ.
The letter written by the transferee to the transferor for fresh transfer documents was returned
undelivered. In petition for rectification by the transferee, the transferor who was made a party did not
appear. The original share certificates were in possession of the transferee. The transferor had not
sought duplicate share certificates. There was no other claimant. The company was directed to
register the shares in the name of the transferee.87
[s 56.133] Guidelines cannot Override Mandatory Provisions
Change of name of a company necessitates the issuing of new share certificates. Where the
shareholder lodged transfer deeds with share certificates in old name after cut-off date. The transfer
could not be registered as it was in violation of section 108. Section 23(3) of the 1956 Act is not
applicable in such a case. Guidelines classifying good and bad delivery of documents, issued by the
ministry of finance [now the SEBI], had no application as the company with the approval of the stock
exchange had cancelled the share certificates in the old name and issued new share certificates.
Consequently, old share certificates could not be treated as good delivery. The guidelines cannot
override the mandatory provisions of section 108 of the 1956 Act.88
[s 56.134] Producer Company—Transferability of Shares [Section 581ZD(1) of the 1956 Act]
Normally, shares of a member of a producer company are not transferable.
However, this is save as otherwise provided in sub-sections (2) to (4), i.e., Transfer of shares to
active member [section 581ZD(2)], Nomination by member [section 581ZD(3)] and nominee of
deceased member [section 581ZD(4)],
See also nominee not producer—To surrender shares [Section 581ZD(4), proviso] and member
ceasing to be primary producer [section 581ZD(5)].
[s 56.135] Instrument of Transfer Lost [Proviso to section 56(1) of the 2013 Act]
Where the instrument of transfer signed by the transferor and transferee has been lost, the board of
directors may register a transfer on the application by the transferee and on his executing an
Indemnity Bond.
[s 56.136] Transfer by Operation of Law [Section 56(2) of the 2013 Act]
The restrictions set out in sub-section (1) do not apply in the case of a transfer of any right to
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securities by the operation of law. In such a case, the company is permitted to register the transfer,
upon intimation from the person from whom the right has been transmitted.
[s 56.137] Transmission by Operation of Law
As per section 108(1), second proviso, the provisions of section 108 for transfer of shares or
debentures, i.e., transfer not to be registered except on production of instrument of transfer are not
applicable in case of transmission by operation of law. Transmission by operation of law takes place
where a person acquires an interest in property by operation of law such as by right of inheritance or
succession while a transfer is effected by act of parties. For transmission of shares no instrument of
transfer or payment of any stamp duty is required. The board of directors or the company can,
however insist on proof of such transmission, e.g., succession certificates, probate of will or letters of
administration.89
[s 56.138] Transmission of Shares by Operation of Law—Arbitration Award
The transfer of interest in shares belonging to the petitioners’ group in a family company pursuant to
the Arbitration Award in favour of the respondents would amount to a transfer of shares by operation
of law and the second respondent group acquired an interest in the shares by operation of law.
Therefore, the transmission of shares by operation of law need not meet the mandatory requirements
of section 108(1) of the 1956 Act. The transmission of shares in favour of the group pursuant to
Arbitration Award and the directors vacating office was not oppressive.90 It has been held that
acquisition of shares pursuant to an arbitral award amounts to transmission by operation of law and
the articles in relation to transmission of shares are applicable.91
[s 56.139] Transfer Inter Vivos vis-à-vis Transmission by Operation of Law
On a reading of sections 108, 109, 110, 111 and 111A together, the word “transmission” has been
used in contradistinction to “transfer.” “Transfer” means inter vivos transfer. “Transmission” is
referable to devolution of title by operation of law. It may be by succession or by testamentary
transfer. Under section 211 of the Indian Succession Act, 1925 (39 of 1925), the executor of a
deceased shareholder is the legal representative. Where the daughter and son-in-law were named as
executors of the estate of the deceased shareholder in her will. The will had been probated. The
board could not refuse to register the transmission by operation of law or testamentary devolution
although as per articles the transfer of shares in the name of son-in-law of a shareholder required
previous sanction of the board of directors.92
[s 56.140] Succession Certificate/Probate of Will/Letters of Administration
The succession certificate or probate of will or the letter of administration will be sufficient for the
company to transfer the shares in the name of the legal heir. Where succession certificate is filed, the
company cannot refuse to register the transmission. The company cannot insist upon consent letters
from all the heirs or the original share certificates. It could issue duplicate certificates cancelling the
original certificates. As regards other documents, a specific exemption has been contemplated under
the second proviso to section 108(1) of the 1956 Act.93
Power of directors to refuse registration of transfer or transmission must not be exercised mala fide or
arbitrarily. Mere obtaining of succession certificate by widow of the deceased does not entitle her to
get all the shares held by the deceased transferred to her. The company can refuse to register the
shares falling to other heirs in the name of the widow alone. Normally if the court [the CLB now the
Tribunal (NCLT)] found that the directors gave reasons which were legitimate, it would not overrule
that decision merely on a ground that the court [the CLB now the Tribunal (NCLT)] would not have
come to the same conclusion.94
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Page 33 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
[s 56.141] Transfer of Shares in Name of Particular Heir of Deceased Shareholder
On the death of a shareholder the company may ask for the production of succession certificate, etc.
to transfer the shares in the name of the legal heirs of the deceased. However, if all the heirs agree
the company may transfer the shares in the name of a particular heir of the deceased shareholder.95
[s 56.142] Succession Certificate will Include Accrued Benefits
A succession certificate is binding on the company without questioning its validity. A succession
certificate will include shares held at the time of death and bonus shares, dividend, interest and other
benefits accrued up to the date of the application.96
[s 56.143] No other Person Lodging Claims
When no other person had lodged any claims and some shares of the deceased father were
registered in the name of his son, the company could not refuse to register the balance shares in the
name of the son.97
[s 56.144] Shares Left under will Duly Probated
Where shares were left under will of the deceased shareholder. The will was duly probated. The
company refused to register the transmission on the ground that a petition for revocation of probate
was pending in the civil court. The CLB [now the Tribunal (NCLT)] directed the company to register
the shares in the names of the legatees subject to the outcome of revocation proceedings. The
probate duly granted by a competent court conclusively establishes the validity of the will until it is
revoked.98
[s 56.145] Bank as Executor of a will
Where a bank was executor of a will and got itself registered in respect of certain shares of the
testator it was held that the bank could not claim that it became a member of the company but it fell
to be treated a testator’s representative.99
[s 56.146] Court Auction/Sale
A purchaser of shares in court sale is entitled to be registered without having to produce transfer
deed. The prohibition contained in section 108(1) that a company shall not register a transfer of
shares unless a proper instrument of transfer duly stamped and executed by or on behalf of the
transferor and the transferee has been delivered to the company along with the certificate relating to
the shares is not applicable to the transmission of shares as a result of an order of a court of law.
When a person has become the owner of shares as a result of a court auction he is entitled to be
recorded as a member of the company.1
[s 56.147] Remedies for Transmission in Public Company [Now section 58]
In case of public companies, the remedies under section 111A(2) and (3) of the 1956 Act (now
section 58 of the 2013 Act) are available for transfer as well as transmission of shares. In a case of
transmission of shares, a company has no powers to refuse registration of transmission of shares
once the legal heir of the deceased shareholder produces a proper legal representation to the estate
by way of a will/probate/succession certificate, etc. unless there is an injunction against acting in
terms of the legal representation. In the matter of registration of transfer/transmission, a company is
not entitled to make a roving inquiry to find justification to refuse registration. It is the statutory duty
cast on a company to register transfer/transmission once there is legal compliance.2
[s 56.148] Surviving Joint Shareholder(s)
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Page 34 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
In the case transmission of shares of joint shareholders, the surviving joint holder(s) would be entitled
to the shares and not any legal heir or representatives of the deceased joint shareholder.3
[s 56.149] No Power to Split the Joint Holding
The company has no power to split the joint holding. The request for splitting of the joint shares can
be considered only when the shares transfer deeds duly executed by both joint holders and duly
completed and stamped are lodged with the company together with the relative share certificates as
required under the mandatory provisions of section 108 of the Act.4
[s 56.150] Joint Holder
For the transfer of shares jointly held, the instrument has to be executed by all the joint holders as
transferor.5
[s 56.151] Transfer of Partly Paid-up Shares [Section 56(3) of the 2013 Act]
A company is not permitted to register a transfer of partly paid shares, where an application is made
by the transferor alone, unless the company has given a notice in Form No. SH.56 to the transferee,
and the transferee has raised no objection to the transfer within two weeks from the date of receipt of
notice.
[s 56.152] Conditions of Transfer [Section 56(4) of the 2013 Act]
Unless the company is prohibited by the provision of any law, or any order of a court, tribunal or other
authority, the company must deliver the certificates of all securities allotted, transferred or
transmitted, in the following manner:
(a) To subscribers to the memorandum: within a period of two months from the date of
incorporation;
(b) Allotment of the company’s shares: within a period of two months from the date of allotment;
(c) Transfer or transmission of securities: within a period of one month from the date of receipt by
the company of the instrument of transfer under section 55 (1) or, as the case may be, of the
intimation of transmission under section 55 (2);
(d) In the case of allotment of debenture: within a period of six months from the date of allotment.
(e) Intimation to depository: where the securities are dealt with in a depository, the company shall
intimate the details of allotment of securities to depository immediately on allotment of such
securities.
[s 56.153] Make Ready and also Deliver Certificates within Specified Time
In view of substituted opening portion of section 113(1) of the 1956 Act, a company is required to
make ready the certificates of all shares and debentures within the specified period and also to
deliver the same to the persons concerned. There was a lacuna taking advantage of which
companies delayed the delivery of certificates of shares and debentures on the plea that it had
complied with the provisions of the Act by making ready such certificates within the specified time.
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Page 35 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
Prior to the Companies (Amendment) Act, 1988, the obligation of the company was to keep ready for
delivery, and not to deliver the certificate.7
[s 56.154] Presumption—Delivery of Share Certificates, Etc.
Section 113(1) of the 1956 Act contemplates the delivery of share certificates, etc. within stipulated
time. Section 53 of the 1956 Act provides that a document may be served by a company on any
member either personally or by sending it by post to him to his registered address. A presumption
has been drawn that where a document is sent by post, service thereof shall be deemed to be
effected by properly addressing, pre-paying and posting the letter containing the document. The
presumption under section 53 of the Act is rebuttable and a shareholder may allege that he has not
been delivered the share certificate or it was not properly addressed. The bulk registered receipt with
the name of the addressee and post office of destination is not complete in itself and on the basis of
such a document the proceedings could not be quashed.8
[s 56.155] Transfer by Legal Representative [Section 56(5) of the 2013 Act]
The transfer of any security, or interest of a deceased person in a company, is valid when made by
the deceased person’s legal representative, even if the legal representative if not a holder of the
share.
[s 56.156] Penalty [Section 56(6) of the 2013 Act]
Where any default is made in complying with the provisions of section 56(1) to 56(5), the company is
punishable with fine between Rs 25,000 and Rs 5 lakh, and every officer of the company is
punishable with fine between Rs 10,000 and Rs 1 lakh.
As the penalty prescribed under this section is a fine, the offence may be compounded under section
[s 56.158] Penalty for Fraud by a Depository or Depository Participant [Section 56(7) of the
2013 Act]
Without prejudice to any liability under the Depositories Act, 1996, where a depository, or a
depository participant, transfers shares with the intention to defraud a person, it will be held liable for
fraud under section 447, which is a non-compoundable offence.
[s 56.159] Model Articles [Schedule I Table F of the 2013 Act]
See regulations 19–22 for transfer of shares, regulation 23 to 27 of Table “F” of Schedule I to the
2013 Act for transmission of shares.
[s 56.160] Private Company [Section 2(68) of the 2013 Act]
Section 2(68)(i) provides that a private company must by its articles restrict the right to transfer its
shares.
[s 56.161] Complaint by SEBI [First Proviso to section 439(2) of the 2013 Act]
The offences against the 2013 Act relating to issue and transfer of securities and non-payment of
dividend are, inter alia, also cognisable on a complaint in writing by a person authorised by the SEBI.
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Page 36 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
See detailed notes under sections 2(60), 24, 439, 441, 450 and 463, 2013 Act.
[s 56.162] Listed Companies
The provisions of section 56 of the 2013 Act shall be administered by SEBI for listed and companies
that intend to get listed as per section 24 of the 2013 Act.
[s 56.163] Transfer of Securities Involving Non-residents
The Foreign Exchange Management Act, 1999, regulates the transfer of securities between non-
residents and residents. Other regulations arising out of FEMA such as the Foreign Exchange
Management (Transfer or Issue of any Foreign Security) Regulations, 2004, which seeks to regulate
the acquisition or transfer of a foreign security by a person resident in India and Foreign Exchange
Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000,
shall also be applicable.
[s 56.164] Transfers by persons resident in or outside India
General permission has been granted to non-residents/NRIs by the Reserve Bank of India for
transfers in the following manner:
(a) Non Resident to Non-Resident (Sale/Gift): A person resident outside India (other than NRI
and OCB) may transfer by way of sale or gift, shares or convertible debentures to any person
resident outside India (including NRIs but excluding OCBs). The transfer of shares from or by
erstwhile OCBs would require prior approval of the Reserve Bank of India.
(b) NRI to NRI (Sale/Gift): NRIs may transfer by way of sale or gift the shares or convertible
debentures held by them to another NRI.
(c) Non Resident to Resident (Sale/Gift):
(i) Gift: A person resident outside India can transfer any security to a person resident in India
by way of gift.
(ii) Sale under private arrangement: General permission is also available for transfer of
shares/ convertible debentures, by way of sale under private arrangement by a person
resident outside India to a person resident in India in case where transfer of shares are
under SEBI regulations and where the FEMA pricing guidelines are not met, subject to the
following: (A) The original and resultant investment comply with the extant FDI
policy/FEMA regulations; (B) The pricing complies with the relevant SEBI regulations
(such as IPO, Book building, block deals, delisting, exit, open offer/ substantial
acquisition/SEBI (SAST) and buy-back); and (C) CA certificate to the effect that
compliance with relevant SEBI regulations as indicated above is attached to the Form FC-
TRS to be filed with the AD bank.
• Transfer of shares from a non-resident to resident other than under SEBI regulations and
where the FEMA pricing guidelines are not met would require the prior approval of the
Reserve Bank of India.
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Page 37 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
(iii) Sale of shares/convertible debentures on the stock exchange by person resident outside
India: A person resident outside India can sell the shares and convertible debentures of
an Indian company on a recognised stock exchange in India through a stock broker
registered with stock exchange or a merchant banker registered with SEBI.
[s 56.165] Transfer of Shares/Convertible Debentures from Resident to Person Resident

Outside India
A person resident in India can transfer by way of sale, shares/convertible debentures (including
transfer of subscriber's shares), of an Indian company under private arrangement to a person
resident outside India, subject to certain conditions along with pricing, reporting and other guidelines.
This general permission also covers transfer by a resident to a non-resident of shares/convertible
debentures of an Indian company, engaged in an activity earlier covered under the government route
but now falling under automatic route of the Reserve Bank, as well as transfer of shares by a non-
resident to an Indian company under buyback and/or capital reduction scheme of the company.
However, this general permission would not be available for the above transactions if they are not
meeting the pricing guidelines or in case of transfer of shares/debentures by way of gift from a
resident to a non-resident/non-resident Indian.
[s 56.166] Transfer of Shares by Resident which Requires Government Approval
The following instances of transfer of shares from residents to non-residents by way of sale or
otherwise requires government approval:
(a) Transfer of shares of companies engaged in sector falling under the Government Route.
(b) Transfer of shares resulting in foreign investments in the Indian company, breaching the
sectoral cap applicable.
[s 56.167] Prior Permission of the Reserve Bank in Certain Cases for Acquisition/Transfer of
Security
(a) Transfer of shares or convertible debentures from residents to non-residents by way of sale in
case where the non-resident acquirer proposes deferment of payment of the amount of
consideration.
(b) A person resident in India, who intends to transfer any security, by way of gift to a person
resident outside India.
See Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004,9
and Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside
India) Regulations, 2000,10 Master Circular on Foreign Investment in India issued by the Reserve
Bank of India.
[s 56.168] Secretarial Standards
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Page 38 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
The Council of the Institute of Company Secretaries of India (ICSI) had issued “Secretarial Standard-
6 (SS-6) on Transmission of Shares and Debentures” in September, 2007: the ICSI website
http://www.icsi.edu. This Secretarial Standard is currently under revision to be made in line with the
2013 Act and is not applicable at present.
See detailed notes on accounting provisions under Chapter IX, and specifically section 133 and the
Companies (Indian Accounting Standards) Rules, 2015,11 and the Indian Accounting Standards (Ind
See detailed notes on Audit and Auditors under Chapter X, and the auditing, review and other
standards under section 143 (10) issued by the Institute of Chartered Accountants of India (ICAI).
[s 108] Transfer not to be registered except on production of instrument of transfer.—(1) A company shall not
register a transfer of shares in, or debentures of, the company, unless a proper instrument of transfer duly stamped
and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address
and occupation, if any, of the transferee, has been delivered to the company along with the certificate relating to the
shares or debentures, or if no such certificate is in existence, along with the letter of allotment of the shares or
debentures:
Provided that where, on an application in writing made to the company by the transferee and bearing the stamp
required for an instrument of transfer, it is proved to the satisfaction of the Board of directors that the instrument of
transfer signed by or on behalf of the transferor and by or on behalf of the transferee has been lost, the company may
register the transfer on such terms as to indemnity as the Board may think fit:
Provided further that nothing in this section shall prejudice any power of the company to register as shareholder or
debenture holder any person to whom the right to any shares in, or debentures of, the company has been transmitted
by operation of law.
12[(1A) Every instrument of transfer of shares shall be in such form as may be prescribed, and—
(a) every such form shall, before it is signed by or on behalf of the transferor and before any entry is made
therein, be presented to the prescribed authority, being a person already in the service of the Government,
who shall stamp or otherwise endorse thereon the date on which it is so presented, and
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Page 39 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
(b) every instrument of transfer in the prescribed form with the date of such presentation stamped or otherwise
endorsed thereon shall, after it is executed by or on behalf of the transferor and the transferee and completed
in all other respects, be delivered to the company,—
(i) in the case of shares dealt in or quoted on a recognised stock exchange, at any time before the date on
which the register of members is closed, in accordance with law, for the first time after the date of the
presentation of the prescribed form to the prescribed authority under clause (a) or within 13[twelve
months] from the date of such presentation, whichever is later;
(ii) in any other case, within two months from the date of such presentation.
(1B) Notwithstanding anything contained in sub-section (1A), an instrument of transfer of shares, executed before the
commencement of section 13 of the Companies (Amendment) Act, 1965 (31 of 1965), or executed after such
commencement in a form other than the prescribed form, shall be accepted by a company,—
(a) in the case of shares dealt in or quoted on a recognised stock exchange, at any time not later than the expiry
of six months from such commencement or the date on which the register of members is closed, in
accordance with law, for the first time after such commencement, whichever is later;
(b) in any other case, at any time not later than the expiry of six months from such commencement.
(1C) Nothing contained in sub-sections (1A) and (1B) shall apply to—
(A) any share—
(i) which is held by a company in any other body corporate in the name of a director or nominee in
pursuance of sub-section (2), or as the case may be, sub-section (3), of section 49, or
(ii) which is held by a corporation, owned or controlled by the Central Government or a State Government,
in any other body corporate in the name of a director or nominee, or
(iii) in respect of which a declaration has been made to the Public Trustee under section 153B,
• if—
(1) the company or corporation, as the case may be, stamps or otherwise endorses, on the form of transfer
in respect of such share, the date on which it decides that such share shall not be held in the name of
the said director or nominee or, as the case may be, in the case of any share in respect of which any
such declaration has been made to the Public Trustee, the Public Trustee stamps or otherwise endorses,
on the form of transfer in respect of such share under his seal, the date on which the form is presented to
him, and
(2) the instrument of transfer in such form, duly completed in all respects, is delivered to the—
(a) body corporate in whose share such company or corporation has made investment in the name of its
director or nominee, or
(b) company in which such share is held in trust,
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Page 40 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
• within two months of the date so stamped or otherwise endorsed; or
(B) any share deposited by any person with—
(i) the State Bank of India, or
(ii) any scheduled bank, or
(iii) any banking company (other than a scheduled bank) or financial institution approved by the Central
Government by notification in the Official Gazette (and any such approval may be accorded so as to be
retrospective to any date not earlier than the 1st day of April, 1966), or
(iv) the Central Government or a State Government or any corporation owned or controlled by the Central
Government or a State Government,
by way of security for the repayment of any loan or advance to, or for the performance of any obligation
undertaken by, such person, if—
(1) the bank, institution, Government or corporation, as the case may be, stamps or otherwise endorses on
the form of transfer of such share—
(a) the date on which such share is returned by it to the depositor, or
(b) in the case of failure on the part of the depositor to repay the loan or advance or to perform the
obligation, the date on which such share is released for sale by such bank, institution, Government
or corporation, as the case may be, or
(c) where the bank, institution, Government or corporation, as the case may be, intends to get such
share registered in its own name, the date on which the instrument of transfer relating to such share
is executed by it; and
(2) the instrument of transfer in such form, duly completed in all respects, is delivered to the company within
two months from the date so stamped or endorsed.
• Explanation.—Where any investment by a company or a corporation in the name of its director or nominee
referred to in clause (A)(i) or clause (A)(ii), or any declaration referred to in clause (A)(iii), or any deposit
referred to in clause (B), of this sub-section is made after the expiry of the period or date mentioned in clause
(a) of sub-section (1B) or after the expiry of the period mentioned in clause (b) of that sub-section, as the
case may be, the form of transfer, in respect of the share which is the subject of such investment, declaration
or deposit, means the prescribed form; or
(C) any share which is held in any company by the Central Government or a State Government in the name of its
nominee, except that every instrument of transfer which is executed on or after the 1st day of October, 1966,
in respect of any such share shall be in the prescribed form.]
14[(1D)Notwithstanding anything in sub-section (1A) or sub-section (1B) 15[or sub-section (1C)] where in the opinion of
the Central Government it is necessary so to do to avoid hardship in any case, that Government may on an application
made to it in that behalf, extend the periods mentioned in those sub-sections by such further time as it may deem fit
whether such application is made before or after the expiry of the periods aforesaid]; and the number of extensions
granted hereunder and the period of each such extension shall be shown in the annual report laid before the Houses of
Parliament under section 638.
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Page 41 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
(2) In the case of a company having no share capital, sub-section (1) shall apply as if the references therein to shares
were references instead to the interest of the member in the company.
16[(3)Nothing contained in this section shall apply to transfer of security effected by the transferor and the transferee
both of whom are entered as beneficial owners in the records of a depository.]
NOTES
Compare section 34(3) of the Indian Act and section 75 of the English Act. The first proviso is based on the proviso to
section 34(3) of the Indian Act and the second on the proviso to section 75 of the English Act. [Clause 102 of the
The new sub-section (1A) of section 108 seeks to impose restrictions on the period of currency of blank transfers on
the lines of the recommendation in paragraph 19 of the Commission’s Report. The proposed restrictions are—
(a) that every instrument of transfer shall be in the prescribed form bearing the date of issue stamped by the
prescribed authority; and
(b) that the said instrument is required to be delivered to the company within six months from the date of issue in
the case of listed shares and within two months from that date in the case of any other shares.
These restrictions are designed to curb the abuse inherent in the system of blank transfer. [Clause 13 of the
Mr. Laghir1 Rabari

Page 42 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
The recommendations contained in paras 12 to 19 of the Commission of Inquiry on the administration

of Dalmia-Jain companies or the Vivian Bose Commission report are reproduced below:
“Holding of shares on ‘Blank Transfers’ and nominee holdings.—12. The practice of holding shares on “blank transfers”
and the causes for its being in common vogue in this country have been examined by many Committees. The Thomas
Committee (at page 54) reported as under:—
In the blank transfer deed the seller only fills in his name and signature. Neither the buyer’s name and signature nor
the date of sale are filled in the transfer form. The advantage in giving such a blank deed is that the buyer will be at
liberty either to sell it again without filling his name and signature to a subsequent buyer. In the latter case he can avoid
the payment for the transfer stamp and new deed to the buyer. The process of purchase and sale can be repeated any
number of times with the blank deed and ultimately when it reaches the hands of one who wants to retain the shares,
he can fill in his name and date and get it registered in the company’s books. For this ultimate transfer and registration,
the first seller will be treated as the transferor, even if it happens years after his death. On such registration the last
buyer will be recognised as a shareholder by the company and the other intervening parties being not such
shareholders but only having had an equitable right in themselves, if they had so desired, to be registered as
shareholders of the company.”
It is the most common method adopted for share transfers in speculative dealings in this country, and all Stock
Exchanges in this country recognise “blank transfer” as a valid delivery.
13. This widespread practice is no doubt based upon a variety of legitimate reasons and necessary business purposes.
In the circumstances of this country, however, it has increasingly lent itself to certain abuses, the most important of
which are:
(a) concealment of the identity of the real beneficial owners behind their nominees; and
(b) evasion of tax by suppression of “secret” profits invested in holdings on blank transfers.
14. In the course of this inquiry, instances have come to the notice of the Commission where with a view to achieve
one or other object, individuals or limited companies resorted to the practice of holding shares on “blank transfers”
registered in third party’s names. In certain cases this practice was adopted with a view to—
(a) facilitate window-dressing of Balance Sheets of companies by reshuffling of shares held on “blank transfers”
between associated companies with the object of substituting inter-company loans and advances at the time
of the closing of the accounts by investments; and
(b) bring into existence fictitious or ante-dated transactions in the books of companies in order to create fictitious
losses in investments for the purpose of reducing the taxable profits.
15. As we have stated earlier, various Committees have considered this question, and some have gone to the extent of
even recommending total abolition of the “blank transfer” system. The Commission, however, feels on a very careful
consideration of this question that some remedial measures are necessary to meet the evils flowing out of the
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Page 43 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
indiscriminate practice of blank transfers in this country. The Company Law Committee presided over by the Rt. Hon.
Lord Jenkins recently submitted its report in the UK and have recommended a procedure to enforce disclosure of the
beneficial ownership of holdings. The Commission would favour a new provision to secure such a disclosure.
[Paras 16–18. Not reproduced. The Commission recommended a new provision in the Companies Act, 1956, to adapt
section 308 read with section 307 so as to require beneficial owners of 5% or more of the equity capital to disclose
beneficial ownership of holdings. See Comments under Sections 187-C and 187-D eventually inserted by the
Companies (Amendment) Act, 1974 (41 of 1974) and the Benami Transactions (Prohibition) Act, 1988 (45 of 1988).]
19. Restrictions should be imposed relating to the period of currency of the blank transfers by making suitable statutory
provisions with a view to permit shares being held on blank transfers only for a limited period.
In this connection, we make the following broad recommendation, namely:—
(i) to prescribe a form for execution of the instrument of transfer to be delivered to the company for having the
transfer of shares registered;
(ii) the transfer forms should be in a standardised form as now obtaining in the case of listed securities in some of
the Stock Exchanges in the country;
(iii) the application for registration of a transfer should be made to a company by either the transferor or the
transferee within a period of 6 months [now 12 months] from the date of issue of the transfer form as stamped
on it in the case of listed securities and two months in the case of non-listed securities;
(iv) the aforesaid restrictions relating to the period of currency of the blank transfers, as mentioned above, should
not apply in cases where the shares are held by a company within the ambit of section 49 or where they are
held in a fiduciary capacity or as security by a financial institution, provided that in the last case the shares
should be in the name of the borrower with a blank transfer executed in favour of the institution as security for
the advance.
(v) We strongly recommend reduction in the rate of stamp duty chargeable on the transfer of shares which, in our
opinion, would operate as an incentive against keeping the transfers blank. We feel that the loss in revenue
on this account may be more than made up by the volume of transfers as well as by the possibility of
reducing evasion in the matter of direct taxes.” [Report : paras 12–19].
The original clause contained only sub-section (1A), the Joint Committee further added sub-sections (1B), (1C) and
(1D) and explained as follows:
The Committee are of the opinion that an instrument of transfer, executed before the coming into force of this measure
but which is not in conformity with the proposed provisions of sub-section (1A) of section 108 of the principal Act,
should also be accepted by a company up to a period of six months from the date of coming into force of the
Companies (Amendment) Act, 1965.
The Committee also feel that the provisions of this clause should not prevent any person from depositing, by way of
security, any shares with the State Bank of India or any Scheduled Bank or financial institution approved by the
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Page 44 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
Company Law Board [the Central Government] by notification in the Official Gazette.
The Committee further feel that in order to avoid hardship in any case, the Company Law Board [the Central
Government] should be empowered, on an application made to it in that behalf, to extend the period mentioned in the
proposed sub-sections (1A) and (1B) in the clause by such further time as that Board might deem fit. Information
relating to the number of extensions so granted by the Board and the period of each such extension should, however,
be furnished in the annual report laid before the Houses of Parliament under section 638 of the Companies Act, 1956.
The clause has been amended accordingly. [Report : para 17].
Powers proposed to be conferred on the CLB were conferred on the Central Government in Act 31 of
1965.
THE COMPANIES (SECOND AMENDMENT) ACT, 1966 (37 OF 1966).—Sub-sections

(1A), (1B) and (1C) of section 108
of the 1956 Act were substituted and sub-section (1D) was amended by the Companies (Second
Amendment) Act, 1966 (37 of 1966), w.r.e.f. 1-4-1966. This amendment was originally promulgated
as the Companies (Amendment) Ordinance, 1966 (11 of 1966).The Ordinance was replaced by the
Companies (Second Amendment) Act, 1966.
THE COMPANIES (AMENDMENT) ACT, 1988 (31 OF 1988).—The Notes on Clauses explained the amendments as
follows:
To facilitate transferability of shares listed on the stock exchanges, this clause extends the period of currency of share
transfer instruments from two months to twelve months. [Clause 15 of the Companies (Amendment) Bill, 1987 (32 of
1987)].
THE DEPOSITORIES ACT, 1996 (22 OF 1996).—The Notes on Clauses explained the amendments in this section
as follows:
Clause 30 provides for amendment to certain provisions of the Companies Act, 1956 provided in the Schedule to the
Bill. [Clause 30 of the Depositories Bill, 1996 (29 of 1996)].
For the Statement of Objects and Reasons appended to the aforesaid Bills see Legislative History in
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108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
[s 56.173] Instrument of Transfer to be Produced [Sub-section (1)]
commentary above.
[s 56.174] Department’s View— Refusal to register transfer of shares on frivolous grounds
It has been brought to the notice of this Department that certain companies are returning instruments of transfer
without effecting transfer of shares in the names of transferees on frivolous grounds, inter alia, that the specimen
signatures of transferors do not tally with that on record, in spite of the fact that the transfer forms bear attestation of
the Magistrates, etc. In this connection, it may be stated that as per instructions below the prescribed share transfer
form (Form No. 7B) ‘attestation, where required, of thumb impression, marks, signatures, etc., should be done by a
magistrate, notary public or special executive magistrate or a similar authority holding a public office or a member of a
recognised stock exchange through whom the shares are introduced or a manager of the transferor’s bank’. Further,
the Guidelines for Good or Bad delivery issued by the Ministry of Finance, Department of Economic Affairs, vide their
Circular No. 1/10/SE/83, dt. 21-7-1983 [now see Notes on SEBI Guidelines for Good or Bad delivery at the end of this
Section 108] also provide a similar requirement. You are, therefore, requested to advise your constituent member
companies to follow the aforesaid instructions scrupulously and to effect transfer of shares within the period prescribed
under section 113 of the Act, and the listing guidelines. [Circular No. 3 of 1993 (F. No. 3/4/92-CL-V), dt. 22-3-1993 : To
All Chambers of Commerce and Industry : (1993) 76 COMP CASES (St.) 103].
[s 56.175] Refusal to register transfer of shares
I am directed to refer to this Department’s Circular No. 3 of 1993, dt. 22nd March, 1993 [printed above], on the above
subject, in which companies were advised not to return transfer deeds on the ground, inter alia, that the signatures of
the transferor do not tally, where the same are attested by notary public, stock broker, magistrate, etc., and to say that
it has been represented to this Department that in some cases, although the signatures are attested by notary public,
the same do not tally or the signatures have not been properly attested, which may give rise to disputes. In view of
these representations, the companies concerned are advised to satisfy themselves where there is doubt/apprehension
about the genuineness of signatures by making a reference to the transferor. Such cases will, however, be more by
way of exception rather than as a general rule. [Circular No. 10 of 1993 (F. No. 3/4/92-CL-V), dt. 13-8-1993 : (1993) 78
[s 56.176] Bulk lodgement of instrument(s) of transfer of shares/debentures
I am directed to say that as per the existing procedure prescribed under section s.108 of the Companies Act, 1956, the
shares/debentures can be transferred only by execution of a transfer deed. In case of bulk handling of transfer deeds,
in respect of transactions entered into by the Foreign Institutional Investors (FIIs) registered with SEBI, public financial
institutions as defined under section s.4A of the Companies Act, 1956, and Mutual Funds (domestic and off-shore),
there is a considerable amount of difficulty in complying with the existing procedure of signing each individual
instrument of transfer which may number in thousands, particularly when the transferee is the same. With a view to
overcoming these difficulties and simplifying the procedure, the companies are advised to accept transfer deeds
executed in such cases in the manner specified below:
(i) In respect of bulk transfers where there is a single transferee, the transferee, instead of signing each transfer
deed, may fill up and sign a covering transfer deed in the existing prescribed format complete in all respects,
enclosing therewith all the related transfer deeds in the prescribed format duly executed by the transferors.
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108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
(ii) The covering transfer deed shall contain, by way of an annexure, details of distinctive numbers and
corresponding certificate numbers of shares/debentures involved in the transfer.
(iii) The part relating to ‘transferee’s particulars’ in the individual transfer deeds (enclosed with the covering
transfer deed) need not be signed by the transferee and may be merely stamped with the name and address
of the transferee.
(iv) Requisite amount of stamps may be affixed on the covering transfer deed or paid in a manner as otherwise
prescribed by the Government.
2. You are requested to bring the above to the notice of your constituent member companies for necessary action.
[Circular No. 15 of 1993 (F. No. 3/37/87-CL-V), dt. 28-12-1993 : Addressed to All Chambers of Commerce and Industry
: (1994) 79 COMP CASES (St.) 55].
[s 56.177] Occupation of Company not Necessary
As per sub-section (1) of section 108, Occupation of the transferee is to be given only when it is
applicable. Only individuals are to be identified by their occupations and not any corporate body. The
objects of a corporate body and its occupation are matters of public knowledge. Memorandum and
articles of a company are open to inspection. Where the transferee stated “company” in the column
occupation. The transfer deed was held to be valid.
[s 56.178] Witness
Where the signature of the witness on the transfer deeds is legible, though the name of that witness
was not mentioned, it had to be considered good delivery in accordance with the guidelines for good
or bad delivery issued by the ministry of finance [now see SEBI Circulars and Comments on SEBI
Guidelines for Good or Bad delivery at the end of this section 108] and the company was wrong in
refusing to register the transfer of shares on this ground.
[s 56.179] Lodgement of Transfer Deed
See form, procedure and comments on stamping and execution of instrument of transfer, time for
lodgement and transfer fees under Sub-section (1A) and extension of time under Sub-section 1D
hereinafter.
[s 56.180] Department’s View— Clarification regarding fixing a “record date” without closing
register of members
The action of the company in fixing a ‘record date’ without seeming to close the register of members has no legal
validity. If by naming a ‘record date’ the company intends that any proposal for transfer of shares received by the
company between the ‘record date’ and the date of the (Annual General) Meeting at which dividends are declared
would not be considered or would be held in abeyance, then, this would amount to closing the register of members on
and from the ‘record date’. The effect of the provisions of Section 108(1A) of the Companies Act, 1956 in such a case
will have to be considered in the above light. [Circular No. 8/4(108)/67-CL-V, dt. 4-8-1967 : Government of India
[s 56.181] Instrument of Transfer Lost [Sub-section (1), First Proviso]
This sub-section is covered under the proviso to sub-section (1) of section 56 of the 2013 Act, as
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108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
[s 56.182] Department’s View— Clarification regarding requirement of producing of

instrument of transfer
“Section 108 makes a specific provision only for the contingency of loss of the instrument of transfer but not for the loss
of the certificate or allotment letter. It may happen that a purchaser of shares loses both the share certificate and the
instrument of transfer. Section 108 being mandatory, can a company give effect to a transfer where both the certificate
or allotment letter and the instrument of transfer are lost, if the loss is proved to the satisfaction of the Board and
indemnity as the Board may require is furnished by the transferee along with an application signed with the stamps
required for the instrument of transfer affixed thereon, and also issue a duplicate certificate to transferee?”
The Department has expressed the following views: “In the opinion of the Department section 108 only envisages the
case where the instrument of transfer is lost. If, therefore, the share certificate or the allotment letter is also lost then, a
duplicate thereof will have to be obtained first. Reference is also invited in this connection to the provisions of Rule 4(3)
of the Companies (Issue of Share Certificates) Rules, 1960.” [Company News and NOTES, dt. 1-7-1963 : Government
of India publication. Clarifications and Circulars on Company Law, 1977 Edition, page 59].
[s 56.183] Transmission of Shares or Debentures [Sub-section (1), Second Proviso]
commentary above.
[s 56.184] Title to Shares
The CLB [now the Tribunal (NCLT)] on an application under section 111(7) [applicable to private
company] provisions of which are also applicable under vide section 111A(7) [applicable to public
company] may decide any question relating to the title of shares. But, as regards title, it is well known
that the decision by the civil court is always preferable. If complicated questions are involved the
parties should be referred to civil courts even by the CLB [now the Tribunal (NCLT)].
[s 56.185] Instrument of Transfer to be Endorsed by the Prescribed Authority [Section

108(1A)]
Section 56 does not contain a specific provision to this effect. However, every instrument of transfer
is required to be stamped. Please see the commentary above in relation to sub-section (1) of section
56.
[s 56.186] Prescribed Authorities for Endorsing Transfer Forms [Section 108(1A) and Rule
5A(1)]
In addition to all the Registrars of Companies, the following have been notified or appointed as
“Prescribed Authority” for endorsing forms of transfer of shares under section 108(1A). Notifications
under rule 5A(1) of the Companies (Central Government’s) General Rules and Forms, 1956,
appointing prescribed authorities for purposes of section 108(1A)(a) are reproduced below.
[s 56.187] Notifications under Rule 5A(1)
Appointment of Prescribed Authorities for purposes of section 108(1A)(a).—In exercise of the powers conferred
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108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
by sub-rule (1) of Rule 5A of the Companies (Central Government’s) General Rules and Forms, 1956, the Central
Government has vide Notifications appointed the following authorities as prescribed authorities for the purposes of
clause (a) of sub-section (1A) of section 108 of the Companies Act, 1956 (1 of 1956), namely:—
17[1. Company Prosecutor, Grade Office of the Regional

II Director, CLB, Bombay.
2. Accounts Officer Office of the Regional

Director, CLB, Bombay.]
18[3. Superintendent (Grade II) Office of the Regional

Director, CLB, Bombay.
4. Senior Technical Assistants Office of the Registrar of

Companies, Bombay.
5. Superintendent (Grade I) Office of the Registrar of

Companies, Bombay.
6. Company Prosecutor (Grade Office of the Registrar of

III) Companies, Bombay.
7. Junior Technical Assistants Office of the Registrar of

Companies, Bombay.
8. Senior Technical Assistants Office of Registrar of

Companies, Ahmedabad.
9. Superintendent Office of Registrar of

Companies, Ahmedabad.
10. Company Prosecutor (Grade Office of Registrar of

III) Companies, Ahmedabad.
11. Junior Technical Assistants Office of the ROC,

Ahmedabad.]
19[12. Superintendent Office of Registrar of

Companies, Bangalore.]
20[13. Superintendents Office of the Registrar of

Companies, Madras.]
21[14. Senior Technical Assistants Office of the Registrar of

Companies, Jaipur.]
22[15. Superintendent Office of ROC, Andhra

Pradesh, Hyderabad.]
23[16. Senior Technical Assistants Office of the Registrar of Haryana and Chandigarh and
Companies, Punjab, Jullundur.]
24[17. Superintendent Office of the ROC, Madhya

Pradesh, Gwalior.]
25[18. Senior Technical Assistants Office of the Registrar of
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108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
Companies, Kanpur.]
26[19. Official Liquidator High Court, Allahabad.]
Further Notifications appointing prescribed authorities for the purposes of clause (a) of sub-section
(1A) of section 108 are reproduced below.
[s 56.188] Notification S.O. 786(E), dated 8-11-1982 under Rule 5A(1)
Appointment of Prescribed Authority for purpose of section 108(1A)(a).—“In exercise of the powers conferred by
sub-rule (1) of Rule 5A of the Companies (Central Government’s) General Rules and Forms, 1956, the Central
Government hereby appoints the Consular Officer in the Indian Missions/Embassies abroad as prescribed authority for
the purposes of clause (a) of sub-section (1A) of section 108 of the Companies Act, 1956 (1 of 1956).” [Notification No.
S.O. 786(E), dt. 8-11-1982, published in the Gazette of India, Extraordinary, No. 509, Pt II, section 3(ii), page 2, dt. 8-
11-1982 : (1983) 53 COMP CASES (St.) 52].
[s 56.189] Notification S.O. 1960, dated 3-8-1989 under Rule 5A(1)
Appointment of Prescribed Authority for Indore for purpose of section 108(1A)(a).—“In exercise of the powers
conferred by sub-rule (1) of Rule 5A of the Companies (Central Government’s) General Rules and Forms, 1956, and in
supersession of Notification of the Government of India in the Department of Company Affairs No. S.O. 4153, dt. 1
Novermber 1967, except as respects things done or omitted to be done before such supersession, the Central
Government hereby appoints the Assistant Commissioner of Income-tax, Circle II(1), Indore as the prescribed authority
for the purposes of clause (a) of sub-section (1A) of section 108 of the Companies Act, 1956 (1 of 1956).” [Notification
No. S.O. 1960, dt. 3 August 1989, published in the Gazette of India, Pt II, section 3(ii), page 2448, dt. 26 August 1989 :
(1989) 66 COMP CASES (St.) 193].
[s 56.190] Notification S.O. 279(E), dated 10-4-1992 under Rule 5A(1)
Appointment of Prescribed Authorities for purposes of section 108(1A)(a).—“In exercise of the powers conferred
by sub-rule (1) of Rule 5A of the Companies (Central Government’s) General Rules and Forms, 1956, and in
supersession of Notification No. S.O. 214(E), dt. 28th March, 1984, except as respects things done or omitted to be
done before such supersession, the Central Government hereby appoints the following authorities as prescribed
authorities for the purposes of clause (a) of sub- section (1A) of section 108 of the Companies Act, 1956 (1 of 1956),
namely:—
Sl. No. Name Place

1 2 3
1. Assistant Commissioner of Income-tax, Pune

Company Circle I(1)
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108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
Sl. No. Name Place

2. Income-tax Officer (Technical and P.R.) Nagpur
3. Income-tax Officer, C.I.B. Lucknow
4. Income-tax Officer, Circle III, Ward-3 Surat
5. Income-tax Officer, Company Circle III Coimbatore
6. Income-tax Officer, Headquarters Madurai
7. Income-tax Officer, “A” Ward Varanasi
8. Income-tax Officer Agra
9. Income-tax Officer Jabalpur
10. Income-tax Officer, “A” Ward Dhanbad
11. Income-tax Officer, IIB Circle Baroda
12. Income-tax Officer, “E” Ward Bhopal
13. Income-tax Officer, “A” Ward Jamshedpur
14. Income-tax Officer, “C” Ward- Thane

Ulhasnagar
15. Income-tax Officer, City Circle I Trichirapalli
16. Income-tax Officer, District I(5) Ludhiana
17. Income-tax Officer, “A” Ward Vishakhapatnam
18. Income-tax Officer, District IV Amritsar
19. Income-tax Officer, “A” Ward, Circle II Calicut
20. Assistant Commissioner of Income-tax, Vijayawada

Circle I
21. Income-tax Officer, Circle (I) Meerut
22. Income-tax Officer-IInd (Hubli-Dharwad) Hubli
23. Income-tax Officer, “C” Ward Trivandrum
24. Income-tax Officer, Company Circle I Salem
25. Income-tax Officer, “A” Ward Sholapur
26. Income-tax Officer, 1st Assessment Ranchi
27[27. Deputy Commissioner of Income-tax, Indore]

Circle II(1)
28. Deputy Regional Director of National Mangalore.

Savings Organisation
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108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
[Notification No. S.O. 279(E), dt. 10-4-1992, published in the Gazette of India, Extraordinary, No. 241, Pt II, section 3(ii)
: (1992) 75 COMP CASES (St.) 30].
[s 56 .191 ] Notification S.O. 725(E), dated 29-9-1992 under Rule 5A(1)
Appointment of Prescribed Authorities for purposes of section 108(1A)(a).—“In exercise of the powers conferred
by sub-section (1A) of section 108 of the Companies Act, 1956 (1 of 1956), read with sub-rule (1) of Rule 5A of the
Companies (Central Government’s) General Rules and Forms, 1956, the Central Government hereby appoints the
persons mentioned in column 2 of the Table below, being already in service of the Government, as prescribed
authorities for the purpose of clause (a) of the said sub-section, who shall exercise the powers conferred and perform
the duties imposed by or under the said clause within the local limits of their respective jurisdiction as specified in
column 3 of the Table below.
TABLE
Sl. No. Name Jurisdiction

1. Additional Registrar of Companies, Delhi Delhi and Haryana
2. Assistant Registrar of Companies, Delhi Delhi and Haryana
3. Junior Technical Assistant, Office of the
Registrar of Companies, Goa Goa.”
[Notification No. S.O. 725(E), dt. 29 September 1992 :Gazette of India, Extraordinary, No. 643, Pt II, section 3(ii) :
(1993) 76 COMP CASES (St.) 21].
[s 56. 192] Notification S.O. 164(E), dated 14-2-1994 under Rule 5A(1)
Official Liquidator of High Court appointed prescribed authority in the State of Madhya Pradesh for purposes
of section 108(1A)(a).—“In exercise of the powers conferred by clause (a) of sub-section (1A) of section 108 of the
Companies Act, 1956 (1 of 1956), read with sub-rule (1) of Rule 5A of the Companies (Central Government’s) General
Rules and Forms, 1956, the Central Government hereby appoints the Official Liquidator, High Court, Indore, in the
State of Madhya Pradesh as prescribed authority for the purposes of clause (a) of sub-section (1A) of section 108 of
the said Act.” [Notification No. S.O. 164(E), dated 14-2-1994 : Gazette of India, Extraordinary, Pt II, section 3(ii) :
(1994) 80 COMP CASES (St.) 6].
[s 56.193] Stamp on Transfer Instrument must be Cancelled
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108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
The stamp on the transfer instrument has to be cancelled at the time of the execution. Subsequent
cancellation by the concerned shareholder or the company will be invalid. Where the adhesive
stamps were cancelled by the company before the board of directors considered the transfer, delivery
of the instrument of transfer duly stamped as contemplated under section 108 of the 1956 Act read
with section 2(11) and 12 of the Indian Stamp Act, 1899 (2 of 1899) [here the Karnataka Stamp Act,
1957 (34 of 1957)] had not been done and the registration of the transfer by the company was
against the mandatory provisions of section 108 of the 1956 Act.28
[s 56.194] “Duly Stamped” Includes Cancellation of Stamps
The term “duly stamped” includes also effective cancellation of the stamps. A company is not under
any obligation to register a transfer of shares unless the instrument of transfer is (i) properly filled in,
(ii) duly signed by the transferor and the transferee, (iii) properly stamped, and (iv) such stamp is duly
cancelled before it is delivered to the company.29
[s 56.195] Crossing of Stamps before Delivery or Lodgment of Transfer Deeds
Adhesive stamps are required to be affixed and cancelled before delivery or lodgement of the transfer
deeds to the company. The instruments of transfer signed in blank by the transferor would be
deemed to have been executed only when signed by the ultimate transferees. The adhesive stamps
may be affixed and cancelled at this stage. Crossing of stamps making them unfit for further use is
proper cancellation. The stamps are not required to be affixed prior to execution of document under
section 108(1A)(b) of the 1956 Act.30
[s 56.196] Time Limit for Submission of Transfer Forms
As per sub-section (1A), the instrument of transfer duly stamped and executed shall be delivered to
the company,—(i) in the case of shares dealt in or quoted on a Recognised Stock Exchange, at any
time before the date on which the register of members is closed for the first time after the date of the
presentation of the prescribed form to the prescribed authority under clause (a) or within 12 Months
from the date of such presentation, whichever is later; (ii) in any other case, within two months from
the date of such presentation.
The time limit for submission or lodgement of the transfer forms under section 108(1A) is only
directory and not mandatory. The acceptance of a Transfer Form beyond the time does not make it
invalid.31
Sub-section (1A) of section 108 was inserted to impose restrictions on the period of currency of Blank
Transfers. To facilitate transferability of shares Listed on the Recognised Stock Exchanges the period
of currency of share transfer instruments was extended from two months to 12 months. See
Legislative History hereinbefore.
[s 56.197] Department’s View— Clarification regarding fixing a “record date” without closing
register of members
“The action of the company in fixing a “record date” without seeming to close the register of members has no legal
validity. If by naming a “record date” the company intends that any proposal for transfer of shares received by the
company between the “record date” and the date of the (Annual General) Meeting at which dividends are declared
would not be considered or would be held in abeyance, then, this would amount to closing the register of members on
and from the “record date”. The effect of the provisions of section 108(1A) of the Companies Act, 1956 in such a case
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108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
will have to be considered in the above light.” [Circular No. 8/4(108)/67-CL-V, dt. 4-8-1967 : Government of India
[s 56.198] Department’s View— Restrictions on blank transfers of shares—Procedure

clarified
“Section 13 of the Companies (Amendment) Act, 1965, which seeks to impose restrictions on the period of currency of
blank transfers of shares, comes into force today, April 1, 1966.
The Notification [GSR 421] amending the Companies (Central Government’s) General Rules and Forms, 1956,
whereby a transfer form has been prescribed was published in the Gazette of India, Extraordinary, dt. the 18th March,
1966. The transfer form [Form No. 7B] is required to be presented to the Registrar of Companies before it is signed by
or on behalf of the transferor so that the former may stamp or otherwise endorse thereon the date on which it is so
presented.
While presenting the transfer form to the Registrar, the first four columns in regard to the name of the Company,
description of shares, name of the Stock Exchange, if any, where the shares are dealt in or quoted on and the name of
the transferor in full should be filled in full. The other columns of the form need not be filled in.” [Press Note, dt. 21-4-
1966 : Government of India publication, Clarifications and Circulars on Company Law, 1977 Edition, page 60].
For registering the transfer of shares without proper instrument of transfer the company and every
officer who is in default shall be punishable under section 629A with fine up to Rs 5,000 and where
the contravention is a continuing one, with a further fine up to Rs 500 for every day of default.
Section 22A(8) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) prescribed a penalty
to the company and every officer for default in complying with the provisions of section 22A of the
SCRA, 1956 [since omitted as a consequence of insertion of section 111A of the 1956 Act] in case of
transfer of shares of companies listed on Stock Exchanges. Under the 1956 Act there was no penalty
for violation of section 108(1) until insertion of section 629A.32
[s 56.200] Fraudulent or Forged Transfer Ab Initio Void
Where a public company following Listing Agreement [Clause 12A] and Circular No. 3 of 1993, dt. 22-
3-1993 [printed earlier] registered the transfer when the documents were duly executed and lodged
with the signature of the transferor attested by proper authority and company found no difference in
the signature. Transfers were registered in accordance with requirements before the stop order from
the transferor. The registration was not illegal or improper. The transferor after losing share
certificates did not lodge complaint with the police. The transferor did not implead transferees as
parties to the petition. In view of this, the order of rectification could not be passed. As the transferor
alleged that shares were fraudulently transferred under forged signature and attestation and were
void ab initio strict time limit under section 111A could not be enforced. Petition wrongly filed under
section 111 in respect of the public company was treated as filed under section 111A of the 1956
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108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
Act.33
[s 56.201] Department’s View— Transfer in the name of the Trustees
“Section 108 of the Companies Act, 1956 inter alia requires that a company shall not register transfer of shares unless
a proper instrument of transfer duly stamped and executed by and on behalf of the transferor and transferee has been
delivered to the company. As the section under which the application has been made requires that the transfer should
be on a proper instrument duly stamped and executed, the CLB [now the Tribunal] is, competent to advise the
applicant that the share should be held in the name of the Trustees and not the Trust and that the application should
be amended accordingly.” [Extracts from File No. 32/108/68-CL-V : Govt. of India publication, Clarifications and
[s 56.202] Transitional Provision [Sub-section (1B)]
This sub-section made transitional provision for acceptance of instrument of transfer of shares
executed before the commencement the Companies (Amendment) Act, 1965 (31 of 1965), in a form
other than the prescribed form up to six months from such commencement.
[s 56.203] Exceptions [Sub-section (1C)]
The provisions of sub-section (1A) mentioned in the preceding paragraphs are not applicable to the
following cases:
[s 56.204] Shares in Name of Director or Nominee of Company
Any share (i) which is held by a company in any other body corporate in the name of a director or
nominee in pursuance of section 49(2) or 49(3) of the Act; (ii) which is held by a corporation owned or
controlled by the government in the name of its director or nominee; (iii) in respect of which a
declaration has been made to the public trustee under section 153B of the Act [sections 153A and
153B are not applicable (w.e.f. 13December 2000)].
Provided that (a) the company or corporation puts on the form the dates on which it decides not to
hold them in the name of the said director or nominee, or the public trustee [sections 153A and 153B
relating to Public Trustees are not applicable (w.e.f. 13 December 2000)] puts the date under his seal
of presentation of the form to him; and (b) the form is duly completed and delivered to the body
corporate or the company issuing the shares within two months of such date.
[s 56.205] Share Deposited as Security with Bank or Financial Institution
Any share deposited by any person with (i) the State Bank of India, any scheduled bank or any
banking company or financial institution approved by the Central Government, the Central or state
government or with any corporation owned or controlled by the government; (ii) such deposit is by
way of security for the repayment of any loan or advance to such person or performance of any
obligation undertaken by him; (iii) the bank, institution, government, corporation puts the date on
which the share is returned to the depositor or in case he fails to repay the loan the date of release
for sale or where the lender wants to get itself registered the date on which the transfer document is
executed; and (iv) the instrument of transfer duly executed is delivered to the company within two
months of such date.
Nominee of Government. Any share held by the nominee of a government except that the
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Page 55 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
prescribed form of transfer shall be applicable.
[s 56.206] List of Financial Institutions Approved under section 108(1C)
In exercise of the powers conferred by sub-clause (iii) of clause (B) of sub-section (1C) of section 108
of the 1956 Act, the Central Government [the CLB] has approved the following as a financial
institution for the purposes of said sub-section:
34[(1) Any banking company (other than a scheduled bank) as

defined in section 5(c) of the Banking Regulation Act, 1949 (10
of 1949).
(2) Any co-operative bank as defined in section 2(bii) of the

Reserve Bank of India Act, 1934 (2 of 1934).]
35[(3) The Industrial Development Bank of India (set up under the

Industrial Development Bank of India Act, 1934).
(4) The Industrial Finance Corporation (set up under the Industrial

Finance Corporation Act, 1948).
(5) All State Financial Corporations (set up under the State

Financial Corporations Act, 1951).
(6) The Industrial Credit and Investment Corporation of India Ltd,

Bombay.
(7) The Madras Industrial Investment Corporation Ltd., Madras.
(8) The International Finance Corporation, Washington (USA).
(9) The Life Insurance Corporation of India.
(10) The New India Assurance Company Ltd., Bombay.
(11) The Oriental Fire and General Insurance Company Ltd.,

Bombay.
(12) The Indian Guarantee and General Insurance Company Ltd.,

Bombay.]
36[(13) The Hercules Insurance Company Ltd.]
37[(14) Advance Insurance Company Ltd., Bombay.
(15) Co-operative Assurance Company Ltd., Amritsar.
(16) Great Pyramid Insurance Company Ltd, Calcutta.
(17) Sundaram Finance Ltd., Madras.
(18) National Insurance Company Ltd., Calcutta.]
38[(19) Calcutta Insurance Ltd, Calcutta.]
39[(20) British India General Insurance Company Ltd.]
40[(21) Madras Motor and General Insurance Company Ltd.]
41[(22) New Great Insurance Company of India Ltd.]
42[(23) Jupiter General Insurance Company Ltd.]
Mr. Laghir1 Rabari

Page 56 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
43[(24) Hindustan Ideal Insurance Company Ltd.]
44[(25) The Unit Trust of India, established under the Unit Trust of
India Act, 1963.]
45[(26) The Housing Development Finance Corporation Ltd, formed

and registered under the Companies Act, 1956 (1 of 1956),
subject to the condition that this approval would be limited to
shares pledged with the company as security for repayment of
housing loans granted by the said company.]
46[(27) The Risk Capital and Technology Finance Corporation Ltd,

registered under the Companies Act, 1956 (1 of 1956).]
47[(28) The Tourism Finance Corporation of India Ltd, registered

under the Companies Act, 1956 (1 of 1956).]
48[(29) The Small Industries Development Bank of India, established

under the Small Industries Development Bank of India Act,
1989.
[s 56.207] Extension of Time [Sub-section (1D)]
The Central Government has been given power to extend the period within which the instrument of
transfer is to be deposited with the company. The powers and functions of the Central Government
under this sub-section have been delegated to the registrars of companies.
An application for extension of time may be made to the registrar of companies before or after the
expiry of the period mentioned in this section. Such extension may be granted at the discretion of the
registrar of companies mainly to avoid hardship. The discretionary power is without any limitation.
The Central Government has, however, to show in the annual report laid before the Parliament under
section 638 the number and length of extension granted. There is no corresponding provision under
[s 56.208] Application to Registrar of Companies
A person may make an application to the regional director [now the registrar of companies] under
section 108(1D) of the 1956 Act for extension of time for registration of transfer of shares. If there are
proper materials the regional director [now the registrar of companies] may ultimately form the
opinion that it would cause hardship to the applicant-transferee if time was not extended. Such
extension of time does not affect the rights and liabilities of parties under the instrument of transfer. In
such a case the transferor is not entitled to a notice of the application.49
[s 56.209] Registrar cannot Extend Time after Lodgment of Transfer
The registrar of companies cannot extend the time for lodgment of transfer deed once the documents
are lodged. The power of the registrar of companies to extend the time for lodgment of the instrument
of transfer of shares with the company has to be exercised to avoid hardship. The spirit of the words
“to avoid hardship” used in section 108(1D) should be construed to mean to avoid hardship in lodging
the instrument for the first time with the company. The ROC has no power to extend the validity of the
currency of the transfer deed after such lodgment.50
[s 56.210 ] Delegation of Powers to the Registrars of Companies
The powers and functions of the Central Government under sub-section (1D) of section 108 have
Mr. Laghir1 Rabari

Page 57 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
been delegated to the registrars of companies. [Notification No. G.S.R. 507(E), dt. 24 June 1985 : For
Text of the notification see Notes under section 637].
To the foregoing Notification the following proviso has been added:
“Provided that the powers and functions under sub-section (1D) of section 108 shall be exercised and performed either
by the Registrar of Companies of the State in which the registered office of the company is situated, or by the Registrar
of Companies of the State in which the transferee ordinarily resides.” [Notification No. G.S.R. 481(E), dt. 22 April 1988 :
(1988) 64 COMP CASES (St.) 38].
[s 56.211] Fees on Applications
As per rule 2(2) and Table II of the Companies (Fees on Applications) Rules, 1999, every application
made to the Central Government [the registrar of companies] under sub-section (1D) of section 108
of the 1956 Act shall be accompanied by the fee specified in Table II, viz., where the face value of the
shares involved in a transfer (a) Does not exceed Rs 5,000—Rs 50 and (b) Exceeds Rs 5,000—Rs
100. See also notes under section 637A.
[s 56.212 ] Department’s View— Revision of rates of fees for applications made to Central
Government by companies for approvals under the 1956 Act
“The rates of application fees payable by companies and individuals to the Central Government for various applications
made by them for approvals under the Companies Act, 1956, have been revised (w.e.f. 10 August 1999). This revision
has been done by notifying the Companies (Fees on Applications) Rules, 1999, in the Gazette of India, Extraordinary,
dt. 6th July, 1999. These rules supersede the earlier 1968 rules, namely, the Companies (Fees on Applications) Rules,
1968. The details of the changes (relevant extracts) made in the fee structure are given below:
6. Application fee payable by individuals for transfer of shares [extension of time u/s. 108(1D)].—There is however, no
increase in the fees payable by investors for extension of time under section 108(1D) of the Companies Act, 1956. The
fees in these cases remain at Rs 50 if the face value of the shares involved in a transfer does not exceed Rs 5,000. In
case the face value of the shares involved in a transfer exceeds Rs 5,000, the fees payable is Rs 100 (i.e., again here
is no change).
8. A copy of the Notification(s) has been placed at the Web Page of the Department of Company Affairs at the Internet
Address http://www.nic.in/dca.” [Extracts from Press Note No. 4 (1999 Series) (F. No. 1/17/97-CL-V), dt. 16-7-1999 :
(1999) 97 COMP CASES (St.) 86]. See full text in notes under section 637A(2).
[s 56.213] Streamlining the Working of Registrars of Companies—Report of the Review

Committee
The department vide Circular No. 1 of 1995, dt. 16-2-1995 directed the registrars of companies
(ROCs) to implement certain recommendations of the review committee to study the working of
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Page 58 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
Application under Section 108(1D).—(xv) A large number of applications are received by ROCs from the investors
seeking extension of time in lodging the share transfer deeds with the company under the above provisions. It is seen
that during the period from April, 1993, to March, 1994, 1,72,145 such applications were considered by ROCs including
the cases brought forward from 1992-93, out of which 1,54,927 applications were disposed of and on March 31, 1994,
17,218 applications were still pending. In bigger offices, about 2,000 such applications are received in a month. In the
past, the Department had advised ROCs to deal with these applications across the table. However, in view of the large
intake, ROCs have not been able to deal with these applications expeditiously, scrutiny of such applications do not
take much time as the office has only to ensure payment of application fee and whether the applicant of the company
concerned is within the jurisdiction of that office. As per the existing practice, a standard letter is issued to the
transferee by registered post along with the impugned transfer deed, extending the time opto one month from the date
of issue, and a copy of the letter is also endorsed to the company concerned. This itself is a time consuming process. It
has now been decided that instead of issuing the letter, only an endorsement may be made by rubber stamp on the
transfer deed itself. In view of this simplified procedure, it should be possible that the required endorsement be made
by the Registrar/Assistant Registrar, the same day of receipt of application and returned to the investor concerned
across the table. [Extracts from Circular No. 1 of 1995 (F. No. 14/6/94-CL-V), dt. 16-2-1995 : Addressed to All
Registrars of Companies (ROCs) : (1995) 82 COMP CASES (St.) 261].
[s 56.214] Extension of time for registering transfer of shares under sub-section (1D) of
section 108
In seeking extension of time for registering transfer of shares under sub-section (1D) of section 108, applicants often
adduce various reasons such as over-sight, ignorance of law, misplacement of documents, or ill-health, etc., which are
vague and not fully convincing. The Company Law Board [now the powers of Central Government have been
delegated to the Registrars of Companies] has, however, at the initial stage of this change in the law, been liberally
granting extensions of the period of validity in respect of instruments of transfer for acceptance by the companies
concerned to prevent hardship to members of the public, as the provisions were new and were intended to restrict a
practice which had been in vogue for a long time. As these provisions of the Act have been in force more than three
years now and the legal provisions should have become sufficiently known, it is expected that the law would be more
strictly complied with. It should be noted that extension of time for registration of shares would henceforth be granted
only in cases of real hardship and where there are valid reasons for the delay in delivering instruments of transfer to
the companies concerned. As such, the applications for extension of time under section 108(1D) should be supported
by specific reasons indicating the hardships which the applicant is likely to suffer in case of non-registration of shares
or refusal of permission for extension of time. The public are advised to take note of the statutory provisions in this
regard, seek the advice of recognised share brokers in time and ensure presentation of the instruments of transfer to
the companies within the time limit prescribed by law. [Press Note, dt. 6-5-1969 : Govt. of India publication,
[s 56.215] Company with no Share Capital [Sub-section (2)]
This section applies also to a company which has no share capital and the references to shares
would be references to the interest of the member in the company. This sub-section has been
covered by sub-section (1) of section 56 of the 2013 Act as explained in the commentary above.
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Page 59 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
[s 56.216] Transfer of Securities by Depository [Section 108(3)]
Section 108 of the 1956 Act is not applicable to transfer of securities by a Depository. Section 56 of
the 2013 Act does not specifically exclude application to shares held in dematerialised form.
Section 108 is not applicable to transfer of shares where the transferee and the transferor are
entered as beneficial owners in the records of a Depository.51
[s 56.217] Department’s View— Transfer of securities—Inter-depository transfer of shares

does not attract stamp duty—Clarification issued by Ministry of Finance, Government of India
“Based on the views of the Law Ministry the Ministry of Finance has clarified that inter-depository transfer of shares
does not attract stamp duty. It has also been clarified that inter-depository transfer of securities does not require
compliance with the formalities prescribed under section 108 of the Companies Act, 1956 (1 of 1956).
It may be recalled that in the recent past doubts were being raised in the market on the above issues. Today’s
clarification puts these doubts to rest. The Registrars and the depositories are being advised by SEBI on the above
clarification.” [Press Note (Ref. No. PR. 187/99), dt. 23-8-1999 : Issued by the SMDRP Department, SEBI : (1999) 97
See detailed notes on Stamp Duty on Depositories [section 8A of the Indian Stamp Act, 1899 (2 of
1899) inserted by the Depositories Act, 1996 (22 of 1996), and amended by the Depositories Related
Laws (Amendment) Act, 1997 (8 of 1997)], hereinbefore. See detailed notes on Initial offer of
securities to be in dematerialised Form in certain cases under section 68B.
[s 56.218] Depository [Section 2(12A)]
Depository has the same meaning as in the Depositories Act, 1996 (22 of 1996). [Section 2(12A) of
the 1956 Act].
The Depositories Act, 1996, and related amendments have made consequential amendments in the
1956 Act, the SEBI Act, 1992, the Securities Contracts (Regulation) Act, 1956, the Indian Stamp Act,
1899, the Income-tax Act, 1961, the Benami Transactions (Prohibition) Act, 1988, and the banking
legislations. See detailed notes under section 68B.
See notes under relevant sections of the 1956 Act, viz., sections 2(12A), 2A, 41(3), 49(5)(c), 51
proviso, 68A, 68B, 83, 108(3), 111(14), 111A, 113(4), 150(1)(b), 152(1)(b), 152A and Schedule II,
Part II, Clause C, Sub-clause 9A.
See detailed notes under section 68B.
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Page 60 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
Section 108 of the Act shall not apply to a government company in respect of shares held by
nominees of Government. [Notification No. 579(E), dt. 16-7-1985, published in the Gazette of India,
Extraordinary, No. 306, Pt II, section 3(i), page 2, dt. 16-7-1985 : Chartered Secretary, September
[s 56.220] Bonds issued by Government Company Exempt from section 108(1)
In exercise of the powers conferred by clause (a) of sub-section (1) of section 620 of Companies Act, 1956 (1 of 1956),
the Central Government hereby directs that the provisions of sub-section (1) of section 108 of the said Act, in so far as
it requires a proper instrument of transfer to be duly stamped and executed by or on behalf of the transferor and by or
on behalf of the transferee, shall not apply with respect to Bonds issued by a Government Company, provided that an
intimation by the transferee specifying his name, address and occupation, if any, has been delivered to the Company
along with the certificate relating to the Bond, and if no such certificate is in existence, along with the letter of allotment
of the Bond, a copy of this notification having been laid in draft before both the Houses of Parliament as required by
sub-section (2) of section 620 of the said Act. [Notification No. G.S.R. 1294(E), dt. 17-12-1986, published in the
Gazette of India, Extraordinary, Pt II, section 3(i), dt. 19-12-1986 : Chartered Secretary, March 1987, page 207].
[s 56.221] Nature and Transfer of Shares in Companies [Sections 82 and 108]
The combined effect of sections 82 and 108 is that though the shares of a company are movable
property, unless there is a valid deed of transfer, the transferee cannot claim to have his name
entered in the register of members of the company. This has been covered by the provisions of
section 56, as explained in our commentary above.
[s 110] Application for transfer.—(1) An application for the registration of a transfer of the shares or other interest of
a member in a company may be made either by the transferor or by the transferee. The Companies Act, 1956
provision
(2) Where the application is made by the transferor and relates to partly paid shares, the transfer shall not be
registered, unless the company gives notice of the application to the transferee and the transferee makes no objection
to the transfer within two weeks from the receipt of the notice.
(3) For the purposes of sub-section (2), notice to the transferee shall be deemed to have been duly given if it is
despatched by pre-paid registered post to the transferee at the address given in the instrument of transfer, and shall be
deemed to have been duly delivered at the time at which it would have been delivered in the ordinary course of post.
NOTES
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Page 61 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on Clauses explained the proposed section as follows:
“See section 34(1) of the Indian Act. Sub-clause (3) is based on section 34(2) of the Indian Act.” [Clause 104 of the
[s 56.223] Application by Transferor or Transferee [Sub-section (1)]
An application for registration of transfer of shares or other Interest of a member in a company may
be made by the transferor or the transferee.
This is in addition to execution of the transfer Form. Section 56(1) does not make specific reference
to the requirement of an application in addition to the share transfer form.
[s 56.224] Notice to Transferee of Partly Paid Shares [Sub-section (2)]
This sub-section has been covered by sub-section (3) of section 5, as explained in our commentary
above.
For failure to give notice of the application for transfer of shares to transferee under sub-section (2) in
case of partly paid shares, the company and every officer who is in default, shall be punishable under
section 629A, with fine up to Rs 5,000 and where the contravention is a continuing one, with a further
fine up to Rs 500 for every day of default.
[s 113] Limitation of time for issue of certificates.—(1) 52[Every company, unless prohibited by any provision of law
or of any order of any court, tribunal or other authority, shall, within three months after the allotment of any of its
shares, debentures or debenture stock, and within two months after the application for the registration of the transfer of
any such shares, debentures or debenture stock, deliver, in accordance with the procedure laid down in section 53, the
certificates of all shares, debentures and certificates of debenture stocks allotted or transferred:] The Companies Act,
1956 provision
Provided that the 53[Central Government] may, on an application being made to it in this behalf by the company, extend
any of the periods within which the certificates of all debentures and debenture stocks allotted or transferred shall be
delivered under this sub-section, to a further period not exceeding nine months, if it is satisfied that it is not possible for
the company to deliver such certificates within the said periods.]
The expression “transfer,” for the purposes of this sub-section, means a transfer duly stamped and otherwise valid, and
does not include any transfer which the company is for any reason entitled to refuse to register and does not register.
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Page 62 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
(2) If default is made in complying with sub-section (1), the company, and every officer of the company who is in
default, shall be punishable with fine which may extend to 54[five thousand rupees] for every day during which the
default continues.
(3) If any company on which a notice has been served requiring it to make good any default in complying with the
provisions of sub-section (1), fails to make good the default within ten days after the service of the notice, the 55[Central
Government] may, on the application of the person entitled to have the certificates or the debentures delivered to him,
make an order directing the company and any officer of the company to make good the default within such time as may
be specified in the order; and any such order may provide that all costs of and incidental to the application shall be
borne by the company or by any officer of the company responsible for the default.
56[(4)
Notwithstanding anything contained in sub-section (1), where the securities are dealt with in a depository, the
company shall intimate the details of allotment of securities to depository immediately on allotment of such securities.]
NOTES
See section 108 of the existing Act and section 80 of the English Act. [Clause 379 of the Companies Bill, 1953 (46 of
1953)].
The joint committee recommended that the proper place for this clause is here [Report : para 56].
Clause 17 seeks to remove a lacuna, advantage of which is often taken by companies to delay the issue of certificates
of shares or debentures within the period of three months mentioned in section 113. This clause also seeks to transfer
from the Court, and to vest in the Company Law Board [now the Central Government], the power to direct a company
or any of its officer to make good the default in complying with the provisions of this section. [Clause 17 of the
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Page 63 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
as follows:
THE COMPANIES (AMENDMENT) ACT, 2000 (53 of 2000).—The Notes on Clauses explained thus:
Clause 42 seeks to enhance the fine specified in sub-section (2) of section 113 of the Act from five hundred rupees to
five thousand rupees. [Clause 42 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
This clause seeks to amend section 113 of the Companies Act, 1956 relating to limitation of time for issue of
certificates. The Company Law Board has been conferred certain powers under this section. It is proposed to confer
these powers of the Company Law Board upon the Tribunal [conferred on Central Government in the Act]. This
amendment is of consequential nature. [Clause 14 of the Companies (Amendment) Bill, 2001 (80 of 2001)].
[s 56.227] Time Limit for Issue of Certificates [Section 113(1)]
This sub-section has been covered by sub-section (4) of section 56 of the 2013 Act, as explained in
our commentary above.
[s 56.228] Letters of Allotment
This section applies to the share/debenture certificates and not to letters of allotment.57
[s 56.229] Continuing Offence—Limitation
Failure to deliver share certificate within the prescribed period is a continuing offence.58
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Page 64 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
Default in complying with section 113 of the 1956 Act is an offence of a continuing nature and the
period of limitation under section 472 of the Code of Criminal Procedure, 1973 (2 of 1974), would not
apply.59
[s 56.230] Condonation of Delay
However, on a complaint filed before the magistrate beyond limitation without accompanying
application for condonation of delay explaining the grounds for the delay, it was held that the
magistrate could not take cognisance of the offence.60
[s 56.231] Not Continuing Offence—Limitation
In decisions to the contrary, it has been held that the offence under section 113(1) and (2) of the
1956 Act for failure to deliver share certificates within stipulated time is not a continuing offence and
the period of limitation under section 468(2)(a) of the Code of Criminal Procedure, 1973 (2 of 1974),
is six months from the date of knowledge. A complaint was filed against the petitioner and other
directors under section 113(1) and (2) of the 1956 Act for failure to deliver shares certificates within
the stipulated time. On a petition under section 482 of the Code of Criminal Procedure, 1973, to
quash the proceedings against him, the petitioner contended that (i) the complaint was filed beyond
the period of limitation prescribed under section 468 of the Code of Criminal Procedure, 1973, and (ii)
the offence under section 113 of the 1956 Act was not a continuing offence as defined under section
472 of the Cr.P.C. Allowing the petition and quashing the proceedings, it was held (i) that the period
of limitation, under section 468(2)(a) of the Code of Criminal Procedure, 1973, was six months, and
as the complaint was filed more than one year after the date of knowledge, no cognisance could have
been taken of the offence since it was barred by limitation. (ii) That the liability under section 113(1)
of the 1956 Act did not continue until the rule, or its requirement was obeyed or complied with. The
offence, on the breach of section 113(1), was complete once and for all on the failure to deliver the
shares, debentures and stocks within the time stipulated. There was no continuing obligation even
after expiry of the time limit. Section 113(2) of the 1956 Act, which prescribes the penalty, is intended
to enforce strict compliance with the requirement of section 113(1) under the threat of continuous
penalty. The offence under section 113(1) was not repeated or committed day-to-day after the initial
default and could not therefore be said to be a continuing offence attracting the provisions of section
472 of the Code of Criminal Procedure, 1973.61
[s 56.232] Cause of Action for Failure to Deliver Certificates
Under section 53 of the 1956 Act a document is to be served either personally or by sending it by
post at the registered address within India. Section 53(2) specifically mentions that where a
document is sent by post, such service thereof shall be deemed to be effected by properly
addressing, prepaying and posting the letter containing the document. Since there is a statutory
mode of delivering the document by post and deeming provision of such delivery, the place where
such posting is done is the place of performance of statutory duty and the same stands discharged
as soon as the document is posted. Reading sections 113 and 53 of the Act together, share
certificates are to be delivered in accordance with the procedure laid down in section 53. Hence, the
cause of action for the default under section 113 of not sending the share certificates within the
stipulated time would arise at the place where the registered office of the company is situated as from
that place the share certificates can be posted and are usually posted. For such default, as
contemplated under section 113(1), there is no question of any cause of action arising at the place
where the complainant was to receive postal delivery. The cause of action for failure to deliver the
share certificates or documents within the prescribed time would arise where the registered office of
the company is situated. The complaint for an offence under section 113(2) has to be filed where the
registered office of the company is situated. What is punishable under sub-section (2) of section 113
is non-delivery, in accordance with the provision laid down under section 53, of the certificates of
shares within the prescribed time. So, if the documents are posted within the stipulated time, there
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Page 65 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
would be compliance with section 113 and there would not be any offence.62
See section 20 (service of documents) read with section 56(4) (timelines for delivery of share
certificates) under the 2013 Act.
[s 56.233] Registrar Aggrieved Person—Criminal Liability
Having regard to the clear language of section 621 of the 1956 Act, there is no doubt that the
registrar of companies would be an “aggrieved person” within the meaning of section 469(1)(b) of the
Code of Criminal Procedure, 1973, in respect of offences against the 1956 Act. The objects of
sections 113(2) and 113(3) of the 1956 Act are disparate. Section 113(3) deals with the civil liability of
the company and its officers for a breach of section 113(1) at the instance of the transferee. Section
113(2) deals with criminal liability arising out of violation of section 113(1). Section 113(3) is primarily
compensatory in nature whereas section 113(2) is punitive. An application under section 113(3) can
only be made by the allottee or the transferee. Where the allottee or the transferee is not an existing
shareholder of the company he cannot file a complaint as a shareholder under section 113(2) of the
Act. In such a case, the registrar of companies or person authorised by the Central Government or
the SEBI would be entitled to the benefit of the provisions of section 469(1)(b) of the Cr.P.C. and
competent to file the complaint. The date of knowledge of the registrar would be the starting point of
limitation.63
[s 56.234] Share Applicant
A share applicant who has not been allotted shares and the application money has been refunded is
not a shareholder and cannot file a complaint under section 113 of the 1956 Act.64
[s 56.235] Convertible Debentures— Locus Standi to Complain
Where debentures were not converted into shares as stated in prospectus but were redeemed and
moneys were returned. It was held that applicants had locus standi to complain as prima facie
offences were made out for false statement in prospectus, etc. under sections 63, 113 and 116. The
proceedings were not quashed.65
[s 56. 236] Offences under Act Tried by Criminal Courts/Magistrates
Offences committed under the 1956 Act are to be tried by ordinary criminal courts. Offence under
section 113(2) of the 1956 Act for failure to deliver share certificates to the transferee within the
prescribed time in the name of the complainant can be tried by the magistrate having jurisdiction and
it cannot be contended that the company court [the CLB now the Tribunal (NCLT)] shall have the
jurisdiction.66
See detailed notes under sections 2(29), 2(60), 408, 430 and 465, 2013 Act (sections 2(11), 5, 10,
10E and 10FB, 1956 Act).
[s 56.237] Officers in Default
Directors are officers in default only where the company does not have managing director, whole-
time director or manager. Criminal liability of ordinary directors would arise only if the company has
no managing director or whole time director or manager and where particular directors are not
specified to be liable by the company.67 Whether the chairman or Vice-President was “officer in
default” for failure to deliver certificates in time within the meaning of section 5 of the Act was a
question fact. The complaint was not quashed.68
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Page 66 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
See detailed notes on meaning of officers in default under section 2(60), 2013 Act (section 5, 1956
Act).
[s 56. 238] Compounding of Offence [Section 621A of the 1956 Act]
Where the company failed to deliver share certificates lodged for transfer within two months. The
company, directors and share transfer agents were equally liable for the default. The offence
committed under section 113(2) of the Act was, however, allowed to be compounded by the CLB
[now the Central Government] under section 621A.69
Where the company failed to deliver debenture certificates even within the time extended under
section 113(1) proviso on the ground that certificate of registration under section 132 had to be
endorsed on every debenture certificate as per section 133(1) of the 1956 Act. The compounding of
offence was sought on the ground of delay in completing the formalities for registering the charge.
The offence was allowed to be compounded by the CLB [now the Central Government] on payment
of Rs 5,000 under section 621A.70
See detailed notes under Compounding above and section 441, 2013 Act (section 621AThe 1956
Act).
[s 56.239] Complaint to CLB [ now Central Govt.] after Notice to Company
The appropriate remedy is to make complaint to CLB [now Central Government] after service of
notice to the company. The CLB [now the Central Government] cannot ask the applicant to seek
remedy in a civil court. It has to decide in accordance with the law and the Companies (Issue of
Share Certificates) Rules, 1960.71
[s 56.240] Power to Direct Delivery of Shares/Debentures Certificates with Costs
The CLB [now the Central Government] has power to direct delivery of certificates of
shares/debentures with costs incidental to the application. But it has no power to order payment of
dividend, interest, bonus shares or other reliefs. The company cannot claim a lien on the shares.72
The CLB [now the Central Government] has no power to award compensation for loss of profits.73
[s 56.241 ] Locus Standi
The moment the shareholders are allotted shares, the share certificate is signed and the name is
entered in the register the person becomes the shareholder and would have locus standi to move the
CLB [now the Central Government] for delivery of the certificates. Under section 113(3), the CLB
[now the Central Government] is not empowered to punish the company with fine. The complaint
would be maintainable in the court under section 113(2).74
[s 56.242] Remedy for Compensation under section 111A of the 1956 Act
Remedy under section 113(3) is to get the share certificates. In case of disputed transfer of shares or
debentures the remedy lies under section 111 or 111A. Under sections 111(5) read with 111A(7) the
CLB [now the Tribunal (NCLT)] may direct rectification and award compensation. Where the company
received the transfer documents but did not register it and instead issued duplicate share certificates
to the transferor. The company was held negligent and directed to rectify the register and pay the
dividends and bonus shares issued in the meantime and also directed to pay compensation. The
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108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
transferee was entitled to be issued share certificates under section 113(3).75
[s 56.243] Power to Order Rectification not Duplicate Share Certificates
By virtue of section 111A of the Act, the CLB [the Tribunal (NCLT)] has power or jurisdiction to
adjudicate only when there is a refusal for Transfer of Shares on sufficient cause or pass an order for
Rectification of Register or Records when transfer is in contravention of law as specified therein.
Section 113 of the Act provides that the company shall deliver the Share Certificate to the allottee
within three months after the allotment of any of its shares and in favour of the transferee within two
months after the making of the application for registration of the transfer of shares. Under section 113
of the Act, the CLB [the Central Government] has no power to give directions for issue of Duplicate
Share Certificates. The provision for issue of duplicate share certificates has been prescribed under
Rule 4(3) of the Companies (Issue of Share Certificates) Rules, 1960. On a petition under sections
111A and 113 of the 1956 Act, alleging that the respondent-company had disobeyed the decree of
the civil court which was obtained by the petitioner-company upon loss of Share certificate along with
the Blank transfer forms and in spite of repeated demands and legal notice, the respondent-company
neither issued duplicate share certificates nor rectified the Register of Members of the company by
substituting the name of the petitioner, sought issuance of duplicate share certificates and
rectification of the register of members. In the facts and circumstances of the case, the CLB held that
since neither did the petitioner deliver the requisite documents nor did the company refuse
registration of the transfer in his favour the petitioner could not invoke either section 111A(2) or (3) of
the 1956 Act to press into service the prayer for rectification of Register of Members of the company.
The prayer for the issue of Duplicate Share Certificate fell outside the ambit of section 113 of the Act
and the CLB [the Tribunal (NCLT)/Central Government] had no power to pass any order under
sections 111A and 113 as prayed for by the petitioner.76
See also notes under sections 46, 58 and 59, the 2013 Act (sections 84(3) and 111A,the1956 Act).
[s 56.244] Civil Suit or Consumer Forum
For recovery of compensation and other relief the shareholder may also approach the civil court or
consumer forum.
The company court or the CLB [now the Tribunal (NCLT)] does not have exclusive jurisdiction over all
matters relating to companies but only in respect of matters for which adjudication is provided by the
1956 Act. Suit by the transferee of shares for declaration of ownership of shares and injunction to
company to issue duplicate share certificates is maintainable in the civil court. Territorial jurisdiction of
the court is to be decided on the basis of averments in the plaint.77
Where the amount was deposited for issuance of shares. If the company has not applied for
extension of the period under proviso to section 113(1) of the 1956 Act for issuance of
share/debenture certificates, the period of limitation for enforcement of rights for issuance of shares
or recovery of money commences on the completion of three months from the allotment of shares
under Article 47 of the Schedule to the Limitation Act, 1963.78
[s 56.246] Duplicate Share Certificates—Limitation—Suit—Rectification
No duplicate share certificate shall be issued in lieu of those that are lost or destroyed except on such
conditions in regard to, among other things, indemnity as the Board thinks fit. On receipt of a
complaint by the respondent of non-receipt of the share certificates in respect of 300 Bonus Shares
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108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
allotted in his favour, the first petitioner-company claimed to have despatched the share certificates to
the address given in the share application form and produced the computer generated statement of
the General Post Office as proof of having despatched the share certificates. In the meantime a suit
was filed by a third party for specific performance of contract of sale purportedly entered into by the
respondent in respect of 100 shares covered under the share certificate number despatched in favour
of the respondent. In a petition under section 111A read with sections 84 and 113 of the 1956 Act,
the petitioners sought a direction to the respondent to furnish an indemnity bond and a declaratory
affidavit with distinctive numbers to enable the company to issue duplicate certificates alleging that
the respondents were demanding the duplicate share certificates without complying with the
requirement of section 84. The respondents contended that the petition was barred by limitation as it
ought to have been preferred within 3 years from the cause of action as it fell within the purview of
section 2(b) of the Limitation Act, 1963 (36 of 1963). In the facts and circumstances of the case it was
held (i) that the share certificates despatched in October, 1997, neither reached the respondent nor
were returned undelivered to the company. The despatch journal only established the despatch of
any letter or article but was not a conclusive proof of service of the letters or article to the addressee
concerned. It was futile to go into the controversies regarding despatch of share certificates after a
lapse of more than 8 years. Any rectification would arise only on issuance of duplicate certificate,
therefore it could not be said that the petition was barred by limitation. (ii) That the judgment and the
decree passed in the Civil Suit upholding the title of the respondent to 100 shares became final and
binding on the parties to the Suit including the petitioners and the respondent, thereby making the
respondent absolutely entitled to the other 100 bonus shares issued in the year 1999. There was no
complaint by the company of any other claimant in respect of these shares. There was, therefore, no
need on the part of the company to insist on any indemnity and declaratory affidavit before issuing
the duplicate share certificate in respect of the shares in question.79
[s 56.247] Effect of Incorrect Share Certificates, Etc.
A certificate of shares, which is issued without authority or which is forged, is not a document on
which the company may be made liable.80 The holder of shares in good faith for value of an untrue
share certificate has a right to claim damages against the company but not to the shares as against
the true owner.81
[s 56.248] Lien
The company should not enter on the share certificate any statement that it has a lien on the
shares.82 Shares of a public company are freely transferable. The purchaser of shares of a public
company is not expected to find out if lien exists on such shares. Registration of transfer cannot
refused on this ground.83
A lien on shares is a contractual lien originating from the contract contained in the memorandum and
articles of association. A company’s lien on shares is both a contractual lien and a possessory lien,
though the shares certificate issued by the company is with the shareholder. On the exercise of the
right of lien the member ceases to be a member. Such a right can be exercised even though the
claim has become barred by law of limitation. The exercise of the right of lien is not affected by
Section 56 of the 2013 Act combines the provisions of sections 108, 109, 109B, 110 and 113, with
certain modifications. Section 56 now covers all securities, unlike section 108 which covered shares
and debentures,. Further, previously, the instrument of transfer along with the share certificates was
required to be deposited with the company within one year of execution of the instrument of transfer
for listed companies and within two months for other companies. Section 56 now requires the transfer
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108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
instrument to be deposited within a period of 60 days of the execution. The timelines for the issue of
any certificates for shares or debentures as well as the penalty for contravention have also been
revised under section 56.
33 Notified by Notification No. S.O. 902(E), dt. 26 March 2014 w.e.f. 01 April 2014 and corresponds to sections 108, 109B,
110 and 113 of the 1956 Act.
34 Rule 11(1) and Form No. SH. 4 of the Companies (Share Capital and Debentures) Rules, 2014. Also, see MCA
General Circular No. 19/2014, dt. 12-06-2014 regarding matters relating to shares capital and debentures.
36 Rule 11(3) and Form No. SH. 5 of the Companies (Share Capital and Debentures) Rules, 2014.
37 Rule 11, Companies (Share Capital and Debentures) Rules, 2014.
39 Rule 11(2), Companies (Share Capital and Debentures) Rules, 2014.
40 Ammonia Supplies Corp Pvt Ltd v Modern Plastic Containers Pvt Ltd, (1998) 94 COMP CASES 310 (SC); Hemangini
Finance and Leasing Pvt Ltd v Tamilnad Mercantile Bank Ltd., (1996) 86 COMP CASES 875 (CLB); Shailesh Rajnikant
Parekh v Starline Travels Pvt Ltd, (2004) 118 COMP CASES 145 (CLB).
41 G.N.B. Credit Pvt Ltd v Metropolitan Laboratory and Nursing Home Ltd., [2011] 161 Com Cas 563 (CLB); Mannalal
Khetan v Kedar Nath Khetan, (1977) 47 COMP CASES 185 (SC) : AIR 1977 SC 536; P.V. Chandran v Malabar and
Pioneer Hosiery Pvt Ltd, (1990) 69 COMP CASES 164 (Ker.) (DB); Pravin Agarwal v Reckitt & Coleman of India Ltd,
(2000) 37 CLA 119 (CLB); Dinesh Gandhi v Bayer Diagnostics India Ltd, (2002) 111 COMP CASES 547 (CLB); EIH Ltd
v Mashobra Resort Ltd, (2004) 119 COMP CASES 993 (CLB); Smt. Claude-Lila Parulekar v Sakal Papers Pvt Ltd,
(2005) 124 COMP CASES 685 (SC).
42 Smt. Namita Gupta v Cachar Native Joint Stock Co Ltd, (1999) 98 COMP CASES 655 (CLB); Cachar Native Joint
Stock Co Ltd v Smt. Namita Gupta, (2004) 122 COMP CASES 1 (Gauhati).
43 Chotoo Sud v Bhagwan Finance Corp Pvt Ltd, (2006) 130 COMP CASES 567 (CLB).
44 Smt. Claude-Lila Parulekar v Sakal Papers Pvt Ltd, (2005) 124 COMP CASES 685 (SC) (Mrs. Ruma Pal and P.
Venkatarama Reddi JJ).
45 Kumar Exporters Pvt Ltd v Naini Oxygen Acetylene and Gas Ltd, (1985) 58 COMP CASES 97 (All).
46 Rashmi Seth v Tillsoil Farms Pvt Ltd, (1995) 82 COMP CASES 409 (CLB).
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Page 70 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
47 John Tinson & Co Pvt Ltd v Mrs. Surjeet Malhan, (1997) 88 COMP CASES 750 (SC) : AIR 1997 SC 1411.
48 Subhash Chandra v Vardhman Spinning and General Mills Ltd, (1995) 83 COMP CASES 641 (CLB).
49 Hemangini Finance and Leasing Pvt Ltd v Tamilnad Mercantile Bank Ltd, (1996) 86 COMP CASES 875 (CLB).
50 Power Grid Corp of India Ltd v Citibank N.A., (2003) 113 COMP CASES 171 (Delhi).
Nuddea Tea Co Ltd v Asok Kumar Saha, (1988) 64 COMP CASES 775 (Cal.) (DB); C.H. Joshi v Bombay Papers Ltd,
(1991) 72 COMP CASES 173 (CLB); Kothari Industrial Corp Ltd v Lazor Detergents Pvt Ltd, (1994) 81 COMP CASES
699 (Mad.) (DB); Seshasayee Paper and Boards Ltd v Riddhi Chordia and Mool Chand Chordia, (1998) 93 COMP
CASES 606 (CLB); S.C.V. Subramanyam Naidu v Incablenet Thirupathi Pvt Ltd, (2006) 130 COMP CASES 606 (CLB).
52 G.R Parry v UOI, (1962) 32 COMP CASES 145 (Punj.) (DB).
53 Bipin K. Jain v Savik Vijay Engineering Pvt Ltd, (1998) 91 COMP CASES 835 (CLB).
54 In Re, Bharat Hotels Ltd, (1994) 81 COMP CASES 896 (CLB); Kothari Industrial Corp Ltd v Lazor Detergents Pvt Ltd,
(1994) 81 COMP CASES 699 (Mad.) (DB).
55 Nisbet v Sheperd, (1994) 1 BCLC 300 (CA) : 19 CLA 234.
56 Radhe Shyam Tulsian v Panchmukhy Investments Ltd, (2003) 113 COMP CASES 298 (CLB).
P.V. Chandran v Malabar and Pioneer Hosiery Pvt Ltd, (1990) 69 COMP CASES 164 (Ker.) (DB).
58 Hemangini Finance and Leasing Pvt Ltd v Tamilnad Mercantile Bank Ltd, (1996) 86 COMP CASES 875 (CLB).
59 Dove Investments Pvt Ltd v Gujarat Industrial Inv. Corp, (2006) 129 COMP CASES 929 (SC).
60 Vasudev Ramchandra Shelat v Pranlal Jayanand Thakar, (1975) 45 COMP CASES 43 (SC) : AIR 1974 SC 1728 :
(1975) 1 SCR 534; Howrah Trading Co Ltd v CIT, (1959) 29 COMP CASES 282 (SC) : AIR 1959 SC 775 : (1959)
Supp. 2 SCR 448; Smt. S. Anuratha v A.K.M.N. Cylinders Pvt Ltd, (1999) 95 COMP CASES 555 (CLB).
61 Howrah Trading Co Ltd v CIT, (1959) 29 COMP CASES 282 (SC) : AIR 1959 SC 775 : (1959) Supp. 2 SCR 448.
62 Balkrishan Gupta v Swadeshi Polytex Ltd, (1985) 58 COMP CASES 563 (SC) : AIR 1985 SC 520.
: 1954 SCR 117; Balkrishan Gupta v Swadeshi Polytex Ltd, (1985) 58 COMP CASES 563 (SC) : AIR 1985 SC 520.
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Page 71 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
Supp. 2 SCR 448; L.I.C. v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370.
65 Mannalal Khetan v Kedar Nath Khetan, (1977) 47 COMP CASES 185 (SC) : AIR 1977 SC 536.
66 Vinayak Vasudeo Sahasrabudhe v Pentagon Drugs Pvt Ltd, (2005) 128 COMP CASES 122 (CLB) distinguishing
Vasudev Ramchandra Shelat v Pranlal Jayanand Thakar, (1975) 45 COMP CASES 43 (SC) : AIR 1974 SC 1728 :
(1975) 1 SCR 534.
67 Shree Shanti Textile Mills Pvt Ltd v Siddharth N. Shah, (2005) 125 COMP CASES 576 (Bom.) relying on Vasudev
Ramchandra Shelat v Pranlal Jayanand Thakar, (1975) 45 COMP CASES 43 (SC) : AIR 1974 SC 1728 : (1975) 1 SCR
534; Hindustan Steel Ltd v Dilip Construction Co, AIR 1969 SC 1238 : (1969) 1 SCC 597 : (1969) 3 SCR 736.
68 L.I.C. v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370; R. Mathalone v Bombay Life Assurance
Co Ltd, (1954) 24 COMP CASES 1 (SC) : AIR 1953 SC 385 : 1954 SCR 117; Chunilal Khushaldas Patel v H.K.
Adhyaru, (1956) 26 COMP CASES 168 (SC) : AIR 1956 SC 655; Kedar Nath Agarwal v Jay Engineering Works Ltd,
(1963) 33 COMP CASES 102 (Cal.) : 66 Cal WN 1049; Vasudev Ramchandra Shelat v Pranlal Jayanand Thakar,
(1975) 45 COMP CASES 43 (SC) : AIR 1974 SC 1728 : (1975) 1 SCR 534; Pradip Kumar Sarkar v Luxmi Tea Co Ltd,
(1990) 67 COMP CASES 491 (Cal.); Pyariben M. Shah v N.I.I.T. Ltd, (2002) 111 COMP CASES 816 (CLB).
69 Dovey v Cory, (1901) AC 477 : 70 LJ Ch. 753 : 85 LT 257 (HL).
70 Shree Gopal Paper Mills Ltd v CIT, AIR 1970 SC 1750 : (1970) 77 ITR 543 (SC).
71 A.V. Sampat, Official Liquidator v Dunlop India Ltd, (1996) 87 COMP CASES 398 (CLB); Pyariben M. Shah v N.I.I.T.
Ltd, (2002) 111 COMP CASES 816 (CLB).
72 K.N. Narayanan v ITO, (1984) 55 COMP CASES 182 (Ker.) : (1984) 145 ITR 373 (Ker.).
73 Mathrubhumi Printing and Publishing Co Ltd v Vardhaman Publishers Ltd, (1992) 73 COMP CASES 80 (Ker.) (DB).
74 CIT v M. Ramaswamy, (1985) 57 COMP CASES 7 (Mad.) : (1985) 151 ITR 122 (Mad.); Vasudev Ramchandra Shelat v
Pranlal Jayanand Thakar, (1975) 45 COMP CASES 43 (SC) : AIR 1974 SC 1728 : (1975) 1 SCR 534.
75 M.M. Anandaram v Mysore Lachia Setty and Sons Pvt Ltd, (1985) 58 COMP CASES 162 (Kar.); South Indian Bank Ltd
v Joseph Michael, (1978) 48 COMP CASES 368 (Ker.) (DB).
76 D.I. Lal v S. Ganguli, (1990) 68 COMP CASES 576 (Delhi).
77 Gujarat Bottling Co Ltd v Coca Cola Co, (1995) 84 COMP CASES 618 (SC).
78 S. Sundaram Pillai v P. Govindaswami, (1987) 62 COMP CASES 414 (Mad.).
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Page 72 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
79 Estate Investment Co Pvt Ltd v Siltap Chemicals Ltd, (1999) 96 COMP CASES 217 (CLB).
80 Trade Links Ltd v Mount Shivalik Breweries Ltd, (1999) 95 COMP CASES 150 (CLB).
82 Bhuwaneshwar Nath Nigam v Hindustan Lever Ltd, (2002) 111 COMP CASES 590 (CLB); Charanjit Singh Ghumman v
Dr. Reddy’s Laboratories Ltd, (1999) 97 COMP CASES 360 (CLB); Shashi Prakash Khemka v NEPC Micon Ltd, (1997)
90 COMP CASES 228 (CLB).
83 P.V. Chandran v Malabar and Pioneer Hosiery Pvt Ltd, (1990) 69 COMP CASES 164 (Ker.) (DB).
84 V.B. Rangaraj v V.B. Gopalakrishnan, (1992) 73 COMP CASES 201 (SC) : AIR 1992 SC 453; Hemangini Finance and
Leasing Pvt Ltd v Tamilnad Mercantile Bank Ltd, (1996) 86 COMP CASES 875 (CLB).
87 Satyanarayana Rathi v Annamalaiar Textiles Pvt Ltd, (1999) 95 COMP CASES 386 (CLB); Cruickshank Co Ltd v
Stridewell Leather Pvt Ltd, (1996) 86 COMP CASES 439 (CLB).
88 Anand Hemant Patel v Ornate Club Pvt Ltd, (2000) 99 COMP CASES 318 (CLB).
89 S.A. Padmanabha Rao v Union Theatres Pvt Ltd, (2002) 108 COMP CASES 108 (Kar.).
90 Dahiben Umedbhai Patel v Norman James Hamilton, (1985) 57 COMP CASES 700 (Bom.) (DB).
91 Ontario Jockey Club v McBridge, (1927) AC 916 (PC) : AIR 1928 PC 291; Chiranji Lal v Mahabir Dhelia, AIR 1966
Assam 48; Lyle and Scott Ltd v Scott’s Trustees, (1959) AC 763 : (1959) 2 All ER 661 : (1959) 3 WLR 133 : (1959) 103
SJ 507 : (1960) 30 COMP CASES 30 (HL).
92 Master Silk Mills Pvt Ltd v Dharamdas Hargovandas Mehta, (1980) 50 COMP CASES 365 (Guj.) (DB).
93 Dr. Mrs. Banoo J. Coyajee v Shanta Genevieve Pommeret Parulekar, (1995) 84 COMP CASES 534 (Bom.) (DB).
94 Re New Cedos Engineering Co Ltd, (1994) 1 BCLC 797 (ChD) Stothers v William Steward (Holdings) Ltd, (1994) 2
BCLC 266.
(1982) 126 SJ 205 (CA).
96 R. Srinivas v Sri Gururaja Enterprises Pvt Ltd, (2010) 98 CLA 460 (Kar).
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Page 73 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
Comp LJ 185 (SC) : (2003) 6 Supreme 49 (SC) : (2003) 6 JT 560 (SC) (Mrs. Ruma Pal and B.N. Srikrishna JJ).
Comp. LJ 185 (SC) : (2003) 6 Supreme 49 (SC) : (2003) 6 JT 560 (SC).
9 Multimedia Frontiers Ltd v Software Frontiers Ltd, (2006) 134 COMP CASES 387 (CLB); Kothari Industrial Corp Ltd v
Lazor Detergents Pvt Ltd, (1994) 81 COMP CASES 699 (Mad.) (DB); Bhanwar Lal v Satyanarain, AIR 1995 SC 358.
10 Mafatlal Industries Ltd v Gujarat Gas Co Ltd, (1999) 97 COMP CASES 301 (Guj.); Canara Bank v Nuclear Power Corp
of India Ltd, (1995) 84 COMP CASES 70 (SC); V.B. Rangaraj v V.B. Gopalakrishnan, (1992) 73 COMP CASES 201
(SC) : AIR 1992 SC 453; Gujarat Bottling Co Ltd v Coca Cola Co, (1995) 84 COMP CASES 618 (SC) : AIR 1995 SC
2372; Ammonia Supplies Corp Pvt Ltd v Modern Plastic Containers Pvt Ltd, (1998) 94 COMP CASES 310 (SC); Pawan
Gupta v Hicks Thermometers (India) Ltd, (1999) 98 COMP CASES 814 (CLB);Re Morgardshammar India Ltd., (2000)
100 COMP CASES 131 (CLB). See also notes under sections 3, 10, 10FB, 82, 84, 111 and 111A of the 1956 Act.
11 Hemlata Saha v Stadmed Pvt Ltd, (1964) 34 COMP CASES 875 (Cal.) : AIR 1965 Cal 436 : 68 Cal WN 1007; A.M.P.
Arunachalam v A.R. Krishnamurthy, (1979) 49 COMP CASES 662 (Mad.) (DB).
12 Babulal Choukhani v Western India Theatres Ltd, (1958) 28 COMP CASES 565 (Cal.) (DB) : AIR 1957 Cal 709 (DB))
overruled by N. Parthasarathy v Controller of Capital Issues, AIR 1991 SC 1420. See also Mannalal Khetan v Kedar
Nath Khetan, (1977) 47 COMP CASES 185 (SC) : AIR 1977 SC 536 under provisions of section 108 mandatory
hereinbefore.
13 Maynard v Consolidated Kent Collieries Corp, (1903) 2 KB 121 : 72 LJ KB 681 (CA). See also John Tinson & Co Pvt
Ltd v Mrs. Surjeet Malhan, (1997) 88 COMP CASES 750 (SC) : AIR 1997 SC 1411 under consideration and gift
hereinafter.
14 Greene v Greene, (1949) ChD 333 : (1949) 1 All ER 167 : 93 SJ 27 (CA).
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108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
15 R. Mathalone v Bombay Life Assurance Co Ltd, (1954) 24 COMP CASES 1 (SC) : AIR 1953 SC 385 : 1954 SCR 117;
L.I.C. v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370.
16 Bajaj Auto Ltd v N.K. Firodia, (1971) 41 COMP CASES 1 (SC) : AIR 1971 SC 321; Vasant Investment Corp Ltd v Co
Law Board, (2000) 102 COMP CASES 421 (Bom.); Master Silk Mills Pvt Ltd v Dharamdas Hargovandas Mehta, (1980)
50 COMP CASES 365 (Guj.) (DB); Smt. Bina Barua v Dalowjan Tea Co Pvt Ltd, (1981) 51 COMP CASES 660
(Gauhati); Rangpur Tea Association Ltd v Makkanlal Samaddar, (1973) 43 COMP CASES 58 (Cal.) (DB); Ferrom
Electronics Pvt Ltd v Vijaya Leasing Ltd, (2002) 109 COMP CASES 467 (Kar.) (DB).
17 Harinagar Sugar Mills Ltd v Shyam Sunder Jhunjhunwala, (1961) 31 COMP CASES 387 (SC) : AIR 1961 SC 1669 :
(1962) 2 SCR 339; Indian Chemical Products Ltd v State of Orissa, (1966) 36 COMP CASES 592 (SC) : AIR 1967 SC
253 : (1966) Supp. SCR 436; Mathew Michael v Tekoy (India) Ltd, (1990) 69 COMP CASES 145 (Ker.) (DB); Joseph
Michael v Travancore Rubber & Tea Co Ltd, (1989) 66 COMP CASES 491 (Ker.).
18 Bajaj Auto Ltd v Co Law Board, (1999) 95 COMP CASES 12 (SC).
19 South Indian Bank Ltd v Joseph Michael, (1978) 48 COMP CASES 368 (Ker.) (DB).
20 Luxmi Tea Co Ltd v Pradip Kumar Sarkar, (1990) 67 COMP CASES 518 (SC); Hemangini Finance and Leasing Pvt Ltd
v Tamilnad Mercantile Bank Ltd, (1996) 86 COMP CASES 875 (CLB); Jalpaiguri Cinema Co Ltd v Pramatha Nath
Mukherjee, (1971) 41 COMP CASES 678 (Delhi) (DB); Karnataka Theatres Ltd v S. Venkatesan, (1998) 93 COMP
CASES 433 (Kar.) : AIR 1996 Kant 18.
22 B.K. Holdings Pvt Ltd v Prem Chand Jute Mills, (1983) 53 COMP CASES 367 (Cal.). See also Kothari Industrial Corp
Ltd v Lazor Detergents Pvt Ltd, (1994) 81 COMP CASES 699 (Mad.) (DB).
23 Dahiben Umedbhai Patel v Norman James Hamilton, (1985) 57 COMP CASES 700 (Bom.) (DB); Rye v Rye, (1962) AC
Co Ltd, (1954) 24 COMP CASES 1 (SC) : AIR 1953 SC 385 : 1954 SCR 117. See also Dove Investments Pvt Ltd v
Gujarat Industrial Inv. Corp, (2006) 129 COMP CASES 929 (SC) dealt with earlier in this section.
24 Kinetic Honda Motor Ltd v Pawan Gupta, (1996) 86 COMP CASES 596 (CLB); Atul Products Ltd v Dipakkumar
Jayantilal Shah, (1997) 88 COMP CASES 876 (Guj.); Seshasayee Paper and Boards Ltd v Riddhi Chordia and Mool
Chand Chordia, (1998) 93 COMP CASES 606 (CLB).
25 Kinetic Engineering Ltd v Sadhana Gadia, (1992) 74 COMP CASES 82 (CLB); Master Gautam R. Padival (Minor) v
Karnataka Theatres Ltd, (2000) 100 COMP CASES 124 (CLB).
26 LIC v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370; P.K. Prathapan v Dale and Carrington
Investments Pvt Ltd, (2002) 111 COMP CASES 425 (Ker.) (DB).
27 W. Gunther GmbH v Switching Technologies Gunther Ltd, (2004) 4 Comp. LJ 507 (CLB).
28 Jayanthilal Purshottamdas Patel v Gordhandas Desai Pvt Ltd, (1968) 38 COMP CASES 405 (Bom.).
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108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
29 Killick Nixon Ltd v Dhanraj Mills Pvt Ltd, (1983) 54 COMP CASES 432 (Bom.) (DB).
30 Hoshiarpur Azad Transporters Pvt Ltd v Hoshiarpur Express Transport Co, (1983) 54 COMP CASES 254 (P&H).
31 Bhuwaneshwar Nath Nigam v Hindustan Lever Ltd, (2002) 111 COMP CASES 590 (CLB).
32 Sham Sunder Kukreja v Hindustan Lever Ltd, (2003) 115 COMP CASES 913 (CLB).
33 Lloyd v Poply, (2000) 1 BCLC 19; Platt v Platt, (1999) 2 BCLC 745; Dixons Group Plc v Murray Obodynski, (2000) 1
BCLC 1.
34 Luxmi Tea Co Ltd v Pradip Kumar Sarkar, (1990) 67 COMP CASES 518 (SC).
35 Jagdishchandra Champaklal Parekh v Deccan Paper Mills Co Ltd, (1994) 80 COMP CASES 159 (CLB).
37 Smt. S. Anuratha v A.K.M.N. Cylinders Pvt Ltd, (1999) 95 COMP CASES 555 (CLB).
38 Smt. Namita Gupta v Cachar Native Joint Stock Co Ltd, (1999) 98 COMP CASES 655 (CLB); Cachar Native Joint
Stock Co Ltd v Smt. Namita Gupta, (2004) 122 COMP CASES 1 (Gauhati).
39 M.S. Madhusoodhanan v Kerala Kaumudi Pvt Ltd, (2003) 117 COMP CASES 19 (SC).
40 Sanatan Investment Co Pvt Ltd v Prem Chand Jute Mills Ltd, (1983) 54 COMP CASES 186 (Cal.).
41 Jagadish Prasad Poddar v Peter Robbinson, (1980) 50 COMP CASES 656 (Cal.).
42 J.K. Puri v H.P. State Industrial Development Corp, (1998) 93 COMP CASES 491 (HP); Swiss Bank Corp v Lloyd’s
Bank, (1981) 2 All ER 449 (HL) : (1981) 2 WLR 893 (HL) : (1981) 125 SJ 495 (HL).
43 Felix Pinto v Satyam Computer Services Ltd, (2001) 104 COMP CASES 707 (Bom.).
44 Brooke Bond India Ltd v U.B. Ltd, (1994) 79 COMP CASES 346 (Bom.); Grant v Cigman, (1996) 2 BCLC 24; Duncuft v
Albrecht, (1841) 12 Sim. 189; Woodlands v Hind, (1955) 2 All ER 604 : (1955) 1 WLR 688 : 99 SJ 418; Jatia Cotton
Mills Ltd v Ram Prosad Bajoria, (1975) 45 COMP CASES 686 (Cal.) (DB).
Comp. LJ 185 (SC) : (2003) 6 Supreme 49 (SC) : (2003) 6 JT 560 (SC).
46 Martin Castelino v Alpha Omega Shipmanagement Pvt Ltd, (2001) 104 COMP CASES 687 (CLB).
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Page 76 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
47 CIT v Bharat Nidhi Ltd, (1982) 52 COMP CASES 80 (Delhi) : (1982) 133 ITR 447 (Del.).
48 JRRT Investments Ltd v Haycraft, (1993) BCLC 401 (ChD).
Kershaw, Leese & Co Ltd, (1920) 1 ChD 154 : 89 LJ Ch. 113 (CA).
50 Lalithamba Bai v Harrisons Malayalam Ltd, (1988) 63 COMP CASES 662 (Ker.) on appeal (1997) 13 SCL 175 (Ker.)
(DB).
51 Vijaya Finance Corp Ltd v Peerless General Finance and Investment Co Ltd, (2006) 129 COMP CASES 733 (CLB)
affirmed on this point in Peerless General Finance and Investment Co Ltd v Poddar Projects Ltd,(2007) 136 COMP
CASES 160 (Cal.) on appeal Peerless General Finance and Investment Co Ltd v Poddar Projects Ltd, (2007) 136
52 Peerless General Finance and Investment Co Ltd v Poddar Projects Ltd, (2007) 136 COMP CASES 197 (SC).
53 Dr. Mrs. Renuka Datla v Solvay Pharmaceutical B.V., (2003) 117 COMP CASES 585 (SC) : AIR 2004 SC 321 : (2003)
8 JT 193 (SC).
54 Dr. Mrs. Renuka Datla v Solvay Pharmaceutical B.V., (2003) 117 COMP CASES 585 (SC) : AIR 2004 SC 321 : (2003)
8 JT 193 (SC).
55 Chloro Controls (India) Pvt Ltd v Severn Trent Water Purification Inc., (2006) 131 COMP CASES 501 (Bom.) (DB).
56 Anand Hemant Patel v Ornate Club Pvt Ltd, (2000) 99 COMP CASES 318 (CLB).
57 Satish Kumar Bharti v Surya Estates Pvt Ltd, (2007) 138 COMP CASES 694 (CLB).
58 S. Veerasubramonia Sarma v Kanthimathy Plantations Pvt Ltd,(2004) 119 COMP CASES 833 (CLB); Kantimati
Plantations Pvt Ltd v S. Veera Subramonia Sarma, (2006) 129 COMP CASES 406 (Ker.) (DB) : (2004) 2 Comp. LJ 183
(Ker.) (DB).
60 Kshounish Chowdhury v Kero Rajendra Monolithics Ltd, (2002) 110 COMP CASES 441 (CLB).
61 H.L. Seth v Wearwell Cycle Co (India) Ltd, (1988) 64 COMP CASES 497 (Delhi).
62 Unity Co Pvt Ltd v Diamond Sugar Mills Ltd, AIR 1971 Cal 18 : (1970) 2 Comp. LJ 64 (Cal.).
63 Albert Judah Judah v Ramapada Gupta, (1960) 30 COMP CASES 582 (Cal.) : AIR 1959 Cal 715.
Mr. Laghir1 Rabari

