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Chapter III of Companies Act – Prospectus & Allotment of Securities
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Section 23 --> Public Offer
Public Offer
A Public company may issue Private Placement

securities through
Right Issue & Bonus issue
Right Issue & Bonus Issue
A Private company may issue

securities through
Private Placement
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Section 24 --> Power of SEBI to regulate issue and transfer of securities
Listed companies/ Company intending to get

Other companies
themselves listed
Matters relating to Other matters All matters

• Issue & Transfer of
securities
• Non payment of dividend
Administered by SEBI Administered by Central Government/ Registrar/ Tribunal
Note :- If the Act specifically provides for certain provisions in case of listed companies to be governed otherwise, in that
cases the Act shall prevail.
Section 25 --> Document containing Offer of Securities for sale to be deemed prospectus
Prospectus means any document 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.
It includes -:
a. Deemed prospectus
b. Red herring prospectus
c. Shelf prospectus
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Issuing house company or firm
These will be the security holder of the company.
Main company Public
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Conditions for a document to be called deemed prospectus
1. Issuing house allots or offers within 6 months of the agreement with the main company. OR
2. Whole Consideration is not received by the company before offer is made by issuing house to the public.
Effect of deemed prospectus
All rules and provisions of prospectus now applicable to the deemed prospectus.
Motive
As issuing company is the face of the transaction and the main company is behind the curtain so as to make prospectus
provisions applicable to the main company.
In case of company
By Two directors of the

issuing house company
Deemed prospectus shall be signed by The Directors or

partners are
deemed to be
director of the
main company
In Case of Firm
By at least half of the

partners of the issuing
house firm
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Concept Questions
A private company cannot make issue of securities through __________________.
a) Bonus issue
b) Right issue
c) Private Placement
d) Public offer
Answer :- D
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Concept Questions
In companies which are intending to get listed, the matters relating to non payment of dividend shall be
administered by ____________.
a) SEBI
b) Central Government
c) ROC
d) Tribunal
Answer :- A
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Concept Questions
Deemed prospectus is issued by _______________. Issuing house
Directors or partners of the

Deemed prospectus is signed by _______________. issuing house
The securities must be offered or issued to the public within ___________ of 6 months
the agreement between the main company and issue house.
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Section 26 --> Matters to be stated in prospectus
• shall be dated and signed and

• Shall include information as may be
specified by the SEBI in consultation with
the Central Government:
Every prospectus issued
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 and
• the Securities and Exchange Board of
India Act and
• the rules and regulations.
The above provisions shall apply both in case of IPO and FPO.
Nothing in this section shall apply
to the issue of a prospectus relating to shares or

to the issue to
• existing members or
OR debentures which are in all respects
• uniform with shares or debentures
• debenture-holders of a company, previously issued and
of a prospectus • for the time being dealt in or quoted on a
recognised stock exchange.
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The date indicated in the prospectus shall be deemed to be the date of its publication.
Before issuing prospectus to the public or before its publication, a copy of the prospectus must be filed to the ROC and
the copy shall be signed by every director/ proposed director of the company or their authorised attorney.
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.
Every prospectus issued shall, on the face of it,—

(a) state that a copy has been delivered to the Registrar 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.
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Expert Statement- If the company wants to include a statement by an expert in the prospectus, then it has to follow
certain conditions-:
a. Expert shall never been engaged or interested in the formation or promotion or management of the company
b. Expert has given his written consent to the issue of the prospectus and
c. Expert has not withdrawn such consent before the delivery of a copy of the prospectus to the Registrar and a
statement to that effect shall be included in the prospectus.
 The company shall be punishable
• with fine Minimum- fifty thousand rupees

• Maximum -three lakh rupees
If a prospectus is issued in
contravention of the provisions of
AND
this section
 Every person who is knowingly a party to the issue of such
prospectus shall be punishable
 with Imprisonment- Maximum three years or
 with fine Minimum- fifty thousand rupees

 Maximum- three lakh rupees, or
 with both.
Section 27 --> Variation in Terms of Contract or Objects in Prospectus
A company shall not vary the terms of a contract referred to in the prospectus or objects for which the prospectus was
issued
If the company wants to vary such terms or objects, it needs to pass a SPECIAL RESOLUTION in a general meeting.
The advertisement of the notice for getting the resolution passed shall be in Form PAS-1 and such advertisement shall
be published simultaneously (in English and vernacular language of the registered office district) with dispatch of Postal
Ballot Notices to Shareholders..
The notice shall also be placed on the web-site of the company.
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Section 27 --> Variation in Terms of Contract or Objects in Prospectus
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.
DISSENTING SHAREHOLDERS
The dissenting shareholders shall be given an exit offer by promoters or controlling shareholders at such exit price and
in such manner as may be specified by the SEBI.
Term Explainer :- The dissenting shareholders are those shareholders who have not agreed to the proposal to vary the
terms of contracts or objects referred to in the prospectus.
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Concept Questions
If a company wants to vary the terms of contract referred in prospectus, it shall pass a _______________ .
a) Board Resolution
b) Ordinary Resolution
c) Special Resolution
Answer :- C
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Concept Questions
A prospectus shall be issued within _________ days of its delivery to ROC. 90 days
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Section 28 --> Offer for Sale
Stock Exchange
Promoters of the company

Investors(Public)
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Section 28 --> Offer for Sale of Shares by Certain Members of Company
The members, (whether individuals or bodies

corporate or both), to take all actions in respect of offer of sale for
and on their behalf and they shall reimburse the
whose shares are proposed to be offered to the company all expenses incurred by it on this
public, matter
shall collectively authorise the company, whose

shares are offered for sale to the public,
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.
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Section 29 --> Public Offer of Securities to be in Dematerialised form
• Every company making public offer shall issue the securities only in dematerialised form.
• Promoters of public company making public (The promoters must firstly convert their convertible
offer of convertible securities securities held in physical form into demat form)
Every unlisted public company shall a) Issue the securities only in dematerialised form; and
b) Facilitate dematerialisation of all its existing securities
Every unlisted public company

 Issuing securities a) before making such offer, ensue that entire holding of
 Buyback of securities securities of its promoters, directors, key managerial
 Right issue personnel has been dematerialised
 Bonus issue
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a) who intends to transfer such securities shall get such

securities dematerialised before the transfer OR
Every holder of securities of an unlisted
public company
b) who subscribes to any securities of an unlisted public
company all ensure that all his existing securities are
held in dematerialized form before such subscription.
a) maintains security deposit at all times, of not less than

two years', fees with the depository and registrar to an
Every unlisted public company shall issue and share transfer agent
b) Offer securities or do a buyback of securities or

bonus/ right issue till the above payments are made.
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Form PAS - 6
 PAS – 6 is the reconciliation of share capital audit report.
 Every unlisted public company shall submit Form PAS-6 to the Registrar within sixty days from the conclusion of
each half year duly certified by a company secretary in practice or chartered accountant in practice.
 The company shall immediately bring to the notice of the depositories any difference observed in its issued capital
and the capital held in dematerialised form
 The grievances of security holders of unlisted public companies under this rule shall be filed before the Investor
Education and protection Fund Authority.
This rule shall not apply to an unlisted public company which is:-
 (a) a Nidhi
 (b) a Government company or
 (c) a wholly owned subsidiary.
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Section 30 --> Advertisement of Prospectus
as regards
• the objects,
Where an advertisement of any • the liability of members and
prospectus of a company is published in • the amount of share capital of the company, and
any manner, it shall be necessary to • the names of the signatories to the memorandum
specify therein the contents of its and
memorandum • the number of shares subscribed for by them, and
• its capital structure.
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Concept Questions
The grievances related to dematerialisation of securities by unlisted public company shall be submitted to
______________.
a) ROC
b) Tribunal
c) SEBI
d) Investor Education & Protection Fund Authority
Answer :- D
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Concept Questions
Reconciliation of share audit report is made in Form ______________. PAS - 6
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Section 31 --> Shelf Prospectus
File shelf prospectus at the time of first offer of securities
File information memorandum at the time of subsequent offer
• Shelf Prospectus shall be valid for maximum on year.

• The validity shall be counted from the date of opening of first offer of securities.
• No need to issue any other prospectus during the validity period.
• During the validity period , ONE MONTH prior to the subsequent offer, the company shall file an INFORMATION
MEMORANDUM in Form PAS – 2 containing all material facts relating to
o new charges created,
o changes in the financial position of the company as have occurred
between the previous offer of securities and the succeeding offer of securities
Section 31 --> Shelf Prospectus
• the company shall intimate the

changes to such applicants and
Where a company has received
applications for the allotment of
• if they express a desire to withdraw
securities along with advance
their application, the company or
payments of subscription before the
other person shall refund all the
making of any such change,
monies received as subscription
within fifteen days thereof.
INFORMATION MEMORANDUM + SHELF PROSPECTUS = DEEMED PROSPECTUS
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Section 32 --> Red Herring Prospectus
Definition :- A prospectus which does not include complete particulars of the

i. Quantum of securities
ii. Price of securities
It shall be filed with ROC and SEBI at least 3

It is issued prior to issue of main days prior to opening of subscription list & the
prospectus offer.
Any variation
between RHP and Shall be highlighted in
prospectus the prospectus
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Upon the closing of the offer of securities, the prospectus stating therein
• the total capital raised 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 SEBI.
Red Herring Prospectus is used in book building process/ Price Discovery method
Term Explainer :- When an issue of share for public is open to invite public to subscribe for the shares of the
company The same is called opening of subscription.
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BOOK BUILDING METHOD

Section 33 --> Issue of Application Forms for Securities
ABRIDGED PROSPECTUS
An abridged prospectus is a summary of the prospectus containing such details as

be prescribed by the SEBI.
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Section 33 --> Issue of Application Forms for Securities
Every application form must be accompanied by an abridged prospectus.
Exception to the above provision :- No need for abridged prospectus with the application form in case of
• Bonafide underwriting agreement
• Securities which are not offered to public
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.
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.
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Concept Questions
Which prospectus is an incomplete prospectus?
a) Deemed prospectus
b) Abridged prospectus
c) Shelf prospectus
d) Red Herring prospectus
Answer :- D
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Concept Questions
Information Memorandum must be filed ____________ prior to the subsequent

1 Month
offer.
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Section 34 --> Criminal Liability for mis- statements in Prospectus
includes any statement which is

Where a prospectus, issued, • untrue or
circulated or distributed • misleading in context in which it is included or
• where any inclusion or omission of any matter is likely to mislead
every person who authorizes the issue of such prospectus shall be

liable under Section 447.
If any person proves that such statement or omission was
• immaterial or
• 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,
he shall not be punished.