Page 77 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
64 Dr. T.M. Paul v City Hospital (Pvt.) Ltd, (1999) 97 COMP CASES 216 (Ker.) (DB).
65 Simret Katyal v Mahavir Ice Mills Pvt Ltd, (1995) 83 COMP CASES 699 (CLB).
66 Ferrom Electronics Pvt Ltd v Vijaya Leasing Ltd, (2002) 109 COMP CASES 467 (Kar.) (DB).
67 K. Md. Farooq Ahmed v Fortran Cirkit Electronics Pvt Ltd, (1998) 92 COMP CASES 498 (CLB).
68 Shyama Prasad Murarka v Calcutta Stock Exchange Association Ltd, (2002) 108 COMP CASES 703 (CLB).
69 Jose Pulikken v Damien Subsidies and Kuries Ltd, (2002) 109 COMP CASES 699 (CLB).
70 Manisha Commercial Ltd v N.R. Dongre, (2000) 101 COMP CASES 106 (Delhi).
71 Vickers Systems International Ltd v Mahesh P. Keswani, (1992) 73 COMP CASES 317 (CLB).
73 Sheila Devi Chamria v Tara Chand Saraogi, (1986) 60 COMP CASES 735 (Cal.) (DB).
(1975) 1 SCR 534.
75 Calcutta Security Printers Ltd v Calcutta Phototype Co Ltd, (2002) 112 COMP CASES 434 (CLB).
76 Jagdishchandra Champaklal Parekh v Deccan Paper Mills Co Ltd, (1994) 80 COMP CASES 159 (CLB).
77 M. Ratnavarma Padival v Karnataka Theatres Ltd, (2002) 109 COMP CASES 461 (Kar.).
78 Malleswara Finance and Investments Co Pvt Ltd v Co Law Board, (1995) 82 COMP CASES 836 (Mad.) (DB).
79 A.M.P. Arunachalam v A.R. Krishnamurthy, (1979) 49 COMP CASES 662 (Mad.) (DB).
80 K. Ramaraj v Mackimalai Tea Estates Pvt Ltd, (1995) 82 COMP CASES 712 (CLB).
81 Deccan Cements Ltd v Geekay Exim (India) Ltd, (2002) 112 COMP CASES 616 (CLB); Maruti Udyog Ltd v Pentamedia
Graphics Ltd, (2002) 111 COMP CASES 56 (CLB).
82 Hemangini Finance and Leasing Pvt Ltd v Tamilnad Mercantile Bank Ltd, (1996) 86 COMP CASES 875 (CLB); Bank of
Madura Ltd v M.O. Bhaskaran, (1995) 83 COMP CASES 321 (CLB).
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Page 78 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
83 JRY Investments Pvt Ltd v Deccan Leafine Services Ltd, (2004) 121 COMP CASES 12 (Bom.).
86 Om Prakash Poplai v Delhi Stock Exchange Association Ltd, (1994) 79 COMP CASES 756 (SC).
87 Abhipra Capital Ltd v JCT Electronics Ltd, (2002) 111 COMP CASES 863 (CLB).
88 Dinesh Gandhi v Bayer Diagnostics India Ltd, (2002) 111 COMP CASES 547 (CLB).
89 Smt. Kamalabai v Vithal Prasad Co Pvt Ltd, (1993) 77 COMP CASES 231 (Kar.); L.I.C. v Bokaro and Ramgur Ltd,
(1966) 36 COMP CASES 490 (C.T.); Nazamunnessa Begum v Vidya Sagar Cotton Mills Ltd, (1963) 33 COMP CASES
36 (Cal.) : AIR 1962 Cal 380.
90 M.S. Kumanan v S.S.M. Processing Mills Ltd, (2007) 140 COMP CASES 99 (CLB); Amir Bibi v Arokiam,(1917) 45 IC
813; Smt. Kamalabai v Vithal Prasad Co Pvt Ltd, (1993) 77 COMP CASES 231 (Karn.); Mannalal Khetan v Kedar Nath
Khetan, (1977) 47 COMP CASES 185 (SC) : AIR 1977 SC 536.
91 . Dinesh Nagindas Shah v Pankaj Aluminimum Industries Pvt Ltd, (2010) 99 Cal LJ 239 (Bom).
92 Hemendra Prasad Barooah v Bahadur Tea Co Pvt Ltd, (1991) 70 COMP CASES 792 (Gau.).
93 S.M. Hajee Abdul Hye Sahib v K.N.S. Hajee Shaik Abdul Kader Labbai Sahib Co Pvt Ltd, (1998) 91 COMP CASES 843
(CLB); Simret Katyal v Mahavir Ice Mills Pvt Ltd, (1995) 83 COMP CASES 699 (CLB).
94 Smt. Bina Barua v Dalowjan Tea Co Pvt Ltd, (1981) 51 COMP CASES 660 (Gau.).
95 Narinder Kumar Sehgal v Leader Valves Ltd, (1993) 77 COMP CASES 393 (CLB).; see also Gopal Girdharilal Doda v
Visheh Ispat Pvt Ltd, (2010) 157 Com cas 46 (Kar-DB).
96 Arjun Kumar Israni v Cipla Ltd, (2000) 99 COMP CASES 237 (CLB).
97 Mrs. Nandita Bhardwaj v Sapphire Machines Pvt Ltd, (2000) 100 COMP CASES 529 (CLB).
98 Sanjeev Joy v Pereira and Roche Pvt Ltd, (2002) 110 COMP CASES 717 (CLB); Smt. Rukmani Devi v Narendra Lal
Gupta, AIR 1984 SC 1866; Khurshid Alam v P. Pagnon Co Pvt Ltd, (2002) 108 COMP CASES 523 (CLB).
(1982) 126 SJ 205 (CA).
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Page 79 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
1 Re Hanuman Mills Pvt Ltd, (1977) 47 COMP CASES 644 (All.); Philiphose v Vanchinad Rubber and Produce Co Ltd,
(1953) 23 COMP CASES 536 (Trav.-Coch.) (DB) : AIR 1953 Trav. Coch. 253 (DB).
2 Anil R. Chhabria v Finolex Industries Ltd, (2000) 99 COMP CASES 168 (CLB); Finolex Industries Ltd v Anil Ramchand
Chhabria, (2000) 37 CLA 278 (Bom.) : (2000) 3 Comp. LJ 330 (Bom.); Arjun Kumar Israni v Cipla Ltd, (2000) 99 COMP
CASES 237 (CLB).
3 Smt. Kana Sen v C.K. Sen and Co Pvt Ltd, (1998) 91 COMP CASES 25 (CLB); Smt. Jayalakshmi Acharya v Kal
Electronics and Consultants Pvt Ltd, (1997) 90 COMP CASES 200 (CLB); Ram Govind Misra v Allahabad Theatres Pvt
Ltd, (1989) 66 COMP CASES 358 (All.).
4 Hemlata Saha v Stadmed Pvt Ltd, (1964) 34 COMP CASES 875 (Cal.) : AIR 1965 Cal 436 : 68 Cal WN 1007; Dr. Rajiv
Das v United Press Ltd, (2002) 111 COMP CASES 584 (CLB).
Das v United Press Ltd, (2002) 111 COMP CASES 584 (CLB).
7 Re Asiatic Oxygen Ltd, (1972) 42 COMP CASES 602 (Cal.) : AIR 1972 Cal. 50.
8 Herdilia Unimers Ltd v Smt. Renu Jain, (1998) 92 COMP CASES 841 (Raj.); H.V. Jayaram v ICICI Ltd, (2000) 99
11 For full text of the Rules, see Appendix 25.
12 Sub-sections (1A), (1B) and (1C) substituted by the Companies (Second Amendment) Act, 1966 (37 of 1966), section
2 (w.e.f. 1 April 1966). This amending Act has been repealed by the Repealing and Amending Act, 2016.
13 Substituted by the Companies (Amendment) Act, 1988 (31 of 1988), section 15, for “two months” (w.e.f. 15 June
1988).
14 Inserted by the Companies (Amendment) Act, 1965 (31 of 1965), section 13 (w.e.f. 1 April 1966). This amending Act
15 Inserted by the Companies (Second Amendment) Act, 1966 (37 of 1966), section 2 (w.e.f. 1 April 1966). This
16 Inserted by the Depositories Act, 1996 (22 of 1996), section 30 and Sch. (w.r.e.f. 20 September 1995).
17 Notification No. S.O. 2680, dt. 2 September 1966, published in the Gazette of India, Pt II, section 3(ii), p 2573, dt. 10
September 1966 : (1966) 36 COMP CASES (St.) 117.
18 Notification No. S.O. 2776, dt. 19 September 1966, published in the Gazette of India, Pt II, section 3(ii), p 2706, dt. 24
September 1966 : (1966) 36 COMP CASES (St.) 125.
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Page 80 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
19 Notification No. S.O. 3271, dt. 27 October 1966, published in the Gazette of India, Pt II, section 3(ii), p 2995, dt. 5
Novermber 1966 : (1966) 36 COMP CASES (St.) 136.
20 Notification No. S.O. 3681, dt. 3 December 1966, published in the Gazette of India, Pt II, section 3(ii), p 3319, dt. 10
December 1966 : (1967) 37 COMP CASES (St.) 26.
21 Notification No. S.O. 1060, dt. 14 March 1967, published in the Gazette of India, Pt II, section 3(ii), p 1185, dt. 1 April
1967 : (1967) 37 COMP CASES (St.) 122.
22 Notification No. S.O. 2035, dt. 30 May 1967, published in the Gazette of India, Pt II, Section 3(ii), p 2016, dt. 17 June
1967 : (1967) 37 COMP CASES (St.) 141.
23 Notification No. S.O. 3264, dt. 5 September 1967 : Government of India publication, Clarifications and Circulars on
24 Notification No. S.O. 3591, dt. 27 September 1967, published in the Gazette of India, Pt II, Section 3(ii), p 3757, dt. 7
October 1967 : (1967) 37 COMP CASES (St.) 232.
25 Notification No. S.O. 364, dt. 8 Janurary 1968 : Government of India publication, Clarifications and Circulars on
26 Notification No. S.O. 1798, dt. 20 November 1970 : Government of India publication, Clarifications and Circulars on
27 Substituted by Notification No. S.O. 691(E), dt. 24 July 2000 : Gazette of India, Extraordinary, No. 486, Pt II, section
3(ii) : (2000) 101 COMP CASES (St.) 488. kl
28 Muniyamma v Arathi Cine Enterprises Pvt Ltd, (1993) 77 COMP CASES 97 (Kar.) (DB); Subhash Chandra v Vardhman
Spinning and General Mills Ltd, (1995) 83 COMP CASES 641 (CLB).
29 Re Coronation Tea Co Ltd, (1962) 32 COMP CASES 568 (Cal.); Bank of Hindusthan Ltd v Kowthu Suryanarayana
Rao, (1958) 28 COMP CASES 71 (Mad.) : AIR 1957 Mad. 702; Mahabir Singh v Jai Singh, (1978) 48 COMP CASES
558 (Delhi).
30 Prafulla Kumar Rout v Orient Engineering Works Pvt Ltd, (1986) 60 COMP CASES 65 (Orissa); Jagatjit Industries Ltd v
Mohan Meakin Ltd, (1994) 80 COMP CASES 411 (CLB).
31 Suresh Kumar Manchanda v Prakash Roadlines Ltd, (1996) 87 COMP CASES 102 (Kar.) (DB).
32 Kothari Industrial Corp Ltd v Lazor Detergents Pvt Ltd, (1994) 81 COMP CASES 699 (Mad.) (DB).
33 Bhuwaneshwar Nath Nigam v Hindustan Lever Ltd, (2002) 111 COMP CASES 590 (CLB).
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Page 81 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
34 Notification No. G.S.R. 900, dt. 4 June 1966, published in the Gazette of India, Pt II, section 3(i), p 1046, dt. 11 June
1966 : (1966) 36 COMP CASES (St.) 106.
35 Notification No. G.S.R. 1499, dt. 24 September 1966 : Government of India publication, Clarifications and Circulars on
36 Notification No. G.S.R. 1918, dt. 12 December 1966, published in the Gazette of India, Pt II, section 3(i), p 2265, dt. 17
37 Notification No. G.S.R. 609, dt. 15 April 1967, published in the Gazette of India, Pt II, section 3(i), p 662, dt. 29 April
1967 : (1967) 37 COMP CASES (St.) 128.
38 Notification No. G.S.R. 1444, dt. 4 September 1967 : Government of India publication, Clarifications and Circulars on
39 Notification No. G.S.R. 789, dt. 19 April 1968 : Government of India publication, ibid.
40 Notification No. G.S.R. 2182, dt. 19 August 1969 : Government of India publication, ibid.
41 Notification No. G.S.R. 2762, dt. 9 December 1969, published in the Gazette of India, Pt II, section 3(i), p 3870, dt. 20
42 Notification No. G.S.R. 299, dt. 21 Februrary 1970, published in the Gazette of India, Pt II, section 3(i), p 840, dt. 28
February 1970 : (1970) 40 COMP CASES (St.) 104.
43 Notification No. G.S.R. 608, dt. 17 April 1971 : Government of India publication, op. cit.
44 Notification No. S.O. 297, dt. 15 January 1979, published in the Gazette of India, Pt II, section 3(ii), p 253, dt. 27
January 1979 : (1979) 49 COMP CASES (St.) 86.
45 Notification No. S.O. 2033, dt. 7 August 1980, published in the Gazette of India, Pt II, section 3(ii), p 2836, dt. 16
August 1980 : (1980) 50 COMP CASES (St.) 144.
46 Notification No. G.S.R. 114(E), dt. 2 January 1989, published in the Gazette of India, Extraordinary, No. 93, Pt II,
Section 3(i), dt. 2 February 1989 : (1989) 66 COMP CASES (St.) 36.
47 Notification No. G.S.R. 6(E), dt. 3 January 1990, published in the Gazette of India, Extraordinary, No. 6, Pt II, section
3(i), p 2, dt. 3 January 1990 : Chartered Secretary, February 1990, p 139 : (1990) 68 COMP CASES (St.) 35.
48 Notification No. G.S.R. 938(E), dt. 22 December 1992, published in the Gazette of India, Extraordinary, Pt II, Section
3(i) : (1993) 76 COMP CASES (St.) 21.
49 Vishnu Dayal Jhunjhunwala v UOI, (1989) 66 COMP CASES 684 (All.) (DB).
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Page 82 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
50 Mathew Michael v Teekoy Rubber & Tea Co Ltd, (1994) 79 COMP CASES 370 (CLB).
51 Finolex Industries Ltd v Anil Ramchand Chhabria, (2000) 26 SCL 233 (Bom.).
52 Substituted by the Companies (Amendment) Act, 1988 (31 of 1988), section 17(a) (w.e.f. 15 June 1988).
2015.
2015. Earlier the words “Company Law Board” were substituted for “Court” by Act 31 of 1988, section 17(b) (w.e.f. 31
May 1991).
57 In Re, Hindusthan Development Corporation Ltd, (1994) 79 COMP CASES 207 (CLB).
58 Ghanshyam Chaturbhuj v Industrial Ceramics Pvt Ltd, (1990) 68 COMP CASES 36 (Mad.).
59 Herdilia Unimers Ltd v Smt. Renu Jain, (1998) 92 COMP CASES 841 (Raj.).
60 State of Maharashtra v Raymond Woollen Mills Ltd, (2002) 111 COMP CASES 847 (Bom.).
61 Vinod Baid v State of A.P., (2007) 139 COMP CASES 324 (AP); see also Registrar of Cos v Rajshree Sugar and
Chemicals Ltd, (2000) 101 COMP CASES 271 (SC) hereinafter.
62 H.V. Jayaram v ICICI Ltd, (2000) 99 COMP CASES 341 (SC); Indian Petro Chemicals Corp Ltd v State of Rajasthan,
(2001) 104 COMP CASES 285 (Raj.); Karnataka Bank Ltd v B. Suresh, (2001) 105 COMP CASES 110 (Kar.); Zee Tele
Films Ltd v State of A.P., (2002) 110 COMP CASES 884 (AP).
63 Registrar of Cos v Rajshree Sugar and Chemicals Ltd, (2000) 101 COMP CASES 271 (SC) : AIR 2000 SC 1643;
Ritesh Exports Ltd v Registrar of Cos, (2005) 127 COMP CASES 583 (AP).
64 Herdillia Unimers Ltd v Arun Bansal, (1999) 96 COMP CASES 521 (Raj.).
65 Anil D. Ambani v Santosh Tyagi, (2000) 99 COMP CASES 334 (Raj.).
66 Natvarlal A Jani v N.N. Jain, Chairman and Managing Director, Prestige Foods Ltd, (1999) 98 COMP CASES 720
(Guj.); Bank of Rajasthan Ltd v State of Bihar, (2002) 108 COMP CASES 556 (Patna).
67 Smt. G. Vijayalakshmi v SEBI, (2000) 100 COMP CASES 726 (AP).
68 Herdilia Unimers Ltd v Smt. Renu Jain, (1998) 92 COMP CASES 841 (Raj.); Dhirubhai H. Ambani v Sonia Sethi, (2001)
106 COMP CASES 486 (MP).
Mr. Laghir1 Rabari

Page 83 of 83
108, 109B, 110 and 113 of the 1956 Act. [s 56] ....
69 Re Reliance Industries Ltd, (1997) 89 COMP CASES 465 (CLB).
70 Re Vikrant Tyres Ltd, (1995) 83 COMP CASES 210 (CLB).
71 Shripal Jain v Torrent Pharmaceuticals Ltd, 1995 Suppl. (4) SCC 590.
72 Mrs. Trishla Jain v Oswal Agro Mills Ltd, (1996) 86 COMP CASES 48 (CLB); Mrs. Trishla Jain v Oswal Agro Mills Ltd,
(1990) 67 COMP CASES 125 (Delhi); Rajiv Nag v Quality Assurance Institute (India) Ltd, (2001) 106 COMP CASES
262 (Delhi).
73 Harish Kumar Agarwal v Punjab Communications Ltd, (1998) 92 COMP CASES 303 (CLB).
74 Herdilia Unimers Ltd v Smt. Renu Jain, (1998) 92 COMP CASES 841 (Raj.); Kobian Pte. Ltd v Kobian India Pvt Ltd,
(2005) 126 COMP CASES 675 (CLB).
75 Mrs. S. Seetha v Satyam Computer Services Ltd, (2002) 112 COMP CASES 139 (CLB).
76 Tamil Nadu Finance Ltd v Raasi Cement Ltd, (2007) 137 COMP CASES 483 (CLB); Ajit Jayantilal Sheth v Shriram
Transport Finance Co Ltd, (2006) 133 COMP CASES 604 (CLB); Subhas Ghosh v Happy Valley Tea Co Pvt Ltd,
(2006) 133 COMP CASES 861 (CLB).
77 Inter Sales v Reliance Industries Ltd, (2002) 108 COMP CASES 680 (Cal.) (DB).
78 Gurdino Jiwatram Kukreja v Eastern Mining and Allied Industries Ltd, (2004) 121 COMP CASES 762 (Gauhati) (DB).
79 Infosys Technologies Ltd v V.K. Agarwal, (2007) 138 COMP CASES 808 (CLB).
80 Ruben v Great Fingall Consolidated, (1906) AC 439 : (1904–07) All ER Rep. 460 : 75 LJ KB 843 : 95 LT 214 (HL); Re,
Ottos Kopje Diamond Mines Ltd, (1893) ChD 618 : 62 LJ Ch. 166 : 68 LT 138 (CA).
81 Hart v Frontino and Bolivia S. American Gold Mining Co, (1870) LR 5 Ex. 111 : 39 LJ Ex. 93; Re, Bahia and San
Francisco Rly. Co, (1868) LR 3 QB 584 : 37 LJ QB 176 : 18 LT 467; Balkis Consolidated Co v Tomkinson, (1893) AC
396 : (1891–94) All ER Rep. 982 (HL) : 63 LJ QB 134 : 69 LT 598 (HL).
82 Re W. Key & Sons, (1902) 1 ChD 467 : 71 LJ Ch. 254 : 86 LT 374 : 50 WR 234.
83 Shyama Prasad Murarka v Calcutta Stock Exchange Association Ltd, (2002) 108 COMP CASES 703 (CLB).
84 Unity Co Pvt Ltd v Diamond Sugar Mills Ltd, AIR 1971 Cal 18 : (1970) 2 Comp. LJ 64 (Cal.).
End of Document
Mr. Laghir1 Rabari

85 Notified by Notification No. S.O. 2754(E), dt. 12-09-2013 w.e.f. 12-09-2013
and corresponds to section 116 of the 1956 Act. [s 57] Punishment for
personation of shareholder.—
85 [s 57] Punishment for personation of shareholder.—
If any person deceitfully personates as an owner of any security or interest in a company, or of any
share warrant or coupon issued in pursuance of this Act, and thereby obtains or attempts to obtain
any such security or interest or any such share warrant or coupon, or receives or attempts to receive
any money due to any such owner, he shall be punishable with imprisonment for a term which shall
not be less than one year but which may extend to three years and with fine which shall not be less
than one lakh rupees but which may extend to five lakh rupees.
NOTES
THE COMPANIES ACT, 2013 (13 OF 2013).—The Notes on Clauses explained this provision thus:
“Clause 57.—This clause corresponds to section 116 of the 1956 Act and seeks to provide penalty for a person who
deceitfully personates the owner of any share or interest.” [Clause 57 of the Companies Bill, 2011 (121 of 2011)].
[s 57.2] Penalty for Personation
Section 57 of the 2013 Act prescribes penalty for the deceitful personation by any person of a holder
of any security, or any interest in a company, or any share warrant or any coupon issued in
pursuance of the 2013 Act, if the impersonator as a result of such personation obtains or attempts to
obtain such security, interest, warrant or coupon or any money due to the legitimate owner. There is
a mandatory sentence of a minimum one year, which can extend up to three years and a minimum
fine of Rs 1 lakh and extending up to Rs 5 lakhs.
Mr. Laghir1 Rabari

Page 2 of 4
85 Notified by Notification No. S.O. 2754(E), dt. 12-09-2013 w.e.f. 12-09-2013 and corresponds to section 116
of the 1956 Act. [s 57] Punishment for personatio....
[s 57.3] The Offence of Personation
The ingredients to the offence created by this provision are: (i) there must be an impersonation of a
holder of the instruments described therein or an “interest” in the company; (ii) such personation must
be deceitful; and (iii) the personation must be with the objection of obtaining such security or interest
or money that is legitimately due to the original owner.
[s 57.4] Deceit and Cheating
The expression “deceit” has not been defined under the 2013 Act or the Indian Penal Code, 1860.
Under section 416 of the Indian Penal Code, 1860, a person is said to “cheat by personation” if he
cheats by pretending to be some other person, or by knowingly substituting one person for another,
or representing that he or any other person is a person other than he or such person really is.
Cheating is defined under section 415 of the Indian Penal Code, 1860, as “whoever, by deceiving any
person, fraudulently or dishonestly induces the person so deceived to deliver any property to any
person, or to consent that any person shall retain any property, or intentionally induces the person so
deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and
which act or omission causes or is likely to cause damage or harm to that person in body, mind,
reputation or property”
The use of the expression “interest in a company” could include any rights under a contract accruing
to a shareholder, including financial, information, pre-emption and indemnity rights.
An offence under this section is not compoundable under section 441 of the Act 2013. This is
because section 44186 of the 2013 Act provides that only an offence which is punishable with fine can
be compounded under the 2013 Act.
[s 57.6] Powers of SEBI [Section 24]
As per section 24 of the 2013 Act, the powers, in so far as they relate to issue and transfer of
securities or non-payment of dividend, in case of (a) listed public companies; (b) public companies
which intend to get their securities listed on any recognised stock exchange in India, be administered
by SEBI; and (c) in any other case, by the Central Government. Powers relating to prospectus, return
of allotment, redemption of preference shares and other specified matters shall be exercised by the
Central Government, the tribunal (NCLT) or the registrar of companies, as the case may be.
See detailed notes and list of SEBI Act, rules, regulations and guidelines along with Appendices 101
to 103 under section 24.
Section 57 of the 2013 Act corresponds to section 116 of the 1956 Act. However, the expression
share used in section 116 of the 1956 Act has been replaced with the expression “security” which
includes derivatives, government securities, interest in securities, any instruments issued to investors
under any mutual fund, which will now be covered by section 57 of the 2013 Act. Further, there was
no minimum mandatory sentence provided under the 1956 Act, nor was a minimum mandatory fine
Mr. Laghir1 Rabari

Page 3 of 4
provided. Section 116 of the 1956 Act has been repealed with the notification of section 57 of the
2013 Act, w.e.f. 12-09-2013.
[s 116] Penalty for Personation of Shareholder.—If any person deceitfully personates an owner of any share or
interest in a company, or of any share warrant or coupon issued in pursuance of this Act, and thereby obtains or
attempts to obtain any such share or interest or any such share warrant or coupon, or receives or attempts to receive
any money due to any such owner, he shall be punishable with imprisonment for a term which may extend to three
years and shall also be liable to fine. The Companies Act, 1956 provision
NOTES
[s 57.8] Complaint by Original Shareholder for Impersonation
Where a transferee sent share certificates to the company for registration. The company by mistake
returned the share certificates after registration to another person with the same name. The
addressee transferred such shares to the Canara Bank. The shareholder filed a complaint against the
company. It was held that it was a bona fide mistake by staff of the company. The company was
ordered to cancel the certificates and issue duplicates. The company was also ordered to pay
compensation, dividends, bonus and rights shares, if any, issued in the meantime. The bank was
ordered to return the originals. The prosecution for impersonation against the person who transferred
shares to the bank was to be launched. The trial court was to take cognisance under section 116 of
the 1956 Act against persons responsible for the impersonation. A copy of the order was sent to the
chairman, SEBI to formulate the proper guidelines for protection/benefit of the shareholders.87
[s 57.9] Locus Standi to Complain when Debentures Not Converted
Where debentures were not converted into shares as stated in prospectus but were redeemed and
moneys were returned. It was held that applicants had locus standi to complain as prima facie
offences were made out for false statement in prospectus, etc. under sections 63, 113 and 116 of the
1956 Act. The proceedings were not quashed.88
[s 57.10] Rectification of Register on Transfer
The NCLT has jurisdiction to order rectification of register on transfer in case of a public company
only when there is refusal of transfer of shares on sufficient cause. In the absence of sufficient cause
as laid down in section 111A of the 1956 Act (now section 59 of the 2013 Act the Company Law
Board (CLB) [now the tribunal (NCLT)] has no jurisdiction to order rectification read with section 116
Mr. Laghir1 Rabari

Page 4 of 4
of the 1956 Act. However, the company was at liberty to initiate appropriate proceedings.89
85 Notified by Notification No. S.O. 2754(E), dt. 12-09-2013 w.e.f. 12-09-2013 and corresponds to section 116 of the 1956
Act.
86 Notified by Notification No. S.O. 1934(E), dt. 01 June 2016 w.e.f. 01 June 2016.
87 BPL Sanyo Technologies Ltd v Rahul Agrawal, (1995) 83 COMP CASES 885 (Raj.).
88 Anil D. Ambani v Santosh Tyagi, (2000) 99 COMP CASES 334 (Raj.). See detailed notes under sections 63, 113 and
621.
89 R.S. Software (India) Ltd v G. Ravi, (2004) 118 COMP CASES 753 (CLB).
End of Document
Mr. Laghir1 Rabari

90 Notified by Notification No. S.O. 2754(E), dt. 12-09-2013, w.e.f. 12
September 2013 and corresponds to sections 111, 111A(2) of the 1956 Act.
[s 58] Refusal of registration and appeal against refusal.—
90 [s 58] Refusal of registration and appeal against refusal.—
(1) If a private company limited by shares refuses, whether in pursuance of any power of the
company under its articles or otherwise, to register the transfer of, or the transmission by
operation of law of the right to, any securities or interest of a member in the company, it shall
within a period of thirty days from the date on which the instrument of transfer, or the
intimation of such transmission, as the case may be, was delivered to the company, send
notice of the refusal to the transferor and the transferee or to the person giving intimation of
such transmission, as the case may be, giving reasons for such refusal.
(2) Without prejudice to sub-section (1), the securities or other interest of any member in a public
company shall be freely transferable:
Provided that any contract or arrangement between two or more persons in respect of
transfer of securities shall be enforceable as a contract.
(3) The transferee may appeal to the Tribunal against the refusal within a period of thirty days
from the date of receipt of the notice or in case no notice has been sent by the company,
within a period of sixty days from the date on which the instrument of transfer or the intimation
of transmission, as the case may be, was delivered to the company.
(4) If a public company without sufficient cause refuses to register the transfer of securities within
a period of thirty days from the date on which the instrument of transfer or the intimation of
transmission, as the case may be, is delivered to the company, the transferee may, within a
period of sixty days of such refusal or where no intimation has been received from the
company, within ninety days of the delivery of the instrument of transfer or intimation of
transmission, appeal to the Tribunal.
(5) The Tribunal, while dealing with an appeal made under sub-section (3) or sub-section (4),
may, after hearing the parties, either dismiss the appeal, or by order—
(a) direct that the transfer or transmission shall be registered by the company and the
company shall comply with such order within a period of ten days of the receipt of the
order; or
(b) direct rectification of the register and also direct the company to pay damages, if any,
sustained by any party aggrieved.
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90 Notified by Notification No. S.O. 2754(E), dt. 12-09-2013, w.e.f. 12 September 2013 and corresponds to
sections 111, 111A(2) of the 1956 Act. [s 58] Refusal....
(6) If a person contravenes the order of the Tribunal under this section, he shall be punishable
with imprisonment for a term which shall not be less than one year but which may extend to
three years and with fine which shall not be less than one lakh rupees but which may extend
to five lakh rupees.
NOTES
Section 58 of the 2013 Act corresponds to sections 111 and 111A(2) of the 1956 Act.
Clause 58.—This clause corresponds to sub section (1) and (2) of section 111 of the Companies Act, 1956 and seeks
to provide for that if a company without sufficient cause refuses to register the transfer of shares, appeal against such
refusal shall lie to the tribunal. It is also provided that the securities of a public company etc. are freely transferable
subject to the provision that any contract or arrangement between two or more persons shall be enforceable as a
contract. [Clause 58 of the Companies Bill, 2011 (121 of 2011)]
While the Notes on Clauses mentions that section 58 of the 2013 Act only corresponds to section
111(1) and (2) of the 1956 Act, the provisions of section 58 of the 2013 Act also correspond to
section 111A(2).
[s 58.2] Refusal of Registration by a Private Company [Section 58(1)]
If a private company limited by shares refuses to register the transfer or transmission of any security
or interest of a member of a company (whether such refusal is pursuant to its powers under the
articles or otherwise), it shall within a period of 30 days from the date on which the instrument of
transfer or the intimation of such transmission was delivered to the company, send a notice of the
refusal to the transferor and transferee or to the person giving intimation of such transmission, setting
out the reasons for such refusal.
As per section 56 of the 2013 Act no transfer shall be registered unless the provisions therein
pertaining to document of transfer being properly executed and stamped are complied with. However,
a transmission of shares need not comply with the conditions set out in section 56.
While discretion has been given to the board of directors of a company to decide whether a transfer
or transmission ought to be registered, the NCLT and NCLAT under the 2013 Act may examine such
a decision on the following grounds: (i) whether the discretionary powers have been exercised in the
interest of the company, (ii) whether they were exercised on wrong principle, and (iii) whether they
were exercised mala fide or for an oblique motive or for a collateral purpose.91
See detailed commentary under section 59.
[s 58.3] Power must be in the Articles or Otherwise
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A private company may refuse to register the transfer or transmission of shares or debentures in
pursuance of any power under its articles of association or otherwise. There is no inherent power in
the board of directors to refuse registration of transfer. If the articles of a company give an absolute
discretion to the board of directors to refuse registration of transfer, this discretionary power should
not be exercised arbitrarily or mala fide or for collateral motive but in the general interest of
shareholders and the company. The power to refuse registration of transfer of shares must be in
accordance with the provisions of the companies Act or the articles of association. Such power has to
be specified and provided for and should be traceable either in the Act or the articles of association.
This also applies even if a claim is made that this is a residuary power. Even if the power of refusal is
specified and provided for, the registration of transfer of shares cannot be refused arbitrarily or for
any collateral purpose. It can be exercised only for a bona fide reason in the interest of the company
and the general interest of the shareholders.
In the case of VB Rangaraj v VB Gopalkrishnan,92 the Supreme Court held that restrictions between
persons on the transferability of shares over and above the restriction specified in the articles of
association of the company are not binding on the shareholders or the company.
Various cases have held that if neither a specific nor residuary power of refusal has been so
provided, such power cannot be exercised on the basis of the so-called undeclared “inherent power”
to refuse registration. The words “or otherwise” do not enlarge the power given in the articles. The
expression “or otherwise” does not imply inherent power.93 The articles of a private company may
confer wide powers on the board of directors.94
Transfer of shares of a private company must be in strict compliance with the articles of the private
company, failing which the transfer will be liable to be set aside. Where the articles of association of a
private company prohibited any transfer of shares without the previous sanction of the directors.
There should be a written resolution of the board of directors passed at the meeting of the board
accepting the transfer. Such previous sanction should precede the handing over of the shares.95
Where transfers of shares are required by the articles of a private company to be sanctioned by
unanimous decision of all directors, in absence of a director at a meeting the resolution sanctioning
the transfer is invalid.1 Transfer of shares in violation of articles of a private company is not
permissible. Where articles permitted transfer to outsiders only where no member was willing to
purchase. In case of pledge of shares to supplier as security for payment for goods without any
notice to the members, the board of directors were right in refusing to transfer the shares in his
name.2
If the articles of a private company provide that every instrument of transfer must be accompanied by
the certificate for the shares to be transferred and a fee for the registration of transfer, and an
application for registration of transfer of shares is made without complying with these requirements,
which are mandatory, the board of directors is well justified in rejecting the transfer. The board of
directors of a private company have very wide discretion in the matter of registration of transfer of
shares. In the absence of a plea and proof to the effect that the directors failed to exercise the
discretion vested in them bona fide or that they acted oppressively, capriciously, corruptly or mala
fide, a petition under section 111 of the 1956 Act (now sections 58 and 59 of the 2013 Act) is not
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maintainable. Where the board of directors acted in good faith in accordance with the articles and in
the interests of the company in dealing with and disposing of the application for transfer of shares,
the court held that the company was not actuated by any improper motive or mala fides in declining
to register the transfer of shares in favour of the appellant. The anxiety of the company to prefer a
member to an outsider to hold the shares would not be considered unreasonable or arbitrary.3
[s 58.5] Transfers Invalid
Where the articles of a private company restricts the transfer of shares to non-members and lays
down procedure of transfer of shares, valuation and notice, the registration of transfer is invalid if the
special provisions are not complied with. When there is a specific provision that if the directors can
find a purchaser within six months, they shall inform the transferor, a transfer without notice to the
transferor will be invalid and rectification of the share register may be ordered. The articles providing
for higher quorum for the board of directors meeting would not be repugnant to the Act which
provides for the minimum quorum.4
[s 58.6] Transfer to Non-member
A member of a private company willing to transfer his shares gave a notice to the company and the
company sent notice to the other existing members indicating the intrinsic value of the shares in
question. The members made no firm offer. They did not indicate the number of shares they were
willing to purchase. Transfer to non-members was held justified.5
A shareholder in accordance with the articles offered to sell his shares and this was intimated by the
company to other shareholders and the matter was discussed at the board Meeting. There was no
positive response from the shareholders. Transferring the shares to a non-member was not irregular
or in violation of any of the provisions of the articles of association of the private company.6
[s 58.7] Delay in Refusing Transfers
Where the articles of a private company restricted the right to transfer the shares. The directors are
entitled to refuse to register the transfers and notify the transferee within two months. The directors’
right to veto the transfers would be lost by unnecessary or unreasonable delay. Prima facie a
shareholder has an absolute right to transfer his shares so that any power of veto on the transfer of
shares vested in the directors must be exercised within reasonable time. Two months was a
reasonable time within which the directors must decide whether to accept or refuse the transfers.
Therefore, four months’ delay was held to be unreasonable delay and the register was ordered to be
rectified.7
[s 58.8] Sufficient Compliance
Where the requirements of the articles had been sufficiently complied with, there was nothing in the
articles requiring notice to the other members to be sent by registered post or special messenger.
Negligence in giving notice could not be a ground to deny relief to an outsider purchaser. The
restriction usually contained in private company’s articles on transfer of shares to outsiders is not an
absolute restriction and a bona fide purchaser for consideration is entitled to have his name entered
in the register.8
Where the transfers were made in accordance with the articles. The transferors did not object.
Rectification was not to be ordered. The contentions relating to manipulation of letter of resignation,
appointment and resignation of directors and validity of memorandum of understanding could not be
gone or adjudicated in petition for rectification under section 111 (now sections 58 and 59 of the 2013
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Act) of the 1956 Act.9
[s 58.9] Minor Omission not Sufficient Cause
Where the transferor intending to transfer all his 6,950 shares in favour of the petitioner gave notice
of transfer as per articles of the private company. Typographical error in mentioning the number of
one share certificate consisting of 250 shares was a minor omission and did not make the transfer
notice invalid. Refusal by the company to register the transfer of shares was therefore without
sufficient cause. The company was directed to register the transfer.10
[s 58.10] Pre-emptive Rights must be Conferred by Articles of Private Company
A pre-emptive right cannot be presumed, but has to be conferred by means of a specific

clause/procedure in the articles of association of a private company. When there was a restriction on
transfer to non-members, the transfer to a non-member would be violative of articles. A member’s
pre-emptive right to shares would be contingent upon: (a) The transferor’s willingness to transfer. The
transferor has a right to choose the transferee. (b) If the transferor does not choose a transferee, a
fair price has to be determined by the directors; and (c) Member willing to purchase the shares. Thus,
the pre-emptive right is not automatic to a section of the members excluding another section. There is
no pre-emptive right in particular person. Rectification cannot be ordered in favour of specific
shareholders. The fact that the transferee was in ultimate control of the member company was not
relevant. Register was ordered to be rectified to restore status quo ante. The position would have
been different if a procedure was prescribed in the articles, e.g., offer to be made to the other
members, pro-rata offer to all the other members, etc.11
[s 58.11] Right of Pre-emption
To give effect to this right under the pre-emptive clause, the court can order purchase of shares of
the seller at a fair price to be based on the principles of valuation laid down by the court and the
valuer will consider the cost of shares and the apportionment of goodwill between the outgoing and
continuing shareholders.12 The provisions in the articles constitute a contract under which the
transferor may compel the directors to purchase his shares.13
[s 58.12] Pledge of Shares of a Private Company
Transfer of shares of a private company must be in strict compliance with the articles of association
violation of articles of a private company is not permissible. A pledgee is bound by pre-emptive rights
contained in the articles of a private company. Where articles of the private company permitted
transfer to outsiders only where no member was willing to purchase, the pledgee, e.g., bank or lender
or supplier having shares as security, may get it registered in his or its name by virtue of the pledge
only after notice to the other members. The board of directors may refuse to transfer the shares in his
name unless shares are offered to existing members.14
Where the decision to transfer shares was taken by all the members of the private company and the
transfer was registered in accordance with section 108 of the 1956 Act (section 56 of the 2013 Act).
The registration cannot be said to be without sufficient cause. The question of offering the shares to a
member in the first instance as required by the company’s articles did not arise. The transfers could
not be said to be vitiated by failure to comply with the articles. Failure by purchasers to discharge
liabilities of the company to bank under the agreement of purchase of entire shares and takeover of
assets and liabilities could not be a ground for rectification.15
[s 58.13] Transfer and Transmission
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Transfer and transmission are two different modes by which the ownership of shares changes. While
transfer of shares can be by many ways including by way of gift, the transmission of shares is by
operation of law.
Courts have held that a transfer of shares pursuant to a court sanctioned scheme of amalgamation
need not comply with the provisions of section 108(1) of the 1956 Act (now section 56 of the 2013
Act).16 Further, the transfer of shares in a third company pursuant an order sanctioning a scheme of
amalgamation also does not require compliance with the provisions of section 108(1) of the 1956
Act.17
Section 56 of the 2013 Act mandates that a company shall not register a transfer of shares in the
company unless a proper instrument of transfer duly stamped and executed by or on behalf of the
transferor and the transferee has been delivered to the company along with the certificate of shares.
The company cannot be directed to register transfer of shares unless the instrument of transfer is
duly stamped and the stamp is cancelled as required by the statute.18 If the transfer is completed in
all respects then the company cannot refuse to register the shares on the ground “not supported by
documents.”19 Where the board of directors rectified the register of members without duly executed
transfer deed contrary to the scheme of section 108 of the 1956 Act (section 56 of the 2013 Act) and
the articles, the registration of transfer was void.20
See also commentary under section 56 of the 2013 Act.
In a case decided by the Bombay High Court (under the 1956 Act), the court examined the issue of
whether a transfer of shares under a scheme of amalgamation amounts to a transmission. The
argument that as an amalgamation was by the volition of the parties, the transfer of shares is also by
the volition of the parties and not by the operation of law, was rejected by the court. Based on the
interpretation of the articles of association of the company, it was held that an amalgamation
amounted to a transmission “by any lawful means other than by transfer in accordance with the
earlier provisions in the articles.”21
[s 58.14] Completion of Transfer
A transfer is complete as between a transferor and transferee when all the formalities such as
execution of the transfer deed and handing over of share certificates are completed and the transfer
of shares is complete from the date of transfer. As between transferee and the company, the transfer
is complete and the transferee becomes a shareholder or member when the company registers the
name of the transferee. Transferor is bound to comply with all the reasonable directions that the
transferee may give. He is also a trustee of the dividends as also of the right to vote. However, the
transferee should be diligent in getting his name registered.22 This includes following the procedure
[s 58.15] Free Transferability—Public Companies [Section 58(2)]
The securities or interest of a member in a public company are freely transferable. Free transferability
of shares in a public company is founded on the principle that members of the public must have the
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freedom to purchase and, every shareholder, the freedom to transfer the shares of a public company.
[s 58.16] Contract Inter Se Shareholders in a Public Company [Proviso to Section 58(2)]
Any contract or arrangement between two or more persons in respect of transfer of securities of a
public company is enforceable as a contract. While the company is not bound by these restrictions,
the aggrieved shareholder may be entitled to sue the other contracting party for damages for breach
of the contract.
Restrictions on the free transferability of shares of a public company has been the subject of litigation
in various High Courts. While the 1956 Act was clear that the shares of a public company were freely
transferable, various courts had held that rights such as drag along, tag along and rights of first
refusal, violate the “free transferability’ of shares. In the case of Messrs. Holding v Madanmohan
Ruia23 a clause granting a shareholder the right of first refusal in the event of a proposed transfer was
upheld by the court on the grounds that the restrictions imposed on the transfer of shares in an
agreement between the shareholders is not violative of the provisions of the 1956 Act. On an appeal,
the Supreme Court has passed an order which does not comment on the free transferability of shares
due to the change in law brought about by the introduction of the proviso to section 58(2) of the 2013
Act during the period of subsistence of the case, which clarifies that contracts containing transfer
restrictions are enforceable inter se persons/shareholders who are party to such a contract.
The High Court of Bombay in the case of Bajaj Auto Ltd v Western Maharashtra Development
Corporation Ltd,24 has interpreted section 58(2) of the 2013 Act as follows:
“Sub-section (2) of section 58 specifically provides that without prejudice to sub-section (1), the securities or other
interest of any member in a public company shall be freely transferable. However, the proviso to the said section
stipulates that any contract or arrangement between two or more persons in respect of transfer of securities shall be
enforceable as a contract. Before the Companies Act, 2013 Act came into force, the 57th Report of the Parliamentary
Standing Committee on the Companies Bill 2011, at pg. 86 thereof, noted that the proviso to section 58 “simply seeks
to codify the pronouncements made by various courts holding that contracts relating to transferability of shares of a
company entered into by one or more shareholders of a company (which may include promoter or promoter group as a
shareholder) shall be enforceable under law.”
Keeping in line with the proviso to section 58(2) of the Companies Act 2013, the Securities And Exchange Board of
India has also issued a notification dt. 3 October 2013 03-10-2013 being Notification No.LAD-NRO/GN/2013-
14/26/6667 which declares that no person in the territory to which the Securities Contracts (Regulation) Act, 1956
extends, shall save with the permission of the Board, enter into any contract for sale or purchase of securities other
than a contract falling under any one or more of the following namely:
(a) Spot delivery contract;
(b) contracts for sale or purchase of securities or contracts in derivatives, as are permissible under the said Act or
the SEBI Act, and the rules and regulations made under such Acts and rules, regulations and bye-laws of a
recognised stock exchange;
(c) contracts for pre-emption including right of first refusal, or tag-along or drag-along rights contained in
shareholders agreements or articles of association of companies or other body corporate;
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(d) ………………………….
On reading section 58 and the above Notification issued by the SEBI, we are of the view that section 58 merely
clarifies and codifies the existing legal position regarding such pre-emption agreements. In other words, what was
implicit in the provisions of section 111a of the Companies Act, 1956 has now been made explicit in section 58 of the
Companies Act, 2013. The introduction of this proviso making contracts for the transfer of securities enforceable, has
settled this question of law.”
[s 58.17] Appeal by the Transferee to the Tribunal against Refusal by a Private Company
[Section 58(3)]
A transferee whose request for a transfer has been refused by company has a right to appeal against
the refusal within a period of 30 days from the date of receipt of notice or in case no notice has been
sent, within a period of 60 days from the date on which the instrument of transfer or the intimation
was delivered to the company.
The draft rules for the NCLT25 provide that the appeal be in the Form NCLT-1.
A petition under sections 58 and 59 of the 2013 Act was held to be maintainable before the CLB even
though it was made by members whose names were not on the register. The CLB held that a
situation of wrongful removal of names falls squarely within its jurisdiction.26 The order of the tribunal
is filed with the registrar in Form INC 28.
Cases decided under section 111 of the 1956 Act have been discussed below.
[s 58.18] Appeal by the Transferee to the Tribunal against the Refusal without Sufficient
Cause by a Public Company [Section 58(4)]
This provision gives a transferee a period of 60 days in which to appeal a refusal by a public
company to register the transfer without sufficient cause within a period of 30 days from the date on
which instrument of transfer or the intimation of transmission is delivered to the company. In case no
response has been received from the company, the transferee has a period of 90 days from the date
of delivery of the instrument to transfer in which to appeal.
Prior to the insertion of section 111A of the 1956 Act, the reasons for which a public company could
refuse to register a transfer of shares was confined to the grounds given in section 22 of the SCRA.
From the reading of section 111A (3) of the 1956 Act which corresponds to section 59(4) of the 1956
Act, “sufficient cause” could be construed as “a transfer in contravention of the SCRA and the 2013
Act or any other law in force for the time being.”
Case law on sufficient cause and situations in which a public company may or may not refuse a
transfer are detailed in the commentary under section 111A (2) under the 1956 Act below.
[s 58.19] Powers of the Tribunal on Appeal [Section 58(5)]
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The Tribunal may after hearing the appeal under section 58(3) or 58(4) above, may either dismiss the
appeal or pass the following orders:
(a) Direct that the transfer or transmission to be registered by the company and that the company
shall comply with such an order within a period of 10 days from the receipt of the order;
(b) Direct the rectification of the register and also direct the company to pay damages, if any,
sustained by any aggrieved party (who need not necessarily be transferees)
[s 58.20] Interim Orders
The draft rules to the NCLT provide that while dealing with a petition under section 58, the NCLT has
the discretion to make interim orders as it thinks fit, including injunction or stay or and orders on
payment of dividend, allotment of bonus or rights shares.
Cases discussing interim orders granted under section 111 and 111A of the 1956 Act are detailed in
the sections below.
[s 58.21] Appeal
An appeal from an order of the NCLT shall lie before the NCLAT.
[s 58.22] Penalty for Contravention of the Tribunal’s Order [Section 58(6)]
Contravention of the order of the Tribunal is punishable with imprisonment for a term which shall not
be less than one year but which may extend to three years with a fine which shall not be less than Rs
1 lakh but which may extend to Rs 5 Lakh.
[s 58.23] Powers of the NCLT
The national company law tribunals have been constituted w.e.f. 1 June 2016,27 as a result of which
the CLBs stand dissolved. Consequently, the jurisdiction to settle disputes now vests exclusively with
the tribunals. The NCLT rules have been notified by the MCA but were not in force at the time of
going to press. According to section 434 of the 2013 Act, on the date of notification, all matters,
proceedings or cases pending before the CLB stand transferred to the tribunal.
[s 58.24] Limitation [Section 58(3) and (4)]
In case of a private company, an appeal must be filed within a period of 30 days from the date on
which the instrument of transfer or the intimation of transmission or within 60 days when from the
date of intimation of the transfer was delivered to the company.
In case of a public company, an appeal against the refusal must be filed within a period of 60 days of
refusal or where no intimation has been received, within a period of 90 days of delivery or intimation
of transfer or transmission.
Section 433 of the 2013 Act provides that the provisions of the Limitation Act, 1963 shall be
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applicable to proceedings before the NCLT and the NCLAT.
[s 58.25] Private Company [Section 2(68)]
Section 2(68)(i) provides that a private company must by its articles restrict the right to transfer its
shares.
[s 58.26] Rectification of Register of Debentures
The provisions relating to rectification of share register are also applicable to the rectification of
register of debenture holders.
[s 58.27] Model Articles—Grounds for Refusal of Registration [Schedule I, Table F]
Regulations 20–21 of Table F provide the following grounds refusal of registrations:
(a) The instrument of transfer is not in Form SH-4 and other conditions in section 56(1) of the
2013 Act.
(b) The instrument of transfer is in respect of only one class of shares.
(c) The instrument of transfer is not accompanied by the necessary documents.
(d) The transfer of shares, not being fully paid-up shares to a person of whom the board does not
approve;
(e) The transfer is in respect of shares on which the company has a lien;
(f) Instrument of transfer not lodged within the period prescribed under section 56 of the 2013
Act;
(g) The instrument of transfer not duly stamped;
[s 58.28] Refusal by a Public Company
Section 22A of the Securities Contract Regulation Act, 1956, provided grounds under which a public
company could refuse to register a transfer. The section was omitted by the introduction of the
depositories Act, 1996, by which no grounds are now available to public companies to refuse
registration of shares. The CLB has held that “sufficient cause” for refusal is confined to violation of
SEBI Act, or regulations or SICA or any other law in force.28
This is dealt with in further detail in the commentary to section 59 of the 2013 Act which deals with
petitions for rectification of register of members.
An offence under this section is not compoundable under section 441 of the 2013 Act. This is
because section 44129 of the 2013 Act provides that only an offence which is punishable with fine can
be compounded under the 2013 Act.
[s 58.30] Transmission of Shares
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(a) The shares have been transmitted to the legal representative of the deceased shareholder in
the case of death of a sole shareholder and in the case of joint holdings only to the
survivor(s);
(b) Transmission of shares is effected upon the production of succession certificate or probate or
letter of administration or Indemnity duly signed by the legal heirs of the deceased or as per
procedure stipulated by the board of directors and/or articles of association.
30[s 111] Power to refuse registration and appeal against refusal.—(1) If a company refuses, whether in pursuance
of any power of the company under its articles or otherwise, to register the transfer of, or the transmission by operation
of law of the right to, any shares or interest of a member in, or debentures of the company, it shall, within two months
from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was
delivered to the company, send notice of the refusal to the transferee and the transferor or to the person giving
intimation of such transmission, as the case may be, giving reasons for such refusal. The Companies Act, 1956
provision
(2) The transferor or transferee, or the person who gave intimation of the transmission by operation of law, as the case
may be, may appeal to the 31[Tribunal] against any refusal of the company to register the transfer or transmission, or
against any failure on its part within the period referred to in sub-section (1), either to register the transfer or
transmission or to send notice of its refusal to register the same.
(3) An appeal under sub-section (2) shall be made within two months of the receipt of the notice of such refusal or,
where no notice has been sent by the company, within four months from the date on which the instrument of transfer,
or the intimation of transmission, as the case may be, was delivered to the company.
(4) If—
(a) the name of any person—
(i) is, without sufficient cause, entered in the register of members of a company, or
(ii) after having been entered in the register, is, without sufficient cause, omitted therefrom; or
(b) default is made, or unnecessary delay takes place, in entering in the register the fact of any person having
become, or ceased to be, a member [including a refusal under sub-section (1)],
the person aggrieved, or any member of the company, or the company, may apply to the 32[Tribunal] for rectification of
the register.
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(5) The 32[Tribunal], while dealing with an appeal preferred under sub-section (2) or an application made under sub-
section (4) may, after hearing the parties, either dismiss the appeal or reject the application, or by order—
(a) direct that the transfer or transmission shall be registered by the company and the company shall comply with
such order within ten days of the receipt of the order; or
(b) direct rectification of the register and also direct the company to pay damages, if any, sustained by any party
aggrieved.
(6) The 33[Tribunal], while acting under sub-section (5), may, at its discretion, make—
(a) such interim orders, including any orders as to injunction or stay, as it may deem fit and just;
(b) such orders as to costs as it thinks fit; and
(c) incidental or consequential orders regarding payment of dividend or the allotment of bonus or rights shares.
(7) On any application under this section, the 33[Tribunal]—
(a) may decide any question relating to the title of any person who is a party to the application to have his name
entered in, or omitted from, the register;
(b) generally, may decide any question which it is necessary or expedient to decide in connection with the
application for rectification.
(8) The provisions of sub-sections (4) to (7) shall apply in relation to the rectification of the register of debenture-
holders as they apply in relation to the rectification of the register of members.
(9) If default is made in giving effect to the orders of the 34[Tribunal] under this section, the company and every officer
of the company who is in default shall be punishable with fine which may extend to 35[ten thousand rupees], and with a
further fine which may extend to 36[one thousand rupees] for every day after the first day after which the default
continues.
(10) Every appeal or application to the 34[Tribunal] under sub-section (2) or sub-section (4) shall be made by a petition
in writing and shall be accompanied by such fee as may be prescribed.
(11) In the case of a private company which is not a subsidiary of a public company, where the right to any shares or
interest of a member in, or debentures of, the company is transmitted by a sale thereof held by a Court or other public
authority, the provisions of sub-sections (4) to (7) shall apply as if the company were a public company:
Provided that the 34[Tribunal] may, in lieu of an order under sub-section (5), pass an order directing the company to
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register the transmission of the right unless any member or members of the company specified in the order acquire the
right aforesaid within such time as may be allowed for the purpose by the order, on payment to the purchaser of the
price paid by him therefor or such other sum as the 34[Tribunal] may determine to be a reasonable compensation for
the right in all the circumstances of the case.
(12) If default is made in complying with any of the provisions of this section, the company and every officer of the
company who is in default, shall be punishable with fine which may extend to 37[five hundred rupees] for every day
(13) Nothing in this section and section 108, 109 or 110 shall prejudice any power of a private company under its
articles to enforce the restrictions contained therein against the right to transfer the shares of such company.]
38[(14)
In this section “company” means a private company and includes a private company which had become a public
company by virtue of section 43A of this Act.]
NOTES
111 of the Act as follows:
This clause seeks to recast the existing section 111 by incorporating therein the provisions of section 155, which
confers powers on the High Court to order rectification of the register of members. With a view to providing adequate
protection to investors against refusal to register transfer of shares, this clause requires companies to give reasons
before they refuse any transfer of shares. It also confers rights on the aggrieved investor to apply for relief to the
Company Law Board (instead of the High Court) [now the tribunal (NCLT)], on specified grounds. [Clause 16 of the
Sections 155 and 156 of the 1956 Act have also been deleted. The Notes on Clauses explained the
deleted sections as follows:
“This clause seeks to delete sections 155 and 156. This is consequent upon the amendment proposed in clause 16
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(Section 111 of the Act) of the Bill.” [Clause 21 of the Companies (Amendment) Bill, 1987 (32 of 1987)].
Now Scheme of sections 111 and 111A of the 1956 Act providing for grounds of refusal to register
the transfer or transmission of shares or debentures of private companies and public companies and
remedy of appeal or rectification of register has been drastically amended by the Depositories Act,
1996 (22 of 1996), (w.r.e.f. 20 September 1995) as explained hereinafter.
The amendments made by the Companies (Amendment) Act, 1988 (31 of 1988) were based on the recommendations
of the High-Powered Expert Committee on Companies and MRTP Acts constituted under the chairmanship of Justice
Shri Rajindar Sachar which submitted its Report in August, 1978. The Sachar Committee recommendations are
reproduced below:
“(1) Many public companies [now see new Section 111A for Public Companies. Scope of Section 111 has been
restricted to Private Companies only. Entire section 111 now applies to Private Companies vide Sections 111(14) and
111A(1)] whose scrips are listed on the stock exchanges do not generally refuse registration of transfer of their shares.
Since shares are movable property, they ought to be freely transferable. Whilst it may still be necessary to retain and
recognise the right of directors to refuse registration of transfers if so authorised by a company’s Articles of
Association, this right, we think, should be hedged in with adequate safeguards. Under the law as it stands, the
company is not immediately required to give reasons for refusal to register transfers and it is only the right of the final
adjudicating body [under section 111(5A)] to require the company to disclose its reasons at an appellate stage. This, in
our opinion, is unsatisfactory. Under the existing law, there are two remedies open to an aggrieved person—to file an
appeal under section 111, or to apply to the Court for rectification of the share register under section 155. We think that
these two remedies should now be assimilated and provision be made (at one place) for a person aggrieved (including
any person aggrieved by a refusal of the Board of directors to register a transfer or transmission of shares) to apply to
the Company Law Board (CLB)—as proposed to be constituted—[now the National Company Law Tribunal (NCLT)] for
rectification of the share register on any of the grounds mentioned in sub-clause (a) or (b) of sub-section (1) of the
present section 155 [now Sections 111 and 111A].
Our proposals are—Accordingly, we would recommend as follows: (a) Sections 111 and 155 should be assimilated into
a single statutory provision; (b) The said statutory provision would read thus: [The section as recommended has been
re-drafted with some modifications].” [Report : para 7.21].
as follows:
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This clause seeks to enhance the fine specified in sub-section (9) from one thousand rupees to ten thousand rupees
and one hundred rupees to one thousand rupees and in sub-section (12) from fifty rupees to five hundred rupees of
section 111 of the Act. [Clause 41 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
This clause seeks to amend sections 111 and 111A of the Companies Act, 1956 relating to power to refuse registration
of transfer of shares or interest of a member or debentures and appeal against such refusal, rectification of register on
transfer. The Company Law Board has been conferred certain powers under these sections. It is proposed to confer
these powers of the Company Law Board upon the Tribunal. These amendments are of consequential nature. [Clause
14 of the Companies (Amendment) Bill, 2001 (80 of 2001)].
[s 58.33] Scope of sections 111 and 111A (w.e.f. 20-9-1995)
The scheme of sections 111 and 111A of the 1956 Act providing for grounds of refusal to register the
transfer or transmission of shares and debentures of private companies and public companies and
remedy of appeal or rectification of register on transfer of shares and debentures has been
drastically amended by the Depositories Act, 1996 (22 of 1996), (w.r.e.f. 20 September 1995) as
follows.
[s 58.34] Entire section 111 Now Applies to Private Companies Only
The scope of section 111 has been restricted to private companies only [vide section 111(14) as
inserted by the Depositories Act, 1996 (22 of 1996)].
Section 111 earlier applied to listed and unlisted public companies and to private companies except
that restrictions on transfer might be retained by a private company vide section 111(13). Entire
section 111 now applies to private companies only.
[s 58.35] Section 155 Assimilated in Old section 111
Prior to this, provisions of section 155 were assimilated in old section 111 as substituted by the
Companies (Amendment) Act, 1988 (31 of 1988). Sections 155 and 156 of the 1956 Act were
omitted.
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To provide adequate protection to investors against refusal to register transfer of shares this section
required companies to give reasons before they refused any transfer of shares. This section covered
also transmission of shares.
Section 111 conferred rights on the aggrieved investor to apply for relief to the CLB [now the Tribunal
(NCLT)] instead of to the Central Government or to the High Court on specified grounds.
[s 58.36] Section 22A of the SCRA Omitted
Section 22A of the Securities Contracts (Regulation) Act, 1956 [Free transferability and registration of
transfers of listed securities of companies], which was applicable to listed public companies has
consequently been omitted by the Depositories Act, 1996 (w.r.e.f. 20 September 1995).
[s 58.37] New section 111A Applies to Rectification of Register on Transfer in Case of All
Listed and Unlisted Public Companies
New section 111A has been introduced to bring within its ambit rectification of register on transfer in
the case of all public limited companies. All listed and unlisted public companies are now covered by
section 111A which makes the shares or debentures of a public company freely transferable and not
by section 111 which now applies to private companies.
Under the 2013 Act, section 58 does not differentiate between a public and private company except
with respect to the process in relation to refusal to transfer of shares. While the refusal to register is
covered under section 58, rectification of register is covered under section 59 of the 2013 Act.
Petition wrongly filed under section 111 in respect of a public company was treated as filed under
section 111A of the 1956 Act.39 This might not be relevant under the 2013 Act, given that section 58
combines the relevant provisions of sections 111 and 111A.
[s 58.39] Refusal with Reasons to be Communicated by Private Company in Two Months

[1956 Act, section 111(1); 2013 Act, section 58(1)]
If a private company refuses to register the transfer or transmission of shares or debentures in

pursuance of any power under its articles or otherwise, it shall within two months from the delivery of
instrument of transfer, or intimation of transmission, send notice of the refusal to the transferee and
the transferor or to the person giving intimation of such transmission giving reasons for such refusal.
This time period has been reduced to 30 days under the 2013 Act.
[s 58.40] Appeal by Aggrieved Person to CLB ( Now Tribunal) [1956 Act, section 111(2); 2013
Act, section 58(3)]
The transferor or the transferee of shares or debentures or the person who gave intimation of
transmission by operation of law in case of private companies may appeal to the CLB [now NCLT]
against any refusal by the company to register the transfer or transmission. An appeal can also be
preferred if the company fails to intimate its decision within two months.
[s 58.41] Appeal within Two Months [1956 Act, section 111(3); 2013 Act, section 58(3)]
An appeal may be preferred to the CLB [now the NCLT)] within two months of the receipt of the
notice of refusal to register the transfer or transmission. Where the company has not intimated about
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refusal or registration of the transfer or transmission within two months, the appeal has to be
preferred within four months from the date on which the instrument of transfer or the intimation of
transmission was delivered to the company.
In other words, the appeal has to be preferred within two months from the date on which the
company should have given intimation of its decision.
[s 58.42] Instrument of Transfer to be Produced
For transfer of shares or debentures (1) an instrument in the prescribed form [Form 7B] (now Form
No. SH440 under the 2013 Act), (2) duly stamped, (3) executed by or on behalf of the transferor and
the transferee, (4) specifying the name, address and occupation, if any, of the transferee, and (5)
together with the certificate relating thereto or if no certificate has been issued, the letter of allotment
therefor, should be submitted to the company. If these conditions are not fulfilled, the board of
directors will not be competent to register the transfer.41
[s 58.43] Provisions of section 108 of the 1956 Act Mandatory
The provision contained in section 108 (now section 56 of the 2013 Act) that a company shall not
register a transfer of shares in the company unless a proper instrument of transfer duly stamped and
executed by or on behalf of the transferor and the transferee has been delivered to the company
along with the certificate of shares is mandatory in character. The prohibition against transfer without
complying with the provisions of section 108 is emphasised by the negative language used in the
section. Where the transfer of shares was registered pending attachment of shares in tax recovery
proceedings. The Supreme Court held that the registration of transfers contrary to mandatory
provisions of section 108 and pending attachment of the shares was illegal. When the receiver held
the scrips and blank transfers, it was not open to the persons in whose names the shares originally
stood to exercise the right of ownership in respect of such shares or transfer that ownership to
anyone else.42
The court [the CLB now the Tribunal (NCLT)] cannot direct the registration of transfer of shares
unless the instrument of transfer is duly stamped and the stamp is cancelled as required by the
statute.43 See detailed notes under section 56 of the 2013 Act.
[s 58.44] Restrictions in Articles of Private Company [1956 Act, section 3(1)(iii)(a); 2013 Act,
section 2(68)]
Section 3(1)(iii)(a) of the 1956 Act provides that a private company must by its articles restrict the
right to transfer its shares, if any.
[s 58.45] Restrictions Only in Articles of Private Company are Binding
Restrictions contained only in the articles of association of a private company are binding. Additional
company. In spite of such an agreement, the company can transfer the shares at the request of a
member.44
[s 58.46] Restrictions in Private Agreement not Binding
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Restrictions as to the transferability of shares, if any, are contained in the articles of the private
company. Where all the requirements of this section are adhered to by the transfer and there are no
objections to the transfer, the technical grounds of absence of probate, succession certificate or letter
of administration for transmission cannot be raised.45
See notes under proviso to section 58(2) of the 2013 Act above.
[s 58.47] Articles of Private Company Read with section 108 Mandatory
The conditions imposed by the articles of a private company read with provisions of section 108 of
the 1956 Act (now section 56 of the 2013 Act) are mandatory. See notes under section 58 of the
2013 Act
[s 58.48] Register of Members, Rectification of
See commentary under section 59 of the 2013 Act.
[s 58.49] Public Company
Section 111A of the 1956 Act (now section 58(2) of the 2013 Act) applies to public companies and
stipulates that the shares of a public company are freely transferable. Any stipulation in the articles of
a public company contrary to the same, putting fetters on the free transferability, would be contrary to
the provisions of section 111A and therefore void under section 9 (now section 6 of the 2013 Act) of
the 1956 Act.46
[s 58.50] Enforcement of Pre-emption Rights
An administrator of a deceased shareholder transferred the shares to a creditor in repayment of the

loan. One of the several heirs claiming pre-emption right to purchase the shares made an application
for rectification of the register of members under section 155 (section 111) of the 1956 Act (now
section 59 of the Companies Act, 2013). It was held that for enforcement of pre-emption right the
proper procedure is not for application for rectification of the register of members and further all the
heirs were not before the court [now the NCLT] and as such no relief could be granted.47
In case of public companies pre-emption rights cannot be enforced as explained below.
[s 58.51] Pre-emption not Enforceable in Public Company
In view of free transferability of shares of a public company as embodied in sections 82 and 111A(2)
of the Companies Act, 1956, the pre-emption right is not enforceable under section 111A. Even in a
private company, the right of pre-emption can be enforced only if it is incorporated in the articles of
the private company. Remedy relating to transfer of shares can be granted by the CLB [now the
NCLT] under sections 111 and 111A of the 1956 Act. Jurisdiction of the CLB [now NCLT] is not
merely of a summary nature but includes within its compass power to hold a full-fledged enquiry in
respect of title to shares and decide questions in connection with the application for rectification. The
right of pre-emption flows from general law. Therefore, the civil court can also try the issue whether
the right existed. However, even if the right existed, as the right of pre-emption is not enforceable in
view of free transferability of shares of a public company, the civil suit would not be
maintainable.48This position has now been clarified by the insertion of the proviso to section 58 (2) of
the 2013 Act. See notes under the proviso to section 58(2) above.
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The power to refuse registration must be conferred by Act, articles or otherwise. There is no inherent
power in the board of directors to refuse registration of transfer. The power must emanate from the
articles or the Act. If the articles of a company give an absolute discretion to the board of directors to
refuse registration of transfer, this discretionary power should not be exercised arbitrarily or mala fide
or for collateral motive but in the general interest of shareholders and the company. The power to
refuse registration of transfer of shares must be in accordance with the provisions of the companies
Act or the articles of association. Such power has to be specified and provided for and should be
traceable either in the Act or the articles of association. This also applies even if a claim is made that
this is a residuary power. Even if the power of refusal is specified and provided for, the registration of
transfer of shares cannot be refused arbitrarily or for any collateral purpose. It can be exercised only
for a bona fide reason in the interest of the company and the general interest of the shareholders. If
neither a specific nor residuary power of refusal has been so provided, such power cannot be
exercised on the basis of the so-called undeclared “inherent power” to refuse registration. The words
“or otherwise” do not enlarge the power given in the articles. The expression “or otherwise” does not
imply inherent power.49
[s 58.53] Board of Directors must give a Decision
The failure or omission to pass a resolution for registration is not an exercise of right to decline.
Refusal by a particular director is not sufficient. There must be a decision of the board of Directors
declining registration.50 The powers given by the articles to refuse any registration may be
unconditional but the directors are bound to act if the transfer is otherwise lawful. This power will
have to be used bona fide.51
[s 58.54] Power cannot be Exercised after Registration
The power to refuse registration cannot be exercised after the transfer has been registered.52
[s 58.55] Legitimate Reasons
As long as the decision of the board of directors to refuse registration of a transfer of shares is for
legitimate reasons, bona fide and in the interest of the company, the CLB [now the Tribunal (NCLT]
should not interfere with the decision of the directors. Even when the transferee was already a
shareholder and joint managing director and aware of the decision of the board of directors he would
still be entitled to notice of refusal to register. Appeal against refusal filed within two months of letter
signifying refusal was held maintainable. The reason that transferee was already holding 9.68%
shares and transfer of further 3.81% shareholding would affect composition of the board of directors
was not sustainable.53
[s 58.56] Power of Directors to be Exercised Bona Fide
In case of refusal to register transfer or transmission of shares, the power of the board of directors to
do so must be drawn from the articles of the company. Unless articles provide for such powers to
refuse registration of transfer or transmission of shares, the board of directors cannot exercise such
powers. Where the articles of the company vest with the board of directors absolute discretion in the
case of registration of transfer, such discretion, in view of regulation 26(b) of Table A of the Schedule
I to the 1956 Act, must be exercised in the case of transmission also. Such power must be exercised
bona fide and in the interests of the company. If the admission of a member in a private company,
e.g., transmission pursuant to will in favour of son, who was an undesirable person, would result in
disharmony among members, the refusal to register transmission of shares could be considered
bona fide and in the interests of the company and no direction would be issued to the directors.
However, the board of directors must arrange to have the shares purchased by other members at a
fair value.54
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[s 58.57] Power of Directors must not be Exercised Mala Fide or Arbitrarily
Power of directors to refuse registration of transfer or transmission must not be exercised mala fide or
arbitrarily. Mere obtaining of succession certificate by widow of the deceased does not entitle her to
get all the shares held by the deceased transferred to her. The company can refuse to register the
shares falling to other heirs in the name of the widow alone. Where a shareholder died and his widow
obtained succession certificate in respect of 900 shares and the company refused to register all 900
shares in her name as there were two minors also who were entitled to those shares, it could not be
said that the directors acted arbitrarily, capriciously or mala fide in refusing to register the
transmission as prayed for by the widow on the strength of the succession certificate. Normally if the
court [now the NCLT] found that the directors gave reasons which were legitimate, it would not
overrule that decision merely on a ground that the court [now the NCLT] would not have come to the
same conclusion.55
Allegations of mala fides in allotment of shares, e.g., allotment of shares to the exclusion of some
shareholders has been held, by many High Courts and the CLB [now the Tribunal (NCLT)], as an
issue which could be agitated as an act of oppression, in a petition under sections 397/398 of the
1956 Act (now sections 241–246 of the 2013 Act). However, register of members of the company
must first be rectified before relief under sections 397/398 could be granted. A composite petition to
decide title to shares and locus standi for relief under section 399 would not be maintainable.
[s 58.59] Pendency of Petition
Pendency of petition seeking relief from oppression and mismanagement under section 397/398 is
not a ground for staying proceeding on petition for rectification of register under section 111/111A.
[s 58.60] Shares of Public Companies now Freely Transferable [2013 Act, section 58(2)]
Any stipulation in the articles of a public company contrary to the same, putting fetters on the free
transferability, would be hit by section 9 of the 1956 Act.56
This position has now been clarified by the insertion of the proviso to section 58(2), 2013 Act. See
notes under the proviso to section 58(2) above.
[s 58.61] Minor
Where the allotment of shares in the names of minors was invalid. The company was not entitled to
delete the names of the petitioners from its register of members without the sanction of the court [now
the NCLT] especially as the interests of the minors were involved. The period of limitation would start
from the date of obtaining majority.57
[s 58.62] Non-Resident Shareholder/FEMA
The permission of the Reserve Bank of India (RBI) under the Foreign Exchange Regulation Act, 1973
(46 of 1973), if any, could be obtained ex post facto.58
Under the FEMA, 1999, a resident transferee or transferor is required to file the prescribed Form
FCTRS on the e-biz platform of the government of India within a period of 60 days from the date of
receipt of consideration for the purchase of the shares.59 Once the acknowledgment of the
certification by the concerned authorised dealer bank is received, the board of directors may take the
transfer of the shares on record. However, the acknowledgment received from the authorised dealer
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Page 21 of 57
bank must be submitted to the board of the company along with the share transfer form and share
certificate for the board to be able to record the transfer of the shares.
[s 58.63] Shares of Private Company not Governed by SCRA
A contract for sale of shares in a Pvt Ltd company is not governed by the provisions of the Securities
Contracts (Regulation) Act, 1956 (42 of 1956). The definition of “securities” in section 2(h) of the Act
will only take in shares of a public limited company or other body corporate. In a suit by the plaintiff to
recover the balance of the consideration for the sale of certain shares in a private company, the
defendant cannot claim a declaration that the agreement for sale is illegal or void on the ground that it
was in contravention of section 13 of the Securities Contracts (Regulation) Act, 1956.60
[s 58.64] Instrument and Proof of Transmission
As per section 108(1) of the 1956 Act [now section 56(1) of the 2013 Act], second proviso, the
provisions of section 108 of the 1956 Act for transfer of shares or debentures, i.e., transfer not to be
registered except on production of instrument of transfer are not applicable in case of transmission by
operation of law. Transmission by operation of law takes place where a person acquires an interest in
property by operation of law such as by right of inheritance or succession while a transfer is effected
by act of parties. For transmission of shares no instrument of transfer or payment of any stamp duty
is required. The board of directors or the company can, however, insist on proof of such transmission,
e.g., succession certificates, probate of will or letters of administration.61
The succession certificate or probate of Will or letter of administration will be sufficient for the
company to transfer the shares in the name of the legal heir. Where succession certificate is filed, the
company cannot refuse to register the transmission. The company cannot insist upon consent letters
from all the heirs or the original share certificates. It could issue duplicate certificates cancelling the
original certificates. In the absence of power in articles of association of the private company the
board of directors could not refuse it on ground that heir was carrying competing business.62
[s 58.66] Pendency of Application in Succession Court
Pendency of application to the succession court for succession certificate is not a bar to decision of
question of Title by any other court. When widow of the deceased shareholder was acknowledged
sole heir in the memorandum of understanding in proceedings before the High Court. The widow had
the title. Other directors were close relatives of the deceased. Therefore, insistence upon copy of the
Will and succession certificate was not justified. The company could not exercise lien on fully paid-up
shares on the ground that sums were owed to the company by the proprietary concern of the widow.
The failure to produce the share scrips was not an insurmountable problem and could have been got
over by proper public notice and issue of duplicate share scrips. As regards other documents, a
specific exemption has been contemplated under the second proviso to section 108(1) of the 1956
Act.63
[s 58.67] Genuineness or Validity of the Will
Where the question of the genuineness or validity of the Will raised controversial questions of fact
which could not be decided on affidavits and which could more conveniently be decided in a regular
title suit in the civil courts, the matters were to be relegated to be settled by a civil suit.64
[s 58.68] Shareholder Dies Intestate, i.e . , Without Making a Will
Where the shareholder died intestate, that is, without making a Will. The heir claimed the shares to
be transmitted in his name. The company did not state any reason for not recognising the heir within
two months. The articles of association of the company did not provide for any contingency.
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Regulation 25 of Table A of Schedule I to the 1956 Act would be applicable in such a case. The CLB
[now the NCLT] directed the shares to be transmitted to the heir.65
[s 58.69] Transmission of the Shares
A shareholder died intestate and his heir applied for the necessary change of the name. The
company refused to take any action in that regard. The articles of association of the company also
did not provide for such a substitution of name. The CLB applied Table A of Schedule I to the 1956
Act and directed that the shares be transmitted to the said heir.66
[s 58.70] Death of Shareholder—Dispute among Legal Heirs—Suit for partition
In a petition filed under section 111 of the 1956 Act, the petitioner sought registration of one third of
the shares held by her late father and mother collectively. The respondent company contended that
the petitioner had instituted a suit for partition claiming one third of the shares held by her parents
and since that suit was filed prior in time the petitioner could not be allowed to prosecute parallel
proceedings and that moreover she failed to produce either a Will or probate or succession certificate
as sought by the company. Dismissing the petition, the CLB held that it was on record that the
petitioner had filed a suit for partition prior in point of time to the filing of the petition and the shares
also formed a part of the assets sought to be partitioned. From the fact that there was a partition suit
including the shares it was obvious that there were disputes among the legal heirs of the deceased
and therefore in terms of the articles the company was right in asking for a succession certificate.
Further, granting the prayer in the petition without a succession certificate while the partition suit was
pending would amount to taking a decision on partition.67
deed. The prohibition contained in section 108(1) (section 56 of the 2013 Act) that a company shall
not register a transfer of shares unless a proper instrument of transfer duly stamped and executed by
or on behalf of the transferor and the transferee has been delivered to the company along with the
certificate relating to the shares is not applicable to the transmission of shares as a result of an order
of a court of law. When a person has become the owner of shares as a result of a court auction he is
entitled to be recorded as a member of the company.68
[s 58.72] Surviving Joint Holder
On the death of a joint holder of shares, the surviving joint-holder is entitled to be registered and the
legal heir of the deceased cannot claim to be the joint holder of the shares. Appeal filed after two
months of refusal was held to be maintainable as the Limitation Act, 1963, does not apply to the
CLB.69
[s 58.73] No Power to Split Joint Holding
required under the mandatory provisions of section 108 of the 1956 Act (sec 56 of the 2013 Act). An
allotment in severalty of the shares can only be done in an action for partition, unless the parties
agree to an amicable partition. The company cannot take upon itself the obligation to divide and allot
shares to a joint holder and it has no power to do so.70
[s 58.74] Application for Rectification of Share Register [1956 Act, section 111(4)]
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[s 58.75] Powers of CLB (Now Tribunal) [1956 Act, section 111(5); 2013 Act, section 58(5)]
In dealing with an appeal or application, after hearing the parties, the CLB [now the Tribunal (NCLT)]
may dismiss or allow the appeal or application or by order (a) may direct that the transfer or
transmission shall be registered by the company or direct the rectification of the register. Where the
order is made for registering transfer or transmission of shares or debentures the company shall carry
out the order within 10 days of the receipt of the order. (b) Where the order for rectification is made
the CLB [now the Tribunal (NCLT)] may also direct the company to pay damages sustained by the
aggrieved person.
This sub-section incorporates the provisions of sub-section (5) of old section 111 and sub-section (2)
of old section 155 of the 1956 Act which was repealed by the enactment of section 111 of the 1956
Act.
[s 58.76] Public Companies [Section 111A(7)]
Provisions of section 111(5) which applies to private companies shall, so far as may be, also apply to
the proceedings before the CLB [now the Tribunal (NCLT)] under section 111A which now applies to
public companies. [vide section 111A(7)]. This is irrelevant under section 58 and 59 of the 2013 Act.
Decisions on powers of the CLB [now the Tribunal (NCLT)] relevant to private companies have been
retained in this section. Cases pertaining to public companies have been shifted to and given in notes
under section 111A(7).
[s 58.77] No Power to Direct Member to Transfer Shares
Where notice of intention to sell shares required to be given to existing members by the articles was
not given by the board of directors. It was held that shareholders have no vested right to purchase
shares. The CLB [the Tribunal (NCLT)] can only direct registration of transfer or rectification of
register. There is no specific power in the CLB [the Tribunal] under section 111(5)(b) to direct a
member to transfer his shares to the other member.71
[s 58.78] Powers to Award Costs and Damages
The court [the CLB (now the Tribunal)] may reject the application. If the court [the CLB now the
Tribunal (NCLT)] is satisfied it may order for rectification of the register and in addition may direct the
company to pay the damages, if any, sustained by any party aggrieved. The costs of the application
will be at the discretion of the court [the CLB now the Tribunal (NCLT)]. Though award of damages
appears to be discretionary.72
[s 58.79] Dividends and Costs
Where the petitioner company was unable to carry on the business of setting up the electronic
industry, its main object. But, decided to carry out and diversify in the business of investment in
shares, the ancillary object. The company can carry out ancillary object. The act of acquiring shares
by the company for the purpose of investment was therefore not ultra vires. The registration of
transfer of shares could not be refused on this ground. The respondent company was directed to
rectify the register and pay dividends and costs because the respondent-company refused to enter
[s 58.80] Filing
Notice of the CLB’s [now the Tribunal’s] order under section 111(5) shall be given to the registrar of
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companies in e-Form 21 of the Companies (Central Government’s) General Rules and Forms, 1956.
This is Form INC 28 under the 2013 Act.
[s 58.81] Interlocutory of Interim Orders [Sub-section (6)]
The CLB [now the Tribunal (NCLT)], while directing registration of transfer or transmission, or
rectification of share register, may make such interim orders as it thinks fit. (a) It may pass an order of
injunction or stay. (b) It may award costs. (c) It may make incidental or consequential orders
regarding payment of dividend or the allotment of bonus shares or rights shares.
Clause (b) of this sub-section incorporates the provisions of sub-section (6) of old section 111.
Clauses (a) and (c) are from the Sachar Committee suggestions. The provision of section 206A of
1956 Act is supplementary to the present section 80A of the 1956 Act so far as interlocutory orders
are concerned.
Rule 70 of the NCLT Rules, 201674 provides for interim relief in a petition under section 58 and 59 of
the 2013 Act.
[s 58.82] Alienation of Company’s Assets
An application for order restraining alienation of company’s assets is normally not considered under
section 111(5) and (6). But it may be considered in a case where the controlling interest in the
company was in dispute. Though, there was delay in moving the CLB [now the Tribunal (NCLT)], the
sale was permitted subject to approval by the CLB.
[s 58.83] Register of Members—Rectification—Arbitration
In this matter before the CLB for rectification of register of members under section 111 of the 1956
Act, an application seeking reference to arbitration was made as per section 8 of the Arbitration and
Conciliation Act, 1996 (26 of 1996). Parties and subject matter to the petition and arbitration
agreement were not common. The matter could be adjudicated without reference to the terms of the
agreement. Reliefs could not be granted by the arbitrator. Application for reference to arbitration was
rejected.
[s 58.84] CLB [Now Tribunal] may Decide Question of Title [Sub-section (7)]
On an application the CLB [now the Tribunal (NCLT)] may decide any question of title of any person
whose name is sought to be entered in or omitted from the register of members. The CLB [now the
Tribunal (NCLT)] may decide any question which is necessary or expedient to do so in connection
with application for rectification.
In respect of any question raised within the peripheral field of rectification of the register of members
of a company, it is the company court under section 155 [the CLB now the Tribunal (NCLT) under
sections 111 and 111A] alone which would have exclusive jurisdiction to decide all matters raised in
connection with rectification, but within the scope of the rectification provisions of the Act. Where
dispute falls outside the scope of the rectification provisions, it may direct the party to get his right
adjudicated by the civil court. On an application under section 111(7) the CLB [now the Tribunal] may
decide any question relating to title of shares. The CLB [now the Tribunal] can also decide disputed
questions of fact on the basis of evidence on record as to the title to the shares. But, if any
complicated questions are involved the parties should be referred to the civil courts.
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Where the petitioner has still to establish his title to shares in the company, the non-compliance with
section 108 is not fatal to his petition under section 155 [sections 111 and 111A of the 1956 Act and
section 58 and 59 of the 2013 Act]. The question of compliance with the provisions of section 108 will
arise only if it is found that the petitioner has title to the shares in question. In the facts of the case the
court directed the respondents to execute the necessary instruments of transfer and deliver them to
the company as required under section 108 and the company to rectify its registers. Order of the
division bench had to be executed and could not be challenged for want of jurisdiction.
The question of title may arise between members and alleged members or between members and
company or alleged members and the company. The company court [the CLB now the Tribunal
(NCLT)] may generally decide any question which it is necessary or expedient to decide in
connection with the application, but it will not divide and allot the shares of a joint holder or the
deceased member.75
[s 58.86] Blank Transfer
Blank transfers are valid. Where pursuant to an agreement to transfer, the shares with blank transfer
forms were lodged with the company and the transferor received and retained the consideration in
respect of the shares. The documents were proper and complying with section 108 of the 1956 Act
(now section 56 of the 2013 Act). The transfer was valid and rectification was refused. The
contentious issues raised by the parties regarding fraudulent manipulation of the duplicate share
certificates, fabrication of the transfer instruments and other records and whether the agreement to
transfer was rendered infructuous owing to breach of terms could not be resolved in summary
proceedings by the CLB [now the Tribunal] and could be agitated only in a civil suit.76
It is well-settled that blank transfers of shares are valid. The position of a shareholder who gets
dividend when his name stands in the register of members of the company causes no difficulty
whatever. But transfers of shares are common, and they take place either by a fully executed
document contemplated by regulation 19 of Table A of Schedule I to the 1956 Act (Table F of
Schedule I of the 2013 Act)or by what are known as “blank transfers.” In such blank transfers, the
name of the transferor is entered, and the transfer deed signed by the transferor is handed over with
the share scrip to the transferee, who, if he so chooses, completes the transfer by entering his name
and then applying to the company to register his name in place of the previous holder of the share.
The company recognises no person except one whose name is on the register of members, upon
whom alone calls for unpaid capital can be made and to whom only the dividend declared by the
company is legally payable. Of course, between the transferor and the transferee, certain equities
arise even on the execution and handing over of “a blank transfer,” and among these equities is the
right of the transferee to claim the dividend declared and paid to the transferor who is treated as a
trustee on behalf of the transferee. These equities, however, do not touch the company, and no claim
by the transferee whose name is not in the register of members can be made against the company, if
the transferor retains the money in his own hands and fails to pay it to him. Blank transfer effective
when registered. Even where the holder of a share whose name is entered in the register of
members hands over his shares with blank transfer forms duly signed, the transferee would not be
able to claim the rights of a member as against the company concerned until his name is entered in
the register of members. In case of blank transfer, the company is not bound to recognise the
transferee until the transfer form, i.e., Instrument of Transfer or Transfer Deed, duly filled in is
submitted and his name is registered.77
[s 58.88] Gift—Private Company not Issuing Share Certificates—Letter
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Where the share certificates were admittedly in the custody of the private company, the company
was not entitled to contend that the share certificates should have accompanied the transfer
document and letter of gift for seeking registration of the transfer. Moreover, the shareholder Kamla
Shah had asked for duplicate certificates which the company had not issued. In the absence of
possession of the share certificates with the shareholder K and they being in the custody of the
company, the mere fact of addressing a letter to the company that the shares were transferred by her
by way of gift to Siddharth Shah, would constitute a valid gift to S. Moreover, the company was a
separate entity, it was not open to it to challenge the validity of the gift. The company itself not having
complied with the provisions of the Act, it was not entitled to raise a hyper-technical plea that there
was no valid application because the stamps had not been cancelled. This was not a case where by
virtue of the non-cancellation of the stamps the substantial rights of the respondent in the shares
should be defeated.78
[s 58.89] Shares Allotted in Joint Names—Return of Allotment
Section 75 of the 1956 Act (now section 39 of the 2013 Act) provides for the names and addresses of
the allottees of the shares by the company. Once the share is allotted in joint names both persons
are allottees and are required to be mentioned in the return of allotment under section 75 of the 1956
Act (now section 39 of the 2013 Act) where the return of allotment showed that the shareholder was
holding the shares singly. The company’s claim that the shares were held jointly was rejected.
Records of the company were held to be not reliable. Finding of the CLB based on records with the
registrar of companies (ROC), i.e., return of allotment, that the shares were held singly was proper. In
exercising its power to rectify the register of members, the CLB [the Tribunal (NCLT)] is entitled to
look into the documents with the ROC and the company. Return of allotment filed with the ROC is
contemporaneous and authentic document. Therefore, the CLB [the Tribunal (NCLT)] is entitled to
decide the shareholding on the basis of return of allotment. In the facts of the case, the CLB was
justified in relying on the independent and unchallenged evidence in the form of the ROC to hold that
the shareholder had held the shares singly. Further, since the share certificates were admittedly in
the custody of the company, the company was not entitled to contend that the share certificates
should have accompanied the transfer document for seeking registration of the transfer. Moreover,
the shareholder had asked for duplicate certificates which the company had not issued. The company
itself not having complied with the provisions of the Act, it was not entitled to raise a hyper-technical
plea that there was no valid application because the stamps had not been cancelled. This was not a
case where by virtue of the non-cancellation of the stamps the substantial rights of the respondent in
the shares should be defeated.
[s 58.90] Proceedings of CLB (Now Tribunal) of Summary Nature
The proceedings of the company court [the CLB now the Tribunal (NCLT)] under section 155 [now
sections 111 and 111A] of the 1956 Act (sections 58 and 59 of the 2013 Act) are of a summary
nature and may not be entertained if the tribunal has to go into the intricate and disputed question of
fact requiring voluminous evidence.79
[s 58.91] Suit if Adjudication on Affidavits Not Possible
When there were a large number of complicated and disputed questions of fact. Adjudication on
affidavits was not possible. The parties were relegated to Suit.80
[s 58.92] Matters when Relegated to Suit
If by reasons of its complexity or otherwise the matter can more conveniently be decided in a suit the
company court [the CLB now the Tribunal (NCLT)] may refuse relief under section 155 [now sections
111 and 111A] and may relegate the parties to a Suit.81
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[s 58.93] Complicated Questions of Fact
Where the instruments of transfer were not “duly stamped” the company could not be ordered to
rectify the register. If the company had entered the petitioners’ names on the basis of the transfers
effected but later removed their names without sufficient cause raised complicated questions of fact
which could be decided only on trial by evidence. The CLB [now the Tribunal (NCLT)] relegated the
matter to a Suit.82 The scope of the question to be decided in an enquiry under section 155 [now
sections 111 and 111A] of the 1956 Act (s. 58 and 59 of the 2013 Act) at the instance of the
transferee of shares does not extend to the scrutiny of matters such as validity of particular article in
the articles of association of the company which could not have been agitated by the transferor in a
suit on account of limitation.83
[s 58.94] Matters when not Relegated to Suit
Whether the parties to a petition before the CLB [now the Tribunal (NCLT)] should be relegated to a
civil suit, would depend on the facts of a case and it is not the rule that whenever fraud is alleged or
complicated questions of law or facts are involved, the matter should be relegated to a suit.84
Even in summary proceedings under sections 111/111A, the CLB [the Tribunal] must see prima facie
whether what is stated is a complicated question or not and even if fraud is alleged, if on the basis of
the documents or matters available before it the CLB [now the Tribunal (NCLT)] can come to some
conclusion the matter should be decided by it without relegating the parties to suit.85
[s 58.95] Complicated Questions, Forgery, Fabrication, Etc.
The CLB [the Tribunal (NCLT)] is not bound to give any relief under section 111/111A of the 1956
Act, if it finds that complicated questions of facts or law or disputes of a complicated nature or serious
disputes relating to title are involved. Where the allegations are of forgery and fabrication of
documents, which cannot be resolved by oral testimony or tested by cross examination, they cannot
be resolved on the strength of the averments made in affidavits, defeating the purpose and object of
the summary procedure prescribed by section 111 or 111A of the 1956 Act (section 58 and 59 of the
2013 Act). The proper course in such cases of complexity, necessitating investigation, is to relegate
the parties to a civil suit. The legal position is well-settled that the CLB [the Tribunal (NCLT)] in
exercise of its discretion would decide, on the facts of each case, whether to entertain a petition for
rectification under section 111A, despite seriously disputed controversies, or to relegate the parties to
a civil suit. In the instant case, other than the pleadings there was no other material placed
evidencing discharge of the loan amount in full by the company against the pledged shares. There
was variance in the number of share certificates, shares and transfer deeds lodged with the company
for effecting transfer and how the petitioner and his wife got back possession of the share certificate
from the transfer agents which were not in consonance with the quantum of shares sent to the
transfer agents, were discrepancies which remained unresolved. The issues of forgery and fraudulent
manipulation of the transfer entries appearing in the share certificates were being adjudicated in a
competent court of criminal jurisdiction and therefore, unless and until the decision of the court in the
pending criminal proceedings was known, it would be premature to intervene at this stage. The
matter could be decided on trial by evidence. The parties were relegated to the civil court for
resolving the controversies.86
[s 58.96] Pending Civil Suit—Rectification of Register of Members
In the facts of the case, it was found that the matters on issue in the company petition were directly
and substantially an issue in a civil suit. Further, there was substantial identity between the matter in
dispute and the parties in the two proceedings. The High Court where the civil suit was instituted was
empowered to grant the reliefs prayed for in the subsequent proceedings before CLB and the final
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decision of the High Court would definitely affect the decision of the company petition which was later
in point of time. Further, the disputes, facts, cause of action and the vital documents placed before
High Court and the CLB being common in nature, it has contended that the decision of the CLB on
the very same issue may result on conflicting decisions which must, therefore, be avoided by the
CLB. Further on application of the provisions of section 10 of the Code of Civil Procedure, 1908 (5 of
1908), the company petition under section 111 of the 1956 Act was stayed till disposal of the civil
suit.87
[s 58.97] Contempt of Court
The CLB is deemed to be a court as envisaged in regulation 47 for the purposes of the Contempt of
Courts Act, 1971. In exercise of inherent powers under regulation 44 and powers under regulation 47
of the CLB Regulations, 1991, the CLB is empowered to invoke the provisions of section 10 of the
Contempt of Courts Act, 1971 (70 of 1971), for punishing the defaulters for wilful disobeyance or
violation of its orders. Where the CLB ordered to maintain status quo with regard to disputed
properties. The report of the advocate commissioner showed that there was violation of the CLB
order. It was contempt of the CLB order. The petitioner was at liberty to move the High Court for
invoking its jurisdiction under the Contempt of Courts Act, 1971.88
[s 58.98] Appeal to High Court [Section 10F]
From an order of the CLB an appeal will lie to the High Court on a question of law. However, a writ
petition in appropriate cases may be maintainable. Under the 2013 Act, an Appeal from the order of
the NCLT shall lie with the NCLAT (NCLAT).
[s 58.99] Person Aggrieved
As per section 10F “any person aggrieved” by the decision or order of the CLB may file an appeal to
the High Court. A person other than transferor or transferee cannot file an appeal before the CLB
under section 111. Thus, a stranger to section 111(2) cannot be an aggrieved person entitled to
appeal to the High Court against the order of the CLB refusing relief under section 111. An appeal
from refusal to register transfer of shares could be preferred either by the transferor or the transferee
concerned. An agent in the transfer has no right to prefer such appeal.
Under section 58 of the 2013 Act, only the transferee has the right to appeal.
The procedure under the 2013 Act for appeal has changed. However, at the time of going to press
the relevant sections were not notified.
[s 58.100] Limitation Act not Applicable to CLB/Tribunals
Tribunals are not courts for all purposes. The Limitation Act, 1963 (36 of 1963), is not applicable to
tribunals including the CLB. The CLB [now the Tribunal (NCLT)] is not covered by the provisions of
the limitation Act. The petition for rectification of register of members under section 111 of the 1956
Act was therefore held to be not barred by limitation, and was held maintainable.
As per section 10GE of the 1956 Act (section 433 of the 2013 Act), the provisions of the limitation
Act, 1963 (36 of 1963), shall, as far as may be, apply to an appeal made to the NCLAT.
[s 58.101] Delay, Laches or Acquiescence
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The Limitation Act, 1963 (36 of 1963), is not applicable to proceedings before the CLB[now the
Tribunal (NCLT)]. However, if there is unexplained long delay, laches or acquiescence, then, the CLB
[now the Tribunal (NCLT)] would not allow such petitions.
A petition made to the CLB under section 111(4)(a)(ii) after delay of 17 years was held to be not
maintainable. Earlier, his petition seeking an order directing investigation of the company’s affairs
under section 237(b) for wrongful cancellation of shares, issue of duplicate share certificates to
another person and removal of name from the register was dismissed on the ground that it was
purely a matter of rectification of register of members remedy for which was available under section
111.
[s 58.102] Condonation of Delay
By virtue of the Calcutta High Court decision which was confirmed by the Supreme Court the
Limitation Act, 1963, is applicable to cases filed under section 111 of the 1956 Act. Thus, provisions
of section 5 of the Limitation Act, 1963, regarding power to condone delay would also be applicable.
An appeal against refusal to register the transfer of shares has to be filed within two months from the
date of refusal. The CLB[now the Tribunal] may condone the delay only on cogent reasons.
In some cases it has, however, been held that the CLB is not a court for the purposes of the
Limitation Act, 1963, which does not apply to proceedings before the CLB. Where the companies Act
prescribes limitation period, the CLB has no power of condonation under section 5 of the Limitation
Act.
[s 58.103] Limitation in Fraud or Forgery to be Viewed Liberally
When fraud or forgery is alleged the question of limitation is to be viewed liberally. Where the shares
were transferred by the attorney of shareholder surreptitiously in purported exercise of power of
attorney. Rectification was ordered. Delay in filing petition could not deprive the petitioner her right to
relief. Technicality cannot itself defeat the cause of justice unless it goes to the root of the matter.
[s 58.104] Limitation for Filing Suit
The period of limitation for filing a suit for rectification of register of members of a company is
governed by residuary Article 113 of the Limitation Act, 1963 (36 of 1963), which has replaced Article
120 of the Limitation Act, 1908 (9 of 1908), and which provides a period of three years for filing a suit
from the time the right to sue accrues.
[s 58.105] Revival of Petition
An application for revival of petition of transfer of shares of a family company disposed of by the High
Court under section 155 [now section 111] and distribution of property by metes and bounds after 15
years was held to be not maintainable. The company had since last four years also shifted its
registered office from Delhi to Ludhiana, therefore the Delhi High Court had no jurisdiction.
[s 58.106] Death of Shareholder—Transmission of Shares—Delay—Lien
The father of the petitioner held ordinary shares in the respondent company. He expired in the year
1981. On obtaining a succession certificate the petitioner sought transmission of the shares in his
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name. He was informed that legal opinion was sought as the deceased had incurred certain debts
from the company beyond the value of the shares held by him. Later, he was informed that
transmission of shares would be done in seven days’ time as the shareholders and the directors had
approved the transmission. In a petition under section 111 of the 1956 Act, alleging that the company
failed to deliver the share certificates duly transmitted in his favour, the petitioner sought a direction to
the company to deliver the share certificates duly transmitted in his favour. The respondent
contended that as the cause of action arose in the year 1983, the petition, having been filed in 2003
after a lapse of 20 years, was barred by limitation. In the facts and circumstances of the case, the
CLB held (i) that taking a practical view of the matter the delay was condoned as the shares would
continue to be in limbo if the transmission of shares was not effected. (ii) that there was prima facie
evidence approving the transmission of shares notwithstanding the fact that minutes of the board
meeting to that effect did not exist. Further, there was no provision in the articles that the loan
incurred by the shareholder should be cleared by the legal heirs before registration of transmission of
shares. In terms of Table A of the First Schedule to the 1956 Act, a company could have lien on the
shares only in respect of unpaid calls and not on fully paid shares. The debt should have become
time-barred but under the peculiar circumstances of the case, the company was directed to register
the transmission of shares in favour of the petitioner.89
[s 58.107] Penalty [1956 Act, section 111(9); 2013 Act, section 58(6)]
If any default is made in giving effect to the orders of the CLB [now the Tribunal (NCLT)], the
company and every officer who is in default shall be punishable. The punishment will be fine up to Rs
10,000 and further fine up to Rs 1,000 for every day of default after the first day of default. Sub-
section (12) of section 111 also deals with defaults.
See also notes under sections 5, 111(12), 111A(7), 621 and 621A.
Provisions of section 111(5), (7), (9), (10) and (12) which applies to private companies shall, so far as
may be, also apply to the proceedings before the CLB[now the Tribunal (NCLT)] under section 111A
which now applies to public companies. [vide section 111A(7)].
See detailed notes for public companies under section 111A(7).
[s 58.109] Form and Fee of Appeal and Application [Sub-section (10)]
Every appeal or application to the CLB [now the Tribunal (NCLT)] shall be made by a petition and
shall be accompanied by the prescribed fee.
The Draft NCLT Rules, 2016, provide that the form of the petition shall be in Form NCLT-1.
[s 58.110] Court Sale in Private Company [Sub-section (11)]
Provisions of sub-sections (4) to (7) of this section will apply to the transmission of shares or
debentures or the rights of a member therein by way of sale held by a court or public authority. The
right to appeal or application for rectification is given to the aggrieved person or any member in case
of transfer or transmission by a court sale or sale by any other public authorities as if this private
company is a public company or a subsidiary of a public company. In other words, in case of court
sale a private company is treated as a public company and sub-section (13) will not be applicable.
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If default is made in complying with any of the provisions of section 111 the company and every
officer of the company who is in default shall be punishable with fine up to Rs 500 for every day
during which the default continues. Sub-section (9) of section 111 also deals with defaults. The
penalty under the 2013 Act is detailed in the commentary to section 58 of the 2013 Act.
[s 58.112] Private Company Partially Exempted [Sub-section (13)]
Sections 108, 109, 110 and 111 shall not affect the right of a private company under its articles to
enforce the restrictions regarding transfer of shares of the private company. This sub-section is in line
with the provisions of sub-section (1) of old section 111.
Section 3(1)(iii)(a) provides that a private company must by its articles restrict the right to transfer its
shares, if any. See detailed notes under restrictions on transfer in articles of private company to be
binding, pre-emption rights, etc. hereinbefore.
90[s111A] Rectification of register on transfer.—(1) In this section, unless the context otherwise requires,
“company” means a company other than a company referred to in sub-section (14) of section 111 of this Act. The
(2) Subject to the provisions of this section, the shares or debentures and any interest therein of a company shall be
freely transferable:
91[Provided that if a company without sufficient cause refuses to register transfer of shares within two months from the
date on which the instrument of transfer or the intimation of transfer, as the case may be, is delivered to the company,
the transferee may appeal to the 92[Tribunal] and it shall direct such company to register the transfer of shares.]
93[(3)The 94[Tribunal] may, on an application made by a depository, company, participant or investor or the Securities
Exchange Board of India, if the transfer of shares or debentures is in contravention of any of the provisions of the SEBI
Act, 1992 Securities and Exchange Board of India(15 of 1992), or regulations made thereunder or the Sick Industrial
Companies (Special Provisions) Act, 1985 (1 of 1986), or any other law for the time being in force, within two months
from the date of transfer of any shares or debentures held by a depository or from the date on which the instrument of
transfer or the intimation of the transmission was delivered to the company, as the case may be, after such inquiry as it
thinks fit, direct any depository or company to rectify its register or records.]
(4) The 95[Tribunal] while acting under sub-section (3), may at its discretion make such interim order as to suspend the
voting rights before making or completing such enquiry.
(5) The provisions of this section shall not restrict the right of a holder of shares or debentures, to transfer such shares
or debentures and any person acquiring such shares or debentures shall be entitled to voting rights unless the voting
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rights have been suspended by an order of the 95[Tribunal].
(6) Notwithstanding anything contained in this section, any further transfer, during the pendency of the application with
the 95[Tribunal], of shares or debentures shall entitle the transferee to voting rights unless the voting rights in respect of
such transferee have also been suspended.
(7) The provisions of sub-sections (5), (7), (9), (10) and (12) of section 111 shall, so far as may be, apply to the
proceedings before the 95[Tribunal] under this section as they apply to the proceedings under that section.]
NOTES
THE DEPOSITORIES ACT, 1996 (22 OF 1996).—The Notes on Clauses explained this section as follows:
OF 1997).—The proviso to sub-sections (2) and (3)

THE DEPOSITORIES RELATED LAWS (AMENDMENT) ACT, 1997 (8
have been inserted by the Depositories Related Laws (Amendment) Act, 1997 (8 of 1997), section 10
(w.r.e.f. 15-1-1997).
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Sub-section (2) of section 111 A of the 1956 Act corresponds to section 58(2) and 58(4) of the 2013
Act.
[s 58.114] Free Transferability of Shares of Public Companies [1956 Act, section 111 A(2);
2013 Act, section 58(2)]
Subject to the provisions of this section 111A, the shares or debentures and any interest therein of a
public company shall be freely transferable. Provided the transferee may appeal if a company without
sufficient cause refuses to register transfer or transmission.
[s 58.115] Appeal against Refusal without Sufficient Cause [1956 Act, section 111A(2)
Proviso; 2013 Act, section 58(4)]
If a public company without sufficient cause refuses to register transfer of shares within two months
from the date on which the instrument of transfer or the intimation of transmission is delivered to the
company, the transferee may appeal to the CLB [now the Tribunal (NCLT)] and it shall direct such
company to register the transfer or transmission of shares.
[s 58.116] Sufficient Cause
The grounds mentioned in section 111A (2013 Act, sections 58(4) and 59) would constitute a
sufficient cause on which the CLB [now the Tribunal (NCLT)] can order rectification of the register of
members.
[s 58.117] Refusal in Public Company on no other Ground
The entire scheme of section 111A of the Act is in two parts, namely, (a) section 111A(2) proviso
deals with appeals on refusal or delay in registration of transfer or transmission without sufficient
cause, (b) Section 111A(3) deals with rectification of the register of members on transfer on three
specified grounds only. Barring this, the general tenor of law as applied to public companies is that
the securities of public companies shall be
freely transferable. No general power of rectification of register on any other ground has been
conferred on the CLB [now the Tribunal (NCLT)] as it has been done under earlier section 111(4)
[now applicable only to private companies] of the Act.
A public company cannot refuse to register transfer of shares on any grounds other than those
mentioned in this section. The grounds for refusal have been restricted to those enumerated in
section 111(3). A transfer cannot be refused on the ground that the transferee is not a native of the
state.
[s 58.118] Share Warrants
The warrants are neither shares nor debentures. Where the holders of tradable warrants did not
exercise option for one equity share for each warrant. They could not seek rectification of register of
members under section 111A. The warrant holders are not entitled to relief under section 111A.
[s 58.119] Personation of Shareholder
The CLB [now Tribunal (NCLT)] has jurisdiction to order rectification of register on transfer in case of
a public company only when there is refusal of transfer of shares on sufficient cause. Where the
company sought an enquiry into matters relating to alleged loss of shares under section 116. In the
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absence of sufficient cause as laid down in section 111A, the CLB [the Tribunal (NCLT)] had no
jurisdiction to order rectification read with section 116 of the Act.
A bank registered as a public company cannot refuse registration of transfer of shares on the ground
that the transferee had been an employee of the bank who had been dismissed for various
irregularities and registration would not be in the best interest of the bank. The refusal to register the
transfer of shares was without “sufficient cause” and the bank was directed to register the shares
impugned in the petition. Where the bank was a public company the transfer of shares would be
governed by section 111A(2) of the 1956 Act according to which the shares of a public company are
freely transferable. The bank repeatedly returned the documents for some ground or the other and
called for income-tax returns of the transferees. It was deemed to be refusal and the bank was
directed to register the transfer of shares. Guidelines of the Reserve Bank of India cautioning the
banks to be vigilant in cases of acquisition to gain controlling interest were not applicable as it
involved meagre percentage of shares.
[s 58.121] Transfer against Mandatory Provisions of section 108
See commentary under section 58 of the 2013 Act and above under section 111(1) of the 1956 Act.
[s 58.122] Good Delivery
If the transfer is completed in all respects then the company cannot refuse to register the shares on
the ground “not supported by documents.”
[s 58.123] Bad Delivery
If signatures are not identical with the specimen signatures or the specimen signatures have not been
notified to the company, the public company would be justified in refusing to register the transfer and
the stock exchange in treating it as bad delivery. The question as to whether the original holder’s
signature and his signature on the transfer form are identical is a question of fact. If there is a dispute
as to the genuineness of the transactions, or the signatures therein, the parties should be referred to
settle their disputes in a civil suit.
Where the petitioner having purchased shares lodged them with the company for transfer. But, the
company returned the documents with endorsement: “bad delivery” as signatures of transferor differ.
The letter written by the transferee to the transferor for fresh transfer documents was returned
undelivered. In petition for rectification by the transferee, the transferor who was made a party did not
appear. The original share certificates were in possession of the transferee. The transferor had not
sought duplicate share certificates. There was no other claimant. The company was directed to
register the shares in the name of the transferee.
[s 58.124] Refusal to Register Transfer on Ground Signature of Transferor Differs
The petitioner purchased certain shares through the stockbroker. The share certificates along with
the transfer deeds for the shares were lodged with the company for registration of transfer. By a
letter, the respondent company declined the request for registration of transfer on the ground that the
signature of the holder did not match with the specimen and the validity period of the transfer deed
had expired. Thereafter, the petitioner repeatedly requested the third respondent transferor to
execute a fresh transfer deed to which request the third respondent did not respond. On a petition
under section 111A of the 1956 Act, the petitioner sought the respondent company to register the
name of the petitioner as legal owner of these shares and also to pay the dividend, bonus and all
other benefits accrued thereon. Allowing the application, the CLB held that since the third respondent
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had not shown any interest in spite of the notices, the respondent-company was to register the
shares in favour of the petitioner. However, two months’ notice was to be given to the third
respondent asking him to produce a restraint order from a competent court of law in case he had any
objection to the registration in favour of the petitioner. In case the respondent company did not
receive any response from the third respondent within two months, the company was to register the
shares in the name of the petitioner and pass on all the benefits like dividend, bonus shares, etc.
which had been withheld by the company.1
[s 58.125] Signature of Transferor Differs—Bad Delivery
The petitioner company purchased certain shares of the first respondent company on payment of
consideration and when the share certificates were lodged with the company for transfer they were
returned by the company as bad delivery on the ground of “signature of transferor differs.” The
petitioner requested the second respondent, the transferor to execute a fresh transfer Deed, but the
latter failed to respond. At the instance of the petitioner, the company invited the second respondent
to lodge his objections, if any, with valid documents, before processing the request of the petitioner to
effect the transfer in the name of the petitioner, on failure of which the company advised the petitioner
to execute the requisite indemnity bond for effecting the transfer in its name. In the meanwhile, the
petitioner lost the share certificate during the shifting of its office. On a petition under section 111A of
the 1956 Act, the petitioner sought to get the shares registered in its favour by rectifying the register
of members and issue of duplicate share certificate in lieu of the original shares lost. Allowing the
petition the CLB held that the second respondent neither filed any reply nor opposed the petition,
despite the opportunity afforded. He had also failed to respond to any of the communications of the
company on the claim of the petitioner. There were no claimants in respect of the said shares and it
would be appropriate that the shares were registered in the name of the petitioner. As the petitioner
had claimed that the original share certificates had been lost, the company would issue duplicate
share certificate in lieu of the original share certificate and the company was to register the shares in
favour of the petitioner within 21 days and rectify the register of members. The company was to
cancel the original shares in respect of the said share certificate and was to intimate the second
respondent on such cancellation.2
[s 58.126] Inter-corporate Investments [1956 Act, section 372A; 2013 Act, section 186]
For purchasing the shares of a company, a board resolution under sections 292 and 372 [now
section 179 and 186 of the 2013 Act] is necessary to make investment in the shares of another
company. The company whose shares were being purchased can ask for a copy of the board
resolution passed by the transferee company. The resolution passed by the board of directors of the
transferee company should be taken as prima facie in compliance with the provisions of sections 292
and 372 [now section 179 and 186 of the 2013 Act] of the 1956 Act. The registration of transfer of
shares on this ground alone cannot be refused by the company.
[s 58.127] Failure to Refuse Registration within Two Months
A company may refuse to register the transfer or transmission of shares even after the expiry of two
months from the date of application. Failure on the part of the company to refuse within two months
does not create an absolute right in favour of the transferee to have the shares registered in his
name. The section provides for penalty if there is failure on the part of the company to refuse
registration within two months, and the transferee is given the right to appeal to the CLB [now the
Tribunal (NCLT)]. If on a mere failure to refuse the registration within two months an absolute right
came to be vested in the transferee then the question of the transferee filing an appeal would not
arise at all.3
[s 58.128] Transferee may Appeal
If the company without sufficient cause refuses to register transfer of shares within two months from
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the date on which the instrument of transfer or the intimation of transmission is delivered to the
company, the transferee may appeal to the CLB [now the Tribunal (NCLT)] and it shall direct such
company to register the transfer or transmission of shares. [1956 Act, section 111A(2) proviso; 2013
Act, section 58(4)].
No period of limitation has been prescribed for filing an appeal against refusal to register the transfer
or transmission of shares or debentures under the proviso to sub-section (2) of section 111A of the
1956 Act which is now applicable to all public companies. The time limit of two months as specified in
the proviso is applicable only to the company.
The transferee has been given 60 days where no intimation is received and 90 days when intimation
of the refusal is received to appeal under section 58(4) of the 2013 Act.
[s 58.130] Transferor not Necessary Party
If the transfer is not disputed by the transferor, the transferor would not be a necessary party to the
petition.4
[s 58.131] Grounds Mentioned in section 111A(3) Sufficient Cause
The grounds mentioned in the section would constitute a sufficient cause on which the CLB [now the
Tribunal (NCLT)] can order rectification of the register of members under sub-section (3) of section
111A. The CLB [now the Tribunal (NCLT)] may order rectification of the register of members or order
registration of a transfer. The proviso to sub-section (2) of section 111A relates to pre-registration
issues, while sub-section (3) relates to post-registration issues. In case of post-registration, the
register of members can be ordered to be rectified only on three grounds, i.e., (i) if the transfer is in
contravention of the provisions of the SEBI Act or regulations, or (ii) the SICA, 1985 [now sections
424A to 424L of the 1956 Act (1 of 1956)], or (iii) any other law for the time being in force. The statute
has thus restricted the grounds on which a register can be rectified after registration of transfer.5
The grounds mentioned for rectification of the register of members on transfer are dealt with under
[s 58.132] Section 111A Provides Wider Remedy than Writ
Section 111A provides a wider remedy than a writ petition. In view of existence of alternative remedy
the writ under Article 226 of the Constitution of India could not be granted.6
[s 58.133] Contravention of Any Other Law
Section 111A(3) of the 1956 Act (2013 Act–Section 59(3)), inter alia, provides that contravention of
provisions of any other law in force would constitute a sufficient cause on which the CLB [now the
Tribunal (NCLT)] can order rectification.
[s 58.134] Free Transferability of Shares of Public Companies [Section 111A(2) of the 1956
Act; section 58(2) of the 2013 Act]
Subject to the provisions of this section 111A, the shares or debentures and any interest therein of a
public company shall be freely transferable. Provided the transferee may appeal if a company without
sufficient cause refuses to register transfer or transmission.
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[s 58.135] Section 22A of SCRA Omitted
As a consequence of insertion of section 111A of the 1956 Act, which now applies to rectification of
register on transfer in case of all listed and unlisted public companies, section 22A of the Securities
Contracts (Regulation) Act, 1956.
[s 58.136] Decisions under section 22A of SCRA
In a decision under corresponding section 22A of the Securities Contracts (Regulation) Act, 1956 (42
of 1956), [since omitted as a consequence of insertion of section 111A of the 1956 Act] it was held
grounds of refusal specified in section 22A of the SCRA were directory and nor mandatory. If the
board of directors of the company formed an opinion that there was no sufficient cause for refusal
and registered a transfer, it could not later seek rectification on the ground that transfers were not
valid under section 108 of the 1956 Act. There was no equity in favour of the company and
rectification was not allowed.
Decisions rendered under section 22A of the SCRA, 1956, have been assimilated in comments under
relevant discussions in this new section 111A. See also comments under no equitable remedy for
company under section 111A(3) hereinbefore and change in management or composition of board of
directors hereinafter.
See detailed notes on relevant provisions of the SCRA, 1956, and list of SCR Act, rules, listing
agreement, powers of SEBI, etc. under other pertinent sections 2(39), 55, 55A, 73, 82 and 108 of the
1956 Act in this book.
[s 58.137] Company not Appearing before CLB [Now the Tribunal (NCLT]
Where the company did not appear before the CLB [Now the Tribunal (NCLT] to rebut averments in
reply, the company was directed to register the transfer.
Under Standard Listing Agreement7 of stock exchanges, securities must be in the marketable lots.
to splitting of the shares and not to transferring them.8
Where the transfer deeds for less than marketable lot were returned in accordance with terms of the
rights issue with advice to relodge it after the rights issue record date, it did not amount to refusal.9

binding.10
[s 58.140] Odd/Fractional/Marketable Lots—Public Company
In a petition under section 111A of the 1956 Act, the petitioners sought registration of transfer of
shares contending that the company being a public company its shares were freely transferable and
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refusal to register the transfer was limited to grounds indicated in section 111A(3) of the Act, whereas
the respondent bank had refused to register the transfer of shares on the ground that the transfers
were in odd lots and could be allowed only if they facilitated consolidation of odd/fractional lots into
marketable lots or the transfers facilitated reduction in the number of such odd/fractional lots holding
in terms of Article 29(a) of the articles of association of the company. The CLB held that a
shareholder of a public company had every right to decide the number of shares to be transferred out
of his total holding and therefore, no restriction could be imposed on any shareholder in respect of
the number of shares which could be transferred or sold by such a shareholder. If the practical
difficulties put forth by the bank in registering the transfers were taken cognisance of, it would amount
to circumventing the letter and spirit of section 111A.11
[s 58.141] Pledgee of Shares Entitled to Invoke section 111A(2), Proviso of the 1956 Act
A pledgee of shares is entitled to invoke the proviso to sub-section (2) of section 111A of the 1956
Act. When the company offers shares as collateral security and on failure by the company to repay,
the shares are lodged by the pledgee for transfer. The grounds, such as, transfer in name of the
lender was not intended, stop transfer instructions by the pledger, initiation of criminal proceedings
under section 138 of the Negotiable Instruments Act, 1881, shares were from promoters’ holdings,
etc. would not be “sufficient cause” to refuse registration of transfer.12
[s 58.142] Suspension of Right in Certain Cases
Under orders of court [now Tribunal] a company had been wound up. Subsequently with the leave of
the court [now the Tribunal (NCLT)] a notification under section 18FA read with section 18AA of the
Industries (Development and Regulation) Act, 1951 (65 of 1951), was issued. The management of
entire undertaking of the company was taken over by the Central Government. A bank as a pledgee
of certain shares applied for rectification under section 155 [now section 111A of the 2013 Act] of the
1956 Act under a decree in satisfaction of its claim. It was held that no order could be made on the
application as the right of the petitioner remained suspended.13
[s 58.143] Pledge or Mortgage of Shares of a Public Company
Section 111A(2) of the 1956 Act (section 58(2) and 58(4) of the 2013 Act) provides that the shares of
a public limited company are freely transferable. If a company without “sufficient cause” refuses to
register transfer of shares, the transferee may appeal to the CLB [now the Tribunal (NCLT)] for
registration of the transfer of the shares.
[s 58.144] Pledgee of Shares Entitled to Invoke section 111A(2), Proviso
the shares are lodged by the pledgee for transfer. The grounds, such as, transfer in name of the
lender was not intended, stop transfer instructions by the pledgor, initiation of criminal proceedings
etc. would not be “sufficient cause” to refuse registration of transfer.14
[s 58.145] Rectification of Register—Transfer of Pledged Shares
Company borrowed moneys and by way of security, pledged certain shares. The borrower failed to
pay the outstanding amount of loan and the bank sought registration of the pledged shares in its
favour. The company refused to register the bank in respect of the pledged shares. There was no
documentary evidence that the shares formed part of promoters’ holdings or prior permission was
mandatory for effecting the transfer. The refusal of company to register was not for sufficient cause
under section 111A. The company was directed to register the shares in favour of the bank.15
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[s 58.146] Transfer of Pledged Shares—Registration of
The owner of the shares pledged his shares for taking a loan. It was agreed that on any default in
payment of the loan, the said shares could be transferred to the lender. Further, the share certificates
were duly signed. A memorandum of understanding was executed between the parties concerned.
On death of the transferor, the transferee lender applied for the registration of transfer of the shares.
But the company refused to transfer the shares. The company, however, did not pass any board
resolution in refusing such transfer of shares. On the application of the lender-transferee, the CLB
held that the company was duty bound to register the said transfer of shares.16
[s 58.147] Bank giving Loans on Pledge of the Shares
A bank giving loans on pledge of the shares is required to get the shares registered in its name as
per RBI Circular. However, for short-term loans the pledge of shares is not required to be registered
in the name of the bank. The refusal by the company on the ground that the shares were not pledged
and facilities availed of were temporary was not a sufficient cause for refusal to register transfer.17 In
the transfer form, the bank may not mention the consideration amount specially when the shares are
pledged as security for a general balance of account for the borrowal accounts. Moreover, a
nationalised bank is exempted from payment of stamp duty on the transfer documents.18
[s 58.148] Pledge of Shares with Blank Transfer Forms
In the case of a public company the provisions of the Securities Contracts (Regulation) Act, 1956 (42
of 1956), are applicable. Therefore, pledge of shares is a contract to sell and title passes upon the
delivery of share certificates and blank transfer forms. The company cannot plead that acting
chairman had no authority, or consideration did not pass, or there was no intention to transfer shares
if loan was not repaid. The company was bound to register the transfer in favour of the pledgee.19
[s 58.149] Transfer of Shares in Favour of Pledgee—Execution of CLB Order
Where shares in the respondent company had been pledged in the applicant’s favour. Upon default
by the company, the applicant sought registration of the shares in its name, which the CLB ordered.
The applicant then sought enforcement of the order directing the respondent company to register the
redemption pending before the High Court. In an application under regulations 29(6) and 44 of the
CLB Regulations, 1991, the applicant sought a direction to cancel the endorsement made in the
share certificate on the grounds that (a) the appeals filed before the High Court against the final order
passed directing register of transfer of shares in the name of the applicant were dismissed and the
Special Leave Petition (SLP) before the Supreme Court was also dismissed; (b) the order passed by
the CLB was not subject to any restrictions and therefore the transfer ought not to have been made
subject to any endorsement; (c) the endorsement made was contrary to the orders passed as the
applicant was not in a position to exercise its legitimate right to enforce the securities in realisation of
its dues thereby restricting the applicant to demat the shares with an ulterior motive to delay the
recovery process. The respondent contended that the prayer for removal of the endorsement if
granted would enable the applicant to dematerialise the shares and sell them to realise the dues of
the company in violation of sections 176 and 177 of the Indian Contract Act, 1872 (9 of 1872), against
the interest of the company and the pledgers. The court held that the respondent ought to have
transferred the shares in terms of the order of the CLB which was not couched with any condition or
restriction. An executing court cannot go beyond the order wherein the respondent was directed to
transfer the shares in the name of the applicant without any rider. The endorsement made in the
share certificate was not in accordance with the order passed. The bench officer was directed to
cancel the endorsement contained on the reverse of the share certificates.20
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[s 58.150] Minor—Transfer of Shares through Guardian
The board of directors cannot refuse to register the shares in the name of a minor acting through a
guardian. articles of the company may provide restriction as to the voting rights but that will not affect
transfer of shares in the name of the minor.21
Where the transfer forms were executed on minor son’s behalf by the mother who was, as per
company’s records, acting as natural guardian throughout. Father as officer was also present at the
board meeting approving the transfer and did not object. The register could not be rectified. Dispute
as to person entitled to act for minor son could be taken before appropriate forum. A person signing a
blank transfer form cannot subsequently challenge any entries made in the transfer form.22
[s 58.151] Transfer during the Minority
Whereof transfer of shares of a minor was registered under the guardianship of the father. Shares
were transferred by the father during the minority. The minor after attaining majority challenged the
transfer and asked for rectification of the share register. No relief could be granted unless fraud
against the company was alleged and proved and the application was within the time. The limitation
will start from the date of transfer and not knowledge. Disputed and complicated questions cannot be
decided under section 155 [s. 111A of the 1956 Act and section 58 of the 2013 Act] of the 1956 Act
and may be decided in a civil suit.23
[s 58.152] Transfer of Shares to Trustee
A public company cannot refuse transfer of shares on the ground that some of the shares were part
of a trust. The company cannot take notice of trust but shares may be registered in the name of
trustees.24
[s 58.153] Transmission on Death of the Trustee
Holding of shares by a trustee in his name on account of trust is permissible in law. Where shares
were held in names of a trustee. On the death of the trustee, transfer of shares in the names of other
trustees was refused on the ground that no notice of trust was given to the company. The shares
were shown as part of assets in the balance sheet of the trust. No legal heir of the deceased trustee
sought transmission of shares. The shares were directed to be transmitted in the names of other
trustees.25
[s 58.154] Death of Trustee—Trust Entitled to Rectification of Share Register
The trustee was holding shares on his own name on account of Trust. The trustee died and the
register of shares in the names of other trustees was refused on the ground that the company was
not given notice of any trust. None of the legal heirs of the deceased trustee sought for transfer of the
shares. In the succession certificate, the shares were not included. The trust was entitled to
registration of the said shares.26
[s 58.155] Trust Deed for Benefit from Shares in Favour of Beneficiary
The object of section 153 of the 1956 Act is that a person dealing with the company may not be
affected by the entry of any kind of trust in the register of members, but the company can take notice
of or recognise any trust brought to its notice otherwise than by entry in the register. Where the
shares were subject to perpetual trust. The company was paying dividends to the beneficiary. Under
the trust deed, the trust was to continue for its beneficiary even after the death of the author. The
intention of the author of the trust was very clear that membership should continue and the
beneficiary should continue to get the benefit from shares. Therefore, the share could not be
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entrusted to the legal heirs. The company had rightly refused registration of transfer of the share in
the register of members. However, the company was to take note of or recognise the trust which had
been brought to its notice otherwise than by entry in the register. The CLB was not justified in
directing the company to transfer the share in favour of the legal heirs and the order of the CLB was
set aside.27
[s 58.156] Lien on Shares
The purchaser of shares is not expected to find out if lien exists on such shares. Registration of
transfer cannot refused on this ground.28
[s 58.157] No Lien after Transfer of Shares Lodged
After a transfer of shares is lodged with the company, the company cannot have a right of lien so as
to defeat the transfer.29
[s 58.158] Remedies for Transmission under section 111A
The remedies under section 111A(2) and (3) of the 1956 Act are available for transfer as well as
transmission of shares. Where the legal heir of the deceased shareholder submitted documents to
show proper legal representation, e.g., will/probate/succession certificate, etc. the company was not
entitled to make a roving inquiry but duty bound to register the shares.30
The Succession Certificate or Probate of will or the letter of administration will be sufficient for the
company to transfer the shares in the name of the legal heir. Where succession certificate or probate
of will or the letter of administration is filed, the company cannot refuse to register the transmission.31
[s 58.160] Succession Certificate
On the death of a shareholder, the company may ask for the production of succession certificate, etc.
to transfer the shares in the name of the legal heirs of the deceased. However, if all the heirs agree
the company may transfer the shares in the name of a particular heir of the deceased shareholder.32
[s 58.161] Succession Certificate Includes Dividend, Bonus Shares
A succession certificate is binding on the company without questioning its validity. A succession
certificate will include shares held at the time of death and bonus shares, dividend, interest and other
benefits accrued up to the date of the application.33
[s 58.162] Probate of will of Deceased Member
If the articles of a public company give discretionary powers to the board of directors to accept the
transmission of shares in favour of legal heirs of the deceased member without the probate of will,
then this power should be properly exercised to register such transmission. When there were no
other claims in respect of shares in question. The company was directed to register the transmission
without probate. That value of shares was high was not sufficient cause for refusal. There was
protracted correspondence between the heirs and share transfer agents of the company. The
company for the first time thereafter intimated heirs directly of the requirement of probate would be
the cause of action. The period of limitation will run from the date of cause of action. Appeal against
refusal filed within two months was within time.34
[s 58.163] Genuineness or Validity of the will
Where the question of the genuineness or validity of the will raised controversial questions of fact
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which could not be decided on affidavits and which could more conveniently be decided in a regular
title suit in the civil courts, the matters were to be relegated to be settled by a civil suit.35
[s 58.164] No Counter-claim—Policy guidelines of Company
Where no counter-claim to shares was made for 14 years after death of the petitioner’s father. Board
of directors was calling for succession certificate or Probate of will of deceased shareholder. The
company was directed to register shares in the name of the deceased shareholder’s son subject to
his complying with policy guidelines of the company.36
[s 58.165] Transmission—Delay by Heir in Seeking Rectification
Where shares at the time of death of the shareholder were under attachment. Both the heirs together
got the attachment lifted. The shares were transmitted in favour of one heir. On petition for
rectification of register by the other heir the delay in seeking rectification was not explained. The facts
showed that the transfer of shares by the deceased shareholder was made prior to death in favour of
the other heir. The validation was not disputed and no claim to shares was made in suit for partition.
The petition for rectification was held to be not maintainable.37
[s 58.166] Transfer of Shares to Heir by Deceased Shareholder Prior to Death
The shareholder died and the shares held by him were remaining attached. The heirs of the
deceased shareholder got the attachment lifted and the shares were transmitted in favour of one heir.
The other heir, the petitioner, challenged the transfer and applied for rectification of the share
register. The petitioner could not explain delay in seeking the transmission of shares. The facts,
however, showed that the shares had been transferred by the deceased shareholder prior to his
death in favour of the other heir who applied for rectification of the share register. A suit was pending
in relation to assets of the deceased but the said shares were not the subject matter in the said
partition suit. The petition for rectification was dismissed.38
[s 58.167] Transmission of Shares—Will and no Objection Letter of Heirs—Probate
The mother of the petitioner, an Indian Christian, held 10,304 equity Shares in the respondent
company. She died leaving the petitioner and his sister as legal heirs. She left a will bequeathing all
her movable and immovable properties to the petitioner and on the basis of the will the petitioner
applied to the company for transmission of shares in his favour with all documents. He also produced
a no-objection letter from his sister. The company refused to register the shares and insisted on a
copy of the probate of will. On a petition filed under section 111A of the 1956 Act contending that in
terms of section 213(2) of the Indian Succession Act, 1925 (39 of 1925), there was no need to obtain
a probate in case of a will made by an Indian Christian. The CLB held that the company had not
produced a copy of its articles to find out whether the board of directors of the company had powers
to refuse transmission and if so, on what grounds. It was on record that the petitioner had furnished
all the information called for by the company except a copy of the Probate. Since the deceased was
an Indian Christian, under section 213(2) of the Indian Succession Act, 1925, there was no need to
obtain a probate in case of a will made by an Indian Christian. The company could not seek probate
of a will which was not legally necessary to obtain. According to the legal heirship certificate, there
were only two surviving legal heirs and since the sister of the petitioner had given a letter signifying
no-objection in transmitting the shares in favour of the petitioner the company was not justified in
terms of section 213(2) of the Indian Succession Act, 1925. Accordingly, the company was directed
to register the transmission of shares in favour of the petitioner.39
[s 58.168] Shares Validly Transmitted—Decision to Re-transmit Shares Void
In a case of oppression, a member has to specifically plead on five facts—(a) what is the alleged act
of oppression; (b) who committed the act of oppression; (c) how it is oppressive; (d) whether it is in
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the affairs of the company; and (e) whether the company is a party to the commission of the act of
oppression. A petition was filed under sections 397 and 398 of the 1956 Act, (s. 241–246 of the 2013
Act) contending that 33,96,700 equity shares held by the late husband of the petitioner in the
respondent-company had been rightly and legally transmitted in her name and any attempt for re-
transmission of the shares was illegal and oppressive and the company petition under section 111A
deserved to be dismissed being not maintainable. The respondents filed a cross petition under
section 111A of the 1956 Act, contending that the shares were intended to be of the family firm. It
was held that there were specific averments by the petitioner as to who committed the act of
oppression and how the company was a party to the oppression. The chronology of events revealed
that the respondents had acquiesced in the transmission of shares in their sister-in-law’s name after
the death of their brother who was the key promoter and chairman and managing director of the
company. The company had issued a single share certificate to the deceased husband of the
petitioner. The shares had been duly registered in his personal and individual name and his name
was duly entered in the register of members of the company. In case these shares were intended to
be of the family firm there was no bar in holding these in the name of the only other partner but this
was not done. Therefore, it was clear that the shares stood in the name of the petitioner’s late
husband. No shareholding was proved in the name of the firm. The firm had not been impleaded as a
party. The respondents were not represented in the capacity of partners of the firm. Hence the
petitioner’s application to the company for transmission of 33,96,700 shares along with affidavit of
legal heirs and deed of relinquishment executed by the three daughters in her favour enclosing with
indemnity bond and death certificate was justified. The resolution to consider and approve the
transmission was sent to all directors and three out of five directors sent their approval. Two
respondents showed reservation for the transmission only on the ground that the said shares were
pledged as security with IDBI and transmission was not possible unless and until permission from
IDBI was received in writing. They had stated further that after seeking approval from IDBI, the board
resolution could be passed. No objection regarding title to the shares was raised then, which
amounted to implied consent. The circular resolution thus approved by the majority of the board of
directors was, in pursuance of regulation 7(1) and (3) of the SEBI (Substantial Acquisition of Shares
and Takeovers) Regulations, 1997, and regulation 13(1) and (6) of the SEBI (Prohibition of Insider
Trading) Regulations, 1992, reported to the company and to the stock exchanges in the prescribed
format. The petitioner became the registered owner of 33,96,700 shares in the company.
Respondents had not made any efforts or steps to stop the transmission process or raised objections
regarding title to the shares. The completion of the transmission process was well within their
knowledge and they had acquiesced in the entire process till they thought of a supplementary
partnership deed and hence proceeded with Board’s Meeting for the only agenda of re-transmission
of shares. Without following the proper procedure for re-transmission such an act was nothing but
oppressive to the petitioner to whom the shares had been validly transmitted. The board’s resolution
regarding re-transmission of shares was accordingly set aside. The petition under section 111A of the
Act was not maintainable and was dismissed.40
deed. The prohibition contained in section 108(1) is not applicable to the transmission of shares as a
result of an order of a court of law. When a person has become the owner of shares as a result of a
court auction he is entitled to be recorded as a member of the company.41
[s 58.170] Surviving Joint Holder
On the death of a joint holder of shares, the surviving joint-holder is entitled to be registered and the
legal heir of the deceased cannot claim to be the joint holder of the shares. Appeal filed after two
months of refusal was held to be maintainable as the Limitation Act, 1963, does not apply to the
CLB.42
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[s 58.171] Joint Shareholders—Request for Splitting
required under the mandatory provisions of section 108 of the 1956 Act. An allotment in severalty of
the shares can only be done in an action for partition, unless the parties agree to an amicable
partition. The company cannot take upon itself the obligation to divide and allot shares to a joint
holder and it has no power to do so.43
Proceedings under section 155 [now section 111 and 111A of the 1956 Act which are section 58 and
59 of the 2013 Act.] are summary proceedings. The court [CLB now the Tribunal (NCLT)] will not
exercise discretion where serious disputes are involved. Where rectification was sought for deletion
of name of person shown as joint-holder. There were allegations of fraud, misrepresentation and
undue influence. The dispute was to be adjudicated by civil court.44
[s 58.173] Effect of Refusal
The effect of refusal to register a transfer of shares or debentures is that the transferor will be the
trustee for the transferee in respect of the shares transferred.45 A transferee may also sue for return
of money on the ground that consideration for the money has totally failed.46
Section 111A of the 1956 Act stipulates that the shares of a public company are freely transferable
and any stipulation in the articles contrary to the same, putting fetters on the free transferability,
would be hit by the provisions of section 9 of the 1956 Act. This has been clarified by section 58 of
the 2013 Act.
Transfer of shares cannot be refused arbitrarily or for any collateral purpose. If neither a specific nor
residuary power of refusal has been so provided, such power cannot be exercised on the basis of the
so-called undeclared “inherent power” to refuse registration. The refusal by the board of directors to
register the transfer on any other ground will be ultra vires the Act.47
Absolute power or discretion given to the board of directors in the articles of a public company to
refuse to register a transfer does not restrict or cannot take away the character of free transferability
of shares as in private company in the absence of cogent material or other factors restricting such
transferability.48
[s 58.176] Refusal to Register Transfer Apprehending Oblique Motive—Directors’ Power
Upon transfer of shares in the respondent company in their favour, the petitioners lodged the
documents with the respondent company for registration of transfer in their respective names but
they were informed that it was not possible to transfer the shares in their favour. In a petition under
section 111A of the 1956 Act, the petitioners sought a direction to register the transfer of shares in
their names. The respondent company contended that the petitions were filed with an oblique motive
at the behest of the transferor to create mischief in the affairs of the company. Allowing the petition, it
was held that the petitioners were only three in number with less than 0.005% of shares in the
company which had 5412 shareholders with over 1.24 lakhs equity shares. The petitioners could
neither interfere with the affairs of the company nor cause any mischief as apprehended by the
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company. The number of shares proposed to be transferred were 20, 20 and 25 in three different
names and, therefore, none of them would have the qualification shares. Other than alleging that the
three petitioners were associated with the transferor there was no other justifiable ground adduced
for refusing to register the transfers of impugned shares. Even though by the articles of association
the directors were clothed with unrestricted or absolute powers in the matter of registration of transfer
of shares, these powers were to be exercised bona fide and in the interest of the company and
registration could not be refused on wrong principles. Therefore, the company was directed to
register the impugned shares in favour of the petitioners within a month from the date of this order.49
[s 58.177] Discretion of Board of Directors
Where the board of directors has absolute discretion under the articles [now not restricting
transferability] to refuse registration of transfer [e.g., for “sufficient cause”]. Discretion does not mean
a bare affirmation or negation of a proposal. Discretion implies just and proper consideration of the
proposal, in the facts and circumstances of the case. In the exercise of that discretion the directors
will act for the paramount interest of the company and for the general interest of the shareholders
because the directors are in a fiduciary position both towards the company and towards every
shareholder. The directors are therefore required to act bona fide and not arbitrarily and not for any
collateral motive.50
The decision of the board of directors refusing to register the transfer is liable to be set aside if they
acted oppressively, capriciously, corruptly or mala fide.51
[s 58.178] Board of Directors must give a Decision
The failure or omission to pass a resolution for registration is not an exercise of right to decline.
Refusal by a particular director is not sufficient. There must be a decision of the board of directors
declining registration.52 The directors are bound to act if the transfer is lawful.53
[s 58.179] Stipulation in Franchise Agreement
Stipulation in franchise agreement governs relationship between the parties to the agreement and
shall not be a restraint on shareholders’ right to transfer shares.54
[s 58.180] Pre-emption not Enforceable in Public Companies
In view of the free transferability of shares of a public company as embodied in sections 82 and
111A(2) of the 1956 Act, the pre-emption right is not enforceable under section 111A. Even in a
private company, the right of pre-emption can be enforced only if it is incorporated in the articles of
the private company. Remedy relating to transfer of shares can be granted by the CLB [now the
Tribunal (NCLT)] under sections 111 and 111A of the Act. Jurisdiction of the CLB [now the Tribunal
(NCLT)] is not merely of a summary nature but includes within its compass power to hold a full-
fledged enquiry in respect of title to shares and decide questions in connection with the application
for rectification. The right of pre-emption flows from general law. Therefore, civil court can also try the
issue whether the right existed. However, even if the right existed, as the right of pre-emption is not
enforceable in view of free transferability of shares of a public company, the civil suit would not be
maintainable.
[s 58.181] Interlocutory or Interim Orders [Sub-section (4)]
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The CLB [now the Tribunal (NCLT)], while acting under sub-section (3) may make interim order to
suspend the voting rights before making or completing such enquiry.
[s 59.182] Powers of CLB [ Now Tribunal] to Award Damages
The court [the CLB now the Tribunal (NCLT)] may reject the application. If the CLB [now the Tribunal
(NCLT)] is satisfied it may order for rectification of the register and in addition may direct the company
to pay the damages, if any, sustained by any party aggrieved. The costs of the application will be at
the discretion of the CLB [now the Tribunal (NCLT)]. Though award of damages appears to be
discretionary.
[s 58.183] Dividends, Bonus Shares and Compensation
Where the company received the transfer documents but did not register it and instead issued
duplicate share certificates to the transferor. The company was held to be negligent and directed to
rectify the register and pay the dividends and bonus shares issued in the meantime and also directed
to pay compensation. The transferee was entitled to be issued share certificates under section 113(3)
of the 1956 Act.
[s 58.184] Filing
Notice of the CLB’s [now the Tribunal’s] order under section 111(5) shall be given to the registrar of
companies in e-Form 21 of the Companies (Central Government’s) General Rules and Forms, 1956.
This is in Form INC 28 under the 2013 Act.
The CLB [now the Tribunal (NCLT)] has jurisdiction to decide all matters in connection with
rectification of register of members under sections 111 and 111A but within the scope of the
rectification provisions of the 1956 Act. On an application under section 111(7) [now applicable to
public companies (vide section 111A(7)] it may decide any question relating to title of shares. But, as
regards title, it is well known that the decision by the civil court is always preferable. The expression
used in section 111(7) [read with section 111A(7)] is “may.” That itself is an indication that Parliament
intended that the decision of title relating to the shares should be incidental. If complicated questions
outside the scope of rectification provisions are involved the CLB [now the Tribunal (NCLT)] will not
decide the said questions on an application for rectification of register on transfer. In such cases, Suit
is the proper remedy. The CLB [now the Tribunal (NCLT)] has to examine as to whether any
complicated questions of title, forgery, fabrication or similar matters are really involved and if such
complicated questions of law and facts are involved then the parties should be referred to the civil
courts. In whatever way the CLB [now the Tribunal (NCLT)] decides it must give sufficient reasons. If
the CLB [now the Tribunal (NCLT)] fails to consider as to whether there are complicated question
then on appeal the matter is liable to be remanded to the CLB [now the Tribunal (NCLT)] for
reconsideration.
[s 58.186] Decide Title after Hearing all the Parties
Although the CLB [now the Tribunal (NCLT)] has the power under section 111(7)/111A(7), to decide
any question relating to title of any person to the shares in question, for doing so, such a person
should necessarily be a party to the petition. The CLB [now the Tribunal (NCLT)] cannot order
rectification of the register which will adversely affect the interests of third parties, without hearing all
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the parties.
[s 58.187] Jurisdiction of CLB [ Now Tribunal] of Summary Nature
See notes above under section 111 of the 1956 Act.
[s 58.188] Limitation Act not Applicable to CLB [ Now Tribunal]
The Limitation Act, 1963 (36 of 1963) is not applicable to proceedings before the CLB [now the
Tribunal]. However, if there is unexplained long delay, laches or acquiescence, then, the CLB [now
the Tribunal (NCLT)] would not allow such petitions.
[s 58.189] Appeal to the High Court
As per section 10F of the 1956 Act “any person aggrieved” by the decision or order of the CLB may
file an appeal to the High Court. Therefore, only the person competent to move the CLB for
substantive relief is entitled to file appeal to the High Court. A person other than the transferor or
transferee cannot file an appeal before the CLB under section 111 of the 1956 Act. Thus, a stranger
to section 111(2) cannot be an aggrieved person entitled to appeal to the High Court against the
order of the CLB refusing relief under section 111 of the Act.
Under the 2013 Act, an appeal from the order of the NCLT shall lie before the NCLAT.
[s 58.190] Penalty [1956 Act, section 111(9)/111A(7); 2013 Act, section 58(6)]
If any default is made in giving effect to the orders of the CLB [now the Tribunal (NCLT)], the
company and every officer who is in default shall be punishable. The punishment will be fine up to Rs
10,000 and further fine up to Rs 1,000 for every day of default after the first day of default. Sub-
section (12) also deals with defaults.
Section 58 combines sections 111 and 111 A of the 1956 Act and consolidates the provisions
regarding registration of transfer for both public and private companies. The 1956 Act had separate
provisions for both private and public companies. The purview of this section has been considerably
widened by the replacement of the words “shares and debentures” with “securities”. Securities as
defined under section 2(h) of the Securities Contract Regulation Act, 1956, includes derivatives,
government securities, interest in securities, any instruments issued to investors under any mutual
fund, which will now be covered by this section. Further, under section 111 (2) of the 1956 Act, both
the transferor and transferee had the right to appeal against a refusal to register a transfer. However
under the 2013 Act, only the transferee has the right to an appeal. The proviso to section 58 (2) also
clarifies the issue surrounding restrictions on the free transferability of shares, which was under
section 111A of the 1956 Act, by providing that any contractual agreement relating to transfer of
shares of a public company shall be enforceable. Further, section 58 also reduces the timeline within
which a company has to respond to an intimation of transfer or transmission and the timeline within
which a transferee can appeal such refusal to pass interim orders has not been provided for in this
section. While section 111 and 111(A) of the 1956 Act contained provisions for interim relief, the
same has been provided for in the NCLT Rules.55
Sections 111 and 111A of the 1956 Act have been repealed with the notification of section 58 of the
2013 Act, w.e.f. 1-4-2014.
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90 Notified by Notification No. S.O. 2754(E), dt. 12-09-2013, w.e.f. 12 September 2013 and corresponds to sections 111,
111A(2) of the 1956 Act.
91 . Bajaj Auto Ltd v N, K Firodia, AIR 1971 SC 321.
92 VB Rangaraj v VB Gopalkrishnan, AIR 1992 SC 453.
v Tamilnad Mercantile Bank Ltd, (1996) 86 COMP CASES 875 (CLB), Jalpaiguri Cinema Co Ltd v Pramatha Nath
Mukherjee, (1971) 41 COMP CASES 678 (Delhi) (DB; Rangpur Tea Association Ltd v Makkanlal Samaddar, (1973) 43
COMP CASES 58 (Cal.) (DB); Karnataka Theatres Ltd v S. Venkatesan, (1998) 93 COMP CASES 433 (Kar.) : AIR
1996 Kant 18; Joy Holdings Pvt Ltd v Indian Railway Finance Corp Ltd, (1996) 85 COMP CASES 13 (CLB), Indian
Chemical Products v State of Orissa, AIR (1967) SC 253; Master Silk Mills Pvt Ltd v Dharmadas Hargovinda Mehta.
94 P.V. Chandran v Malabar and Pioneer Hosiery Pvt Ltd, (1990) 69 COMP CASES 164 (Ker.) DBBorland’s Trustee v
Steel Bros. & Co Ltd, (1901) 1 ChD 279 : 70 LJ Ch. 51.
3 P.V. Chandran v Malabar and Pioneer Hosiery Pvt Ltd, (1990) 69 COMP CASES 164 (Ker.) (DB).
4 Amrit Kaur Puri v Kapurthala Flour, Oil and General Mills Co Pvt Ltd, (1984) 56 COMP CASES 194 (P&H). See also
notes under sections 3, 9 and 287(2).
5 Smt. Lakshmi Natarajan v Bharatan Publications Ltd, (1998) 94 COMP CASES 367 (CLB).
6 Mrs. Aruna Suresh Mehra v Jifcon Tools Pvt Ltd, (1998) 94 COMP CASES 329 (CLB).
7 Re Swaledale Cleaners Ltd, (1968) 3 All ER 619 : (1968) 1 WLR 1710 : 112 SJ 781 (CA) : (1969) 39 COMP CASES
161 (CA).
8 Babulal Madhavji Varma v New Standard Coal Co Pvt Ltd, (1967) 37 COMP CASES 446 (Cal.) : 71 Cal WN 333.
9 G. Venkitapathy v Prakathi Spinners Pvt Ltd, (2003) 115 COMP CASES 443 (CLB).
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10 Mrs. Asha Purandare v Integrated Controls Pvt Ltd, (2002) 112 COMP CASES 623 (CLB). Shobha Thampi v Federal
Bank Ltd, (2008) 24 CLA 25 (disposal of cases under section 111). See notes on “sufficient cause” in case of public
company under section 111A(2) proviso.
11 Cruickshank Co Ltd v Stridewell Leather Pvt Ltd, (1996) 86 COMP CASES 439 (CLB). See also notes under sections 3
and 82.
12 Re Macro (IPSWICH) Ltd, (1994) 2 BCLC 354; Metal Press Works v Ram Pratap Kayan, (1968) 2 Comp. LJ 131 (Cal.)
: 72 Cal WN 594.
13 Rayfield v Hands, (1960) ChD 1 : (1958) 2 All ER 194 : (1958) 2 WLR 851 : (1958) 28 COMP CASES 460 (ChD). See
also notes under sections 3, 26, 28, 41, 82 and 186.
15 K. Ramaraj v Mackimalai Tea Estates Pvt Ltd, (1995) 82 COMP CASES 712 (CLB).
16 Peerless General Finance v Poddar Projects Ltd And Anr, 2006 (4) CHN 586.
17 M/S Jay Bee Properties Pvt Ltd v Sri Pawan Kumar Budhia.
18 . Muniyamma v Arathi Cine Enterprises Pvt Ltd, (1993) 77 COMP CASES 97 (Kar.) (DB).
19 Kamadhenu Chemicals Pvt Ltd v Advent Computer Services Pvt Ltd, (2000) 4 Comp. LJ 424 (CLB).
20 Jayanthilal Purshottamdas Patel v Gordhandas Desai Pvt Ltd, (1968) 38 COMP CASES 405 (Bom).
21 . Shakti Insulated Wires Pvt Ltd v Great View Properties Pvt Ltd
22 LIC v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370.
23 Messrs. Holding v Madanmohan Ruia, [2010] 159 COMP CASES 29 (Bom).
24 Bajaj Auto Ltd v Western Maharashtra Development Corp Ltd, 2015 (4) Arb LR. 470 (Bom).
25 Constituted by Notification No. 1932(E), dt. 01-06-2016, w.e.f. 01 June 2016.
26 ABC Farms Pvt Ltd v Shashikant Shankar Sahastrabudhe C.A. No. 101 of 2014 and C.P. No. 25 of 2014, decided on
19 August 2014.
27 Notified by Notification No. S.O. 1935(E), dt. 1 June 2016 w.e.f. 1 June 2016.
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28 . Gujarat Machinery Manufactureres Ltd v Nile Ltd, (2001) 105 Com Cas 817 (CLB).
29 Notified by Notification No. S.O. 1934 (E), dt. 01 June 2016 w.e.f. 01 June 2016.
30 Substituted by the Companies (Amendment) Act, 1988 (31 of 1988), section 16 (w.e.f. 31 May 1991).
2015.
2015.
2015.
2015.
90 COMP CASES 228 (CLB); Shailesh Rajnikant Parekh v Starline Travels Pvt Ltd, (2004) 118 COMP CASES 145
(CLB); Neo Securities Ltd v Chennai Petroleum Corp Ltd, (2007) 136 COMP CASES 500 (CLB).
40 Companies (Share Capital and Debenture) Rules, 2014.
41 Ammonia Supplies Corp Pvt Ltd v Modern Plastic Containers Pvt Ltd, (1998) 94 COMP CASES 310 (SC); Hemangini
Finance and Leasing Pvt Ltd v Tamilnad Mercantile Bank Ltd, (1996) 86 COMP CASES 875 (CLB); Shailesh Rajnikant
Parekh v Starline Travels Pvt Ltd, (2004) 118 COMP CASES 145 (CLB).
42 Mannalal Khetan v Kedar Nath Khetan, (1977) 47 COMP CASES 185 (SC) : AIR 1977 SC 536; P.V. Chandran v
Malabar and Pioneer Hosiery Pvt Ltd, (1990) 69 COMP CASES 164 (Ker.) (DB).
43 Muniyamma v Arathi Cine Enterprises Pvt Ltd, (1993) 77 COMP CASES 97 (Kar.) (DB); Mahabir Singh v Jai Singh,
(1978) 48 COMP CASES 558 (Delhi).
44 V.B. Rangaraj v V.B. Gopalakrishnan, (1992) 73 COMP CASES 201 (SC) : AIR 1992 SC 453; Hemangini Finance and
Leasing Pvt Ltd v Tamilnad Mercantile Bank Ltd, (1996) 86 COMP CASES 875 (CLB).
45 Aneesh Seigell v Siemens India Ltd, [2011] 161 Com Cas 317 (CLB).
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47 Kalyani Sundaram v Shardlow India Ltd, (1990) 67 COMP CASES 306 (Mad.) (DB).
48 Mafatlal Industries Ltd v Gujarat Gas Co Ltd, (1999) 97 COMP CASES 301 (Guj.); Mrs. Pushpa Katoch v Manu
Maharani Hotels Ltd, (2002) 110 COMP CASES 584 (CLB); Canara Bank v Nuclear Power Corp of India Ltd, (1995) 84
COMP CASES 70 (SC); V.B. Rangaraj v V.B. Gopalakrishnan, (1992) 73 COMP CASES 201 (SC) : AIR 1992 SC 453;
Gujarat Bottling Co Ltd v Coca Cola Co, (1995) 84 COMP CASES 618 (SC) : AIR 1995 SC 2372; Ammonia Supplies
Corp Pvt Ltd v Modern Plastic Containers Pvt Ltd, (1998) 94 COMP CASES 310 (SC); Pawan Gupta v Hicks
Thermometers (India) Ltd, (1999) 98 COMP CASES 814 (CLB); In Re, Morgardshammar India Ltd, (2000) 100 COMP
CASES 131 (CLB). See also notes under sections 3, 10, 10FB, 82, 84, 108 and 111A.
Mukherjee, (1971) 41 COMP CASES 678 (Delhi) (DB); Rangpur Tea Association Ltd v Makkanlal Samaddar, (1973) 43
1996 Kant 18; Joy Holdings Pvt Ltd v Indian Railway Finance Corp Ltd, (1996) 85 COMP CASES 13 (CLB).
50 Moodie v W.&J. Shepherd (Bookbinders) Ltd, (1949) WN 482 : (1949) 2 All ER 1044 (HL).
51 Popely v Planarrive, (1997) 1 BCLC 8; Village Cay Marina Ltd v Acland, (1998) 2 BCLC 327.
52 Iron Traders Pvt Ltd v Hiralal Mithal, (1962) 32 COMP CASES 1022 (Punj.).
53 Vimal K. Gupta v Auto Lamps Ltd, (1996) 86 COMP CASES 157 (CLB).
54 Xavier Joseph v Indo-Scottish Brand Pvt Ltd, (2002) 110 COMP CASES 706 (CLB); Shailesh Prabhudas Mehta v
Calico Dyeing and Printing Mills Ltd, (1994) 80 COMP CASES 64 (SC). See decisions relating to public companies
under section 111A.
55 Smt. Bina Barua v Dalowjan Tea Co Pvt Ltd, (1981) 51 COMP CASES 660 (Gauhati). See also notes under sections
108, 109, 110 and 111A.
56 Master Gautam R. Padival (Minor) v Karnataka Theatres Ltd, (2000) 100 COMP CASES 124 (CLB). See also notes
under sections 9, 41, 108, 111A and 153.
57 Navinchandra Ratilal Patel v Gordhandas Desai Pvt Ltd, (1967) 37 COMP CASES 747 (C.T.); Sha Mulchand & Co Ltd
v Jawahar Mills Ltd, (1953) 23 COMP CASES 1 (SC) : AIR 1953 SC 98 : (1953) SCR 351.
58 Dale and Carrington Invt. Pvt Ltd v P.K. Prathapan, (2004) 122 COMP CASES 161 (SC); L.I.C. v Escorts Ltd, (1986) 59
COMP CASES 548 (SC) : AIR 1986 SC 1370.
59 Please refer to the user manual available on https://rbidocs.rbi.org.in/rdocs/content/pdfs/ FCTRS210815_AN.pdf (for

the process of submission of the Form FCTRS).
60 Dahiben Umedbhai Patel v Norman James Hamilton, (1985) 57 COMP CASES 700 (Bom.) (DB); Rye v Rye, (1962) AC
Co Ltd, (1954) 24 COMP CASES 1 (SC) : AIR 1953 SC 385 : 1954 SCR 117.
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61 Smt. Kamalabai v Vithal Prasad Co Pvt Ltd, (1993) 77 COMP CASES 231 (Kar.). See also notes under sections 108
and 111A.
62 S.M. Hajee Abdul Hye Sahib v K.N.S. Hajee Shaik Abdul Kader Labbai Sahib Co Pvt Ltd, (1998) 91 COMP CASES 843
(CLB). See also Hemendra Prasad Barooah v Bahadur Tea Co Pvt Ltd, (1991) 70 COMP CASES 792 (Gauhati) in
63 Simret Katyal v Mahavir Ice Mills Pvt Ltd, (1995) 83 COMP CASES 699 (CLB).
64 Surendra Kaur v Singh Engineering Works Pvt Ltd, (1977) 47 COMP CASES 638 (All.); Mahendra Kumar Jain v
Federal Chemical Works Ltd, (1965) 35 COMP CASES 651 (All.). See also notes under sections 111(7) and 111A(7)
under title to shares and civil suit.
65 Debasish Dutta v B.G. Somadder and Sons Pvt Ltd, (2003) 115 COMP CASES 70 (CLB).
66 Debasish Dutta v B.G. Somadder and Sons Pvt Ltd, (2003) 115 COMP CASES 70 (CLB).
67 Niharika Gupta v Asia Insulated Wires Pvt Ltd, (2006) 134 COMP CASES 79 (CLB).
68 Re Hanuman Mills Pvt Ltd, (1977) 47 COMP CASES 644 (All.).
Ltd, (1989) 66 COMP CASES 358 (All.). See also notes under sections 3, 108, 111A, 428 and Schedule I, Table A,
regulation 25.
Das v United Press Ltd, (2002) 111 COMP CASES 584 (CLB). See also notes under sections 108, 110 and 111A.
71 S. Bhuvaneswari v ACI (Agro Chemical Industries) Ltd, (2004) 122 COMP CASES 849 (Mad.) (DB). See decisions
relating to Public Companies under section 111A.
72 Praga Tools Corp Ltd v M.R. Patny, (1968) 38 COMP CASES 175 (AP) (DB) : (1968) 1 Comp. LJ 256 (AP) (DB). See
detailed Notes under section 111A(7).
73 Ferrom Electronics Pvt Ltd v Vijaya Leasing Ltd, (2002) 109 COMP CASES 467 (Kar.) (DB). See also Notes under
sections 13, 108, 111A(4) and 111A(7).
74 Notification No. 716(E), dt. 21-7-2016, w.e.f. 22 July 2016.
75 Hemlata. Cas. 875 (Saha v Stadmed Pvt Ltd, (1964) 34 Comp Cal.) : AIR 1965 Cal 436 : 68 Cal WN 1007; Re, New
Monkhooshi Tea Co Ltd, AIR 1967 Cal. 196. See also comments under joint shareholders, etc. hereinbefore.
76 Smt. S. Anuratha v A.K.M.N. Cylinders Pvt Ltd, (1999) 95 COMP CASES 555 (CLB).
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Supp. 2 SCR 448; Smt. S. Anuratha v A.K.M.N. Cylinders Pvt Ltd, (1999) 95 COMP CASES 555 (CLB); Balkrishan
Gupta v Swadeshi Polytex Ltd, (1985) 58 COMP CASES 563 (SC) : AIR 1985 SC 520; Mannalal Khetan v Kedar Nath
Khetan, (1977) 47 COMP CASES 185 (SC) : AIR 1977 SC 536.
78 S. Gurucharan Singh Mahant v Rattan Sports Pvt Ltd, (1986) 59 COMP CASES 279 (P&H); Jagjit Rai Maini v Punjab
Machinery Works Pvt Ltd, (2001) 103 COMP CASES
79 S. Gurucharan Singh Mahant v Rattan Sports Pvt Ltd, (1986) 59 COMP CASES 279 (P&H); Jagjit Rai Maini v Punjab
Machinery Works Pvt Ltd, (2001) 103 COMP CASES 979 (P&H).
80 Dr. G.N. Byra Reddy v Arathi Cine Enterprises Pvt Ltd, (1997) 89 COMP CASES 745 (CLB).
81 Public Passenger Service Ltd v M.A. Khadar, (1966) 36 COMP CASES 1 (SC) : AIR 1966 SC 489 : (1966) 1 Comp. LJ
1 (SC).
82 Bipin K. Jain v Savik Vijay Engineering Pvt Ltd, (1998) 91 COMP CASES 835 (CLB). See also notes under section
111A.
83 Joseph Michael v Travancore Rubber & Tea Co Ltd, (1986) 59 COMP CASES 898 (Ker.) (DB).
84 Ammonia Supplies Corp Pvt Ltd v Modern Plastic Containers Pvt Ltd, (1998) 94 COMP CASES 310 (SC); Smt. Nupur
Mitra v Basubani Pvt Ltd, (2002) 108 COMP CASES 359 (CLB); Khurshid Alam v P. Pagnon Co Pvt Ltd, (2002) 108
COMP CASES 523 (CLB); Basudeb Kataruka v Dhanbad Automobiles Pvt Ltd, (1977) 47 COMP CASES 68 (Pat.);
ICICI Ventures Funds Management Co Ltd v Sofil Information Systems Pvt Ltd, (2007) 136 COMP CASES 84 (CLB).
85 Estate Investment Co Pvt Ltd v Siltap Chemicals Ltd, (1999) 96 COMP CASES 217 (CLB); Mrs. E.V. Swaminathan v
K.M.M.A. Industries and Roadways Pvt Ltd, (1993) 76 COMP CASES 1 (Mad.) overruled by Ammonia Supplies Corp.
Pvt Ltd v Modern Plastic Containers Pvt Ltd, AIR 1998 SC 3153; Shri Gulabrai Kalidas Naik v Shri Laxmidas Lallubhai
Patel, (1978) 48 COMP CASES 438 (Guj.) overruled by Ammonia Supplies Corp. Pvt Ltd v Modern Plastic Containers
Pvt Ltd, AIR 1998 SC 3153. See decisions relating to public companies under section 111A(7).
86 D.R. Talayarkhan v Transgene Biotek Ltd, (2007) 138 COMP CASES 727 (CLB).
87 Swagath Marine Products Pvt Ltd v K. Muthusamy, (2006) 134 COMP CASES 182 (CLB).
88 N. Venkataswamy Naidu v Sri Suryateja Constructions Pvt Ltd, (2005) 128 COMP CASES 245 (CLB); Canara Bank v
Nuclear Power Corp of India Ltd, (1995) 84 COMP CASES 70 (SC). See also notes under sections 10E, 10F, 10FB,
397, 398 and 402.
89 Subir Roy v P.R. Productions Pvt Ltd, (2007) 137 COMP CASES 654 (CLB).
91 Inserted by the Depositories Related Laws (Amendment) Act, 1997 (8 of 1997), section 10 (w.r.e.f. 15 January 1997).
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2015.
93 Substituted by Act 8 of 1997, section 10 (w.r.e.f. 15 January 1997). For sub-section (3) as it stood prior to its
substitution see Annexure at the end of this volume.
2015.
2015.
1 SMC Global Securities Ltd v ITC Ltd, (2007) 135 COMP CASES 313 (CLB); Jacob F. Bothello v Dr. Reddy’s
Laboratories Ltd, (2006) 133 COMP CASES 561 (CLB).
2 Altina Securities Pvt Ltd v Satyam Computer Services Ltd, (2007) 135 COMP CASES 464 (CLB).
3 Shailesh Prabhudas Mehta v Calico Dyeing and Printing Mills Ltd, (1994) 80 COMP CASES 64 (SC).
4 Luxmi Tea Co Ltd v Pradip Kumar Sarkar, (1990) 67 COMP CASES 518 (SC).
5 Bombay Dyeing and Manufacturing Co Ltd v Arun Kumar Bajoria, (2001) 107 COMP CASES 535 (CLB). See also
notes under substantial acquisition hereinafter.
6 K. Sreenivasa Rao v Regional Director, SEBI, (2003) 116 COMP CASES 238 (AP) (DB). See also notes under Writ
hereinafter.
7 See SEBI (Listing Obligation and Disclosure Requirement) Regulations, 2015 in Appendix 106.
8 Kinetic Honda Motor Ltd v Pawan Gupta, (1996) 86 COMP CASES 596 (CLB); Atul Products Ltd v Dipakkumar
Jayantilal Shah, (1997) 88 COMP CASES 876 (Guj.); Seshasayee Paper and Boards Ltd v Riddhi Chordia and Mool
Chand Chordia, (1998) 93 COMP CASES 606 (CLB); IDBI v Dunlop Investments Pvt Ltd, (1992) 74 COMP CASES 64
(CLB).
9 S.S. Shah v Tata Iron and Steel Co Ltd, (1992) 73 COMP CASES 562 (CLB).
10 Kinetic Engineering Ltd v Sadhana Gadia, (1992) 74 COMP CASES 82 (CLB).
11 P.P. Zibi Jose v Catholic Syrian Bank Ltd, (2007) 139 COMP CASES 38 (CLB).
Graphics Ltd, (2002) 111 COMP CASES 56 (CLB); Estate Investment Co Pvt Ltd v Siltap Chemicals Ltd, (1999) 96
COMP CASES 217 (CLB); Mani Credit Capital Pvt Ltd v Reliance Industries Ltd, (2002) 111 COMP CASES 808 (CLB);
Kosha Chandravadan Parikh v Krishna Mingranite Ltd, (2003) 115 COMP CASES 423 (CLB); Centurion Bank Ltd v
Bellary Steels and Alloys Ltd, (2004) 120 COMP CASES 439 (CLB).
13 Indian Bank v Bengal Potteries Ltd, (1982) 52 COMP CASES 471 (Cal.). See also notes under sections 446, 536 and
537.
Mr. Laghir1 Rabari