Section 35 --> Civil Liability for mis- statements in Prospectus
Where a person has

in the prospectus which is misleading and has sustained any loss or
subscribed for securities of a
damage, the company and every person who
company relying on any
statement included
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
c) is a promoter of the company;
d) has authorised the issue of the prospectus; and
e) is an expert who has given a statement
Shall be liable to pay compensation to every person who has sustained such loss or damage.
No person shall be liable, under previous slide, if he proves
that the prospectus was issued without his knowledge

he withdrew his consent (to become a director)
or consent, and that on becoming aware of its issue,
before the issue of the prospectus, and that it
he forthwith gave a reasonable public notice that it
was issued without his authority or consent
was issued without his knowledge or consent.
That for every misleading statement made by an expert, 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 & had not withdrawn that consent before filing of a copy of the prospectus with the
Registrar
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Where it is proved that a prospectus has every person referred to in sub-section (1)
been issued shall be personally responsible, without any
• with intent to defraud the applicants for the limitation of liability, for all of the losses that
securities of a company or may have been incurred by any person who
• for any fraudulent purpose subscribed to the securities on the basis of
such prospectus.
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Section 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
any agreement for acquiring, any agreement, the purpose of any agreement for, or with a view
disposing of, subscribing for, which is to secure a profit to any to, obtaining credit facilities from
OR OR
or underwriting securities of the parties from the yield of any bank or financial institution
securities or by increase in value
of securities
Shall be liable u/s 447
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Section 37 --> Action by Affected persons
Any Person affected by any misleading May file a suit against the company or the
statement in the prospectus u/s 34,35,36 person concerned.
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Section 38 --> Punishment of Personation for Acquisition etc. of Securities
Any person who -
makes or abets making of an makes or abets making of Induces directly or indirectly a

application in a fictitious multiple applications to a company to allot, or register any
OR OR
name to a company for company in different names or in transfer of, securities to him, or
acquiring its securities different combinations of his to any other person in a
name for acquiring its securities fictitious name
Shall be liable u/s 447
The above provisions shall be prominently reproduced in every prospectus issued by a company and in every form of
application for securities
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Section 38 --> Punishment of Personation for Acquisition etc. of Securities
a) disgorgement of gain made

Where a person has been and
convicted under this section, the b) seizure and disposal of the
Court may a order securities
in possession of, such person.
The amount received by disgorgement or disposal of securities shall be credited to Investor Education & Protection
Fund
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Concept Questions
The amount received by disgorgement or disposal of securities shall be

IEPF
credited to ________________________________.
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Section 39 --> Allotment of Securities by Company
The minimum subscription has been

made
If the company has made a public offer of securities,
it shall not make allotment of securities unless
Application money has been received by

the company by cheque or other
instrument
The amount payable on

application on every
security shall not be less
than five per cent of the
nominal amount of the
security.
Note :- The minimum subscription in case of equity share capital (as per SEBI) shall be not
less than 90% of the issue size.
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Minimum shares not subscribed Refund all application money shall

AND application money not received received
Date of issue 30 days from date of Closure of issue 15 days from

of prospectus issue of prospectus closure of issue
Re
• 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,, the amount received on application shall be returned
within 15 days from closure of issue.
• If money not repaid within above period, directors in default shall jointly and severally be liable to repay money with
interest @15% per annum.
• The application money to be refunded shall be credited only to the bank account from which the subscription was
remitted.
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Whenever a company makes any allotment of securities, it shall file with the Registrar a return of allotment within
thirty days in Form PAS-3,
Penalty on the company and its officer in default

In case of any default
For each default,
under this section
One thousand rupees for each day during which
such default continues or one lakh rupees,
whichever is less.
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Section 40 --> Securities to be dealt with in Stock Exchanges
• 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.
• The prospectus shall state the name of the all stock exchange in which the securities shall be dealt with.
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• The money received on application shall be kept in a separate bank account in a scheduled bank.
If even one stock exchange

If stock exchange/s allow
(out of all applied) does not
listing of securities
allow listing of securities
Shall be adjusted against

Refund the money
share allotment
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Penalty on the company

• Minimum – 5 lakh Rupees
In case of any default • Maximum – 50 Lakh rupees
under this section
Officer in Default
 Imprisonment – Maximum 1 year
 Fine
• Minimum – 50 Thousand Rupees
• Maximum – 3 Lakh Rupees
OR
Both
The compliance of provisions of this section cannot be waived.
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A company may pay commission to any person in connection with the subscription to its securities.
In case of shares, In case of debentures

the commission may be paid out of proceeds of the issue or the profit of the company or both
• Five percent of the Issue price or • Two and a half per cent of the Issue price or
• A rate authorised by the articles • A rate authorised by the company’s articles
whichever is less whichever is less
The commission may be paid out of proceeds of the issue or the profit of the company or both.
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Concept Questions
If the company has applied in 4 stock exchanges for listing its securities & out of the 4, 1 stock exchange rejected the
application and 3 accepted the application. What shall the company do now?
The company cannot go on with allotment of securities and has to refund the money to the applicants.
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Concept Questions
Maximum underwriting commission that can be paid by the company for issue of debentures is _______________ of the issue
price of debentures.
2.5%
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Section 41 --> Global Depository Receipt
The shares shall be transferred to domestic custodian but will be

allotted in the name of Overseas Depository Bank.
Indian Company Domestic Custodian
Agreement
Custodian
On Instruction of Domestic custodian, the Overseas Depository
issues GDRs to the foreign non resident investors.
Overseas Investor Overseas Depository Bank

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.
Conditions
 The company shall comply with all the applicable provisions of the Scheme and the rules or regulations or
guidelines issued by the Reserve Bank of India.
 The company shall appoint a merchant banker or a practising chartered accountant or a practising cost
accountant or a practising company secretary to oversee all the compliances relating to issue of depository
receipts and the compliance report taken from such person shall be placed at the meeting of the Board of
Directors of the company or of the committee of the Board of directors authorised by the Board in this regard to
be held immediately after closure of all formalities of the issue of depository receipts:
 The committee of the Board of directors referred to above shall have at least one independent director in case
the company is required to have independent directors.
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Conditions
 A holder of depository receipts may become a member of the company and shall be entitled to vote as such only
on conversion of the depository receipts into underlying shares.
 Until the conversion of depository receipts, the overseas depository shall be entitled to vote on behalf of the
holders of depository receipts in accordance with the provisions of the agreement.
 The proceeds of issues of depository receipts shall either be remitted to

• a bank account in India or
• deposited in an Indian bank operating abroad or
• any foreign bank 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.
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Section 42 --> Private Placement
Term Explainer
Private placement means any offer or invitation to subscribe or issue of securities to a select group of persons by a
company through private placement offer-cum-application, which satisfies the conditions specified in this section.
Qualified Institutional Buyers are those institutional investors who are generally perceived to possess expertise and
the financial muscle to evaluate and invest in the capital markets.
For example :-
• Mutual Funds companies
• Scheduled commercial banks
• Venture Capital funds
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A company may, subject to the provisions of this section, make a private placement of securities.
A private placement shall be made only to a select group of persons who have been identified by the Board whose
number shall not exceed fifty or such higher number as may be prescribed [excluding the qualified institutional buyers
and employees of the company being offered securities under a scheme of employees stock option] in a financial year.
For the purpose of this sub-section 42, an offer or invitation to subscribe

securities under private placement shall not be made to persons more than
two hundred in the aggregate in a financial year.
It is hereby clarified that the restrictions would be reckoned

individually for each kind of security that is equity share, preference
share or debenture.
Any private placement issue not
made in compliance of the
provisions of this sub section shall
be deemed to be a public offer
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1. The private placement offer and application shall not carry any right of renunciation.
2. The company shall record the names and addresses of the persons to whom such private placement be made in
Form PAS -5
Every identified person willing to subscribe to the private placement issue shall apply in the private placement and
application issued to such person alongwith subscription money paid either by cheque or demand draft or other
banking channel and not by cash.
A company shall not utilise monies • Private placement offer cum application letter shall be in Form PAS-4
raised through private placement serially numbered and addressed specifically to the person to whom the
unless allotment is made and the offer is made and
return of allotment is filed with the • Shall be sent to him, either in writing or in electronic mode, within
Registrar. thirty days of recording the name of such person
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No fresh offer or invitation 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.
Company shall not make a public advertisement of such issue of securities.
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If allotment not done,

Allot its securities within Refund application money
Receipt of 60 Days 15 Days

application from from expiry
money receipt of of 60th Day
application
money
• If company refunds application money within this

period, it’s okay.
• If company fails to refund application money within this

period, it shall pay money with interest @12 % p.a.
starting from expiry of the 60th day.
If the company could not allot If the company allots

securities for any reason securities

Refund the money
share allotment
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A company making any allotment of securities, shall file with the Registrar a return of allotment within fifteen days
from the date of the allotment in Form PAS - 3 including such relevant information as may be prescribed
If a company defaults in filing the return of allotment within the above period
• the company,
• its promoters and
• directors
shall be liable to a penalty for each default of one thousand rupees for each day during which such default continues
but not exceeding twenty-five lakh rupees.
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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. Penalty shall be lower of
Amount raised through

the private placement
OR 2 Crore rupees
The company shall also refund all monies with interest @ 12% p.a. to subscribers within a period of thirty days of the
order imposing the penalty.
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Concept Questions
Return of allotment in case of private placement shall be in Form ________________.
PAS - 3
Private placement offer letter shall be in Form ________________.
PAS - 4
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Concept Questions
If the company fails to refund the money within 15 days from the expiry of 60th day, the interest @________________ shall be
applicable.
12%
The interest above shall be calculated from which day?
From the 60th day.
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Video 1 --> Chapter IV--> Share Capital and Debentures
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The Provisions of Rules corresponding to this chapter shall apply to
Listed companies
All Unlisted public companies All private companies (so far as they do not contradict with
regulations of SEBI)
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Section 43--> Kinds of Share Capital
Types of shares
Preference
Equity shares
shares
With equal voting

rights
With differential
voting rights
Preference shares have preference over equity shareholders for two things-:
a) Payment of dividend
b) Repayment of capital on winding up
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Ordinary share DVR shares
The company has 1000 shares of Rs. 10 each. Mr. A Mr. A holds 25% of ORDINARY shares and Mr. B
holds 25% of shares and MR. B holds 30 % of holds 400 DVRs (out of total 1000 shares) having
shares. Rest are hold by others. voting power of 1:4.
25% voting 10% voting