Page 55 of 57
15 Centurion Bank Ltd v Bellary Steels and Alloys Ltd, (2004) 120 COMP CASES 439 (CLB).
16 Kosha Chandravadan Parikh v Krishna Mingranite Ltd, (2003) 115 COMP CASES 423 (CLB).
17 Canara Bank v Ankit Granites Ltd, (1999) 97 COMP CASES 511 (CLB).
18 Indian Bank v Kiran Overseas Exports Ltd, (2001) 104 COMP CASES 320 (CLB).
19 Jagdishchandra Champaklal Parekh v Deccan Paper Mills Co Ltd, (1994) 80 COMP CASES 159 (CLB); Canbank
Financial Services Ltd v V.B. Desai, (2002) 112 COMP CASES 143 (Bom.).
20 Gujarat Industrial Investment Corp Ltd v Sterling Holiday Resorts (India) Ltd, (2007) 137 COMP CASES 801 (CLB).
22 Jonas Hemant Bhutta v Surgi Plast Ltd, (1993) 78 COMP CASES 296 (CLB).
23 Anil Gupta v Delhi Cloth and General Mills Co Ltd, (1983) 54 COMP CASES 301 (Delhi); Malvika Madan Sehgal v M.M.
Sehgal Ltd, (1998) 91 COMP CASES 133 (Delhi).
24 Anam Premkumar Reddy v India Fruits Ltd, (1996) 85 COMP CASES 625 (AP); Baluram Jaidayal Charity Trust v
CESC Ltd, (2004) 121 COMP CASES 474 (CLB).
25 Baluram Jaidayal Charity Trust v CESC Ltd, (2004) 121 COMP CASES 474 (CLB).
27 Damien Subsidies and Kuries Ltd v Jose Pulicken, (2007) 137 COMP CASES 288 (Ker.) (DB).
28 Shyama Prasad Murarka v Calcutta Stock Exchange Association Ltd, (2002) 108 COMP CASES 703 (CLB). See also
notes on lien under section 108.
See also notes under sections 31, 108, 397 and 398.
Mr. Laghir1 Rabari

Page 56 of 57
30 Finolex Industries Ltd v Anil Ramchand Chhabria, (2000) 37 CLA 278 (Bom.) : (2000) 3 Comp. LJ 330 (Bom.); Anil R.
Chhabria v Finolex Industries Ltd, (2000) 99 COMP CASES 168 (CLB); Arjun Kumar Israni v Cipla Ltd, (2000) 99
COMP CASES 237 (CLB). See also notes under section 108(1), second proviso.
31 Smt. Kamalabai v Vithal Prasad Co Pvt Ltd, (1993) 77 COMP CASES 231 (Kar.); L.I.C. v Bokaro and Ramgur Ltd,
(1966) 36 COMP CASES 490 (C.T.); Nazamunnessa Begum v Vidya Sagar Cotton Mills Ltd, (1963) 33 COMP CASES
36 (Cal.) : AIR 1962 Cal 380; Renu Kana Dutta v Gour Nitye Tea and Industries Ltd, (2007) 135 COMP CASES 271
(CLB).
32 Narinder Kumar Sehgal v Leader Valves Ltd, (1993) 77 COMP CASES 393 (CLB).
33 Arjun Kumar Israni v Cipla Ltd, (2000) 99 COMP CASES 237 (CLB).
34 Mrs. Pushpa Vadera v Thomas Cook (India) Ltd, (1996) 87 COMP CASES 921 (CLB).
35 Surendra Kaur v Singh Engineering Works Pvt Ltd, (1977) 47 COMP CASES 638 (All.); Mahendra Kumar Jain v
Federal Chemical Works Ltd, (1965) 35 COMP CASES 651 (All.).
36 Kailashnarayan Bhangadia v VST Industries Ltd, (1998) 93 COMP CASES 470 (CLB).
37 A.L. Lakshmanan v Rajapalayam Mills Ltd, (2004) 122 COMP CASES 530 (CLB).
39 Dr. Ashok Cherian v ITC Ltd, (2005) 128 COMP CASES 857 (CLB).
40 Smt. Sandeep Kaur Ahluwalia v Mukat Pipes Ltd, (2007) 138 COMP CASES 33 (CLB).
41 Re Hanuman Mills Pvt Ltd, (1977) 47 COMP CASES 644 (All.).
Ltd, (1989) 66 COMP CASES 358 (All.). See also notes under sections 108, 111, 428 and Schedule I, Table A,
regulation 25.
Das v United Press Ltd, (2002) 111 COMP CASES 584 (CLB). See also notes under sections 108, 110 and 111.
44 Smt. Kamla Devi Mantri v Grasim Industries Ltd, (1990) 69 COMP CASES 188 (MP).
45 R. Mathalone v Bombay Life Assurance Co Ltd, (1954) 24 COMP CASES 1 (SC) : AIR 1953 SC 385 : 1954 SCR 117;
L.I.C. v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370; Hawks v McArthur, (1950) WN 581 :
(1951) 1 All ER 22 : (1951) 1 TLR 308 : 95 SJ 29. See also notes under Transferee—Nature of right hereinafter.
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Page 57 of 57
46 Section 65, the Contract Act, 1872 (9 of 1872).
Mukherjee, (1971) 41 COMP CASES 678 (Delhi) (DB); Rangpur Tea Association Ltd v Makkanlal Samaddar, (1973) 43
1996 Kant 18; Joy Holdings Pvt Ltd v Indian Railway Finance Corp Ltd, (1996) 85 COMP CASES 13 (CLB). See also
notes under Schedule I, Table A, regulation 21.
48 Shree Krishna Agency Ltd v CIT, AIR 1972 SC 156 : (1971) 82 ITR 372 (SC) : (1972) 1 SCR 368; Mathrubhumi Printing
and Publishing Co Ltd v Vardhaman Publishers Ltd, (1992) 73 COMP CASES 80 (Ker.) (DB). See also notes under
section 108.
49 Goutam Mukherjee v D.N. Choudhury Cotton Mills Ltd, (2007) 138 COMP CASES 111 (CLB).
50 Bajaj Auto Ltd v N.K. Firodia, (1971) 41 COMP CASES 1 (SC) : AIR 1971 SC 321; Vasant Investment Corp Ltd v Co
Law Board, (2000) 102 COMP CASES 421 (Bom.); Ferrom Electronics Pvt Ltd v Vijaya Leasing Ltd, (2002) 109 COMP
CASES 467 (Kar.) (DB); Canara Land Investments Ltd v Sea Rock Investments Ltd, (2000) 100 COMP CASES 516
(CLB).
(1962) 2 SCR 339; Indian Chemical Products Ltd v State of Orissa, (1966) 36 COMP CASES 592 (SC) : AIR 1967 SC
253 : (1966) Supp. SCR 436; Mathew Michael v Tekoy (India) Ltd, (1990) 69 COMP CASES 145 (Ker.) (DB); Joseph
Michael v Travancore Rubber & Tea Co Ltd, (1989) 66 COMP CASES 491 (Ker.).
52 Moodie v W.&J. Shepherd (Bookbinders) Ltd, (1949) WN 482 : (1949) 2 All ER 1044 (HL).
53 Popely v Planarrive, (1997) 1 BCLC 8; Village Cay Marina Ltd v Acland, (1998) 2 BCLC 327.
54 Gujarat Bottling Co Ltd v Coca Cola Co, (1995) 84 COMP CASES 618 (SC) : AIR 1995 SC 2372.
55 Notification No. 716(E), dt. 21 July 2016 w.e.f. 22 July 2016.
End of Document
Mr. Laghir1 Rabari

56 Enforced vide S.O. 2754(E), dt. 12 September 2013, w.e.f. 19 September
2013 and corresponds to section 111 and 111A of the 1956 Act. [s 59]
Rectification of register of members.—
56 [s 59] Rectification of register of members.—
(1) If the name of any person is, without sufficient cause, entered in the register of members of a
company, or after having been entered in the register, is, without sufficient cause, omitted
therefrom, or if a default is made, or unnecessary delay takes place in entering n the register,
the fact of any person having become or ceased to be a member, the person aggrieved, or
any member of the company, or the company may appeal in such form as may be prescribed,
to the Tribunal, or to a competent court outside India, specified by the Central Government by
notification, in respect of foreign members or debenture holders residing outside India, for
rectification of the register.
(2) The Tribunal may, after hearing the parties to the appeal under sub-section (1) by order,
either dismiss the appeal or direct that the transfer or transmission shall be registered by the
company within a period of ten days of the receipt of the order or direct rectification of the
records of the depository or the register and in the latter case, direct the company to pay
damages, if any, sustained by the party aggrieved.
(3) The provisions of this section shall not restrict the right of a holder of securities, to transfer
such securities and any person acquiring such securities shall be entitled to voting rights
unless the voting rights have been suspended by an order of the Tribunal.
(4) Where the transfer of securities is in contravention of any of the provisions of the Securities
Contracts (Regulation) Act, 1956 (42 of 1956), the SEBI Act, 1992 Securities and Exchange
Board of India(15 of 1992) or this Act or any other law for the time being in force, the Tribunal
may, on an application made by the depository, company, depository participant, the holder
of the securities or the Securities and Exchange Board, direct any company or a depository to
set right the contravention and rectify its register or records concerned.
(5) If any default is made in complying with the order of the Tribunal under this section, the
company shall be punishable with fine which shall not be less than one lakh rupees but which
may extend to five lakh rupees and every officer of the company who is in default shall be
punishable with imprisonment for a term which may extend to one year or with fine which
shall not be less than one lakh rupees but which may extend to three lakh rupees, or with
both.]
NOTES
Section 59 of the 2013 Act corresponds to sections 111(4), 111(5), 111A(3) and 111A(4) of the 1956
Act.
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56 Enforced vide S.O. 2754(E), dt. 12 September 2013, w.e.f. 19 September 2013 and corresponds to section
111 and 111A of the 1956 Act. [s 59] Rectification of....
THE COMPANIES ACT, 2013 (18 OF 2013).—The Notes on Clauses explained this provision thus:
Clause 59.—This clause corresponds to section 111A of the Companies Act, 1956 and seeks to provide that if the
name of any person has been entered in or has been omitted from the register of members without sufficient cause,
the member or the person aggrieved may appeal to the Tribunal or to a competent court outside India in respect of
foreign members or debenture holders. The Tribunal may either dismiss the appeal or direct for rectification of register,
transfer or transmission. The Tribunal may also direct to pay damages to the aggrieved party. The clause also provides
for the provisions of this clause shall not restrict the right of a holder of shares or debentures, to transfer such shares or
debentures and any person acquiring such shares or debentures shall be entitled for voting rights unless suspended by
the Tribunal. The Tribunal may direct any company or a depository to set right any contravention and rectify register.
The clause further provides that if any default is made in complying with the order of the Tribunal, the company and
every officer who is in default shall be punishable with fine and imprisonment.
While section 58 deals with refusal to register, section 59 of the 2013 Act deals with rectification of
the register of members. Section 111 of the 1956 Act for private companies and section 111A for
public companies have been logically arranged as section 59 and 59 of the 2013, Act which are
applicable to public and private companies.
The notes on clauses does not specify that section 59 of the 2013 Act corresponds to sections
111(4), 111(5), 111A(3) and 111A(4) of the 1956 Act as well.
[s 59.2] Rectification of the Register of Members [Section 59(1)]
Every company is mandated to maintain a register of members under section 88 of the 2013 Act.
Such a register must accurately depict the names of the holders of shares and the class of shares
held by each member. This section enables a person aggrieved or a member of the company or the
company to make an appeal for rectification of the register on the following grounds:
(a) That the name of any person is entered in the register of members of a company without
sufficient cause, or
(b) That the name of any person is removed from the register, without sufficient cause, or
(c) That in the entry of the fact of any person having become or ceased to be a member, a
default is made, or unnecessary delay takes place.
Sufficient cause under section 111A of the 1956 Act has been interpreted to mean where the transfer
is invalid due to statutory violations and where the transfer is fraudulent or mala fide. Case laws
under the 1956 Act relevant for the interpretation of “sufficient cause” have been discussed below.
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If the name of a person is entered in or omitted from the register of members or default is made or
unnecessary delay takes place in noting on the register the fact of any person having become a
member or having ceased to be a member, an application may be made to the Court [the CLB, now
the NCLT] for rectification of the register.57
[s 59.4] Company does not Object
However, the question of rectification of register does not arise as between the shareholder and the
company if the company does not object the contention of the shareholder.58
[s 59.5] Damages to the Rightful Owner
The Court [the CLB, now the NCLT] may order for rectification of the register and may also direct the
company to pay the damages to the rightful owner.59
[s 59.6] Wrong Allotment
If the directors of a private company make a wrongful allotment of shares, the matter can be agitated
in section 59 of the 2013 Act (section 111(4) of the 1956 Act). The articles of a private company
providing for discretion to the board of directors in allotment of shares cannot be used to obtain
majority. Petition for relief or rectification of register of Pvt Ltd company against such allotment would
be maintainable under section 59 of the Act [section 111(4) of the 1956 Act]. However, relief for
reconstitution of board of directors and appointment of independent chairman, etc., sought in addition
to rectification of register, may be granted in a petition for relief under sections 397 and 398 of the
1956 Act (now sections 241 to 244 of the 2013 Act).60
[s 59.7] Rectification of a Wrong Entry
Matters relating to allotment of shares in case of a private company can be agitated in a petition
under section 59 of the 2013 Act [section 111(4) of the 1956 Act] only when it is either in violation of
the provisions of the articles or where the board of directors have exceeded their authority as only
then the entry of a name in the register of members would be wrong so as to justify rectification. The
question of mala fides and bona fides of company in issue and allotment of shares cannot be either
agitated or enquired into in petition under section 111 of the 1956 Act (section 59 of the 2013 Act).
Further, if the rectification involves reduction in share capital of the company then the CLB [now the
NCLT] would not make such order as it is beyond its power.61
The person seeking to be registered must establish his title. When there was a contract for transfer of
shares and part consideration was paid. Dividends on shares were to be credited towards the
balance. In the suit for declaration of ownership, the Civil Court held that the transfer was not
complete and enforcement of the contract was barred by limitation. Transfer was not complete and
the title to purchaser was not established. Rectification could not be ordered under section 111(4) of
the 1956 Act [section 59(1) of the 2013 Act], although there is no period of limitation for petition under
section 111(4) of the Act.62
[s 59.8] Transfer of Shares—Rectification of Wrong Entry
A petition under section 111(4) of the 1956 Act [section 59(1) of the 2013 Act] can be filed by an
aggrieved person or the company or any member so long as he establishes that the name of any
person is entered into or omitted from the register of members of the company without sufficient
cause. An application was made under section 111(4) for rectification of wrong entry in the register of
members on Transfer of Shares. In the petition filed under section 111(4) of the 1956 Act [section
59(1), 2013 Act], the petitioner sought rectification of the register of members of the company by
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deletion of the names of the transferees on the ground that transfers of shares in their favour were
violative of section 108 of the Act which provided for instrument of transfer and the articles of
Association of the company which prohibited transfer of shares without the approval of the board of
directors. Section 108(1) of the 1956 Act [section 56(1),2013 Act] is mandatory. Unless the
procedural requirements including remittance of the fee for registration of the transfer of shares as
specified by the articles of association of the company are fully complied with, transfer of shares
cannot be valid. In the facts and circumstances of the case, the CLB held that (i) the petition was
maintainable (ii) the Transfers to the respondents were invalid because: (a) There was no material
evidencing payment of the transfer fee by the transferees in terms of Article 13 of the articles of
association of the company. (b) An adverse inference had to be drawn against the company for non-
production of the minutes book of the meetings of the board of directors. There was no material
furnishing the particulars of the board meeting wherein the transfer of shares were approved in favour
of the respondents. (c) The Minutes Book produced did not meet the requirements of section 193 of
the 1956 Act (section 118 of the 2013 Act) and hence no presumption could be drawn on the validity
of the minutes. A duty was cast on the company to prove that the transfers were effected in due
compliance with the requirement of the relevant articles applicable and section 108(1) of the 1956 Act
(section 56(1),2013 Act). Failure to produce the original transfer forms on the ground that section
108(1) (section 56(1), 2013 Act) of the Act need not be complied with in case of involuntary transfers
would not hold good when the transfer itself was not free from doubt. The respondents failed to
establish that the transfers were in due compliance with the relevant applicable articles of association
of the company and the mandatory requirements of section 108(1) of the 1956 Act [section 56(1),
2013 Act]. When the company failed to prove that the transfers were in compliance with the legal
requirements, there was no need to go into other contentions. (iii) Under section 164 of the 1956 Act
(section 95, 2013 Act), the annual returns were not conclusive evidence but only prima facie
evidence. The register of members of the company was to be rectified by deleting the names of the
transferees covered by the transfers.63
Allegations of mala fides in allotment of shares, e.g., allotment of shares to the exclusion of some
shareholders has been held, by many High Courts and the CLB [now the NCLT], as an issue which
could be agitated as an act of oppression, in a petition under section 397/398 of the 1956 Act (now
sections 241 to 244 of the 2013 Act). However, register of members of the company must first be
rectified before relief under section 397/398 could be granted. A composite petition to decide title to
shares and locus standi for relief under section 399 would not be maintainable.64 However, various
courts have also held that a composite petition under sections 397, 398 of the 1956 Act [Section 58
and 59 of the 2013 Act) may be entertained at the discretion of the Court [the Company Law Board
(CLB), now the NCLT]. The petition so far as it sought reliefs under section 111 or 111A may be
admitted and the consideration of the petition for the purpose of admission for reliefs under sections
397 and 398 should be deferred to a later date.65
[s 59.10] Non-Allotment of Shares—Recourse to other Remedies
Where no register of members was maintained by the company and no return of allotment was filed
with the registrar of companies, no relief under section 155 of the 1956 Act[corresponding to section
111A of the 1956 Act and section 59 of the 2013 Act] could be granted to the petitioner against non-
allotment of shares. It was open to the petitioner to take recourse to other remedies.66
[s 59.11] Directors’ Power to Rectify Share Register
If there are sufficient causes for rectifying any mistake or omission in the register of members then it
can be rectified by a resolution of the board. The term “rectification” implies that there is an error or
mistake or defect which is to be corrected. If something has been done by operation of law or
according to the direction of the Court [now the NCLT)] this section does not apply. If the company
makes corrections pursuant to an order of the CLB [now the NCLT] under section 111, then the
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directors will not be able to rectify the register to nullify the effect of the order. If the rectification of
entry in the register of members involves removal or alteration of name of an existing member the
directors of the company have no power to make such alterations unless a proper instrument of
transfer is submitted to the company. The remedy of the company in such a case is to apply to the
Court [now the NCLT] for the rectification of its register under section 111(4) of the 1956 Act (s. 59 of
the 2013 Act) and not to take upon itself to alter the register. Under section 108 of the 1956 Act (s. 56
of the 2013 Act), articles for a transfer inter vivos or a private transfer the company cannot register a
transfer of shares unless a proper instrument of transfer duly stamped and executed is submitted to
the company. Where the board of directors rectified the register of members without duly executed
transfer deed contrary to the scheme of section 108, the registration of transfer was void.67
[s 59.12] Transmission of Shares based on will under Challenge—Probate
The three broad tests laid down by the Supreme Court to examine whether the board of directors
exercised their discretionary powers properly or not are (i) whether the discretionary powers have
been exercised in the interest of the company, (ii) whether they were exercised on wrong principle,
and (iii) whether they were exercised mala fide or for an oblique motive or for a collateral purpose. In
this petition filed under section 111(4) of the 1956 Act, the petitioners sought for rectification of the
register of members of the first respondent company by removing the name of the second
respondent in respect of 33,715 shares which were earlier held in the name of the shareholder Mrs.
Priyamvada Devi Birla (PDB), who died on 3 July 2004 and had no issues. By a will dt. 18 April 1999,
the second respondent was named as the sole beneficiary and also the executor to her estate. The
second respondent Shri Rajendra Singh Lodha (RSL) applied to the company for transmission of the
shares to his own name as executor to the estate of PDB. By a letter dt. 12 July 2004 the sixth
respondent one of the directors of the company returned the share certificate asking him (RSL) to
submit an attested copy of the will and also an indemnity bond in the prescribed form. On 14 July
2004, the second respondent submitted the documents and in a board meeting held on 15 July 2004,
the two directors, the fourth and sixth respondents unanimously passed a resolution approving the
transmission. The petitioners being the sisters of the late husband of PDB claiming to be her legal
heirs in intestacy filed the petition for rectification of the register of members contending that the
company had approved the transmission without production of probate in accordance with Article 47
of the articles of association of the company. The respondents challenged the locus standi of the
petition and contended that two suits on similar grounds were pending. In the facts and
circumstances of the case, the CLB held: (i) That to maintain a petition under section 111(4) of the
1956 Act, neither an aggrieved person nor a member needs to show any personal interest in the
shares nor seek entry of their names in the register of members consequent to the rectification
sought for. Even though the petitioners were not members, they were the legal heirs of PDB and their
right to the estate of late PDB would crystallise if all the three wills which were under challenge were
to be held invalid. The petitioners had a contingent right. (ii) That even though the grounds pleaded in
the suits were similar to the petition, in the suits the petitioners sought only for appointment of
administrators to administer the estate of PDB and not for rectification. Since the suits had been filed
for a different purpose and different relief the question of conflict of decisions did not arise. (iii) That
since the articles of association of a company are a contract between the members and the company
and the members inter se, the articles have to be construed in the manner in which they are
understood by the members and company. The application prescribed by the company for seeking
transmission would indicate the understanding of the company that a person having probate of will
could apply for transmission. The board relying on the legal opinion that the board can dispense with
probate, had resolved exercising its discretionary powers to dispense with the probate of will. Thus,
the understanding of the board itself was that probate was necessary but could be dispensed with in
exercise of its discretionary powers. (iv) That Article 47 vested with discretionary powers in “directors”
and the directors would mean the board with a proper quorum. It would also mean that it was the
directors in a board meeting who had to exercise this discretion to waive production of probate and
no individual director could exercise the powers vested in the board of directors. The question of
seeking an indemnity bond would arise, in terms of Article 47, only when the board decided to
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dispense with probate. It was on record that the second respondent did not seek for dispensation with
production of probate in his letter dt. 9 July 2004. There was nothing on record to show that the letter
of the second respondent was placed before the board. When the second respondent himself had not
sought for dispensation with probate, there was no need to have obtained legal opinions. There was
nothing on record to show the need, the basis and the authority on which legal opinions were
obtained as no board meeting to consider the application of the second respondent was on record.
When the power to dispense with production of probate was with the board, no individual director
could have instead, asked for indemnity before the board considered the application and decided to
call for indemnity and the decision was liable to be set aside. It could not even be argued that in the
board meeting held on 15 July 2004 the board had approved the transmission without production of
probate for the reason, the board had in a way actually approved or ratified the decision of a single
director to obtain indemnity bond without specifically mentioning so. The ratification in respect of an
act which was incompetent was only possible by a person who would have been competent to do
such act. The sixth respondent alone had no competence to seek for Indemnity, the board could not
have acted on the basis of the Indemnity. (v) That the precedence of transmission of shares of the
late husband of PDB in her favour could not be compared with the present issue as PDB was a
widow who had no issue, no indemnity was called for from her and no Will was produced by her, no
legal opinion was obtained, the approval of transmission was obtained through a circular resolution.
All these would indicate that the directors had no doubt about her entitlement to the shares of the late
husband of PDB whereas the second respondent was not in any way related to PDB, indemnity was
called for, legal opinion was obtained, only two directors approved in a meeting even though a third
uninterested director was on the board. If the fourth and six respondents had really believed that they
could rely on the past precedence, they should have approved the transmission without asking for
indemnity or legal opinion as was done in the case of PDB. Thus, it was clear that both the cases
were not similar and by relying on the precedent, the directors had acted on wrong principle. It was
not a case of the second respondent expressing some difficulties in producing probate or any other
precedence. The board on its own found the precedence and applied it wrongly. (vi) That the
company had to ensure at all times, that its register reflects that names of persons to whom shares
are transmitted have an undisputed title to the shares, which title one can claim, only when one
obtains probate in one’s favour. If the Will was under challenge, there was no certainty of obtaining
probate and consequently no certainty to the position of executor. When the challenge to the Will was
in the public domain, no fair and sensible person could have exercised the discretionary powers to
waive production of probate. On the contrary, the fourth and sixth respondents exercised their
discretionary powers only with a view to benefit the second respondent. When the second
respondent had sent the indemnity bond on 14 July 2004, he had filed a caveat on the same day,
thus he was aware on the same day that the Will was likely to be challenged. Therefore, it was his
bounden duty to inform the company of the said fact when he sent the indemnity bond. The second
respondent was not only the executor of the Will but also the chairman of the company and in law the
knowledge of a director is the knowledge of the company. Considering the fact that all the parties
involved in the transmission were closely associated with each other, the inescapable conclusion was
that they had acted in concert to get the impugned shares transmitted in favour of the second
respondent without production of probate by mala fide exercising the board’s discretionary powers.
(vii) That the omission of the name PDB from and entry of the name of executor in the register of
members was not bona fide and was done with an ulterior motive in violation of the provisions of
Article 47 of articles of association of the company. Therefore, the register of members of the
company was to be rectified with immediate effect by omitting the name of the second respondent
(RSL) as the executor of the estate and restoring the name of PDB in respect of 33,715 shares in the
petition.
[s 59.13] Appeal to the Tribunal [Section 59(1)]
Any aggrieved person or any member of the company or the company may approach the Tribunal for
rectification of the register. A person aggrieved could be a person who has transferred his shares
who may have ceased to be a member, or a transferee of shares who has not yet become a member
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or a person who in any way is aggrieved by the three grounds specified in the section. The inclusion
of “aggrieved person” widens the scope of the persons that can approach the court for rectification.
[s 59.14] Appeal to a Court Outside India [Section 59(1)]
This section provides for making application/appeal by foreign shareholders or debenture holders in
competent foreign courts duly notified by the Central Government in this regard.
[s 59.15] Powers of the Tribunal [Section 59(2)]
The Tribunal, after hearing the parties, may do as follows:
(a) dismiss the appeal;
(b) direct that the transfer or transmission shall be registered by the company within 10 days;
(c) direct the rectification of the records of the depository;
(d) direct the company to pay damages, if any sustained by the party aggrieved.
Rule 70 of the NCLT Rules, 2016, provides that the NCLT has the discretion to make any interim
order including, an injunction, stay or consequential orders regarding payment of dividend, bonus
shares or rights issue. It also provides that the NCLT has the power to decide any question relating to
the title of any person party to the petition to have his name entered into or removed from the
register.
An appeal from the order of the NCLT shall lie before the NCLAT.
[s 59.16] Right to Transfer Securities [Section 59(3)]
Section 59(3) of the 2013 Act provides that this section shall not restrict the right of a holder of
securities to transfer such securities. This means that just because there is proceeding under section
59 of the 2013 Act before the NCLT, it will not mean an automatic restriction on the holder of the
securities to transfer.
It also provides that any person acquiring such securities will be entitled to the voting rights that
accompany such security unless the voting rights have been suspended by the order of the Tribunal.
[s 59.17] Transfer in Contravention of Law [Section 59(4)]
Where the transfer of securities is in contravention of any provision of the Securities Contracts
Regulation Act, 1956, the SEBI Act, 1992 or the 2013 Act or any other law in force, the Tribunal may
direct any company or depository to set right the contravention and rectify its registers or records,
pursuant to an application made by such depository, company, depository participant, the holder of
securities or the SEBI. In addition to this, under section 24 of the 2013 Act, SEBI has the power to
regulate issue and transfer of securities of a listed company.
[s 59.18] Penalty for not Complying with the Order of the Tribunal [Section 59(5)]
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Any default in compliance with the orders of the Tribunal under this section shall be punishable with a
fine which shall not be less than Rs 1 lakh but which may extend to Rs 5 lakh. Every officer in default
shall be punishable with imprisonment for a term which may extend to one year or with fine which
shall not be less than Rs 1 lakh but may extend to Rs 3 lakh.
[s 59.19] Jurisdiction of the NCLT
The National Company Law Tribunals have been notified68 as a result of which the CLBs stand
dissolved and, consequently, the jurisdiction to settle disputes now vests exclusively with the
Tribunals. According to section 434 of the 2013 Act, on the date of notification, all matters,
proceedings or cases pending before the CLB stand transferred to the Tribunal.
In a case decided under the 1956 Act, the CLB concluded that the issues of rectification and
transmission are within the exclusive jurisdiction of the CLB.69 A petition under section 58 and 59 of
the 2013 Act that is filed by persons whose names are not on the register of members is maintainable
and the power to interpret section 58 and adjudicate a situation relating to wrongful removal of names
falls squarely within the jurisdiction of the CLB.70
In the case of Transchem Ltd v Firstcorp International Ltd71 the CLB has held that section 59(4) of the
2013 Act does not empower the CLB to make investigation/enquiry into the allegation that the
respondents had acted in concert and acquired shares in violation of the Takeover Code, and hence,
the shares are liable to be forfeited and the register of members requires to be rectified under the
said provisions by deleting the name of the Respondents therefrom.
[s 59.20] Persons Entitled to Apply to CLB [ now the NCLT ]
The aggrieved person or any member of the private company or the private company itself may make
an application to the Court [the CLB; now the NCLT] for rectification of the register [1956 Act, section
111(4); 2013 Act, section 56(1)]. A person who claims to have become a member but whose name
has not been entered in the register of members may make an application.72
In case of public companies, the depository, company, participant, investor or the SEBI may make an
application to the (CLB [now the NCLT], if the transfer of shares or debentures is in contravention of
the SEBI Act, regulations or any other law.
Any member or person aggrieved of the company has locus standi to file the petition under [1956 Act,
section 111(4); 2013 Act, section 56(1)].73 Entitlement or eligibility to become a member would be
sufficient to maintain petition.74
The term “the fact of any person having become a member” means “having become entitled to be a
member” or “having got the right of membership.”75 Even a person not directly aggrieved may apply
for rectification.76
[s 59.22] Aggrieved Person
The term “aggrieved person” under section 111(4) of the 1956 Act [now section 59(1)] will include the
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transferor of shares who had handed over the transfer deed to the transferee and the documents
were lodged with the company but the company had rejected the same as a bad delivery. The
sharebroker having passed on rights to bonus shares and original shares in favour of purchaser on
account of bad delivery would be aggrieved person and shall have locus standi to file petition.77
There is no limitation prescribed in this section. In such a situation, the limitation for filing a suit for
rectification is governed by Article 113 of the Limitation Act, 1963, under which the period of limitation
is three years. Section 443 of the 2013 Act also makes the provisions of the Limitation Act applicable
to the proceedings before the Tribunal.
The transferee obtained letters of allotment on payment of consideration money. The company failed
to enter the name of the transferee in register of members for a considerable period without sufficient
cause. A petition was made by the defaulters for rectification of the register of members. Such
petition was objected on the plea that the application was barred by limitation. The CLB (now the
NCLT) held that section 111(4) of the Act did not provide for any time limit for rectification of share
register. The application was not barred by limitation and the same was allowed.78
See notes under Limitation in the commentary under the 1956 Act.
[s 59.24] Rectification in Case of Forfeiture of Shares
Invalid forfeiture of shares is within the purview of section 111(4). The aggrieved shareholder may
apply for rectification of the share register if his name has been wrongly omitted. However, if
complicated questions are involved the remedy is a suit.79
Under section 84 of the 1956 Act (section 46 of the 2013 Act), a share certificate under the common
seal of the company specifying shares held by a member is prima facie evidence of the title of the
members to such shares. Where share certificates indicated that the shares were fully paid, the
member availed loan facilities from financial institutions on the strength of the same. There was no
fraud on the part the holders. The company cannot, after a gap of a long period of time, dispute the
amount paid on the shares and forfeit the same. The company was estopped from disputing the
amount indicated in the share certificates as fully paid. Even when the calls were not paid, the
forfeiture must be within the period of limitation of three years from date of allotment. The company
can sue for the sums due and would not be entitled to treat shares as not fully paid.80
[s 59.25] Power of Forfeiture
The power of forfeiture cannot be used as a device to deprive the shareholder of his shares on the
failure to pay the consideration money. In such a case, the remedy of the company is a suit.81
[s 59.26] Limitation for Filing a Suit
After the shares are forfeited, a further notice is not necessary to complete the forfeiture. A person
whose shares have been forfeited may maintain a challenge against the forfeiture of shares provided
(1) he has not abandoned his right to challenge the forfeiture, and (2) the plea for rectification of the
register of members is made within the period of limitation. Period of limitation for filing a suit for
rectification of register of members is governed by residuary Article 113 of the Limitation Act, 1963
(36 of 1963), which has replaced Article 120 of the Limitation Act, 1908 (9 of 1908), and which
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provides a period of three years for filing a suit from the time the right to sue accrues.82
[s 59.27] Civil Suit for Forfeiture of Shares
The jurisdiction of the Company Court [the CLB now the NCLT] is restricted to the matters specifically
mentioned in the 1956 Act. Where specific provision is not made in relevant sections the remedy lies
in the Civil Court. A petition seeking a declaration that a forfeiture of shares is void is not amenable to
the jurisdiction of either the Company Court [the CLB now the NCLT] under section 111A of the 1956
Act; therefore, remedy lies in the Civil Court.83
[s 59.28] Allotment of Shares Void Ab Initio
After shares have been forfeited for failure to pay call moneys and name of the member has already
been deleted, an application for rectification of register of members under section 155 of the 1956 Act
[s. 111A of the 1956 Act and section 59 of the 2013 Act] was not allowed on the ground that the
allotment of shares was void ab initio as being not in conformity with section 73 of the 1956 Act.84
[s 59.29] Procedure for Forfeiture in Articles must be Strictly Followed
Procedure laid down in the articles of the company must be strictly followed by the board of directors
in forfeiting a share. Failure to comply with the requirements of the articles will render the forfeiture
invalid. Where notice of forfeiture did not specify precise amount of expenses to be paid the forfeiture
was held to be invalid.85
Where the procedure prescribed for forfeiture of the shares in the articles of the company was
complied with and mandatory requirements of notice were substantially complied with the forfeiture of
shares was held to be valid.86
[s 59.30] Conditions for Valid Forfeiture—Service of Notice of Unpaid Call
Upon production of legal heirship certificate the fully paid up and partly paid up shares of the
company were transmitted in the names of the petitioners after the death of the original owner in the
year 2002. However, by a communication in the year 2005, the company informed that the 100 equity
shares held by the deceased were forfeited by a resolution of the board of directors for non-payment
of call money despite issuance of a final notice. In a petition under section 111A of the 1956 Act, the
petitioners contended that 14 days’ clear notice for payment of the call money in terms of Article 24 of
the articles of association of the company was not given to the petitioners being the legal heirs of the
deceased and sought appropriate direction as they were willing to remit the balance amount due on
account of the shares. In the facts and circumstances of the case, the CLB held that mere sending of
notice by registered post to the deceased was not enough to constitute service of notice under
Articles 23 and 24 of the articles of association of the company in the absence of any clear proof for
“effectual service” on the addressee. It was evident that the requirement of Articles 23 and 24 of the
articles of association were not duly met before forfeiting of the shares and, therefore, such forfeiture
was bad in law. Having found that the forfeiture of shares covered under share certificate No. 129818
was not in strict compliance with relevant articles, the company will serve notice within 30 days of
receipt of this order, calling upon the petitioners, being the legal heirs of the deceased Rev. Fr.
Mathai Nooranal in accordance with Articles 23 and 24 to remit the unpaid call money together with
the interest at the rate of 18% from the last date appointed for payment of the call money to the
actual date of payment in terms of clause (d) at page 6 of the letter of offer dt. 23 December 1995,
upon full payment of which within 30 days thereafter, the company will issue 100 equity shares of Rs
10 each. The whole process shall be completed by 30 April 2006, without exception.87
[s 59.31] Forfeiture of Shares—Forfeiture Notice Sent by Registered Post
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By virtue of section 53(1) of the 1956 Act, a document may be served by a company on any member
either personally or by sending it by post to his registered address, or if he had no registered address
in India to the address, if any, within India supplied by him to the company for the giving of notice to
him. Where the final notice of forfeiture was sent to the residential address of the petitioner as
entered in the register of members of the company. Though the petitioner claimed that he had been
residing in Dubai for several years, there was no material to show that the petitioner had notified any
change in his address for communication by the company. The plea that if the notice proposing the
forfeiture of shares sent by post was not served, the company was to take steps to ascertain the
correct address of the shareholders before deciding to forfeit shares would not hold good in the light
of due service of the notice of forfeiture on the petitioner. The letter of offer stipulated, inter alia, that
any change in the address was to be indicated to the company. While the petitioner had not chosen
to notify the change in his address and was prepared to receive other communications including
dividend warrants at the place of his registered address, it was not open to him at this stage to take a
stand that the notice ought to have been sent to his address at Dubai. The forfeiture notice was sent
to the petitioner’s registered address and thus the notice was in consonance with the provisions of
section 53(1). Since the petitioner had failed to make any payment in terms of the demand made by
the company, leading to forfeiture of shares in accordance with law, the petitioner was not entitled to
any bonus shares on the forfeited shares. The fact that the shares had been forfeited after 8 years
did not invalidate the forfeiture which had been made lawfully. Therefore, the claim for rectification of
the register of members was not to be allowed.88
[s 59.32] Register of the Members—Rectification
There were correspondence between the parties indicating that the non-resident agreed in writing to
invest in company and he would be issued shares of the company at a mutually agreeable premium.
The condition was satisfied. There was, however, no evidence or no record to substantiate that there
was any mutual agreement between the parties or due compliance with the Guidelines issued by the
Controller of Capital Issues (CCI) [now the SEBI]. Therefore, the allotment of shares in favour of the
petitioner was irregular and not in consonance with relevant provisions of the Foreign Exchange
Regulation Act, 1973 (46 of 1973) [now the Foreign Exchange Management Act, 1999 (42 of 1999)]
and this would be sufficient to order rectification of the register of members of the Company.
[s 59.33] Register of Members—Rectification—Arbitration
In this matter before the CLB for rectification of register of members under section 111 of the 1956
Act, an application seeking reference to Arbitration was made as per section 8 of the Arbitration and
Conciliation Act, 1996. Parties and subject-matter to the petition and arbitration agreement were not
common. The matter could be adjudicated without reference to the terms of the agreement. Reliefs
could not be granted by the arbitrator. Application for reference to arbitration was rejected.
An offence under this section is not compoundable under section 441 of the 2013 Act as section
441of the 2013 Act provides that only an offence which is punishable with fine can be compounded
under the 2013 Act.
[s 59.35] Filing
Notice of the CLB’s [now the Tribunal’s] order under section 111(5) shall be given to the Registrar of
Companies in e-Form 21 of the Companies (Central Government’s) General Rules and Forms, 1956.
Under the 2013 Act, Form INC 28 shall have to be filed.
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89[s 111] Power to refuse registration and appeal against refusal.—(1) If a company refuses, whether in pursuance
of any power of the company under its articles or otherwise, to register the transfer of, or the transmission by operation
of law of the right to, any shares or interest of a member in, or debentures of the company, it shall, within two months
from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was
delivered to the company, send notice of the refusal to the transferee and the transferor or to the person giving
intimation of such transmission, as the case may be, giving reasons for such refusal. The Companies Act, 1956
provision
(2) The transferor or transferee, or the person who gave intimation of the transmission by operation of law, as the case
may be, may appeal to the 90[Tribunal] against any refusal of the company to register the transfer or transmission, or
against any failure on its part within the period referred to in sub-section (1), either to register the transfer or
transmission or to send notice of its refusal to register the same.
(3) An appeal under sub-section (2) shall be made within two months of the receipt of the notice of such refusal or,
where no notice has been sent by the company, within four months from the date on which the instrument of transfer,
or the intimation of transmission, as the case may be, was delivered to the company.
(4) If—
(a) the name of any person—
(i) is, without sufficient cause, entered in the register of members of a company, or
(ii) after having been entered in the register, is, without sufficient cause, omitted therefrom; or
(b) default is made, or unnecessary delay takes place, in entering in the register the fact of any person having
become, or ceased to be, a member [including a refusal under sub-section (1)],
the person aggrieved, or any member of the company, or the company, may apply to the 91[Tribunal] for rectification of
the register.
(5) The 91[Tribunal], while dealing with an appeal preferred under sub-section (2) or an application made under sub-
section (4) may, after hearing the parties, either dismiss the appeal or reject the application, or by order—
(a) direct that the transfer or transmission shall be registered by the company and the company shall comply with
such order within ten days of the receipt of the order; or
(b) direct rectification of the register and also direct the company to pay damages, if any, sustained by any party
aggrieved.
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(6) The 92[Tribunal], while acting under sub-section (5), may, at its discretion, make—
(a) such interim orders, including any orders as to injunction or stay, as it may deem fit and just;
(b) such orders as to costs as it thinks fit; and
(c) incidental or consequential orders regarding payment of dividend or the allotment of bonus or rights shares.
(7) On any application under this section, the 92[Tribunal]—
(a) may decide any question relating to the title of any person who is a party to the application to have his name
entered in, or omitted from, the register;
(b) generally, may decide any question which it is necessary or expedient to decide in connection with the
application for rectification.
(8) The provisions of sub-sections (4) to (7) shall apply in relation to the rectification of the register of debenture-
holders as they apply in relation to the rectification of the register of members.
(9) If default is made in giving effect to the orders of the 92[Tribunal] under this section, the company and every officer
of the company who is in default shall be punishable with fine which may extend to 93[ten thousand rupees], and with a
further fine which may extend to 94[one thousand rupees] for every day after the first day after which the default
continues.
(10) Every appeal or application to the 95[Tribunal] under sub-section (2) or sub-section (4) shall be made by a petition
in writing and shall be accompanied by such fee as may be prescribed.
(11) In the case of a private company which is not a subsidiary of a public company, where the right to any shares or
interest of a member in, or debentures of, the company is transmitted by a sale thereof held by a Court or other public
authority, the provisions of sub-sections (4) to (7) shall apply as if the company were a public company:
Provided that the 95[Tribunal] may, in lieu of an order under sub-section (5), pass an order directing the company to
register the transmission of the right unless any member or members of the company specified in the order acquire the
right aforesaid within such time as may be allowed for the purpose by the order, on payment to the purchaser of the
price paid by him therefor or such other sum as the 95[Tribunal] may determine to be a reasonable compensation for
the right in all the circumstances of the case.
(12) If default is made in complying with any of the provisions of this section, the company and every officer of the
company who is in default, shall be punishable with fine which may extend to 96[five hundred rupees] for every day
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(13) Nothing in this section and section 108, 109 or 110 shall prejudice any power of a private company under its
articles to enforce the restrictions contained therein against the right to transfer the shares of such company.]
97[(14)
In this section “company” means a private company and includes a private company which had become a public
company by virtue of section 43A of this Act.]
NOTES
111 of the Act as follows:
This clause seeks to recast the existing section 111 by incorporating therein the provisions of section 155, which
confers powers on the High Court to order rectification of the register of members. With a view to providing adequate
protection to investors against refusal to register transfer of shares, this clause requires companies to give reasons
before they refuse any transfer of shares. It also confers rights on the aggrieved investor to apply for relief to the
Company Law
Board (instead of the High Court) [now the NCLT], on specified grounds. [Clause 16 of the Companies (Amendment)
Bill, 1987 (32 of 1987)].
Sections 155 and 156 of the 1956 Act have also been deleted. The Notes on Clauses explained the
deleted sections as follows:
This clause seeks to delete sections 155 and 156. This is consequent upon the amendment proposed in clause 16
(Section 111 of the Act) of the Bill. [Clause 21 of the Companies (Amendment) Bill, 1987 (32 of 1987)].
Now scheme of sections 111 and 111A of the 1956 Act providing for grounds of refusal to register the
transfer or transmission of shares or debentures of private companies and public companies and
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1996 (22 of 1996) (w.r.e.f. 20-9-1995) as explained hereinafter.
The amendments made by the Companies (Amendment) Act, 1988 (31 of 1988) were based on the
recommendations of the High-Powered Expert Committee on Companies and MRTP Acts constituted
under the chairmanship of Justice Shri Rajindar Sachar which submitted its Report in August 1978.
The Sachar Committee recommendations are reproduced below:
(1) Many public companies [now see new Section 111A for Public Companies. Scope of Section 111 has been
restricted to Private Companies only. Entire section 111 now applies to Private Companies vide Sections 111(14) and
111A(1)] whose scrips are listed on the stock exchanges do not generally refuse registration of transfer of their shares.
Since shares are movable property, they ought to be freely transferable. Whilst it may still be necessary to retain and
recognise the right of directors to refuse registration of transfers if so authorised by a company’s Articles of
Association, this right, we think, should be hedged in with adequate safeguards. Under the law as it stands, the
company is not immediately required to give reasons for refusal to register transfers and it is only the right of the final
adjudicating body [under section 111(5A)] to require the company to disclose its reasons at an appellate stage. This, in
our opinion, is unsatisfactory. Under the existing law, there are two remedies open to an aggrieved person—to file an
appeal under section 111, or to apply to the Court for rectification of the share register under section 155. We think that
these two remedies should now be assimilated and provision be made (at one place) for a person aggrieved (including
any person aggrieved by a refusal of the Board of directors to register a transfer or transmission of shares) to apply to
the Company Law Board (CLB)—as proposed to be constituted—[now the National Company Law Tribunal (NCLT)] for
rectification of the share register on any of the grounds mentioned in sub-clause (a) or (b) of sub-section (1) of the
present section 155 [now Sections 111 and 111A].
Our proposals are—Accordingly, we would recommend as follows: (a) Sections 111 and 155 should be assimilated into
a single statutory provision; (b) The said statutory provision would read thus: [The section as recommended has been
re-drafted with some modifications]. [Report : para 7.21].
THE DEPOSITORIES ACT, 1996 (22 OF 1996).—The Notes on clauses explained the amendments in this section
as follows:
The scheme of sections 111 and 111A of the 1956 Act providing for grounds of refusal to register the
transfer or transmission of shares or debentures of a private company and public company and
1996 (22 of 1996) (w.r.e.f. 20-9-1995). See notes under section 111(14) hereinafter which defines
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that “company” for the purposes of this section means a private company.
Section 111A (rectification of register on transfer) of the 1956 Act as inserted by the Depositories Act,
1996 (22 of 1996) (w.r.e.f. 20 September 1995) now applies to public companies (section 111A(1)].
Section 111A makes the shares or debentures of all listed and unlisted public companies freely
transferable [section 111A(2)].
This clause seeks to enhance the fine specified in sub-section (9) from one thousand rupees to ten thousand rupees
and one hundred rupees to one thousand rupees and in sub-section (12) from fifty rupees to five hundred rupees of
section 111 of the Act. [Clause 41 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
[s 59.38] Application for Rectification of Share Register [Section 111(4)]
commentary above.
Pendency of petition seeking relief from oppression and mismanagement under section 397/398 of
the 1956 Act (now sections 241 to 244 of the 2013 Act) is not a ground for staying proceeding on
petition for rectification of register under section 111/111A.1
[s 59.40] Bank as Sole Trustee of Trust—Probate— Locus Standi
Under section 153 of the 1956 Act (section 88 of the 2013 Act) no notice of any trust shall be entered
on the register of members of a company yet the name of the Trustee can always be entered as is
evident from Press Note, dt. 25-06-1957, issued by the Department of Company Affairs. The name of
the petitioner bank as the sole trustee of the trust to which the shares had been bequeathed by the
deceased can be entered in the register of members. Section 153B of the Act (section 88 of the 2013
Act) only deals with declaration as to the shares held in trust and the non-applicability of the section
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did not in any way affect the name of the Bank being entered in the register of members in respect of
the shares. Bank appointed as trustee of shareholder being the legal representative of the deceased
shareholder who held 80% of the shares in the company before the issue of further shares was
entitled to maintain petition against oppression and mismanagement notwithstanding the fact that its
name was not in the register of members.2
On appeal from the foregoing CLB decision, dismissing the appeal, the Calcutta High Court held as
follows. The respondent bank was the executor of the Will of a shareholder who had held the majority
of shares in the appellant company. It was granted probate. It filed a petition, inter alia, alleging
various acts of oppression and mismanagement in the affairs of the appellant company including
increasing the share capital without following the prescribed procedure, and the petition was allowed
by the CLB. On appeal, contending (a) that the respondent bank had no locus standi to file the
petition before the CLB until and unless its name was effected in the share register by way of valid
and lawful transmission of shares, (b) that the bank was acting contrary to the Banking Regulation
Act, 1949 (10 of 1949), as well as the guidelines issued by the Reserve Bank of India, and (c) that
there was a bar under section 153 of the 1956 Act to recognise a body of trust, the appellant sought
setting aside of the order passed by the CLB. Dismissing the appeal, the Court held (i) that there was
no scope under the law to examine the findings of fact by the CLB but to accept the decision which
was based on material and was not absurd or irrational, (ii) that the CLB had rightly decided the locus
standi of the bank by applying the correct position of law. The Bank had the locus standi to complain
against the appellants and a duty to perform under the Indian Succession Act, 1925 (39 of 1925), as
probate was granted in its favour and legally the entire shareholding of the deceased shareholder
vested in it under section 211 of the Indian Succession Act, 1925.3
[s 59.41] Member to Agree in Writing [1956 Act, section 41(2); 2013 Act, section 2(55)]
The member is a person who agrees in writing to be a member. The name of a person cannot be
entered in the register of members without a written agreement. The requirement of agreement “in
writing” in section 41(2) of the 1956 Act [section 2(55)(ii) of the 2013 Act] is founded upon principles
of public policy and cannot be waived by the investors. The names of persons included in the register
of members without agreement in writing would be liable to be removed.4
Section 41(2) of the 1956 Act [section 2(55)(ii) of the 2013 Act] provides that for any person to
become a member of a company, two conditions must be fulfilled: (a) That there is an agreement in
writing to become a member, and (b) that the name is entered in the register of members. Where
correspondence between the parties showed that the non-resident agreed in writing to invest in
company and would be issued shares of the company at mutually agreeable premium. The
conditions for membership were satisfied. But there was no evidence to substantiate mutual
agreement between the parties or compliance with the guidelines issued by the Controller of Capital
Issues [now the SEBI] and the FERA [now the FEMA]. Therefore, rectification of name was ordered
as the allotment of shares in question in favour of the petitioner was irregular and not in consonance
with the relevant statutory provisions.
[s 59.42] Remedy Against Wrong Allotment by Public Company
While enacting section 111A of the 1956 Act in relation to public limited companies, the Legislature
has restricted the right of appeal only to cases of transfer of shares and the wider right of appeal for
rectification of wrong Allotment, which is provided by section 111(4) now applicable to private
companies, has not been enacted in section 111A. Thus there is no right of appeal to the CLB [now
the NCLT] under section 111A in relation to public limited companies as contained in section 111(4)
for private companies. In such a case, the jurisdiction of the Civil Court to entertain a suit challenging
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the resolution of the company to allot shares, not amounting to transfer, would not be barred.
However, section 59 of the 2013 Act does not differentiate between a public and a private company.
[s 59.43] Oppression—Acts of Directors in Private Company
The acts of directors in a Pvt Ltd company are required to be tested on a much finer scale in order to
rule out any misuse of power for personal gains or ulterior motives thus casting a heavier burden on
its directors. In the matter of issue of additional shares, the directors owe a fiduciary duty to the
shareholders to issue the shares for a proper purpose. When powers are used merely for an
extraneous purpose like maintenance or acquisition of control over the affairs of the company, the
action cannot be upheld. The directors’ acts should not only satisfy the test of bona fides, they should
also be done with a proper motive. If a member who holds the majority of shares in a company is
reduced to the position of minority shareholder in the company by an act of the company or by its
board of directors mala fide, the said act must ordinarily be considered to be an act of oppression to
the said member. The member who holds the majority of shares in the company is entitled by virtue
of his majority to control, manage and run the affairs of the company. The common law recognised a
pre-emptive right of a shareholder to participate in further issue of shares but in India in view of
section 81 of the 1956 Act, such a right cannot be found for sure. A right to issue shares to one
director may technically be there, but the question whether the right has been exercised bona fide
and in the interests of the company has to be considered on the facts of each case and if it is found
that it is not so, such allotment is liable to be set aside. The oppressor cannot be given option to buy
out the oppressed.5
[s 59.44] Notice of Meetings Improper—Transfer of Shares Set Aside
Where the notice of extraordinary general meeting (EGM) sent to the second and third petitioners at
the address of the first petitioner failed to fulfil the requirements of section 53 of the 1956 Act (s. 20 of
the 2013 Act). The board meeting was also invalid due to lack of quorum. As there were
discrepancies in the three versions of the minutes of the same board meeting, no credence could be
attached to any of the versions of the minutes of the board meeting. The proceedings of the EGM
and the board meeting were in violation of the provisions of the Act and articles of association of the
company and were invalid. It was held that the transfer of shares and change in management of the
company was oppressive to the minority shareholders. The transfer of shares was set aside. The
CLB directed the shares be restored in the name of the transferors and the company to rectify the
register of members. The petitioners along with the second respondent and her daughter, being the
shareholders and the first petitioner with the second respondent as directors, were at liberty to
manage the day-to-day affairs of the company in accordance with the articles of association of the
company.6
[s 59.45] Powers of CLB ( now the NCLT ) [Section 111(5) of the 1956 Act; section 59(2) of the
2013 Act]
In dealing with an appeal or application, after hearing the parties, the CLB [now the NCLT] may
dismiss or allow the appeal or application or by order (a) may direct that the transfer or transmission
shall be registered by the company or direct the rectification of the register. Where the order is made
for registering transfer or transmission of shares or debentures the company shall carry out the order
within 10 days of the receipt of the order. (b) Where the order for rectification is made the CLB [now
the NCLT] may also direct the company to pay damages sustained by the aggrieved person.
Provisions of section 111(5) of the 1956 Act, which applies to private companies shall, so far as may
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be, also apply to the proceedings before the CLB [now the NCLT] under section 111A, which now
applies to public companies.
Section 59(2) of the 2013 Act applies to both public and private companies.
[s 59.47] No Power to Direct Member to Transfer Shares
Where notice of intention to sell shares required to be given to existing members by the articles was
not given by the board of directors. It was held that shareholders have no vested right to purchase
shares. The CLB [the Tribunal (NCLT)] can only direct registration of transfer or rectification of
register. There is no specific power in the CLB [the Tribunal] under section 111(5)(b) to direct a
member to transfer his shares to the other member.7
[s 59.48] Powers to Award Costs and Damages
The Court [the CLB (now the Tribunal)] may reject the application. If the Court [the CLB now the
NCLT] is satisfied it may order for rectification of the register and in addition may direct the company
to pay the damages, if any, sustained by any party aggrieved. The costs of the application will be at
the discretion of the Court [the CLB now the NCLT]. Though award of damages appears to be
discretionary.8
[s 59.49] Dividends and Costs
Where the petitioner company was unable to carry on the business of setting up the electronic
industry, its main object. However, it decided to carry out and diversify in the business of investment
in shares, the ancillary object. The company can carry out ancillary object. The act of acquiring
shares by the company for the purpose of investment was therefore not ultra vires. The registration of
transfer of shares could not be refused on this ground. The respondent company was directed to
rectify the register and pay dividends and costs because the respondent company refused to enter
[s 59.50] Alienation of Company’s Assets
An application for order restraining alienation of company’s assets is normally not considered under
section 111(5) and (6) of the 1956 Act. But it may be considered in a case where the controlling
interest in the company was in dispute. Though, there was delay in moving the CLB [now the NCLT],
the sale was permitted subject to approval by the CLB.
Objections to the arbitration award would be permissible even if the order appointing arbitrators
declares that the award shall be final.
[s 59.52] CLB [ now the NCLT ] may Decide Question of Title [1956 Act, section 111(7)]
On an application the CLB [now the NCLT] may decide any question of title of any person whose
name is sought to be entered in or omitted from the register of members. The CLB [now the NCLT]
may decide any question which is necessary or expedient to do so in connection with application for
rectification.
While this is not in the text of section 59, rule 70 of the NCLT Rules, 2016,10 states that the NCLT
may look into issues of title.
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of a company, it is the Company Court under section 155 of the 1956 Act [the CLB now the NCLT
under sections 111 and 111A] alone which would have exclusive jurisdiction to decide all matters
raised in connection with rectification, but within the scope of the rectification provisions of the Act.
Where dispute falls outside the scope of the rectification provisions, it may direct the party to get his
right adjudicated by the Civil Court. On an application under section 111(7) the CLB [now the NCLT]
may decide any question relating to title of shares. The CLB [now the NCLT] can also decide
disputed questions of fact on the basis of evidence on record as to the title to the shares. But, if any
complicated questions are involved the parties should be referred to the Civil Courts.
Where the petitioner has still to establish his title to shares in the company, the non-compliance with
section 108 of the 1956 Act is not fatal to his petition under section 155 [now sections 111 and 111A].
The question of compliance with the provisions of section 108 will arise only if it is found that the
petitioner has title to the shares in question. In the facts of the case, the court directed the
respondents to execute the necessary instruments of transfer and deliver them to the company as
required under section 108 and the company to rectify its registers. Order of the Division Bench had
to be executed and could not be challenged for want of jurisdiction.
The question of title may arise between members and alleged members or between members and
company or alleged members and the company. The Company Court [the CLB; now the NCLT] may
generally decide any question which it is necessary or expedient to decide in connection with the
application, but it will not divide and allot the shares of a joint holder or the deceased member.
[s 59.54] Transfer of Shares—Gift—Blank Transfer Form
In a petition filed under section 111 of the 1956 Act, on the ground that the shares held by the
petitioner in the first respondent company had been illegally transferred in the name of the second
respondent, the petitioner sought rectification of the register of members to insert his name in the
place of the second respondent. The respondents contended that the petition was time barred as the
transfer took place on 31 December 1997, whereas the petition was filed only in June 2001 and that
the shares were gifted to the third respondent by the petitioner by executing blank instruments of
transfer along with undated letter of resignation as a director of the company. It was held (i) That
there was nothing on record to show that either verbally or in writing the petitioner had gifted the
shares. From the copies of the transfer deeds enclosed with the petition it was understood that
except for the name of the company, all other details in the instruments of transfer had been filled in
by someone else. The name of the third respondent did not appear in the transfer instruments at all.
When the petitioner denied that he ever made a gift of the shares, the stand of the third respondent
that the shares were gifted on the sole ground that the petitioner had handed over blank forms could
not be accepted. When there was no evidence of gift and in the absence of share certificates, there
was no question of the petitioner doubting his continuing membership in the company. Therefore,
when he discovered that his shares had been transferred to the second respondent in March 2001
that was the date on which the cause of action to file the petition arose. Hence, the petition was not
time barred. (ii) That since the factum of gift had not been established, the shares could not have
been transferred without consideration even assuming that handing over of blank forms indicated the
intention of the petitioner to transfer the shares. Transfer of shares without consideration was null and
void. Therefore, the prayer of the petitioner for rectification of register of members deserved to be
granted. However, as the relationship between the third respondent and the petitioner had soured,
rectification of register of members would not be in the interest of the company. Therefore, a direction
was given to pay the petitioner the consideration for the shares at the price on or before 31 May
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2005, failing which the company was to rectify the register by removing the name of the second
respondent and inserting the name of the petitioner in respect of the shares.
[s 59.55] Proceedings of CLB ( now the NCLT ) of Summary Nature
The proceedings of the Company Court [the CLB, now the NCLT] under section 155 [now sections
111 and 111A] of the 1956 Act are of a summary nature and may not be entertained if the Tribunal
has to go into the intricate and disputed question of fact requiring voluminous evidence.
[s 59.56] Suit if Adjudication on Affidavits not Possible
When there were a large number of complicated and disputed questions of fact, adjudication on
affidavits was not possible. The parties were relegated to suit.
[s 59.57] Matters when Relegated to Suit
If by reasons of its complexity or otherwise the matter can more conveniently be decided in a suit the
Company Court [the CLB now the NCLT] may refuse relief under section 155 of the 1956 Act [now
sections 111 and 111A and section 58 and 59 of the Companies Act, 2013] and may relegate the
parties to a suit.
[s 59.58] Complicated Questions of Fact
Where the instruments of transfer were not “duly stamped” the company could not be ordered to
rectify the register. If the company had entered the petitioners’ names on the basis of the transfers
effected but later removed their names without sufficient cause raised complicated questions of fact
which could be decided only on trial by evidence. The CLB [now the NCLT] relegated the matter to a
suit. The scope of the question to be decided in an enquiry under section 155 of the 1956 Act [now
sections 111 and 111A of the 1956 Act and section 58 and 59 of the 2013 Act] at the instance of the
transferee of shares does not extend to the scrutiny of matters such as validity of particular article in
the articles of association of the company which could not have been agitated by the transferor in a
suit on account of limitation.
[s 59.59] Matters when not Relegated to Suit
Whether the parties to a petition before the CLB [now the NCLT] should be relegated to a civil suit,
would depend on the facts of a case and it is not the rule that whenever fraud is alleged or
complicated questions of law or facts are involved, the matter should be relegated to a suit.
Even in summary proceedings under sections 111/111A of the 1956 Act, the CLB [the Tribunal] must
see prima facie whether what is stated is a complicated question or not and even if fraud is alleged, if
on the basis of the documents or matters available before it the CLB [now the NCLT] can come to
some conclusion the matter should be decided by it without relegating the parties to suit.
[s 59.60] Complicated Questions, Forgery, Fabrication, Etc.
The CLB [the Tribunal (NCLT)] is not bound to give any relief under section 111/111A of the 1956
Act, if it finds that complicated questions of facts or law or disputes of a complicated nature or serious
disputes relating to title are involved. Where the allegations are of forgery and fabrication of
documents, which cannot be resolved by oral testimony or tested by cross examination, they cannot
be resolved on the strength of the averments made in Affidavits, defeating the purpose and object of
the summary procedure prescribed by section 111 or 111A of the 1956 Act. The proper course in
such cases of complexity, necessitating investigation is to relegate the parties to a civil suit. The legal
position is well settled that the CLB [the Tribunal (NCLT)] in exercise of its discretion would decide,
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on the facts of each case, whether to entertain a petition for rectification under section 111A, despite
seriously disputed controversies, or to relegate the parties to a civil suit. In the instant case, other
than the pleadings there was no other material placed evidencing discharge of the loan amount in full
by the company against the pledged shares. There was variance in the number of share certificates,
shares and transfer deeds lodged with the company for effecting transfer and how the petitioner and
his wife got back possession of the share certificate from the transfer agents which were not in
consonance with the quantum of shares sent to the transfer agents, were discrepancies which
remained unresolved. The issues of forgery and fraudulent manipulation of the transfer entries
appearing in the share certificates were being adjudicated in a competent court of criminal jurisdiction
and, therefore, unless and until the decision of the Court in the pending criminal proceedings was
known, it would be premature to intervene at this stage. The matter could be decided on trial by
evidence. The parties were relegated to the Civil Court for resolving the controversies.
[s 59.61] Pending Civil Suit—Rectification of Register of Members
In the facts of the case, it was found that the matters on issue in the company petition were directly
and substantially an issue in a Civil Suit. Further, there was substantial identity between the matter in
dispute and the parties in the two proceedings. The High Court where the civil suit was instituted was
empowered to grant the reliefs prayed for in the subsequent proceedings before CLB and the final
decision of the High Court would definitely affect the decision of the company petition which was later
in point of time. Further, the disputes, facts, cause of action and the vital documents placed before
High Court and the CLB being common in nature, it as contended that the decision of the CLB on the
very same issue may result on conflicting decisions which must, therefore, be avoided by the CLB.
Further on application of the provisions of section 10 of the Code of Civil Procedure, 1908 (5 of 1908)
the company petition under section 111 of the 1956 Act was stayed till disposal of the civil suit.
[s 59.62] Contempt of Court
The CLB is deemed to be a court as envisaged in regulation 47 for the purposes of the Contempt of
Courts Act, 1971. In exercise of inherent powers under regulation 44 and powers under regulation 47
of the CLB Regulations, 1991, the CLB is empowered to invoke the provisions of section 10 of the
Contempt of Courts Act, 1971 (70 of 1971) for punishing the defaulters for wilful disobedience or
violation of its orders. Where the CLB ordered to maintain status quo with regard to disputed
properties. The report of the Advocate Commissioner showed that there was violation of the CLB
order. It was contempt of the CLB order. The petitioner was at liberty to move the High Court for
invoking its jurisdiction under the Contempt of Courts Act, 1971.
[s 59.63] Appeal to High Court [Section 10F]
An appeal will lie to the High Court from an order of the CLB on a question of law. However, a writ
petition in appropriate cases may be maintainable.
Under the 2013 Act, an appeal from the order of the NCLT lies before the NCLAT.
[s 59.64] Limitation for Rectification Petition
Normally, where no period of limitation is prescribed under any Act, e.g., the 1956 Act, limitation
period for any action before a Court is three years from the cause of action under residuary Article
137 of the Limitation Act, 1963. Section 111(4) of the 1956 Act does not prescribe any time limit
within which the CLB [now the NCLT] shall be approached unlike section 111(3), according to which
an appeal shall be made within two months of the receipt of the notice of refusal or where no notice
has been sent by a company within four months from the date on which the instrument was delivered.
But, the CLB is not a court for the purposes of the Limitation Act, 1963, which does not apply to
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proceedings before the CLB. Even where the Limitation Act, 1963, applies, then the power of
condonation under section 5 of the Act is also available.
[s 59.65] Limitation in Fraud or Forgery to be Viewed Liberally
When fraud or forgery is alleged, the question of limitation is to be viewed liberally. Where the shares
were transferred by the attorney of shareholder surreptitiously in purported exercise of power of
attorney, rectification was ordered. Delay in filing petition could not deprive the petitioner her right to
relief. Technicality cannot itself defeat the cause of justice unless it goes to the root of the matter.
[s 59.66] Limitation for Filing Suit
The period of limitation for filing a suit for rectification of register of members of a company is
governed by residuary Article 113 of the Limitation Act, 1963, which has replaced Article 120 of the
Limitation Act, 1908 (9 of 1908), and which provides a period of three years for filing a suit from the
time the right to sue accrues.
11[s111A] Rectification of register on transfer.—(1) In this section, unless the context otherwise requires,
“company” means a company other than a company referred to in sub-section (14) of section 111 of this Act. The
(2) Subject to the provisions of this section, the shares or debentures and any interest therein of a company shall be
freely transferable:
12[Provided that if a company without sufficient cause refuses to register transfer of shares within two months from the
date on which the instrument of transfer or the intimation of transfer, as the case may be, is delivered to the company,
the transferee may appeal to the 13[Tribunal] and it shall direct such company to register the transfer of shares.]
14[(3)The 13[Tribunal] may, on an application made by a depository, company, participant or investor or the Securities
Exchange Board of India, if the transfer of shares or debentures is in contravention of any of the provisions of the SEBI
Act, 1992 Securities and Exchange Board of India(15 of 1992), or regulations made thereunder or the Sick Industrial
Companies (Special Provisions) Act, 1985 (1 of 1986), or any other law for the time being in force, within two months
from the date of transfer of any shares or debentures held by a depository or from the date on which the instrument of
transfer or the intimation of the transmission was delivered to the company, as the case may be, after such inquiry as it
thinks fit, direct any depository or company to rectify its register or records.]
(4) The 15[Tribunal] while acting under sub-section (3), may at its discretion make such interim order as to suspend the
voting rights before making or completing such enquiry.
(5) The provisions of this section shall not restrict the right of a holder of shares or debentures, to transfer such shares
or debentures and any person acquiring such shares or debentures shall be entitled to voting rights unless the voting
rights have been suspended by an order of the 16[Tribunal].
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(6) Notwithstanding anything contained in this section, any further transfer, during the pendency of the application with
the 16[Tribunal], of shares or debentures shall entitle the transferee to voting rights unless the voting rights in respect of
such transferee have also been suspended.
(7) The provisions of sub-sections (5), (7), (9), (10) and (12) of section 111 shall, so far as may be, apply to the
proceedings before the 16[Tribunal] under this section as they apply to the proceedings under that section.]
NOTES
THE DEPOSITORIES ACT, 1996 (22 OF 1996).—The Notes on clauses explained this section as follows:
THE DEPOSITORIES RELATED LAWS (AMENDMENT) ACT, 1997 (8 OF 1997).—The

provisos to sub-section (2) and sub-
section (3) have been inserted by the Depositories Related Laws (Amendment) Act, 1997 (8 of 1997),
section 10 (w.r.e.f. 15-1-1997).
THE COMPANIES (SECOND AMENDMENT) ACT, 2002 (11 OF 2003).—The Notes on clauses explained the
[s 59.68] Entire section 111 Now Applies to Private Companies Only
The scope of section 111 of the 1956 Act has been restricted to private companies only.
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Section 111 earlier applied to listed and unlisted public companies and to private companies except
that restrictions on transfer might be retained by a private company vide section 111(13). Entire
section 111 now applies to Private Companies only. Section 59 of the 2013 Act, applies to both
private and public companies.
Petition wrongly filed under section 111 in respect of a public company was treated as filed under
section 111A of the Act.17
[s 59.70] Grounds Mentioned in section 111A(3) Sufficient Cause [Section 59(4) of the 2013
Act]
The grounds mentioned in the section would constitute a sufficient cause on which the CLB [now the
NCLT] can order rectification of the register of members under sub-section (3) of section 111A of the
1956 Act. The CLB [now the NCLT] may order rectification of the register of members or order
registration of a transfer. The proviso to sub-section (2) of section 111A relates to pre-registration
issues, while sub-section (3) of section 111A relates to post-registration issues.18 It is pertinent to
note that the distribution of section 58 and 59 of the 2013 Act is based on this distinction.
[s 59.71] Application for Rectification If Transfer in Contravention of SEBI or other Laws [1956
Act, section 111A(3); 2013 Act, section 59(4)]
The CLB [now the NCLT] may, on an application made by a depository, company, participant or
investor or the SEBI, if the transfer of shares or debentures of a public company is in contravention of
any of the provisions of the SEBI Act, 1992, or SEBI Regulations or the Sick Industrial Companies
(Special Provisions) Act, 1985 (1 of 1986) [now sections 424A to 424L of the 1956 Act], or any other
law for the time being in force, within two months from the date of transfer of any shares or
debentures held by a depository or from the date on which the instrument of transfer or the intimation
of the transmission was delivered to the company, after such inquiry as it thinks fit, direct any
depository or company to rectify its register or records.
Section 111A(3) relates to post-registration issues. In case of post-registration, the register of

members can be ordered to be rectified only on three grounds, i.e., (i) if the transfer is in
contravention of the provisions of the SEBI Act or Regulations, or (ii) the SICA, 1985, or (iii) any other
law for the time being in force. The statute has thus restricted the grounds on which a register can be
rectified after registration of transfer.19
[s 59.72] Contravention of SEBI Act or SEBI Regulations
Section 111A(3), inter alia, provides that contravention of the SEBI Act or regulations would
constitute a sufficient cause on which the CLB [now the NCLT] can order rectification.
Where the transfer is in contravention of any of provisions of the SEBI Act or SEBI regulations, it is
mandatory on the part of the CLB [now the NCLT] to order rectification of the register of members.20
A pledgee cannot get the shares transferred in contravention of the SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997. The company may refuse to register the transfer in
contravention of the SEBI Act or SEBI Regulations under section 111A(3) of the 1956 Act. In such a
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case, the CLB [now the NCLT] cannot order rectification of the register.21
[s 59.73] Section 111A Provides Wider Remedy than Writ
Section 111A provides a wider remedy than a writ petition. In view of existence of alternative remedy,
the writ under Article 226 of the Constitution of India could not be granted.22
[s 59.74] UTI Statutory Mutual Fund
In a decision under section 22A of the SCRA [since omitted as a consequence of insertion of section
111A of the 1956 Act] it was held that the Unit Trust of India (UTI) is a statutory mutual fund and is
not covered by the SEBI (Mutual Funds) Regulations, 1993. The board of directors could not
therefore refuse to register the transfer of shares in favour of the UTI on the ground of violation of the
SEBI (Mutual Funds) Regulations, 1993.
[s 59.75] Delay in Dematerialisation
The granting of compensation for the delay in dematerialisation of certain shares and non-issue of
bonus shares was beyond the scope of section 111A of the 1956 Act. Relief could be claimed in
pending civil suit.23
[s 59.76] Transfer of Shares in Dematerialised Form under Loan Agreement
The plaintiff transferred shares under agreement of obtaining loan. The facts established that there
was transfer of shares in favour of the defendant. It was not a pledge of shares. The defendant
obtained a good title. The defendant sold the shares to different parties. The transfer of shares was in
Dematerialised Form. The transactions were governed by the Depositories Act, 1996 (22 of 1996)
and not by the Indian Contract Act, 1872 (9 of 1872). The plaintiff was estopped from asserting the
title against bona fide purchasers from the defendant for value without noticing any defect.24
[s 59.77] Violation of SEBI Guidelines
Apart from the grounds mentioned in section 111A(3) of the 1956 Act, the CLB [now the NCLT] will
not exercise its jurisdiction to decide rectification of the share register. Violation of the SEBI
Guidelines may constitute sufficient ground for rectification.25
[s 59.78] Acquisition by Business Rival
Shares of a public limited company are freely transferable. Refusal to register the transfer is
permissible only on the three grounds specified in section 111A(3). A public company cannot refuse
to register transfer on the ground that the transferee or the petitioner group was a business rival and
investment in shares was mala fide. “Contravention of provisions of any other law for the time being
in force” does not include case law.26
However, violation of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, will
be sufficient cause for refusing to register the transfer.27
[s 59.79] Substantial Acquisition of Shares
The exercise of discretion by the board of directors in refusing to register the transfer of shares must
be bona fide and in the interest of the company or general body of shareholders. Merely because the
transferees wanted to increase the shareholding cannot by itself be a ground in law for refusing to
transfer the shares unless ulterior or oblique motive of the transferees to destabilise the management
is established. To decide whether the two companies would become interconnected, the extent of
shareholding at relevant time alone is to be seen and not future possible acquisitions. The Supreme
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Court while hearing an appeal from the decision of the CLB [now the NCLT] would see whether there
was a bona fide exercise of power by the board of directors while refusing to register the transfer of
shares. An application was made challenging refusal of registration of transfer of shares to ensure
that the ceiling percentage may be avoided so that the companies may not be termed as
interconnected. Refusal by the board of directors to register the transfer of shares for such reason is
not valid. The company was directed to register the shares. It was submitted that because of the
provisions of section 108A of the Act further acquisitions could not take place as to bring up the
shareholding to 25% without first getting the Central Government approval. The Supreme Court,
however, observed that it need not examine this aspect as even with the registration of the transfers
total mark of 25% would not be reached.28
[s 59.80] SEBI Permitting Interim Arrangement
Once the SEBI permits the sale or transfer of shares there can be no impediment in the way of the
applicant acquiring shares of the company. However, where the title to the shares was still to be
decided in the main suit, an interim arrangement was worked out to sufficiently and equitably
safeguard the interest of all concerned.29
[s 59.81] Acquirer and Persons Acting in Concert
Acquirer and persons acting in concert are required to make disclosures under the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997. Mere posting of letter communicating
disclosure is not sufficient. Disclosure is complete only when company receives the intimation. Where
shares were with the depository, the acquirer is not entitled to say that the company could have
discovered acquisition from the transaction statements with the depository. In case of violation of the
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, the limitation of two
months under section 111A(3) starts from the date of knowledge.30
[s 59.82] Acting in Concert in Acquiring Shares Beyond Specified Limit
The CLB [the Tribunal (NCLT)] may direct rectification of register of members on the ground that the
acquisition of shares was in violation of provisions of SEBI Act, 1992 or the SEBI Regulations made
thereunder, such as the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
The CLB [the Tribunal (NCLT)] may pass appropriate order and notwithstanding the powers of SEBI
may look into the same complaint and make appropriate orders. Any act in violation of mandatory
provision is invalid and illegal. The respondents acted in concert in acquiring shares of petitioning
company without disclosing their acquisition beyond 5% within four days. Acquisition of shares
beyond 5% was invalid and there was “sufficient cause” to order rectification of the register of
members under section 111A(3) of the 1956 Act. Shares illegally acquired cannot be taken into
account to consider maintainability of petition under section 399 of the 1956 Act.31
[s 59.83] The Competition Act, 2002 (12 of 2003)
The Competition Act, inter alia, provides for prohibition of anti-competitive agreements [section 3].
Prohibition of abuse of dominant position [section 4]. Regulation of combinations, such as
acquisitions, mergers and amalgamation of certain size [sections 5 and 6] etc.
The provisions of the Companies Act are specific provisions for specific situations. The Court [the
CLB now the NCLT] has no power beyond the scope of those provisions. The supervisory jurisdiction
of the High Court is provided for in Articles 226 and 227 of the Constitution of India. The court cannot
be concerned by the acquisition of a block of shares by an individual or group of persons. All that has
to be assured is that the transfer is made in accordance with the law. Monopoly in shareholdings is a
common feature in companies. The court cannot be concerned if an individual or a group of persons
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acquire block of shares in a company to have more effective hand in the management of the
company. All that the court is concerned with is that the affairs of a company are managed according
to the rules and regulations and not in a manner which may be detrimental to the shareholders in
general. The court is not concerned as to who manages the affairs of a company so long as the
management is done according to the rules and regulations and not in a manner detrimental to the
interest of shareholders in general.
There provisions for interim relief under section 58 or 59 of the 2013 Act are provided in rule 70 of the
NCLT Rules, 2016.32
[s 59.85] Transfer of Shares under Scheme of Arrangement
That the order of the Court under section 391 or section 394 of the 1956 Act (the corresponding
sections under the 2013 Act: sections 233 and 234 are not yet notified), itself has to be construed as
an instrument of transfer and there is no need for separate or fresh instruments of transfer as
contemplated under section 108 of the 1956 Act (section 56 of the 2013 Act). It is immaterial as to
whether the transfer was by operation of law or by contractual/consensual arrangement. Application
for mutation with a copy of the Court order is sufficient to get the name of the transferee company
entered in the register of members. The contention that compliance with the provisions of section 108
was necessary was not sustainable.33
[s 59.86] Scheme of Arrangement, Compromise or Amalgamation
In the appeal before the Supreme Court, the question whether for registration of transfer of shares
effected under a scheme of arrangement or compromise or amalgamation sanctioned by a
competent court under sections 391 and 394 of the 1956 Act (the corresponding sections 233 and
234 under the 2016 Act are not yet notified), it is necessary to execute a further instrument of transfer
as contemplated by section 108 or section 108(1A) of the 1956 Act (section 56 of the 2013 Act) was
raised. As, during the pendency of the appeal, the appellant company had complied with the direction
of the High Court and had registered the original shares in the name of the first respondent the
question raised in the appeal was rendered academic and the appeal had become infructuous. Since
the second respondent had not preferred any appeal against the order of the CLB, its contention that
the decision of the CLB, as applicable to the first respondent would operate in its favour, was not
acceptable. Till such time as the shares were registered in the name of the first respondent, the
application of the second respondent for subsequent registration of the same shares in its name
could not be considered.34
[s 59.87] Transfer to Affiliate or Holding Company under Scheme of Amalgamation
The term “sufficient cause” appearing in the proviso to section 111A(2) of the 1956 Act does not
cover only the grounds in section 111A(3) but other grounds also. A company can refuse registration
of transfer of shares vested in the transferee company by an order of the High Court under section
391 or 394 of the 1956 Act (the corresponding sections 233 and 234 under the 2013 Act are not yet
notified) on sufficient cause. The board of directors of a company does not have inherent power to
refuse registration of transfer of shares. Such power has to be specifically conferred on the Board of
directors by the articles. Even if the articles of association provide for unrestricted or absolute
powers, they should be exercised bona fide and in the interest of the company and not on a wrong
principle or with an oblique motive or for a collateral purpose. Articles of the company did not provide
for power to refuse where the transfer was to affiliate. In the instant case, shares were transferred by
shareholder company to its holding company under the scheme of amalgamation. There was not
proof that the transferee was in competing business. Refusal to register the transfer by the board of
directors was not justified.35
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[s 59.88] Employees Quota
The company by mistake allotted shares to outsiders out of employees’ quota. The company was
allowed to recover the share certificates from the outsiders after ascertaining the views of the SEBI.
However, the company was to work out modalities for repossession of certificates, repayment to
original allottees and allotment to employees, etc. Shares not repossessed could not be forfeited or
cancelled, as that would amount to reduction of share capital.36
[s 59.89] Locus Standi under section 111A(3)
A depository, company, participant or investor or the SEBI may make an application for rectification
of transfer under section 111A(3) of the 1956 Act. Every shareholder has a right and interest in
seeing the share register as correct, in recording the transactions in shares. To make an application a
shareholder need not show the particular prejudice caused to him.37
[s 59.90] Non-Resident Shareholder/FEMA
Where the transfer of shares is regulated by a statute, as in the case of a transfer of shares to a non-
resident which is regulated by the Foreign Exchange Regulation Act, 1973 (46 of 1973) [now the
FEMA, 1999], the permission, if any, prescribed by the statute, e.g., the Reserve Bank of India (RBI),
must be obtained. In the absence of the permission, the transfer will not clothe the transferee with the
right “to get on the register” unless and until the requisite permission is obtained. A transferee who
has the right to get on the register, where no permission is required or where permission has been
obtained, may ask the company to register the transfer. On the other hand, where the requisite
permission is not obtained, it is open to the Indian company and, indeed, it is bound to refuse to
register the transfer of shares of an Indian company in favour of a non-resident. But once permission
is obtained, whether before or after the purchase of the shares, the company cannot, thereafter,
refuse to register the transfer of shares. Nor is it open to the company or any other authority or
individual to take upon itself or himself, thereafter, the task of deciding whether the permission was
rightly granted by the RBI. The permission of the RBI could be ex post facto and conditional.38
See Commentary under section 58 for the registration of transfer of shares involving a non-resident.
[s 59.91] Acquisition of Company’s Assets
A person in acquiring the assets of a company cannot claim that he has acquired the shares held by
the company’s members. Without proper transfer forms his name cannot be entered in the register of
members in place of the existing members. It may be presumed that circumstances were present
when the formalities have been complied with and a purchaser may be entitled to have his name
entered in the register of members.39
[s 59.92] Benami Transactions (Prohibition) Act, 1988
Transfer in contravention of any other law cannot be restricted to company law or law relating to
companies. It means any Law in force at the relevant time. A company may take into account any
violation of the Benami Transactions (Prohibition) Act, 1988 (45 of 1988), in dealing with the question
of the validity of the transfer.40 The transactions in the shares by borrowing money from the banks
and financial institutions cannot be treated as benami transactions or purchase.41 The Benami
Transactions (Prohibition) Act, 1988, will apply only if there is transfer. The 1988 Act is not a piece of
declaratory or curative legislation. It creates substantive rights in favour of benamidars and destroys
substantive rights of real owners who are parties to such transactions and for whom new liabilities are
created by the Act. A statute which takes away the rights of a party must be strictly construed.42
[s 59.93] Securities Contracts (Regulation) Act, 1956
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The Securities Contracts (Regulation) Act, 1956 (42 of 1956) (SCRA),43 which has been enacted to
prevent undesirable transactions in securities by regulating operations and providing for other
matters, applies to quoted and unquoted shares of a public company. Unquoted shares of public
limited companies are also marketable securities. Exemption under section 18 of the SCRA, 1956, is
available only for spot delivery contracts. An agreement for transfer of shares in a public limited
company, not quoted in recognised stock exchange on deferred payment would be illegal and void as
violative of the provisions of the SCRA and the company can refuse registration of such transfer.44
[s 59.94] Unlawful Transactions
Where the transfer of shares is violative of any Law, such as the SCRA, 1956, and the transfer is
invalid, the company can legitimately refuse to register and the Court [CLB (now the Tribunal)] will not
interfere with such decision of the company.45
[s 59.95] Decisions under section 22A of SCRA
In a decision under corresponding section 22A of the SCRA, 1956 [since omitted as a consequence
of insertion of section 111A of the 1956 Act] it was held grounds of refusal specified in section 22A of
the SCRA were directory and nor mandatory. If the board of directors of the company formed an
opinion that there was no sufficient cause for refusal and registered a transfer, it could not later seek
rectification on the ground that transfers were not valid under section 108. There was no equity in
favour of the company and rectification was not allowed.
[s 59.96] Company not Appearing before CLB [ Now the Tribunal (NCLT]
Where the company did not appear before the CLB [now the Tribunal (NCLT] to rebut averments in
reply, the company was directed to register the transfer.
Under standard listing agreement of stock exchanges, securities must be in the marketable lots.
to splitting of the shares and not to transferring them.
Where the transfer deeds for less than marketable lot were returned in accordance with terms of the
rights issue with advice to relodge it after the rights issue record date, it did not amount to refusal.

binding.46
[s 59.99] Odd/Fractional/Marketable Lots—Public Company
In a petition under section 111A of the 1956 Act, the petitioners sought registration of transfer of
shares contending that the company being a public company its shares were freely transferable and
refusal to register the transfer was limited to grounds indicated in section 111A(3) of the 1956 Act,
whereas the respondent bank had refused to register the transfer of shares on the ground that the
transfers were in odd lots and could be allowed only if they facilitated consolidation of odd/fractional
lots into marketable lots or the transfers facilitated reduction in the number of such odd/fractional lots
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holding in terms of Article 29(a) of the articles of association of the company. The CLB held that a
shareholder of a public company had every right to decide the number of shares to be transferred out
of his total holding and therefore, no restriction could be imposed on any shareholder in respect of
the number of shares which could be transferred or sold by such a shareholder. If the practical
difficulties put forth by the bank in registering the transfers were taken cognizance of, it would amount
to circumventing the letter and spirit of section 111A.47
[s 59.100] Suspension of Right in Certain Cases
Under orders of Court [now the NCLT] a company had been wound up. Subsequently with the leave
of the Court [now the NCLT] a notification under section 18FA read with section 18AA of the
Industries (Development and Regulation) Act, 1951 (65 of 1951), was issued. The management of
entire undertaking of the company was taken over by the Central Government. A bank as a pledgee
of certain shares applied for rectification under section 155 [now section 111A] of the 1956 Act under
a decree in satisfaction of its claim. It was held that no order could be made on the application as the
right of the petitioner remained suspended.48
[s 59.101] Pledge or Mortgage of Shares of a Public Company
Section 111A(2) of the 1956 Act provides that the shares of a public limited company are freely
transferable. If a company without “sufficient cause” refuses to register transfer of shares, the
transferee may appeal to the CLB [now the NCLT] for registration of the transfer of the shares.
[s 59.102] Pledgee of Shares Entitled to Invoke section 111A(2) Proviso
the shares are lodged by the pledgee for transfer. The grounds, such as transfer in name of the
lender was not intended, stop transfer instructions by the pledgor, initiation of criminal proceedings
etc., would not be “sufficient cause” to refuse registration of transfer.49
[s 59.103] Rectification of Register—Transfer of Pledged Shares
Company borrowed moneys and by way of security, pledged certain shares. The borrower failed to
pay the outstanding amount of loan and the bank sought registration of the pledged shares in its
favour. The company refused to register the bank in respect of the pledged shares. There was no
documentary evidence that the shares formed part of promoters’ holdings or prior permission was
mandatory for effecting the transfer. The refusal of company to register was not for sufficient cause
under section 111A. The company was directed to register the shares in favour of the Bank.50
[s 59.104] Enforcement of CLB Order
By virtue of section 634A of the 1956 Act an order made by the CLB may be enforced by the CLB in
the same manner as if it were a decree made by a court in a suit pending therein. Upon default being
committed by the third respondent in repayment of the loan amount availed from it, the applicant
bank filed a petition for transfer of equity shares pledged in its favour and the CLB directed the first
respondent company to transfer the shares in favour of the bank within 30 days [CLB decision given
above]. In an application under section 634A of the 1956 Act, alleging that despite repeated demands
the respondent company failed to effect transfer of shares in its favour within 30 days as directed by
the CLB, the applicant sought a direction to the respondent company to comply with the order. The
CLB held that though the order of the CLB was challenged before the High Court, the operation of the
order had not been stayed by the High Court. The company had failed to act in compliance with the
order in spite of opportunity being afforded causing prejudice to the applicant bank. The bench officer
of the CLB was directed to endorse the transfer entries on the reverse of the share certificates of
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equity shares and to give a certificate under the authority of the order that the applicant was the
registered shareholder of the shares specifically indicating therein the distinctive share certificate
numbers and shall be conclusive evidence of the applicant bank becoming the registered
shareholder.51
[s 59.105] Transfer of Pledged Shares–Registration of
The owner of the shares pledged his shares for taking a loan. It was agreed that on any default in
payment of the loan, the said shares could be transferred to the Lender. Further, the share
certificates were duly signed. A memorandum of understanding was executed between the parties
concerned. On death of the transferor, the transferee lender applied for the registration of transfer of
the shares. But the company refused to transfer the shares. The company, however, did not pass any
board resolution in refusing such transfer of shares. On the application of the lender transferee, the
CLB held that the company was duty bound to register the said transfer of shares.52
[s 59.106] Bank giving Loans on Pledge of the Shares
A bank giving loans on pledge of the shares is required to get the shares registered in its name as
per RBI circular. However, for short-term loans the pledge of shares is not required to be registered in
the name of the bank. The refusal by the company on the ground that the shares were not pledged
and facilities availed of were temporary was not a sufficient cause for refusal to register transfer.53 In
the transfer form, the Bank may not mention the consideration amount specially when the shares are
pledged as security for a general balance of account for the borrowal accounts. Moreover, a
nationalised bank is exempted from payment of stamp duty on the transfer documents.54
[s 59.107] Pledge of Shares with Blank Transfer Forms
In the case of a public company the provisions of the SCRA, 1956, are applicable. Therefore, pledge
of shares is a contract to sell and title passes upon the delivery of share certificates and blank
transfer forms. The company cannot plead that acting chairman had no authority, or consideration did
not pass, or there was no intention to transfer shares if loan was not repaid. The company was bound
to register the transfer in favour of the pledgee.55
[s 59.108] Transfer of Shares in Favour of Pledgee—Execution of CLB Order
Where shares in the respondent company had been pledged in the applicant’s favour. Upon default
by the company, the applicant sought registration of the shares in its name, which the CLB ordered.
The applicant then sought enforcement of the order directing the respondent-company to register the
redemption pending before the High Court. In an application under regulations 29(6) and 44 of the
CLB Regulations, 1991, the applicant sought a direction to cancel the endorsement made in the
share certificate on the grounds that (a) the appeals filed before the High Court against the final order
passed directing register of transfer of shares in the name of the applicant were dismissed and the
special leave petition (SLP) before the Supreme Court was also dismissed; (b) the order passed by
the CLB was not subject to any restrictions and therefore the transfer ought not to have been made
subject to any endorsement; (c) the endorsement made was contrary to the orders passed as the
applicant was not in a position to exercise its legitimate right to enforce the securities in realisation of
its dues thereby restricting the applicant to demat the shares with an ulterior motive to delay the
recovery process. The respondent contended that the prayer for removal of the endorsement if
granted would enable the applicant to dematerialise the shares and sell them to realise the dues of
the company in violation of sections 176 and 177 of the Indian Contract Act, 1872 (9 of 1872), against
the interest of the company and the pledgors. The court held that the respondent ought to have
transferred the shares in terms of the order of the CLB which was not couched with any condition or
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restriction. An executing court cannot go beyond the order wherein the respondent was directed to
transfer the shares in the name of the applicant without any rider. The endorsement made in the
share certificate was not in accordance with the order passed. The bench officer was directed to
cancel the endorsement contained on the reverse of the share certificates.56
[s 59.109] Minor—Transfer of Shares through Guardian
The board of directors cannot refuse to register the shares in the name of a minor acting through a
guardian. Articles of the company may provide restriction as to the voting rights but that will not affect
transfer of shares in the name of the minor.57
Where the transfer forms were executed on minor son’s behalf by the mother who was, as per
company’s records, acting as natural guardian throughout. Father as officer was also present at the
board meeting approving the transfer and did not object. The register could not be rectified. Dispute
as to person entitled to act for minor son could be taken before appropriate forum. A person signing a
blank transfer form cannot subsequently challenge any entries made in the transfer form.58
[s 59.110] Transfer during the Minority
Whereof transfer of shares of a minor was registered under the guardianship of the father. Shares
were transferred by the father during the minority. The minor after attaining majority challenged the
transfer and asked for rectification of the share register. No relief could be granted unless fraud
against the company was alleged and proved and the application was within the time. The limitation
will start from the date of transfer and not knowledge. Disputed and complicated questions cannot be
decided under section 155 of the 1956 Act[now section 111A of the 1956 Act and 58 and 59 of the
2013 Act] of the 1956 Act and may be decided in a civil suit.59
[s 59.111] Limitation from Date of Obtaining Majority
Where the allotment of shares in the names of minors was invalid. The company was not entitled to
delete the names of the petitioners from its register of members without the sanction of the court
especially as the interests of the minors were involved. The period of limitation would start from the
date of obtaining majority.60
[s 59.112] Transfer of Shares to Trustee
A public company cannot refuse transfer of shares on the ground that some of the shares were part
of a trust. The company cannot take notice of trust but shares may be registered in the name of
trustees.61
[s 59.113] Transmission on Death of the Trustee
Holding of shares by a trustee in his name on account of trust is permissible in law. Where shares
were held in names of a trustee, on the death of the trustee, transfer of shares in the names of other
trustees was refused on the ground that no notice of trust was given to the company. The shares
were shown as part of assets in the balance sheet of the trust. No legal heir of the deceased trustee
sought transmission of shares. The shares were directed to be transmitted in the names of other
trustees.62
[s 59.117] Death of Trustee—Trust Entitled to Rectification of Share Register
The trustee was holding shares on his own name on account of trust. The trustee died and the
register of shares in the names of other trustees was refused on the ground that the company was
not given notice of any trust. None of the legal heirs of the deceased trustee sought for transfer of the
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shares. In the succession certificate the shares were not included. The trust was entitled to
registration of the said shares.63
[s 59.118] Trust Deed for benefit from Shares in Favour of Beneficiary
The object of section 153 of the 1956 Act is that a person dealing with the company may not be
affected by the entry of any kind of trust in the register of members, but the company can take notice
of or recognise any trust brought to its notice otherwise than by entry in the register. Where the
shares were subject to perpetual trust. The company was paying dividends to the beneficiary. Under
the trust deed, the trust was to continue for its beneficiary even after the death of the author. The
intention of the author of the trust was very clear that membership should continue and the
beneficiary should continue to get the benefit from shares. Therefore, the share could not be
entrusted to the legal heirs. The company had rightly refused registration of transfer of the share in
the register of members. However, the company was to take note of or recognise the trust which had
been brought to its notice otherwise than by entry in the register. The CLB was not justified in
directing the company to transfer the share in favour of the legal heirs and the order of the CLB was
set aside.64
[s 59.119] Lien on Shares
The purchaser of shares is not expected to find out if lien exists on such shares. Registration of
transfer cannot be refused on this ground.65
[s 59.120] No Lien after Transfer of Shares Lodged
After a transfer of shares is lodged with the company, the company cannot have a right of lien so as
to defeat the transfer.66
[s 59.121] No Counterclaim—Policy Guidelines of Company
Where no counterclaim to shares was made for 14 years after death of the petitioner’s father. The
board of directors were calling for succession certificate or probate of will of deceased shareholder.
The company was directed to register shares in the name of the deceased shareholder’s son subject
to his complying with policy guidelines of the company.67
[s 59.122] Transmission—Delay by Heir in Seeking Rectification
Where shares at the time of death of the shareholder were under attachment. Both the heirs together
got the attachment lifted. The shares were transmitted in favour of one heir. On petition for
rectification of register by the other heir the delay in seeking rectification was not explained. The facts
showed that the transfer of shares by the deceased shareholder was made prior to death in favour of
the other heir. The validation was not disputed and no claim to shares was made in suit for partition.
The petition for rectification was held to be not maintainable.68
[s 59.123] Transfer of Shares to Heir by Deceased Shareholder Prior to Death
The shareholder died and the shares held by him were remaining attached. The heirs of the
deceased shareholder got the attachment lifted and the shares were transmitted in favour of one heir.
The other heir, the petitioner, challenged the transfer and applied for rectification of the share
register. The petitioner could not explain delay in seeking the transmission of shares. The facts,
however, showed that the shares had been transferred by the deceased shareholder prior to his
death in favour of the other heir who applied for rectification of the share register. A suit was pending
in relation to assets of the deceased but the said shares were not the subject matter in the said
partition suit. The petition for rectification was dismissed.69
[s 59.124] Shares Validly Transmitted—Decision to Re-transmit Shares Void
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In a case of oppression, a member has to specifically plead on five facts—(a) what is the alleged act
of oppression; (b) who committed the act of oppression; (c) how it is oppressive; (d) whether it is in
the affairs of the company; and (e) whether the company is a party to the commission of the act of
oppression. A petition was filed under sections 397 and 398 of the 1956 Act, contending that
33,96,700 equity shares held by the late husband of the petitioner in the respondent company had
been rightly and legally transmitted in her name and any attempt for re-transmission of the shares
was illegal and oppressive and the company petition under section 111A deserved to be dismissed
being not maintainable. The respondents filed a cross petition under section 111A of the 1956 Act,
contending that the shares were intended to be of the family firm. It was held that there were specific
averments by the petitioner as to who committed the act of oppression and how the company was a
party to the oppression. The chronology of events revealed that the respondents had acquiesced in
the transmission of shares in their sister-in-law’s name after the death of their brother who was the
key promoter and chairman and managing director of the company. The company had issued a
single share certificate to the deceased husband of the petitioner. The shares had been duly
registered in his personal and individual name and his name was duly entered in the Register of
Members of the company. In case these shares were intended to be of the family firm there was no
bar in holding these in the name of the only other partner but this was not done. Therefore, it was
clear that the shares stood in the name of the petitioner’s late husband. No shareholding was proved
in the name of the firm. The firm had not been impleaded as a party. The respondents were not
represented in the capacity of partners of the firm. Hence the petitioner’s application to the company
for transmission of 33,96,700 shares along with affidavit of legal heirs and deed of relinquishment
executed by the three daughters in her favour enclosing with indemnity bond and death certificate
was justified. The resolution to consider and approve the transmission was sent to all directors and
three out of five directors sent their approval. Two respondents showed reservation for the
transmission only on the ground that the said shares were pledged as security with IDBI and
transmission was not possible unless and until permission from IDBI was received in writing. They
had stated further that after seeking approval from IDBI, the board resolution could be passed. No
objection regarding title to the shares was raised then, which amounted to implied consent. The
circular resolution thus approved by the majority of the board of directors was, in pursuance of
regulation 7(1) and (3) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
1997 and regulation 13(1) and (6) of the SEBI (Prohibition of Insider Trading) Regulations, 1992,
reported to the company and to the stock exchanges in the prescribed format. The petitioner became
the registered owner of 33,96,700 shares in the company. Respondents had not made any efforts or
steps to stop the transmission process or raised objections regarding title to the shares. The
completion of the transmission process was well within their knowledge and they had acquiesced in
the entire process till they thought of a supplementary partnership deed and hence proceeded with
board’s meeting for the only agenda of re-transmission of shares. Without following the proper
procedure for re-transmission such an act was nothing but oppressive to the petitioner to whom the
shares had been validly transmitted. The board’s resolution regarding re-transmission of shares was
accordingly set aside. The petition under section 111A of the 1956 Act was not maintainable and was
dismissed.70
A purchaser of shares in Court sale is entitled to be registered without having to produce transfer
deed. The prohibition contained in section 108(1) is not applicable to the transmission of shares as a
result of an order of a court of law. When a person has become the owner of shares as a result of a
court auction he is entitled to be recorded as a member of the company.71
[s 59.126] Family Company—Transfer of Shares—Rectification of Register
The registered office of company at the time of the petition was situate at Delhi. The petitioner was
under the jurisdiction of the Delhi High Court. Thereafter the registered office was shifted from Delhi
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to Ludhiana after obtaining approval of the CLB. After several years, an application was made for
rectification of the register of members of the company to the Delhi High Court which declared that
after shifting of the registered office to Ludhiana, the Punjab and Haryana High Court had the
necessary jurisdiction and not the Delhi High Court in the matter. An application was made for
Rectification of the register of members accordingly for transfer of shares. An order of settlement was
made with regard to the shares of one son only in a family company. Thereafter, an application was
made for distribution of properties and shares of the company and other family members by metes
and bounds. In the facts and circumstances of the case, the Delhi High Court held that it had no
jurisdiction after disposal of the main petition.72
[s 59.127] Interlocutory or Interim Orders [1956 Act, section 111A(4); 2013 Act, section 59(3)]
The CLB [now the NCLT], while acting under sub-section (3) may make interim order to suspend the
voting rights before making or completing such enquiry. Rule 70 of the NCLT Rules, 2016, provides
for interim relief. However, the case law pertaining to the same has been discussed below.
[s 59.128] Power of CLB [ now the NCLT ] to Make Interlocutory Orders
The power of a company to refuse registration of transfer of shares is not absolute. The company is
not bound to go behind the deed of transfer and enquire into the validity thereof. Section 45 of the
Contract Act, 1872, is not relevant as between the company and the transferee of the shares. Any
member [now Investor], whether aggrieved or not, has a right to apply to the Court [the CLB now the
NCLT] for a rectification order and the Court [the CLB now the NCLT] may make such an order even
in an interlocutory proceeding. The Court [the CLB, now the NCLT] will presume the correctness of
the minute book unless challenged.73
[s 59.129] Stay of Proceedings Pending Arbitration
Where the rectification proceedings are pending before the CLB [now the NCLT] though the parties
are one and the same but the dispute before the High Court is not identical with the dispute pending
before the CLB [now the NCLT], the Court will not stay such proceedings before it. There was an
agreement between Indian and German company for transfer of shares in the Indian company by
German company. The agreement provided for international arbitration of disputes. The company
refused registration of transferee as member for lack of RBI approval. The transferee sought
rectification under section 111 [now section 111A] of the 1956 Act. In an appeal in another
proceeding from the order of the CLB rejecting an application under section 34 of the Arbitration Act,
1940 (10 of 1940) [now the Arbitration and Conciliation Act, 1996 (26 of 1996)], the transferor sought
stay in the proceedings for rectification under section 111 [now section 111A] pending arbitration of
dispute under the agreement. The Indian company was not a party to the arbitration agreement.
Other issues were also before the CLB outside the scope of the agreement. All the transactions were
carried out in India. Arbitration was to take place in Switzerland. For all these reasons, the High Court
held that as the transferee might find it difficult to enforce the rights, this was not a fit case where the
discretion of granting stay under section 34 could be exercised. The stay was not granted.74
[s 59.130] Interim Orders not Precedents
The interim orders passed by particular courts on certain considerations are not precedents for other
cases which may be on similar facts. Every bench hearing a matter on the facts and circumstances of
each case should have the right to grant interim orders on such terms as it considers fit and proper
and if it had granted the interim order at one stage, it should have the right to vary or alter such
interim orders. A consensus has to be made in the matter of interim orders. Interim orders should not
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be made for the mere asking. Prima facie case, balance of convenience and public interest must be
considered.75
[s 59.131] Right to Transfer and Voting Rights [1956 Act, section 111A (5); 2013 Act, section
59 (3)]
The provisions of this section shall not restrict the right of holder of shares or debentures to transfer
such shares or debentures. Any person acquiring such shares or debentures shall be entitled to
voting rights unless voting rights are suspended by an order of the CLB [now the NCLT].
[s 59.132] Transferee—Nature of Right
in the company’s register. However, as between transferor and transferee the transfer of shares is
complete from the date of transfer. As between transferee and the company, the transfer is complete
and the transferee becomes a shareholder or member when the company registers the name of the
transferee. On the transfer of shares the transferee becomes the owner of the beneficial interest
though the legal title continues with the transferor. Transferor is bound to comply with all the
reasonable directions that the transferee may give. He is also a trustee of the dividends as also of the
right to vote. However, the transferee should be diligent in getting his name registered.76
[s 59.133] Dividend, Rights Shares, Bonus Shares in the Interregnum
The board of directors must either register or refuse to register the transfer within the time limits. In
case of lack of information whether the transferee was an investment company there was no option
with the board of directors to retain the securities beyond the time limits. The liquidator empowered
by resolution to take action in all outstanding matters can move the CLB [now the NCLT] for
rectification. The shares were ordered to be registered in the company’s name. The company was
entitled to arrears of dividend, rights shares/debentures issued in the interregnum.77
The Court [the CLB, now the NCLT] has power to direct payment of dividends from the date of
transfer.78
Where transfer documents were returned to the transferees to relodge after rectifying certain defect.
The petitioner relodged rectified documents by registered post, but it was lost and not received by the
company. In the meantime, the company issued bonus shares to the transferor as shares were
continuing in the transferor’s name. It was held that there was no obligation on the company to issue
bonus shares and compensation as claimed by the petitioner. The transferee was not entitled to the
bonus shares issued in the interregnum. However, the transferee could proceed against the
transferor in respect of said bonus shares at the appropriate forum.79
[s 59.134] Bonus Shares Always go with the Original Shares and once the Shares are
transferred, the Transferor is only a Trustee of the Bonus Shares
The petitioner purchased 100 equity shares in the first respondent company from the second
respondent and sent the share certificate through post to the company for registration. The company
received it on 10 December 1991, but did not take any action to register the shares in the name of
the petitioner. Later it informed the petitioner that it had not received the share certificate and the
Transfer Instrument. Meanwhile, the company declared 60 bonus shares on two occasions against
the 100 shares of which the Certificate relating to the first 60 bonus shares was sent to the
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Transferor, i.e., second respondent. The certificate relating to the second issue of 60 bonus shares
was with the company. In a petition filed under section 111A of the 1956 Act, seeking transfer of the
120 bonus shares or in the alternative a direction to the company to issue duplicate certificates in
respect of these 120 bonus shares. Allowing the petition, the CLB held that from the certificate issued
by the Department of Posts it was seen that the registered letter sent by the petitioner containing the
original share certificate along with the instrument of transfer had been received by the company a
month before the record date of 15-01-1992. If the company had acted on the instrument of transfer
immediately, the name of the petitioner could have come on the Register of members on the record
date and he would have received the bonus shares. Due to some fault, the company could not trace
the documents sent by the petitioner. The transferor, the second respondent, could not take
advantage of the loss of the certificate admittedly received by the company. Bonus shares always go
with the original shares and the transferor holds the bonus shares only as a trustee for the transferee.
The facts that the original shares had been sold by the second respondent before the record date
and that there was no denial from him that the shares were not sold “cum bonus” and since the
shares were lodged for transfer nearly a month before the record date, made it clear that it was the
petitioner who was entitled to the 60 bonus shares of 1991 and consequently the 60 bonus shares of
1994. Accordingly, the company was directed to take necessary action to get the register of members
rectified in respect of 120 bonus shares by inserting the name of the petitioner in place of the second
respondent and issue duplicate certificates by cancelling the original certificates after issue of notice
to the second respondent.80
[s 59.135] Rectification of Register of Members—Bonus Shares
The petitioner purchased equity shares in the respondent-company in 1994. However, they were
registered in his name in the register of member of the company only in 2002. Meanwhile the
transferor died. The respondent company refused to register the bonus shares issued in the
interregnum in the name of the petitioner taking the stand that the bonus shares should be first
transmitted to the legal heirs of the deceased shareholder and then transferred to the petitioner on
execution of the transfer instruments by such legal heirs in the name of the petitioner. On a petition
filed under section 111A of the 1956 Act, for rectification of the register of members of the
respondent-company in respect of the bonus shares issued by the company in the year 1997.
Dismissing the petition, the CLB held that a shareholder becomes entitled to the benefits arising in
respect of shares only after his name is registered in the register of members of a company. The
petitioner became a registered shareholder only in the year 2002 even though the instrument of
transfer transferring the shares was executed in the year 1994. Therefore, the company was right in
issuing the bonus shares in the name of the original shareholder whose name was in the register of
members at the time of declaration of bonus shares. Since the original shareholder had expired, in
the absence of details regarding the existence of legal heirs of the original transferor it would not be
proper to consider the prayer of the petitioner. An order of rectification of register of members could
be made only if sufficient cause was shown. In any case the petitioner had to first establish his right
over the shares vis-à-vis the legal heirs, if any, before an appropriate forum.81
[s 59.136] Powers of CLB [ now the NCLT ] to Award Damages
The Court [the CLB now the NCLT] may reject the application. If the CLB [now the NCLT] is satisfied
it may order for rectification of the register and in addition may direct the company to pay the
damages, if any, sustained by any party aggrieved. The costs of the application will be at the
discretion of the CLB [now the NCLT]. Though award of damages appears to be discretionary.82
[s 59.137] Costs and Damages
It has been held that the aggrieved person if succeeds in his prayer for rectification, is entitled to
damages besides costs.83
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Where it is found that the company or its directors acted wrongfully in refusing to register the transfer
of shares it would be proper for the court to ask the company or its directors to pay the costs of the
application.84
[s 59.138] Dividends, Bonus Shares and Compensation
Where the company received the transfer documents but did not register it and instead issued
duplicate share certificates to the transferor. The company was held to be negligent and directed to
rectify the register and pay the dividends and bonus shares issued in the meantime and also directed
to pay compensation. The transferee was entitled to be issued share certificates under section 113(3)
of the Act.85
[s 58.139] Restitution Proceedings for Interest
Where the CLB [now the Tribunal] directed rectification of the register of the bond holders and
payment of redemption value of bonds. On appeal, the High Court modified the order, but the
Supreme Court restored the order of the CLB for payment. The payment was made after the
Supreme Court order. In restitution proceedings the bond holders were held entitled to interest for
period from date of CLB order.86
[s 59.140] Rectification of Register of Members—No Power to Order Cost of Shares
The petitioner bought 100 shares in the first respondent company and sent the share certificates
along with instruments of transfer to the company but the shares were not registered in her name.
Later, the company informed her that the shares were registered in the name of the second
respondent and advised her to obtain an injunction from a Court to prevent further transfer of shares.
The petitioner filed a suit for injunction but the Court dismissed it on the ground that it had no
jurisdiction to entertain the suit. On a petition under section 111A of the 1956 Act, the petitioner
sought for the cost of shares at the rate at which she purchased the shares along with all the benefits
accrued on the shares and compensation. Dismissing the petition, the CLB held that the petitioner
had furnished proof of her purchasing the shares but there was nothing in the petition to indicate the
mode and manner by which they were sent for registration. She did not furnish the postal receipt or
acknowledgment. Though she had stated in the petition that she had written letters to the company
after the lodgment no copies of the letters allegedly written by her had been filed. According to the
company, the first communication received from her was after 11 months of the alleged dispatch by
her. Thus, the petitioner had unduly delayed taking up the matter with the company. If she had sent
the postal receipt or particulars it could have been found out whether the shares had been lost after
receipt by the company, in which case the company could have been made responsible for the loss
of the share certificate. Further, it was to her knowledge that the second respondent had already
transferred the shares but the transferee had not been made a party to the proceedings. The
petitioner had not asked for rectification of the register of members, but had sought for the cost of the
shares. The company could be held liable only if the petitioner was able to establish that it had
received the documents sent by her but had not acted on the same or that the transfer instrument
lodged by the second respondent was forged and it had acted on the forged instrument of transfer.
The petitioner could not establish the company’s fault. Moreover, there was no scope to pass such an
order under section 111A, which was limited only to rectification of the register of members.87
[s 59.141] Interest for Wrongly Forfeiting Bonds
Where the company acted wrongly in forfeiting the bonds, the CLB [now the NCLT] directed the
rectification of register. As certain bonds had matured the company was held liable to pay 12%
interest from the date of maturity till the repayment.88
[s 59.142] Exemplary Costs—Scrips Wrongly Returned to Transferor
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Where the documents were lodged with the company by the transferees. Refusal by the company of
the shares in question was not justified. The company was directed to register them in the appellants’
names. The company was also ordered to pay exemplary costs to the transferees. As with a view to
harass the transferees the company retained the transfer deeds and returned the scrips to the
transferors. This was against the commercial practices and Guidelines of the Ministry of Finance [now
SEBI Guidelines for Good or Bad Delivery of Documents]. The scrips should have been returned to
the party lodging the documents. This created a number of legal complications for registration of
shares in the names of the rightful owners and possible third party rights. Such action was totally
against the objective and spirit behind the public policy of free transferability of shares. The company
was also directed to retrieve scrips from the transferors or issue duplicate share certificates to the
transferees.89
The Central Government [the CLB now the NCLT] after giving reasonable opportunity to the
company, the transferor and the transferee or the person who gave intimation of the transmission and
the previous owner, if any, after considering their representations [now after hearing the parties]
make its Order. It may give directions as to the payment of costs and other consequential reliefs. As
the dispute between the parties relates to the civil rights and the Act provides for a right of appeal and
makes detailed provisions about hearing and disposal according to the law, the inference is that a
duty is imposed upon the Central Government [the CLB now the NCLT] in deciding the appeal to act
judicially.90
The Order of the CLB [now the NCLT] must be a speaking or reasoned order. An order in violation of
the principles of natural justice or amounting to denial of natural justice shall be liable to be
quashed.91
[s 59.144] Jurisdiction to Decide All Questions on Rectification
of a company, it is the Company Court under section 155 [the CLB; now the NCLT under sections
111 and 111A] alone which would have exclusive jurisdiction to decide all matters raised in
connection with rectification, but within the scope of the provisions of the Act. Where dispute falls
outside the scope of the rectification provisions, it may direct the party get his right adjudicated by the
Civil Court.92
The CLB [now the NCLT] has jurisdiction to decide all matters in connection with rectification of
register of members under sections 111 and 111A but within the scope of the rectification provisions
of the Act. On an application under section 111(7) [now applicable to public companies (vide section
111A(7)], it may decide any question relating to title of shares. However, as regards title, it is well
known that the decision by the Civil Court is always preferable. The expression used in section
111(7) [read with section 111A(7)] is “may.” That itself is an indication that Parliament intended that
the decision of Title relating to the shares should be incidental. If complicated questions outside the
scope of rectification provisions are involved the CLB [now the NCLT] will not decide the said
questions on an application for rectification of register on transfer. In such cases, Suit is the proper
remedy. The CLB [now the NCLT] has to examine as to whether any complicated questions of title,
forgery, fabrication or similar matters are really involved and if such complicated questions of law and
facts are involved then the parties should be referred to the Civil Courts. In whatever way the CLB
[now the NCLT] decides it must give sufficient reasons. If the CLB [now the NCLT] fails to consider as
to whether there are complicated question then on appeal the matter is liable to be remanded to the
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CLB [now the NCLT] for reconsideration.93
[s 59.146] Decide Title after Hearing all the Parties
Although the CLB [now the NCLT] has the power under section 111(7)/111A(7) to decide any
question relating to title of any person to the shares in question, for doing so, such a person should
necessarily be a party to the petition. The CLB [now the NCLT] cannot order rectification of the
register which will adversely affect the interests of third parties, without hearing all the parties.94
See Rule 70 of the NCLT Rules, 2016,
[s 59.147] Shares Lost in Transit—Insurance Company Claiming Title
The petitioner insurance company insured a member of the NSE (NSE), to cover certain losses
suffered by the insured. The insured sent the share certificates in question relating to shares, in the
respondent company along with the transfer deed duly executed by respondents but they were lost in
transit. The insured filed a suit and obtained an injunction restraining the company from transferring
the shares and lodged an insurance claim with the petitioner. The petitioner settled the claim of the
insured. The insured executed a letter of subrogation cum special attorney and transferred all the
ownership rights, title and interest in the shares covered under the claim. Meanwhile, the respondent,
a third party, lodged the share certificates with the company for transfer in its favour through its
custodian and constituted attorney. The company withheld the documents on account of the status
quo order. On a petition filed under section 111A of the 1956 Act seeking rectification of register of
members of the first respondent company by substituting the petitioner’s name in respect of 50
shares jointly held by respondents and to issue duplicate certificates in respect of these shares and
to pay all accrued dividend and benefits to the petitioner, the first respondent company inter alia
contended that the petition was not maintainable as barred by limitation and the CLB had no power to
decide the title of shares. In the facts and circumstances of the case, the CLB held (i) That although it
had come to the knowledge of the petitioner that respondents had lodged shares for transfer in its
favour as early as September 2000 since the order of injunction operated against the company from
effecting the transfer in respect of the shares the plea of limitation raised on behalf of the company
was unwarranted. (ii) That the CLB was empowered to decide the question of title to the shares
under section 111A(7) read with section 111(7) of the Act. The petitioners had become entitled to
shares in question on discharging the loss suffered by the insured. The respondent, a third party,
could not have any title to the shares, since in terms of section 27 of the Sale of Goods Act, 1930, a
buyer of stolen property could not get better title than the seller, particularly where the seller himself
was not authorised to sell these shares. Therefore, the company was
directed to register these shares in the name of the petitioner and rectify the register of members.1
[s 59.148] Transfer of Shares—Loss of Share Certificates—Transferee Lodging FIR
In a petition under section 111A of the 1956 Act, the petitioner (transferee) sought a direction to the
first respondent-company to register his name in the Register of Members of the company
contending that he had purchased 1,000 equity shares of the first respondent-company through the
third respondent and the share certificates along with the blank transfer forms were lost and an FIR
was lodged in that connection. On intimating the company of the loss he was advised to furnish a
prohibitory order from a competent court to prevent further transfer of shares. A suit was filed and an
order of injunction was obtained. In the meanwhile, the petitioner furnished indemnity bond and other
documents to enable the company to issue duplicate certificates. The suit was dismissed for want of
jurisdiction and an appeal was preferred. Upon receiving a copy of the letter sent to the second
respondent the petitioner became aware that the second respondent claiming himself to be the
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registered owner of the shares informed the company that he had lost the share certificates and
sought to be impleaded in the appeal filed by the petitioner. On the appeal being withdrawn with
liberty to approach the CLB, the CLB held that from the various documents produced by the petitioner
(transferee) it was evident that the petitioner was the purchaser of the shares for valuable
consideration. In the absence of share certificates and the Instruments of Transfer, the conduct of the
parties assumed importance. Even though the respondent (registered owner) had knowledge of the
loss of the share certificates in the year 2000 itself, he had failed to take any action such as filing an
FIR or taking up the matter with the company by enquiring about the dividend, etc., whereas the
petitioner (Transferee) had pursued his case from 1995 culminating in the petition under section
111A of the 1956 Act. Therefore, equity was in favour of the petitioner (transferee) and he was
declared as the real owner of the shares. The company was directed to enter the name of the
petitioner (transferee) in the register of members and deliver 500 new series equity shares and 5
debenture certificates.2
[s 59.149] Disposal on Affidavits—Cross-Examination of Deponents
Where the intensity, the depth and the sweep of the allegations require evidence to be taken, tested
by cross-examination of deponents and witnesses, the purpose of a suit can be served if the
Company Court [the CLB; now the NCLT] hears the application for rectification of register and
disposes of after taking into consideration the evidence to be adduced by the parties, both oral and
documentary, after discovery and inspection of documents by the parties. The application was
remanded for disposal after taking into consideration the evidence, both oral and documentary.3
[s 59.150] Civil Suit—Rectification Common Law Right
jurisdiction of the Civil Court in appropriate cases is not barred where complicated questions of law
and fact arise. The Civil Court also has power to suspend voting rights by way of interim order where
shares were acquired in breach of SEBI Regulations and were void. The Court may also define terms
used in the SEBI Regulations, such as, “acquirer,” “person acting in concert,” etc.4
[s 59.151] Rectification/Suit Discretionary and Equitable Relief
Rectification of share register under section 155 (sections 111 and 111A of the 1956 Act or in a suit is
a discretionary and equitable relief and the conduct of the plaintiffs as well as the position to which
the defendants would be reduced if rectification is allowed are to be considered. Where the
guidelines issued by the government provided that any assistance exceeding Rs 50 lakhs must
contain a convertibility clause and this made it imperative to have that clause. Allotment of shares to
the financial institutions holding the debentures by way of conversion thereof was valid.5
[s 59.152] Rectification of Register of Members—CLB’s Jurisdiction—Civil Suit
The CLB [the Tribunal (NCLT) (w.e.f. date to be notified)] has no exclusive jurisdiction over all the
matters relating to companies but only in respect of matters provided by the 1956 Act. The CLB is a
Tribunal and not a Court. Proceedings before the CLB are not suit. The CLB has some of the
trappings of a Court yet given the scope, functions, the special jurisdiction conferred upon it and the
control of the Central Government over it the CLB cannot be regarded as a Court. A comparison of
reliefs sought by the appellants before the Civil Court and the respondents before the CLB showed
that they were different. The scope of enquiry in the Company Petition filed by the respondent before
the CLB was different and distinct from the scope of enquiry in the Suit previously instituted by the
appellants in the Civil Court. In facts of the case, the order of CLB was not interfered with by the
Appeal Court under section 10F of the 1956 Act.6
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See also Notes under sections 465–466, 408 and 241, 2013 Act (sections 10, 10E, 10F, 10FA, 10FB
and 397, 1956 Act).
[s 59.153] Duplicate Share Certificates—Limitation—Suit—Rectification
No duplicate share certificate shall be issued in lieu of those that are lost or destroyed except on such
conditions in regard to, among other things, indemnity as the Board thinks fit. On receipt of a
complaint by the respondent of non-receipt of the share certificates in respect of 300 bonus shares
allotted in his favour, the first petitioner company claimed to have despatched the share certificates to
the address given in the share application form and produced the computer generated statement of
the General Post Office as proof of having despatched the share certificates. In the meantime a suit
was filed by a third party for specific performance of contract of sale purportedly entered into by the
respondent in respect of 100 shares covered under the share certificate number despatched in favour
of the respondent. In a petition under section 111A read with sections 84 and 113 of the 1956 Act,
the petitioners sought a direction to the respondent to furnish an indemnity bond and a declaratory
affidavit with distinctive numbers to enable the company to issue duplicate certificates alleging that
the respondents were demanding the duplicate share certificates without complying with the
requirement of section 84. The respondents contended that the petition was barred by limitation as it
ought to have been preferred within 3 years from the cause of action as it fell within the purview of
section 2(b) of the Limitation Act, 1963 (36 of 1963). In the facts and circumstances of the case it was
held (i) that the share certificates despatched in October 1997, neither reached the respondent nor
were returned undelivered to the company. The despatch journal only established the despatch of
any letter or article but was not a conclusive proof of service of the letters or article to the addressee
concerned. It was futile to go into the controversies regarding despatch of share certificates after a
lapse of more than 8 years. Any rectification would arise only on issuance of duplicate certificate,
therefore it could not be said that the petition was barred by limitation. (ii) That the judgment and the
decree passed in the Civil Suit upholding the title of the respondent to 100 shares became final and
binding on the parties to the Suit including the petitioners and the respondent, thereby making the
respondent absolutely entitled to the other 100 bonus shares issued in the year 1999. There was no
complaint by the company of any other claimant in respect of these shares. There was, therefore, no
need on the part of the company to insist on any indemnity and declaratory affidavit before issuing
the duplicate share certificate in respect of the shares in question.
[s 59.154] Monetary Claims Only in Civil Court
Title of an applicant to have his name entered in or omitted from the register of members can be
decided in proceedings for rectification of register on transfer in case of public companies under
section 111A. Under section 193 the company is bound to keep minutes of the proceedings of all
meetings and in absence of a minute evidencing authorisation for collection of money or conversion
of the money into shares, a person is not prima facie entitled to rectification of the share register.
Persons having monetary claims against a company by way of loans or otherwise do not come under
this section seeking to be made shareholders by conversion of their credits into shares. Claims for
money can only be made in Civil Court. An employee who gave loans to the company alleging
assurance to convert the loan into shares but without any record of such assurance is not entitled to
rectification of the share register for inclusion of his name as a member.7
[s 59.155] Tradable Warrants neither Shares nor Debentures
The petitioner under section 111A should show cause of action such as the company refusing to
register the transfer of shares or requires rectification of register of members if the shares have
already been transferred in violation of the condition enumerated in section 111A(3) of the 1956 Act.
The tradable warrants in question were neither shares nor debentures. There was no case of refusal
to register the transfer of the shares or debentures or rectification of register on transfer of the shares
or debentures. The dispute in question was outside the ambit of section 111A and hence no relief, as
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prayed for, could be granted. The petition was dismissed.8
[s 59.156] Rectification/Change/Mutation of New Name
The certificate of incorporation issued by the registrar of companies changing the name of a company
is conclusive. After the change of name the company is entitled to ask other companies in which it
holds shares to rectify, substitute or mutate its new name in their Register of Members in place of the
old name. When the shareholder was registered as a company in the UK. The certificate of
incorporation issued to the company by the registrar in the UK would be conclusive of change of
name of the shareholder company. The allegation of fraud were not sufficient to make out a case
against rectification. The rectification of name was allowed.9
[s 59.157] Fraudulent and Forged Transfers
Where the petitioner alleged that the company had forged his signature on transfer documents and
sought rectification as his name was wrongly deleted from the register. The company claimed that the
documents were not forged. The matter was also in dispute before the criminal court. Held, in
summary proceedings under section 111A of the 1956 Act it was not possible for the CLB [now the
Tribunal (NCLT] to make a roving enquiry into the matter as the Criminal Court was already seized of
the matter. The finding of the Criminal Court on the question of forgery shall determine the
entitlement of shareholder to rectification.10
Where a public company following Listing Agreement [Clause 12A] and Circular No. 3 of 1993, dt. 22
March 1993 [printed in Notes under section 108] registered the transfer when the documents were
duly executed and lodged with the signature of the transferor attested by proper authority and
company found no difference in the signature. Transfers were registered in accordance with
requirements before the stop order from the transferor. The registration was not illegal or improper.
The transferor after losing share certificates did not lodge complaint with the police. The transferor
did not implead transferees as parties to the petition. In view of this, the order of rectification could
not be passed. As the transferor alleged that shares were fraudulently transferred under forged
signature and attestation and were void ab initio strict time limit under section 111A could not be
enforced. Petition wrongly filed under section 111 in respect of the public company was treated as
filed under section 111A.11
[s 59.158] Doubt about Genuineness of Signatures
However, later Circular No. 10 of 1993, dt. 13-8-1993 [see Notes under section 108] says that the
companies are advised to satisfy themselves where there is doubt/apprehension about the
genuineness of signatures by making a reference to the transferor.
[s 59.159] Limitation—Forgery or Fraudulent Transfers
When the forgery is alleged the question of limitation is to be viewed liberally.12
Share certificates were sent to the company for splitting and endorsements as to calls. Fraudulent
transfers were made while the certificates were in company’s custody. The facts showed that
fraudulent transfer was due to company’s inaction. It was held that in case of fraudulent transfer
limitation will not apply. Even otherwise, shareholder took steps before various authorities for
redressal of grievance. Therefore, petition was held maintainable on equitable grounds. The
company was held liable. However, in view of supervening circumstances, such as, dematerialisation
of shares, the company was ordered to pay the price of shares to the shareholder.13
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[s 59.160] Shares Stolen from Company’s Share Department
Where certain shares were found to be stolen from public company’s share department. Purchases
were made on forged transfer deeds. The shares were restored to the rightful owner. The purchaser
having no title could not seek rectification under section 111A of the 1956 Act. Moreover, the petition
was not maintainable under section 111A as the section contemplates rectification of register on
transfer. The petition was also bad in law for non-joinder of necessary parties. The petition filed two
years after the name of the original owner was restored to register as against the time limit of two
months prescribed under section 111A was also barred by limitation.14
[s 59.161] Complaint for Offences of Cheating Alleging Forged Transfer
Where the complaints against the chairman, directors and secretary of a public limited company for
cheating under sections 406, 420, 467, 468 and 120B of the Indian Penal Code, 1860 (45 of 1860) in
respect of transfer of shares allegedly effected by the company on the basis of forged and fabricated
signatures did not make out an offence, the prosecution was quashed.15
[s 59.162] Sub Judice— Litigation Pending
There is no illegality in granting registration to a transfer even though litigation is pending, unless
there is an injunction. A public company cannot investigate genuineness of every transfer. Where suit
was pending between the parties in the High Court. The company could not refuse to register the
transfer in the absence of specific injunction or direction from the Court.16
[s 59.163] Same Matter Pending in Civil Court
The CLB [now the NCLT] should not reject a petition because the same matter is pending before a
Civil Court. The CLB [now the NCLT] should consider the matter and dispose of the same on the
basis of the affidavits filed.17
[s 59.164] Res Judicata— Earlier Application withdrawn
The principle of res judicata will not be applicable when an earlier application challenging the refusal
to transfer was permitted to be withdrawn without the merits being considered.18
[s 59.165] Realignment of Shareholding Groups
The transfer is not effective against the company until registered. There were four shareholding
groups in the company. Realignment of groups was taking place from time to time. The transfer of
shares was in dispute and the subject matter of suits and petitions. The Court [the CLB now the
NCLT] would not disturb the management on the basis of unrecorded majority. The company was
directed to constitute the board of directors in a particular manner till Court proceedings were
concluded.19
[s 59.166] Rectification of Register on Transfer
Section 111A provides for rectification of register on transfer. To attract section 111A, a transfer of
shares must be effected. Where no shares were transferred out of the register of members. There
was no wrong entry in the register requiring rectification. The petition for declaration of title was not
maintainable under section 111A and could be pursued in the Civil Court.20
[s 59.167] No General Power of Rectification of Register
The entire scheme of the new section 111A, which is applicable to all the public companies, is in two
parts, namely: (a) section 111A(2) proviso of the 1956 Act deals with appeals on refusal or delay in
registration of transfer or transmission of shares or debentures without sufficient cause, (b) section
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111A(3) of the Act deals with rectification of the register of members on transfer on three specified
grounds only. Barring this, the general tenor of law as applied to public companies is that the
securities of public companies shall be freely transferable. No general power of rectification of
register on any other ground has been conferred on the CLB [now the NCLT] as it has been done
under earlier section 111(4) of the Act. The entire section 111 which earlier applied to both private
and public companies has now been made applicable to private companies only vide section 111(14)
of the Act.21
[s 59.168] Remedy of Appeal and Rectification under section 111(4)/111A
Remedies of appeal and rectification are available to all kinds of shares held in a public company
under the proviso to section 111A(2) and 111A(3) read with section 111A(7) of the 1956 Act which
would make applicable the provisions of section 111(1), (2) and (4) by virtue of section 111(5) of the
Act.22
By virtue of provisions of section 28 of the Depositories Act, 1996, it cannot be held that section
111A(3) of the 1956 Act is restricted to Rectification of the Register only in Transfer matters. This
would mean that no remedy of rectification is available in case of loss of shares, bad deliveries, theft
and forgery. This would be in derogation of the law for the time being in force. Remedy provided in
section 111A(3) is in addition to the remedy provided in section 111(4). It is, therefore, held that the
remedies of Appeal and Rectification are available to all kinds of shares held in a public company
under the proviso to section 111A(2) and 111A(3) read with sub-section (7) of section 111A of the
Act, which would make applicable the provisions of section 111(1), (2) and (4) by virtue of section
111(5) of the Act.23
[s 59.169] Theft of Shares Certificates—FIR—Fraudulent Transfer
The petitioner was allotted 500 equity shares in the first respondent company. The share certificate
was given to his brother. It was stolen from the latter’s office and an FIR of theft was lodged with the
police. The company was informed about the theft and was also requested not to transfer these
shares and to issue a duplicate share certificate and bonus shares to the petitioner. The company
transferred the shares in favour of respondent No. 2. In a petition under section 111(4)/111A of the
1956 Act, the petitioner sought restoration of the 500 equity shares and 250 bonus shares in his
name and a direction to the company to issue a fresh share certificate cancelling the certificate
issued in the name of respondent No. 2 and also to pay dividends received during that period.
Allowing the petition, the CLB held that the petitioner had filed an FIR of the loss of the shares and
the first respondent-company had also been informed accordingly. The first respondent-company
was duty bound not to transfer the shares once it was brought to its knowledge that the shares had
been lost and a proper FIR had been filed with the Police. The shares were transferred fraudulently.
Therefore, the first respondent-company was to restore the 500 equity shares and the issued bonus
shares in the name of the petitioner and issue fresh share certificates and also to pay dividends on
the shares to the petitioner. The share certificates in the name of respondents Nos. 2 to 11 were to
stand cancelled.24
[s 59.170] Share Certificates Lost in Transit—Forged Transfer—Rectification
Where the share certificate sent for registration were lost in transit and were registered in another
name by forged instrument of transfer. The company was directed to register the shares in the name
of the petitioning member.25
[s 59.171] Composite Petition
A composite petition under sections 397, 398 of and 155 of the 1956 Act[now Sections 111/111A] of
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1956 Act may be entertained at the discretion of the Court [the CLB, now the NCLT]. The petition so
far as it sought reliefs under sections 111 or 111A may be admitted and the consideration of the
petition for the purpose of admission for reliefs under sections 397 and 398 should be deferred to a
later date.26
Pendency of petition seeking relief from oppression and mismanagement under section 397/398 is
not a ground for staying proceeding on petition for rectification of register on transfer under section
111/111A.27
[s 59.173] Company cannot Non-suit Members
Section 155 [now sections 111 and 111A and section 58 and 59 of the 2013 Act] of the 1956 Act are
only enabling provisions and cannot be invoked in aid to defeat the rights of the members to move
the Court [the CLB now the NCLT] for appropriate relief under sections 397 and 398 of the 1956 Act.
The company cannot take advantage of their failure to maintain the Register of Members to non-suit
the petitioners. Failure to comply with the mandatory duty to enter relevant particulars in the Register
of Members enacted under section 150(1) is made punishable under section 150(2).28
[s 59.174] Change in Management or Composition of Board of Directors
Under section 22A(3)(c) of the SCRA [since omitted as a consequence of insertion of section 111A of
1956 Act] a listed public company could refuse registration of transfer of shares only on the grounds
mentioned in section 22A(3) of the SCRA, which, inter alia included, if the transfer of securities was
likely to result in such change in the composition of the company’s board of directors as would be
prejudicial to the interests of the company or to the public interest the company could refuse to
register the transfer. However, the registration of transfer of shares could not be refused if there was
no likelihood of change in the composition of the board of directors. The purpose of section 22A was
to provide free transferability of shares and not merely to protect the small shareholders.29
Where the change in the management of the company had already taken place pursuant to an order
of the High Court [the CLB now the NCLT] on a petition under section 409 of the 1956 Act and
resolution of the board of directors of the company refusing to register the transfers did not point out
any material indicating that the change in the composition of the board of directors would be
prejudicial to the interest of the company or to public interest. The CLB [now the NCLT] refused to
confirm the transfers.30
No such ground of refusal has been provided in the new section 111A which now applies to all listed
and unlisted public companies. A petition for relief from oppression and mismanagement and prevent
change in the board of directors or management of the company may be made under sections 397,
398 and 409.31
[s 59.175] Consent Terms—Rival Shareholding Groups
Where on disputes between the two rival shareholding groups, in a petition for relief against
oppression consent terms provided for valuation and purchase of shares of one group by the
company on payment in instalments with interest and default clause. The valuation was questioned
as fraudulent and consent terms were drawn up for the second time. The company was directed to
purchase the shares in accordance with the consent terms.32
[s 59.176] Suit Maintainable
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The right created by the 1956 Act under section 397 and 398 is to move the Company Court [the CLB
now the NCLT] by the required number of shareholders joining together. Suits by minority
shareholders against oppression and mismanagement have been a time-honoured exception to the
rule in Foss v Harbottle and in the absence of words expressly or clearly barring them, it is not
possible to hold that sections 397, 398 and 408 of the 1956 Act exclude the jurisdiction of the
ordinary courts.33
[s 59.177] Rectification of a Wrong Entry
Now section 111A enacted in relation to public companies has restricted the right of appeal only to
cases of transfer of shares. Right of appeal provided by section 111(4) for rectification of a wrong
entry has not been enacted in new section 111A. Section 111(4) now applies to private companies.
Remedy in case of public companies in such cases would now be civil suit.
[s 59.178] True Owner of Shares
Earlier, if an entry relating to the name of a member in the share register proved to be wrongful, then
the member was entitled to rectification on adducing sufficient evidence under section 111(4). In an
application by the Company for determination of true owner it was held that where by mistake the
shares were returned to the original shareholder instead of the transferee thereof, the mistake could
be rectified or original shareholder might be asked to compensate the purchaser of the shares. If by
mistake two certificates were issued, then the company had to compensate the bona fide purchaser
on the basis of the certificates.34
[s 59.179] Admission of Law not Binding
Where the company received from an existing shareholder a sum of money for issue of further
shares and filed return with the registrar of companies showing increased subscribed capital but no
shares were issued and ultimately this money was returned to the shareholder. There was no
increase in share capital and the question of reduction of share capital did not arise. The return filed
with the registrar of companies did not prevent the company from contending that there was no
reduction of share capital and application under section 100 of the Act was not necessary. Admission
of law is not binding. The company was entitled to rectification of the share register.35
[s 59.180] English Law
If there is a wrong entry whether by fault of the company or not, to maintain the accuracy of the public
register, the court will direct the rectification of the Register.36 However, the jurisdiction for rectification
can be exercised even though there are disputes as to the ownership of shares.37
[s 59.181] Writ—No Jurisdiction
In case of public companies there is no jurisdiction on the CLB [now the NCLT] to direct rectification
of register of shareholders or debenture holders as under earlier section 111(4)(a)(ii) after
commencement of new section 111A. Writ petition filed in the High Court against the dismissal of
petition by the CLB for lack of jurisdiction was dismissed in limine as not maintainable. Jurisdiction of
the CLB was to be considered on the date of the writ petition and not on the date of the petition to the
CLB.38
[s 59.182] Allotment in Violation of Injunction—Scheme of Amalgamation
Where the approval by statutory majority of shareholders was questioned. The questions whether the
persons participating in the meeting were entitled to do so and whether the allotment of shares to
them was in violation of the temporary injunction could be decided by the Court [now the NCLT]
sanctioning the scheme of amalgamation under sections 391 and 394 of the Act. It was not a matter
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falling under the jurisdiction of the CLB [now the NCLT (NCLT)] under section 111 [now section 111A]
of the 1956 Act. The effect of allotment or transaction in violation of injunction is that the transaction
is rendered void/voidable.39
[s 59.183] Delay, Acquiescence, Estoppel or Latches
Delay is not a bar to rectification if the transfer is void. Acquiescence, estoppel or latches shall be no
bar to rectification of register in such a case. However, such delay is a matter which is always taken
into consideration. Even though the Limitation Act, 1963 (36 of 1963), is not applicable in
proceedings before the CLB [now the NCLT], a person who delays exercising his right of action
cannot expect the CLB [now the NCLT] to close its eyes to the inaction on the part of such a person
for a long period. Where a member of the Stock Exchange sought rectification 11 years after the
shares were cancelled. There was no proof that the cancellation was not known to him earlier. The
petition for rectification was dismissed for delay.40
A claim for rectification of the share register cannot be asked for as a matter of right or ex debito
justitiae. It should be made within reasonable time. Where the petitioner is guilty of laches, an order
for rectification may be refused.41
The Court [the CLB now the NCLT] will refuse to pass an order for rectification of register if there are
suppression of material facts, acquiescence, delay or laches, etc., on the part of the applicant. The
delay in making such application for rectification suppressing material facts will disentitle the
applicant to any relief.42
[s 59.184] Delay not Condoned—Petition after Lapse of 10 Years
On an application to condone the delay of more than 10 years in filing a petition under section 111A
of the 1956 Act, seeking direction against the respondents to rectify the register of members of the
company by substituting the name of the petitioner. Dismissing the petition, the CLB held that the
cause of action arose in December 1994 but the petitioner had approached the CLB in July 2005,
after a lapse or delay of more than 10 years. The applicant was aware that the impugned shares
stood transferred as early as in January 1996, in favour of third parties by an alleged act of fraud
played on him. The applicant’s plea of ignorance of law or his seeking shelter under the
correspondence exchanged with the petitioner and the SEBI would not constitute sufficient cause to
condone the inordinate delay.43
[s 59.185] Delay, Res Judicata and Limitation
Where shares were purchased through broker on cum-bonus basis. The shares were lodged for
transfer but the books were closed. Bonus shares were issued in the interregnum in favour of the
transferor. The company advised the transferee to contact transferor or to file a suit for re-transfer of
bonus shares. The petitioner first sought remedy in consumer forums. Application for rectification to
the CLB [now the NCLT] made after 11 years was held to be not maintainable on account of delay,
res judicata and the limitation.44
[s 59.186] Rectification of Share Register—Delay and Prejudice—Discretion
The Court has discretion to order or refuse rectification of the register of members as it could in
exercise of discretion, grant or refuse to grant specific performance of an agreement to allot the
shares. The exercise of the discretion could be affected by delay and prejudice. A delay of seven
years was fatal for seeking an order for specific performance for rectification of the company’s
register of members, and it would be prejudicial to the purchase of controlling interests in ignorance
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of such claim. The relief claimed by the petitioner was refused.45
[s 59.187] Conditional Refusal
If there is a conditional refusal, the period will run from the date of receipt of such conditional
refusal.46
[s 59.188] Documents Returned to Re-submit or Re-lodge
Where the documents are returned for rectification and it is again re-submitted or re-lodged after
rectification the limitation period of two months will start from the date of such re-submission.47
[s 59.189] Limitation in Fraud or Forgery Viewed Liberally
In case of fraudulent and forged transfers, i.e., when fraud or forgery is alleged the question of
limitation is to be viewed liberally. Where the shares were transferred by attorney of shareholder
surreptitiously in purported exercise of power of attorney. Delay in filing petition was condoned.
Technicalities ought not to defeat the right of relief.48
[s 59.190] Share Certificates Sent to Company for Splitting—Fraudulent Transfer
Share certificates were sent to the company for splitting and for endorsements as to calls. While in
the custody of the company, there was fraudulent transfer of the shares. The applicant took various
steps to redress his grievances. The objection of limitation or that the petition was made by the
second named joint shareholder were overruled. The fraudulent transfer was due to company’s
inaction. The company was held liable. The company was directed to pay the price of the shares to
the shareholder.49
[s 59.191] Fraud—Limitation Begins to Run from Date of Knowledge
As per section 17(1)(b) of the Limitation Act, 1963, in case of fraud the limitation period begins to run
from the date of knowledge. Where persons seeking rectification on the ground that money was
indirectly advanced by company itself for obtaining shares under a memorandum of understanding,
were themselves party to the transactions, they could not claim that they had no knowledge. There
was no proof of fraud. The petition filed after six years was barred by the law of limitation. The
petitioners had not been able to satisfy that they had sufficient cause for the delay within the meaning
of section 5 of the Limitation Act, 1963.50
[s 59.192] Company—Purchase of Own Shares—Rectification—Limitation
Any purchase of shares by a company issued by itself and the consideration paid out of company’s
assets will amount to purchase of its own shares not permissible under section 77 of the 1956 Act.
The validity of application for Rectification of Register of Members has to be considered on the basis
of petition alone and those in counter affidavit. The facts will have to be gone into and the petition
could not be disposed of on preliminary issue. Where questions of law and facts are concerned the
matter cannot be tried as preliminary issue. The question of limitation requires consideration of facts
and cannot be decided as a preliminary issue. The petitioner a shareholder filed an application for
rectification of the register of the company under section 155 of the 1956 Act [now sections 58 and 59
of the 2013 Act] Some of the respondent contended that the petition was barred by limitation. It was
held that the question of limitation has to be examined by looking into the averments made in the
company petition and not in any affidavit filed in reply to the petition or any affidavit in support of the
company application filed by respondents. These cannot at all be looked into. The question of
limitation cannot be decided as an abstract principle of law. It is a mixed question of law and fact. The
petitioner’s case was covered by section 17(1)(a) of the Limitation Act, 1963, as the petitioners are
not claiming any right of title over the shares of the company which according to them were
purchased out of the funds of the company. Section 17(1)(b) of the Limitation Act, 1963 will apply
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when the petitioner is claiming any kind of right or title to any movable or immovable properties. On
the facts pleaded in the company petition it could not be dismissed on the ground of limitation as the
petitioner was not given an opportunity to lead evidence. The High Court was directed to her to
company petition again. The findings recorded by the High Court on the point of continuing wrong
and condonation of delay was set aside.51
Provisions of section 155 were omitted and assimilated in old section 111 as substituted by the
Companies (Amendment) Act, 1988 (31 of 1988).
[s 59.193] Writ
Where the petitioner did not evoke the alternative or effective remedy available under section 111A of
the 1956 Act, which provides a wider remedy than a writ petition. Moreover, delay and laches is one
of the recognised grounds for refusal of the discretionary relief. The petition in this case filed before
the CLB was later withdrawn. In view of existence of alternative remedy the writ under Article 226 of
the Constitution of India could not be granted.52
A writ petition is not maintainable against an order of the CLB [now the Tribunal] confirming refusal of
the company to register transfer of shares.53
[s 59.194] Judicial Review
The Supreme Court while examining the action of the board of directors in refusing to register the
transfer of shares under section 108 is not expected to exercise original appellate jurisdiction and sit
in appeal on questions of fact. The judicial review of the Supreme Court while hearing an appeal from
the decision of the CLB [now the NCLT] would be limited to see whether there was a bona fide
exercise of power by the board of directors while refusing to register the transfer of shares.54
[s 59.195] Judicial Review by the Supreme Court
The powers exercised under this section being judicial any finding of fact will not be reopened by
Supreme Court.55
[s 59.196] Ex Parte Order Directing Rectification of Register
The first respondent filed a petition under section 111A of the 1956 Act, for rectification of the
Register of Members in respect of 100 shares by deleting the name of the applicant and substituting
her name. The CLB passed an ex parte order directing the second respondent-company to rectify the
register by incorporating the first respondent’s name. On applications (a) to set aside the ex parte
order passed against him on the ground that he did not receive any notice from the Board with regard
to the filing of the company petition, (b) to condone the delay in filing the application to set aside the
ex parte order, (c) to restrain the first respondent from transferring, alienating or in any way disposing
of the 100 equity shares together with 700 bonus shares issued thereon, and (d) to restrain the
Company or its Share Transfer Agent or Depository from entertaining any transfer of the impugned
shares pending disposal of the application. Dismissing the applications, the CLB held that it was on
record that the applicant preferred an appeal against the order of the CLB in the High Court and
when the High Court declined to entertain the appeal and granted liberty to approach the CLB subject
to objections of the respondents, he had come out with these applications. The notices were sent by
the bench officer to the applicant for the various hearings from time to time on eleven occasions by
ordinary post and once by speed post. A certified copy of the order was also sent to the applicant.
Under illustration (e) to section 114 of the Indian Evidence Act, 1872, the official acts of the bench
officer, in the absence of the contrary established by the applicant were presumed to be duly
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performed. The applicant had not denied any of the averments made in regard to the service of
notices by the bench officer. The applicant had not indicated how he came to know about the order,
he never contended that the notices were not sent, but only that he did not receive them. By virtue of
regulation 21(1) of the CLB Regulations, 1991, any notice or process to be issued by the bench may
be served, inter alia, under certificate of posting which was an “ordinary despatch” as laid down in
rule 32 of the Indian Postal Guide. It was on record that the notices were sent by ordinary post to the
applicant several times and once by speed post duly stamped at his proper address as borne out by
the records. Therefore, the legal presumption was that those notices reached the destination. The
notices sent to the applicant were never returned by the postal authorities, in which case, the notices
were received by him. The regulations prescribe different modes of service of notice with the sole
object of ensuring proper service of notice upon the concerned parties. There was substantial
compliance with the regulations especially when notices were sent eleven times at the proper
address. The applicant could not contend on the mere technicality that the notices were not sent by
the Registered Post due as contemplated in regulation 21(3). The Board in its order recorded that the
applicant and other respondents had not appeared or filed a counter to the company petition. As
there was no sufficient ground for recalling the ex parte order find for condonation of delay, these
statements being matters of judicial record could not be challenged.56
[s 59.197] Rectification after Winding up
A shareholder of fully paid up shares will not be placed on the list of contributories and made to
contribute towards the assets of the company unless the register of members is rectified and it is
determined in appropriate proceedings that he is not a fully paid up shareholder. If a valid contract is
made for the acceptance by the company of specified property in payment of shares the Court [now
the NCLT] will not whilst the contract stands inquire into the adequacy of consideration even at the
instance of the liquidator unless the contract is fraudulent or shows on the face of it that the
consideration is illusory. Rectification order can be made after winding up of the company giving the
order retrospective effect.57
[s 59.198] Liquidator’s Application for Rectification
In case of liquidator’s application for removal of names of some shareholders from register and for
rectification of register the cause of action arises from the date of the order for winding up.58
[s 59.199] Transmission of Shares—Company Closed under Simplified Exit Scheme
In a petition under section 111A of the 1956 Act, upon the petitioners seeking directions against the
first respondent-company to register the Transmission of Shares in favour of the petitioners and
rectify the register of members by substituting their names in the place of the third respondent, a
memo dt. 26-04-2005, was filed by the third respondent reporting that the board of directors at the
meeting held on 27-11-2003, had resolved to close the company under the Simplified Exit Scheme,
2003, pursuant to section 560 of the Act and to strike off the name of the company, that accordingly
the company had been closed w.e.f. 31-05-2004, and that the company had not paid any amount to
the shareholders before closure of the company and, therefore, no consideration had been given to
the erstwhile shareholders of the company. It was held that in the report of the Registrar of
Companies, it was stated that the company had made an application under section 560 of the Act
under the Simplified Exit Scheme, 2003, for striking off the name of the company and the application
was processed and approved in July 2004, as there were certain defects. The Newspaper publication
was yet to be made and hence the company’s name had not yet been sent for Gazette publication for
striking off the name of the company from the register of companies. It was also informed that as per
the norms of the scheme, a name of the company was to be sent for Gazette publication only on
expiry of 45 days from the date of newspaper publication, unless no objection was received from any
person/authority. Therefore, the process for striking off the name of the company from the Register of
companies was not complete. The respondents had not controverted the said position, upon receipt
of the report. Thus, the name of the company was not struck off from the register of companies by the
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registrar and the name of the company stood. Hence, the company was to register the transmission
of shares in the name of the petitioners and rectify the register of members.59
[s 59.200] Public Company—Shares Freely Transferable Order by AAIFR
On a petition filed under section 111A of the 1956 Act, it was held that the company was a Public
Company the shares of which were freely transferable in terms of section 111A(2). The transfer of
shares was to be regulated in terms of the articles of association. The company had not referred to
any of its articles to point out that transfer of shares in violation of the Promoters’ Agreement could
not be recognised by the company. Its apprehension that the registration of transfer of shares in
favour of the petitioner was likely to bring about change in the composition of the board of directors
had not been substantiated. The only legal contention by the company was that the registration of
transfer of shares could be illegal in view of the winding up order passed by the AAIFR [now the
NCLT] which was under challenge before the High Court. Since that order had been stayed by the
High Court there was no winding up order and no legal impediment in directing the company to
register shares in the name of the petitioner. There was no impediment in terms of the articles also.
The company was directed to register the transfer of shares in the name of the petitioner.60
[s 59.201] Transfer of Shares—Rectification of Register of Members— Locus Standi
Rectification of register of members in contravention of requirements of section 108 of the 1956 Act is
invalid. There was transfer of shares held by German company in Indian company in favour of
American company. Share transfer form was executed without express authority of German company
favouring executant on behalf of German company. As such, requirements of section 108 of the 1956
Act was not satisfied. The manner in which registration of transfer was approved by the Transfer
Committee of Indian company in favour of American company raised doubts about the bona fide of
the entire transaction. The authority empowering executant to sign share transfer form on behalf of
German company was without any legal basis and Indian company acted in contravention of section
108(1) of the 1956 Act. Therefore, German company was entitled to apply for rectification of register
of members of the Indian company. Transfer of shares in favour of American company by Indian
company was held to be invalid. The Indian company was directed to rectify its register of members
by cancelling the transfer made in favour of American company, order was made to restore the name
of German company within 30 days. The directors nominated by the American company on Board of
the Indian company ceased to be directors of Indian company. Locus standi of a German company to
apply for restoration of its name on the register of members of Indian company was questioned.
There was a continued contract of sale of shares between the German company and purchaser
Amazeum. The property in share would stand transferred only on approval of creditors of German
company. Such approval could not be produced. The title to the shares remained vested in German
company and as such it was entitled to file the petition for restoration of its name on register of
members in spite of the claim that transfer of shares was to take immediate effect. Further, parties
excluded applicability of Indian law to enforce the agreement and transfer of shares in favour of
Amazeum not registered under the Indian law. As such title to shares remained vested in German
company. Therefore, the German company had locus standi to make the petition for restoration of its
name on register of members of the Indian company.61
See detailed notes, form and procedure on transfer of shares not to be registered except on
production of instrument of transfer under section 108, grounds of refusal and rectification of register
on transfer in case of private company under section 111 and grounds of refusal and rectification of
register on transfer in case of public companies under section 111A.
[s 59.202] Transfer of Shares/Interest in section 25 Company/Stock Exchange
Section 28 provides that articles of association of a company limited by shares may adopt all or any
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of the regulations contained in Table A in Schedule I to the 1956 Act. Section 29 provides that the
articles of other companies shall be in one of such forms in Tables C, D and E in Schedule I as may
be applicable or in a form as near thereto as circumstances admit. In the case of Magadh Stock
Exchange Association (MSEA), registered under section 25, Table C was applicable. If Tables A and
C are compared it becomes apparent that there are material differences between the two. Where, the
High Court disposed of the matter by merely observing that no distinction can be made in the matter
of transfer of shares or other interest between a company limited by shares and a company limited by
guarantee, the Supreme Court set aside the judgment and order passed by the High Court and
remitted the matter back to the High Court for deciding the appeal afresh after hearing both the sides
and considering all the relevant aspects and fulfilment of the requirements of section 108.62
[s 59.203] Resolutions Valid—Petition Mala Fide and Laches
Where the directors passed resolutions for registering transfer of shares in 1956, 1957 and 1978.
Petition for rectification was filed in 1982 to declare the resolutions invalid. Transfers were also made
in favour of the members seeking rectification. It was held that the petition was mala fide, there were
laches. Rectification was sought by directors who were party to the resolutions. In view of this, relief
could not be granted. Resolutions were pasted in book, accepted by all and recorded with the
Registrar of Companies. There was no proof that the pasting was not in normal course or writing
underneath reflected true state of affairs. Resolutions were held to be valid and rectification was
refused.63
[s 59.204] Wrongful Removal of Members
Persons who have been removed from membership of a company have a right to apply under section
111A. In an application under section 155 [now section 111A], the Court [the CLB now the NCLT]
cannot appoint a committee to go into the wrongful exclusion of the names of certain members. The
Company Court [the CLB now the NCLT] cannot debar a person from standing for election or direct
that one person should vote only once either as a representative or as a member. The Court [the
CLB now the Tribunal] cannot appoint a Committee to go into the alleged wrongful exclusion of the
persons. If a case falls under section 155 [now section 111A] the inherent power of the Court [the
CLB now the Tribunal] cannot be exercised. If the persons who have been removed from
membership are not before the Court, the Court [the CLB now the Tribunal] in a petition under
sections 397 and 398 can only appoint a Chairman for the Annual General Meeting and authorise
him to take into consideration any objections against wrongful removal from the voters’ list prepared
by the company and allow the vote to be cast under objection separately if the Chairman thinks that
there is some substance in the allegation of wrongful removal.64
[s 59.205] Denial by Association to Admit a Member
membership rights. Section 111(4)(a) deals with situations wherein the name of a person is entered
in the register of members without sufficient cause and when the name of a person which is already
on the register of members is omitted therefrom without sufficient cause. In the instant case, the
complaint of the petitioner was that the association had rejected his application for membership and
thereby refused to put his name in the register of members. The two conditions prescribed in section
41 of the Act are cumulative in nature in the sense that there should not only be an agreement in
writing but the name also should be entered in the register of members to be a member of a
company. Merely agreeing to become a Member of a company and on that basis to claim that the
refusal of the company to enter his name in the Register would entitle a petitioner to file a petition
under section 111 was not sustainable. Whether the refusal by the association was mala fide or
whether the articles giving the power to the association to reject an application for membership were
valid, etc., are beyond the scope of section 111. The denial of the association to admit the petitioner
as a Member was not a ground to invoke the provisions of section 111/111A of the Act.65
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[s 59.206] Company Ltd by Guarantee
In view of sections 9, 27(2), 31 and 97 of the 1956 Act increase in the number of members of a
company limited by guarantee calls for an amendment of the articles of association and can only be
done by a Special Resolution by the General Body. Where the articles of association of a company
limited by guarantee authorised the General Committee to reduce or increase the number of
members, it was held that the articles were not valid. Article 2 of Table C of Schedule I does not
authorise the board of directors to usurp the functions of the company for the purpose of increasing
or decreasing the number of members. The board of directors did not have any right to increase the
number of members. Therefore, Article 2 of the articles of association of the Delhi and District Cricket
Association (DDCA) which authorised that the board of directors might increase the number of
members with which the company was registered was held to be void. The petition was not
maintainable as the members affected were not made parties. Further, an earlier suit was settled
without obtaining leave of the Court for filing a fresh proceeding on the same issue and as such the
petition under section 155 [now section 111A] was barred by the principle contained in Order 23, rule
1 of the Code of Civil Procedure.66
[s 59.207] Cancellation of Membership of Defaulting Stock Exchange Member
If the article does not infringe or offend any specific provision of the Act, then it is valid. Articles of
association of a Stock Exchange providing for cancellation of membership of a defaulting member
[s 59.208] Selection of Members of Stock Exchange
The existing shareholders or Members of Stock Exchange cannot be compelled to transfer their
shares to the Public. They are the full owners and entitled to transfer their shares to persons of their
own choice. Where majority of persons selected were Chartered Accountants. It did not indicate that
selection was mala fide. The Supreme Court will not sit in appeal.68
[s 59.209] Power to Order Rectification not Duplicate Share Certificates
By virtue of section 111A of the Act, the CLB [the Tribunal (NCLT)] has power or jurisdiction to
adjudicate only when there is a refusal for Transfer of Shares on sufficient cause or pass an order for
Rectification of Register or Records when transfer is in contravention of law as specified therein.
Section 113 of the Act provides that the company shall deliver the share certificate to the allottee
within 3 months after the allotment of any of its shares and in favour of the transferee within 2 months
after the making of the application for registration of the transfer of shares. Under section 113 of the
Act, the CLB [the Central Government] has no power to give directions for issue of Duplicate share
certificates. The provision for issue of duplicate share certificates has been prescribed under rule 4(3)
of the Companies (Issue of Share Certificates) Rules, 1960. On a petition under sections 111A and
113 of the 1956 Act, alleging that the respondent-company had disobeyed the decree of the Civil
Court which was obtained by the petitioner-company upon loss of Share certificate along with the
Blank transfer forms and in spite of repeated demands and legal notice, the respondent-company
neither issued duplicate share certificates nor rectified the register of members of the company by
substituting the name of the petitioner, sought issuance of duplicate share certificates and
rectification of the register of members. In the facts and circumstances of the case, the CLB held that
since neither did the petitioner deliver the requisite documents nor did the company refuse
registration of the transfer in his favour the petitioner could not invoke either section 111A(2) or (3) of
the 1956 Act to press into service the prayer for rectification of register of members of the company.
The prayer for the issue of Duplicate share certificate fell outside the ambit of section 113 of the Act
and the CLB [the Tribunal (NCLT)/Central Government] had no power to pass any order under
sections 111A and 113 as prayed for by the petitioner.69
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See also Notes under sections 84(3) and 113.
[s 59.210] Powers of SEBI [Section 55A]
Section 59(1) of the 2013 Act corresponds to section 111 (4) of the 1956 Act. However, while section
111 was only applicable to private companies, section 59 also applies to public companies. This
section has replaced “shares and debentures” with “securities” with the result that the purview of this
section has been considerable widened. Securities as defined under section 2(h) of the Securities
Contract Regulation Act, 1956, includes derivatives, government securities, interest in securities, any
instruments issued to investors under any mutual fund, which will now be covered by this section.
Section 111A(5) pertaining to the voting rights has been retained as section 59(3) in the 2013 Act.
Section 111A (2) has also been retained in section 59(4). An important change is that the provision
for interim orders in section 111A (4) has been removed from section 59 of the 2013 Act. An
important distinction, however is that the remedy of rectification under section 59 of the 2013 Act is
now also available against a public company. While section 111(4) of the 1956 Act was applicable
only to private companies, there was no such corresponding provision in section 111 which was
applicable to public companies.
Sections 111 and 111A of the 1956 Act have been repealed with the notification of section 59 of the
2013 Act, w.e.f. 12-09-2013.
56 Enforced vide S.O. 2754(E), dt. 12 September 2013, w.e.f. 19 September 2013 and corresponds to section 111 and
57 Re Imperial Chemical Industries Ltd, (1936) 2 All ER 463 : 80 SJ 533.
58 First National Re-insurance Co v Greenfield, (1921) 2 KB 260 : 90 LJ KB 617.
59 Praga Tools Corp Ltd v M.R. Patny, (1968) 38 COMP CASES 175 (AP) (DB) : (1968) 1 Comp. LJ 256 (AP) (DB).
60 Re Cetus Electronics Pvt Ltd, (1995) 82 COMP CASES 688 (CLB) (SB); Satish Chandra Sanwalka v Tinplate Dealers
Association Pvt Ltd, (2001) 107 COMP CASES 98 (CLB);Re, Morgardshammar India Ltd, (2000) 100 COMP CASES
131 (CLB); Rashmi Seth v Chemon (India) Pvt Ltd, (1995) 82 COMP CASES 563 (CLB); Malleswara Finance and
Investments Co Pvt Ltd v Co Law Board, (1995) 82 COMP CASES 836 (Mad.) (DB); Som Prakash Singhania v
Nahorjan Tea Co Pvt Ltd, (2006) 134 COMP CASES 231 (CLB); Pratima Pal v Naba Press Pvt Ltd, (2006) 134 COMP
CASES 617 (CLB).
61 Bhupinder Rai v S.M. Kannappa Automobiles Pvt Ltd, (1996) 86 COMP CASES 18 (CLB); Subhas Ghose v Happy
Valley Tea Co Pvt Ltd, (2006) 133 COMP CASES 861 (CLB).
62 K.S. Narayana Iyer v Talayar Tea Co Ltd, (1995) 83 COMP CASES 743 (CLB).
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63 Chotoo Sud v Bhagwan Finance Corp Pvt Ltd, (2006) 130 COMP CASES 567 (CLB).
64 T.N.K. Govindaraju Chetty and Co v Kadri Mills (CBE) Ltd, (1999) 96 COMP CASES 871 (CLB); Turner Morrison Ltd v
Jenson and Nicholson (India) Ltd, (1998) 93 COMP CASES 347 (CLB).
65 Gulabrai Kalidas Naik v Laxmidas Lallubhai Patel, (1977) 47 COMP CASES 151 (Guj.); Manoj Kumar Kanuga And 3
Others v Marudhar Power Pvt Ltd Co Appeal No. 10 of 2012 decided on 23-04-2013 (Gujarat High Court); Charanjit
Khanna v Khanna Paper Mills Ltd. dt. 20.04.2011 (Delhi High Court); Rikanta Datta Narasimharaja Wadiyar v
Venkateswara Real Estate Enterprises (Pvt.) Ltd. and Os (1990) 68 Company Cases 216; S.V.T. Spinning Mills Pvt Ltd
v M. Palanisami, (2009) 95 SCL 112.
66 Rajnikant Ratilal Shah v Deccan Farms & Distilleries Ltd, (1978) 48 COMP CASES 322 (Bom.).
67 P.V. Damodara Reddi v Indian National Agencies Ltd, (1945) 15 COMP CASES 148 (Mad.) : AIR 1946 Mad. 35;
Benarsi Das Saraf v Dalmia Dadri Cement Co Ltd, (1958) 28 COMP CASES 435 (Punj.); Jayanthilal Purshottamdas
Patel v Gordhandas Desai Pvt Ltd, (1968) 38 COMP CASES 405 (Bom.); Mannalal Khetan v Kedar Nath Khetan,
(1977) 1 COMP CASES 185 (SC) : AIR 1977 SC 536.
68 Notified by notification number S.O. 1934 (E) dt. 01-06-2016 w.e.f. 01-06-2016.
69 Neo Finance Pvt Ltd and Ors. Rakesh Soni and Ors, [2015]129CLA251(CLB).
70 ABC Farms Pvt .Ltd v Shashikant Shankar Sahastrabudhe, C.A. No. 101 of 2014 and C.P. No. 25 of 2014, decided on
19.08.2014.
71 Transchem Ltd v Firstcorp International Ltd, [2015]192 COMP CASES120 (CLB).
72 In Re, Hanuman Mills Pvt Ltd, (1977) 47 COMP CASES 644 (All.).
73 Arjan Singh v Panipat Woollen and General Mills Co Ltd, (1963) 33 COMP CASES 534 (Punj.).
74 Shiv Dayal Agarwal v Sidhartha Polyster Pvt Ltd, (1997) 88 COMP CASES 705 (CLB).
75 Smt. Kamalabai v Vithal Prasad Co Pvt Ltd, (1993) 77 COMP CASES 231 (Kar.).
76 Killick Nixon Ltd v Dhanraj Mills Pvt Ltd, (1983) 54 COMP CASES 432 (Bom.) (DB).
77 S.V. Nagarajan v Lakshmi Vilas Bank Ltd, (1997) 90 COMP CASES 392 (CLB).
78 Canara Bank v National Power Grid Corp Ltd, (2004) 122 COMP CASES 312 (CLB).
79 Notified by notification number S.O. 1934 (E) dt. 01-06-2016 w.e.f 01-06-2016.
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80 K. Md. Farooq Ahmed v Fortran Cirkit Electronics Pvt Ltd, (1998) 92 COMP CASES 498 (CLB).
81 Kotah Transport Ltd v State of Rajasthan, (1967) 37 COMP CASES 288 (Raj.) (DB).
82 S. Balwant Singh v Krishna Bus Service Pvt Ltd, (1967) 37 COMP CASES 471 (C.T.); Sha Mulchand & Co Ltd v
Jawahar Mills Ltd, (1953) 23 COMP CASES 1 (SC) : AIR 1953 SC 98 : (1953) SCR 351.
83 Tej Prakash S. Dangi v Coromandal Pharmaceuticals Ltd, (1997) 89 COMP CASES 270 (AP).
84 Official Liquidator, Karnataka High Court v R.C. Marathe, (1982) 52 COMP CASES 125 (Kar.); Public Passenger
Service Ltd v M.A. Khadar, (1966) 36 COMP CASES 1 (SC) : AIR 1966 SC 489; Mrs. Promila Bansal v Wearwell Cycle
Co (India) Ltd, (1978) 48 COMP CASES 202 (Delhi).
85 Abdul Karim Babu Khan v Sirpur Paper Mills Ltd, (1969) 39 COMP CASES 33 (AP) (DB).
86 George Mathai Nooranal v Federal Bank Ltd, (2007) 137 COMP CASES 479 (CLB); Neo Securities Ltd v Chennai
Petroleum Corp Ltd, (2007) 136 COMP CASES 500 (CLB).
87 K.B. Madhavan v Federal Bank Ltd, (2007) 135 COMP CASES 234 (CLB).
88 Kumar Malavalli v CRCW Search Technologies Pvt Ltd, (2004) 118 COMP CASES 618 (CLB).
89 Substituted by the Companies (Amendment) Act, 1988 (31 of 1988), section 16 (w.e.f. 31 May 1991).
2015.
2015.
2015.
2015.
1 Anand Hemant Patel v Ornate Club Pvt Ltd, (2000) 99 COMP CASES 318 (CLB); Satish Chandra Sanwalka v Tinplate
Dealers Association Pvt Ltd, (2001) 107 COMP CASES 98 (CLB).
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2 State Bank of India v Business Development Consultants Pvt Ltd, (2005) 128 COMP CASES 557 (CLB) relying on
World Wide Agencies Pvt Ltd v Mrs. Margaret T. Desor, (1990) 67 COMP CASES 607 (SC) : AIR 1990 SC 737.
3 Business Development Consultant Pvt Ltd v State Bank of India, (2007) 139 COMP CASES 73 (Cal.).
4 Ram Kishan v Kanwar Papers Pvt Ltd, (1990) 69 COMP CASES 209 (HP).
6 Shobhi G. Mahtani v Lilaram Shewaram (India) Pvt Ltd, (2007) 139 COMP CASES 817 (CLB).
7 S. Bhuvaneswari v ACI (Agro Chemical Industries) Ltd, (2004) 122 COMP CASES 849 (Mad.) (DB).
8 Praga Tools Corp Ltd v M.R. Patny, (1968) 38 COMP CASES 175 (AP) (DB) : (1968) 1 Comp. LJ 256 (AP) (DB).
9 Ferrom Electronics Pvt Ltd v Vijaya Leasing Ltd, (2002) 109 COMP CASES 467 (Kar.) (DB).
10 Notification No. 716(E), dt. 21 July 2016, w.e.f. 22 July 2016.
12 Inserted by the Depositories Related Laws (Amendment) Act, 1997 (8 of 1997), section 10 (w.r.e.f. 15 January 1997).
2015.
14 Substituted by Act 8 of 1997, section 10 (w.r.e.f. 15 January 1997).
2015.
2015.
90 COMP CASES 228 (CLB); Shailesh Rajnikant Parekh v Starline Travels Pvt Ltd, (2004) 118 COMP CASES 145
(CLB); Neo Securities Ltd v Chennai Petroleum Corp Ltd, (2007) 136 COMP CASES 500 (CLB). See detailed Notes on
Grounds of Refusal and Rectification of Register on Transfer in case of Private Companies under section 111 and
Public Companies under section 111A.
18 Estate Investment Co Pvt Ltd v Siltap Chemicals Ltd, (1999) 96 COMP CASES 217 (CLB); Canara Bank v Ankit
Granites Ltd, (1999) 97 COMP CASES 511 (CLB); Bombay Dyeing and Mfg. Co Ltd v Arun K. Bajoria, (2001) 107
19 Bombay Dyeing and Manufacturing Co Ltd v Arun Kumar Bajoria, (2001) 107 COMP CASES 535 (CLB). See also
notes under Substantial Acquisition hereinafter.
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20 Estate Investment Co Pvt Ltd v Siltap Chemicals Ltd, (1999) 96 COMP CASES 217 (CLB); Canara Bank v Ankit
Granites Ltd, (1999) 97 COMP CASES 511 (CLB).
21 Andhra Pradesh Mills Ltd v Pampasar Distilleries Ltd, (2002) 110 COMP CASES 536 (CLB).
22 K. Sreenivasa Rao v Regional Director, SEBI, (2003) 116 COMP CASES 238 (AP) (DB).
23 Smt. Pratibha Dilip Karnad v Satyam Computer Services Ltd, (2002) 108 COMP CASES 347 (CLB).
25 S.P.S. International Ltd v Vijay Remedies Ltd, (1998) 93 COMP CASES 547 (CLB).
26 McDowell and Co Ltd v Shaw Wallace and Co Ltd, (2002) 108 COMP CASES 306 (CLB); Azzilfi Finlease and
Investments Pvt Ltd v Ambalal Sarabhai Enterprises Ltd, (2000) 100 COMP CASES 355 (CLB).
27 Bakhtawar Constn. Co Pvt Ltd v Blossom Industries Ltd, (2000) 99 COMP CASES 44 (CLB).
29 K.K. Modi v M.K. Modi, (2002) 112 COMP CASES 133 (Delhi) (DB).
30 Bombay Dyeing and Manufacturing Co Ltd v Arun Kumar Bajoria, (2001) 107 COMP CASES 535 (CLB).
31 Aska Investments Pvt Ltd v Grob Tea Co Ltd, (2005) 126 COMP CASES 603 (CLB) : (2004) 2 Comp. LJ 392 (CLB).
32 Not in force at the time of going to print.
33 Vijaya Finance Corp Ltd v Peerless General Finance and Investment Co Ltd, (2006) 129 COMP CASES 733 (CLB)
affirmed on this point in Peerless General Finance and Investment Co Ltd v Poddar Projects Ltd, (2007) 136 COMP
CASES 160 (Cal.) on appeal Peerless General Finance and Investment Co Ltd v Poddar Projects Ltd, (2007) 136
34 Peerless General Finance and Investment Co Ltd v Poddar Projects Ltd, (2007) 136 COMP CASES 197 (SC).
35 eFirst Technologies Pvt Ltd v Hiperworld Cybertech Ltd, (2005) 126 COMP CASES 306 (CLB).
36 Polar Latex Ltd v Lakshmi Narayan Rez, (1996) 85 COMP CASES 766 (CLB).
37 Shoe Specialities Ltd v Tracstar Investment Ltd, (1997) 88 COMP CASES 471 (Mad.) (DB). A decision under section
22A of the Securities Contracts (Regulation) Act, 1956 [Free transferability and registration of transfers of listed
securities of companies] which was applicable to Listed Public Companies [since omitted] as a consequence of
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Page 61 of 68
insertion of section 111A of the 1956 Act, by the Depositories Act, 1996 (22 of 1996) (w.r.e.f. 20-9-1995) which now
applies to all Listed and Unlisted Public Companies.
38 LIC v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370; Dale and Carrington Invt. Pvt Ltd v P.K.
Prathapan, (2004) 122 COMP CASES 161 (SC); Re, Transatlantic Life Assurance Co Ltd, (1979) 3 All ER 352 : (1980)
1 WLR 79 : (1979) 123 SJ 859. See also notes under sections 2(46), 34, 41, 71, 108, 111, 169 and 617.
39 Lalithamba Bai v Harrisons Malayalam Ltd, (1988) 63 COMP CASES 662 (Ker.) on appeal (1997) 13 SCL 175 (Ker.)
(DB). See also notes under sections 41,108 and 109.
40 Gordon Woodroffe Ltd v Trident Investment and Portfolio Services Pvt Ltd, (1994) 79 COMP CASES 764 (CLB). See
also notes under sections 68B and 187C.
41 Hemangini Finance and Leasing Pvt Ltd v Tamilnad Mercantile Bank Ltd, (1996) 86 COMP CASES 875 (CLB). See
also notes under sections 49, 68B, 108, 187C, 370, 372, 372A.
42 Canbank Financial Services Ltd v Custodian, (2004) 122 COMP CASES 263 (SC). See also notes under section 68B.
43 See the Securities Contracts (Regulation) Act, 1956 (42 of 1956) in Appendix 83. See detailed Notes under sections
2(39), 55, 55A, 73 and 108.
44 B.K. Holdings Pvt Ltd v Prem Chand Jute Mills, (1983) 53 COMP CASES 367 (Cal.).
45 Turner Morrison & Co Ltd v Shalimar Tar Products (1935) Ltd, (1980) 50 COMP CASES 296 (Cal.).
46 Kinetic Engineering Ltd v Sadhana Gadia, (1992) 74 COMP CASES 82 (CLB). See detailed Notes under sections 9
and 108.
47 P.P. Zibi Jose v Catholic Syrian Bank Ltd, (2007) 139 COMP CASES 38 (CLB).
48 Indian Bank v Bengal Potteries Ltd, (1982) 52 COMP CASES 471 (Cal.). See also notes under sections 446, 536 and
537.
50 Centurion Bank Ltd v Bellary Steels and Alloys Ltd, (2004) 120 COMP CASES 439 (CLB).
51 Centurion Bank Ltd v Bellary Steel and Alloys Ltd, (2007) 139 COMP CASES 925 (CLB).
52 Kosha Chandravadan Parikh v Krishna Mingranite Ltd, (2003) 115 COMP CASES 423 (CLB).
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53 Canara Bank v Ankit Granites Ltd, (1999) 97 COMP CASES 511 (CLB).
54 Indian Bank v Kiran Overseas Exports Ltd, (2001) 104 COMP CASES 320 (CLB).
55 Jagdishchandra Champaklal Parekh v Deccan Paper Mills Co Ltd, (1994) 80 COMP CASES 159 (CLB); Canbank
Financial Services Ltd v V.B. Desai, (2002) 112 COMP CASES 143 (Bom.). See detailed Notes under section 108.
56 Gujarat Industrial Investment Corp Ltd v Sterling Holiday Resorts (India) Ltd, (2007) 137 COMP CASES 801 (CLB).
57 Master Gautam R. Padival (Minor) v Karnataka Theatres Ltd, (2000) 100 COMP CASES 124 (CLB). See detailed Notes
under sections 9, 41, 108 and 153.
58 Jonas Hemant Bhutta v Surgi Plast Ltd, (1993) 78 COMP CASES 296 (CLB).
59 Anil Gupta v Delhi Cloth and General Mills Co Ltd, (1983) 54 COMP CASES 301 (Delhi); Malvika Madan Sehgal v M.M.
Sehgal Ltd, (1998) 91 COMP CASES 133 (Delhi).
60 Navinchandra Ratilal Patel v Gordhandas Desai Pvt Ltd, (1967) 37 COMP CASES 747 (C.T.); Sha Mulchand & Co Ltd
v Jawahar Mills Ltd, (1953) 23 COMP CASES 1 (SC) : AIR 1953 SC 98 : (1953) SCR 351. See also notes under
sections 41, 108 and 111.
61 Anam Premkumar Reddy v India Fruits Ltd, (1996) 85 COMP CASES 625 (AP); Baluram Jaidayal Charity Trust v
CESC Ltd, (2004) 121 COMP CASES 474 (CLB). See detailed Notes under sections 108 and 153. Sections 153A,
153B and 187C are not applicable from the commencement of the Companies (Amendment) Act, 2000 (53 of 2000)
(w.e.f. 13 December 2000). This amending Act has been repealed by the Repealing and Amending Act, 2016.
64 Damien Subsidies and Kuries Ltd v Jose Pulicken, (2007) 137 COMP CASES 288 (Ker.) (DB).
65 Shyama Prasad Murarka v Calcutta Stock Exchange Association Ltd, (2002) 108 COMP CASES 703 (CLB). See also
notes on Lien under section 108.
See also notes under sections 31, 108, 397 and 398.
67 Kailashnarayan Bhangadia v VST Industries Ltd, (1998) 93 COMP CASES 470 (CLB).
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70 Smt. Sandeep Kaur Ahluwalia v Mukat Pipes Ltd, (2007) 138 COMP CASES 33 (CLB).
71 Re Hanuman Mills Pvt Ltd, (1977) 47 COMP CASES 644 (All.). See detailed Notes under Transmission in sections
108, 111 and 111(11).
72 D.K. Oswal v Akshay Finance, (2003) 115 COMP CASES 577 (Del.).
73 Killick Nixon Ltd v Dhanraj Mills Pvt Ltd, (1983) 54 COMP CASES 432 (Bom.) (DB). See also notes under sections 108,
154, 163(2) and 195.
74 AEG-Aktiengesellschaft v Insotex (India) Ltd, (1995) 83 COMP CASES 677 (Kar.) (DB).
75 Empire Industries Ltd v UOI, AIR 1986 SC 662 : (1986) 162 ITR 846 (SC) : (1985) Suppl. 1 SCR 292 : 1985 (20) ELT
179 (SC); ACCE v Dunlop India Ltd, (1985) 58 COMP CASES 145 (SC) : AIR 1985 SC 330 : (1985) 154 ITR 172 (SC) :
1985 (19) ELT 22 (SC); Siliguri Municipality v Amalendu Das, (1984) 55 COMP CASES 506 (SC) : AIR 1984 SC 653.
See detailed Notes on Injunction and Interim Orders under Doctrine of Precedents and Binding force of Supreme Court
and Jurisdictional High Court decisions under Section 10—Jurisdiction of Courts.
76 LIC v Escorts Ltd, (1986) 59 COMP CASES 548 (SC) : AIR 1986 SC 1370. See detailed Notes under section 108
under Transfer effective only when registered. See decisions pertaining to Public Companies in notes under section
111A(7).
77 A.V. Sampat, Official Liquidator v Dunlop India Ltd, (1996) 87 COMP CASES 398 (CLB).
78 Ambala Electric Supply Co Ltd v Walaiti Lal Kohli, (1970) 40 COMP CASES 1121 (P&H) (DB).
79 Pyariben M. Shah v N.I.I.T. Ltd, (2002) 111 COMP CASES 816 (CLB). See detailed Notes under sections 108 and
206A.
80 Charnjiv Lal v ITC Ltd, (2005) 126 COMP CASES 503 (CLB); Vikas Jalan v Hyderabad Industries Ltd, (1997) 88 COMP
CASES 551 (CLB).
81 Pradip Kumar Chetlangia v Bajaj Auto Ltd, (2005) 126 COMP CASES 347 (CLB).
82 Praga Tools Corp Ltd v M.R. Patny, (1968) 38 COMP CASES 175 (AP) (DB) : (1968) 1 Comp. LJ 256 (AP) (DB). See
decisions relating to Private Companies under section 111(5).
83 Re Ottos Kopje Diamond Mines Ltd, (1893) ChD 618 : 62 LJ Ch. 166 : 68 LT 138 (CA); Skinner v City of London Marine
Insurance Corp, (1885) 14 QBD 882 : 54 LJ QB 437 : 53 LT 191 : 33 WR 628 : 1 TLR 426 (CA); Metropolitan Coal
Consumers’ Association, Re, Karberg’s case, (1892) 3 ChD 1 : 61 LJ Ch. 741 (CA); Re, British Gold Fields of West
Africa Ltd, (1899) 2 ChD 7 : 68 LJ Ch. 412 : 80 LT 638 (CA); Cook v J.L. Kier & Co Ltd, (1970) 2 All ER 513 : (1970) 1
WLR 774 : 114 SJ 207 (CA).
84 Morgan v Morgan Insurance Brokers Ltd, (1993) BCLC 676.
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85 Mrs. S. Seetha v Satyam Computer Services Ltd, (2002) 112 COMP CASES 139 (CLB). See also Padmini
Technologies Ltd v TS Sawhney, (2011) 102 CLA 314 (power of the CLB to order compensation). See also notes under
section 113.
86 Canara Bank v National Thermal Power Corp Ltd, (2002) 110 COMP CASES 107 (CLB); Canara Bank v National
Thermal Power Corp, (2001) 104 COMP CASES 97 (SC).
87 Ms. Beena Toshniwal v ITC Ltd, (2005) 128 COMP CASES 955 (CLB).
88 Canara Bank v National Power Grid Corp Ltd, (2004) 122 COMP CASES 312 (CLB); Shree Cement Ltd v Power Grid
Corp Ltd, (2004) 122 COMP CASES 332 (CLB).
89 Jagatjit Industries Ltd v Mohan Meakin Ltd, (1994) 80 COMP CASES 411 (CLB). See also notes earlier under Inter-
corporate Investments and sections 292 and 372A.
(1962) 2 SCR 339.
91 Bombay Oil Industries Pvt Ltd v UOI, (1984) 55 COMP CASES 356 (SC) : AIR 1984 SC 160; Gharib Ram Sharma v
Daulat Ram Kashyap, (1994) 80 COMP CASES 267 (Raj.). See detailed Notes under sections 10, 10E, 10F, 10FB and
10FZA.
92 Ammonia Supplies Corp Pvt Ltd v Modern Plastic Containers Pvt Ltd, (1998) 94 COMP CASES 310 (SC); T.G. Veera
Prasad v Sree Rayalaseema Alkalies and Allied Chemicals Ltd, (1999) 98 COMP CASES 806 (AP). See also notes
under sections 10, 10E, 10FB and 10GB.
93 Ammonia Supplies Corp Pvt Ltd v Modern Plastic Containers Pvt Ltd, (1998) 94 COMP CASES 310 (SC); National
Insurance Co Ltd v Glaxo India Ltd, (1999) 98 COMP CASES 378 (Bom.); Tarsen Kansil v Dev Spinners Ltd, (2001)
103 COMP CASES 835 (CLB); Arun Kumar Mallick v Hindustan Lever Ltd, (2002) 112 COMP CASES 464 (CLB); Inter
Sales v Reliance Industries Ltd, (2002) 108 COMP CASES 680 (Cal.) (DB); Gordon Woodroffe and Co Ltd, U.K. v
Gordon Woodroffe Ltd, Chennai, (1999) 97 COMP CASES 582 (Mad.); Public Trustee v Rajeshwar Tyagi, (1973) 43
COMP CASES 371 (Delhi) (DB); Harnam Singh v Bhagwan Singh, (1992) 74 COMP CASES 726 (Delhi); Rao Saheb
Manilal Gangaram Sindore v Western India Theatres Ltd, (1963) 33 COMP CASES 826 (Bom.); People’s Insurance Co
Ltd v C.R.E. Wood & Co Ltd, (1961) 31 COMP CASES 61 (Punj.); Jayashree S. Vankudre v Rajkamal Kalamandir Pvt
Ltd, (1960) 30 COMP CASES 141 (Bom.). See also notes on Civil Suit hereinafter and notes under sections 2(11), 10,
10E, 10FB, 10GB, 82, 84, 108 and 111(7).
94 Subhash Chandra v Vardhman Spinning and General Mills Ltd, (1995) 83 COMP CASES 641 (CLB).
1 Oriental Insurance Co Ltd v MRF Ltd, (2007) 137 COMP CASES 144 (CLB).
2 Ram Gopal Gupta v National Aluminium Co Ltd, (2007) 137 COMP CASES 402 (CLB); P.S. Securities Ltd v ITC Ltd,
(2007) 137 COMP CASES 727 (CLB).
3 Daddy S. Mazda v K.R. Irani, (1977) 47 COMP CASES 39 (Cal.) (DB); Gulabrai Kalidas Naik v Laxmidas Lallubhai
Patel of Baroda, (1978) 48 COMP CASES 438 (Guj.).
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4 Shirish Finance and Investment Pvt Ltd v M. Sreenivasulu Reddy, (2002) 109 COMP CASES 913 (Bom.) (DB); Sahara
Fabrics Pvt Ltd v Smt. Kailash, (2006) 134 COMP CASES 472 (Bom). See detailed Notes under section 10—
Jurisdiction of Courts and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 under section
55A of the Companies Act, 1956—Powers of SEBI.
5 Unit Trust of India v Om Prakash Berlia, (1983) 54 COMP CASES 723 (Bom.) (DB). See detailed Notes under section
81.
6 RDF Power Protects Ltd v M. Muralikrishna, (2005) 124 COMP CASES 184 (AP).
7 Kumaran Potty v Venad Pharmaceuticals and Chemicals Ltd, (1989) 65 COMP CASES 246 (Ker.). See also notes
under sections 41 and 193. See notes on Pledge hereinbefore.
8 Sanmukhlal Rangildas Ghael v Reliance Petroleum Ltd, (2004) 119 COMP CASES 196 (CLB)
9 Sulphur Dyes Ltd v Hickson and Dadajee Ltd, (1995) 83 COMP CASES 533 (Bom.). See detailed Notes under sections
23, 35 and 112.
10 S. Sivakumar v Cirlacs Data Systems Ltd, (2002) 112 COMP CASES 162 (CLB); Gopalkrishna Sengupta v Hindustan
Construction Co Ltd, (2002) 112 COMP CASES 166 (CLB).
11 Bhuwaneshwar Nath Nigam v Hindustan Lever Ltd, (2002) 111 COMP CASES 590 (CLB). See also Notes under
section 108.
12 Calcutta Security Printers Ltd v Calcutta Phototype Co Ltd, (2002) 112 COMP CASES 434 (CLB); Shailesh Rajnikant
Parekh v Starline Travels Pvt Ltd, (2004) 118 COMP CASES 145 (CLB); Mrs. Farhat Sheikh v Escman Metalo
Chemical Pvt Ltd, (1991) 71 COMP CASES 88 (Cal.). See detailed Notes on Limitation hereinafter. See also Notes on
Provisions of section 108 mandatory and Gift under section 108.
13 Sham Sunder Kukreja v Hindustan Lever Ltd, (2003) 115 COMP CASES 913 (CLB). See also Notes under section 108.
14 Col. Gurnam Singh Gujral v Indian Hotels Co Ltd, (2002) 112 COMP CASES 86 (CLB).
15 Ashok Chaturvedi v Shitul H. Chanchani, (1998) 94 COMP CASES 401 (SC).
16 Vikas Jalan v Hyderabad Industries Ltd, (1997) 88 COMP CASES 551 (CLB); Sugavaneswara Spinning Mills Pvt Ltd v
T. Rajasekar, (2010) 158 Com Cas 39 (CLB) (for estoppel in relation to transfer – sub-judice).
17 Smt. Nupur Mitra v Basubani Pvt Ltd, (1999) 35 CLA 97 (Cal.) (DB) : (1999) 2 Cal. LJ 264. See also Notes on Private
18 Bank of Maharashtra v Sangli Bank Ltd, (1992) 73 COMP CASES 125 (CLB). See detailed Notes on Principle of Res
Judicata under section 10—Jurisdiction of Courts.
19 Rattan Chand Jain v Uberoi Ltd, (1998) 93 COMP CASES 906 (Del.) (DB).
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20 Arun Kumar Mallick v Hindustan Lever Ltd, (2002) 112 COMP CASES 464 (CLB); Ammonia Supplies Corp Pvt Ltd v
Modern Plastic Containers Pvt Ltd, (1998) 94 COMP CASES 310 (SC). See detailed Notes under sections 111(7) and
111A(7).
21 Trade Links Ltd v Mount Shivalik Breweries Ltd, (1999) 95 COMP CASES 150 (CLB).
22 Hero Honda Motors Ltd v Unit Trust of India, (2005) 127 COMP CASES 700 (CLB) applying Finolex Industries Ltd v
Anil Ramchand Chhabria, (2000) 3 Comp. LJ 330 (Bom.).
23 Finolex Industries Ltd v Anil Ramchand Chhabria, (2000) 3 Comp. LJ 330 (Bom.).
24 Vipin Aggarwal v HCL Infosys Ltd, (2005) 127 COMP CASES 593 (CLB).
25 Nitish Rellan v Reliance Industries Ltd, (2005) 127 COMP CASES 939 (CLB).
26 Gulabrai Kalidas Naik v Laxmidas Lallubhai Patel, (1977) 47 COMP CASES 151 (Guj.).
27 Anand Hemant Patel v Ornate Club Pvt Ltd, (2000) 99 COMP CASES 318 (CLB); Satish Chandra Sanwalka v Tinplate
Dealers Association Pvt Ltd, (2001) 107 COMP CASES 98 (CLB). See also Notes under sections 108, 111, 397 and
398.
28 N. Satyaprasad Rao v V.L.N. Sastry, (1988) 64 COMP CASES 492 (AP). See also Notes under sections 2(27), 41, 150,
397 and 398.
29 Vijaya Commercial Credit Ltd v Late T.K. Alwa, (1994) 79 COMP CASES 656 (CLB); Gordon Woodroffe Ltd v Trident
Investment and Portfolio Services Pvt Ltd, (1994) 79 COMP CASES 764 (CLB); Bajaj Tempo Ltd v Bajaj Auto Ltd,
(1994) 80 COMP CASES 618 (CLB); Canara Land Investments Ltd v Sea Rock Investments Ltd, (2000) 100 COMP
CASES 516 (CLB).
30 Patel Engineering Co Ltd v Patel Realtors Pvt Ltd, (1992) 74 COMP CASES 395 (CLB). See also Notes under sections
247, 250 and 409.
31 Gordon Woodroffe and Co Ltd, U.K. v Gordon Woodroffe Ltd, Chennai, (1999) 97 COMP CASES 582 (Mad.); Jai Pal
Saini v Mex Switchgears Pvt Ltd, (2006) 134 COMP CASES 428 (CLB). See also Notes under sections 397, 398 and
409.
32 Yashraj Govindbhai Patel v Patel Engineering Co Ltd, (1995) 84 COMP CASES 427 (SC).
33 Marikar (Motors) v M.I. Ravikumar, (1982) 52 COMP CASES 362 (Ker.).
34 Chambal Fertilisers and Chemicals Ltd v A. Venkata Reddy, (1996) 86 COMP CASES 145 (CLB); Chambal Fertilisers
and Chemicals Ltd v Bukka Ramulu, (1996) 86 COMP CASES 431 (CLB); Chambal Fertilisers and Chemicals Ltd v
Kore Ranga Babu, (1996) 86 COMP CASES 545 (CLB).
Mr. Laghir1 Rabari