25% voting 30% voting power power
power power
A DVR share is like an ordinary equity share, but it provides fewer voting rights to the shareholder.
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Conditions for issuing equity shares with Differential Voting Rights
❑ Authorization in AOA
❑ Ordinary Resolution at General Meeting of shareholders.(In case of listed company, approval through postal ballot is
sufficient).
❑ Voting Power in respect of shares with differential voting rights of the company shall not exceed 74% of total voting
power including voting power in respect of equity shares with differential rights issued at any point of time.
❑ No default in filing financial statements and annual returns for three financial years immediately preceding the
financial year in which it is decided to issue such shares.
The company having consistent track record of distributable profits for the last three years
This condition is omitted by

The Companies(Share Capital
and Debentures) Amendment
Rules, 2019
❑ Voting Power in respect of shares with differential voting rights of the company shall not exceed 74% of total voting
power including voting power in respect of equity shares with differential rights issued at any point of time.
Ordinary shareholders(Other
than DVR)
DVR shareholders
Voting Power ≤ 74% of Total Voting Power
DVR shareholders
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Conditions for issuing equity shares with Differential Voting Rights
❑ Company has no 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
▪ payment of the dividend on preference shares or
▪ repayment of any term loan from a public financial institution or Bank 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.
(A company may issue equity shares with differential rights upon expiry of five years from the end of the financial
Year in which such default was made good.)
❑ The company has not been penalized by Court or Tribunal during the last three years of any offence under the RBI
Act, the SEBI Act, the SCRA, the FEMA or any other special Act.
❑ The company shall not convert its existing equity share capital with voting rights into equity share capital carrying
differential voting rights and vice–versa.
❑ Where a company issues equity shares with differential rights, the Register of Members maintained in Form No.
MGT 1 shall contain all the relevant particulars of the shares so issued along with details of the shareholders.
Quick Questions for Revision
Voting Power in respect of shares with differential voting rights of the company shall not exceed
___________of total voting power including voting power in respect of equity shares with differential 74%
voting rights issued at any point of time.
To issue shares with DVR, a company should not be penalized under RBI Act, FEMA Act etc. during
3
the last _______ years
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Section 44
Shares and debentures are movable property and transferable in the manner as provided in articles of the company.
Section 45
Every share shall be having a distinctive number. (No need of distinctive number if shares held in dematerialised form)
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Section 46 --> Certificate of shares
Provisions regarding certificate of shares

❑ A certificate of shares duly signed and sealed shall be prima facie evidence of the title of the person to
such shares.
❑ Share certificate shall be in Form No. SH 1
❑ Where share is held in demat form, the record of the depository shall be prima facie evidence of the
interest of the beneficial owner.
Instances when duplicate

certificate of shares may be
issued
(a) Original certificate is (b) Original certificate has been

proved to have been lost or defaced, mutilated or torn and is
OR
destroyed surrendered to the company
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• Fees for duplicate share certificate --> Maximum Rs. 50 per certificate.
• In case of duplicate certificate, it should be clearly mentioned on the face of it “Duplicate Issued in lieu of share
certificate no………..” and the word “Duplicate” should be clearly stamped on it.
• In case of unlisted companies, the duplicate share certificates shall be issued

✓ within a period of three months and
✓ in case of listed companies within 45 days
from the date of submission of complete documents with the company respectively.
• The particulars of every duplicate share certificate shall be entered forthwith in a Register of Renewed and
Duplicate Share Certificates maintained in Form No.SH.2.
• Entries to register may be authenticated by Company Secretary or any person authorised by Board in this behalf.
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Every share certificate shall specify the shares to which it

In case company has a common seal, it shall
relates and the amount paid up thereon and shall be signed
be affixed in the presence of persons
• by two directors or
required to sign the certificate.
• by a director & the company secretary.
• OPC--> Sign by one Director & Company

secretary or any other person authorised by
Board is sufficient.
• Signature if done digitally or by an equipment or

lithography will be sufficient.( Not by rubber
stamp).
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The certificates surrendered shall be immediately defaced

The books and documents related to issue of
by stamping ‘cancelled’ in bold letters
shares shall be preserved for
AND
• 30 years
Be destroyed after expiry of 3 years from date of
• Permanently, in case of disputed cases
surrender.
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Fine on company
• Minimum - Five times the face value of the
shares involved in the issue of the duplicate
If a company with certificate
intent to defraud • Maximum - Ten times the face value of such
issues a duplicate shares
certificate of 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.
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In disputed cases, for how many years be the records related to share certificates be maintained? Permanently
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Section 47--> Voting Rights
Members (Equity shareholders) of the shall have a right to vote on every

company resolution placed before the company
His voting right on a poll shall be in

proportion to his share in the paid-
up equity share capital of the
company.
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Preference shareholders (of the particular
Preference shareholders have right to vote.
class) have right to vote.
only on resolutions
a) which directly affect the rights attached to his On ALL resolutions of the company
preference shares where the dividend in respect of a class of preference
b) any resolution for the winding up of the company shares has not been paid for a period of two years or
c) for the repayment or reduction of its equity or more
preference share capital.
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.
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Section 48 --> Variation of shareholders’ Rights
If the company wants to vary(change) the rights attached to a particular class of shares
❑ Permission in memorandum or articles of company
❑ No express provision in memorandum or articles--> Such variation shall not be prohibited in Terms of Issue of
shares of that class
❑ Written consent of atleast 3/4th of the holders of issued shares of that class OR a special resolution by holders of
issued shares of that class.
If variation by one class of shareholders affects the rights of any other class of shareholders, the consent of 3/4th of
such other class of shareholders shall also be obtained.
Dissent to such variation

Application be made by minimum 10% of the holders of such class of shares to tribunal--> variation shall not have
effect unless and until it is confirmed by the Tribunal.
(Such application be made within 21 days from the date on which consent was given or SR passed)
Tribunal decision is binding on the
shareholders
Tribunal decision shall be filed with

ROC within 30 days of order by
tribunal.
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Section 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.
The share price is Rs. 10 and company has yet

received on allotment money. It wants
Where any calls for further share capital are made on the shares of a class,additional
such calls 1200 Rs.made
shall be Can itoncall the amount
a uniform basis only
on all
from Mr. C?
shares falling under that class
NO
Mr.A --> Rs. 5 paid up Mr.B --> Rs. 5 paid up Mr.C --> Rs. 5 paid up
on 100 shares on 200 shares on 500 shares
Section 50--> Company to accept Unpaid share capital, although not called up
A company may, if so authorised the amount remaining unpaid on any

by its articles, accept from any shares held by him, even if no part of
member, the whole or a part of that amount has been called up.
In respect of this amount, the

members shall not get any special
voting rights.
Crux :- Shareholders will not get any voting power for calls made in advance.
Section 50--> Company to accept Unpaid share capital, although not called up
Company can accept excess amount from

any of shareholders even if calls not made.
But here Mr. C won’t get any extra voting
rights.
Mr.A --> Rs. 5 paid up Mr.B --> Rs. 5 paid up Mr.C --> Rs. 7 paid up
on 100 shares on 200 shares on 500 shares
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What is the minimum % of shareholders to be called as dissenting shareholders as per Section 48? 10%
Preference shareholders shall have a right to vote on ALL resolutions of the company if their 2
dividend is not paid for the last _______ years or more.
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Section 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.
Section 51-->Payment of Dividend in Proportion to Amount Paid-Up.
Company has called up Rs. 5 on each share. Mr. C has paid only Rs. 3 on share. Company declared dividend @ Rs. 1 per share
Normal case Section 51- With permission of AOA
Dividend = Re.1
Dividend = Re.1 Dividend = Re.1 Dividend=Rs.
Dividend = Re.1 Dividend = Re.1 0.60
Mr.A --> Rs. 5 Mr.B --> Rs. 5 Mr.C --> Rs. 3 Mr.A --> Rs. 5 Mr.B --> Rs. 5 Mr.C --> Rs. 3
paid up on 100 paid up on 200 paid up on 500 paid up on 100 paid up on 200 paid up on
shares shares shares shares shares 500 shares
Section 52-->Application of Premiums received on issue of shares
Suppose a company issues 1,00,000 shares of face value Rs. 10 each at Rs.12 per share.
Thus the difference between the Issue Price and the face value will be known as Securities Premium.
In the above example, Securities Premium is
IP-FV= Rs.(12-10)(100000)= Rs.2,00,000
This Rs.2,00,000 will be credited to a separate account

known as ‘Securities Premium Account’
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Section 52-->Application of Premiums received on issue of shares
The securities premium account can be utilised -:
(a) For issue of 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;
(e) for the buyback of shares.
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Section 53--> Prohibition on Issue of Shares at Discount
Company shall not issue shares at a discount. If the company does so, that share is void.
Exception
1) Sweat equity shares issued to employees
2) Shares issued to creditors where their debt is converted into shares
under any scheme as per RBI regulations.
Term Explainer
Discount here means a value less than the face value of shares.
Section 53--> Prohibition on Issue of Shares at Discount
Failure to comply with provisions of this section
❑ Penalty on company & every officer in default-->
Lower of-->
• Amount raised through such issue at discount OR
• Rs.5 Lakh
❑ Company shall also be liable to refund all monies received with interest at the rate of twelve per cent per annum from
the date of issue of such shares to the persons to whom such shares have been issued.
Section 54--> Issue of sweat equity shares
'Sweat equity shares' are such equity shares, which are issued by a Company to its directors or employees at a discount or
free of cost for providing their know-how or other benefits to company.
a permanent employee of the company who has

been working in India or outside India
OR
Employee means a director of the company, whether a whole time

director or not
OR
an employee or a director of a subsidiary or a

holding company of the company
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Conditions for issuing sweat equity shares
i. a company may issue sweat equity shares of a class of shares already issued.
ii. the issue is authorised by a special resolution passed by the company;
iii. 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
iv. These sweat equity shares shall have same rights, limitations and restrictions as of other equity shares.(Rank Pari passu)
v. Where company’s equity shares are listed, then issue of sweat equity shares shall be in accordance with SEBI guidelines.
Validity of SR-->The special resolution authorising the issue of sweat equity shares shall be valid for making the
allotment within a period of not more than twelve months from the date of passing of the special resolution.
The company shall not issue sweat equity shares for more than
Higher of
• 15% of paid up equity
25 % of paid up equity
capital
capital
OR
• Rs. 5 crores
In a Financial Year At any time