Page 67 of 68
35 Rupak Ltd v Registrar of Cos, (1984) 56 COMP CASES 206 (Pat.) (DB).
36 Re Fagin’s Bookshop Plc., (1992) BCLC 118 (ChD)
37 Keene v Martin, (2000) 1 BCLC 194 : (2000) 1 WLR 414 (CA).
38 Canara Bank v Mahanagar Telephone Nigam Ltd, (1998) 93 COMP CASES 60 (CLB).
39 In Re Mafatlal Industries Ltd, (1997) 90 COMP CASES 247 (Guj.) (DB). See also Notes under sections 71, 81, 391 and
394.
40 C. Mathew v Cochin Stock Exchange Ltd, (1998) 91 COMP CASES 344 (CLB).
41 In Re, Cuddalore Construction Co Ltd, (1967) 37 COMP CASES 440 (Mad.).
42 Suresh Kumar Manchanda v Prakash Roadlines Ltd, (1996) 87 COMP CASES 102 (Kar.) (DB).
43 Jinendra Kumar Jain v Mangalore Refinery and Petrochemicals Ltd, (2006) 133 COMP CASES 566 (CLB).
44 Smt. Krithika Mullengada v Wipro Ltd, (2004) 121 COMP CASES 676 (CLB).
45 Re ISIS Factors Plc., (2003) 2 BCLC 411 (ChD).
46 Mrs. Pushpa Vadera v Thomas Cook (India) Ltd, (1996) 87 COMP CASES 921 (CLB).
47 Vasant Investment Corpn. Ltd v Co Law Board, (2000) 102 COMP CASES 421 (Bom.).
48 Mrs. Farhat Sheikh v Escman Metalo Chemical Pvt Ltd, (1991) 71 COMP CASES 88 (Cal.); Calcutta Security Printers
Ltd v Calcutta Phototype Co Ltd, (2002) 112 COMP CASES 434 (CLB); Sham Sunder Kukreja v Hindustan Lever Ltd,
(2003) 115 COMP CASES 913 (CLB).
49 Sham Sunder Kukreja v Hindustan Lever Ltd, (2003) 115 COMP CASES 913 (CLB).
50 Bipin Vadilal Mehta v Ramesh B. Desai, (1998) 92 COMP CASES 910 (Guj.).
51 Ramesh B. Desai v Bipin Vadilal Mehta, (2006) 132 COMP CASES 479 (SC) : (2006) 5 Comp. LJ 203 (SC).
52 K. Sreenivasa Rao v Regional Director, SEBI, (2003) 116 COMP CASES 238 (AP) (DB).
53 Alaknanda Manufacturing and Finance Pvt Ltd v Co Law Board, (1995) 83 COMP CASES 514 (Bom.) (DB) : AIR 1995
(Bom) 147.
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Page 68 of 68
55 Amalgamated Electricity Co Ltd v Naval Sorabjee Bhathena, (1963) 33 COMP CASES 568 (SC) : AIR 1964 SC 1598 :
(1964) 7 SCR 503.
56 T.R. Srinivasa Reddy v Swapna Ghose, (2006) 132 COMP CASES 295 (CLB).
57 Alote Estate v R.B. Seth Hiralal Kalyanmal Kasliwal, (1970) 40 COMP CASES 1116 (SC) : AIR 1971 SC 920; Bank of
Hindusthan Ltd v Kowthu Suryanarayana Rao, (1958) 28 COMP CASES 71 (Mad.) : AIR 1957 Mad. 702.
58 S.K. Shankara, Official Liquidator v Sardar Haridhan Singh, (1966) 36 COMP CASES 209 (Punj.) (DB); Sha Mulchand
& Co Ltd v Jawahar Mills Ltd, (1953) 23 COMP CASES 1 (SC) : AIR 1953 SC 98 : (1953) SCR 351.
59 Gummadi Aruna v Gummadi Constructions Ltd, (2007) 136 COMP CASES 81 (CLB).
60 S.D. Paliwal v Maharashtra Antibiotics and Pharmaceuticals Ltd, (2005) 128 COMP CASES 592 (CLB).
61 W. Gunther GmbH v Switching Technologies Gunther Ltd, (2004) 4 Comp. LJ 507 (CLB).
63 Mohanram Sastry v Swadharma Swarajya Sangha, (1995) 83 COMP CASES 272 (Mad.).
64 . Dineker Rai D. Desai v R.P. Bhasin, (1986) 60 COMP CASES 14 (Del.) (DB).
66 Dharam Pal Bhasin v B.N. Khanna, (1988) 64 COMP CASES 651 (Delhi).
(DB).
68 Om Prakash Poplai v Delhi Stock Exchange Association Ltd, (1994) 79 COMP CASES 756 (SC).
69 Tamil Nadu Finance Ltd v Raasi Cement Ltd, (2007) 137 COMP CASES 483 (CLB).
End of Document
Mr. Laghir1 Rabari

70 Notified by Notification No. S.O. 2754(E), dt. 12-09-2013, w.e.f. 12-09-
2013 and corresponds to section 148 of the 1956 Act. [s 60] Publication of
authorised, subscribed and paid-up capital.—
70 [s 60] Publication of authorised, subscribed and paid-up capital.—
(1) Where any notice, advertisement or other official publication, or any business letter, billhead
or letter paper of a company contains a statement of the amount of the authorised capital of
the company, such notice, advertisement or other official publication, or such letter, billhead
or letter paper shall also contain a statement, in an equally prominent position and in equally
conspicuous characters, of the amount of the capital which has been subscribed and the
amount paid-up.
(2) If any default is made in complying with the requirements of sub-section (1), the company
shall be liable to pay a penalty of ten thousand rupees and every officer of the company who
is in default shall be liable to pay a penalty of five thousand rupees, for each default.
NOTES
Clause 60.—This clause corresponds to section 148 of the Companies Act, 1956 and seeks to provide that where any
notice, advertisement or other official publication, or any business letter, etc., of a company contains a statement or
other official publication, or such letters billhead or letter paper shall also state the subscribed and paid up capital and
the clause further provides a penalty for the company in default in case of any contravention. [Clause 60 of the
[s 60.2] Publication of Authorised, Subscribed and Paid-up Capital [Section 60(1)]
This provision makes it mandatory for a company to mention the subscribed and paid-up capital
when a statement of its authorised capital is included in any notice, advertisement or other official
Mr. Laghir1 Rabari

Page 2 of 5
70 Notified by Notification No. S.O. 2754(E), dt. 12-09-2013, w.e.f. 12-09-2013 and corresponds to section 148
of the 1956 Act. [s 60] Publication of authorise....
publication of a company or any of its business letters, papers or bill heads which mention the
authorised capital.
Before discussing the intent behind this section, it is pertinent to note the relevant definitions under
the 2013 Act.
Authorised capital has been defined under section 2(8) of the 2013 Act to mean such capital as is
authorised by the memorandum of a company to be the maximum amount of share capital of the
company.
Paid-up share capital has been defined under section 2(64) of the 2013 Act to mean such aggregate
amount of money that has been credited as paid-up as is equivalent to the amount received as paid-
up in respect of shares issued.
Subscribed share capital has been defined under section 2(86) of the 2013 Act as the part of the
capital that has been subscribed to for the time being.
Therefore, the authorised capital of a company is merely the maximum amount of capital a company
may raise, the paid-up share capital and subscribed share capital reflect the financial commitment of
the existing shareholders more accurately. Merely mentioning the authorised share capital could lead
to a false impression that the existing shareholders have invested large sums, whereas the paid-up
share capital could only be a small percentage of such authorised share capital. It is therefore
important that all three be mentioned to provide a true and fair picture of the share capital of any
company.
The intent behind introducing this section possibly stems from the difference between
misrepresentation amounting to fraud and mere misrepresentation. While publishing the authorised
share capital by itself will not amount to misrepresentation, it may still mislead a person into believing
that it depicts the true financial status of the company. In Derry v Peek,71 investments were made in a
company based on a mis-statement in the prospectus. Upon discovering the statement to be false,
the investors brought an action against the directors of the company for fraud. The house of lords
differentiated between a mis-statement and a mis-statement amounting to fraud and held that a false
statement made in honest belief shall not amount to deceit or fraud, the directors were acquitted
based on the facts of the case.
A contravention of the provisions of section 60 of the 2013 Act renders the company liable to pay a
penalty of Rs 10,000. The officer in default will be liable to pay a penalty of Rs 5,000, for each
default.
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Given that the penalty prescribed for this offence is a fine, the offence may be compounded under
section 44172 of the 2013 Act. This is because section 441 of the 2013 Act mis-statement provides
that only an offence which is punishable with fine can be compounded under the 2013 Act.
The text of section 60 of the 2013 Act is substantially similar to section 148 of the 1956 Act. While
section 148 of the 1956 Act stated that the maximum fine leviable on the company and every officer
in default is Rs 10,000, the 2013 Act distinguishes the penalty payable by the company as Rs 10,000
and that payable by the officer in default as Rs 5,000, for each default.
[s 148] Publication of authorised as well as subscribed and paid-up capital.—(1) Where any notice,
advertisement or other official publication, or any business letter, bill head or letter paper, of a company contains a
statement of the amount of the authorised capital of the company, such notice, advertisement or other official
publication, or such letter, bill head or letter paper, shall also contain a statement, in an equally prominent position and
in equally conspicuous characters, of the amount of the capital which has been subscribed and the amount paid-up.
(2) If default is made in complying with the requirements of sub-section (1), the company, and every officer of the
company who is in default, shall be punishable with fine which may extend to 73[ten thousand rupees].
NOTES
This corresponds to section 75 of the existing Act. The provisions have been made applicable to business letters, bill-
heads and letter paper. A few drafting alterations have also been made. [Clause 141 of the Companies Bill, 1953 (46 of
1953)].
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This clause seeks to enhance the fine specified in sub-section (2) of section 148 of the Act from one thousand rupees
to ten thousand rupees. [Clause 53 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
[s 60.7] Subscribed and Paid-up Capital [Section 148(1) of the 1956 Act; section 60(1) of the
2013 Act]
Any notice, advertisement, official publication, business letter, bill-head or letter-paper which
mentions the authorised capital of the company must also mention in equal prominence the
subscribed and paid-up capital of the company.
[s 60.7.1] Department’s View— Clarification regarding requirement of specifying Authorised

Capital of the company on its Share Certificate
As section 148 of the Companies Act does not require a company to specify its authorised capital on its share
certificates, it is not obligatory for a company to do so. Where, however, the authorised capital is specified either on the
company’s own volition or otherwise on the share certificates, it is only fair and proper that the subscribed and paid up
capital are also indicated thereon as required by section 148(1) of the Act, inasmuch as the expression ‘other official
publications’ used in sections 147 and 148 of the Companies Act includes the share certificates. Paid-up capital for this
purpose would be the capital which has actually been paid up at the time of issue of the share certificate. [Circular No.
8/35(147)/66-CL-V, dt. 13-1-1967 : Govt. of India publication, Clarifications and Circulars on Company Law, 1977
Edition, page 72].
w.e.f. 12-09-2013.
70 Notified by Notification No. S.O. 2754(E), dt. 12-09-2013, w.e.f. 12-09-2013 and corresponds to section 148 of the 1956
Act.
71 Derry v Peek, (1857) 14 App Cas 337.
72 Notified by Notification No. S.O. 1934 (E), dt. 01-06-2016, w.e.f. 01-06-2016.
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End of Document
Mr. Laghir1 Rabari

2014. Section 61 corresponds to section 94 of the 1956 Act. [s 61] Power of
limited company to alter its share capital.—
74 [s 61] Power of limited company to alter its share capital.—
(1) A limited company having a share capital may, if so authorised by its articles, alter its
memorandum in its general meeting to—
(a) increase its authorised share capital by such amount as it thinks expedient;
(b) consolidate and divide all or any of its share capital into shares of a larger amount than its
existing shares:
75[Provided that no consolidation and division which results in changes in the voting
percentage of shareholders shall take effect unless it is approved by the Tribunal on
an application made in the prescribed76 manner;]
77[(c) convert all or any of its fully paid-up shares into stock, and reconvert that stock into
fully paid-up shares of any denomination;
(d) sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the
memorandum, so, however, that in the sub-division the proportion between the amount
paid and the amount, if any, unpaid on each reduced share shall be the same as it was in
the case of the share from which the reduced share is derived;
(e) cancel shares which, at the date of the passing of the resolution in that behalf, have not
been taken or agreed to be taken by any person, and diminish the amount of its share
capital by the amount of the shares so cancelled.
(2) The cancellation of shares under sub-section (1) shall not be deemed to be a reduction of
share capital.]
NOTES
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74 Notified by Notification No. S.O. 902(E), dt. 26 March 2014, w.e.f. 1 April 2014. Section 61 corresponds to
section 94 of the 1956 Act. [s 61] Power of limi....
Clause 61.—This clause corresponds to sub section 94 of the Companies Act, 1956 and seeks to provide that a limited
company having a share capital may alter its capital clause of memorandum in its general meeting [Clause 61 of the
[s 61.2] Alteration of Share Capital [Section 61(1)]
A company limited by shares may alter its share capital by an amendment to its memorandum. The
company may alter its share capital to the extent it thinks expedient by any of the following methods:
(a) Increase in authorised share capital.—The authorised share capital is the maximum amount
of share capital of the company as authorised by the memorandum of the company.
(b) Consolidate and divide all or any of its share capital into shares of a larger amount than its
existing shares. This process involves combining a specified number of shares into one new
share or splitting up existing shares into a number of shares of a smaller value. This makes
the shares more easily marketable. Similarly, a company may decide to combine shares of
smaller value into one share of larger value for convenience.
• As a safeguard for the protection of shareholder interests, a pre-condition has been

introduced to this method of alteration, that if any consolidation affects the voting percentage,
such change will need to be approved by the NCLT. This safeguard has been included as a
proviso to section 61(1)(b) of the 2013 Act.
(c) Convert all or any of its fully paid-up shares into stock and reconvert that stock into fully paid-
up shares of any denomination.
• Stock is an aggregate of fully paid-up shares. Portions of stock may be transferred or split up
into fractions of any amount, without regard to the original nominal amount of shares.78 While
shares cannot be transferred in fractions, stock may be.
(d) Sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the
memorandum. However, in the sub-division the proportion between the amount paid and the
amount, if any, unpaid on each share will need to be maintained.
(e) Cancel shares which have not been taken or agreed to be taken by any person, and diminish
the amount of its share capital by the amount of the shares so cancelled.
[s 61.3] Bona Fide Exercise of Power Essential
The power is to be exercised bona fide in the interest of the company and not for the benefit of a
section of the shareholders.79 Such alteration, however, does not “vary” or “affect” the rights of
shareholders and, as such, their consent is not necessary.80 However, if the voting percentage of the
shareholders is altered, the approval of the tribunal will be required.
[s 61.4] Company Ltd by Shares
Section 2(22) of the 2013 Act defines a company limited by shares as a company having the liability
of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively
held by them.
Mr. Laghir1 Rabari

Page 3 of 8
[s 61.5] “Alteration”
Section 2(3) of the 2013 Act provides for the definition of the term “alter” or “alteration” as including
the making of additions, omissions and substitutions.
[s 61.6] Power to Alter Share Capital
The power under section 61(1) of the 2013 Act can only be exercised if the company is specifically
authorised by its articles to alter its memorandum. If the articles do not provide for such alteration, the
articles will have to be amended (by the passing of a special resolution) prior to increase of the
authorised capital.81
[s 61.7] Powers to be Exercised in General Meeting
The powers under section 61 of the 2013 Act shall be exercised by the company in general meeting.
However, if the alteration of the share capital results in a variation in the voting percentage of the
shareholders, the company will be required to seek the approval of the NCLT through an application
made in this regard. No format for such application has been prescribed as on the date of going to
press.
The alteration of a memorandum ordinarily requires the approval of the shareholders through a
special resolution under section 13 of the 2013 Act. However, section 13 creates an exception for the
alteration of a memorandum pursuant to the alteration of share capital which can be effected by an
ordinary resolution of the company at its general meeting. To alter the company’s share capital,
therefore, an ordinary resolution is required to be passed. However, the articles may always state
that a special resolution would be required for this purpose. For provisions relating to ordinary
resolution and matters requiring sanction of shareholders by ordinary resolution. See Notes under
section 114 of the 2013 Act (s. 189 of the 1956 Act).
[s 61.9] Cancellation of Shares not Deemed to be Reduction [Section 61(2)]
Any decrease in the share capital of the company is a reduction of its share capital. The procedure
for reduction of share capital is detailed in section 66 of the 2013 Act. A cancellation of shares under
section 61(1) is not deemed to be a reduction under section 66 of the 2013 Act.
[s 61.10] Notice to the Registrar for Alteration of Share Capital
In case of alteration of share capital under section 61(1), the notice of such increase is required to be
filed with the registrar in Form SH-7.
[s 61.11] Share Certificates in Case of Sub-division or Consolidation
A share certificate can be issued, in exchange for those which are sub-divided or consolidated when
the certificate in lieu of which it is issued is surrendered to the company. In this regard, the board is
also permitted to charge such fee as it thinks fit, not exceeding Rs 50 per certificate issued on
splitting or consolidation of share certificate(s). Such certificate is required to predominantly state that
it is “Issued in lieu of share certificate No. sub-divided/replaced/on consolidation” and also that no fee
shall be payable pursuant to scheme of arrangement sanctioned by the High Court or Central
Government. A company may replace all the existing certificates by new certificates upon sub-
division or consolidation of shares or merger or demerger or any reconstitution without requiring old
certificates to be surrendered subject to compliance with provisions of rule 5 in respect of issuance of
share certificate.82 The particulars of this certificate are required to be maintained in a register of
renewed and duplicate share certificates.83
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In case of shares in dematerialised form, the shareholder is required to instruct the depository
participant to either consolidate or subdivide the shares.
See notes under section 46 of the 2013 Act for details.
[s 61.12] Penalty
apply in the event of a default and the company and every officer who is in default will be liable to be
When the shares were created by a special resolution, they were “issued” within the meaning of
section 94(i)(a), even though they were not offered or allotted to anyone. Consequently, the
company’s share capital had been increased and the directors would be liable for the failure to give
notice to the registrar.84
As the penalty prescribed under this section for this offence is a fine, the offence may be
compounded under section 441 of the 2013 Act.
regulations 35 to 38 of Table F of Schedule I of the 2013 Act also provide for alteration of capital.
regulations 35 and 36 provide for alteration of capital by an ordinary resolution; regulation 37
provides for rights and obligations of the holders of stock once the shares are converted into stock;
and regulation 38 provides for reduction of share capital, capital redemption reserve account and
share premium account.
See detailed notes on accounting provisions under Chapter IX, and specifically section 133 and the
AS) issued under section 133 of the 2013 Act by the Central Government along with the National
See detailed notes on audit and auditors under chapter X, and the auditing, review and other
standards under section 143(10) of the 2013 Act issued by the Institute of Chartered Accountants of
India (ICAI).
Mr. Laghir1 Rabari

Page 5 of 8
[s 94] Power of limited company to alter its share capital.—(1) A limited company having a share capital, may, if so
authorised by its articles, alter the conditions of its memorandum as follows, that is to say, it may— The Companies
Act, 1956 provision
(a) increase its share capital by such amount as it thinks expedient by issuing new shares;
(b) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares;
(c) convert all or any of its fully paid up shares into stock, and reconvert that stock into fully paid up shares of any
denomination;
(d) sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum, so
however, that in the sub-division the proportion between the amount paid and the amount, if any, unpaid on
each reduced share shall be the same as it was in the case of the share from which the reduced share is
derived;
(e) cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed
to be taken by any person, and diminish the amount of its share capital by the amount of the shares so
cancelled.
(2) The powers conferred by this section shall be exercised by the company in general meeting and shall not require to
be confirmed by the Court.
(3) A cancellation of shares in pursuance of this section shall not be deemed to be a reduction of share capital within
the meaning of this Act.
NOTES
See section 50 of the Indian Act and section 61 of the English Act. Provision has been made in sub-clause (1)(a) for
increasing the share capital by adding to the amount paid up on the existing shares, but it has been made clear that
the addition should be made from the accumulated profits, reserves or capital moneys of the company and that no
fresh liability should be imposed on the shares. [Clause 86 of the Companies Bill, 1953 (46 of 1953)].
[s 61.18] Power to Issue Further Shares at Par
The power to issue further shares can be used to raise capital, and for other reasons such as to
create a sufficient number of shareholders to enable the company to exercise statutory powers or to
Mr. Laghir1 Rabari

Page 6 of 8
enable it to comply with legal requirements. The issue of shares at par when market price is above
par is primarily a matter of policy for the directors to decide in the exercise of their discretion and no
hard and fast rule can be laid down to fetter that discretion. However, such discretionary powers are
fiduciary in nature and must, for that reason, be exercised in good faith.85
[s 61.19] Restriction on Increase of Capital
There cannot be any fetter on the statutory powers of the company to increase its share capital by
passing an ordinary resolution of the shareholders. The power of a company to alter its share capital
should be exercised only in the interests of the company and not for any particular group. A voting
agreement between shareholders outside the articles of the company as to how to vote on the
occasions of alteration of the share capital of the company may be binding on them but without
restricting the company’s powers to alter or increase its share capital. A restructuring agreement
between the company, its bankers and the majority shareholders contained a clause that after
restructuring of share capital, no further share capital should be created or issued without obtaining
the consent of the parties to the agreement. The company subsequently proposed to increase its
capital and issue further shares. One of the parties to the restructuring agreement sought an
injunction. The court held that the agreement was unlawful and restricted the power of the company
to increase its share capital. Though a restriction on the voting rights outside the articles of the
company may be binding on the company.86
[s 61.20] Injunction on Voting Rights
The company was heavily indebted to the bankers. A restructuring agreement was entered into
between the company and a substantial number of bankers. It was apprehended that two of the
directors might vote against the approval of the agreement at the general meeting. The bankers
sought an injunction that the concerned director and his associates should vote either in favour of the
scheme or that they should be restrained from voting against the scheme. It was held that the
conduct of the directors or shareholders was manifestly injurious to the interests of the company and
the court granted an injunction as it was to be in the interests of the company and the creditors.87
[s 61.21] Reduction of Share Capital
A cancellation of shares not falling within section 94(1)(e) of the 1956 Act (now section 61(1)(e) of the
2013 Act) cannot be affected without confirmation by the court.88
[s 61.22] Department’s View— Power of a company to alter its share capital [Sections 94 and
95]
A company whose authorised capital was Rs. 5 crores, at one of its general meetings, passed two resolutions under
clauses (e) and (a) respectively of sub-section (1) of section 94 of the Companies Act, 1956, diminishing the authorised
capital by the cancellation of a class of its unissued shares and creating at the same time in lieu thereof unclassified
shares of the same denomination. No increase in the original authorised capital of Rs. 5 crores was thus effected. The
question has been raised as to whether the creation of such new shares, concurrently with the cancellation of certain
unissued share capital of a company, should be deemed to be an ‘increase’ in the authorised capital of the company
over the reduced authorised capital (due to the cancellation of shares), and, if so, whether the company should be
called upon to pay registration fees therefor at the time of reporting the transactions in Form Nos. 5 and 6 [now Form
SH-7 under the Companies Act, 2013] of the Companies (Central Government’s) General Rules and Forms, 1956. The
question has been carefully considered and it has been decided that, in such a transaction, so long as the original
authorised capital, on which the company had already paid the prescribed fees under the Companies Act, is not
exceeded, the company should not be called upon to pay any further fees. It should, however, be required to file both
Form Nos. 5 and 6 [now Form SH-7 under the Companies Act, 2013 of the Companies (Central Government’s)
General Rules and Forms, 1956, to facilitate completion of the records of the Registrar of Companies. [Circular Letter
No. 8/13/94-59-PR, dt. 12-2-1960 : Govt. of India publication, Clarifications and Circulars on Company Law, 1977
Mr. Laghir1 Rabari

Page 7 of 8
Edition, page 58].
[s 61.23] Consolidation of Share Capital [Sections 94 and 95]
The Department is of the view that the consolidation of the Equity share capital and the Redeemable preference
shares capital and the division of the consolidated share capital of Rs. 5,00,000 into Equity shares of lesser amount,
i.e., Rs. 10 each is not covered under clause (b) of sub-section (1) of section 94 of the Companies Act, 1956 since the
consolidation and division of share capital into shares of smaller denominations are not covered thereby. In the
circumstances, there is no need for - Form No. 5 or Form No. 6 [now Form SH-7 under the Companies Act, 2013] of
the Companies (Central Government’s) General Rules and Forms, 1956. The company should, however, move the
Court [now the Tribunal (NCLT)] under section 391 of the Act since a reorganisation of share capital will be an
arrangement under section 390(b). The change in the share capital can be given effect to in the balance sheets only
after its confirmation by the High Court [now the Tribunal (NCLT)] under section 391 of the Companies Act, 1956 (now
ss 230–234 of the Companies Act, 2013) and any further increase in the authorised capital of the company can be
effected thereafter. [Letter No. 40/3/71-CL-III, dt. 21-7-1975 : Government of India publication, Clarifications and
[s 61.24] Capital on Amalgamation or Merger—No Fee or Stamp Duty
In case of increased authorised capital by amalgamation or merger of authorised capital of two

companies, the court [now the NCLT] has the power to pass suitable orders. In such a case, the
company is not required to comply with the requirements of sections 94 or 97 of the 1956 Act.
Further, in case of a merger where it is provided that the share capital of the transferor companies
become the authorised capital of the transferee company, no payment of fee to the registrar of
companies or stamp duty to the state government is payable. This issue is no more res integra and
stands settled by series of judgments of various high courts.89
The contents of section 94 of the 1956 Act have been carried over to section 61 of the 2013 Act. The
proviso to section 61(1)(b) of the 2013 Act which requires that consolidation and division which
results in changes in the voting percentage of shareholders shall take effect only when it is approved
by the tribunal pursuant to an application being made in this regard, was not provided for in section
94 of the 1956 Act. Under the 1956 Act, any reduction of share capital under section 100 would have
been a lengthy process with court involvement. In the absence of the proviso to section 61(1)(b) of
the 2013 Act, it may have been possible under section 94 of the 1956 Act (which did not require
approval by the court) for a company to consolidate shareholding and consequently squeeze out
smaller shareholders. However, under the 2013 Act such a squeeze out could result in a variation of
voting rights and hence require approval of the NCLT. The proviso may have been introduced in
order to fix this issue and protect shareholder interests. Section 61 of the 2013 Act has repealed
74 Notified by Notification No. S.O. 902(E), dt. 26 March 2014, w.e.f. 1 April 2014. Section 61 corresponds to section 94 of
the 1956 Act.
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75 Proviso to Sub-section (1)(b) has been notified by Notification No. S.O. 1934(E), dt. 1 June 2016 w.e.f. 1 June 2016.
76 Rule 15 and Form SH. 7 of the Companies (Share Capital and Debentures) Rule, 2014.
77 Notified by Notification No. S.O. 902(E), dt. 26 March 2014, w.e.f. 1 April 2014.
78 Morrice v Aylmer, (1875) LR 7 HL 717.
79 Piercy v S. Mills & Co, (1920) 1 ChD 77 : (1918–19) All ER Rep. 313 : 88 LJ Ch. 509.
80 White v Bristol Aeroplane Co Ltd, (1953) ChD 65 : (1953) 1 All ER 40 (CA); Smith’s John Tadcaster Brewery Co Ltd v
Gresham Life Assurance Society Ltd, (1953) ChD 308 : (1953) 1 All ER 518 : (1953) 2 WLR 516 (CA).
81 Re Patent Invert Sugar Co, (1885) 31 ChD 166 : 55 LJ Ch. 924 : 34 WR 169 (CA); Smith’s John Tadcaster Brewery Co
Ltd v Gresham Life Assurance Society Ltd, (1953) ChD 308 : (1953) 1 All ER 518 : (1953) 2 WLR 516 (CA).
84 Mahalaxmi Mills Co Ltd v State, (1969) 39 COMP CASES 347 (Raj.).
85 Needle Industries (India) Ltd v Needle Industries Newey (I) Holding Ltd, (1981) 51 COMP CASES 743 (SC) : AIR 1981
SC 1298 : (1981) 3 SCR 698. See also notes under sections 81, 287, 291, 299 and 300.
86 Russell v Northern Bank and Development Corp Ltd, (1992) BCLC 1016 (HL) : (1993) 3 Comp. LJ 45 (HL).
87 Standard Chartered Bank v Walker, (1992) BCLC 603 (ChD).
88 Re Castiglione, Erskine & Co Ltd, (1958) 2 All ER 455 : (1958) 1 WLR 688 : 102 SJ 454.
89 Re Bysani Consumer Electronics Ltd, (2006) 134 COMP CASES 99 (Mad.);Re, Hotline Hol Celdings Pvt Ltd, (2005)
127 COMP CASES 165 (Del.);Re, Jaypee Cement Ltd, (2004) 122 COMP CASES 854 (All.) : (2004) 2 Comp. LJ 105
(All.).
End of Document
Mr. Laghir1 Rabari

90 Sub-sections (1) to (3) notified by Notification No. S.O. 902(E), dt. 26
March 2014 w.e.f. 01 April 2014. Sub-sections (4) to (6) yet to be notified.
Section 62 corresponds to sections 81 and 94-A(1) of the 1956 Act. [s 62]
Further issue of share capital.—
90 [s 62] Further issue of share capital.—
(1) Where at any time, a company having a share capital proposes to increase its subscribed
capital by the issue of further shares, such shares shall be offered—
(a) to persons who, at the date of the offer, are holders of equity shares of the company in
proportion, as nearly as circumstances admit, to the paid-up share capital on those
shares by sending a letter of offer subject to the following conditions, namely:—
(i) the offer shall be made by notice specifying the number of shares offered and limiting
a time not being less than fifteen days and not exceeding thirty days from the date of
the offer within which the offer, if not accepted, shall be deemed to have been
declined;
(ii) unless the articles of the company otherwise provide, the offer aforesaid shall be
deemed to include a right exercisable by the person concerned to renounce the
shares offered to him or any of them in favour of any other person; and the notice
referred to in clause (i) shall contain a statement of this right;
(iii) after the expiry of the time specified in the notice aforesaid, or on receipt of earlier
intimation from the person to whom such notice is given that he declines to accept the
shares offered, the Board of Directors may dispose of them in such manner which is
not dis-advantageous to the shareholders and the company;
(b) to employees under a scheme of employees' stock option, subject to special resolution
passed by company and subject to such conditions as may be prescribed;91 or
(c) to any persons, if it is authorised by a special resolution, whether or not those persons
include the persons referred to in clause (a) or clause (b), either for cash or for a
consideration other than cash, if the price of such shares is determined by the valuation
report of a registered valuer subject to such conditions as may be prescribed.92
(2) The notice referred to in sub-clause (i) of clause (a) of sub-section (1) shall be despatched
through registered post or speed post or through electronic mode to all the existing
shareholders at least three days before the opening of the issue.
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90 Sub-sections (1) to (3) notified by Notification No. S.O. 902(E), dt. 26 March 2014 w.e.f. 01 April 2014. Sub-
sections (4) to (6) yet to be notified. Sectio....
(3) Nothing in this section shall apply to the increase of the subscribed capital of a company
caused by the exercise of an option as a term attached to the debentures issued or loan
raised by the company to convert such debentures or loans into shares in the company:
Provided that the terms of issue of such debentures or loan containing such an option
have been approved before the issue of such debentures or the raising of loan by a
special resolution passed by the company in general meeting.]
(4) Notwithstanding anything contained in sub-section (3), where any debentures have been
issued, or loan has been obtained from any Government by a company, and if that
Government considers it necessary in the public interest so to do, it may, by order, direct that
such debentures or loans or any part thereof shall be converted into shares in the company
on such terms and conditions as appear to the Government to be reasonable in the
circumstances of the case even if terms of the issue of such debentures or the raising of such
loans do not include a term for providing for an option for such conversion:
Provided that where the terms and conditions of such conversion are not acceptable to
the company, it may, within sixty days from the date of communication of such order,
appeal to the Tribunal which shall after hearing the company and the Government pass
such order as it deems fit.
(5) In determining the terms and conditions of conversion under sub-section (4), the Government
shall have due regard to the financial position of the company, the terms of issue of
debentures or loans, as the case may be, the rate of interest payable on such debentures or
loans and such other matters as it may consider necessary.
(6) Where the Government has, by an order made under sub-section (4), directed that any
debenture or loan or any part thereof shall be converted into shares in a company and where
no appeal has been preferred to the Tribunal under sub-section (4) or where such appeal has
been dismissed, the memorandum of such company shall, where such order has the effect of
increasing the authorised share capital of the company, stand altered and the authorised
share capital of such company shall stand increased by an amount equal to the amount of the
value of shares which such debentures or loans or part thereof has been converted into.]
NOTES
Section 62 of the 2013 Act corresponds to sections 81 and 94A(1) of the 1956 Act.
having a share capital can increase its subscribed capital by the issue of further shares to its existing members by
sending a letter of offer, containing certain conditions, to employees through employee’s stock option, subject to
approval by special resolution, or to the general public, after having the shares valued by registered valuers. This
provision does not apply to conversion of debentures or loans into shares of the company in certain cases.[ [Clause 62
of the Companies Bill, 2011 (121 of 2011)].
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[s 62.2] Modes of Increasing Subscribed Capital [Section 62]
Section 62 of the 2013 Act sets out the various modes under which a company can increase its
subscribed capital by the issue of further shares. Such issue may be in the form of (a) a rights issue
of shares; (b) an employees’ stock option scheme; or (c) a preferential issue.
[s 62.3] Applicability of Section
Section 62 of the 2013 Act is intended to cover a case where the directors decide to increase the
capital by issuing further shares within the authorised limit, for it is only within that limit that the
directors can decide to issue further shares, unless they are precluded from doing even that by the
regulations of the company. Therefore, the section becomes applicable only when the directors
decide to increase capital within the authorised limit by the issue of further shares.93
[s 62.4] Issue of Shares to Creditors
Where the company allots shares to creditors in satisfaction of their debts, e.g., in payment for
property sold or transferred, goods or machinery supplied or for services rendered to the company,
section 81 has no application. Such allotment may be made on oral applications by such creditors.94
[s 62.5] Applicability to Private Companies
Government has declared that section 62 will apply to a private company with the following
modifications:95
(a) In clause (a), in sub-clause (i), the following proviso shall be added: Provided that
notwithstanding anything contained in this sub-clause and sub-section (2) of this section, in
case 90% of the members of a private company have given their consent in writing or in
electronic mode, the periods lesser than those specified in the said-sub clause or sub-section
shall apply.
(b) In clause (b), for the words “special resolution,” the words “ordinary resolution” shall be
substituted.
[s 62.6] Exemption for Nidhi Companies
Government has declared that section 62 shall not apply to Nidhis.96
[s 62.7] Rights Issue [Section 62(1)(a)]
A company may make an offer of shares to persons who are existing holders of equity shares in the
company, at the time of making the offer. The company must make this offer in proportion to such
shareholders’ shareholding in the paid-up share capital of the company. The company must meet the
following conditions in relation to the letter of offer:
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(a) The offer should be made by a notice, which specifies the number of shares offered, and
should provide a time limit, within which, if the offer is not accepted, then the offer will be
deemed to be declined. Such time limit should be between a period of 15 to 30 days from the
date of the offer.
(b) The offer is deemed to include a right exercisable by the person concerned, to renounce the
shares offered to him/them, in favour of any other person. The notice must also contain a
statement of this right. However, this may not be permissible if the articles of the company do
not permit such a right to be exercised. The model articles in Table “F”, of Schedule I to the
2013 Act does not appear to contain any such restrictions.
(c) In the event the shareholders decline the offer, or where there is a deemed decline of the
offer, then the board of directors of the company is permitted to dispose of
• the shares in any manner, so long as such disposal is not disadvantageous to the
shareholders and to the company. See commentary to section 166 of the 2013 Act.1
[s 62.8] Suit Challenging Offer of Right Shares
Where the offer of right shares or allotment thereof is challenged, either because the notice was short
or otherwise, the proper parties, including the allottees, where shares have been allotted should be
before the court.2
[s 62.9] Who is Entitled to Right Shares
“Holder of shares” and not “member” is to be offered right shares. The 1956 Act has made a
distinction between “holders of shares” and “members” as will be apparent from comparing the
provisions of this section with those of sections 80 (now section 55 of the 2013 Act), 87 (now section
47 of the 2013 Act), 92 (now section 50 of the 2013 Act) and 207 (now section 127 of the 2013 Act).
This section requires that the shares are to be offered to “holders of shares” who may not be
members because their names have not yet been registered in the books of the company. The right
of renunciation is also to be exercised by such “holders of shares.” If the company has any objection
to register such a “holder of shares,” the only alternative is to resort to the provisions of sub-section
(1A) of section 81 [now section 62(1)(c) of the 2013 Act].3
The legal representatives of a deceased member acquire certain rights including the right to present
a petition for mismanagement and oppression. “Holders of Equity Shares” and “Members” in some
cases may mean the persons whose names are entered in the register of members and the two
terms are synonymous. The persons who have become entitled to the shares of a deceased member
could exercise all the membership rights of the deceased member, even though their names have not
been entered in the register of members.4
[s 62.11] Further Issue must be Bona Fide
A public company can issue rights shares in accordance with section 81 of the 1956 Act. Directors’
discretion or resolution to issue further shares for the purpose of raising funds must be in the interest
of the company and not mala fide. Raising additional capital is discretion of the directors and unless
there is mala fide or breach of trust the scope for review of the decision of the directors is very limited.
The only question for decision in such a case is that the issuance of further or rights shares for the
purposes of raising funds must be in the interest of the company and not mala fide. An incidental
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benefit to the directors cannot be regarded as the misuse of the powers. That minority shareholders
will be required to make substantial payment for acquiring shares would not render the issue
oppressive.5
[s 62.12] Oppression
Where further shares are issued with a view to reducing majority shareholders to a minority, such
issue and allotment of shares would be invalid.6
[s 62.13] Right to Renounce [Section 62(1)(a)(ii)]
Right to renounce the offered shares in favour of any other person under clause (c) of sub-section (1)
of section 62 of the 2013 Act shall not be deemed to—(a) extend the time within which offer should
be accepted, or (b) authorise any person to exercise the right of renunciation for a second time on the
ground that person in whose favour renunciation was first made has declined to take shares.
In a public company whenever further shares are issued, the same should be offered proportionately
to the existing shareholders in accordance with the provisions of section 81(1) of the 1956 Act [now
section 62(1)(a) of the 2013 Act], the only exception being that the general body through a special
resolution, in terms of section 81(1A) of the 1956 Act [now section 62(1)(c) of the 2013 Act] can
authorise the board to allot shares otherwise. Preferential allotment by the board to one group without
approval of the general body, however bona fide and in the interest of the company, would be an act
of oppression.7
[s 62.15] Rights Shares Offered to all Existing Shareholders in Equal Proportion
Where the rights shares were offered to all the existing shareholders in equal proportion, there was
no question of mala fides or acts of fraud. A special resolution under section 81(1A) of the 1956 Act
[now section 62(1)(c) of the 2013 Act] is necessary only for issuance of shares to the outsiders and is
not necessary for issuance of rights shares to the existing shareholders which is covered by section
81 of the Act and since the rights shares were issued in the same proportion without any
discrimination, it could not be stated that by issuance of rights shares there was oppression or
mismanagement. It was not for the benefit of the directors only, but for the benefit of the company for
overcoming the financial crunch which was decided in good faith in the interest of the company. The
fact that the company required heavy investment for modernisation, for installing new equipment to
clear the bank dues, was not disputed. Under these circumstances, the company law board was not
correct in setting aside the decision to issue rights shares.8
[s 62.16] Power to Issue Shares is Fiduciary Power
The power to issue shares is a fiduciary power, and if exercised for an improper motive the issue
would be liable to be set aside, it being immaterial that the issue was made in the bona fide belief that
it was in the interest of the company. The issue of shares would be ultra vires the directors and
invalid unless ratified by the company in the general meeting.9
[s 62.17] Rights Shares at Discriminatory Premium
Where issue of rights shares at a discriminatory premium was approved by the shareholders
unanimously. The said issue was challenged in a court. The court held that the shareholders who
participated in the meeting accepted the allotment and persons whose shareholding was negligible
could not challenge the validity of the issue on the ground that it was oppressive and it would cause
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loss to the company.10
Where the rights issue was proposed for purposes of expansion of existing plant. Shareholders by
majority subsequently approved utilisation of funds in new project. All financial institutions and
governmental authorities approved the proposal. Resolution for preferential allotment to non-resident
Indians and overseas corporate bodies at price much higher than market price was beneficial to the
company and the shareholders. Resolution for preferential allotment to promoters group was
approved by the majority. Therefore, the implementation of resolutions could not be stayed. The court
will not interfere in commercial functioning of the company. As there was no evidence that the
preferential allotment was contrary to law and a listed company has the right of private placement,
the court refused to issue any injunction. Pendency of proceedings for relief against oppression and
mismanagement before the CLB [now the Tribunal (NCLT)] was not a ground for stalling the
implementation of the resolutions. The CLB [now the Tribunal (NCLT)] will make appropriate
enquiries and decide the petitions on their own merits.11
[s 62.19] Right of Company to Issue Further Shares
A minority shareholder cannot complain that further issue of preference shares should be stopped as
he does not want to subscribe and such issue would constitute his oppression.12 The right of a
company to issue further shares is not dependent upon the capacity of any shareholder to take up
the issues of shares offered.13
[s 62.20] Foreign Collaborator
Foreign collaborator’s interest has to be protected when considering raising of further funds by loans
and by issue of rights shares. A foreign collaborator had 30% and the Indian controller had 60%
shareholding. The Indian controller proposed to increase capital of the company by issuing rights
shares. The foreign collaborator wanted to make further contribution only by way of loans and not by
further investment in the shares. The CLB directed the Indian controller to take care of the foreign
collaborator and to revise the policy accordingly.14
When further issue of shares is impugned in a petition for relief in case of oppression and
mismanagement and but for the further issue, the petition would be maintainable, then, before
proceeding with the other allegations in the petition, the further issue would be first examined to
ascertain the maintainability of the petition.15
A petition questioning the failure of the company to send letter of rights offer under section 81 of the
1956 Act (now section 62 of the 2013 Act) in time, alleging fraud by the company and contending that
the action of the company in refusing to issue the shares and warrants was mala fide, illegal and
oppressive can only be preferred under the relevant provisions of the Companies Act. The jurisdiction
to decide and determine matters pertaining is with the Tribunal (NCLT). Such a petition would not be
maintainable before the High Court.16
[s 62.23] Employees’ Stock Options [Section 62(1)(b)]
Further issue to employees, under an employees’ stock option scheme, is permitted upon a special
resolution being passed by the company, and subject to the conditions in rule 12 of the Companies
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Page 7 of 55
(Share Capital and Debentures) Rules, 2014.
[s 62.24] Employee
An “employee” has been defined to mean:17
(a) a permanent employee of the company who has been working in India or outside India; or
(b) a director of the company, whether a whole time director or not but excluding an independent
director; or
(c) an employee as defined in (a) or (b) of a subsidiary, in India or outside India, or of a holding
company of the company but does not include—
(i) an employee who is a promoter or a person belonging to the promoter group; or
(ii) a director who either himself or through his relative or through any body corporate, directly
or indirectly, holds more than 10% of the outstanding equity shares of the company.
[s 62.25] Conditions for the Issue of Employees’ Stock Option Schemes
A company other than a listed company [which is not required to comply with SEBI (Employee Stock
Option Scheme) Guidelines] is required to comply with the conditions listed below. Where the equity
shares of the company are listed on a recognised stock exchange, the employees stock option
scheme shall be issued, in accordance with the relevant regulations made by the SEBI (SEBI).18
(a) Resolution: The issue of employees stock option scheme must be approved by the
shareholders of the company by passing a special resolution.19 The approval of shareholders
will be required by way of separate resolutions in case:20 (i) grant of option is to employees of
subsidiary or holding company; or (ii) grant of option to identified employees, during any one
year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and
conversions) of the company at the time of grant of option.
(b) Pricing:21 Companies granting an option to its employees, under the employees stock option
scheme, will have the freedom to determine the exercise price in conformity with the
applicable accounting policies, if any.
(c) Vesting and Lock-in period:22 There should be a minimum period of one year between the
grant of options and the vesting of options. In the case of an option granted by a company
under its employees stock option scheme in lieu of options held by the same person under an
employees stock option scheme in another company, which has merged or amalgamated
with the company which is presently employing the individual, the period during which the
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options granted by the merging or amalgamating company were held by him shall be
adjusted against the minimum vesting period required.23 The employees shall not have right
to receive any dividend or to vote or in any manner enjoy the benefits of a shareholder in
respect of option granted to them, till shares are issued on exercise of option.24 The company
shall have the freedom to specify the lock-in period for the shares issued pursuant to exercise
of option.25 The amount, if any, payable by the employees, at the time of grant of option—(i)
may be forfeited by the company if the option is not exercised by the employees within the
exercise period; or (ii) the amount may be refunded to the employees if the options are not
vested due to non-fulfilment of conditions relating to vesting of option as per the employees
stock option scheme.
[s 62.26] Variation of the Terms of the Employees Stock Option Scheme
The company may, by special resolution, vary the terms of employees stock option scheme not yet
exercised by the employees provided such variation is not prejudicial to the interests of the option
holders. The notice for passing special resolution for variation of terms of the employees stock option
scheme shall disclose full of the variation, the rationale therefor, and the details of the employees
who are beneficiaries of such variation.
[s 62.27] Restrictions on Transfer/Transmission of Employees Stock Options26
Employees who are granted employee stock options are restricted in the following manner:
(a) The option granted to employees shall not be transferable to any other person.
(b) The option granted to the employees shall not be pledged, hypothecated, mortgaged or
otherwise encumbered or alienated in any other manner.
(c) Subject to (d), no person other than the employees to whom the option is granted shall be
entitled to exercise the option.
(d) In the event of the death of employee while in employment, all the options granted to him till
such date shall vest in the legal heirs or nominees of the deceased employee.
(e) In case the employee suffers a permanent incapacity while in employment, all the options
granted to him as on the date of permanent incapacitation, shall vest in him on that day.
(f) In the event of resignation or termination of employment, all options not vested in the
employee as on that day shall expire. However, the employee can exercise the options
granted to him which are vested within the period specified in this behalf, subject to the terms
and conditions under the scheme granting such options as approved by the board.
See also the SEBI (Issue of Sweat Equity) Regulations, 2002 and the SEBI (Employee Stock Option
Scheme and Employee Stock Purchase Scheme) Guidelines, 1999.
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(a) Explanatory Statement.—The company must make the following disclosures in the
explanatory statement annexed to the notice for passing the resolution:
(i) the total number of stock options to be granted;
(ii) identification of classes of employees entitled to participate in the employees stock option
scheme;
(iii) the appraisal process for determining the eligibility of employees to the employees stock
option Scheme;
(iv) the requirements of vesting and period of vesting;
(v) the maximum period within which the options shall be vested;
(vi) the exercise price or the formula for arriving at the same;
(vii) the exercise period and process of exercise
(viii) the Lock-in period, if any;
(ix) the maximum number of options to be granted per employee and in aggregate;
(x) the method which the company shall use to value its options;
(xi) the conditions under which option vested in employees may lapse, e.g. in case of
termination of employment for misconduct;
(xii) the specified time period within which the employee shall exercise the vested options in
the event of a proposed termination of employment or resignation of employee; and
(xiii) a statement to the effect that the company shall comply with the applicable
accounting standards.
(b) Directors’ Report.27—In relation to the Employees’ Stock Option Scheme, the following
details must be disclosed by the board of directors in the directors' report for the year:
(i) options granted;
(ii) options vested;
(iii) options exercised;
(iv) the total number of shares arising as a result of exercise of option;
(v) options lapsed;
(vi) the exercise price;
(vii) variation of terms of options;
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(viii) money realised by exercise of options;
(ix) total number of options in force;

(x) employee wise details of options granted to;-
A. key managerial personnel;
B. any other employee who receives a grant of options in any one year of option
amounting to 5% or more of options granted during that year and
C. identify employees who were granted options, during any one year, equal to or
exceeding 1% of the issued capital (excluding outstanding warrants and conversions)
of the company at the time of grant.
(c) Register of Employee Stock Options.28—The company should maintain a register of

employee stock options in Form No. SH.6, and immediately enter the particulars of options
granted under section 62(1)(b), and these particulars should be authenticated by the
company secretary of the company or by any other person authorised by the board for the
purpose. The register should be maintained at the registered office of the company or any
other place decided by the board.
[s 62.29] Preferential Issue [Section 62(1)(c)]
A preferential issue of shares is made in the event the offer is made to persons [who may include
persons referred to in sections 62(1)(a) and 62 (1)(b) of the 2013 Act] either for cash, or for a
consideration other than cash, if the price is determined by a valuation report of a registered valuer,
and is subject to the conditions and procedure discussed below, in respect of private and public
companies, separately.29
[s 62.30] Issue of Shares on Preferential Basis
Shares may be issued by any company, in any manner whatsoever, including by way of preferential
offer, to any persons [including the persons referred to in sections 62(1)(a) and 62(1)(b) of the 2013
Act], if authorised by a special resolution passed in a general meeting.30 Such issue on a preferential
basis should also comply with conditions laid down in section 42 of the 2013 Act, i.e., provisions
relating to private placement.
The courts have held, under the 1956 Act, that notwithstanding anything contained in sub-section (1),
if the company at a general meeting passes (a) a special resolution authorising the board of directors
to allot shares to outsiders; or (b) an ordinary resolution to that effect is passed and the Central
Government’s approval is obtained, the board may allot the shares to outsiders.31
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Where the shareholders passed a special resolution authorising the board of directors of the
company to allot the shares to the promoters’ group, implementation of the resolution may not be
stayed at the instance of some tiny shareholders.32
Special resolution is required under section 81(1A) of the 1956 Act for issue of further shares to
outsiders. For a rights issue under section 81(1), there is no need to get the approval of the general
body in terms of section 81(1A) of the Act, requiring three-fourths majority. Passing of an ordinary
resolution by a simple majority would suffice.33
[s 62.31] Preferential Offer
Preferential offer means an issue of shares or other securities by a company to any select person or
group of persons on a preferential basis and does not include shares or other securities offered
through a public issue, rights issue, employee stock option scheme, employee stock purchase
scheme or an issue of sweat equity shares or bonus shares or depository receipts issued in a country
outside India or foreign securities.34
[s 62.32] Shares or other Securities
A preferential offer may be made of “shares or other securities.” Shares or other securities means
equity shares, fully convertible debentures, partly convertible debentures or any other securities,
which would be convertible into or exchanged with equity shares at a later date.35
[s 62.33] Preferential Offer to Existing Members36
In case of any preferential offer made by a company to one or more existing members only, the
company will not be required to issue or file the offer or invitation to securities in Form PAS-4. Private
companies have been exempt from certain provisions of a private placement in cases of a
preferential offer. See rule 14 of the Companies (Prospectus and Allotment of Securities), Rules,
201437 and commentary under section 42 of the 2013 Act.
[s 62.34] Procedure for Preferential Offer—Listed Company
In furtherance of a preferential issue, if the preferential offer of shares or other securities is made by a
company whose share or other securities are listed on a recognised stock exchange, then such
preferential offer shall be made in accordance with the provisions of the 2013 Act and the SEBI
(Issue of Capital and Disclosure Requirements) Regulations, 2009.38 The price of shares to be issued
on a preferential basis by a listed company need not be determined by the valuation report of a
registered valuer.39
[s 62.35] SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009
Chapters IV and VII of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009
(which have replaced the SEBI (Disclosure and Investor Protection) Guidelines, 2000), regulate rights
issues and issues made on a preferential basis and provide, inter alia, as follows:
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“CHAPTER IV—RIGHTS ISSUE
52. Record date.—(1) A listed issuer making a rights issue shall announce a record date for the purpose of
determining the shareholders eligible to apply for specified securities in the proposed rights issue.
(2) The issuer shall not withdraw rights issue after announcement of the record date.
(3) If the issuer withdraws the rights issue after announcing the record date, it shall not make an application for listing
of any of its specified securities on any recognised stock exchange for a period of 12 months from the record date
announced under sub-regulation (1):
Provided that the issuer may seek listing of its equity shares allotted pursuant to conversion or exchange of convertible
securities issued prior to the announcement of the record date, on the recognised stock exchange where its securities
are listed.
53. Restriction on rights issue.—(1) No issuer shall make a rights issue of equity shares, unless it has made
reservation of equity shares of the same class in favour of the holders of outstanding compulsorily convertible debt
instruments if any, in proportion to the convertible part thereof.
(2) The equity shares so reserved for the holders of fully or partially compulsorily convertible debt instruments shall be
issued at the time of conversion of such convertible debt instruments on the same terms at which the equity shares
offered in the rights issue were issued.
54. Letter of offer, abridged letter of offer, pricing and period of subscription.—(1) The abridged letter of offer, along
with application form, shall be dispatched through registered post or speed post to all the existing shareholders at least
three days before the date of opening of the issue:
Provided that the letter of offer shall be given by the issuer or lead merchant banker to any existing shareholder who
has made a request in this regard.
(2) The shareholders who have not received the application form may apply in writing on a plain paper, along with the
requisite application money.
(3) The shareholders making application otherwise than on the application form shall not renounce their rights and
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shall not utilise the application form for any purpose including renunciation even if it is received subsequently.
(4) Where any shareholder makes an application on application form as well as on plain paper, the application is liable
to be rejected.
(5) The issue price shall be decided before determining the record date which shall be determined in consultation with
the designated stock exchange.
(6) A rights issue shall be open for subscription for a minimum period of 15 days and for a maximum period of thirty
days.
(7) The issuer shall give only one payment option out of the following to all the investors—
(a) part payment on application with balance money to be paid in calls; or
(b) full payment on application:
Provided that where the issuer has given the part payment option to investors, the part payment on application shall
not be less than 25% of the issue price and such issuer shall obtain the necessary regulatory approvals to facilitate the
same.
55. Pre-Issue Advertisement for rights issue.—(1) The issuer shall issue an advertisement for rights issue disclosing
the following:
(a) the date of completion of despatch of abridged letter of offer and the application form;
(b) the centres other than registered office of the issuer where the shareholders or the persons entitled to receive
the rights entitlements may obtain duplicate copies of the application forms in case they do not receive the
application form within a reasonable time after opening of the rights issue;
(c) a statement that if the shareholders entitled to receive the rights entitlements have neither received the original
application forms nor they are in a position to obtain the duplicate forms, they may make application in writing
on a plain paper to subscribe to the rights issue;
(d) a format to enable the shareholders entitled to apply against their rights entitlements, to make the application
on a plain paper specifying therein necessary particulars such as name, address, ratio of rights issue, issue
price, number of equity shares held, ledger folio numbers, depository participant ID, client ID, number of
equity shares entitled and applied for, additional shares if any, amount to be paid along with application, and
particulars of cheque, etc. to be drawn in favour of the issuer's account;
(e) a statement that the applications can be directly sent by the shareholders entitled to apply against rights
entitlements through registered post together with the application moneys to the issuer's designated official at
the address given in the advertisement;
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(f) a statement to the effect that if the shareholder makes an application on plain paper and also on application
form both his applications shall be liable to be rejected at the option of the issuer.
(2) The advertisement shall be made in at least one English national daily newspaper with wide circulation, one Hindi
national daily newspaper with wide circulation and one regional language daily newspaper with wide circulation at the
place where registered office of the issuer is situated, at least three days before the date of opening of the issue.
55A. Reservation for employees along with rights issue.—Subject to other applicable provision of these regulations the
issuer may make reservation for employees along with rights issue subject to the condition that value of allotment to
any employee shall not exceed two lakhs.
56. Utilisation of funds raised in rights issue.—The issuer shall utilise funds collected in rights issues after the
finalisation of the basis of allotment.
CHAPTER VII—PREFERENTIAL ISSUE
70. Chapter VII not to apply in certain cases.—(1) The provisions of this Chapter shall not apply where the preferential
issue of equity shares is made:
(a) pursuant to conversion of loan or option attached to convertible debt instruments in terms of sub-sections (3)
and (4) of sections 81 of the Companies Act, 1956;
(b) pursuant to a scheme approved by a High Court under section 391 to 394 of the Companies Act, 1956;
(c) in terms of the rehabilitation scheme approved by the Board of Industrial and Financial Reconstruction under
the Sick Industrial Companies (Special Provisions) Act, 1985:
• Provided that the lock-in provisions of this Chapter shall apply to preferential issue of equity shares mentioned
in clause (c).
(2) The provisions of this Chapter relating to pricing and lock-in shall not apply to equity shares allotted to any financial
institution within the meaning of sub-clauses (ia) and (ii) of clause (h) of section 2 of the Recovery of Debts due to
Banks and Financial Institutions Act, 1993 (51 of 1993).
(3) The provisions of regulation 73 and regulation 76 shall not apply to a preferential issue of equity shares and
compulsorily convertible debt instruments, whether fully or partly, where the Board has granted relaxation to the issuer
in terms of regulation 29A of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, if
adequate disclosures about the plan and process proposed to be followed for identifying the allottees are given in the
explanatory statement to notice for the general meeting of shareholders.
(4) The provisions of sub-regulation (2) of regulation 72 and sub-regulation (6) of regulation 78 shall not apply to a
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preferential issue of specified securities where the proposed allottee is a Mutual Fund registered with the Board or
Insurance Company registered with Insurance Regulatory and Development Authority.
(5) Conversion of debt into equity under strategic debt restructuring scheme—The provisions of this Chapter shall not
apply where the preferential issue of equity shares is made to the consortium of banks and financial institutions
pursuant to conversion of their debt, as part of the strategic debt restructuring scheme in accordance with the
guidelines specified by the Reserve Bank of India, subject to the following conditions:
(a) conversion price shall be determined in accordance with the guidelines specified by the Reserve Bank of India
for strategic debt restructuring scheme, which shall not be less than the face value of the equity shares;
(b) conversion price shall be certified by two independent qualified valuers, and for this purpose 'valuer' shall have
the same meaning as assigned to it under clause (r) of sub-regulation (1) of regulation 2 of the SEBI (Issue of
Sweat Equity) Regulations, 2002;
(c) equity shares so allotted shall be locked-in for a period of one year from the date of trading approval:
• Provided that for the purposes of transferring the control, the consortium of banks and financial institutions
may transfer their shareholding to an entity before completion of the lock-in period subject to continuation of
the lock-in on such shares for the remaining period with the transferee;
(d) applicable provisions of Companies Act, 2013 are complied with, including the requirement of special
resolution.
(6) The provisions of this Chapter shall not apply when any other secured lenders opt to join the strategic debt
restructuring scheme in accordance with the guidelines specified by the Reserve Bank of India and convert their debt
into equity share in accordance with sub-regulation (5).
71. Relevant date.—For the purpose of this Chapter, “relevant date” means:
(a) in case of preferential issue of equity shares, the date 30 days prior to the date on which the meeting of
shareholders is held to consider the proposed preferential issue:
• Provided that in case of preferential issue of equity shares pursuant to a scheme approved under the
Corporate Debt Restructuring framework of Reserve Bank of India, the date of approval of the Corporate
Debt Restructuring Package shall be the relevant date.
(b) in case of preferential issue of convertible securities, either the relevant date referred to in clause (a) of this
regulation or a date thirty days prior to the date on which the holders of the convertible securities become
entitled to apply for the equity shares.
Explanation: Where the relevant date falls on a Weekend/Holiday, the day preceding the Weekend/Holiday will be
reckoned to be the relevant date.
71A. Frequently traded shares.—For the purpose of this Chapter, “frequently traded shares” means shares of an
issuer, in which the traded turnover on any stock exchange during the 12 calendar months preceding the relevant date,
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is at least 10% of the total number of shares of such class of shares of the issuer:
Provided that where the share capital of a particular class of shares of the issuer is not identical throughout such
period, the weighted average number of total shares of such class of the issuer shall represent the total number of
shares.
72. Conditions for preferential issue.—(1) A listed issuer may make a preferential issue of specified securities, if:
(a) a special resolution has been passed by its shareholders;

(b) all the equity shares, if any, held by the proposed allottees in the issuer are in dematerialised form;
(c) the issuer is in compliance with the conditions for continuous listing of equity shares as specified in the listing
agreement with the recognised stock exchange where the equity shares of the issuer are listed;
(d) the issuer has obtained the Permanent Account Number of the proposed allottees.
(2) The issuer shall not make preferential issue of specified securities to any person who has sold any equity shares of
the issuer during the six months preceding the relevant date:
Provided that in respect of the preferential issue of equity shares and compulsorily convertible debt instruments,
whether fully or partly, the Board may grant relaxation from the requirements of this sub-regulation, if the Board has
granted relaxation in terms of regulation 29A of the SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 to such preferential allotment.
Explanation: Where any person belonging to promoter(s) or the promoter group has sold his equity shares in the issuer
during the six months preceding the relevant date, the promoter(s) and promoter group shall be ineligible for allotment
of specified securities on preferential basis.
(3) Where any person belonging to promoter(s) or the promoter group has previously subscribed to warrants of an
issuer but failed to exercise the warrants, the promoter(s) and promoter group shall be ineligible for issue of specified
securities of such issuer on preferential basis for a period of one year from:
(a) the date of expiry of the tenure of the warrants due to non-exercise of the option to convert; or
(b) the date of cancellation of the warrants
as the case may be.
73. Disclosures.—(1) The issuer shall, in addition to the disclosures required under section 173 of the Companies Act,
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1956 or any other applicable law, disclose the following in the explanatory statement to the notice for the general
meeting proposed for passing special resolution:
(a) the objects of the preferential issue;

(b) the proposal of the promoters, directors or key management personnel of the issuer to subscribe to the offer;
(c) the shareholding pattern of the issuer before and after the preferential issue;
(d) the time within which the preferential issue shall be completed;
(e) the identity of the natural persons who are the ultimate beneficial owners of the shares proposed to be allotted
and/or who ultimately control the proposed allottees, the percentage of post preferential issue capital that
may be held by them and change in control, if any, in the issuer consequent to the preferential issue:
• Provided that if there is any listed company, mutual fund, bank or insurance company in the chain of
ownership of the proposed allottee, no further disclosure will be necessary.
(f) an undertaking that the issuer shall re-compute the price of the specified securities in terms of the provision of
these regulations where it is required to do so;
(g) an undertaking that if the amount payable on account of the re-computation of price is not paid within the time
stipulated in these regulations, the specified securities shall continue to be locked- in till the time such amount
is paid by the allottees.
(h) disclosures, similar to disclosures specified in Pt G of Schedule VIII, if the issuer or any of its promoters or
directors is a wilful defaulter.
(2) The issuer shall place a copy of the certificate of its statutory auditor before the general meeting of the
shareholders, considering the proposed preferential issue, certifying that the issue is being made in accordance with
the requirements of these regulations.
(3) Where specified securities are issued on a preferential basis to promoters, their relatives, associates and related
entities for consideration other than cash, the valuation of the assets in consideration for which the equity shares are
issued shall be done by an independent qualified valuer, which shall be submitted to the recognised stock exchanges
where the equity shares of the issuer are listed:
Provided that if the recognised stock exchange is not satisfied with the appropriateness of the valuation, it may get the
valuation done by any other valuer and for this purpose it may obtain any information, as deemed necessary, from the
issuer.
(4) The special resolution shall specify the relevant date on the basis of which price of the equity shares to be allotted
on conversion or exchange of convertible securities shall be calculated.
Explanation: For the purpose of sub-regulation (3), the term 'valuer' has the same meaning as is assigned to it under
clause (r) of sub-regulation (1) of regulation 2 of the SEBI (Issue of Sweat Equity) Regulations, 2002.
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74. Allotment pursuant to special resolution.—(1) Allotment pursuant to the special resolution shall be completed within
a period of fifteen days from the date of passing of such resolution:
Provided that where any application for exemption from the applicability of the SEBI (Substantial Acquisition of Shares
and Takeovers) Regulations, 1997 or any approval or permission by any regulatory authority or the Central
Government for allotment is pending, the period of 15 days shall be counted from the date of order on such application
or the date of approval or permission, as the case may be:
Provided further that where the Board has granted relaxation to the issuer in terms of regulation 29A of SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 1997, the preferential issue of equity shares and
compulsorily convertible debt instruments, whether fully or partly, shall be made by it within such time as may be
specified by the Board in its order granting the relaxation:
Provided further that requirement of allotment within 15 days shall not apply to allotment of specified securities on
preferential basis pursuant to a scheme of corporate debt restructuring as per the corporate debt restructuring
framework specified by the Reserve Bank of India.
(2) If the allotment of specified securities is not completed within 15 days from the date of special resolution, a fresh
special resolution shall be passed and the relevant date for determining the price of specified securities under this
Chapter will be taken with reference to the date of latter special resolution.
(3) Notwithstanding anything contained in this regulation, where a preferential allotment is made that attracts an
obligation to make an open offer for shares of the issuer under SEBI (Substantial Acquisition of Shares and Takeovers)
Regulation, 2011, and there is no offer made under sub-regulation (1) of regulation 20 of the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulation, 2011, the period of fifteen days shall be counted from the expiry of
the period specified in sub-regulation (1) of regulation 20 or date of receipt of all statutory approvals required for the
completion of an open offer under the Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulation, 2011:
Provided that if an offer is made under sub-regulation (1) of regulation 20 of the Securities and Exchange Board of
India (Substantial Acquisition of Shares and Takeovers) Regulation, 2011, the period of fifteen days shall be counted
from the expiry of the offer period as defined in the SEBI (Substantial Acquisition of Shares and Takeovers)
Regulation, 2011:
Provided further that the provisions of this sub-regulation shall not apply to an offer made under sub-regulation (1) of
regulation 20 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulation, 2011, pursuant to a
preferential allotment.
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(4) Allotment shall only be made in dematerialised form.
Explanation.—The requirement of allotment in dematerialised form shall also be applicable for the equity shares to be
allotted pursuant to exercise of option attached to warrant or conversion of convertible securities.
75. Tenure of convertible securities—The tenure of the convertible securities of the issuer shall not exceed 18 months
from the date of their allotment.
76. Pricing of equity shares—Frequently traded shares.—(1) If the equity shares of the issuer have been listed on a
recognised stock exchange for a period of twenty six weeks or more as on the relevant date, the equity shares shall be
allotted at a price not less than higher of the following:
(a) The average of the weekly high and low of the volume weighted average price of the related equity shares
quoted on the recognised stock exchange during the twenty six weeks preceding the relevant date; or
(b) The average of the weekly high and low of the volume weighted average price of the related equity shares
quoted on a recognised stock exchange during the two weeks preceding the relevant date.
(2) If the equity shares of the issuer have been listed on a recognised stock exchange for a period of less than twenty
six weeks as on the relevant date, the equity shares shall be allotted at a price not less than the higher of the following:
(a) the price at which equity shares were issued by the issuer in its initial public offer or the value per share
arrived at in a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956, pursuant to
which the equity shares of the issuer were listed, as the case may be; or
(b) the average of the weekly high and low of the volume weighted average price of the related equity shares
quoted on the recognised stock exchange during the period shares have been listed preceding the relevant
date; or
(c) the average of the weekly high and low of the volume weighted average price of the related equity shares
quoted on a recognised stock exchange during the two weeks preceding the relevant date.
(3) Where the price of the equity shares is determined in terms of sub-regulation (2), such price shall be recomputed by
the issuer on completion of twenty six weeks from the date of listing on a recognised stock exchange with reference to
the average of the weekly high and low of the volume weighted average price of the related equity shares quoted on
the recognised stock exchange during these twenty six weeks and if such recomputed price is higher than the price
paid on allotment, the difference shall be paid by the allottees to the issuer.
(4) Any preferential issue of specified securities, to qualified institutional buyers not exceeding five in number, shall be
made at a price not less than the average of the weekly high and low of the volume weighted average price of the
related equity shares quoted on a recognised stock exchange during the two weeks preceding the relevant date.
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Explanation: For the purpose of this regulation, 'stock exchange' means any of the recognised stock exchanges in
which the equity shares are listed and in which the highest trading volume in respect of the equity shares of the issuer
has been recorded during the preceding twenty six weeks prior to the relevant date.
76A. Pricing of equity shares—Infrequently traded shares.—Where the shares are not frequently traded, the price
determined by the issuer shall take into account valuation parameters including book value, comparable trading
multiples, and such other parameters as are customary for valuation of shares of such companies:
Provided that the issuer shall submit a certificate stating that the issuer is in compliance of this regulation, obtained
from an independent merchant banker or an independent chartered accountant in practice having a minimum
experience of 10 years, to the stock exchange where the equity shares of the issuer are listed.
76B. Adjustments in pricing—Frequently or Infrequently traded shares.—The price determined for preferential issue in
accordance with regulation 76 or regulation 76A, shall be subject to appropriate adjustments, if the issuer:
(a) makes an issue of equity shares by way of capitalization of profits or reserves, other than by way of a dividend
on shares;
(b) makes a rights issue of equity shares;
(c) consolidates its outstanding equity shares into a smaller number of shares;
(d) divides its outstanding equity shares including by way of stock split;
(e) re-classifies any of its equity shares into other securities of the issuer;
(f) is involved in such other similar events or circumstances, which in the opinion of the concerned stock
exchange, requires adjustments.
77. Payment of consideration.–(1) Full consideration of specified securities other than warrants issued under this
Chapter shall be paid by the allottees at the time of allotment of such specified securities:
Provided that in case of a preferential issue of specified securities pursuant to a scheme of corporate debt restructuring
as per the corporate debt restructuring framework specified by the Reserve Bank of India, the allottee may pay the
consideration in terms of such scheme.
(2) An amount equivalent to at least twenty five per cent of the consideration determined in terms of regulation 76 shall
be paid against each warrant on the date of allotment of warrants.
(3) The balance seventy five per cent. of the consideration shall be paid at the time of allotment of equity shares
pursuant to exercise of option against each such warrant by the warrant holder.
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(4) In case the warrant holder does not exercise the option to take equity shares against any of the warrants held by
him, the consideration paid in respect of such warrant in terms of sub-regulation (2) shall be forfeited by the issuer.
(5) The issuer shall ensure that the consideration of specified securities, if paid in cash, shall be received from
respective allottee's bank account.
(6) The issuer shall submit a certificate of the statutory auditor to the stock exchange where the equity shares of the
issuer are listed stating that the issuer is in compliance of sub-regulation (5) and the relevant documents thereof are
maintained by the issuer as on the date of certification.
78. Lock-in of specified securities.—(1) The specified securities allotted on preferential basis to promoter or promoter
group and the equity shares allotted pursuant to exercise of options attached to warrants issued on preferential basis
to promoter or promoter group, shall be locked-in for a period of three years from the date of trading approval granted
for specified securities or equity shares allotted pursuant to exercise of the option attached to warrant, as the case may
be:
Provided that not more than 20%. of the total capital of the issuer shall be locked-in for three years from the date of
trading approval:
Provided further that equity shares allotted in excess of the 20%. shall be locked-in for one year from the date of
trading approval pursuant to exercise of options or otherwise, as the case may be.
(2) The specified securities allotted on preferential basis to persons other than promoter and promoter group and the
equity shares allotted pursuant to exercise of options attached to warrants issued on preferential basis to such persons
shall be locked in for a period of one year from the date of trading approval.
(3) The lock-in of equity shares allotted pursuant to conversion of convertible securities other than warrants, issued on
preferential basis shall be reduced to the extent the convertible securities have already been locked-in.
(4) The equity shares issued on preferential basis pursuant to a scheme of corporate debt restructuring as per the
Corporate Debt Restructuring framework specified by the Reserve Bank of India shall be locked-in for a period of one
year from the date of trading approval:
Provided that partly paid-up equity shares, if any, shall be locked-in from the date of trading approval and the lock-in
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shall end on the expiry of one year from the date when such equity shares become fully paid up.
(5) If the amount payable by the allottee, in case of re-calculation of price under sub-regulation (3) of regulation 76 is
not paid till the expiry of lock-in period, the equity shares shall continue to be locked in till such amount is paid by the
allottee.
(6) The entire pre-preferential allotment shareholding of the allottees, if any, shall be locked-in from the relevant date
up to a period of six months from the date of trading approval.
Explanation 1 : For the purpose of this regulation:
(I) The expression “total capital of the issuer” means:
(a) equity share capital issued by way of public issue or rights issue including equity shares issued pursuant to
conversion of specified securities which are convertible; and
(b) specified securities issued on a preferential basis to promoter or promoter group.
(II) (a) For the computation of 20%. of the total capital of the issuer, the amount of minimum promoters' contribution
held and locked-in, in the past in terms of SEBI (Disclosure and Investor Protection) Guidelines, 2000 or these
regulations shall be taken into account.
(b) The minimum promoters' contribution shall not again be put under fresh lock-in, even though it is considered for
computing the requirement of 20%. of the total capital of the issuer, in case the said minimum promoters' contribution is
free of lock-in at the time of the preferential issue.
Explanation 2: For the purposes of this regulation, the date of trading approval shall mean the latest date when trading
approval has been granted by all the recognised stock exchanges where the equity shares of the issuer are listed, for
specified securities allotted as per the provisions of this Chapter.
79. Transferability of locked-in specified securities and warrants issued on preferential basis.—(1) Subject to the
provisions of SEBI (Substantial Acquisition of shares and Takeovers) Regulations, 1997, specified securities held by
promoters and locked-in in terms of sub-regulation (1) of regulation 78 may be transferred among promoters or
promoter group or to a new promoter or persons in control of the issuer:
Provided that lock-in on such specified securities shall continue for the remaining period with the transferee.
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(2) The specified securities allotted on preferential basis shall not be transferred by the allottee till trading approval is
granted for such securities by all the recognised stock exchanges where the equity shares of the issuer are listed.”
[s 62.36] Procedure for Preferential Offer40
In the event the company is not listed, then the preferential offer must be made in accordance with
the provisions of the 2013 Act, and rules and subject to compliance with the following requirements:
(a) the issue is authorised by its articles of association;
(b) the issue has been authorised by a special resolution of the members;
(c) The company must make the following disclosures in the explanatory statement to be
annexed to the notice of the general meeting pursuant to section 102, 2013 Act:
(i) the objects of the issue;
(ii) the total number of shares or other securities to be issued;
(iii) the price or price band at/within which the allotment is proposed;
(iv) basis on which the price has been arrived at along with report of the registered valuer;
(v) relevant date with reference to which the price has been arrived at;
(vi) the class or classes of persons to whom the allotment is proposed to be made;
(vii) intention of promoters, directors or key managerial personnel to subscribe to the offer;
(viii) the proposed time within which the allotment shall be completed;
(ix) the names of the proposed allottees and the percentage of post preferential offer capital
that may be held by them;
(x) the change in control, if any, in the company that would occur consequent to the
preferential offer;
(xi) the number of persons to whom allotment on preferential basis have already been made
during the year, in terms of number of securities as well as price;
(xii) the justification for the allotment proposed to be made for consideration other than cash
together with valuation report of the registered valuer.
(xiii) the pre issue and post issue shareholding pattern of the company in the manner
set out in the rules.
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(d) the allotment of securities on a preferential basis made pursuant to the special resolution
passed pursuant to rule 13(2)(b) shall be completed within a period of 12 months from the
date of passing of the special resolution.
(e) if the allotment of securities is not completed within 12 months from the date of passing of the
special resolution, another special resolution shall be passed for the company to complete
such allotment thereafter.
(f) the price of the shares or other securities to be issued on a preferential basis, either for cash
or for consideration other than cash, shall be determined on the basis of valuation report of a
registered valuer;
(g) where convertible securities are offered on a preferential basis with an option to apply for and
get equity shares allotted, the price of the resultant shares shall be determined either (i)
upfront at the time when the offer of convertible securities is made, on the basis of valuation
report of the registered valuer given at the stage of such offer, or (ii) at the time when the
holder of convertible security becomes entitled to apply for shares, on the basis of valuation
report of the registered valuer given. This shall not be later than 30 days and not earlier than
60 days of the date when the holder of convertible security becomes entitled to apply for
shares. A decision on these sub-clauses will be taken at the time of offer of the convertible
security itself, and the disclosure will be made in the explanatory statement annexed to the
notice of the general meeting.
(h) where shares or other securities are to be allotted for consideration other than cash, the
valuation of such consideration shall be done by a registered valuer who shall submit a
valuation report to the company giving justification for the valuation;
(i) where the preferential offer of shares is made for a non-cash consideration, such non-cash
consideration shall be treated in the following manner in the books of account of the
company-
(i) where the non-cash consideration takes the form of a depreciable or amortizable asset, it
shall be carried to the balance sheet of the company in accordance with the accounting
standards; or
(ii) where clause (i) is not applicable, it shall be expensed as provided in the accounting
standards.
[s 62.37] Valuation
The price of the shares or other securities to be issued on a preferential basis, either for cash or for
consideration other than cash, shall be determined on the basis of valuation report of a registered
valuer.41 Until a registered valuer is appointed in accordance with the 2013 Act, the valuation report
shall be made by an independent merchant banker who is registered with the SEBI or an
independent chartered accountant in practice having a minimum experience of 10 years.42 The
valuation report from a registered valuer will also be required where convertible securities are offered
on a preferential basis with an option to apply for and get equity shares allotted and the price of the
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resultant shares is determined beforehand.43
[s 62.38] Pricing
The price of shares or other securities to be issued on preferential basis cannot not be less than the
price determined on the basis of valuation report of a registered valuer.44
[s 62.39] Allotment in Violation of Injunction Void
The effect of allotment or transaction in violation of injunction is that the transaction is rendered
void/voidable. Allotment of shares under section 81 of the 1956 Act is a specie of contract, and it
requires the making of an offer of allotment by the company to the existing shareholders in the first
instance and acceptance of the offer by the shareholders either by themselves or by renouncees.
Shares, allotment of which has not been accepted by the existing shareholders and/or renounces,
can be dealt with by the company in such manner as the board of directors thinks in the best interest
of the company. That also requires the bringing into existence a valid enforceable contract between
the company and the persons to whom allotment is to be made. Where temporary injunction of court
permitted the company to complete the contract in respect of offer made by the company to the
existing shareholders. But, the order prohibited it to allot shares from the unsubscribed portion to
anyone except the banks and public financial institutions without permission of the court. The
allotment to a third party in violation of the injunction would be void. The persons who are allotted
rights shares in breach of injunction of court would not be competent to participate or vote in meeting
to approve the scheme of amalgamation.45
[s 62.40] Ex Parte Injunctions
Functioning of the capital market should not be interfered with by ex parte interim injunctions. The
consumer forum does not have jurisdiction over matters connected with the issue of shares and the
application for allotment of shares. Invariably, suits are filed seeking to injunct the allotment of
shares. The court must ensure that the plaintiff comes to the court well in time so that notice may be
served on the defendant and he may have his say before any interim order is passed. It may be
sometimes difficult to undo the damage done by such an interim order. The Supreme Court set out
reasons in relation to the factors which should weigh with the court in the grant of ex parte
injunctions. Normally, cases should be filed only where the registered office of the company is
situate.46
The SEBI is a quasi-judicial authority. It is however to observe the principles of natural justice before
debarring a company from access to the capital market. A proper hearing should be given and the
SEBI has no power to direct the company not to refund the application money even if the subscription
to the issue was below 90%. The company had no obligation to seek permission of the SEBI for
refunding the money.47
See detailed Notes on Principles of Natural Justice, viz., (1) Rule of audi alteram partem, (2)
Reasoned order, etc., under sections 424 and 24 of the 2013 Act (sections 10FZA and 55A of the
1956 Act).
[s 62.42] Scheme of Amalgamation
Where the provision in scheme of amalgamation, compromise or merger for preferential allotment of
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additional shares at specified price in transferee company to the parent company to maintain
proportion of shareholdings was approved by the shareholders under section 81(1A) of the 1956 Act.
The scheme was sanctioned by the Court [now the Tribunal (NCLT)] under sections 391 to 394 of the
1956 Act. The Court [now the Tribunal (NCLT)] sanctioning the scheme would not interfere in the
matter of preferential allotment of equity shares when they have been approved by the shareholders
unless it can be shown that such allotment was an abuse of the majority power. The power to
exclude pre-emptive rights is a power in the nature of trust to be used in good faith and for the benefit
of the company.48
[s 62.43] Issue of Shares to Creditors
Section 81(1A) permits issue of further shares to persons other than the existing ordinary
shareholders of the company. It cannot, therefore, be said that issue of further shares to persons
other than the existing shareholders of the company, i.e., creditors is wholly barred. It would only
require a special resolution to that effect passed by the company in the general meeting. The further
issue of shares to unsecured creditors in satisfaction of their claims as provided in the scheme
cannot be said to be issue of shares either at a discount or on misrepresentation or for no
consideration or for consideration other than cash.49
[s 62.44] Sick Company—Petition for Sanction of Scheme
Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986), has no
applicability and the proceedings on a petition for sanction of the Scheme cannot be suspended or
kept in abeyance on the ground of a reference having been made to the Board for Industrial and
Financial Reconstruction (BIFR) [now replaced by the Tribunal (NCLT)] under the SICA, 1985.50
Now see sections 253, 260, 261, 262, 265 (none of the forgoing sections have been notified as on
date) and 408 of the 2013 Act.
See detailed notes under sections 253, 260, 261, 262, 265 (none of the forgoing sections have been
notified as on date) and 408 of the 2013 Act.
[s 62.45] Winding up
When a winding up order is passed, all the officers and directors are discharged under section 445(3)
of the 1956 Act. It puts an end to the powers of the directors. Even where stay of winding up is
obtained, there is no scope for floating new shares. Further issue of capital can be done only in
accordance with section 81 of the Act. New shareholders cannot therefore be called upon to
contribute.51
Where the shareholding of a company under liquidation in a deemed public company was reduced on
account of the minority group in the deemed public company allotting fresh shares to itself. Official
liquidator did not take any action. On an application by minority of the investor company to the
winding up court the issue was declared void as the existing shareholders were not offered rights
shares in proportion to the shareholding under sections 81(1)(a) and (b) of the 1956 Act.52
[s 62.46] Issue of Shares at Discount
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Where the consent of the shareholders under section 81(1A) of 1956 Act [now section 62(1)(c) of the
2013 Act], for the issue of non-convertible cumulative preference shares in terms of relevant SEBI
guidelines through a resolution under section 79 was obtained. On petition to the company law board
for sanction, it was held that the CLB [now the Central Government] may sanction the issue
conditionally or unconditionally or it may not sanction the issue at discount at all. The company law
board [now the Central Government] may decide as to the reasonableness of discount for issue of
the shares and where necessary impose certain conditions.53
[s 62.47] Conversion of Debentures or Loans into Shares [Section 62(3)]
The increase of the subscribed capital of a company caused by the exercise of an option as a term
attached to the debentures issued or loan raised by the company to convert such debentures or
loans into shares in the company are excluded from the applicability of section 62 of the 2013 Act,
provided that the terms of the issue of such debentures or loan containing such an option have been
approved before the issue of such debentures or the raising of loan by a special resolution passed by
the company in general meeting.
[s 62.48] Debentures and Loans Held by the Government [Section 62(4)]54
In the event a company has issued debentures to, or has availed of a loan from any government, and
where the government considers it necessary in the public interest to do so, then the government
may issue directions for such debentures or loans to be converted into shares in the company, on
such terms as may appear reasonable to the government, in the circumstances. Such conversion
may be ordered by the government, even if the terms of the issue of such debentures or loans.
However, if these terms and conditions are not acceptable to the company, then the company is
permitted to appeal to the Tribunal within 60 days of the communication of the order. The Tribunal
may then pass such order as it deems fit.
[s 62.49] Public Companies (Debentures and Loans with Option to Convert such Debentures
or Loans into Shares) Rules
The Public Companies (Terms of Issue of Debentures and of Raising of Loans with Option to Convert
such Debentures or Loans into Shares) Rules, 1977 will be repealed once section 62(4)–(6) of the
2013 Act are notified.
[s 62.50] Debentures with Option to Convert Partly into Equity Shares
Where in debentures with option to convert partly into equity shares, the option was exercised without
issue of debentures and the shares were allotted to creditors. It was held that issue of debentures,
though desirable, would not always be mandatory. When there is no grievance on the part of the
debenture holders and the company has acted in terms of the debenture deed, the actual issue of
debentures would be a procedural aspect and an omission thereof would not vitiate issue of shares
on conversion. No mala fides could be imputed and the issue of shares was valid.55
[s 62.51] Bona Fide Exercise of Right of Conversion of Loan
A bona fide exercise of the right of conversion of a loan into capital following the due procedure within
the limits of authority is permissible. The conversion of the loans of an ex-director into shares by
passing a special resolution under section 81(1A) of the 1956 Act does not violate the provisions of
section 106 relating to variation of class rights even if the voting power of the other shareholders be
affected.56
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[s 62.52] Conversion of Preference Shares into Equity
When the articles of association of the company do not contain any provision for conversion of
preference shares into equity shares, a private agreement between the parties cannot override the
provisions of the articles. The redemption of preference shares should be only by way of cash and
any scheme of conversion would require compliance with the provisions of sections 81, 106, 391 and
392 of the Act of the 1956 Act.57
[s 62.53] Terms and Conditions for Conversion of Debentures/Loans [Section 62(5)]58
The government will have due regard to the financial position of the company, the terms of issue of
debentures or loans, the interest payable, and such other matters as may be relevant in determining
the terms and conditions of conversion.
[s 62.54] Department’s View under the 1956 Act— Conversion of loan into shares is
prospective in effect
It is clear from the provisions of Section 81(4) of the Companies Act, 1956 that the order passed for conversion is not
retrospective in effect but only prospective in effect. When loans are converted into shares, the holder thereof is
entitled to all the rights of a member including voting rights at meetings of the company. In case retrospective
conversion is made, the entire voting pattern of meetings of the company which had taken place in the interim period
would be upset. [Extracts from File No. 33/8/72-CL-III : Government of India publication, Clarifications and Circulars on
[s 62.55] Section 81(4) Applies to Private Companies—Legal Opinion
Sub-section (4) of section 81 of the Companies Act, 1956 applies to a private company simpliciter notwithstanding
clause (a) of sub-section (3) of section 81 inter alia for the reasons stated below:—
(i) Sub-sections (4), (5), (6) and (7) of section 81 were added by section 5 of the Companies (Amendment) Act,
1963 (53 of 1963). It is obvious therefrom that section 81(3)(a) which was in the Statute before the
introduction of sub-sections (4), (5), (6) and (7) could not possibly refer to sub-section (4).
(ii) It is well known that if two sections of the same Statute are repugnant, the rule is that the last must prevail.
Sub-section (4), therefore, must prevail over sub-section (3) of section 81.
(iii) Sub-sections (1) and (2) deal with the offer of further shares to the existing shareholders and renunciation
thereof by the said shareholders. Sub-section (1A) makes an exception thereto in the circumstances
specified therein. Sub-section (3) provides that nothing in this section which, in the context, in my opinion,
can only mean sub-sections (1) and (2), apply—
(a) to a private company; or
(b) to the increase of the subscribed capital of a public company caused in the circumstances specified in
the said clause.
• Sub-section (4), however, deals with an entirely different subject. It empowers the Central Government alone
unilaterally to make the order and not on the basis of consent of the company or pursuant to some option
attached to the debentures issued to or loan taken from the Government, by the company. It is a well-known
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principle in interpretation of Statutes that one way in which repugnancy can be avoided is by regarding two
apparently conflicting provisions as dealing with distinct matters or situations.
(iv) The opening words of sub-section (4), viz., ‘notwithstanding anything contained in the foregoing provisions of
this section’ refer to sub-sections (1), (2) and (3) and as such sub-sections (4) prevails over sub-section (3)(a)
and in the premises, an order under section 81(4) can be made by the Central Government even in respect of
any private company.
(v) The Hon’ble Finance Minister’s speech in the Lok Sabha Debate59 referred to by the Solicitor in para 4 of his
Note, dt. 23-5-1974 at page 12-13/N ante has been reproduced in ‘A Guide to the Companies Act’ by A.
Ramaiya, 5th Edition, pages 142-143. It is well known that debate in Parliament cannot be referred to for the
purpose of construction of the statute. However, for the sake of argument only and without admitting, if it is
assumed that the speech is relevant, the scope and effect of the speech, in my opinion, is as follows:—
(a) The Honourable Minister did not refer to private company but stated that ‘progressive thinking is
generally not for outright loans by Government to private enterprises’. The expression ‘private enterprise’
in this context, it is felt refers to enterprise which is not public enterprise, i.e., not an enterprise by the
Government, and the expression has nothing to do with private company or public company.
(b) The Hon’ble Finance Minister did not refer to debentures to be issued to or loans to be obtained from the
Government by a company in future, but to debentures which have already been issued to or loans
which have already been obtained from the Government by a company. This is due to the fact that in
regard to debentures to be issued to or loans to be obtained in future from the Government by a
company, Government has the option even without the aid of the Statute to agree to subscribe for
debentures of a company or to grant loans and advances to a company only on the condition that the
Government will have the option to convert debentures or loans into equity shares in the company. In
regard to debentures which have already been subscribed or loans which have already been granted,
however, Government cannot exercise such option unless such option had already been attached to the
debentures issued to or loans granted by the Government and in relation to such debentures issued or
loans granted by the Government to a company in the past whereto no such option had been attached, it
was necessary for the Government to have such power and that could be done only by amendment of
the Companies Act. It is in that context that the Hon’ble Minister made his speech in introducing the Bill,
resulting in the additions of sub-sections (4) to (7) after the Bill was passed. The speech, in my opinion,
did not refer to any particular class of companies private or public, but to private enterprise comprising
both public companies and private companies. [F. No. 33/58/73-CL-III : Government of India publication,
[s 62.56] Increase in Authorised Capital as a Result of Conversion of Debentures/ Loans

[Section 62(6)]60
If the government has passed an order for the conversion of debentures or loans into shares in the
company, and this order has the effect of an increase in authorised capital, following the expiry of the
limitation period for filing an appeal, or the dismissal of the appeal, then the memorandum of the
company will be altered to effect the increase in authorised share capital, and the authorised share
capital itself will be increased by an amount equal to the amount of the value of shares into which the
debentures and loans have been converted. Notice of such increase must be filed by the company
with the registrar in Form No. SH.7 along with the fee.61
[s 62.57] Notice to Registrar for Alteration of Share Capital
The Registrar should be notified of any alteration in share capital: (i) pursuant to section 62(1), or (ii)
where the Government passes as order for increasing share capital under section 62(2) read with
section 64(4); or (iii) where the company redeems any preference shares; or (iv) where a company
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without share capital increases the number of its members. The Registrar will need to be notified of
the alteration, increase or redemption in Form SH.7 along with the fee.
[s 62.58] Penalty
with a further fine which may extend to one thousand for every day after the first for which the
As the general penalty prescribed under section 450 is a fine, the offence may be compounded under
section 441 of the 2013 Act. However, as on the date of going to press, section 441 has not been
notified. Consequently, the offence may be compounded under section 621A of the 1956 Act until
such date.
[s 62.60] Further Issue of Shares to a Non-Resident
A person resident outside India may purchase equity or preference shares or convertible debentures
offered on a right basis by an Indian company which satisfies the conditions specified in this sub-
regulation. An Indian company which satisfies the following conditions, may offer to a person resident
outside India, equity or preference shares or convertible debentures on a rights basis:62
(a) The offer on right basis does not result in increase in the percentage of foreign equity already
approved, or permissible under the Foreign Direct Investment Scheme or the FEMA (Transfer
or Issue of Security to a Non Resident) Regulations, 2000;
(b) The existing shares or debentures against which shares or debentures are issued by the
company on right basis were acquired and are held by the person resident outside India in
accordance with the FEMA (Transfer or Issue of Security to a Non Resident) Regulations,
2000;
(c) The offer on right basis to the persons resident outside India is at a price which is not lower
than that at which the offer is made to resident shareholders.
Such shares shall be subject to the same conditions including restrictions regarding the repatriability
as are applicable to the original shares. The existing non-resident shareholder may also apply for
issue of additional equity shares or preference shares or convertible debentures over and above their
rights entitlements and the investee company may allot the same subject to the condition that the
overall issue of shares to non-residents in the total paid-up capital of the company.63
Issue of rights shares to erstwhile Overseas Corporate Bodies (which have been de-recognised as a
class of investors since September 16, 2003) shall require the prior permission of the Reserve Bank
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of India.
[s 62.61] Secretarial Standards
The Council of the Institute of Company Secretaries of India (ICSI) has issued “Secretarial Standard-
4 (SS-4) on Registers and Records” in October, 2005 : the ICSI website http://www.icsi.edu. This
Secretarial Standard is currently under revision to be made in line with the 2013 Act and are
consequently not applicable at present.
Standards under section 143 (10) issued by the Institute of Chartered Accountants of India (ICAI).
[s 81] Further issue of capital.—(1)64
[Where at any time after the expiry of two years from the formation of a company or at any time after the expiry of one
year from the allotment of shares in that company made for the first time after its formation, whichever is earlier, it is
proposed to increase the subscribed capital of the company by allotment of further shares, then,—] The Companies
Act, 1956 provision
(a) such 65[further] shares shall be offered to the persons who, at the date of the offer, are holders of the equity
shares of the company, in proportion, as nearly as circumstances admit, to the capital paid up on those
shares at that date;
(b) the offer aforesaid shall be made by notice specifying the number of shares offered and limiting a time not
being less than fifteen days from the date of the offer within which the offer, if not accepted, will be deemed to
have been declined;
(c) unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right
exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any
other person; and the notice referred to in clause (b) shall contain a statement of this right;
(d) after the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person
to whom such notice is given that he declines to accept the shares offered, the Board of directors may
dispose of them in such manner as they think most beneficial to the company.
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Explanation.—In this sub-section, “equity share capital” and “equity shares” have the same meaning as in section 85.
66[(1A)Notwithstanding anything contained in sub-section (1), the further shares aforesaid may be offered to any
persons [whether or not those persons include the persons referred to in clause (a) of sub-section (1)] in any manner
whatsoever—
(a) if a special resolution to that effect is passed by the company in general meeting, or
(b) where no such special resolution is passed, if the votes cast (whether on a show of hands, or on a poll, as the
case may be) in favour of the proposal contained in the resolution moved in that general meeting (including
the casting vote, if any, of the Chairman) by members who, being entitled so to do, vote in person, or where
proxies are allowed, by proxy, exceed the votes, if any, cast against the proposal by members so entitled and
voting and the Central Government is satisfied, on an application made by the Board of directors in this
behalf, that the proposal is most beneficial to the company.]
(2) Nothing in clause (c) of sub-section (1) shall be deemed—
(a) to extend the time within which the offer should be accepted, or
(b) to authorise any person to exercise the right of renunciation for a second time, on the ground that the person
in whose favour the renunciation was first made has declined to take the shares comprised in the
renunciation.
67[(3) Nothing in this section shall apply—
(a) to a private company; or
(b) to the increase of the subscribed capital of a public company caused by the exercise of an option attached to
debentures issued or loans raised by the company—
(i) to convert such debentures or loans into shares in the company, or
(ii) to subscribe for shares in the company:
• 68[Provided that the terms of issue of such debentures or the terms of such loans include a term
providing for such option and such term—
(c) either has been approved by the Central Government before the issue of debentures or the raising of the
loans, or is in conformity with the rules, if any, made by that Government in this behalf; and
(d) in the case of debentures or loans other than debentures issued to, or loans obtained from, the Government or
any institution specified by the Central Government in this behalf, has also been approved by a special
resolution passed by the company in general meeting before the issue of the debentures or the raising of the
loans.]]
69[(4) Notwithstanding anything contained in the foregoing provisions of this section, where any debentures have been
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issued to, or loans have been obtained from, the Government by a company, whether such debentures have been
issued or loans have been obtained before or after the commencement of the Companies (Amendment) Act, 1963 (53
of 1963), the Central Government may, if in its opinion it is necessary in the public interest so to do, by order, direct
that such debentures or loans or any part thereof shall be converted into shares in the company on such terms and
conditions as appear to that Government to be reasonable in the circumstances of the case, even if the terms of issue
of such debentures or the terms of such loans do not include a term providing for an option for such conversion.
(5) In determining the terms and conditions of such conversion, the Central Government shall have due regard to the
following circumstances, that is to say, the financial position of the company, the terms of issue of the debentures or
the terms of the loans, as the case may be, the rate of interest payable on the debentures or the loans, the capital of
the company, its loan liabilities, its reserves, its profits during the preceding five years and the current market price of
the shares in the company.
(6) A copy of every order proposed to be issued by the Central Government under sub-section (4) shall be laid in draft
before each House of Parliament while it is in session for a total period of thirty days which may be comprised in one
session or in two or more successive sessions.
(7) If the terms and conditions of such conversion are not acceptable to the company, the company may, within thirty
days from the date of communication to it of such order or within such further time as may be granted by the Court,
prefer an appeal to the Court in regard to such terms and conditions and the decision of the Court on such appeal and,
subject only to such decision, the order of the Central Government under sub-section (4) shall be final and conclusive.]
NOTES
See the redraft of section 105C suggested by the Company Law Committee at page 399 of the Report. No change of
substance has been made. An endeavour has been made to bring out the intention as clearly as possible. [Clause 75
of the Companies Bill, 1953 (46 of 1953)].
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Section 81(1) of the Companies Act, 1956, as it stands, is susceptible of more than one interpretation. It is proposed to
make it clear that if the Board of directors of a company decides to increase the subscribed capital of the company,
after the expiry of one year from the allotment of shares in the company for the first time after its formation the
formalities laid down in clauses (a) to (d) of sub-section (1) should be complied with unless the company in general
meeting gives any directions to the contrary. [Clause 23 of the Companies (Amendment) Bill, 1959 (37 of 1959)].
The amendments were recast by the Joint Committee which explained as follows:
The Committee feel that where the Board of directors decides to increase the subscribed capital of a company by
allotment of further shares, the further shares should ordinarily be offered to existing holders of equity shares pro rata;
but these further shares may also be offered to any persons in any manner irrespective of the existing equity
shareholders if a special resolution is passed by the company in general meeting or although no such special
resolution is passed in that general meeting, if the proposal has been carried out by a majority of votes and the Central
Government is satisfied on the application of the Board of directors that the proposal is most beneficial to the company.
The Committee also feel that the provisions of section 81 of the Companies Act, 1956 should apply when the Board of
directors proposes to increase the subscribed capital of a company by allotment of further shares after the expiry of
two years from the formation of the company or after the expiry of one year from the first allotment of shares whichever
is earlier.
The Committee further consider that the provisions of this section should not apply in relation to convertible loans or
debentures, i.e., in relation to the increased subscribed capital caused by the conversion of debentures or loans into
shares of the company if the following two conditions are satisfied: namely, that the terms of issue of debentures or
loans has been approved by the company by a special resolution and also has been approved by the Central
Government before such issue, or such terms are in conformity with the rules made by the Central Government.
The clause has been recast accordingly. [Report : para 26].

the Companies (Amendment) Bill, 1963 (46 of 1963) explained the amendments in this section as
follows:
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In cases where Government has advanced a loan to a company, it is considered necessary that Government should
have the power to direct the conversion of such a loan into shares of that company on fair and equitable terms. Where
the loan agreement provides for such conversion, it is proposed to dispense with the procedure prescribed under
section 81 of the Companies Act in regard to such conversion of loans given by Government and specified financial
institutions. Section 81 is proposed to be amended accordingly. [Extracts from Statement of Objects and Reasons
In sub-sections (4) to (7) originally drafted in the Companies (Amendment) Bill 1963, the Select
Committee recommended following further changes:
Sub-section (4) of section 81.—The Committee consider that the Central Government should direct the conversion of
debentures or loans into shares in the company only when in the opinion of the Central Government public interest so
demands. The Committee, however, feel that in respect of debentures issued and loans obtained by a company before
the commencement of this Bill when enacted, no such conversion should be directed unless the company has made
default in repayment of the amount of the debentures or loans with interest thereon or in the compliance with any other
terms of such debentures or loans and the company has failed to remedy the default within three months of the service
of a notice in this behalf.
Sub-sections (5) and (6) of Section 81.—The amendments made are of a drafting nature. The clause has been
[s 62.65] Further Issue or Increase of Subscribed Capital [Sub-section (1)]
If a company (not being a private company) wants to increase the subscribed capital after two years
from the formation of the company or one year of the first allotment of shares, whichever is earlier, by
allotment of further shares it will have to offer them to existing shareholders except in certain
situations. Section 81(1) of the 1956 Act is covered under section 62(1) of the 2013 Act, as explained
in the commentary above. Section 62 has done away with this qualification requirement of either (i)
two years from the formation of the company, or (ii) one year from the allotment of shares in the
company made for the first time after its formation, whichever is earlier.
[s 62.66] Power of Company in General Meeting
Section 81 of the 1956 Act preserves the power of a company in a general meeting to give direction
contrary to the proportionate offer to existing equity shareholders of a new issue of shares and
authorises the Directors to dispose of shares in such a manner as the Directors may deem fit and
proper.70
[s 62.67] Equity Shares [Sub-section (1), Explanation ]
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In section 81(1) of the 1956 Act, “equity share capital” and “equity shares” have the same meaning as
in section 85. No corresponding provision exists in section 62 of the 2013 Act.
[s 62.68] Department’s View— Further allotment out of unsubscribed portion of capital
Any allotment of unsubscribed portion of issued shares as and where applications are received will not amount to an
increase in the subscribed capital of the company by issuing new shares and every allotment of shares within the
issued capital is the first allotment so far as those shares are concerned. Section 81(1) of the Companies Act is not
therefore applicable to the remaining shares which were issued already. The said section is also not applicable to the
sale of forfeited shares for which no allotment is necessary. [Letter No. 2(27)/56-PR, dt. 4-10-1976 to Registrar of
Companies, Madras : Govt. of India publication, Clarifications and Circulars on Company Law, 1977 Edition, page 55].
Counting of period of one year under section 81(1). The following query was raised:
“Clause (1) refers to ‘after the expiry of one year from the allotment of shares in that company.’ Sometime, in respect of
an issue of shares, shares are allotted on different dates without closing the subscription list. Are we to take the date of
the first allotment as the one on which shares being part of the issue, are allotted for the first time?”
The Department expressed the following views:
The ‘one year’ specified in the section is to be counted from the date on which the company has allotted any share for
the first time. [Letter No. 8/16(1)/61-PR, dt. 9-5-1961 : Govt. of India publication, Clarifications and Circulars on
[s 62.69] Further Issue of Shares does not Require Prospectus
The issue of further shares by a company to its members with the right to renounce them in favour of third parties does
not require the issue or registration of a prospectus. [Letter No. 8/81/56-PR, dt. 4-11-1957 : Govt. of India publication,
[s 62.70] Right to Renounce [Sub-Sections (1)(c) and (2)]
Right to renounce the offered shares in favour of any other person under clause (c) of sub-section (1)
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shall not be deemed to—(a) extend the time within which offer should be accepted, or (b) authorise
any person to exercise the right of renunciation for a second time on the ground that person in whose
favour renunciation was first made has declined to take shares. Section 81(1)(c) of the 1956 Act
corresponds to clause (a)(ii) of sub-section (1) of section 62 of the 2013 Act.
Where existing members of a stock exchange did not press their preferential rights under section 81
of the 1956 Act and authorised assistants of the stock exchange having experience were selected as
members. In relation to waiver of pre-emptive rights by members of a stock exchange on an action
the Supreme Court held that persons having previous experience form distinct group from general
public and no direction could be given for inviting applications from public.71 Renunciation in favour of
a nominee amounted to a gift and gift-tax was payable therefor.72
[s 62.71] Further Shares may be Issued to Outsiders [Sub-section (1A)]
Section 81(1A) of the 1956 Act corresponds to clause (c) of sub-section (1) of section 62 of the 2013
Act.
[s 62.72] Violation of Preferential Allotment Guidelines and SEBI Regulations
Where the preferential allotment of a few allottees exceeding 5% of post-issued capital was made.
Identity of the proposed allottees was not disclosed fully in compliance with the provisions of the
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. But no loss was caused
to the shareholders. There was no change in the management. The issues were listed. The violation
was of technical nature and due to a bona fide error, the Securities Appellate Tribunal (SAT) should
not consider imposing heavy penalty and should help in pointing out the defect to the appellant so
that it does not recur again. The SEBI initiated an investigation against a company and its director for
violation of Preferential Allotment Guidelines and Takeover Regulations. It was held that, in the facts
and circumstances of the case, a steep penalty was not called for and the quantum of penalty was
liable to be reduced. Thus, the fine was modified from Rs 1 lakh to Rs 25,000.
[s 62.73] Unlisted Public Companies (Preferential Allotment) Rules, 2003
In exercise of the powers conferred by sub-section (1A) of section 81 of the 1956 Act read with
section 642 of the said Act, the Central Government has made the Unlisted Public Companies
(Preferential Allotment) Rules, 2003 which, inter alia, provide for the following matters:
Applicability: These Rules shall be applicable to all unlisted public companies in respect of
preferential issue of equity shares, fully convertible debentures, partly convertible debentures or any
other financial instruments, which would be convertible into or exchanged with equity shares at a later
date. [Rule 2].
“Preferential allotment” includes issue of shares on preferential basis and/or through private
placement made by a company in pursuance of a resolution passed under sub-section (1A) of
section 81 of the 1956 Act, and issue of shares to the promoters and their relatives either in public
issue or otherwise. [Rule 3(1)].
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“Promoter” means—(a) the person or persons who are in overall control of the company; and (b) the
person or persons who hold themselves as promoters. Where a promoter of a company is a body
corporate, the promoters of that body corporate shall also be deemed to be promoters of the
company. [Rule 3(2) and Explanation].
Special Resolution: No issue of shares on a preferential basis can be made by a company unless
authorised by its articles of association and unless a special resolution is passed by the members in
a General Meeting authorizing the Board of Directors to issue the same. The special resolution shall
be acted upon within a period of 12 months [rule 4]. Pricing [rule 5]. Disclosures: Explanatory
Statement to the Notice for the General Meeting as required by section 173 of the 1956 Act shall
contain specified particulars [rule 6]. Audit certificate [Rule 7].
[s 62.74 ] Foreign Exchange Management Act (FEMA)
Section 2(za) of the Foreign Exchange Management Act, 1999 (42 of 1999) defines “security” to
include shares, stocks, bonds and debentures, Government securities, etc. Section 3 seeks to
prohibit dealings in foreign exchange except through an authorised person. Section 6(2) of FEMA
enables the Reserve Bank in consultation with the Central Government to specify the permissible
class of capital account transactions and the limits up to which foreign exchange shall be admissible
for such transactions. Section 6(3) enables the Reserve Bank to prohibit, restrict or regulate by
regulations framed under the Act: (a) transfer or issue of any foreign security by a person resident in
India; (b) transfer or issue of any security by a person resident outside India; (c) transfer or issue of
any security or foreign security by any branch, office or agency in India of a person resident outside
India; (d) any borrowing or lending in foreign exchange in whatever form or by whatever name called,
etc.
Earlier, as per section 19 [Regulation of export and transfer of securities] of the Foreign Exchange
Regulation Act, 1973 (46 of 1973) [Now see the Foreign Management Act, 1999 (42 of 1999)],
notwithstanding the provisions of section 81 of the 1956 Act, without Reserve Bank’s permission a
company or person could not take, send, transfer or create any interest in any security in favour of a
person resident outside India.
An offer of shares to a person by itself does not create any interest in the shares in favour of the
person to whom the offer is made. An offer of shares creates “fresh rights” but the right which it
creates is either to accept the offer or to renounce it. It does not create any interest in the shares in
respect of which the offer is made within the meaning of section 19 of the FERA, 1973 [now section 6
of FEMA, 1999].73 But if the articles do not provide otherwise, the directors cannot refuse to allot
shares to the person in whose favour the shareholder has renounced his right to further shares.74
For failure to offer further shares issued to existing shareholders, the company and every officer who
is in default, shall be punishable under section 629A with fine up to Rs 5,000 and where the
contravention is a continuing one, with a further fine up to Rs 500 for every day of default.
[s 62.76] Improper, Unfair or Illegal Issue
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The resolution passed by the directors may be legal and yet oppressive. Under the cover of following
the provisions of section 81 of the 1956 Act, the majority shareholders cannot absolve themselves of
fulfilling the fiduciary obligations of directors. Where the action of the respondents suffers from lack of
probity and fair play as evidenced by their resolute endeavour to go ahead with the issue in spite of
opposition from 48% shareholders. Improper or unfair or illegal issue of the shares may be restrained
by CLB [now the Tribunal] under section 250. Such issue may be restricted by an injunction in a suit
filed in a court. On a complaint about the unfair issue of the rights shares, the CLB in the instant case
did not set aside the rights issue as the need for raising additional resources was accepted by all the
shareholders. But ordered that respondents, i.e., 52% (majority) of shareholders, should buy the
shares of the petitioners so that their complaint of oppression was redressed and at the same time,
the company’s paid-up capital was also maintained.75
[s 62.77] Ad Interim Orders by SEBI
As per sections 11 and 11B of the SEBI Act, 1992, the SEBI has authority to issue directions to
protect the interests of investors in securities and regulate the securities market. The SEBI Act, 1992,
is of remedial nature. The directions of the SEBI have authority of law and do not require pre-
decisional hearing as merely ad interim orders.76
See detailed notes under section 55A of the 1956 Act. See also the SEBI (Prohibition of Fraudulent
and Unfair Trade Practices relating to Securities Markets) Regulations, 1995. See List of SEBI Act,
Rules, Regulations and Guidelines at the end of notes under section 24 of the 2013 Act (s. 55A of the
1956 Act).
Consumer Forums cannot grant injunction against public issue. Shares are not goods before
allotment. Applicant for shares is not a consumer. Raising of share capital by company is not a
trading activity and there is no question of any unfair trade practice. The Consumer Disputes
Redressal Forum has no jurisdiction to entertain the matters of this kind. The issue of shares or
debentures does not come under the Consumer Protection Act, 1986 (68 of 1986) or the Monopolies
and Restrictive Trade Practices (MRTP) Act, 1969 (54 of 1969) [now the Competition Act, 2002 (12 of
2003)].77
The Consumer Protection Act, is not applicable for failure on the part of a company to give to the
shareholder his proportion of the rights shares. The MRTP Act does not apply here. The remedy lies
within the framework of the 1956 Act and also by way of a civil suit.78
The MRTP Act has been repealed by the Competition Act, 2002 (12 of 2003), section 66. The MRTP
Commission has been replaced by the CCI. The remedy for unfair trade practices shall now lie with
the Consumer Forum under the Consumer Protection Act.
[s 62.79] Sick Industrial Companies [Sections 424A–424L]
A new Part VIA containing sections 424A to 424L has been inserted in the 1956 Act by the
Companies (Second Amendment) Act, 2002 (11 of 2003) providing for revival, rehabilitation and
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winding up of Sick Industrial Companies. SICA, 1985 (1 of 1986) would consequently be repealed
and the BIFR would be replaced by the NCLT (NCLT) to be constituted under section 10FB.
[s 62.80] Scheme of Arrangement
Modified scheme of arrangement and compromise approved by the majority of creditors and
shareholders was also sanctioned in terms of sections 391 to 394 read with section 81(1A) and
sections 100 to 103 of the 1956 Act. Objections by banks not raised at creditors’ meeting were not
sustainable.79
[s 62.81] Private Company [Section 81(3)(a)]
The provisions of section 81 of the 1956 Act are not applicable to a private company, i.e., further
issue of shares need not be offered to the existing shareholders. [Sub-section (3), clause (a)]. No
corresponding provision exists in section 62 of the 2013 Act. Section 81(1) of the 1956 Act provides
that further issue of shares shall be offered to the persons who, at the date of the offer, are holders of
the equity shares of the company in proportion to the capital paid up. Section 81(3), however,
provides that section 81 does not apply to a private company. A private company is, therefore,
entitled to offer such further issue of shares in such manner as it may determine, subject of course to
its articles of association. Where the articles of the private company did not require such further issue
of shares to be allotted in any particular manner to the existing shareholders. The allocation of further
issue of shares to respondent and his group of companies was not illegal or contrary to law.80 Such
provision is normally contained in the Articles of a private company. A private arrangement for
distribution of shares of a private company in a particular proportion would be binding on the
company even if it does not form part of the articles of association. But the articles providing for
discretion to the board of directors in allotment of shares cannot be used to obtain majority. Petition
for relief or rectification of register of Pvt Ltd company against such allotment would be maintainable
under section 111(4).81
Further issue of capital is the matter of internal administration of the company. Where the facts show
the requirement of funds by the company, the court will not interfere unless the issue is shown to be
mala fide. A private company offered its shares to the existing members but there was a limited
response. The court held that those members who did not respond are to be treated as having
declined to subscribe to further shares, as they were not interested in the issue and they impliedly
authorised the company to allot the shares to others.82
[s 62.82] Section 81 not Applicable to Private Company
Section 81 is not applicable in case of a Pvt Ltd company. Directors of a Pvt Ltd company should
make disclosure to the shareholders of the company when further shares are being issued. The acts
of such directors are required to be tested on a much finer scale in order to rule out any misuse of
power for personal gain or for ulterior motive.83
See also notes in sections 2(34), 2(68), 5, 7, 58, 59, 179, 241, 242 and 465 2013 Act (sections 2(13),
3, 10F, 26, 111, 291–293 and 397–398 of the 1956 Act)
[s 62.83] Validity of Allotment—Increase of Capital to Reduce Majority
A petition was made alleging that the managing director allotted to himself equity shares of company
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and became a majority shareholder. No evidence was produced that board meeting was duly held or
notice was issued. The allotment of additional equity shares in favour of the managing director was
held unauthorised, invalid and the same was set aside. The managing director of the company
allotted additional share capital to himself. No material was placed on record for the justification of the
said issue of further shares. There was nothing particularly on record to show that appropriate
procedure was followed in the instant case. The Court [CLB/Tribunal] then came to the conclusion
that neither the allotment of Additional Shares in favour of the managing director was bona fide nor
the said allotment was in the interests of the company. Further, there was a clear violation of the
provisions of the articles of association of the company as the Book for recording the signatures of
directors containing the minutes of meeting of the board of directors was not maintained. The
allotment was mala fide and made with the mere motive of gaining control by the managing director
of the company. It was held that entire allotment of shares to the managing director of the company
was void and liable to be set aside. There was clear manipulation in the Allotment of Shares of the
company in favour of the managing director and as such amounted to fraud being committed on the
minority shareholders. Increase of capital was solely with a view to gain control of the company. The
issue was mala fide and to reduce majority shareholders to minority. The issue was accordingly held
to be oppressive and was set aside.84
See detailed Notes under sections 241, 242 and 465, 2013 Act (sections 10F, 397 and 398, 1956
Act)
[s 62.84] Additional Issue—Fiduciary Duty of Directors
Directors hold fiduciary position and they have duty to act accordingly. They increased the share
capital and issued the same with a view to gain control of the company, thereby reducing the majority
shareholders to a minority. The issue of such shares was set aside as oppressive. The directors hold
fiduciary position and should act with utmost good faith, in terms of articles of association of the
company and through meetings of the board of directors. A director cannot act singly. It was held that
articles of association was binding on the company and its directors. The Company Law Board (CLB)
held that the minority shareholders had manipulated the records of the company and there was both
oppression and mismanagement. The oppressor was not given the option to buy out the oppressed
shareholders. An appeal from the Order of the CLB was held maintainable. The Appeal Court held
that the decision of the CLB granted an advantage to one of the parties practically rewarding the
wrong-doer and penalising the oppressed party. The High Court set aside the decision and directed
this anomaly to be corrected. The allotment of the Additional Shares in favour of the managing
director were set aside. The managing director was not allowed to purchase the shares of Mr. P and
his wife. On further appeal, the Hon’ble Supreme Court held that the relief granted by High Court was
the proper relief in the facts of case.85
[s 62.85] Issue of Shares, Requirement of Disclosure
When further shares are being issued, the company and the directors must act in good faith and
make full disclosure to the shareholders for issue of further shares. This is their duty and they must
act in good faith and make full disclosure to the shareholders regarding state of affairs of company.
The same principle also applied to the directors of private company and their conduct must be fully
tested most strictly in order to rule out any misuse of powers for personal gains or ulterior motives.
The non-applicability of section 81 to a Pvt Ltd company casts a heavier burden on its directors. In a
private company in case of transfer of the shares, the consideration applied to the partnership will
apply in the case of transfer of shares in a private company and the directors are under duty to act
with utmost good faith towards each other.86
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[s 62.86] NRI Shareholders—Fraudulently Reduced to Minority
The respondents, being Non-Resident Indians (NRIs) made initial investment in order to acquire a
majority shareholding in the company. The managing director of the company fraudulently reduced
the majority shareholding of the Non-Residents (NRIs) to a bare minority. The CLB held that there
was oppression and directed that the non-residents should sell their shares to the Managing Director.
On an appeal it was held that such an order amounted to safeguarding the wrong-doer and
penalising the oppressed Non-Resident shareholders. In such a case the direction to sell the shares
of non-residents, oppressed party herein was wrong and would have resulted in heavy monetary loss
to the non-residents. The High Court set aside the order of CLB. The Supreme Court held that an
appeal from order of the CLB under section 10F of the 1956 Act is maintainable not only on the
question of law but also when there is perversity of finding inasmuch as the perversity of the finding is
also considered to be a “question of law”. The said decision of the CLB was perverse. It was held that
the necessary Reserve Bank’s (RBI) permission for transfer of shares in favour of Non-Residents
(NRIs) could be obtained, if necessary, ex post facto, that is, subsequent to such transfer of shares.
The power to allot additional shares cannot be exercised for an extraneous purpose. The oppressor
should not be given option to buy out the oppressed. The articles of association of the company is
binding on the company and its directors. The directors are the agents of the company, and they
should act within the scope of their authority and with utmost good faith, care and skill, and also with
due diligence and in the interest of company. They should make full and honest disclosures to
shareholders in respect of all important matters including issue of additional shares. These
requirements are equally applicable both to public companies and private companies in spite of
provisions of section 81 of the 1956 Act. The acts of directors of a private company are to be fully
tested minutely in such a manner as to rule out any misuse of power for personal gains or ulterior
motive.87
[s 62.87] Oppression—Private Company
Even though section 81, containing certain requirements in the matter of issue of further share capital
by a company, does not apply to Pvt Ltd companies, the directors in a Pvt Ltd company are expected
to make a disclosure to the shareholders of the company when further shares are being issued. The
acts of directors in a Pvt Ltd company are required to be tested on a much finer scale in order to rule
out any misuse of power for personal gains or ulterior motives thus casting a heavier burden on its
directors. The directors can act only according to the articles of association and only through
meetings of the board of directors. A single director cannot act on his own and cannot issue shares to
himself. In the matter of issue of additional shares, the directors owe a fiduciary duty to the
shareholders to issue the shares for a proper purpose. When powers are used merely for an
extraneous purpose like maintenance or acquisition of control over the affairs of the company, the
action cannot be upheld. The directors’ acts should not only satisfy the test of bona fides, they should
also be done with a proper motive. If a member who holds the majority of shares in a company is
reduced to the position of minority shareholder in the company by an act of the company or by its
board of directors mala fide, the said act must ordinarily be considered to be an act of oppression to
the said member. The member who holds the majority of shares in the company is entitled by virtue
of his majority to control, manage and run the affairs of the company. The common law recognised a
pre-emptive right of a shareholder to participate in further issue of shares but in India in view of
section 81 of the 1956 Act, such a right cannot be found for sure. A right to issue shares to one
director may technically be there, but the question whether the right has been exercised bona fide
and in the interests of the company has to be considered on the facts of each case and if it is found
that it is not so, such allotment is liable to be set aside.88
In case of additional issue of shares in a private company on rights basis, the formal offer in writing to
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all the shareholders is necessary. Issue of further shares and the appointment of additional directors
by one group without the consent and knowledge of other group will be acts of oppression.89
[s 62.88] Issue of Additional Shares—Capital Structure—Private Company
On a petition complaining about oppression and mismanagement the question of title to shares will
not generally be considered. Disputes about inheritance of shares are to be decided by Civil Court.
The right to shares arises only on acceptance of offer by the company. The right of allotment of
shares is not heritable. Every act of the company cannot be termed as oppression. The issue of
additional shares to become oppression must have been issued mala fide and with ulterior motive.
Petitions filed before the Company Law Board and before the Court were heard and disposed of by
the Court. It was held that reliefs could be granted only on the basis of pleadings in petitions filed
before the Court. Reliefs granted by the CLB on the basis of petition originally filed before the CLB
was not proper. The board of directors took the decision to broad-base capital structure. There was
no prohibition in the Memorandum or Articles for such issue of shares. The petitioning shareholders
were aware of the decision of the Board but did not apply for shares. They cannot claim that they
were not aware of the decision and they cannot claim for setting aside the issue of those shares. A
private company passed resolution to issue further capital. The shareholders did not apply for shares.
Under the provisions of the Articles the allotment was made to the chosen persons of the board of
directors. Certain shares were also earmarked for Chairman. The Chairman did not renounce the
shares. From the quota of Chairman’s shares subsequent transfer was not valid. In a private
company the majority shareholders transferred their shares to the company. The transfer, however,
was rescinded. It was held that other shareholders cannot claim to be allotted those shares pro rata.90
See detailed Notes in sections 241 and 242, 2013 Act (sections 397 and 398, 1956 Act).
[s 62.89] Oppression—Acts of Directors in Private Company
Any issue of shares solely to gain control over the company is not permissible. The acts of directors
in a Pvt Ltd company are required to be tested on a much finer scale in order to rule out any misuse
of power for personal gains or ulterior motives thus casting a heavier burden on its directors. In the
matter of issue of additional shares, the directors owe a fiduciary duty to the shareholders to issue
the shares for a proper purpose. When powers are used merely for an extraneous purpose like
maintenance or acquisition of control over the affairs of the company, the action cannot be upheld.
The directors’ acts should not only satisfy the test of bona fides, they should also be done with a
proper motive. If a member who holds the majority of shares in a company is reduced to the position
of minority shareholder in the company by an act of the company or by its board of directors mala
fide, the said act must ordinarily be considered to be an act of oppression to the said member. The
member who holds the majority of shares in the company is entitled by virtue of his majority to
control, manage and run the affairs of the company. The common law recognised a pre-emptive right
of a shareholder to participate in further issue of shares but in India in view of section 81 of the Act,
such a right cannot be found for sure. A right to issue shares to one Director may technically be
there, but the question whether the right has been exercised bona fide and in the interests of the
company has to be considered on the facts of each case and if it is found that it is not so, such
allotment is liable to be set aside. The oppressor cannot be given option to buy out the oppressed.91
See also Notes under sections 2(34), 5, 7, 58, 59, 241, 242 and 465, 2013 Act [Sections 2(13), 10F,
26, 111, 397, 398, 402 and 403, 1956 Act].
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[s 62.90] Allotment of Shares Solely to Gain Control
Allotment of further shares solely to gain control of the company would be oppressive and liable to be
set aside.92
Where shares have been issued by the directors, not for the general benefit of the company, but for
the purpose of controlling the holders of the greater number of shares by obtaining a majority of
voting power, they ought to be restrained from holding the meeting at which the votes of the new
shareholders were to have been used. The allotment of shares was done with the obvious ulterior
motive of increasing the respondents’ shareholding. The fiduciary duty within which the directors had
to act enjoins upon them a duty to act on behalf of the company with utmost care, skill and due
diligence and in the interest of the company. They have a duty to make full and honest disclosure to
the shareholders regarding all important matters relating to the company. The respondents who owed
a fiduciary duty to the shareholders of the company failed in their duties. The motive for the allotment
was mala fide. The allotment of additional shares was done with the sole purpose of gaining control
of the company by becoming majority shareholders and was clearly an act of oppression on the part
of the respondents. The allotment of shares to respondents was void as it failed to comply with
section 81(1A) of the 1956 Act.93
See detailed notes under sections 241 and 242 of the 2013 Act (sections 397–399 of the 1956 Act).
[s 62.91] Private Company—Allotment of Shares—Rectification of Register
Section 111(4) of the 1956 Act dealing with rectification of register was earlier a part of section 155 of
the 1956 Act in which allegations relating to both allotment and transfer could be agitated. After
assimilation of the provisions of section 155 in section 111, the position had not changed. Therefore,
even allotment of shares could be challenged under section 111(4) of the Act. Even if section 81 of
the 1956 Act was not applicable to the private company when the board decided to allot shares
proportionately to the existing shareholders, the board had actually applied the provisions of section
81. Accordingly, the allotment of the 500 shares to the respondents themselves was with a mala fide
intention of denying the rights of the petitioners and the register of members deserved to be rectified.
In the absence of any justifiable reason for allotment of further shares like requirement of funds, etc.,
the company was to rectify the register of members by removing the names of respondents. The
company was to refund the consideration received in respect of these shares to the respondents
simultaneously and the paid-up capital of the company was to stand reduced to that extent from the
date of rectification.94
See detailed notes on rectification of wrong entry or allotment in case of private companies under
sections 58 and 59 of the 2013 Act (section 111(4) of the 1956 Act).
[s 62.92] Department’s View— Propriety of inclusion of a provision similar to section 81 in the

Articles of a Private Company
Though under sub-section (3), the provisions of section 81 of the Companies Act, 1956 do not apply to a private
company, there is nothing in the Act to prevent such a company from including in its Articles of Association, a provision
on the basis of section 105C of the Indian Companies Act, 1913 (7 of 1913) or section 81 of the Companies Act, 1956
(1 of 1956). Such a provision in the Articles will be binding on the company. [Letter No. 8/81/58-PR, dt. 17-10-1958 :
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Govt. of India publication, Clarifications and Circulars on Company Law, 1977 Edition, page 55].
[s 62.93] Deemed Public Company
In respect of further issue of shares to non-members by a section 43A company [since inapplicable
(w.e.f. 13 December 2000) vide section 43A(11)], the court held that the CLB while setting aside the
issue on the ground that the procedure laid down under section 81(1A) has not been followed ought
to have taken into consideration the provisions of articles of association of the company.
Where the company becomes a deemed public company by operation of law under section 43A
[since inapplicable (w.e.f. 13 December 2000) vide section 43A(11), now see sections 3(1)(iv) and
44], proportionate allotment as per section 81 to the existing shareholders would become mandatory
only in respect of allotments made after an expiry of two years from the formation of the company or
after the expiry of one year from the allotment of the shares made for the first time after its formation
whichever is earlier. The allotment of shares to the subscribers cannot be taken as the first allotment
within the provisions of section 81.
[s 62.94] Conversion of Debentures or Loans into Shares [Sub-section (3)(b)]
A company may issue debentures or raise loans with the option that the debentures or loans might
be converted into shares or that the debenture holders or lenders would have option to subscribe for
shares in the company. No corresponding provision exists in section 62 of the 2013 Act.
An increase in the subscribed capital in pursuance of such a condition will not attract section 81 of
the 1956 Act provided the issue of debentures or raising of loans is (a) with the approval of the
Central Government or according to the rules made by it; and (b) the issue of such debentures to or
raising of such loans from persons other than the Government or Institutions specified by the Central
Government, a special resolution has been passed by the company approving the same.
[s 62.95] Public Companies (Debentures and Loans with Option to Convert such Debentures
or Loans into Shares) Rules
In exercise of the powers conferred under clause (a) of the proviso to sub-section (3) of section 81 of
the 1956 Act, the Central Government has made the Public Companies (Terms of Issue of
Debentures and of Raising of Loans with Option to Convert such Debentures or Loans into Shares)
Rules, 1977.
[s 62.96] Institutions Specified for section 81(3)(b), Proviso (b)
Notification No. Section O. 2577, dated 30-7-1977—“In exercise of the powers conferred by clause (b) of the proviso
to clause (b) of sub-section (3) of section 81 of the Companies Act, 1956 (1 of 1956), the Central Government hereby
specifies the following institutions for the purposes of the said clause, namely:—
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(i) The Industrial Finance Corporation of India, established under the Industrial Finance
(ii) The Life Insurance Corporation of India, established under the Life Insurance Corporation
Act, 1956 (31 of 1956);
(iii) The Unit Trust of India, established under the Unit Trust of India Act, 1963 (52 of 1963);
(iv) The Industrial Development Bank of India, established under the Industrial Development
Bank of India Act, 1964 (18 of 1964);
(v) The Industrial Credit and Investment Corporation Ltd, a company registered under the
Companies Act, 1913 (7 of 1913);”
(vi) The Industrial Reconstruction Bank of India, established under the Industrial
Reconstruction Bank of India Act, 1984 (62 of 1984);
(vii) The General Insurance Corporation of India, established under the General Insurance
Business (Nationalisation) Act, 1972 (57 of 1972);
(viii) The National Insurance Company Ltd, formed and registered under the
Companies Act, 1956 (1 of 1956);
(ix) The New India Assurance Company Ltd, formed and registered under the Companies
Act, 1956 (1 of 1956);
(x) The Oriental Fire and General Insurance Company Ltd, formed and registered under the
(xi) The United Fire and General Insurance Company Ltd, formed and registered under the
(xii) The Shipping Credit and Investment Company of India Ltd;
(xiii) The Tourism Finance Corporation of India Ltd;
(xiv) The Risk Capital and Technology Finance Corporation Ltd, formed and registered
under the Companies Act, 1956 (1 of 1956);
(xv) The Technology Development and Information Company of India Ltd.
[s 62.97] Conversion of Government Loan into Shares [Sub-section (4)]
This sub-section corresponds to sub- section (4) of section 62 of the 2013 Act.
[s 62.98] Department’s View— Citizen’s Charter of DCA
As per Citizen’s Charter of the Department of Company Affairs, all applications submitted to the Department of
Company Affairs, Regional Directors, Registrars of Companies and Official Liquidators shall be processed within the
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time frame indicated in Schedules (I), (II), (III) & (IV). Organisational chart of the Department of Company Affairs and
Addresses of Regional Directors and Registrars of Companies (ROCs) have been given in Schedule (V) annexed to
the Citizen’s Charter.
As per Schedule (I) annexed to the Citizen’s Charter the Central Government (Department of Company Affairs, New
Delhi) shall process Application for approval of Conversion of loans into shares [Section 81(3)(b)/81(4)] in 30 days.
[Press Note No. 9 (1999 Series) (F. No. 5/25/99-CL-V), dt. 9-8-1999 : Department’s website (www.dca.nic.in) : (1999)
98 COMP CASES (St.) 1 : See Fuller Text under Sections 609 and 637].
The erstwhile Department of Company Affairs (DCA) under the Ministry of Finance was designated
as “Ministry of Company Affairs” (MCA).
[s 62.99] Filing [Section 94A(3)]
Where at the instance of the Central Government the memorandum of a company stands altered
either under the provisions of the 1956 Act or under sections 81(4) or 94A(2), the Central
Government shall send a copy of its order to the registrar of companies and a copy to the company.
No corresponding provision exists in section 62 of the 2013 Act.
[s 62.100] Laying before Parliament [Sub-section (6)]
The order by which the Central Government directs the company to convert the debentures or loans
into shares should be laid in draft form before each House of Parliament for 30 “session days.” No
corresponding provision exists in section 62 of the 2013 Act.
[s 62.101] Appeal [Sub-section (7)]
This sub-section is covered under the proviso to sub-section (4) of section 48 of the 2013 Act, with
certain modifications, as explained in the commentary above.
95[s 94A] Share capital to stand increased where an order is made under section 81(4).—(1) Notwith-standing
anything contained in this Act, where the Central Government has, by an order made under sub-section (4) of section
81, directed that any debenture or loan or any part thereof shall be converted into shares in a company, the conditions
contained in the memorandum of such company shall, where such order has the effect of increasing the nominal share
capital of the company, stand altered and the nominal share capital of such company shall stand increased by an
amount equal to the amount of the value of the shares into which such debentures or loans or part thereof has been
converted. The Companies Act, 1956 provision
NOTES
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THE COMPANIES (AMENDMENT) ACT, 1974 (41 OF 1974).—The Notes on Clauses explained this section as follows:
This clause is of a procedural nature and dispenses with the necessity of passing a resolution for alteration of the
Memorandum and filing with the Registrar of Companies of the requisite documents showing increase of share capital,
in certain cases. It is, however, required by this clause that the Registrar shall be informed by the Government itself in
such cases, so that the Registrar may carry out the necessary alterations in the Memorandum of the company showing
the increase in share capital. [Clause 9 of the Companies (Amendment) Bill, 1972 (72 of 1972)].
[s 62.103] Conversion of Government Debentures or Loans into Shares [Section

94A(1)/Section 81(4)]
This provision is covered under sub-section (6) of 62 of the 2013 Act, as explained in the
commentary above.
Section 62 of the 2013 Act deals with the further issue of capital in three modes, while section 81
covered only a rights issue. Section 81 also had contained a restriction, in that a rights issue could
only be made upon the earlier of either two years after the formation of the company, or after one
year from the allotment of shares in the company for the first time after its formation. Section 81 also
prescribed only a fifteen day limit within which the recipient of the rights offer needed to respond to
the offer, this has been increased to a period between 15 and 30 days. Further, while section 81 did
not apply to private companies, section 62 applies with some modifications to private companies.
Under section 62, shares can be offered to employees under an employee stock option scheme
subject to certain conditions. The 1956 Act did not explicitly allow for the issue of shares to
employees under an ESOP. Further, in the case of a loan obtained from a government company, or
debentures issued to a government company, the government is no longer required to place such
order before each House of Parliament for approval.
Section 81 of the 1956 Act has been repealed to the extent of its overlap with the notified provisions
of section 62, upon the notification of section 62(1)-(3) of the 2013 Act, w.e.f. 1 April 2014. Since
sections 62(4)–(6) of the 2013 Act are yet to be notified, the corresponding section 81(3) Proviso,
section 81(4) and section 94A(3) are still in force.
90 Sub-sections (1) to (3) notified by Notification No. S.O. 902(E), dt. 26 March 2014 w.e.f. 01 April 2014. Sub-sections (4)
to (6) yet to be notified. Section 62 corresponds to sections 81 and 94-A(1) of the 1956 Act.
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93 Nanalal Zaver v Bombay Life Assurance Co Ltd, (1950) 20 COMP CASES 179 (SC) : AIR 1950 SC 172 : (1950) SCR
391.
94 Sree Ayyanar Spinning & Weaving Mills Ltd v V.V.V. Rajendran, (1973) 43 COMP CASES 225 (Mad.). See also Notes
under sections 69 and 72.
1 V. Shanmugasundaram v Emerald Automobiles Ltd, (2001) 103 COMP CASES 1108 (CLB).
2 Shrimati Jain v Delhi Flour Mills Co Ltd, (1974) 44 COMP CASES 228 (Delhi).
3 Kedar Nath Agarwal v Jay Engineering Works Ltd, (1963) 33 COMP CASES 102 (Cal.) : 66 Cal WN 1049; R.
Mathalone v Bombay Life Assurance Co Ltd, (1954) 24 COMP CASES 1 (SC) : AIR 1953 SC 385 : 1954 SCR 117
(where it has also been held that a receiver appointed in a suit may not acquire right shares in his own name).
4 Worldwide Agencies Pvt Ltd v Mrs. Margaret T. Desor, (1990) 67 COMP CASES 607 (SC) : AIR 1990 SC 737. See
also Notes under sections 2(27), 41 and 398.
1981 SC 1298 : 3 SCR 698; Jetu Jacques Taru Lalvani v J.B.A. Printing Inks Ltd, (1997) 88 COMP CASES 759 (Bom.);
Prem Seth v National Industrial Corp Ltd, (1999) 96 COMP CASES 575 (Delhi) : AIR 1994 Del 785; Prem Seth v
National Industrial Corp Ltd, (2001) 103 COMP CASES 1011 (Delhi); Milan Sen v Guardian Plasticote Ltd, (1998) 91
COMP CASES 105 (Cal.). See also Notes under sections 299, 300, 397 and 439.
6 Jadabpore Tea Co Ltd v Bengal Dooars National Tea Co Ltd, (1984) 55 COMP CASES 160 (Cal.) (DB). See also
7 Mrs. Pushpa Katoch v Manu Maharani Hotels Ltd, (2002) 110 COMP CASES 584 (CLB).
8 Westfort Hi-Tech Hospital Ltd v V.S. Krishnan, (2007) 137 COMP CASES 151 (Ker.) (DB).
9 Hogg v Cramphorn Ltd, (1967) ChD 254 : (1966) 3 All ER 420 : (1966) 3 WLR 995 : (1967) 37 COMP CASES 157
(ChD).
10 N. Jagan v Investment Trust of India Ltd, (1996) 85 COMP CASES 75 (Mad.) (DB). See also notes under sections
81(1A), 397 and 398.
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11 Maxwell Dyes and Chemicals Pvt Ltd v Kothari Industrial Corp Ltd, (1996) 85 COMP CASES 111 (Mad.) (DB). See also
12 Srihari Rao v Gopal Automotive Ltd, (1999) 96 COMP CASES 493 (CLB).
13 Srihari Rao v Gopal Automotive Ltd, (1999) 96 COMP CASES 493 (CLB); Free Wheel (India) Ltd v Dr. Veda Mitra,
(1969) 39 COMP CASES 1 (Del.) (DB) : AIR 1969 Del 258 (DB).
14 Boiron v SBL Ltd, (1998) 30 CLA 21 (CLB).
15 Om Prakash Gupta v Hicks Thermometers (India) Ltd, (1999) 97 COMP CASES 356 (CLB).
16 Vijay M. Shah v Flex Industries Ltd, (2001) 103 COMP CASES 1063 (Delhi). See also notes under sections 10, 10FB,
397 and 398.
17 Section 62(1)(b) and Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014.
23 Rule 12(6)(a), Companies (Share Capital and Debentures) Rules, 2014.
24 Rule 12(6)(c), Companies (Share Capital and Debentures) Rules, 2014.
25 Rule 12(6)(b), Companies (Share Capital and Debentures) Rules, 2014.
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31 V. Shanmugasundaram v Emerald Automobiles Ltd, (2001) 103 COMP CASES 1108 (CLB).
32 N. Jagan v Investment Trust of India Ltd, (1996) 85 COMP CASES 75 (Mad.) (DB); P.M. Padmanabhan v K.P.
Sethumadhavan, (2007) 140 COMP CASES 536 (Ker.). See also notes under oppression and mismanagement
hereinafter.
33 Janaki Printing Pvt Ltd v Nadar Press Ltd, (2001) 103 COMP CASES 546 (CLB).
36 First proviso to rule 13(1), Companies (Share Capital and Debentures) Rules, 2014, as amended by the Companies
(Share Capital and Debentures) Amendment Rules, 2015, w.e.f. 18-3-2015.
37 For full text of the Rules, See Appendix 4.
41 Rule 13(2)(g), Companies (Share Capital and Debentures) Rules, 2014.
42 Explanation to Rule 13(2), Companies (Share Capital and Debentures) Rules, 2014.
43 Rule 13(2)(h), Companies (Share Capital and Debentures) Rules, 2014.
45 Re Mafatlal Industries Ltd, (1997) 90 COMP CASES 247 (Guj.) (DB). See also Notes under sections 71, 111A, 391 and
394.
46 Morgan Stanley Mutual Fund v Kartick Das, (1994) 81 COMP CASES 318 (SC); Bloom Dekor Ltd v Subhash Himatlal
Desai, (1995) 82 COMP CASES 591 (SC). See detailed notes under sections 10 and 73. See also Notes under
sections 10GB, 56, 62, 65, 69 and 72.
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47 Jenson & Nicholson (India) Ltd v UOI, AIR 1997 Cal 308. See also notes under sections 55A, 69 and 73.
48 Hindustan Lever Employees’ Union v Hindustan Lever Ltd, (1995) 83 COMP CASES 30 (SC) : AIR 1995 SC 470;Re,
Tata Oil Mills Co Ltd, (1994) 81 COMP CASES 754 (Bom.).
49 Re Maneckchowk and Ahmedabad Mfg. Co Ltd, (1970) 40 COMP CASES 819 (Guj.) : (1970) 2 Comp. LJ 300 (Guj.).
See also notes under sections 79 and 391–393.
50 Gountermann Peipers (India) Ltd v UOI, (2005) 126 COMP CASES 489 (HP) (DB) : (2005) 57 SCL 225 (HP) (DB);
National Organic Chemical Industries Ltd v NOCIL Employees Union, (2005) 126 COMP CASES 922 (Bom.).
51 S. Duleep Singh v Official Liquidator, (1990) 69 COMP CASES 791 (P&H). See also notes under Sections 428, 433,
445 and 466.
52 V. Radhakrishnan v P.R. Ramakrishnan, (1993) 78 COMP CASES 694 (Mad.) (DB). See also notes under Sections
446(3), 457 and 460.
53 Re Jersey India Ltd, (1997) 88 COMP CASES 864 (CLB). See detailed notes u/s 79.
54 As on the date of going to press, section 62(4) has not been notified.
55 Unit Trust of India v Om Prakash Berlia, (1983) 54 COMP CASES 723 (Bom.) (DB). See also Notes under sections
2(12), 111A and 117.
56 Girish Kumar Kharia v Industrial Forge and Engineering Co Ltd, (2001) 103 COMP CASES 150 (Pat.). See also Notes
under sections 106 and 107.
57 Radhe Shyam Tulsian v Panchmukhy Investments Ltd, (2003) 113 COMP CASES 298 (CLB). See also Notes under
sections 106, 391 and 392.
59 See detailed notes on the principles of interpretation and construction, e.g., Speech of the Minister and Parliamentary
Debates how far relevant in construction under section 1.
62 Regulation 6, FEMA (Transfer or Issue of Security to a Non-Resident) Regulations, 2000.
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63 Master Circular on Foreign Investment issued by the Reserve Bank of India dt. 1 July 2015.
64 Substituted by the Companies (Amendment) Act, 1960 (65 of 1960), section 24, for the words:
“Where at any time subsequent to the first allotment of shares in a company, it is proposed to increase the subscribed capital of
the company by the issue of new shares, then, subject to any directions to the contrary which may be given by the company in
general meeting, and subject only to those directions—.” This amending Act has been repealed by the Repealing and Amending
Act, 2016.
65 Substituted by the Companies (Amendment) Act, 1960 (65 of 1960), section 24, for “new.” This amending Act has been
66 Inserted by the Companies (Amendment) Act, 1960 (65 of 1960), section 24. This amending Act has been repealed by
the Repealing and Amending Act, 2016.
67 Substituted by the Companies (Amendment) Act, 1960 (65 of 1960), section 24. This amending Act has been repealed
by the Repealing and Amending Act, 2016. Prior to substitution sub-section (3) stood as under:
“(3) This section shall not apply to a private company.”
68 Substituted by the Companies (Amendment) Act, 1963 (53 of 1963), section 5 (w.e.f. 1 January 1964). This amending
69 Sub-sections (4) to (7) inserted by Act 53 of 1963, section 5 (w.e.f. 1 January 1964). This amending Act has been
70 Hindusthan Commercial Bank Ltd v Hindusthan General Electrical Corp, (1960) 30 COMP CASES 367 (Cal.) (DB) :
AIR 1960 Cal 637 (DB).
71 Om Prakash Poplai v Delhi Stock Exchange Asscn. Ltd, (1994) 79 COMP CASES 756 (SC).
72 S.R. Chockalingam Chettiar v CGT, (1968) 70 ITR 397 (Mad.) : AIR 1969 Mad. 302.
1981 SC 1298 : 3 SCR 698. See also Notes under sections 3(1)(iii), 43A, 299, 300 and 397 of the 1956 Act.
74 Re Simo Securities Trust Ltd, (1971) 3 All ER 999 : (1971) 1 WLR 1455 : (1971) 115 SJ 755 : (1972) 42 COMP CASES
457 (ChD).
75 Standard Industries Ltd v Mafatlal Services Ltd, (1994) 80 COMP CASES 764 (CLB).
76 SEBI v Alka Synthetics Ltd, (1999) 95 COMP CASES 772 (Guj.) (DB).
77 Morgan Stanley Mutual Fund v Kartick Das, (1994) 81 COMP CASES 318 (SC); R.D. Goyal v Reliance Industries Ltd,
(2003) 113 COMP CASES 1 (SC).
78 Harish Sood v Videocon International Ltd, (1996) 8 SCL 28 (MRTPC).
79 Gountermann Peipers (India) Ltd v UOI, (2005) 127 COMP CASES 32 (HP).
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80 Dr. Mrs. Banoo J. Coyajee v Shanta Genevieve Pommeret Parulekar, (1995) 84 COMP CASES 534 (Bom.) (DB).
81 Re Cetus Electronics Pvt Ltd, (1995) 82 COMP CASES 688 (CLB) (SB).
82 R. Khemka v Deccan Enterprises Pvt Ltd, (2000) 100 COMP CASES 211 (AP) (DB) : (1998) 5 Comp. LJ 258 (AP)
(DB).
83 Dale and Carrington Invt. Pvt Ltd v P.K. Prathapan, (2004) 122 COMP CASES 161 (SC) : (2004) 4 Comp. LJ 1 (SC):
(2004) 7 Supreme 209 : (2004) 7 JT 434 (SC).
84 Dale and Carrington Invt. Pvt Ltd v P.K. Prathapan, (2004) 122 COMP CASES 161 (SC) : (2004) 4 Comp. LJ 1 (SC) :
(2004) 7 JT 434 (SC) (Mrs. Ruma Pal and Arun Kumar JJ.).
85 Dale and Carrington Invt. Pvt Ltd v P.K. Prathapan, (2004) 122 COMP CASES 161 (SC) : (2004) 4 Comp. LJ 1 (SC) :
(2004) 7 JT 434 (SC) : (2004) 7 Supreme 209 : (2004) 7 Scale 583 (SC).
86 Dale and Carrington Invt. Pvt Ltd v P.K. Prathapan, (2004) 122 COMP CASES 161 (SC) : (2004) 4 Comp. LJ 1 (SC):
(2004) 7 Supreme 209 : (2004) 7 JT 434 (SC).
87 Dale and Carrington Invt. Pvt Ltd v P.K. Prathapan, (2004) 122 COMP CASES 161 (SC) : (2004) 4 Comp. LJ 1 (SC).
89 Ms. Pushpa Prabhudas Vora v Voras Exclusive Tools Pvt Ltd, (2000) 101 COMP CASES 300 (CLB).
90 Sangramsinh P. Gaekwad v Shantadevi P. Gaekwad, (2005) 123 COMP CASES 566 (SC).
91 Dale and Carrington Invt. Pvt Ltd v P.K. Prathapan, (2004) 122 COMP CASES 161 (SC); Kobian Pte. Ltd v Kobian
India Pvt Ltd, (2005) 126 COMP CASES 675 (CLB); Gautam Kapur v Limrose Engineering Works Pvt Ltd, (2005) 128
92 State Bank of India v Business Development Consultants Pvt Ltd, (2005) 128 COMP CASES 557 (CLB); Uma Pathak v
Eurasian Choice International Pvt Ltd,(2004) 122 COMP CASES 922 (CLB) : (2004) 3 Comp. LJ 452 (CLB).
93 Dr. Ashok P. Arbat v Ketki Research Institute of Medical Sciences Ltd, (2007) 140 COMP CASES 277 (CLB); Needle
Industries (India) Ltd v Needle Industries Newey (India) Holding Ltd, (1981) 51 COMP CASES 743 (SC) : AIR 1981 SC
1298 : (1981) 3 SCR 698; Punt v Symons and Co Ltd, (1903) 2 ChD 506 : (1903) All ER Rep. Ext. 1040 : 89 LT 525 :
52 WR 41; Piercy v S. Mills & Co Ltd, (1920) 1 ChD 77 : (1918–19) All ER Rep. 313 : 88 LJ ChD 509.
94 Pratima Pal v Naba Press Pvt Ltd, (2006) 134 COMP CASES 617 (CLB).
95 Inserted by the Companies (Amendment) Act, 1974 (41 of 1974), section 11 (w.e.f. 1 February 1975).
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End of Document
Mr. Laghir1 Rabari

2014. [s 63] Issue of bonus shares.—
96 [s 63] Issue of bonus shares.—
(1) A company may issue fully paid-up bonus shares to its members, in any manner whatsoever,
out of—
(i) its free reserves;
(ii) the securities premium account; or
(iii) the capital redemption reserve account:
Provided that no issue of bonus shares shall be made by capitalising reserves created by the
revaluation of assets.
(2) No company shall capitalise its profits or reserves for the purpose of issuing fully paid-up
bonus shares under sub-section (1), unless—
(a) it is authorised by its articles;
(b) it has, on the recommendation of the Board, been authorised in the general meeting of
the company;
(c) it has not defaulted in payment of interest or principal in respect of fixed deposits or debt
securities issued by it;
(d) it has not defaulted in respect of the payment of statutory dues of the employees, such as,
contribution to provident fund, gratuity and bonus;
(e) the partly paid-up shares, if any outstanding on the date of allotment, are made fully paid
up;
(f) it complies with such conditions as may be prescribed.97
(3) The bonus shares shall not be issued in lieu of dividend.
NOTES
The 1956 Act did not aggregate the provisions in relation to bonus shares as set out in section 63 of
the 2013 Act. The provisions relating to bonus shares were set out in sections 75, 78, 80, 205 and
206A of the 1956 Act. For notes under sections 75, 78, 206A of the 1956 Act see notes under
sections 39, 52, 126, respectively of the 2013 Act.
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96 Notified by Notification No. S.O. 902(E), dt. 26 March 2014, w.e.f. 01 April 2014. [s 63] Issue of bonus
shares.—
as follows:
Clause 63.—This is a new clause, which provides for conditions and the manner of issue of fully paid-up bonus shares
to its members [Clause 63 of the Companies Bill, 2011 (121 of 2011)].
[s 63.2] Standing Committee on Finance
The Companies Bill, 2009, contained no such enabling provision on the issue of bonus shares.
Following a recommendation from industry bodies received by the Standing Committee on Finance
(2009–2010) in respect of its 21st report on the Companies Bill, 2009, the standing committee
recommended that “though there are adequate provisions in the Bill making reference to companies
having powers to issue bonus shares, the suggestion to include a specific enabling provision allowing
companies to issue bonus shares may be considered. The manner and procedure of issue of bonus
shares by companies, however, may be included in the model articles to be prescribed under rules to
the Bill.”
Bonus shares are additional fully paid-up shares given to the existing members of a company. These
shares are issued at no additional cost to the members and are in proportion to the rights of such
members. A company will typically undertake a bonus issue if it has free reserves and could be
construed as sharing profits with its members. While an issue of bonus shares is beneficial to the
shareholders since it increases their shareholding, it also benefits the company by the conversion of
its free reserves into additional capital. Bonus shares are also known as capitalisation shares since
they are capitalised profits.
A company may, if its memorandum or articles so provide capitalise profits by issuing fully paid-up
shares to, the members thereby transferring the sums capitalised from the profit and loss account or
reserve account to the share capital.1
[s 63.4] Computing Income Tax Liability for Bonus Shares
The difference between capital expenditure and revenue expenditure becomes significant while
computing income tax liability. In the case of Commissioner of Income Tax, Bihar v Dalmia
Investment Co Ltd,2 where the question of valuation of bonus shares was considered, the Supreme
Court explained the consequences of issue of bonus shares by observing thus:
When a shareholder gets a bonus share, the value of the original share held by him goes down. In effect, the
shareholder gets two shares instead of the one share held by him and the market value as well as the intrinsic value of
the two shares put together will be the same or nearly the same as the value of the original share before the bonus
issue.
It follows that though profits are profits in the hands of the company, when they are disposed of by converting them into
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shares.—
capital instead of paying them over to the shareholders, no income can be said to accrue to the shareholders because
the new shares confer a title to a larger proportion of the surplus assets at a general distribution. The floating capital
used in the company which formerly consisted of subscribed capital and the reserves now becomes the subscribed
capital.
The Supreme Court has held that the issue of bonus shares by capitalisation of reserves is merely a
reallocation of company's funds. There is no inflow of fresh funds or increase in the capital employed,
which remains the same. If that be so, then it cannot be held that the company has acquired a benefit
or advantage of enduring nature. The total funds available with the company will remain the same
and the issue of bonus shares will not result in any change in the capital structure of the company.
Issue of bonus shares does not result in the expansion of capital base of the company.3
[s 63.5] Funding the Bonus Issue [Section 63(1)]
A company can only issue fully paid-up bonus shares. While section 63 of the 2013 Act states that an
issue of bonus shares may be made in any manner, the different ways to make a bonus issue shares
is unclear, this may refer to a selective issue of bonus shares that may not be prohibited under the
2013 Act. The funding of bonus shares shall necessarily be made out of the free reserves, securities
premium account or the capital redemption reserve account.
[s 63.6] Free Reserves [Section 2(43)]
Free reserves are defined in the 2013 Act as any reserves that as per the latest audited balance
sheet of a company, are available for distribution as dividend. However, any amount representing
unrealised gains, notional gains or revaluation of assets, any change in carrying amount of an asset
or of a liability recognised in equity, including surplus in profit and loss account on measurement of
the asset or the liability at fair value, shall not be treated as free reserves.
[s 63.7] Securities Premium Account
When a company issues shares at a premium, an aggregate of the total sum received as a premium
towards the subscription of those shares is deposited by the company in a “securities premium
account.” section 52 of the 2013 Act provides that the “securities premium account” may be utilised
towards the issue of unissued shares of the company to the members of the company as fully paid
bonus shares.
[s 63.8] Capital Redemption Reserve Account
A company may issue preference shares that are liable to redeemed within a certain period. Where
such shares are proposed to be redeemed out of the profits of the company, a sum equal to the
nominal amount of the shares to be redeemed, shall be transferred from the profits to a reserve, to be
called the capital redemption reserve account. Section 55(4) of the 2013 Act provides that the capital
redemption reserve may be utilised for the issue of bonus shares.
[s 63.9] No Issue of Bonus Shares by Capitalising on Revaluation of Assets [Proviso, section

63(1)]
A company cannot issue bonus shares from reserves capitalised by the revaluation of assets. This is
consistent with the definition of free reserves in section 2(45) of the 2013 Act which excludes
revaluation of assets from its definition. The rationale behind this is that any increase in value created
out of a revaluation of an asset is not any addition to the real value of the company and the value
may also decrease just as easily. It may be argued that if the surplus on the capital account results
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shares.—
from a valuation made in good faith and by a competent valuer, it is not liable to short-term
fluctuations, however it is possible to easily doctor an increase in valuation. Any capitalisation from
revaluation of an asset will only be a book entry increase in the capital and not of any amount coming
into the company.
It may be noted that as per section 205(3) of the 1956 Act permitted capitalisation of profits and
reserves for issue of fully paid-up bonus shares, in light of which, bonus shares could be issued out
of revaluation reserve as well.
[s 63.10] Conditions for the Issue of Bonus Shares [Section 63(2)]
The following conditions must be fulfilled by a company before fully paid-up bonus shares are issued:
(a) The terms of the issue are authorised by the company’s articles. If a company wants to do a
bonus issue and it is not authorised by the articles, the articles will have to be amended with
shareholders approval;
(b) The terms of the issue have, on the recommendation of the board, been authorised in the
general meeting of the company;
(c) The company has not defaulted in payment of interest or principal in respect of fixed deposits
or debt securities issued by it;
(d) The company has not defaulted in respect of the payment of statutory dues of the employees,
such as, contribution to provident fund, gratuity and bonus;
(e) Partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up;
(f) The issue of bonus shares complies with such conditions as may be prescribed.4 These
conditions are laid down in rule 14 of the Companies (Share Capital and Debentures) Rules,
2014.
[s 63.11] Issue of Bonus Shares to be Irrevocable
The decision by a company to issue bonus shares cannot be withdrawn once the company has made
an announcement in this regard.5
[s 63.12] Bonus Shares Not to Be Issued in Lieu of Dividend
Section 63(3) of the 2013 Act provides that bonus shares cannot be issued as a substitute for a
dividend. Dividend is a right of a shareholder, it is the profit of a company, which is not retained in the
business and is distributed among the shareholders in proportion to the amount of paid up on the
shares held by them. Dividends for a financial year of the company are payable once approved in its
annual general meeting on the recommendation of the board of directors.
[s 63.13] Vesting of Bonus Shares
Vesting of the bonus shares takes place from the date of the company’s resolution and not from the
date of the actual allotment. Only persons whose names appear in the register of members after the
shareholders’ resolution and on the date specified by board of directors as the cut-off date are
entitled to the issue of bonus shares. A person whose name was removed from the register of
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shares.—
members before the cut off date would not be entitled to participate in bonus shares. A transferor of
shares that is a shareholder transferring the shares before that date would not be entitled to claim
bonus shares on the ground that he was the shareholder transferring the shares before that date
would not be entitled to claim bonus shares on the ground that he was a shareholder transferring the
shares before that date of the AGM.6
[s 63.14] Listed Companies
Chapter IX of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (which
replaced the SEBI (Disclosure and Investor Protection) Guidelines, 2000), places additional
conditions on listed companies and provides, inter alia, as follows:
[s 63.15] Conditions for the Issue of Bonus Shares7
A listed issuer may issue bonus shares to its members if:
• it is authorised by its articles of association for issue of bonus shares, capitalisation of

reserves, etc.:
• if there is no such provision in the articles of association, the issuer shall pass a resolution at
its general body meeting making provisions in the articles of associations for capitalisation of
reserve;
• the company should not have defaulted in payment of interest or principal in respect of fixed
deposits or debt securities issued by it and should have
• sufficient reason to believe that it has not defaulted in respect of the payment of statutory
dues of the employees such as contribution to provident fund, gratuity and bonus; and
• any partly paid-up shares outstanding on the date of allotment, are made fully paid up.
[s 63.16] Restriction on Bonus Issue8
An issuer shall not make a bonus issue of equity shares, unless it has made reservation of equity
shares of the same class in favour of the holders of outstanding compulsorily convertible debt
instruments, if any, in proportion to the convertible part thereof. The equity shares reserved for the
holders of fully or partly compulsorily convertible debt instruments shall be issued at the time of
conversion of such convertible debt instruments on the same terms or same proportion at which the
bonus shares were issued.
[s 63.17] Bonus Shares Only against Reserves, Etc. If Capitalised in Cash9
(1) The bonus issue shall be made out of free reserves built out of the genuine profits or securities
premium collected in cash only and reserves created by revaluation of fixed assets shall not be
capitalised for the purpose of issuing bonus shares. Bonus shares shall not be issued in lieu of
dividend.
[s 63.18] Completion of Bonus Issue10
Where no shareholder’s approval is required for the bonus issue, it shall be completed within 15 days
from the date of approval of the issue by its board of directors and two months from the date of the
board meeting if shareholder’s approval is required. Once the decision to make a bonus issue is
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Page 6 of 15
shares.—
announced, the issue cannot be withdrawn.
[s 63.19] Penalty
apply in the event of a default, and the company and every officer who is in default will be liable to be
As the general penalty prescribed under section 450 of the 2013 Act is a fine, the offence may be
compounded under section 441 of the 2013 Act. However, as on the date of going to press, section
441 has not been notified. Consequently, the offence may be compounded under section 621A of the
1956 Act till such date.
Bonus shares are issued out of the credit balance of the profit and loss account or out of the reserves
appearing on the equities side of the balance sheet. On issue of bonus shares, the balance of the
profit and loss account or reserves is reduced and corresponding figure of the share capital is
increased. There is, therefore no change in the total of the equities side, merely one it increases and
another item gets reduced. Also there is no change in the net worth of the company. The assets side
of the balance sheet remains unaffected.
See detailed notes on audit and auditors under Chapter X, and the auditing, review and other
standards under section 143 (10) of the 2013 Act issued by the Institute of Chartered Accountants of
India (ICAI).
[s 80] Power to issue redeemable preference shares.—(1) Subject to the provisions of this section, a company
limited by shares may, if so authorised by its articles, issue preference shares which are, or at the option of the
company are to be liable, to be redeemed: The Companies Act, 1956 provision
Provided that—
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shares.—
(a) no such shares shall be redeemed except out of profits of the company which would otherwise be available for
dividend or out of the proceeds of a fresh issue of shares made for the purposes of the redemption;
(c) the premium, if any, payable on redemption shall have been provided for out of the profits of the company or
out of the company’s 11[security premium account], before the shares are redeemed;
(d) where any such shares are redeemed otherwise than out of the proceeds of a fresh issue, there shall, out of
profits which would otherwise have been available for dividend, be transferred to a reserve fund, to be called
12[the capital redemption reserve account], a sum equal to the nominal amount of the shares redeemed; and
the provisions of this Act relating to the reduction of the share capital of a company shall, except as provided
in this section, apply as if 12[the capital redemption reserve account] were paid-up share capital of the
company.
(2) Subject to the provisions of this section, the redemption of preference shares thereunder may be effected on such
terms and in such manner as may be provided by the articles of the company.
(3) The redemption of preference shares under this section by a company shall not be taken as reducing the amount of
its authorised share capital.
(4) Where in pursuance of this section, a company has redeemed or is about to redeem any preference shares, it shall
have power to issue shares up to the nominal amount of the shares redeemed or to be redeemed as if those shares
had never been issued; and accordingly the share capital of the company shall not, for the purpose of calculating the
fees payable under 13[section 611], be deemed to be increased by the issue of shares in pursuance of this sub-section:
Provided that, where new shares are issued before the redemption of the old shares, the new shares shall not, so far
as relates to stamp duty, be deemed to have been issued in pursuance of this sub-section unless the old shares are
redeemed within one month after the issue of the new shares.
(5) 14[The capital redemption reserve account] may, notwithstanding anything in this section, be applied by the
company, in paying up unissued shares of the company to be issued to members of the company as fully paid bonus
shares.
15[(5A)
Notwithstanding anything contained in this Act, no company limited by shares shall, after the commencement of
the Companies (Amendment) Act, 1996 (5 of 1997), issue any preference share which is irredeemable or is
redeemable after the expiry of a period of twenty years from the date of its issue.]
(6) If a company fails to comply with the provisions of this section, the company, and every officer of the company who
is in default, shall be punishable with fine which may extend to 16[ten thousand rupees].
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shares.—
NOTES
See section 105B of the Indian Act and section 58 of the English Act. As suggested by the Company Law Committee
(page 300 of the Report), the penal provisions have been extended to the whole section, and the provision in sub-
section (3) of section 58 of the English Act has been embodied as sub-clause (3) of the clause. [Clause 74 of the
The amendments proposed in section 80 seek to bring the wording of sub-sections (1)(d) and (5) of section 80 into
accord with modern commercial and accountancy practice and rectify a drafting mistake in sub-section (4). (para 45 of
the Report). [Clause 22 of the Companies (Amendment) Bill, 1959 (37 of 1959)].
Section 80(1)(d) and (5) refer to ‘capital redemption reserve fund’. According to modern commercial and accountancy
practice, the word ‘fund’ is used in connection with reserves only when the funds constituting the reserves are invested
outside the business. The word ‘account’ may be substituted for the word ‘fund’ in sub-sections (1)(d) and (5). The
figure ‘601’ occurring in sub-section (4) in the printed edition is a mistake for ‘611’ and the mistake may be rectified.
[Report : para 45].
The COMPANIES (AMENDMENT) ACT, 1996 (5 OF 1997).—The Statement of Objects and Reasons explained the
“(iii) to simplify some procedural and legal requirements in the interest of corporate sector.” [Extracts from SOR
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shares.—
THE COMPANIES (AMENDMENT) ACT, 1999 (21 OF 1999).—The words “security premium account” have been
substituted for “share premium account.”
This clause seeks to enhance the fine specified in sub-section (6) of section 80 of the Act from one thousand rupees to
ten thousand rupees. [Clause 33 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
17[s 205] Dividend to be paid only out of profits.—(1) No dividend shall be declared or paid by a company for any
financial year except out of the profits of the company for that year arrived at after providing for depreciation in
accordance with the provisions of sub-section (2) or out of the profits of the company for any previous financial year or
years arrived at after providing for depreciation in accordance with those provisions and remaining undistributed or out
of both or out of moneys provided by the Central Government or a State Government for the payment of dividend in
pursuance of a guarantee given by that Government: The Companies Act, 1956 provision
Provided that—
(a) if the company has not provided for depreciation for any previous financial year or years which falls or fall after
the commencement of the Companies (Amendment) Act, 1960, it shall, before declaring or paying dividend
for any financial year provide for such depreciation out of the profits of that financial year or out of the profits
of any other previous financial year or years;
(b) if the company has incurred any loss in any previous financial year or years, which falls or fall after the
commencement of the Companies (Amendment) Act, 1960, then, the amount of the loss or an amount which
is equal to the amount provided for depreciation for that year or those years whichever is less, shall be set off
against the profits of the company for the year for which dividend is proposed to be declared or paid or
against the profits of the company for any previous financial year or years, arrived at in both cases after
providing for depreciation in accordance with the provisions of sub-section (2) or against both
(c) the Central Government may, if it thinks necessary so to do in the public interest, allow any company to
declare or pay dividend for any financial year out of the profits of the company for that year or any previous
financial year or years without providing for depreciation:
• Provided further that it shall not be necessary for a company to provide for depreciation as aforesaid where
dividend for any financial year is declared or paid out of the profits of any previous financial year or years
which falls or fall before the commencement of the Companies (Amendment) Act, 1960.
18[(1A)
The Board of directors may declare interim dividend and the amount of dividend including interim dividend shall
be deposited in a separate bank account within five days from the date of declaration of such dividend.
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shares.—
(1B) The amount of dividend including interim dividend so deposited under sub-section (1A) shall be used for payment
of interim dividend.
(1C) The provisions contained in sections 205, 205A, 205C, 206, 206A and 207 shall, as far as may be, also apply to
any interim dividend.]
(2) For the purpose of sub-section (1), depreciation shall be provided either—
(a) to the extent specified in section 350; or
(b) in respect of each item of depreciable asset, for such an amount as is arrived at by dividing ninety-five% of the
original cost thereof to the company by the specified period in respect of such asset; or
(c) on any other basis approved by the Central Government which has the effect of writing off by the way of
depreciation ninety-five per cent of the original cost to the company of each such depreciable asset on the
expiry of the specified period; or
(d) as regards any other depreciable asset for which no rate of depreciation has been laid down by 19[this Act or
any rules made thereunder,] on such basis as may be approved by the Central Government by any general
order published in the Official Gazette or by any special order in any particular case:
Provided that where depreciation is provided for in the manner laid down in clause (b) or clause (c), then, in the event
of the depreciable asset being sold, discarded, demolished or destroyed the written down value thereof at the end of
the financial year in which the asset is sold, discarded, demolished or destroyed, shall be written off in accordance with
the proviso to section 350.
20[(2A) Notwithstanding anything contained in sub-section (1), on and from the commencement of the Companies
(Amendment) Act, 1974 (41 of 1974), no dividend shall be declared or paid by a company for any financial year out of
the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of
sub-section (2), except after the transfer to the reserves of the company of such percentage of its profits for that year,
not exceeding ten per cent, as may be prescribed:
Provided that nothing in this sub-section shall be deemed to prohibit the voluntary transfer by a company of a higher
percentage of its profits to the reserves in accordance with such rules as may be made by the Central Government in
this behalf.]
21[(2B)A company which fails to comply with the provisions of section 80A shall not, so long as such failure continues,
declare any dividend on its equity shares.]
(3) No dividend shall be payable except in cash:
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shares.—
Provided that nothing in this sub-section shall be deemed to prohibit the capitalisation of profits or reserves of a
company for the purpose of issuing fully paid-up bonus shares or paying up any amount for the time being unpaid on
any shares held by the members of the company.
(4) Nothing in this section shall be deemed to affect in any manner the operation of section 208.
(5) For the purposes of this section—
(a) “specified period” in respect of any depreciable asset shall mean the number of years at the end of which at
least ninety-five per cent of the original cost of that asset to the company will have been provided for by way
of depreciation if depreciation were to be calculated in accordance with the provisions of section 350;
(b) any dividend payable in cash may be paid by cheque or warrant sent through the post directed to the
registered address of the shareholder entitled to the payment of the dividend or in the case of joint
shareholders, to the registered address of that one of the joint shareholders which is first named on the
register of members, or to such person and to such address as the shareholder or the joint shareholders may
in writing direct.]
NOTES
THE COMPANIES AMENDMENT ACT, 1960 (65 OF 1960).—The Notes on Clauses explained the reason for
The amendment is based on the recommendation in para 86 of the Companies Act Amendment Committee Report and
seeks to impose an obligation on company managements to provide for depreciation before declaring dividends.
Opportunity has also been taken to require the payment of dividends in cash in order to discourage the practice of
some companies, which pass on unremunerative shares held by them in other companies to their shareholders in lieu
of dividends in cash [Clause 62 of the Companies (amendment) Bill, 1959 (37 of 1959)]
Article 116 of Table A of the English Act provides that no dividend shall be paid otherwise than out of profits and
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shares.—
section 205 follows this provision. There is no definition of ‘profits’ in the Act, nor is there any indication of the manner
in which profits of companies have to be computed for purposes of declaration of dividend. Sections 349 to 351 [now
Sections 349 and 350] provide for the computation of profits only for the purpose of determining the remuneration of
managing agents [since omitted], directors or managers. Section 10 of the Indian Income Tax Act, 1922 (11 of 1922)
[now Section 28 of the Income Tax Act, 1961 (43 of 1961)] provides for the ascertainment of the profits of a business
during a year for the purpose of assessment to tax, but Section 205 of the Companies Act, 1956 does not require this
method to be followed in ascertaining profits. Businessmen refer to ‘profits’ as the excess of receipts over the
expenditure for earning the profits during a year. The decisions as to which of the funds out of which the dividends may
be paid are not uniform. The governing rule is that a company may not, under the guise of paying dividends, return to
the shareholders any part of the moneys subscribed on their shares. Chartered Accountants, lawyer and judges differ
as to the proper method of computing profits for the purpose of declaring dividend. One view is that dividends can be
declared without providing for any depreciation, if the directors so think fit. Another view is that full depreciation allowed
by the Income Tax Act[now Schedule XIV to the Companies Act, 1956] including the development rebate or the
rehabilitation reserve, should be provided before distributing any amount by way of dividend. There is yet another and
intermediate view that only normal depreciation calculated on the basis of the life of the asset need be provided for. No
prudent company should omit to provide for depreciation. There is also a divergence of opinion as regards the question
whether losses brought forward from previous years should be covered before any dividend can be declared from the
profits of the current year as contemplated by Note (h) in Part I of Schedule VI of the Act or whether the dividend could
be paid out of current profits leaving the previous years losses to be recovered over a number of years, present and
future, or even never to be recovered at all. As stated in Buckley on Companies Acts (12th edition, page 904), the law
is much more accurately expressed by saying that dividends cannot be paid out of capital than by saying they can only
be paid out of profits. Even such a plain proposition might, in actual practice, raise questions of difficulty in their
solution and one such question may be what are profits and what is capital. Taking all the relevant circumstances into
consideration, we would recommend the substitution of section 205. [Report: para 86]
The Joint Committee however, recast the original clause and explained reasons for the changes as
follows:
The Committee are of the opinion that the original clause involved an element of rigidity as it contemplated that
depreciation should be deducted only in accordance with the method prescribed for provision for normal depreciation
under the Income Tax Act, 192 [or the Income Tax act, 1961] and Rules (now Schedule XIV to the Companies Act,
1956)]. They feel that a company should be allowed to provide for depreciation subject to certain safeguards, also in
accordance with other recognised methods. In order to cover cases calling for special treatment a company should
also be permitted with the approval of the Central Government to declare and pay dividends to its shareholders without
providing for depreciation. The clause has been recast accordingly. [Report: para 48]
1974 (41 OF 1974)- Sub-section (2A) was inserted by Joint Committee on