Exception
A start up company, may issue
sweat equity shares
not exceeding fifty percent of

its paid up capital
Upto 10 years from the date of its

incorporation or registration.
Lock in period→ The sweat equity shares issued to directors or employees shall be locked in for a period of three
years from the date of allotment
• The fact that the share certificates are under lock-in and the period of expiry of lock in shall be mentioned in a
prominent manner on the share certificate.
Valuation of share price and intellectual rights--> The value shall be determined by a registered valuer.
• The company shall maintain a Register of Sweat Equity Shares in Form No. SH.3
• The Register of Sweat Equity Shares shall be maintained at the registered office of the company or such other
place as the Board may decide.
• The entries in the register shall be authenticated by the Company Secretary of the company or by any other
person authorized by the Board for the purpose.
The non cash consideration is a

It will be taken to balance sheet
depreciable asset
The non cash consideration is not It will be taken to profit & loss
a depreciable asset account as an expense
The amount of sweat equity shares issued shall be treated as part of managerial remuneration, if the following
conditions are fulfilled, namely.-
(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.
The Lock in period for sweat equity shares issued to a director shall be ___________ years 3
A start up company, may issue sweat equity shares not exceeding ______________ of its paid up capital 50%
upto 10 years from the date of its incorporation or registration.
The special resolution authorising the issue of sweat equity shares shall be valid for making the
allotment within a period of not more than __________ from the date of passing of the special 12 months
resolution.
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Section 55--> Issue and Redemption of Preference shares
Some Important Points regarding issue of preference shares
Irredeemable Preference shares cannot be issued.
• Preference shares can be issued for a maximum period of 20 years from the date of their issue.
• Exception:-
In case of company involved in infrastructure projects, the maximum period is 30 years but from in this case, from 21st
year every year atleast 10% shares shall be redeemed.
Some Important Points regarding redemption of preference shares
Only fully paid shares be redeemed.
Preference shares shall be redeemed out of

• Out of profits or free reserves of the company
• Proceeds of fresh issue of shares
Before redeeming the shares out of the profits of the company, transfer an amount equal to the nominal value of
shares to be redeemed to a separate account called ‘Capital Redemption Reserve’.
(Capital redemption Reserve can be used for issuing fully paid bonus shares to members of the company.)
Securities premium account

Premium on redemption may be paid out of
Profits of the company
Conditions for issuing preference shares
• Authorization in AOA
• SR in general meeting
• No subsisting default in the redemption of preference shares or in payment of dividend due on any preference
shares.
At a fixed time or on happening of a

particular event
Preference shares may be redeemed
Any time at the company’s option
Any time at the shareholder’s option
These terms and conditions are pre fixed.

it may with the consent of the holders

Where a company is not in a position to of three-fourths in value of such
redeem any preference shares or to pay preference shares and with the
dividend, on such shares approval of the Tribunal on a petition
made by it
on the issue of such further redeemable issue further redeemable preference shares equal to
preference shares, the unredeemed preference the amount due, including the dividend thereon, in
shares shall be deemed to have been redeemed. respect of the unredeemed preference shares
The Tribunal shall order the company to redeem the shares of dissenting shareholders immediately.
Section 56--> Transfer and Transmission of Securities
TRANSFER OF SECURITIES
Transfer of shares is a transaction resulting in a change of share ownership by way of sale, gift etc.
TRANSMISSION OF SECURITIES
• Transmission is the automatic process by operation of law.
• When a shareholder dies, his shares immediately pass to the personal representatives or, if a member is declared
bankrupt, their shares will vest in the trustee in bankruptcy.
Mr. A Mr. B
Mr. A sold his shares to Mr. B. This is transfer.
Mr. C Ram
Mr. C died. His shares were inherited by his son Ram along
with his property. This is transmission.
Then the instrument of transfer • Must be delivered within a

If there is a transfer of (Form No. SH 4) duly stamped, period of 60 days of execution
securities of a dated and containing relevant to the company.
company details + certificate of securities • The company will then register
(Or letter of allotment) the transfer.
Where an application is made by the transferor alone and relates to partly paid shares
The transfer shall be registered only when the the transferee gives no objection to the
company gives the notice of the application in transfer within two weeks from the
Form No. SH 5 to the transferee and receipt of notice.
Every company shall deliver the certificates of all securities allotted, transferred or transmitted as follows.
In the case of subscribers In the case of any In the case of a transfer or

allotment of any of its transmission of securities--> In the case of any
to the memorandum-->
shares--> Within a period of one month allotment of debenture-->
Within a period of two
Within a period of two from the date of receipt by Within a period of six
months from the date of
months from the date of the company of the months from the date of
incorporation.
allotment. instrument of transfer or allotment.
intimation of transmission.
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.
The legal representative sold

the shares to third person.
Legal representative
Transmission registered
Person died submitted the intimation of
by company
transmission to company
This transfer is valid

❑ Company --> Fine

Default is made in complying with Minimum- Rs.25,000
the provisions of this sections Maximum Rs.5,00,000
❑ Officer in default--> Fine

Minimum – Rs.10,000
Maximum – Rs. Rs.1,00,000
Depository or depository participant

transfers shares with intent to Penalty under Section 447
defraud a person
Section 57-->Punishment of Personation of shareholder
If any person deceitfully personates and thereby obtains or attempts to obtain any such security or
as an owner of any security receives or attempts to receive any money due to any such owner
He shall be punishable with

❑ Imprisonment-->
• Minimum one year
• Maximum three years and
❑ Fine-->
• Minimum one lakh rupees
• Maximum five lakh rupees.
The new debenture certificates in case of transfer shall be delivered within_____________ of receipt of
1 Month
transfer deed.
The Form No. of Transfer deed is __________. SH. 4
In case of infrastructure companies, the maximum period for which preference shares may be
30
issued is ______ years.
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Section 58 -->Refusal of Registration and Appeal Against Refusal
PRIVATE COMPANY
it shall within a period of thirty days from the

If a private company refuses to
date on which the instrument of transfer, or the
register the transfer or
intimation of such transmission, was delivered
transmission of securities
to the company,
reasons for such refusal.
send notice of the refusal to

• the transferor and
• the transferee or
• to the person giving intimation of such transmission
giving reasons for such refusal.
PRIVATE COMPANY
The transferee may appeal to the Tribunal against the refusal.
NOTICE NOT SENT BY THE COMPANY

NOTICE SENT BY THE COMPANY
OR Within a period of sixty days from the date on
Within a period of thirty days from the which the instrument of transfer or the
date of receipt of the notice intimation of transmission was delivered to
the company.
PUBLIC COMPANY
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 appeal to the Tribunal against the refusal.
NOTICE SENT BY THE COMPANY NOTICE NOT SENT BY THE COMPANY

OR Within a period of ninety days from the date on
Within a period of sixty days from the date
of receipt of the notice which the instrument of transfer or the intimation
of transmission was delivered to the company.
The securities in a public company shall be freely transferable.

• 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
The Tribunal may, after

hearing the parties, either
dismiss the appeal, or by
OR
order
direct rectification of the register and also direct the

company to pay damages sustained by any party
aggrieved.
• Imprisonment for a term which shall not be less than one

year but which may extend to three years
If a person contravenes the

order of the Tribunal under
this section, he shall be
AND
punishable
• With fine which shall not be less than one lakh rupees
but which may extend to five lakh rupees.
Section 59-->Rectification of Register of Members
If the name of any person is, without sufficient cause,

entered in the register of members of a company
OR
• The person aggrieved, or
After having been entered in the register, is, without • any member of the company, or
sufficient cause, omitted therefrom • the company
OR
If a 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
may appeal to the Tribunal (or to a foreign court
outside India in respect of foreign members or
debenture holders residing outside India) for
rectification of the register.
Either dismiss the appeal
OR
Direct that the transfer or transmission shall be

The Tribunal may, after hearing the registered by the company within a period of ten days
parties to the appeal of the receipt of the order
OR
Direct rectification of the records of the depository or

the register and direct the company to pay damages
sustained by the party aggrieved.
❑ The company --> Fine

• Maximum five lakh rupees
And
If any default is made in complying
with the order of the Tribunal under ❑ Every officer in default --> Imprisonment
this section
• Maximum one year or
-->Fine

• Maximum three lakh rupees
Or with both.
Section 60--> Publication of Authorised, Subscribed and Paid Up Capital
Where any notice, advertisement or other official

it shall also contain a statement, in an equally
publication, or any business letter, billhead or
prominent position and in equally conspicuous
letter paper of a company contains a statement
characters, of the amount of the capital which
of the amount of the authorised capital of the
has been subscribed and the amount paid-up.
company,
• the company shall be liable to pay a penalty of

ten thousand rupees and
If any default is made in complying with the
above requirements • every officer of the company who is in default
shall be liable to pay a penalty of five thousand
rupees, for each default.
Section 61--> Power of Limited Company to Alter its Share Capital
A company may, if so authorised by its articles, alter its memorandum in its general meeting to—
▪ Increase its authorised share capital by Eg. Increase the authorised capital from Rs.10 Lakh
such amount as it thinks expedient to Rs.20 lakhs
• Consolidate and divide all or any of its share Eg. There were 10,000 shares of the company of Rs.
capital into shares of a larger amount than its 10 each. The Company consolidated the shares into
existing shares 1000 shares of Rs. 100 each.
• Sub-divide its shares into shares of smaller Eg.- There were 1000 shares of Rs. 100 each. They
amount. were sub divided into 10000 shares of Rs.10 each.
Section 61--> Power of Limited Company to Alter its Share Capital
• Stock is consolidation of shares.

• Convert its fully paid-up shares into stock, and • If a company converts its shares into
reconvert that stock into fully paid-up shares of any stock, then there will be less shares
denomination. available in the market as the shares are
converted into stocks.
• So its helps in creating demand for
shares in stock market
• Also increases earning per shares (EPS)
• Cancel shares which have not been taken or agreed to

Company issued 1 Lakh shares.
be taken by any person, and diminish the amount of
Subscription was for 95000 shares. The
its share capital by the amount of the shares so
company can cancel the 5000 shares.
cancelled.
Note:-The cancellation of shares under this section shall not be deemed to be a reduction of share capital
Penalty for officer in default for not publishing the subscribed and paid up capital alongwith
5000
Authorised capital on the letterhead of the company is ___________Rs. For each default
The order of the Tribunal u/s 58 shall be complied by the company within _______ days of the receipt 10
of the order.
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Section 62 --> Further Issue of Share Capital
If a company proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered—
To the existing shareholders of the company To employees under ESOP
To issue of shares on preferential basis
In case of Nidhi company, Section 62 shall not apply.

To the existing shareholders of the company
• New shares shall be issued in proportion to the existing paid-up share capital by sending a letter of offer.
• The offer shall be made by notice specifying

o the number of shares offered and
o 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.
• The notice shall be dispatched through registered post or speed post or through electronic mode or courier or any
other mode having proof of delivery to all the existing shareholders at least three days before the opening of the
issue.
• Unless the AOA otherwise provide, the offer 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 shall contain a
statement of this right.
• 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.
In case of Private
Company and Specified
IFSC Public Company
The period can be further

reduced from 15 days if 90%
of members of the company
give their consent.
To employees under ESOP
‘‘Employee’’ means-
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 clauses (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 ten percent of the outstanding equity shares of the company.
In case of a startup company, the conditions mentioned in sub-clause (i) and (ii) shall not apply upto ten years from
the date of its incorporation or registration.
Unlisted company shall not offer shares to its employees under ESOP unless it complies with the following
requirements
• the issue of ESOP has been approved by the shareholders of the company by passing a special resolution.(Ordinary
Resolution for private companies).
• The company shall maintain a Register of Employee Stock Options in Form No. SH.6
• There shall be a minimum period of one year between the grant of options and vesting of option
• The company shall have the freedom to specify the lock-in period for the shares issued pursuant to exercise of
option.
• The option granted to employees shall not be transferable to any other person.
• The option granted to the employees shall not be pledged, hypothecated, mortgaged or otherwise encumbered or
alienated in any other manner.
Unlisted company shall not offer shares to its employees under ESOP unless it complies with the following
requirements
• 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.
• 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.
• 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.
may be forfeited by the company if the option is not

exercised by the employees within the exercise period
The amount, if any, payable by the

employees, at the time of grant of
option-
the amount may be refunded to the employees if the

options are not vested due to non-fulfillment of
conditions relating ESOP Scheme.
Under Preferential Basis
• By Special resolution passed in a general meeting, shares may be issued by any company by way of a
preferential offer, (to any persons whether or not those persons include the existing shareholders or
employees) and such issue on preferential basis should also comply with conditions of section 42 of the
Act.
• the issue is authorized by its articles of association.
• the allotment of securities on a preferential basis shall be completed within a period of twelve months from
the date of passing of the special resolution.
• If the allotment of securities is not completed within twelve months from the date of passing of the special
resolution, another special resolution shall be passed for the company to complete such allotment.
‘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
Under Preferential Basis
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 pursuant to conversion shall be determined-
Either 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
At the time, which shall not be earlier than thirty days to the date when the holder of convertible security becomes
entitled to apply for shares, on the basis of valuation report of the registered valuer given not earlier than sixty days
of the date when the holder of convertible security becomes entitled to apply for shares
Where any debentures have been issued, or it may direct that such debentures or loans shall
loan has been obtained from any be converted into shares on reasonable terms
Government by a company, and if that even if the terms of the issue of such debentures
Government considers it necessary in the or loans do not include a term for providing for an
public interest so to do option for such conversion
Where the terms 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.
In determining the terms and conditions of conversion, the Government shall have due regard to
• the financial position of the company,

• the terms of issue of debentures or loans
• the rate of interest payable on such debentures or loans and
• such other matters as it may consider necessary.
Notice to Registrar for Alteration of Share Capital
Where a company
• alters its share capital in any manner specified section 61, or
• an order is passed by the Government increasing the authorized capital of the company in section 62 or
• a company redeems any redeemable preference shares,
the notice of such alteration, increase or redemption shall be filed by the company with the Registrar in Form No.
SH.7 along with the fee.
Where a company alters its share capital in any manner, the notice of alteration that shall be
SH 7
filed with ROC shall be in Form No.____________.
Can decision of issue of Bonus shares once announced be revoked? NO

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Chapter IV of Companies Act – Share Capital & Debentures
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Companies Act, 2013--> Chapter IV- Share Capital & Debentures- Section 63- Issue of Bonus shares
A company may issue

FULLY paid up bonus
Eg. shares to its members
General out of
reserves
3. CAPITAL
2. SECURITIES
1. FREE RESERVES REDEMPTION
PREMIUM ACCOUNT
RESERVE ACCOUNT
1.Bonus shares shall not be issued from Revaluation reserves.
2.Bonus issue once announced shall not be subsequently withdrawn.
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Term Explainer
• Revaluation reserve:- When a company revalues its fixed assets and such revaluation increases the value of
such assets, the increased amount is transferred to a reserve named Revaluation reserve.
• Bonus shares are those shares which are issued to the members of the company free of cost.
• Securities Premium account:- When shares are issued at a price higher than the face value, such excess
amount is transferred to an account called securities premium a/c. (Explained in earlier videos in detail.)
• Capital Redemption Reserve:- Every company before redeeming its preference shares has to transfer an
amount equal to the face value of the shares to be redeemed to a separate account called CRR. (Explained in
earlier videos in detail.)
CONDITIONS FOR ISSUING BONUS SHARES
1. Bonus shares shall be issued only if-
a. It is authorised by its articles

b. It is authorised in the general meeting of the company.
c. Company has not defaulted in payment of –
i) Payment of interest or principal on Fixed deposits or debt securities.
ii) Statutory dues of the employees like gratuity, bonus and contribution to Provident fund
2. Convert the partly paid up shares into fully paid up.
3. Bonus shares shall not be issued in lieu of dividend.
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Concept Check
What are some of the reserves which are ineligible for issuing bonus shares?
a) Capital Reserves
b) Debenture redemption reserve
c) Revaluation reserve
d) Statutory reserves like site restoration fund etc.

Practice Questions
Bonus shares cannot be issued from………………..

1. Revaluation Reserve
2. Securities Premium account
3. General Reserve
4. Profit & loss (cr.) balance in balance sheet
Ans: Option 1
Which of the following defaults shall be made good before issuing bonus shares?
1. Redemption of debentures
2. Payment of statutory dues to employees
3. Payment of interest on fixed deposits
4. All of the above
Ans: Option 4
Companies Act, 2013--> Chapter IV- Share Capital & Debentures- Section 64
Notice to be given to Registrar for Alteration of share capital
A company alters Order by the Government A company redeems any

its share capital by increases authorised capital redeemable preference shares
itself of the company
The company can file a notice of such alteration in the Form No. SH.7 with ROC within a period of 30 days
of the alteration.
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Section 64. Notice to be given to Registrar for Alteration of share capital
PENALTY FOR CONTRAVENTION
ON COMPANY & EVERY OFFICER IN DEFAULT
LOWER LOWER OF
Rs. 1000 for each

day during which Rs. 5 Lakh
default continues
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Concept Check
What is meant by redemption of preference shares? Which reserve is created before redemption of
preference shares?
Redemption of preference shares, in easy terms, means returning the preference share capital to the
preference shareholders after a certain period of time during the lifetime of the company.
Before redemption of preference shares, a reserve known as Capital redemption reserve is created.
Practice Questions
What is the time period for sending notice to the ROC for informing about the alteration in capital?
1. 10 days
2. 15 days
3. 30 days
4. 45 days
Ans: Option 3
Companies Act, 2013 --> Chapter IV- -> Section 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, do
either or both of the following things-
a) Increase the nominal b) Provide that a

amount of its share specified portion of its
capital with the condition uncalled share capital
that no part of increased shall not be capable of
capital shall be called up being called up except
except in the case of wind in the event of winding
up. up
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Example :- Suppose Akbar (Unlimited Company) wants to convert into a Limited Company. It has 100000 share @
100 each= Rs.1 crore. If it converts into limited company, it has to provide for a reserve share capital. That reserve
share capital can be provided by either of the two means.
a) It can increase the nominal value of share from Rs.100 to 120 and say that the 20Rs will be called up only on
the time of winding up.
b) Suppose out of Rs.100, only Rs.70 was called up, it can say that the rest Rs. 30 will be called only at the time of
winding up.
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Concept Check/ Practice Question
An unlimited company with shares shall before converting into ………… provide for a reserve share
capital.
a) LLP
b) Limited company
c) Partnership firm
d) All of the above
Ans :- Option B
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Chapter IV of Companies Act – Share Capital & Debentures
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Companies Act 2013 -> Section 66 – Reduction of share capital
Company shall
Company shall
make an Confirmation by
pass a Special
application to the tribunal
Resolution
Tribunal
A company can
reduce its share
capital in any
manner-
Manner of share capital reduction / How share capital is reduced
i) Extinguish or reduce
ii) Cancel any paid up iii) Pay off any paid up
the liability on any of
share capital which is share capital which is
its shares in respect of
lost or represented by in excess of the wants
share capital not paid
unavailable assets. of the company
up.
Alter its memorandum by

reducing the amount of its
share capital and of its shares.
Exception:
No reduction shall be made if the company is in arrears in repayment of deposits or any interest payable thereon.
TERM EXPLAINER
• Extinguish or reduce the liability on any of its shares in respect of share capital not paid up
Suppose Amar Ltd has issued 1000 shares of Rs. 10 each on which Rs. 7 were called up and paid up the shareholders. The
company, for reduction of its share capital, can extinguish the 3 Rs. Liability on the shares and say that now the shares is
worth Rs.7 only.
• Cancel any paid up share capital which is lost or represented by unavailable assets.
Suppose Akbar Limited has share of face value Rs.100 each fully paid up represented by Rs.75 worth of real assets and
Rs.25 fictitious assets. In such a case, reduction of share capital may be effected by cancelling Rs.25 per share and writing
off fictitious assets.
• Pay off any paid up share capital which is in excess of the wants of the company
Suppose Anthony Limited has issued 1000 shares of Rs. 10 each on which Rs. 10 was called and paid up. Now the company
can reduce its share value to Rs. 8 and return back Rs. 2 to the shareholders if the company feels that it is not required by
the company.
Companies Act 2013 -> Section 66 – Act
Companies Reduction
2013 ->ofSection
share capital
66 – Reduction of share capital
The tribunal shall give

notice
a) Central Government
If no representation is The tribunal( if
CG,ROC,SEBI and
b) ROC received within the satisfied) make an
creditors can make any
aforesaid period, it order confirming the
representations within
c) SEBI ( if company is shall be deemed that reduction of share
3 months from the date
listed) they have no objection capital on such terms
of receipt of notice.
to the reduction. as it deem fit.
d) The creditors of the
company
The company shall deliver a The Company shall a) Debt should be

certified copy of the order publish the order of discharged OR
ROC shall register the of tribunal and minutes confirmation of b) Debt should be
same and issue a approved by the tribunal to reduction in such secured OR
certificate to that effect. the ROC within 30 days of manner as Tribunal c) Consent of
the receipt of order. direct. creditor is
obtained
Minutes shall contain the following details:-
i. The amount of share capital
ii. The no. of share into which it is to be divided
iii. The amount of each share
iv. The amount at the date of registration deemed to be paid up on each share
Tribunal shall not sanction the application for reduction unless the accounting treatment proposed by the company for
reduction is in conformity with accounting standards specified in section 133 and a certificate for that by the Company’s
Auditor has been filed with the Tribunal.
PENAL PROVISIONS
Failure to publish the