THE COMPANIES (AMENDMENT) ACT,
the Companies (Amendment) Bill, 1972 (72 of 1972). The sub-section was explained by the Joint
Committee as follows:
Sub-section (3) of new section 205A imposes certain restrictions on the declaration of dividends from accumulated
profits. A point was raised in the Joint Committee that this provision may encourage the distribution of the entire profits
for a year by way of dividend and such distribution may be detrimental to the interests of the company as well as of its
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Page 13 of 15
shares.—
shareholders. The Committee feel that a certain percentage of the profits, not exceeding ten, may compulsorily be
transferred to the reserves which would be both beneficial to the company and to the shareholders because such
reserves would be available to the company for ploughing them back for the expansion of the activities of the company
and would also be available for declaration of dividends in a lean year, subject to the rules as may be made by the
Central Government as envisaged in the proposed section. The clause provides for the above matters. A proviso has
been added to make it clear that voluntary transfer of a higher percentage of profits to the reserves are not prohibited
by the proposed sub-section but such transfer will have to be made in accordance with the rules made by the Central
Government. [Report: para 27].
THE COMPANIES (AMENDMENT) ACT, 1988 (31 OF 1988)- the Notes on Clauses explained the amendments in
This clause seeks to amend section 205 to provide that, in future, depreciation shall be calculated in accordance with
the rates specified in Schedule IV to the Companies Act, 1956, thus delinking depreciation under the Companies Act
from that under the Income Tax Act.
It also seeks to prohibit a company from declaring any dividend on equity shares, or to transfer its
profits to reserves, if it fails to redeem its irredeemable preference shares pursuant to the amendment
proposed in clause 14 [Section 80A] of the Bill. [Clause 26 of the Companies (Amendment) Bill, 1987
(32 of 1987)].
THE COMPANIES (AMENDMENT) ACT, 2000 (53 of 2000).-Subsections (1A), (1B) and (1C) of
section 205 dealing with declaration and payment of interim dividend have been inserted by the
Companies (Amendment) Act, 2000 (53 of 2000), section 92, with effect from 13-12-2000. This
section was not in the Companies (Second Amendment) Bill, 1999 (139 of 1999) as originally
introduced.
[s 63.25] Department’s View— Prohibition of issue of bonus shares of reserves by revaluation

of fixed assets
“I am directed to say that it has come to the notice of the Department that a number of unlisted companies (existing
private/closely held public companies) are resorting to revaluation of their assets and issuing bonus shares dated April
13, 1994 (now the SEBI (Disclosure and Investor Protection) Guidelines, 2000 printed above) inter alia stipulate that
the bonus issue has to be made out of free reserves created by revaluation of fixed assets cannot be capitalized for
this purpose. These guidelines are applicable only to listed companies.
This matter has been considered in the Department and the existing private/closely held and unlisted companies are
advised not to issue bonus shares out of the reserves created by revaluation of fixed assets. (Circular No. 9 of 1994) (F
No. 17/ 32/93-CL 5), dt. 6-9-1994: Chartered Secretary, October 1994, Page 923: 1994, page 923: 1994 81 Comp
Cases (SL) 59.
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shares.—
The 1956 Act did not have a provision which dealt exclusively with the issue of bonus issues.
However, it contained several provisions with respect to bonus shares such as sections 75, 78, 80,
81, 205, 206A. This is a new enabling provision which empowers the company to make bonus issues
upon the satisfaction of the conditions detailed in the section. An important change in the regime
under the 1956 Act and the 2013 Act is that a company can no longer issue bonus shares out of the
capitalisation from the revaluation of assets.
Section 80(5) and the proviso to section 205(3) of the 1956 Act has been repealed to the extent of its overlap with the
notified provisions of section 63, w.e.f. 1-4-2014. See notes under sections 39, 52, 55, 62, 123, and 126 of the 2013
Act.
96 Notified by Notification No. S.O. 902(E), dt. 26 March 2014, w.e.f. 01 April 2014.
1 Re Bridgewater Navigation Co, (1891) 2 ChD 317 : 60 LJ Ch. 415 : 64 LT 576 (CA).
2 Commissioner of Income Tax, Bihar v Dalmia Investment Co Ltd, AIR 1964 SC 1464.
3 CIT, Mumbai v General Insurance Corp, 2006 (8) SCC 117.
4 See rule 14 of the Companies (Share Capital and Debentures) Rules, 2014.
6 Rajiv Nag v Quality Assurance Institute (India) Ltd, (2001) 106 COMP CAS 262 (Delhi) : Dhree Gopal papers Mills Ltd v
CIT, (1970) 77 ITR 543 (SC) : AIR 1970 SC 1750; National Investments Bank Plc v IRC, (1994) 2 BCLC 239 (HL). See
also notes under sections 41, 111, 111A, 113, 173, 206 and 206A of the 1956 Act.
7 Regulation 92, SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.
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shares.—
11 Substituted by the Companies (Amendment) Act, 1999 (21 of 1999), section 7 (w.r.e.f. 31 October 1998), for “share
premium account.” This amending Act has been repealed by the Repealing and Amending Act, 2016.
13 Substituted by the Companies (Amendment) Act, 1960 (65 of 1960), section 23, for “section 601.” This amending Act
15 Substituted by the Companies (Amendment) Act, 1996 (5 of 1997), section 5 [(w.e.f. 1 March 1997) vide Notification
No. G.S.R. 78(E), dt. 15-2-1997 : (1997) 88 COMP CASES (St.) 228]. For sub-section (5A), which was earlier inserted
by Act 31 of 1988, section 13 (w.e.f. 15 June 1988), as it stood prior to its substitution see Annexure at the end of this
Volume.
17 Substituted by Act 65 of 1960, section 58. This amending Act has been repealed by the Repealing and Amending Act,
2016.
19 Substituted by the Companies (Amendment) Act, 1988 (31 of 1988), section 25, for “the Indian Income-tax Act, 1922 or
the rules made thereunder,” (w.e.f. 15 June 1988).
20 Substituted by the Companies (Amendment) Act (41 of 1974), section 18 (w.e.f. 1 February 1975).
21 Inserted by the Companies (Amendment) Act, 1988, (31 of 1988), section 26 (w.e.f. 15 June 1988).
End of Document
Mr. Laghir1 Rabari

22 Notified by Notification No. S.O. 902(E), dt. 26-03-2014, w.e.f. 01 April
2014 and corresponds to sections 94A(3), 95 and 97 of the 1956 Act. [s 64]
Notice to be given to Registrar for alteration of share capital.—
22 [s 64] Notice to be given to Registrar for alteration of share capital.—
(1) Where—
(a) a company alters its share capital in any manner specified in sub-section (1) of section
61;
(b) an order made by the Government under sub-section (4) read with sub-section (6) of
section 62 has the effect of increasing authorised capital of a company; or
(c) a company redeems any redeemable preference shares,
the company shall file a notice in the prescribed form with the Registrar within a period of
thirty days of such alteration or increase or redemption, as the case may be, along with an
altered memorandum.
(2) If a company and any officer of the company who is in default contravenes the provisions of
sub-section (1), it or he shall be punishable with fine which may extend to one thousand
rupees for each day during which such default continues, or five lakh rupees, whichever is
less.
NOTES
Section 64 of the 2013 Act corresponds to sections 94A(3), 95 and 97 of the 1956 Act.
as follows:
Clause 64.—This clause corresponds to sections 95 and 97 of the Companies Act, 1956 and seeks to provide for the
companies to give notice to Registrar of alteration or increase of share capital along with an altered memorandum.
[Clause 64 of the Companies Bill, 2011 (121 of 2011)]
[s 64.2] Alterations Requiring Notice [Section 64(1)]
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Page 2 of 7
22 Notified by Notification No. S.O. 902(E), dt. 26-03-2014, w.e.f. 01 April 2014 and corresponds to sections
94A(3), 95 and 97 of the 1956 Act. [s 64] Notice ....
Section 64 of the 2013 Act provides for three circumstances in which a company that is altering its
share capital must give notice to the registrar:
(a) Where the company alters its share capital as prescribed under section 61(1) of the 2013 Act,
i.e., as authorised by the company in its general meeting.
(b) In the event, an order made by the government under section 62(4) read with section 62(6) in
relation to the conversion of debentures or loans into shares has the effect of increasing
authorised capital of a company.
(c) Where a company redeems any redeemable preference shares.
See sections 55, 61 and 62 of the 2013 Act.
[s 64.3] Board may Ratify Shareholders Action
The increase of share capital or allotment of shares is a matter of internal management. Where a
special resolution relating to increase of share capital or allotment of shares was passed without
reference to the board of directors but was later on ratified by the board it was held that the special
resolution was valid and the defect, if any, was cured by the ratification.23
[s 64.4] Notice in Case of an Amalgamation
Where a scheme of arrangement or amalgamation of companies is sanctioned by the court [now the
NCLT], a certified copy of the order of the court [now the NCLT] is to be filed before the registrar
within 30 days of the order for the purpose of its registration. The Andhra Pradesh High Court has
held that as the object behind the intimation under section 95 or 97 of the 1956 Act (now section 64
of the 2013 Act) and section 394(3) is the same, the certified copy of the order may be treated as
notice of change in share capital and no separate notice to the registrar is necessary.24 In a similar
case, the Bombay High Court held that when the amalgamation of a company with another results in
the increase of the share capital of the transferee company. Sections 391 to 394 of the 1956 Act do
not carve out an exception to compliance with section 97 in case of increase of capital of the
transferee company as a result of amalgamation. Whenever there is an increase in the authorised
share capital or registered members regardless of how such increase takes place the company has
to pass a resolution authorising such increase and it has to notify the increase to the registrar of
companies.25
[s 64.5] Capital on Amalgamation or Merger—No Fee or Stamp Duty
In case of increased authorised capital by amalgamation or merger of authorised capital of two

companies, the court [now the NCLT] has the power to pass suitable orders. In such a case the
company is not required to comply with the requirements of section 94 or 97 of the 1956 Act. Further,
in case of a merger where it is provided that the share capital of the transferor companies become
the authorised capital of the transferee company, no payment of fee to the registrar of companies or
stamp duty to the state government is payable.26
[s 64.6] Form and Manner of Notice
In each of these situations mentioned in the section, the company is required to file a notice in Form
No. SH 7.27 Such notice is to be filed with the registrar within 30 days of such alteration, increase or
Mr. Laghir1 Rabari

Page 3 of 7
redemption, along with an altered memorandum. The 30-day period is to be counted from the date of
receipt of the government’s order.
A contravention of provisions set out in section 64(1) of the 2013 Act renders the company and every
officer who is in default, punishable with a fine of Rs 1,000 for each day during which such default
continues, or Rs 5 lakh, whichever is less.
[s 64.8] Continuing Default—Limitation
Failure to file notice of increase of share capital is a continuing default arising each day until the
requisite filings are made. A company that failed to file notice of special resolution increasing share
capital with the registrar within time was held to be liable. The complaint filed by the registrar was
held to be within time and not barred by limitation.28
As the penalty prescribed under section 64(2) of the 2013 Act is a fine, the offence may be
compounded under section 441 of the 2013 Act.
29[s 94A] Share capital to stand increased where an order is made under section 81(4).—(1) Notwithstanding
anything contained in this Act, where the Central Government has, by an order made under sub-section (4) of section
81, directed that any debenture or loan or any part thereof shall be converted into shares in a company, the conditions
contained in the memorandum of such company shall, where such order has the effect of increasing the nominal share
capital of the company, stand altered and the nominal share capital of such company shall stand increased by an
amount equal to the amount of the value of the shares into which such debentures or loans or part thereof has been
converted. The Companies Act, 1956 provision
(2) Where, in pursuance of an option attached to debentures issued or loans raised by the company, any public
financial institution proposes to convert such debentures or loans into shares in the company, the Central Government
may, on the application of such public financial institution, direct that the conditions contained in the memorandum of
such company shall stand altered and the nominal share capital of such company shall stand increased by an amount
equal to the amount of the value of the shares into which such debentures or loans or part thereof has been converted.
(3) Where the memorandum of a company becomes altered, whether by reason of an order made by the Central
Government under sub-section (4) of section 81 or sub-section (2) of this section, the Central Government shall send a
copy of such order to the Registrar and also to the company and on receipt of such order, the company shall file in the
prescribed form, within thirty days from the date of such receipt, a return to the Registrar with regard to the increase of
share capital and the Registrar shall, on receipt of such order and, return, carry out the necessary alterations in the
memorandum of the company.]
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Page 4 of 7
NOTES
THE COMPANIES (AMENDMENT) ACT, 1974 (41 OF 1974).—The Notes on clauses explained this section as follows:
This clause is of a procedural nature and dispenses with the necessity of passing a resolution for alteration of the
Memorandum and filing with the Registrar of Companies of the requisite documents showing increase of share capital,
in certain cases. It is, however, required by this clause that the Registrar shall be informed by the Government itself in
such cases, so that the Registrar may carry out the necessary alterations in the Memorandum of the company showing
the increase in share capital. [Clause 9 of the Companies (Amendment) Bill, 1972 (72 of 1972)].
[s 95] Notice to Registrar of consolidation of share capital, conversion of shares into stock, etc.—(1) If a
company having a share capital has— The Companies Act, 1956 provision
(a) consolidated and divided its share capital into shares of larger amount than its existing shares;
(b) converted any shares into stock;
(c) re-converted any stock into shares;
(d) sub-divided its shares or any of them;
(e) redeemed any redeemable preference shares; or
(f) cancelled any shares, otherwise than in connection with a reduction of share capital under sections 100 to
104;
the company shall within 30[thirty days] after doing so, give notice thereof to the Registrar specifying, as the case may
be, the shares consolidated, divided, converted, sub-divided, redeemed or cancelled, or the stock reconverted.
(2) The Registrar shall thereupon record the notice, and make any alterations which may be necessary in the
company’s memorandum or articles or both.
(3) If default is made in complying with sub-section (1), the company, and every officer of the company who is in
default, shall be punishable with fine which may extend to 31[five hundred rupees] for every day during which the
default continues.
NOTES
Mr. Laghir1 Rabari

Page 5 of 7
Compare section 51 of the Indian Act and section 62 of the English Act. [Clause 87 of the Companies Bill, 1953 (46 of
1953)].

1964)].
follows:
This clause seeks to enhance the fine specified in sub-section (3) of section 95 of the Act from fifty rupees to five
hundred rupees. [Clause 37 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
[s 97] Notice of increase of share capital or of members.—(1) Where a company having a share capital, whether its
shares have or have not been converted into stock, has increased its share capital beyond the authorised capital, and
where a company, not being a company limited by shares, has increased the number of its members beyond the
registered number, it shall file with the Registrar, notice of the increase of capital or of members within 32[thirty] days
after the passing of the resolution authorising the increase; and the Registrar shall record the increase and also make
any alterations which may be necessary in the company’s memorandum or articles or both. The Companies Act, 1956
provision
(2) The notice to be given as aforesaid shall include particulars of the classes of shares affected and the conditions, if
any, subject to which the new shares have been or are to be issued.
(3) If default is made in complying with this section, the company, and every officer of the company who is in default,
shall be punishable with fine which may extend to 33[five hundred rupees] for every day during which the default
continues.
Mr. Laghir1 Rabari

Page 6 of 7
NOTES
See section 53 of the Indian Act and section 63 of the English Act. Only some drafting changes have been made.

1964)].
follows:
This clause seeks to enhance the fine specified in sub-section (3) of section 97 of the Act from fifty rupees to five
hundred rupees. [Clause 38 of the Companies (Second Amendment) Bill, 1999 (139 of 1999)].
[s 64.13] Shares Created by Special Resolution
When the shares were created by a special resolution they were “issued” within the meaning of
section 94(i)(a) of the 1956 Act, even though they were not offered or allotted to anyone.
Consequently, the company’s share capital had been increased and default by the directors in giving
notice to the registrar as required by section 97(1) and (2) was punishable under section 97(3) of the
1956 Act. The directors were liable for prosecution for non-filing of Form No. 6 [now Form No. SH-7]
of the Companies (Central Government’s) General Rules and Forms, 1956.34
Section 64 of the 2013 Act combines, with certain modifications, sections 94A(3), 95 and 97 of the
1956 Act. Two significant changes have been made. Section 64 of the 2013 Act now requires a
notice to be given to the registrar in case of redemption of redeemable preference shares, which was
not required under the 1956 Act. Section 64 has also done away with the requirement to give notice
to the registrar in case of an increase in the number of members of a company not limited by shares.
Additionally, the penalty for a contravention of this provision has also been enhanced under the 2013
Act. Sections 94A(3), 95 and 97 of the 1956 Act have been repealed with the notification of section
Mr. Laghir1 Rabari

Page 7 of 7
64 of the 2013 Act, w.e.f. 1-4-2014.
22 Notified by Notification No. S.O. 902(E), dt. 26-03-2014, w.e.f. 01 April 2014 and corresponds to sections 94A(3), 95
24 Re Saboo Leasing Pvt Ltd, (2003) 117 COMP CASES 728 (AP).
25 Anmol Trading Co Ltd v Shaily Engg. Plastics Ltd, (2003) 113 COMP CASES 107 (Bom.) : (2003) 1 Comp. LJ 64
(Bom.).
26 In Re, Bysani Consumer Electronics Ltd, (2006) 134 COMP CASES 99 (Mad.);Re, Hotline Hol Celdings Pvt Ltd, (2005)
127 COMP CASES 165 (Delhi);Re, Jaypee Cement Ltd, (2004) 122 COMP CASES 854 (All.) : (2004) 2 Comp. LJ 105
(All.);Re, Juggilal Kamlapat Holding Ltd, (2006) 132 COMP CASES 237 (All.).
27 Rule 15 of the Companies (Share Capital and Debenture) Rules, 2014.
28 Amison Foods Ltd v Registrar of Cos, (2001) 103 COMP CASES 846 (Ker.).
29 Inserted by the Companies (Amendment) Act, 1974 (41 of 1974), section 11 (w.e.f. 1 February 1975).
30 Substituted by the Companies (Amendment) Act, 1965 (31 of 1965), section 62 and Sch., for “one month” (w.e.f. 15
October1965). This amending Act has been repealed by the Repealing and Amending Act, 2016.
31 Substituted by the Companies (Amendment) Act, 2000 (53 of 2000), section 41, for “Rs 50” (w.e.f. 13 December
32 Substituted by the Companies (Amendment) Act, 1965 (31 of 1965), section 62 and Sch., for “fifteen” (w.e.f. 15
October 1965). This amending Act has been repealed by the Repealing and Amending Act, 2016.
33 Substituted by the Companies (Amendment) Act, 2000 (53 of 2000), section 42, for “Rs 50” (w.e.f. 13 December
34 Mahalaxmi Mills Co Ltd v State, (1969) 39 COMP CASES 347 (Raj.).
End of Document
Mr. Laghir1 Rabari

35 Notified by Notification No. S.O. 2754(E), dt. 12 October 2013, w.e.f. 12
October 2013 and corresponds to section 98 of the 1956 Act. [s 65]
Unlimited company to provide for reserve share capital on conversion into
limited company.—
35[s 65] Unlimited company to provide for reserve share capital on

conversion into limited company.—
An unlimited company having a share capital may, by a resolution for registration as a limited
company under this Act, do either or both of the following things, namely:—
(a) increase the nominal amount of its share capital by increasing the nominal amount of each of
its shares, subject to the condition that no part of the increased capital shall be capable of
being called up except in the event and for the purposes of the company being wound up;
(b) provide that a specified portion of its uncalled share capital shall not be capable of being
called up except in the event and for the purposes of the company being wound up.
NOTES
Clause 65.—This clause corresponds to section 32 of the Companies Act, 1956 and seeks to provide that an unlimited
company having a share capital may be converted as a limited company by increasing the nominal amount of each
share. This clause further provides that the company cannot call unpaid portion of share capital except in the event of
winding up [Clause 65 of the Companies Bill, 2011 (121 of 2011)].
[s 65.2] Registration of an Unlimited Company as a Ltd Company
Section 2(92) of the 2013 Act defines an unlimited company as a company not having any limit on the
liability of its members.
Mr. Laghir1 Rabari

Page 2 of 3
35 Notified by Notification No. S.O. 2754(E), dt. 12 October 2013, w.e.f. 12 October 2013 and corresponds to
section 98 of the 1956 Act. [s 65] Unlimited compa....
An unlimited company having a share capital may convert to a limited company. Section 65 of the
2013 Act enables such a company, pursuant to a resolution of its shareholders to do either or both of
the following:
(a) increase the nominal amount of its share capital by increasing the nominal amount of each of
its shares, provided that the increased capital cannot be called up except at the time of
winding up; or
(b) provide that a specified portion of its uncalled share capital shall not be capable of being
called up except at the time of winding up.
In an unlimited company, the members’ liability in the company is not restricted to their contribution to
the share capital of the company. Therefore, in the situation of a company being wound up, members
may be called to contribute additional capital.
An unlimited company may wish to change its constitution to a limited company for various reasons
including on account of shareholders’ preference to limit their liability. An increase in capital at this
stage is permitted for various operational reasons including comfort to creditors (who will now only be
able to seek recovery from the shareholders to the extent of their contribution). This increase in
capital may be partly or wholly deferred. A call on that specified portion shall only be effected at the
time of winding up.
[s 65.3] Procedure for Registration of Unlimited Company as Ltd Company
For registration of an unlimited company as a limited company the provisions of sections 13 and 18 of
the 2013 Act will required to be complied.
[s 98] Power of unlimited company to provide for reserve share capital on re-registration.—An unlimited
company having a share capital may, by its resolution for registration as a limited company in pursuance of this Act, do
either or both of the following things, namely:— The Companies Act, 1956 provision
(a) increase the nominal amount of its share capital by increasing the nominal amount of each of its shares, but
subject to the condition that no part of the increased capital shall be capable of being called up except in the
event and for the purposes of the company being wound up;
(b) provide that a specified portion of its uncalled share capital shall not be capable of being called up except in
the event and for the purposes of the company being wound up.
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Page 3 of 3
35 Notified by Notification No. S.O. 2754(E), dt. 12 October 2013, w.e.f. 12 October 2013 and corresponds to
section 98 of the 1956 Act. [s 65] Unlimited compa....
NOTES
See section 68 of the Indian Act and section 64 of the English Act. [Clause 91 of the Companies Bill, 1953 (46 of
1953)].
While the title of section 98 in the 1956 Act is “Power of unlimited company to provide for reserve
share capital on re-registration” and the title of section 65 of the 2013 Act is “Unlimited company to
provide for reserve share capital on conversion into limited company,” the position in relation to
registration of an unlimited company as a limited company remains the same in both the 1956 Act
and the 2013 Act. Section 98 of the 1956 Act has been repealed with the notification of section 65 of
the 2013 Act, w.e.f. 12-09-2013.
35 Notified by Notification No. S.O. 2754(E), dt. 12 October 2013, w.e.f. 12 October 2013 and corresponds to section 98 of
the 1956 Act.
End of Document
Mr. Laghir1 Rabari

36 As on the date of going to press, this section has not been notified.
Section 66 corresponds to sections 100 to 105 of the 1956 Act. [s 66]
Reduction of share capital.—
36 [s 66] Reduction of share capital.—
(1) Subject to confirmation by the Tribunal on an application by the company, a company limited
by shares or limited by guarantee and having a share capital may, by a special resolution,
reduce the share capital in any manner and in particular, may—
(a) extinguish or reduce the liability on any of its shares in respect of the share capital not
paid-up; or
(b) either with or without extinguishing or reducing liability on any of its shares,—
(i) cancel any paid-up share capital which is lost or is unrepresented by available assets;
or
(ii) pay off any paid-up share capital which is in excess of the wants of the company,
alter its memorandum by reducing the amount of its share capital and of its shares
accordingly:
Provided that no such reduction shall be made if the company is in arrears in the repayment
of any deposits accepted by it, either before or after the commencement of this Act, or the
interest payable thereon.
(2) The Tribunal shall give notice of every application made to it under sub-section (1) to the
Central Government, Registrar and to the Securities and Exchange Board, in the case of
listed companies, and the creditors of the company and shall take into consideration the
representations, if any, made to it by that Government, Registrar, the Securities and
Exchange Board and the creditors within a period of three months from the date of receipt of
the notice:
Provided that where no representation has been received from the Central Government,
Registrar, the Securities and Exchange Board or the creditors within the said period, it
shall be presumed that they have no objection to the reduction.
(3) The Tribunal may, if it is satisfied that the debt or claim of every creditor of the company has
been discharged or determined or has been secured or his consent is obtained, make an
order confirming the reduction of share capital on such terms and conditions as it deems fit:
Mr. Laghir1 Rabari

Page 2 of 49
36 As on the date of going to press, this section has not been notified. Section 66 corresponds to sections 100
to 105 of the 1956 Act. [s 66] Reduction of sha....
Provided that no application for reduction of share capital shall be sanctioned by the
Tribunal unless the accounting treatment, proposed by the company for such reduction is
in conformity with the accounting standards specified in section 133 or any other provision
of this Act and a certificate to that effect by the company's auditor has been filed with the
Tribunal.
(4) The order of confirmation of the reduction of share capital by the Tribunal under sub-section
(3) shall be published by the company in such manner as the Tribunal may direct.
(5) The company shall deliver a certified copy of the order of the Tribunal under subsection (3)
and of a minute approved by the Tribunal showing—
(a) the amount of share capital;
(b) the number of shares into which it is to be divided;
(c) the amount of each share; and
(d) the amount, if any, at the date of registration deemed to be paid-up on each share,
to the Registrar within thirty days of the receipt of the copy of the order, who shall register the
same and issue a certificate to that effect.
(6) Nothing in this section shall apply to buy-back of its own securities by a company under
section 68.
(7) A member of the company, past or present, shall not be liable to any call or contribution in
respect of any share held by him exceeding the amount of difference, if any, between the
amount paid on the share, or reduced amount, if any, which is to be deemed to have been
paid thereon, as the case may be, and the amount of the share as fixed by the order of
reduction.
(8) Where the name of any creditor entitled to object to the reduction of share capital under this
section is, by reason of his ignorance of the proceedings for reduction or of their nature and
effect with respect to his debt or claim, not entered on the list of creditors, and after such
reduction, the company 37[is unable, within the meaning of sub-section (2) of section 271, to
pay the amount of his debt or claim,]—
(a) every person, who was a member of the company on the date of the registration of the
order for reduction by the Registrar, shall be liable to contribute to the payment of that
debt or claim, an amount not exceeding the amount which he would have been liable to
contribute if the company had commenced winding up on the day immediately before the
said date; and
(b) if the company is wound up, the Tribunal may, on the application of any such creditor and
proof of his ignorance as aforesaid, if it thinks fit, settle a list of persons so liable to
contribute, and make and enforce calls and orders on the contributories settled on the list,
as if they were ordinary contributories in a winding up.
(9) Nothing in sub-section (8) shall affect the rights of the contributories among themselves.
(10)any officer of the company—
(a) knowingly conceals the name of any creditor entitled to object to the reduction;
(b) knowingly misrepresents the nature or amount of the debt or claim of any creditor; or
(c) abets or is privy to any such concealment or misrepresentation as aforesaid,
Mr. Laghir1 Rabari

Page 3 of 49
he shall be liable under section 447.
(11)If a company fails to comply with the provisions of sub-section (4), it shall be punishable with
fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh
rupees.
NOTES
Section 66 of the 2013 Act corresponds to sections 100 to 105 of the 1956 Act.
Clause 66.—This clause corresponds to sections 100 to 105 of the Companies Act, 1956, and seeks to provide that on
the confirmation by the Tribunals limited company may reduce its share capital and provides that the Tribunal shall
give notice to the Registrar, Central Government and to the SEBI and consider the representations received in this
behalf. The company shall deliver a certified copy of the order of the Tribunal to the registrar who shall issue a
certificate to this effect to the company. The clause does not apply to a buy-back of its own securities by a company.
The clause further provides that if a company does not comply with the provision of this clause the company shall be
punishable with fine. [Clause 66 of the Companies Bill, 2011 (121 of 2011)]
[s 66.2] Reduction of Share Capital [Section 66(1)]
Any reduction of share capital of a company either limited by shares or limited by a guarantee and
having share capital may reduce its share capital and alter its memorandum accordingly. Once a
company passes this resolution by way of a special majority, it shall make an application to the
tribunal and the reduction is subject to the approval of the tribunal. The proviso to sub-section of
section 66 of the 2013 Act states that no company which is in arrears in the repayment of deposits or
interest thereon accepted by it whether before or after the commencement of the 2013 Act, shall be
permitted to reduce its share capital.
[s 66.3] Methods of Reduction of Share Capital [Section 66(1)(a), (b)]
A company may reduce its share capital in any manner and in particular, the following:
(a) Extinguish or reduce the liability on any of its shares in respect of the share capital not paid
up;
(b) Cancel any paid-up share capital which is lost or unrepresented by available assets, with or
without reducing/extinguishing the liability in any of its shares.
(c) Pay off any paid-up share capital which is in excess of the wants of the company, with or
without reducing/extinguishing the liability in any of its shares.
Mr. Laghir1 Rabari

Page 4 of 49
The list is not exhaustive and any other means of reduction of share capital shall also have to follow
the procedure laid down in this section. However, any cancellation of unallotted shares and the
consequent reduction in the issue share capital will not be deemed to be a reduction of share
capital.38 In fact, any cancellation of shares under section 61(1) of the 2013 Act will not be deemed to
be reduction.
[s 66.4] Authority in Articles
Under the 1956 Act, a company was permitted reduce its share capital if there is authority in the
articles. The authority to reduce share capital must be in the articles of association of the company.
An authority to do so contained in the memorandum of association shall be of no avail.39 However,
the 2013 Act does not contain such a specific provision. Therefore, a special resolution authorising
the reduction will suffice.
[s 66.5] Filing
A copy of the special resolution has to be filed with the registrar of companies in Form No. MGT-14 of
the Companies (Management and Administration) Rules, 2014, within 30 days, section 117.
[s 66.6] Form of Reduction [Sections 66(1)(a) and (b)]
The reduction of share capital may take any of the following forms: (a) the company may extinguish
or reduce the liability on any of its shares not paid up; (b) it may cancel any paid-up share capital
which is lost or is unrepresented by available assets; (c) it may pay off any paid-up share capital
which is in excess of its requirements. Reduction of capital includes reduction of nominal share
capital which also includes stock. In a proper case issued capital may be reduced whether fully paid
or not.40
[s 66.7] Confirmation by NCLT
Such reduction is to be confirmed by the NCLT. Where a company has passed a resolution for
reducing share capital under section 100 it shall apply by petition to the court [now the Tribunal] for
an order confirming the reduction.
[s 66.8] Reduction of Share Capital a Domestic Affair
The question of reduction of share capital is a domestic affair to be decided by the majority of the
shareholders and the company will decide the extent and mode of reduction and the application of
the moneys released thereby. But the NCLT. in confirming the reduction must safeguard the interests
of creditors and minority shareholders and see that it is fair and reasonable.41
The shareholders are to decide about the reduction of capital but the power must be exercised so as
to safeguard the rights of creditors, and such exercise of powers must be just and equitable to the
shareholders and the investing public.42
[s 66.9] Tribunal’s Powers
Under the 1956 Act, it was held that the court [now tribunal] could not withhold sanction to the special
resolution for reduction of capital, unless there is some patent unfairness regarding the fair value of
the shares, or there is lack of an overwhelming majority of non-promoter shareholders who vote in
favour of the resolution.43 Relying on the decision of the Bombay High Court,44 the court has also held
that the word “less” (in relation to whether the valuation of the shares is less) cannot possibly mean
“less than what a minority shareholder fancies,” but that it means only “less than what the Court feels
Mr. Laghir1 Rabari

Page 5 of 49
reasonable.” Therefore, the court, in considering an application for sanction will ask itself if the
valuation is fair; if this fair value is being offered to the minority shareholders; and will also test if, on
facts, a majority of non-promoter shareholders have voted in favour of the resolution.45
In confirming the reduction the tribunal’s jurisdiction is not confined to matters relating to the
reduction alone. All circumstances relating to the adjustment of the interests of the different classes
of shareholders, but not mere possibilities that may ultimately affect them, may properly be taken into
account.46
In an application under this section the court [now the tribunal (NCLT)] is concerned with the
confirmation of the proposed reduction and not the resolution passed by the company.47 Where,
besides the resolution, there is no material on which the court [now the tribunal] can make the
confirmation order and the resolution is not a valid one, its value is reduced to nullity.48
The only questions to be considered by the court [now the tribunal (NCLT)] are (a) ought the court
[now the tribunal] to refuse its sanction to the reduction out of regard to the interest of those members
of the public who may be induced to take shares in the company? (b) is the reduction fair and
equitable as between different classes of shareholders? Where the reduction is shared by all and it
will work justly and equitably and does not involve diminution of any liability in respect of unpaid
capital or payment of paid-up capital and there is evidence regarding the loss of capital and non-
representation of available assets, there is nothing to prevent the court [now the tribunal] from
confirming such reduction.49
[s 66.10] Interests of the Creditors
In exercising its powers to approve or confirm a reduction of the share capital of a company the
tribunal will have due regard to the interests of the creditors, who may consent or object to the
reduction. The tribunal has to be satisfied that either the consent of the creditors who had objected to
the reduction has been obtained or their debts or claims have been discharged or settled or
secured.50
Where the court [now the tribunal (NCLT)] objected to the proposed reduction of share capital. The
company assured the court that the creditors’ interests were fully secured and it had sufficient
amount in fixed deposits in the name of the registrar. The court demanded a resolution for reduction
in terms of the minutes of meeting of the shareholders and also the alteration in the memorandum
and articles of association of the company.51
[s 66.11] Corporate Purpose
Where managing directors being three brothers entered into a family arrangement and for their
private purpose which was not a corporate purpose prepared a scheme of reduction of capital and
made an application to the court and objectors made specific allegations against managing directors
which were not controverted by filing affidavits, the rejection by court of the application made under
section 101 of the 1956 Act and adverse remarks against the managing directors were justified.52
[s 66.12] No Diminution of Liability
The scheme of arrangement clearly showed that there was no diminution of liability in respect of
unpaid share capital or payment to any shareholder of any paid-up share capital. In the existing
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Page 6 of 49
company, the shares were fully paid up and the proposal was one whereby some divisions of the
existing company were being spun off to the new company. There was really no reduction in capital
as the bifurcation involved both assets and liabilities, to go with the divisions which are being spun
off, which could discharge the liabilities to creditors. The scheme did not attract the procedure
envisaged under section 101(2) of the 1956 Act and it was unnecessary to make an order directing
the existing company to add “and reduced” to its name.53
[s 66.13] Power of the Tribunal Discretionary
The power of the tribunal is discretionary and a reduction of capital may be sanctioned or disallowed
at the discretion of the court.54
If the directors illegally proceed to effect a reduction of capital, they may be restrained by an order of
injunction.55
[s 66.15] Mistake can be Rectified
An admission of law is not binding on a company. On some misapprehension of law a company

showed in its balance sheet subscribed capital as reduced from Rs 8 lakhs by Rs 2 lakhs and the
registrar directed and the company agreed to follow the procedure for reduction of share capital. The
company afterwards made an application to court for rectification of share register. As shares of Rs 2
lakhs were not issued and dispute was settled by compromise and amount was repaid, the
application for reduction of share capital did not lay under section 100(1) (now section 66) of the Act.
Although the company originally agreed to follow the procedure under section 100 of the 1956 Act
that admission of law was not binding. The application for rectification of register under section 155 of
the 1956 Act [now section 58] was maintainable.56
[s 66.16] Remarks Against Managing Directors
The remarks made against managing directors by the court in order refusing confirmation after full
deliberation and consideration of evidence on record cannot be expunged in exercise of inherent
powers of the court. The managing director is an officer of the company and has to support the
company’s petition and cannot claim total ignorance of proceedings on the petition. Natural justice
cannot be said to have been denied though the managing directors were not specifically parties to
the application.57
[s 66.17] Cancellation of Share Premium Account
When the company applies for sanction of special resolution for cancellation of its share premium
account [now securities premium account], the Tribunal (NCLT) would consider as to whether the
interests of the majority of the shareholders were taken into account, whether it was, in fact, fair to
the preference shareholders. The tribunal may sanction the cancellation even though the company’s
conduct was not to the satisfaction of the tribunal. The interests of the minority shareholders should
also be taken into account.58
[s 66.18] Reduction of Securities Premium Account
majority shareholders. There was no cash outflow to the shareholders. Restructuring did not affect
the creditors. Therefore, the words “and reduced” were not to be added to the name of the company
and were dispensed with. The resolution and proposed reduction were approved and confirmed by
the court.59
[s 66.19] Share Capital—Reduction—Share [now Securities] Premium Account
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Page 7 of 49
The redemption in the capital redemption reserve fund or share premium account [securities premium
account] by way of a special resolution can be only for the purposes authorised under sections 78(2)
(now section 52 of the 2013 Act) and 100 (now section 66 of the 2013 Act) of the 1956 Act. However,
there can be a variety of situations where the company may be required to use the securities
premium account, reserve or reserve fund for such lawful purpose as it may consider necessary. For
utilisation of the securities premium account for purposes mentioned in section 78(2) (now section 52
of the 2013 Act) of the 1956 Act, no approval or sanction of the court [the tribunal (NCLT)] is required.
It is well settled that the company court [the tribunal (NCLT)] does not exercise any appellate power
over the decision of the company or its management. The company court [the tribunal (NCLT)] in its
equity jurisdiction is required to satisfy itself and see that the procedure by which the resolution is
carried through is legally correct and the shareholders and creditors are not prejudiced. It is the duty
of the court to see that the scheme is fair and equitable between the different classes of
shareholders. It is also the duty of the court to protect the interests of the creditors and it must be
safeguarded. Public interest is also a paramount consideration. The company sought to adjust loss
on investment made in shares of another company against its share premium account. The articles of
the company enabled the company by special resolution to reduce the share premium account.
Reduction of capital did not involve either diminution of liability in respect of unpaid capital or
payment to any shareholder of paid-up capital. No objections were raised by the creditors or
shareholders. Reduction of share capital was approved.60
[s 66.20] Reduction of Share Capital—Securities Premium Account
The company made an application for sanction of reduction of share capital and several adjustments
in securities premium account. The creditors of the petitioner company were not affected by the
proposed reduction. The objections raised were not bona fide but only for extraneous purposes.
There was no violation or breach of any legal provisions and the reduction claimed was fair, just and
proper in the facts and circumstances of the case and also within the framework of law and as such,
the prayer for such reduction was allowed. Application was made for the sanction of reduction of
securities premium account. Shareholders right to the inspection of records of company was not
exercised after the notice of reduction of securities premium account was received. The respondents
raised the objection only at the final stage of the hearing. Such objections were not bona fide. The
experts unanimously decided that the scheme was fair, just and proper. The court was also
convinced of the bona fide of the applicant and sanctioned the reduction. The court considered that
the shareholders had full right of inspection as admittedly notices were issued and published with
details of requisite materials and explained their scheme in compliance with the law. The court found
that there was no illegality or breach of any law in the scheme and the purpose of reduction of
securities premium account was fair, just and proper and within the framework of the law.61
[s 66.21] Confirmation of Reduction in Share Capital
Section 101(2) of the 1956 Act which deals with special procedure for confirmation of reduction in
share capital of companies contemplates three eventualities : (i) diminution of liability in respect of
unpaid share capital, (ii) payment to a shareholder of any paid-up capital, (iii) any other case. The
first two categories are specific in nature and if reduction of share capital has either of these two
effects, the provisions of section 101(2) are totally mandatory. Section 101(3) of the 1956 Act
provides for dispensing with the requirements in cases falling under the first two categories only in
special circumstances and the court [the tribunal (NCLT)] can exercise such power under section
101(3) only after recording special reasons for exercising such power. The third category of “any
other case” where the court could direct the procedure of section 101(2) to be complied with, even
where the reduction of capital does not involve diminution of liability in respect of unpaid share capital
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or payment to a shareholder of any paid-up capital, has to be considered keeping in mind the
purpose and intention of the legislature in enacting the provisions of section 101(2) which is to protect
the interests of creditors. The rule of ejusdem generis is applicable when any particular words
pertaining to a class category or genus are followed by general words. Then, the general words are
so construed as limited to things of the same kind as are specified in the preceding part of the
section. Applying the principles of ejusdem generis, the words “in any other case” which are general
in nature must take their colour from the earlier part of section 101(2) which, inter alia, provides for
protecting all creditors either in the case of diminution of liability or payment to any shareholder of
paid-up share capital. They must be taken to cover all such categories where the interest of the
creditor is vitally affected by the process of reduction of share capital, and only in that event would
the court be empowered to direct the company to follow the procedure provided in section 101(2).
Where the reduction of capital is by way of set off of accumulated losses against the capital
redemption reserve account and the share premium account [now securities premium account], there
is no diminution of liability or payment to any shareholder of any paid-up capital, the interest of the
creditors is not likely to be affected, and therefore, it is not necessary for the company to comply with
the procedure prescribed under section 101(2) of the 1956 Act.62
[s 66.22] Share Capital—Reduction of Securities Premium Account—Restructuring
majority shareholders. The resolution and proposed reduction were approved and confirmed by the
court. There was no cash outflow to the shareholders. Restructuring did not affect the creditors.
Therefore, the words “and reduced” were not to be added to the name of the company and were
dispensed with. The company passed a special resolution which showed that restructuring would not
be prejudicial to the interests of the creditors as the reduction would not involve either the diminution
of any liability in respect of unpaid capital or the payment to any shareholder of any paid-up capital.
There was no reduction in the amount payable to any creditor. All the creditors consented to the
restructuring. It was a business decision on commercial principles and there would be no cash
outflow. Resolution was passed unanimously by more than the required majority. The court
dispensed with the drawing-up of list of creditors as all the secured creditors signified their consent to
the proposed reduction. The words “and reduced” need not be added to the name of the company as
there was no cash flow from the company to shareholders and secured creditors consented to the
proposal. The ordinary operations of the company in ordinary course of business need not be
affected. The special resolution passed by company was approved and the reduction to the security
premium account was confirmed.63
passed by the requisite majority of its shareholders. In a petition filed under the Companies Act,
seeking the confirmation of the restructuring package pertaining to the shareholders of the petitioner
by cancellation of part of equity share capital and issuing in its place cumulative redeemable
preference shares, the Gujarat Industrial Investment Corporation (GIIC), a shareholder objected on
the ground that it would suffer heavy loss and variation of rights. It was held the special resolution
was passed by the requisite majority of the shareholders at the annual general meeting. Scheme
specifically dealt with shareholders, and it was stated that for every 10 equity shares of Rs 10 each
held by the equity shareholders the petitioner would cancel four equity shares and in lieu of such
cancellation create, issue and allot four non-cumulative redeemable preference shares of Rs 10 each
with a coupon of 0.01% redeemable in four equal yearly instalments starting from October 2017 and
the existing equity shareholders would continue to hold the remaining six equity shares held by them
as equity shares of Rs 10 each fully paid, without any alterations to the rights attached thereto.
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Therefore it was not correct to state that by virtue of such reduction of equity share capital the equity
shareholders including the objector would suffer very heavy loss. The court had no jurisdiction to sit
in appeal over the commercial wisdom of the majority of the class of persons who with their eyes
open had given their approval to the scheme. The bona fides of the majority acting as a group have
to be examined, vis-à-vis the scheme in question and not the bona fides from the interests of the
voters as a class. The bona fides of a person can only be relevant if it can be established with
reasonable certainty that he represents the majority or is the controller of the majority. The objections
raised were not sustainable as the objector was not present at the meeting nor did it represent the
majority of the equity shareholders. Further, the variation referred to in section 106 of the 1956 Act
was variation to the prejudice of any class of shareholders and not any variation adding to or
would be subject to write down by 40%. The equity share capital existing or proposed to be converted
by the promoters would be written down by 40% by allotment of 0.01 % cumulative redeemable
preference shares. Likewise the company was under an obligation to allot equity shares at par to
financial institutions or banks by way of conversion of a part of assistance to the extent of Rs 175
crores. Thus, the simultaneous exercise of increasing the equity share capital as a result of the
[s 66.24] Banking Company—Reduction of Securities Premium Account
Under the 1956 Act (1 of 1956), a company cannot set off its loss or cumulative loss as against the
share or securities premium account, because the share premium account or security premium
account, though treated as paid-up capital of the company for a limited purpose, i.e., getting approval
of the company court, cannot be treated as a reserve fund, nor is there a concept like share premium
account in future. Section 17(1) of the Banking Regulation Act, 1949 (10 of 1949), requires a banking
company incorporated to create a reserve fund and to transfer 20% of balance of profit each year as
disclosed in the profit and loss account to such reserve fund. Section 17 does not authorise a
banking company to transfer its share premium account to the reserve fund. The reserve fund
created under section 17(1) of the Banking Regulation Act, 1949, and the share or securities
premium account created under section 78(1) of the 1956 Act are different. Though section 78
introduces a legal fiction and hypothetically deems the share premium as paid-up share capital of the
company, the legal fiction created by statute must not be enlarged so as to enable the banking
company to transfer its share premium account to the reserve fund as required under section 17(1) of
the Banking Regulation Act. If a banking company writes off its losses and or bad debts as against a
statutory reserve, that would result in losing capital and only in such an event can there be reduction
of capital. Where a banking company sought confirmation of the court of its resolution for utilisation of
its share premium account for making provision for bad and doubtful debts and for writing off
irrecoverable debts: Dismissing the petition, it was held that a company is a juristic person with
perpetual succession and it should also mould and take its decisions keeping in view the future of its
shareholders. If a company is allowed to eat into its share premium account, which is deemed to be
paid-up share capital for a limited purpose, it would weaken the fundamentals of the company and
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would be unfair to persons who deal with the company either as customers or depositors or creditors.
All the affairs of such company have public character, and any action of the banking company which
is derogatory to public interest gives rise to a situation of distrust by the public. The company court
cannot mechanically approve the minutes of the banking company to adjust its cumulative loss from
the share premium account, especially when such company had already appropriated all the
reserves for writing off its losses and bad debts. If such course was permitted by the company court
[the tribunal (NCLT)], it might, in a given situation, result in manipulation of accounts of the company
and artificially bolstering the book value or market value of the stock of the company. Articles of
association of the company did not authorise or permit the petitioner company, a banking company,
to write off its losses or bad debts against share premium account. The rules under the companies
Act, 1956, do not permit a banking company to do so. Section 209 read with Schedule VI to the 1956
Act which deals with books of account to be kept with the company does not permit the company to
treat the share premium account as reserve fund.65
[s 66.25] Payment to the Preference Shareholders
A company proposed to reduce its share capital by paying off its preference shares and cancelling
them under the powers in its articles but it did not obtain the consent of the concerned preference
shareholders. This was a case of variation of class rights of the shareholders for which the consent of
the preference shareholders was necessary. As the provisions of the articles were not duly complied
with, the court did not sanction the proposed reduction.66
[s 66.26] Class Meeting
The tribunal may however confirm a reduction if it would be fair to the preference shareholders
without requiring a class meeting of preference shareholders.67
See also notes under section 47 of the 2013 Act.
[s 66.27] Scheme of Arrangement—Reduction of Capital by Special Resolution
That the members of the company in a general meeting could approve reduction of the share capital
by a special resolution if it was passed by a statutory majority and while approving the scheme, the
members simultaneously approve reduction of the share capital by a special resolution. The
procedure prescribed in sections 100 and 101 of the 1956 Act had been carried out by the company
and section 102 would not be attracted.68
See detailed notes under sections 52 and 230 to 238 of the 2013 Act.
[s 66.28] Scheme of Amalgamation, Compromise or Arrangement
Special Resolution is not required in scheme of amalgamation simpliciter where entire assets and
liabilities of the transferor company are transferred to and vested in the transferee company. It is not
a case of release of assets or arrangement involving reduction of capital. Sections 100–102 of the
1956 Act stand attracted only to cases of compromise or arrangement involving reduction of capital.69
See detailed notes under sections 230–232 of the 2013 Act.
[s 66.29] Scheme and Reduction of Capital
Where the procedure prescribed under sections 78 and 100 of the 1956 Act read with rules 47 and
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85 of the Companies (Court) Rules, 1959, was complied with by the company. The provisions of
section 391 were also complied with. The scheme was approved by the shareholders and creditors of
the company by requisite statutory majority. The scheme and reduction of capital were approved
simultaneously.70
See detailed notes under sections 52 and 230 to 238 of the 2013 Act.
[s 66.30] Cancellation of Paid-up Share Capital
Where the transferee company proposed to cancel its paid-up share capital which was lost or was
unrepresented by available assets. A notice giving details of the scheme sent to the shareholders
was treated as explanatory statement. The scheme was read over and restructuring was explained at
the meeting. The scheme was unanimously approved. There was substantial compliance with the
procedure. The scheme and reduction was approved simultaneously. No special reason was shown
by the Central Government to exist which might call for a direction by the tribunal to the company to
add the words “and reduced” to its name.71 It is relevant to note that this requirement is no longer
present in section 66 of the 2013 Act.
[s 66.31] Modification of Scheme Involving Reduction
Where the companies sought to modify the scheme of amalgamation in view of time lag between the
effective date and grant of sanction. The modification involved reduction of capital. The scheme was
approved by shareholders and creditors. Reduction of capital was allowed.72
[s 66.32] Demerger with Reduction of Capital
Scheme of arrangement or compromise includes demerger with reduction of capital of the transferor
company.73
See also notes under sections 230 to 238 of the 2013 Act.
[s 66.33] Buy-back of Shares
A company can buy-back its own shares under section 77 of the 1956 Act if the reduction of share
capital is sanctioned by the court [now tribunal (NCLT)] under sections 100 to 104 or section 402 of
the 1956 Act. However, where the extinguishment of the shares does not necessarily result in
reduction of share capital, e.g., where entire assets and liabilities of the transferor company in
amalgamation simpliciter are transferred to and vested in the transferee company and there is no
release of assets, section 100 of the 1956 Act will not be applicable.74
The conditions provided in section 77A of the 1956 Act (now section 68 of the 2013 Act) are
applicable only to buy-back of shares effected under section 77A. The conditions applicable to
sections 100 to 104 of the 1956 Act (now Section 66 of the 2013 Act) and section 391 (now section
230 of the 2013 Act) cannot be imported into or made applicable to a buy-back under section 77A.
Similarly, the conditions for a buy-back under section 77A of the 1956 Act cannot be applied to a
scheme under sections 100 to 104 and section 391. The two operate in independent fields.
Provisions for buy-back of shares under section 77A of the 1956 Act are merely enabling provisions
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and powers or jurisdiction of the court [now the tribunal] under sections 100 to 104 and section 391 of
the 1956 Act to sanction scheme of arrangement involving buy-back of shares are not in any way
affected.75
[s 66.34] Scheme of Arrangement Involving Buy-back
Application was made for sanction of scheme for buy-back of shares held in physical form in small
lots. The shareholders approved the scheme as fair and reasonable and that the scheme
safeguarded their interests. In the facts of the case, the court had to sanction the scheme.76
[s 66.35] Share Capital—Reduction—Buy-back of Shares
Amongst the paid-up equity shareholders there were distinct groups, one formed by promoters and
the other by non-promoters. In such a case two meetings were to be held, one for the promoter group
and the other non-promoter group. These meetings were to be held separately. If the minority
shareholders were not given any option under the proposal within a particular period, then they would
have to leave the company accepting the proposed value per share. In such cases of reduction of
share capital by buying back shares even a single minority shareholder was entitled to oppose. The
promoters group would virtually “bulldoze” the minority shareholders and attempt to purchase their
shares at a price dictated by them which would be unfair and unjust. In view of this unjust attitude of
the petitioners the scheme was rejected.77
See detailed notes under sections 68 and 230 of the 2013 Act.
[s 66.36] Meetings of Dissentient Shareholders
Where proposal to buy-back shares of non-promoter shareholders was approved by the promoter
shareholders forming majority. No option was given to the dissentient shareholders. It was held to be
unfair as separate meetings of dissentient shareholders should have been convened. Sanction and
confirmation was refused.78
[s 66.37] Oppression or Mismanagement
Where, while disposing of a petition for relief against oppression or mismanagement under sections
397 and 398 of the 1956 Act (now sections 241 and 242 of the 2013 Act), the tribunal gives a
direction under section 402 of the 1956 Act (now sections 241 and 242 of the 2013 Act) to the
company to purchase the shares of some of its own members, a consequent reduction of the share
capital is bound to ensue, but, before granting such a direction, it is not necessary to give notice of
the consequent reduction of the share capital to the creditors of the company. Even when the tribunal
is moved to confirm a resolution for reduction of share capital under sections 100 to 104 of the 1956
Act (section 66 of the 2013 Act), the Tribunal may, in its discretion, dispense with the procedure
prescribed in those sections, in view of section 101(3) of the 1956 Act. But, before disposing of an
application on compromise by the parties the court should satisfy itself that such order will not
adversely affect or jeopardise the interests of the creditors.79
[s 66.38] Liquidation—Scheme of Revival
Where a company was acquired by the state and compensation was paid. In voluntary liquidation of
the company preference and ordinary shareholders were paid in full out of the compensation. In an
application for sanction of the scheme by the ordinary shareholders to revive the company with the
surplus of the compensation amount, the court [now the tribunal] held that it was not a case of
reduction of share capital as contemplated by sections 100–102 of the 1956 Act. It was a scheme
between the company and ordinary shareholders for surplus in the hands of the liquidator after
repayment of the share capital of the company and it was not necessary to consult the preference
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shareholders. But there should be appropriate alteration of the memorandum and articles of
association of the company and interests of the Central Government should be secured.80
[s 66.39] Diminution of Capital not Amounting to Reduction
The redemption of preference shares [section 55 of the 2013 Act], forfeiture of shares [sections 28 to
34 of the 2013 Act], acceptance of surrender of shares and acceptance of a gift of shares by the
company will not amount to reduction of capital.
[s 66.40] Redemption of Preference Shares
The redemption of preference shares by the company under section 80 of the 1956 Act (now section
55 of the 2013 Act) shall not be taken as reducing its authorised share capital. A company limited by
shares cannot issue irredeemable preference shares or preference shares redeemable after the
expiry of a period of 20 years from the date of issue.
[s 66.41] Redemption of Preference Shares or Reduction of Share Capital
Section 80 of the 1956 Act (now section 55 of the 2013 Act) offers special provisions for redemption
of preference share capital. Two independent procedures are available to a company for redemption
of preference shares. It may redeem the shares by following the procedure laid down under section
80 which is a special provision meant for redemption of preference shares or it may have recourse to
the general provision under section 100 of the 1956 Act which is applicable for reduction of any
capital including preference capital in any manner. Section 80 operates in a limited field. It covers
only the case of reduction of share capital arising out of redemption of preference shares. Preference
shares can be redeemed either out of the proceeds of a fresh issue of capital or out of the profits of a
company which would otherwise be available for payment of dividend. Section 100 may be invoked
for reduction of any capital including the preference shares, subject to approval of the court with the
object that the company may pay back to the shareholders any paid-up share capital which is in
excess of the its wants. The redemption of preference shares is nothing but repayment of the
preference capital and amounts to reduction of share capital. The three methods mentioned in
clauses (a), (b) and (c) of sub-section (1) of section 100 of the 1956 Act, are only illustrative and are
not exhaustive. A company may seek to redeem the share capital in any way and even in a manner
not covered by clauses (a), (b) and (c) of sub-section (1) of section 100. The words “pay off any paid
up capital” appearing in clause (c) indicate that even the preference share capital can be paid off
subject to the conditions laid down in section 100 of the Act. Section 100 makes no distinction
between preference share capital and equity share capital. Thus, the equity share capital as well as
the preference share capital of a company can be reduced in any way, if authorised by the articles,
by a special resolution of the company subject to sanction of the court. The preference shares could
be redeemed by the directors or the shareholders. The company passed special resolution for
reduction of share capital by refunding to the shareholders. The shareholders gave their consent for
redemption of preference shares. The court granted the sanction for redemption of preference
shares. Further for payment to the preference shareholders permission of the court will be necessary
if the repayment is not out of profit or issue of fresh shares. The sanction of the court will also be
necessary if the redemption is to be of preference shares out of the capital redemption reserve
account created out of profits of the company.81
[s 66.42] Forfeiture of Shares is not Reduction of Capital
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The term “forfeit” means actually taking away of property on breach of a condition or the doing or
suffering a thing which creates a liability to such a deprival. A forfeiture of shares may extinguish the
rights of the member and discharge his debt. In such a case the share ceases to exist. This amounts
to a reduction of capital. A forfeiture may extinguish the shares and the rights of a member but
keeping alive his liability. This also involves reduction of capital. A share may be forfeited whereby
the rights of the member are extinguished but the shares remain alive for the purposes of resale.
Such sale proceeds may be applied in liquidation of the member’s liability on the shares and if any
balance is left that is refunded to him. Subject to this the debt of the member is kept alive. This
process does not amount to reduction of capital. A share may be forfeited extinguishing the rights of
a member but keeping alive the liability. The shares may be resold but sale proceeds will not be
applied in liquidating the liability of the member. This process also does not involve reduction of share
capital. When shares are forfeited and reissued, there is no reduction of capital, no allotment of
shares and no return is required to be filed with the registrar of companies.82
[s 66.43] Power of Forfeiture in Articles
To forfeit shares the company must have power in its articles of association. Regulations 29 to 35 of
Table A of Schedule I to the Act (now regulations 28 to 34 of Table F of Schedule I of the 2013 Act)
provide for forfeiture of shares for failure to pay any call or instalment of a call. Regulation 35
provides that a share may be forfeited for failure to pay any sum which by the terms of issue
becomes payable at a fixed time whether on account of the nominal value of share or by way of
premium. These regulations provide the procedure for such forfeiture. If the articles so provide a
share may be forfeited for other reasons or for non-payment of other liabilities.83
Procedure laid down in the articles must be strictly followed by the board of directors in forfeiting a
share. Failure to comply with the requirements of the articles will render the forfeiture invalid. Where
notice of forfeiture did not specify precise amount of expenses to be paid the forfeiture was held to be
invalid.84
[s 66.44] Notice of Forfeiture
For forfeiture under regulation 29 of Table A of Schedule I to the 1956 Act (now regulation 28 of
Table F of Schedule I of the 2013 Act) the service of notice is a condition precedent to be fulfilled by
the company and any irregularity in the service of such notice is fatal to the validity of the forfeiture.
Where the forfeiture is invalid, no cause of action can arise when the forfeiture was effected and
hence the limitation is 3 years from the date when the claim arose and not from the date of
forfeiture.85 Where notice proposing forfeiture was returned unserved. The service was not deemed to
be sufficient. The forfeiture of shares was invalid. The petitioner was entitled to be continued on the
register of member in spite of sale of shares. The burden was on the company to prove that the
procedure for forfeiture was properly observed.86
The procedure prescribed for forfeiture of shares in the articles is to be strictly complied with
inasmuch as not only the shareholder is deprived of his right in the participation of the capital but also
the interests of the creditors are affected, in that there will be reduction of capital. But, even so,
matters relating to service of notice, fixing of time and place of payment of arrears are only directory
while the requirements relating to intimation of arrears of call money, interest and expenses, etc., are
mandatory, which, however, can be waived. Where the appellants were informed of arrears due in
respect of
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shares as also the interest outstanding and procedure prescribed in the articles was complied with,
even if there was any defect, the petitioners, who, as directors of the company, took part in every
resolution of the board, dealing with forfeiture of shares, should be deemed to have waived them.1
After the shares are forfeited, a further notice is not necessary to complete the forfeiture. A person
whose shares have been forfeited may maintain a challenge against the forfeiture of shares provided
(1) he has not abandoned his right to challenge the forfeiture and (2) the plea for rectification of the
register of members is made within the period of limitation. Limitation for filing a suit for rectification of
register of members is 3 years under residuary Article 120 of the Limitation Act, 1908 (9 of 1908),
[now Article 113 of the Limitation Act, 1963 (36 of 1963).2
[s 66.46] Forfeiture must be Bona Fide
The directors exercising the power under articles to forfeit shares are required to act bona fide and in
the interest of the company.3 If the directors think that it would not be in the interest of the company
they must not forfeit shares in a particular case.4
For wrongful exercise of power of forfeiture an action would lie for setting aside, and for damages if
the same is illegal or mala fide5 and for injunction.6
[s 66.47] Suit
The power of forfeiture cannot be used as a device to deprive the shareholder of his shares on the
failure to pay the consideration money. In such a case the remedy of the company is a suit.7
[s 66.48] Illegal Forfeiture
An illegal forfeiture cannot be validated by lapse of time or acquiescence as such forfeiture is no

forfeiture in law.8
The forfeiture must be according to the procedure laid down in the articles. If one of the stages is not
gone through, it is not a forfeiture.9
But once the forfeiture is validly done, the shareholders or a general meeting have no power to
cancel such forfeiture without amending the articles.10
The board of directors can forfeit a share even though the uncalled capital stands mortgaged11 and
where the board of directors have followed the regulations in the articles the defaulting shareholder is
not entitled to any relief from the court.12
[s 66.49] Title of Transferee of Forfeited Share
The articles of the company may provide that irregularity on the part of the company in following the
procedure for forfeiture of shares would not affect the title of the purchaser. Regulation 34(4) (now
regulation 33(iv)) provides that the transferee of a forfeited share shall not be bound to see to the
application of purchase money nor shall his title to the share be affected by any irregularity or
invalidity in the proceeding in reference to the forfeiture, sale or disposal of the share. In such a case,
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the remedy of an aggrieved shareholder would be to sue the company for damages and not for the
recovery of the shares.13
[s 66.50] Liability on Forfeited Shares
Regulation 33 of Table A of Schedule I to the 1956 Act (now Regulation 32 of Table F of Schedule I
to the 2013 Act) provides that a person, whose shares have been forfeited, shall cease to be a
member in respect of forfeited shares but shall remain liable to pay to the company all moneys which
at the date of forfeiture were presently payable by him in respect of the shares. The liability of such a
person shall cease if and when the company receives payment in full in respect of the shares. This
liability after forfeiture is a new liability and limitation for recovery of the amount due is 3 years from
the date of forfeiture and Article 113 of the Limitation Act, 1963, is applicable.14
[s 66.51] Winding Up—“B” List of Contributories
A member whose shares have been forfeited within a year before the commencement of the winding
up of a company is liable to be put on the “B” List of contributories.15
[s 66.52] Forfeiture of Fully-Paid Shares
Fully paid-up shares may be forfeited as shares can be forfeited for realisation of debts of the
shareholder. Forfeiture for non-payment of calls or the unpaid portion of the face value of the shares
is one of the many causes for which a share may be forfeited.16
[s 66.53] Petition Seeking Forfeiture Void
Jurisdiction of the tribunal is restricted to the matters specifically mentioned in the companies Act.
Where specific provision is not made in relevant sections the remedy lies in the civil court. A petition
seeking a declaration that a forfeiture of shares is void is not amenable to the jurisdiction of either the
company court or the CLB [now the tribunal (NCLT)] under section 111 or 111A of the 1956 Act, (now
section 58 of the 2013 Act) therefore, remedy lies in the civil court.17
After shares have been forfeited for failure to pay call moneys and the name of member has already
been deleted, an application for rectification of register of members under was not allowed on the
ground that the allotment of shares was void ab initio as being not in conformity with section 73 (now
section 40 of the 2013 Act).18
See detailed notes on rectification of register in case of private companies under sections 58 and 59.
[s 66.54] Stock Exchange Listing Agreement
But stock exchange listing agreement may provide that fully paid-up shares cannot be forfeited.
See detailed notes under sections 2(73), 24 and 40 of the 2013 Act.
[s 66.55] Re-issue of Forfeited Shares
A forfeited share becomes the property of the company and the board of directors may sell, dispose
of or deal with the forfeited shares on such terms and in such manner as they think fit. Where the
forfeited shares were re-issued without stipulation as to outstanding calls, the purchaser was not
liable for previous calls or interest thereon. A forfeited share may be re-issued in consideration of a
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less sum than the sum credited as paid on it.19
[s 66.56] Re-allotment at Discount
But a share forfeited for non-payment does not authorise the directors to re-allot the forfeited shares
as fully paid or at a discount without following the provisions of section 79 of the 1956 Act (now
section 53 of the 2013 Act).20
[s 66.57] No Return on Re-issue of Forfeited Shares
Re-issue of forfeited shares is not allotment within the meaning of section 75(1) of 1956 Act (now
section 39 and a company need not file any return of allotment in respect of the reissue of forfeited
shares.21
See regulations 29 to 35 of Table “F” of Schedule I to the 2013 Act for forfeiture of shares.
[s 66.59] Contents of Minute
The minute must contain the particulars mentioned and the denoting numbers of the shares. The
form of minute to be registered should contain a statement of sub-division of the share capital but
need not contain the original number of the shares.22
[s 66.60] Amalgamation of Group Companies—SEBI Enquiry
An application was made for approval of amalgamation, compromise and arrangement scheme. The
SEBI (SEBI) intervened objecting to making any order. The purpose of the SEBI was to protect the
interests of the small investors. The SEBI could not establish that its intervention was necessary for
the limited purpose. No ground was made out for postponement of the amalgamation proceedings.
This transaction was not prima facie sufficient for enquiry to be made by the SEBI. The scheme was
in the interests of the investors. Enquiry by SEBI is not a ground to withhold sanction of the scheme
of amalgamation under the 1956 Act. The court [the tribunal (NCLT)] will not sit in judgement over the
decision of the requisite majority of shareholders and creditors. Further, the objection of the Central
Government was that procedure for change of name of the amalgamated company was not followed.
In case of increased authorised capital by merger of authorised capital of two companies the court
[the tribunal (NCLT)] has the power to pass suitable orders. There was no drastic change in the
financial position of either of the two companies which could be the ground for rejecting the scheme
as undesirable. The decision on merger was found to be commercially sound decision and the
amalgamation would be in the interests of shareholders of the transferor holding company and the
transferee subsidiary company. As a result of the amalgamation, there was reduction of paid-up
share capital but there was no outgo of funds, nor change of assets and no adverse effect on
creditors. The special resolution was passed and there was no objection despite notice of meeting
being published in newspapers. The scheme of amalgamation of group companies was sanctioned.
The reduction of paid-up share capital was confirmed.23
[s 66.61] Amalgamation—Modification—Reduction of Capital in Time Lag
After amalgamation the company made an application for modification of the provisions of the
scheme of amalgamation in view of the time lag existing between the effective date and the granting
of sanction by court [tribunal] for such amalgamation. The applicant prayed for modification involving
the reduction of capital. The amalgamation scheme was approved by the company’s shareholders as
well as the creditors. In the facts of the case the appeal court held that the reduction of capital should
be allowed.24
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[s 66.62] Sick Company—Exemption from Sections 81(1), 100 to 103 of the 1956 Act (Now
Sections 62 and 66 of the 2013 Act)
Where in case of a sick industrial company, the BIFR passed a rehabilitation scheme and ordered for
allotment of shares to bank and buy-back of shares by the promoters. In case of dispute arising in the
matter, BIFR only would have the jurisdiction. The company law board on applications made by the
company as well as by the Bank passed an order exempting the company from the applicability of the
provisions of sections 81(1), 100 to 103 (now sections 62 and 66 of the 2013 Act) and other
provisions of the Act and the SEBI guidelines. The effect of exemption of these provisions would be
that no such procedure was to be followed. The conclusion of the company law board that the
allotment of shares to the bank was ultra vires the memorandum and articles of association was
unsustainable in face of the exemption. Such an exemption if at all could be granted by the High
Court under the provisions of the 1956 Act.25
[s 66.63] Share Certificate— Estoppel as to Payment
Under section 84 of the 1956 Act, a share certificate under the common seal of the company
specifying shares held by a member is prima facie evidence of the title of the members to such
shares. Where shares certificates indicated that the shares were fully paid. The member availed loan
facilities from financial institutions on the strength of the same. There was no fraud on the part the
holders. It was held that the company cannot, after a gap of a long period of time, dispute the amount
paid on the shares and forfeit the same. The company was estopped from disputing the amount
indicated in the share certificates as fully paid. Even when the calls were not paid, the forfeiture must
be within the period of limitation of three years from date of allotment. The company can sue for the
sums due and would not be entitled to treat shares as not fully paid.26
[s 66.64] Surrender of Shares
A company cannot accept surrender of its own shares unless articles of the company provide for this.
Acceptance of surrender will involve a reduction of capital. In such a case the procedure for reduction
of capital as provided in section 100 of the 1956 Act should be followed. Forfeiture is apparently a
reduction of share capital, but this is a reduction which is permitted by the Act without following the
provisions of section 100 of the 1956 Act. The company may, however, accept surrender of a share
in a roundabout way. Mere handing over of share certificate or surrender of shares with no proper
authority of directors to accept the same does not constitute cessation of membership.27A displaced
person and shareholder was given an option to surrender shares on the setting up of dominions of
India and Pakistan.28
[s 66.65] Gift of its Own Shares
A company can accept a gift of its own shares which would be held by a nominee of the company for
the benefit of the company.
[s 66.66] Extinguishment of Class of Shares
Reduction of share capital by extinguishing a class of shares has been held to be permissible.29
[s 66.67] Notice to be given by the Tribunal [Section 66(2)]
Notice of every application shall be given by the tribunal to the Central Government, registrar and to
the SEBI (in case of a listed company)and the creditors of the company. The tribunal shall take into
consideration, the representations made by any of the above and the creditors within a period of
three months from the date of receipt of notice. If no representations are received within three months
of the notice, it shall be presumed that they have no objections to the reduction. While this
corresponds to section 101 of the 1956 Act, the provision granting the court discretion to dispense
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with the procedure under the sections for the reduction of share capital under special circumstances
has not been carried forward into the 2013 Act. However, this may be subject to the NCLT Rules as
and when notified.
[s 66.68] Approval of the Reduction by the Tribunal [Section 66(3)]
If the Tribunal is satisfied that the debt or claim of every creditor of the company has been discharged
or determined or has been secured or his consent has been obtained, then the tribunal may make an
order confirming the reduction of the share capital.
[s 66.69] Extent of Reduction Domestic Matters
The extent and amount of reduction are domestic matters and so long as there is no injustice to the
creditors or shareholders. The court [now the tribunal] is not concerned with the exact amount of
reduction.30
[s 66.70] Powers of the Court [Now the Tribunal (NCLT)]
For reduction of share capital, the approval of the court [now the tribunal (NCLT)] is necessary. Such
reduction should be with the consent of the creditors and after discharge of the debts of the objecting
creditors. In exercising its powers the court [now the tribunal (NCLT)] will have due regard to the
interests of creditors who may consent or object to the reduction. The court [now the tribunal (NCLT)]
has first to satisfy that either the consent of the creditors who had objected to the reduction has been
obtained or their debts or claims have been discharged or settled or secured. The court [now the
tribunal (NCLT)] should ensure that the concerned creditors will not be adversely affected before
dispensing with their objections.31
The court [now the tribunal (NCLT)] may confirm the reduction of capital notwithstanding that thereby
the voting powers would be affected.32
The court [now the tribunal (NCLT)] may sanction reduction in respect of some of the shares only.33
Where the proposed reduction operated unfairly to the preference stock holder, the court in its
discretion refused to confirm the reduction.34
A scheme of reduction of capital is not necessarily unfair or inequitable because it involves an

alteration of voting rights and priority as between the different classes of stock-holders.35 In
sanctioning a compromise scheme between the company and its ordinary shareholders to revive the
company with the surplus of compensation amount received from the state on acquisition of the
company in the hands of the liquidator after repayment of the ordinary and preference share capital
of the company it was not necessary to consult the preference shareholders.36
[s 66.71] Certificate from the Auditor [Proviso to section 66(3)]
No application for reduction of share capital shall be sanctioned by the tribunal unless the accounting
treatment, proposed by the company in conformity with the accounting standards specified in section
133 of the 2013 Act or any other provision of this Act and a certificate to that effect by the company’s
auditor has been filed with the tribunal. There was no such requirement under the 1956 Act.
[s 66.72] Publication of the Order of Confirmation of Reduction [Section 66(4)]
The order of confirmation of the reduction of the share capital by the tribunal shall be published by
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the company in such manner as the tribunal may direct.
Contravention or failure to comply with this section shall be punishable with a fine which shall not be
less than Rs 5 lakh but which may extend to Rs 25 lakh.
[s 66.73] Certified Copy to Be Delivered to the Registrar [Section 66(5)]
The company shall deliver a certified copy of the order to the registrar within 30 days of the receipt of
the order and of a minute approved by the tribunal showing the following:
(a) The amount of share capital
(b) The number of shares into which it is to be divided
(c) The amount of each share
(d) The amount, if any, at the date of the registration deemed to be paid up on each share.
The registrar will register the order and issue a certificate to that effect.
[s 66.74] Registrar’s Certificate for Reduction Conclusive
The registrar’s certificate is conclusive evidence that the requirements of the Act have been complied
with though it appears afterwards that the company has no power under its articles to reduce its
capital or that the special resolution for reduction was invalid.37
[s 66.75] Section to not Apply to Buy-Back [Section 66(6)]
The provisions of section 66 do not apply to a buy-back of securities under section 68 of the 2013
Act.
[s 66.76] Member’s Liability to Pay the Difference [Section 66(7)]
No member, past or present, shall be liable for any call or contribution in respect of the shares held
by him exceeding the amount of difference, if any, between the amount paid on the share, or reduced
amount, which is to be deemed to have been paid thereon and the amount of the share as fixed by
the order of reduction.
[s 66.77] Creditor Omitted [Section 66(8)]
Where any creditor who is entitled to object to the reduction is not included on the list of creditors (by
reason of his ignorance of the proceedings) and after such reduction, the company is unable to pay
his debt or claim (now, under the Insolvency and Bankruptcy Code, 2016, has committed a default
under that code), every person who was the member of the company on the date of the registration
of the order of reduction, shall be liable to contribute to the payment of that debt or claim, not
exceeding the amount which he would have been liable to contribute if the company had commenced
winding up on the date immediately before the said date. Further if the company is wound up, the
tribunal may on the application of such a creditor and his proof of ignorance, settle a list of persons
liable to contribute and make and enforce calls and orders on the contributories settled on the list, as
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if they were ordinary contributories in the winding up. However, this will not affect the rights of the
contributories among themselves.38
If any officer of the company knowingly conceals the name of any creditor entitled to object or
misrepresents the nature or amount of the debt or claim or abets or is privy to such concealment and
misrepresentation shall be liable to be punished in accordance with section 447 of the 2013 Act,
which deals with fraud. Section 447 prescribes imprisonment of not less than six months and which
may extend to 10 years and also fine which shall not be less than the amount involved in the fraud
but could extend to three times. Any company that fails to comply with the provisions of section 66(4)
shall be punished with a fine ranging from Rs 5 lakh to Rs 25 lakh.
Where managing directors being three brothers entered into a family arrangement and for their
private purpose which was not a corporate purpose prepared a scheme of reduction of capital and
made an application to the court and objectors made specific allegations against the managing
directors which were not controverted by filing affidavits, the rejection by court of the application
made under section 101 of the 1956 Act (now section 66 of the 2013 Act) and adverse remarks
against the managing directors were justified. The managing directors were in full knowledge of the
charge levelled against them by the objectors, but they intentionally kept a safe distance from the
proceedings and did not think it proper to file affidavits. Having deliberately taken that course, they
could not make a grievance about violation of the principles of natural justice.39
As the consequences for contravention of section 66 of the 1956 Act include imprisonment, an
offence under this section cannot be compounded under section 441 of the 2013 Act.
[s 66.81] Voting Rights for Holders of Preference Shares [Section 47(2)]
This section states that a preference shareholders shall have the right to vote on any resolutions
placed before the company that directly affect his rights. Since reduction has an effect on the rights of
a preference shareholder, they shall be given a vote.
See detailed notes on audit and auditors under Chapter X, and the auditing, review and other
standards under section 143 (10) of the 2013 Act issued by the Institute of Chartered Accountants of
India (ICAI).
[s 66.84] Secretarial Compliance
The process is listed briefly below:
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• Convene a board meeting in order to approve the scheme of reduction and fix the date, time
and agenda for a general meeting.
• Issue notices to the members of the company for the general meeting giving not less than 21
clear days’ notice.40 The resolution must be passed by a three-fourths majority.41
• The special resolution to be filed with the explanatory statement with the ROC in Form MGT-
14 within 30 days along with the requisite fees.42
• Make an application to the tribunal for the confirmation of reduction.
• Once the tribunal is satisfied according to sections 66(2) and (3) of the 2013 Act, it may pass
an order approving the reduction.
• The certified copy of the order and the minutes approved by the tribunals as per section 66(5)
of the 2013 Act. Publish the order as directed by the Tribunal.
• Alter the memorandum and articles and any other documents accordingly.
Additionally in case of listed companies, the conditions in the listing agreement will have to be
followed.
[s 100] Special Resolution for Reduction of Share Capital.—(1) Subject to confirmation by the 43[Tribunal], a
company limited by shares or a company limited by guarantee and having a share capital, may, if so authorised by its
articles, by special resolution, reduce its share capital in any way; and in particular and without prejudice to the
generality of the foregoing power, may— The Companies Act, 1956 provision
(a) extinguish or reduce the liability on any of its shares in respect of share capital not paid up;
(b) either with or without extinguishing or reducing liability on any of its shares, cancel any paid-up share capital
which is lost, or is unrepresented by available assets; or
(c) either with or without extinguishing or reducing liability on any of its shares, pay off any paid-up share capital
which is in excess of the wants of the company;
and may, if and so far as is necessary, alter its memorandum by reducing the amount of its share capital and of its
shares accordingly.
(2) A special resolution under this section is in this Act referred to as “a resolution for reducing share capital.”
NOTES
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THE COMPANIES ACT, 1956 (1 OF 1956).—The Notes on Clauses explained the provisions of sections 100–104
as follows:
These are based on sections 55-66 of the Indian Act and sections 66–71 of the English Act. The sections have been
re-arranged on the lines of the English Act. [Clauses 93–97 of the Companies Bill, 1953 (46 of 1953)].
THE COMPANIES (SECOND AMENDMENT) ACT, 2002 (11OF 2003).—The powers of the court under sections 100 to
104 and 107 were conferred upon the tribunal by Act 11 of 2003. This amendment is of consequential
nature. In the original Bill, only powers under section 104 were proposed to be so conferred.
See Notes on Clauses under Legislative History in notes under section 104. See also Legislative
History in notes under section 10FB.
[s 66.86] Procedure for Reduction of Share Capital [Sub-section (1)]
This sub-section is covered under sub-section (1) of section 66 of the 2013 Act.
[s 66.87] Resolution for Reducing Share Capital
Special resolution passed under this section is referred to as “a resolution for reducing share capital”
[Sub-section (2)]. No corresponding provision exists under the section 66 of the 2013 Act.
[s 66.88] Form of Reduction
Sub-section (1)(a) to (c) is covered under sub-section (1) of section 66 of the 2013 Act.
[s 101] Application to 44[Tribunal] for confirming order, objections by creditors, and settlement of list of
objecting creditors.—(1) Where a company has passed a resolution for reducing share capital, it may apply, by
petition, to the 45[Tribunal] for an order confirming the reduction. The Companies Act, 1956 provision
(2) Where the proposed reduction of share capital involves either the diminution of liability in respect of unpaid share
capital or the payment to any shareholder of any paid-up share capital, and in any other case if the 45[Tribunal] so
directs, the following provisions shall have effect, subject to the provisions of sub-section (3):—
(a) every creditor of the company who at the date fixed by the 45[Tribunal] is entitled to any debt or claim which, if
that date were the commencement of the winding up of the company, would be admissible in proof against
the company, shall be entitled to object to the reduction;
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(b) the 45[Tribunal] shall settle a list of creditors so entitled to object, and for that purpose shall ascertain, as far as
possible without requiring an application from any creditor, the names of those creditors and the nature and
amount of their debts or claims, and may publish notices fixing a day or days within which creditors not
entered on the list are to claim to be so entered or are to be excluded from the right of objecting to the
reduction;
(c) where a creditor entered on the list whose debt or claim is not discharged or has not determined does not
consent to the reduction, the 45[Tribunal] may, if it thinks fit, dispense with the consent of that creditor, on the
company securing payment of his debt or claim by appropriating, as the 45[Tribunal] may direct, the following
amount:—
(i) if the company admits the full amount of the debt or claim, or, though not admitting it, is willing to provide
for it, then, the full amount of the debt or claim;
(ii) if the company does not admit and is not willing to provide for the full amount of the debt or claim, or if
the amount is contingent or not ascertained, then, an amount fixed by the 45[Tribunal] after the like
inquiry and adjudication as if the company were being wound up by the 45[Tribunal].
(3) Where a proposed reduction of share capital involves either the diminution of any liability in respect of unpaid share
capital or the payment to any shareholder of any paid-up share capital, the 45[Tribunal] may, if, having regard to any
special circumstances of the case, it thinks proper so to do, direct that the provisions of sub-section (2) shall not apply
as regards any class or any classes of creditors.
NOTES
Section 67(3) of the English Act has been embodied as sub-clause (3) of clause 94, as recommended by the Company
Law Committee. [Clause 94 of the Companies Bill, 1953 (46 of 1953)].
There is another matter relating to the reduction of the share capital of a company to which we would like to draw
attention. Sections 58 and 59 of the Indian Companies Act, 1913, require that where the proposed reduction of share
capital involves either diminution of liability in respect of unpaid share capital or the payment to any shareholder of any
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paid up share capital, the Court [now the Tribunal (NCLT)] shall settle the list of creditors entitled to object to the
reduction and adjudicate on their claims to object before it passes any order confirming the reduction. It is not open to
the Court [now the Tribunal (NCLT)] to dispense with this elaborate procedure, even if it is satisfied that no such
adjudication is necessary. We recommend that this apparent limitation on the power of the Court [now the Tribunal
(NCLT)] should be removed by the incorporation in section 59 of a sub-section similar to sub-section (3) of section 67
of the English Companies Act, 1948. This sub-section enables the Court [now the Tribunal (NCLT)] to dispense with
the formalities relating to the settlement of creditors’ objections, where it is satisfied that the scheme of reduction would
not jeopardise their interest. This would be particularly useful where life insurance offices desire to reduce their capital,
as, under the existing law, Courts have no power, even in fit cases, to dispense with notice to policy holders who are
considered to be creditors of such companies. [Report : para 51].
OF 2003).—The powers of the court under sections 100 to

104 and 107 were conferred upon the tribunal by Act 11 of 2003. This amendment is of consequential
nature. In the original Bill, only powers under section 104 were proposed to be so conferred. See
Notes on Clauses under Legislative History in notes under section 104.
[s 66.90] Petition to Court (Now Tribunal) [Section 101(1)]
Where a company has passed a resolution for reducing share capital under section 100 it shall apply
by petition to the court [now the tribunal] for an order confirming the reduction.
By the Companies (Second Amendment) Act, 2002, the powers and jurisdiction of the court under
section 101 of the 1956 Act have been transferred to and vested in NCLT (w.e.f. date to be notified)
under section 10FB.
[s 66.92] Petitions to Court [Till Constitution of Tribunal (NCLT)]
Till enforcement of the Companies (Second Amendment) Act, 2002 (11 of 2003), i.e., constitution of
the Tribunal (NCLT) under section 10FB of the 1956 Act (w.e.f. date to be notified) the petition under
section 101 for confirmation of the reduction of share capital shall be made to the court in Form No.
18 along with Form No. 19 of the Companies (Court) Rules, 1959, and the company shall comply
with rules 46 to 65 of the Companies (Court) Rules, 1959, which prescribe the detailed procedure for
reduction of share capital under sections 100 to 105.
See also comments, form and procedure under sections 101 to 105.
[s 66.93] Petitions to Tribunal [After Constitution of the Tribunal (NCLT)]
After the enforcement of the Companies (Second Amendment) Act, 2002, i.e., on the constitution of
the Tribunal (NCLT) under section 10FB. Petition under section 101 for confirmation of the reduction
of share capital shall be made to the tribunal (NCLT) in accordance with rules and regulations framed
under section 10FB.
[s 66.94] List of Creditors [Sub-section (2)]
Where such reduction involves diminution of liability in respect of unpaid share capital or payment of
paid-up share capital, every creditor shall be entitled to object to the reduction. The court [now the
tribunal] shall settle a list of creditors who may object to such reduction. A creditor need not make an
application. If any such creditor objects, the court [now the tribunal] may direct the company to secure
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Page 26 of 49
the amount of the debt. Creditors are permitted to object under sub-section (2) of section 66 of the
2013 Act.
[s 66.95] Reduction of Share Capital Domestic Affair of Company
The question of reduction of share capital is a domestic affair to be decided by the majority
shareholders. The company has the right to determine the extent, the mode and incidence of the
reduction of its share capital. But the court [now the tribunal (NCLT)] in confirming the reduction must
safeguard the interests of creditors and minority shareholders and see that it is fair and reasonable.46
[s 66.96] Court’s (Now Tribunal’s) Powers
In an application under this section the court [now the tribunal (NCLT)] is concerned with the
confirmation of the proposed reduction and not the resolution passed by the company.47 Where,
besides the resolution, there is no material on which the court [now the tribunal] can make the
confirmation order and the resolution is not a valid one, its value is reduced to nullity.48
The only questions to be considered by the court [now the tribunal (NCLT)] are (a) ought the court
[now the tribunal] to refuse its sanction to the reduction out of regard to the interest of those members
of the public who may be induced to take shares in the company? (b) is the reduction fair and
equitable as between different classes of shareholders? Where the reduction is shared by all and it
will work justly and equitably and does not involve diminution of any liability in respect of unpaid
capital or payment of paid-up capital and there is evidence regarding the loss of capital and non-
representation of available assets, there is nothing to prevent the court [now the tribunal] from
confirming such reduction.49
[s 66.97] Confirmation of Reduction—Factors to be Considered
The reduction of the share capital having been authorised by the articles of association and a special
resolution of the shareholders having been passed in the general body meeting the requirements
under section 100(1)(b) of the 1956 Act were satisfied. Section 101(2)(a) to (c) of the Act had no
application as the proposed reduction neither involved diminution of liability in respect of unpaid
share capital nor payment to any shareholder of any unpaid share capital. It was specifically pleaded
by the petitioner that there were no secured credi

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1. [s 1] Short title extent, commencement and application.—

CR Datta: Company Law

1 [s 1] Short title extent, commencement and

(1) This Act may be called the Companies Act, 2013.

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Statement of Objects and Reasons

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been amended several times.

(i) E-Governance:—Maintenance and allowing inspection of documents by companies in

(ii) Concept of Corporate Social Responsibility is being introduced.

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(iv) Additional Disclosure Norms:

(v) Facilitating raising of capital by companies:

(c) Central Government empowered to prescribe, through rules, the requirements in

(vi) Audit Accountability:

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(a) Rotation of auditors and audit firms being provided for.

(vii) Managerial Remuneration:

(viii) Facilitating Mergers/Acquisitions:

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(ix) Protection for Minority Shareholders:

(x) Investor Protection:

(a) Acceptance of deposits from public subject to a more stringent regime.

Mr. Laghir1 Rabari

6. The notes on clauses explain, in detail, provisions of the Bill.

7. The Bill seeks to achieve the above objectives.

The Companies (Amendment) Act, 2015 (21 of 2015)

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The Bill seeks to achieve the above objectives.

Amendments made to the Companies Act 2013, by the Insolvency and

THE ELEVENTH SCHEDULE

(See section 255)

AMENDMENTS TO THE COMPANIES ACT, 2013 (18 OF 2013)

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6A. In section 230,—

8. Sections 253 to 269 shall be omitted.

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(a) the company;

(b) any contributory or contributories;

(d) the Registrar;

(e) any person authorised by the Central Government in that behalf; or

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13. In section 275,—

(b) sub-section (4) shall be omitted.

(a) any suit or proceeding by or against the company;

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(c) any application made under section 233;

15. Section 289 shall be omitted.

15A. The heading “Part II.—

• Voluntary winding up” shall be omitted.

16. Sections 304 to 323 shall be omitted.

17. Section 325 shall be omitted.

(a) workmen’s dues; and

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Explanation.—For the purposes of this section, and section 327—

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