Penalty on company
order of reduction as
Minimum= 5 Lacs
per directions of
Maximum=25 Lacs
Tribunal
❑ Maximum liability of past or present member
The member shall be liable to maximum
[Amount of share as fixed by order of reduction – Amount paid on the share]
Example :- Suppose shareholder has paid Rs. 5 on a share whose face value is Rs.10. Now the tribunal reduced the
value to Rs. 8. The maximum of liability on that share for the shareholder shall be Rs.8- Rs.5= Rs.3
If the name of any creditor, After such reduction

who could object to capital + company commits a =
reduction, is not entered in default Under the
the list of creditors given to Insolvency and
tribunal Bankruptcy Code,2016
1. In case company not

wound up, Every member Shall be liable to Amount maximum to his
of the company(as on the contribute to the unpaid liability on his
date of registration of payment of that debt shares.
order of reduction)
2. If the company has Tribunal on application of Settle a list of persons so

wound up any such creditor liable and call money
from them.
If any officer of the company
Knowingly misrepresents
Knowingly conceals Abets (assists) to
the nature of amount of
the name of creditor such concealment
claim of the creditor
He shall be punishable
under section 447
Concept Check
The tribunal before sanctioning the reduction of capital shall ensure…………..
a) That accounting standards are in conformity with section 133 and certificate for that is to be
provided from the auditor
b) That the debts of creditors are discharged or secured or their consent is obtained
c) That representations of various authorities is considered.

Practice Questions
In case of reduction of capital, when the company has wound up, the creditor shall make an application to which of the
following authorities to settle his claims?
1. Central Government
2. ROC
3. NCLT
4. SEBI
Ans: Option 3
What shall be the maximum penalty that can be imposed on a company if it fails to publish the order of tribunal in the
manner as prescribed?
1. 5 Lacs
2. 10 Lacs
3. 15 Lacs
4. 25 Lacs
Ans: Option 4
Rule 13 of Companies (Share Capital and Debentures) Rules --> ISSUE OF SHARES ON PREFERENTIAL BASIS
For issuing shares on The allotment of

1. In case of listed
preferential basis, securities on preferential
company, follow
company has to pass basis should be made
provisions of SEBI.
SPECIAL RESOLUTION in within 12 months from
2. In case of Unlisted
general meeting and date of passing of SR. (If
company, follow the
comply with the allotment not completed
provisions of the Act and
conditions of Private within 12 months, Pass
rules.
Placement (Section 42) new SR)
Provisions of Rules
1. Authorization in Articles
2. Special Resolution to be passed
3. Certain disclosures to be made
Where convertible securities are issued, the price of resultant shares shall be determined :-
i) At the time of issue of convertible securities
OR
ii) Not earlier than 30 days before the date when the security holder is entitled to apply for shares.( The valuation report on the basis of
which price shall be determined shall be given atleast 60 days prior to the date when the holder of security becomes entitled to apply for
shares)
Term Explainer:-
Preferential offer means an issue of shares or other securities, by a company to any select group of persons on a
preferential basis. It does not include:-
a) Right issue
b) Public issue
c) Bonus issue
d) Issue of sweat equity shares
e) ESOP
f) Issue of Depository receipts
CONCEPT CHECK
Is Preferential Issue same as Private Placement?
No, they are similar terms but not the same.
In private placement the invitation or offer of securities is made to specific investors. (including
Qualified Institutional Buyers like banks, insurance company)
Preferential allotment is the issuing of shares to group of people to raise cash.
Apart from the above difference there are other differences regarding documents to be furnished,
mode of receiving payment, valuation report etc.
Practice Questions
Once the SR is passed, within how much time should the company do the allotment of securities under preferential
allotment?
1. 3 months
2. 6 months
3. 9 months
4. 12 months
Ans: Option 4
The valuation report shall be given atleast………. Days prior of the day on which the holder of the convertible securities in
entitled to convert them into shares.
1. 30
2. 60
3. 45
4. 90
Ans: Option 2
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Section 67 --> Restrictions on Purchase by Company or Giving of Loans by it for Purchase of its Shares
No company shall have power to buy its own shares.
(direct or indirect and whether by means of a loan, guarantee, the provision of security or otherwise)
No public company shall give any financial assistance for the purpose of a purchase by any person of any shares in
the company or in its holding company. EXCEPTIONS are given below
Company giving loans to employees of the company

If money is granted by company for the (other than its directors or key managerial
purchase of the shares is by trustees for the personnel) forPurchase
an amount notSharesz
exceeding their salary
Restrictions on Purchase
benefit of the employees and company by Company or Giving of Loans by it for of its
or wages for a period of six months to enable them to
authorises it through Special Resolution for purchase fully paid-up shares in the company or its
purchasing fully paid up shares. holding company.
The lending of money by a banking company

in the ordinary course of its business
• A person shall not be appointed as a trustee to hold such shares, if he-
a) is a director, key managerial personnel or promoter of the company or its holding, subsidiary or associate
company or any relative of such director, key managerial personnel or promoter; or
b) beneficially holds ten percent or more of the paid-up share capital of the company.
(direct or indirect and whether by means of a loan, guarantee, the provision of security or otherwise)
Company --> Fine
• Minimum - One lakh rupees

• Maximum - Twenty-five lakh rupees
If a company contravenes the provisions of this and
section
Officer in default--> Imprisonment
• Maximum - Three years and
Fine

• Maximum - Twenty-five lakh rupees
Section 67 shall not apply to

i. Private Companies
ii. Specified IFSC Public Companies
if they satisfy the conditions
▪ In whose share capital no other body corporate has invested any money.
▪ If the borrowings of such a company from banks or financial institutions or any body corporate is less than twice
its paid up share capital or fifty crore rupees, whichever is lower; and
▪ Such a company is not in default in repayment of such borrowings subsisting at the time of making transactions
under this section.
Provision of Money by Company for Purchase of its Own Shares by Employees or by Trustees for the Benefit of
Employees
Conditions
▪ The scheme of provision of money for purchase of the shares is approved by the members by passing special
resolution in a general meeting;
▪ Such purchase of shares shall be made only through a recognized stock exchange in case the shares of the company
are listed and not by way of private offers or arrangements;
▪ The value of shares to be purchased or subscribed in the aggregate together with the money provided by the
company shall not exceed five per cent. of the aggregate of paid up capital and free reserves of the company;
Section 68 --> Power of Company to Purchase its own securities
A company may buy back its own shares or other specified securities out of -
its free reserves the securities premium the proceeds of the issue of any
account shares or other specified securities
The shares or other specified

security should not be of the same
kind as bought back.
Section 68 is an exception section to Section 67

Conditions for buyback
1. Authorisation in Article of Association
2. Shares to be bought back must be fully paid up
3. Special resolution at General Meeting of the company.
4. For listed company, follow the regulations of SEBI in this behalf
5. No buyback within a period of 1 year from the date of the closure of the preceding offer of buyback.
If the buyback is for 10 % or less of the paid up equity capital and free reserves of the company, then
▪ No need of Special Resolution. Only Board Resolution is sufficient.
Conditions for buyback
Maximum shares that can be bought back-

You have to check the 3 conditions below and calculate the maximum shares bought back according to the three
conditions. The LEAST of the three shall be the number of shares company can buyback.
a) Buy back is 25% or less of the aggregate paid up capital and free reserves of the company
b) The maximum equity shares that can be bought back in a financial year can be maximum 25% of the total number of
outstanding shares.
c) Post buyback the company has to maintain a debt equity ratio of 2:1.
A company wants to do buyback. This is the capital structure of the company. The company offered a buyback price of Rs.
30 per share. You are required to compute the maximum permissible number of shares that can be bought back.
S.No. Particulars In Crores

1. Equity share capital (of Rs. 10 each) 330
2. Reserves & Surplus 420
3. Loan Funds 1500
SOLUTION
Share Outstanding Test
Particulars Shares in crores
No. of shares outstanding 33
25% of shares outstanding 8.25
Resources Test
Particulars in crores
Shareholders’ Funds + Free Reserves 750
25% of shareholders’ funds 187.5
Buyback price per share 30
No. of shares to be bought back 6.25 crores
Debt Equity Ratio Test

Particulars in crores
Loan funds 1500
Minimum equity to be maintained after buyback 750
Current equity 750
Maximum shares to be bought back NIL
Particulars Shares that can be bought back

Shares outstanding Test 8.25
Resources Test 6.25
Debt Equity Test Nil
Maximum Permissible shares to be bought back NIL
6. Buyback shall be completed within 1 year of the date of passing of Special Resolution or Board Resolution as the
case maybe.
7. Buyback can be done from –
• Existing security holders on proportionate basis
• Open market
• The employees of the company to whom security issues under ESOP or sweat equity.
8. Before buyback, company shall file with ROC & SEBI a DECLARATION OF SOLVENCY in Form No. SH 9 signed by
atleast 2 directors , one of whom shall be managing director.
The Declaration shall state that company has made full enquiry that companies is capable of paying its liabilities and
will not be declared insolvent within 1 year from date of declaration adopted by the board. (No filing to SEBI in case of
unlisted companies)
9. Securities bought back shall be extinguished and physically destroyed within 7 days of last day of completion of
buyback.
10. Where a company completes a buy-back of its securities, it shall not make a further issue of the same kind of
securities within a period of six months.
Except by way of a bonus issue or conversion of subsisting warrants, stock option schemes, sweat equity or
conversion of preference shares or debentures into equity shares.
11. Where a company buys back its securities, it shall maintain a register of the shares or securities so bought in
Form No. SH 10
12. A company shall, after the completion of the buy-back under this section, file with the Registrar and the Securities
and Exchange Board a return containing such particulars relating to the buy-back within thirty days of such
completion in Form No. SH 11.
13. Along with return, there shall be attached a certificate in Form No. SH 15 signed by two directors of the company
including the managing director certifying that the buy-back of securities has been made in compliance with the
provisions of the Act and the rules
14. The offer for buy-back shall remain open for a period of not less than fifteen days and not exceeding thirty
days from the date of dispatch of the letter of offer.
(Where all members of a company agree, the offer for buy-back may remain open for a period less than
fifteen days.)
15. The company which has been authorized by a special resolution shall, before the buy-back of shares, file with the
Registrar of Companies a letter of offer in Form No. SH.8
16. The letter of offer shall be dispatched to the shareholders or security holders immediately after filing the same
with the Registrar of Companies but not later than twenty days from its filing with the Registrar of Companies.
Penalty on Company
Fine
• Minimum - one lakh rupees
If a company makes any default in • Maximum - three lakh rupees
complying with the provisions of this
section And
Penalty on officer in default
Imprisonment
• Maximum three years or
Fine
• Maximum - three lakh rupees
or with both
Concept Questions
Within how many days of buyback, the share certificate be physically destroyed? 7 days
Buyback shall be completed within how much time of passing SR 1 Year
Post buy back the company shall maintain a debt equity ratio of 2:1
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Section 69 --> Transfer of Certain Sums to Capital Redemption Reserve Account
Transfer a sum equal to nominal value of

Whenever company purchases its owns
shares so purchased to THE CAPITAL
shares out of
REDEMPTION RESERVE ACCOUNT.
• Free reserves
(Details of such transfer be recorded in the
• Securities Premium A/c
balance sheet)
Utilisation of CRR A/c – For issuing FULLY PAID bonus shares to members of the company.
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Section 70 --> Prohibition of buy back in certain circumstances
No company shall directly or indirectly purchase its own shares or other specified securities
through any subsidiary through any investment if a default is made by the company,
company including its own company or group of ▪ in the repayment of deposits
subsidiary companies investment companies ▪ interest payment 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
financial institution or banking
company
The buy-back is not prohibited, if the default is remedied and a period of three years has lapsed after such default
ceased to subsist
Section 70 --> Prohibition of buy back in certain circumstances
No company shall directly or indirectly purchase its own shares or other specified securities in case such
company has not complied with provisions of
Section 123--> Section 127--> Section 129-->

Section 92 -->Annual
Declaration of Failure to Financial
Return
Dividend Distribute Statements
Dividends
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Concept Questions
A company wants to buyback shares it has issued to its members. The shares are of Rs. 10 each but were issued at Rs.
12 to the members. The company is buy backing the shares out of its free reserves @Rs. 15 per shares. What is the
amount to be transferred to Capital Redemption Reserve given that 10,000 shares are to be bought back?
The amount to be transferred to CRR= 10000*10 Rs.= Rs.1,00,000/-
Does the company needs to transfer amount to CRR if the company is doing buyback of shares using the proceeds of
fresh issue of shares?
NO
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Section 71 --> Debentures
CONVERTIBLE DEBENTURES
A company may issue debentures with an option to convert such debentures into shares, either wholly or partly at
the time of redemption
Such issue must be approved

by a Special Resolution at a
General Meeting.
Debentures cannot carry any voting rights.
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DEBENTURE REDEMPTION RESERVE
Where debentures are issued by a company, the company shall create a debenture redemption reserve account out of
the profits of the company available for payment of dividend( free reserves)
And the amount credited to such account shall be utilised by the company only for the redemption of debentures
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DRR is not required for

• All India Financial Institutions regulated by
RBI and Debenture Redemption Reserve shall be
• Banking Companies applicable to Financial Institutions as per Section
for both public as well as privately placed 2 of Companies Act
debentures
(i) the Life Insurance Corporation of India

(ii) the Infrastructure Development Finance Company Limited,
(iii) specified company referred to in the Unit Trust of India
(iv) institutions notified by the Central Government
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LISTED COMPANIES
DRR is not required for UNLISTED COMPANIES (other than ALL India
• In case of public issue or private placement of Financial Institutions & Banking companies)
debentures.
for NBFCs registered with RBI and for other unlisted companies, the
for Housing Finance Companies, DRR adequacy of DRR shall be ten
is not required in case of privately percent. of the value of the
placed debentures outstanding debentures.
• For companies required to create a DRR, it shall on or before the 30th day of April in each year invest, a sum
which shall not be less than fifteen percent., of the amount of its debentures maturing during the year,
ending on the 31st day of March of the next year in any of the methods of investments as provided.
• Provided that the amount remaining invested shall not any time fall below fifteen percent. of the amount of the
debentures maturing during the year ending on 31st day of March of that year.
Mode of investments
A. in deposits with any scheduled bank
B. in unencumbered securities of Central Government or any State Government;
C. in unencumbered securities of the Indian Trusts Act, 1882;
D. in unencumbered bonds issued by any other company which is notified under the Indian Trusts Act, 1882 :
Note :- In case of convertible debentures, DRR shall be created only for non-convertible portion of debenture.
DEBENTURE TRUSTEE
If the company wants to issue debentures to more than 500 persons, it shall not issue a prospectus or make offer to
public until and unless it has appointed a Debenture Trustee.
• It is the duty of Trustee to show degree of care & due diligence required of him. If he fails to do so, he shall be held
liable for breach of trust.
• Also any provision in any contract and trust deed exempting him of his liability would be void.
Exemptions in liability of trustee can be given only by majority of debenture-holders holding not less than three-
fourths in value of the total debentures at a meeting held for this purpose.
Debenture Trustee :- Debenture trustee is a person who safeguards the interest of debenture holders and serves as a
liaison between the issuer company and the debenture holders. A debenture trustee shall take steps to protect the
interests of the debenture-holders and redress their grievances.
Where at any time the debenture trustee comes to

a conclusion that the debenture trustee may file a petition before the
Tribunal and the Tribunal may, after hearing the
• the assets of the company are insufficient or company and any other person interested in the
• are likely to become insufficient to discharge matter
the principal amount as and when it becomes due
impose such restrictions on the incurring of any further liabilities by the company
as the Tribunal may consider necessary in the interests of the debenture-holders.
A person is disqualified to become a debenture trustee if he
a. beneficially holds shares in the company
b. is a promoter, director or key managerial personnel or any other officer or an employee of the company or its
holding, subsidiary or associate company;
c. is beneficially entitled to moneys which are to be paid by the company otherwise than as remuneration
payable to the debenture trustee;
d. is indebted to the company, or its subsidiary or its holding or associate company or a subsidiary of such
holding company;
e. has furnished any guarantee in respect of the principal debts secured by the debentures or interest thereon;
f. has any pecuniary relationship with the company amounting to two per cent. or more of its gross turnover or
total income or fifty lakh rupees, whichever is lower, during the two immediately preceding financial years or
during the current financial year;
g. is relative of any promoter or any person who is in the employment of the company as a director or key
managerial personnel
requisition in writing signed by debenture

holders holding at least one-tenth in value of
the debentures.
The meeting of all the debenture

holders shall be convened by the
debenture trustee on-
the happening of any event, which constitutes
a breach, default or which in the opinion of the
debenture trustees affects the interest of the
debenture holders.
Form for Trust Deed of Debenture shall be Form No. SH 12.

A company shall pay interest and redeem the debentures in accordance with the terms and conditions of their issue.
the Tribunal may, on the application of any or

Where a company fails to redeem the debentures
all of the debenture-holders, or debenture
on the date of their maturity or fails to pay interest
trustee and, after hearing the parties
on the debentures when it is due
concerned
direct, by order, the company to redeem the

debentures forthwith on payment of principal
and interest due thereon.
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CONDITIONS FOR ISSUE OF SECURED DEBENTURES
• An issue of secured debentures may be made, provided the date of its redemption shall not exceed ten years
from the date of issue.
• For Infrastructure companies or companies allowed by Government or statutory authority may issue debentures
with redemption period more than 10 years but not more than 30 years.
• The company shall appoint the debenture trustee before the issue of prospectus or letter of offer for
subscription of its debentures and not later than sixty days after the allotment of the debentures, execute a
debenture trust deed to protect the interest thereon.
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If any default is made in complying Penalty on officer in default

with the order of the Tribunal
• imprisonment for a term which may
extend to three years or
• with fine which shall not be less than

two lakh rupees but which may extend
to five lakh rupees, or
• with both.
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Section 72 --> Power to Nominate
Every holder of securities of a company may, at any time, nominate in Form No. SH.13 any person to whom his
securities shall vest in the event of his death.
In case of Joint holders, all joint holders shall together nominate in Form No.SH.13 any person as nominee
The request for nomination should be recorded by the Company within a period of two months from the date of
receipt of the nomination form.
• A nomination may be cancelled, or varied by nominating any other person in place of the present nominee, by
the holder of securities who has made the nomination, by giving a notice of such cancellation or variation, to the
company in Form No. SH.14.
• The cancellation or variation shall take effect from the date on which the notice of such variation or cancellation
is received by the company.
Section 72 --> Power to Nominate
• Where the nominee is a minor, the holder of the securities, making the nomination, may appoint a person in
Form No. SH 13, who shall become entitled to the securities of the company, in the event of death of the
nominee during his minority.
• In the event of death of the holder or all the joint holders of securities, the person
nominated as the nominee elect, either
to register himself as holder of the OR to transfer the securities to a third

securities person
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Concept Questions
The Form for Nomination of Nominee is ________ SH 13
Debentures shall be issued for a maximum period of ______ years 10 Years
The amount transferred to DRR shall be _______________ of the value of

outstanding debentures. 10%
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Happy Learning!
Chapter VIII of Companies Act – Declaration and Payment of Dividend
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Dividend
A dividend is the distribution of some of a company's earnings to its shareholders, as determined by the company's
board of directors.
Invest money in the shares of the company
Company pays a part of its profits to shareholders known as Dividends.
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Section 123 --> Declaration of Dividend
Sources of paying Dividend by a company
Money provided by CG or SG, if

Current year profits Free reserves of the company
they have given such guarantee.
a. These profits shall be after depreciation.

b. While calculating these profits, unrealised gains, notional gains, any change
on revaluation of assets shall be excluded
c. Previous year losses and unabsorbed depreciation shall be set off against
profits of the current year.
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Interim Dividend
An interim dividend is a distribution to shareholders that has been both declared and paid before a
company has determined its full-year earnings.
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Interim Dividend
The Board of Directors of a company may declare interim dividend

• during any financial year or
• at any time during the period from closure of financial year till holding of the annual general meeting.
• out of the surplus in the profit and loss account or

• out of profits of the financial year for which such interim dividend is sought to be declared or
• out of profits generated in the financial year till the quarter preceding the date of declaration of the interim dividend.
INTERIM DIVIDEND FINAL DIVIDEND

INTERIM DIVIDEND
01/04/2018 31/03/2019 Date of AGM

SOURCES OF INTERIM DIVIDEND
Out of profits for the this year
01/04/2018 Date of AGM

31/03/2019 Date of Declaration
of interim dividend,
suppose 31/07/2019
Out of reserves
at the beginning
of the year Out of profits generated in the financial year till
quarter preceding date of declaration of interim
dividend. (Here, 01/04/2019-30/06/2019)
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In case the company has incurred loss during the current financial year up to the end of the quarter immediately
preceding the date of declaration of interim dividend, such interim dividend shall not be declared at a rate higher than
the average dividends declared by the company during the immediately preceding three financial years.
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How dividend can be paid?
The dividend can be paid in the following ways:-

 Cash
 Cheque
 Dividend warrant
 Electronic mode
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A company which fails to comply with the provisions of sections 73 & 74 shall not, so long as such failure
continues, declare any dividend on its equity shares.
Section 73 – Acceptance of deposits

Section 74 – Repayment of deposits
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Declaration of Dividend out of reserves
In the event of inadequacy or absence of profits in any year, a company may declare dividend out of free reserves
subject to the fulfilment of the following conditions
1. The rate of dividend declared shall not exceed the average rate of dividend for the immediately preceding three years
(This sub-rule shall not apply to a company, which has not declared any dividend in each of the three preceding financial
year.)
Example 1 - Dividends for last three years is 10%,15%,11% respectively. If in current year, company wants to pay
dividend out of free reserves owing to inadequacy of profits, maximum rate of dividend can be
(10+15+11)/3=12%.
Example 2 - Dividends for last three years is 10%,0%,12% respectively. In this case, the rule of average rate of
dividend of previous 3 years shall not apply.
2. The amount so drawn shall first be utilised to set off the losses incurred in the financial year in which dividend is
declared before any dividend in respect of equity shares is declared.
3. The total amount to be drawn from such accumulated profits shall not exceed one-tenth of the sum of its paid-up share
capital and free reserves as appearing in the latest audited financial statement.
4. The balance of reserves after such withdrawal shall not fall below fifteen per cent of its paid up share capital as
appearing in the latest audited financial statement.
Example 3 – Paid up capital of the company = 100 crores

Free reserves of the company = 20 crores
Point 3 – Maximum amount that can be withdrawn = 10% of (100+20) = 12 crores.

Point 4 – Maximum amount that can be withdrawn = 20 – (15% of 100)= 5 crores.
So the maximum amount that can be withdrawn from free reserves for dividend is least of the two i.e. Rs. 5 crores.
Section 123 & 124
If amount not transferred within 7

days to unpaid dividend account,
Interest @ 12% shall be levied.
Within 90 days of
Within 5 days of Within 30 days of Within 7 days from the transfer to unpaid
declaration declaration expiry of 30th day. Dividend account
Declaration of Deposit in a Dividend not Transfer Prepare

Dividend scheduled bank paid/ not amount to statement and
in a separate claimed Unpaid place on the
account Dividend website of
account company
If Dividend not paid/ warrant

not posted by company
Pay Dividend to within 30 days of declaration,
shareholders interest @ 18 % per annum
shall be levied.
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Section 124 --> Unpaid Dividend Account
Any person claiming to be entitled to any money transferred to the Unpaid Dividend Account of the company may
apply to the company for payment of the money claimed.
Any money transferred to the Unpaid Dividend Account of a company which remains unpaid or unclaimed for a
period of seven years from the date of such transfer shall be transferred by the company along with interest accrued,
to the Investor Education and Protection Fund.
All shares in respect of which dividend has not been paid or claimed for seven consecutive years or more shall
be transferred by the company in the name of Investor Education and Protection Fund along with a statement.
Any claimant of shares transferred above shall be entitled to claim the transfer of shares from Investor Education and
Protection Fund on submission of required documents.
Clarification -: It is hereby clarified that in case any dividend is paid or claimed for any year during the said period of
seven consecutive years, the share shall not be transferred to Investor Education and Protection Fund
 Company -->
• Fine
If a company fails to comply with any of
the requirements of this section, • Minimum - Five lakh rupees
• Maximum - Twenty-five lakh rupees and
 Every officer in default -->
• Fine

• Maximum - Five lakh rupees.
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Concept Questions
Amount in the Unpaid Dividend account lying there for ____________ years must be transferred to IEPF.
Within _______________ days of declaration of dividend, the money shall be deposited in a separate account in a scheduled
bank.
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Happy Learning!
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Section 125 --> Investor Education and Protection Fund
The IEPF is established by the Central Government.
Amount that shall be credited to this Fund.
a) The amount given by the Central Government by way of grants after due appropriation made by Parliament for
being utilised for the purposes of the Fund.
b) Donations given to the Fund by the Central Government, State Governments, companies or any other institution.
c) The amount in the Unpaid Dividend Account of companies transferred to the Fund.
d) The amount in the general revenue account of the Central Government which had been transferred to that account
under the Companies Act, 1956.
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e) The amount lying in the Investor Education and Protection Fund under the Companies Act, 1956
f) The interest or other income received out of investments made from the Fund;
g) The amount received under section 38 (amount received through disgorgement or disposal of securities)
h) The application money received by companies for allotment of any securities and due for refund;
i) Matured deposits with companies other than banking companies
j) Matured debentures with companies
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k) Interest accrued on the amounts referred to in clauses (h) to (j)
i) Sale proceeds of fractional shares arising out of issuance of bonus shares, merger and amalgamation for seven or more
years.
j) Redemption amount of preference shares remaining unpaid or unclaimed for seven or more years
No such amount referred to in clauses (h) to (j) shall form part of the Fund unless such amount has remained unclaimed
and unpaid for a period of seven years from the date it became due for payment.
Utilisation of the Fund
• The refund in respect of unclaimed dividends, matured deposits, matured debentures, the application money due
for refund and interest thereon;
• Promotion of investors' education, awareness and protection;
• Distribution of any disgorged amount among eligible and identifiable applicants for shares or debentures,
shareholders, debenture-holders or depositors who have suffered losses due to wrong actions by any person, in
accordance with the orders made by the Court which had ordered disgorgement
• Reimbursement of legal expenses by members, debenture-holders or depositors as may be sanctioned by the

Tribunal
• Any other purpose incidental thereto

The Central Government shall constitute an authority for administration of the Fund consisting of a chairperson and
six other members, and a chief executive officer.
• Chief Executive Officer is the convenor of the Authority.
• The Secretary Ministry of Corporate Affairs shall be the ex-officio Chairperson of the Authority.
The authority shall administer the Fund and maintain separate accounts and other relevant records in relation to the
Fund after consultation with the Comptroller and Auditor-General of India.
The accounts of the Fund shall be audited by the Comptroller and Auditor- General of India at such intervals as may
be specified by him and such audited accounts together with the audit report thereon shall be forwarded annually by
the authority to the Central Government.
The authority shall prepare for each financial year its annual report giving a full account of its activities during the
financial year and forward a copy thereof to the Central Government and the Central Government shall cause the
annual report and the audit report given by the Comptroller and Auditor-General of India to be laid before each
House of Parliament.
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MEMBERS
• The members of the Authority shall hold office for a period of three years and shall be eligible for reappointment
• No member shall hold office for more than three terms.
• A member shall be eligible for reappointment after expiration of cooling off period of three years after his term.
• The members appointed shall hold office for a period of three years or till attaining the age of 65 years whichever is
earlier.
• The Central Government shall have the right to terminate the services of a member appointed before the expiry of the
period, by giving him notice of not less than three months in writing and
• A member shall also have the right to relinquish his office before the expiry of the period specified by giving to the
Central Government notice of not less than three months in writing.
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MEETINGS
• If the Authority or its Committees has to hold a meeting elsewhere than in New Delhi, the approval of the Chairperson
of the Authority shall be obtained indicating the reasons thereof.
• The Authority and the Committees shall meet at least once in a quarter and at least four such meetings shall be held
in a financial year.
• Provided that not more than one hundred and twenty days shall intervene between two consecutive meetings.
• More than fifty percent appointed Members of the Authority shall constitute the quorum for the transaction of
business at a meeting of the Authority.
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Concept Questions
Maximum gaps between 2 meetings of IEPF can be ________________.
120 days
The Head Office of IEPF is at _____________.
New Delhi
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Happy Learning!
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Section 126 --> Right to Dividend, Right shares and bonus shares to be held in Abeyance Pending registration of transfer of shares
1.
Transfer deed delivered Declaration of dividend Registration of

to company transfer of securities
Transfer the dividend in relation to such shares to the Unpaid Dividend Account unless the company is authorised by
the registered holder of such shares in writing to pay such dividend to the transferee.
2.
Transfer deed delivered Right shares / Bonus shares Registration of

to company transfer of securities
Such shares shall be kept in abeyance(hold).

Section 127 --> Punishment for failure to Distribute Dividends
Where a dividend has been

OR the dividend warrant has not
declared by a company but has
been posted
not been paid
within thirty days from the date of declaration to any shareholder
 every director of the company shall, if he is knowingly a party to the default, be punishable with
• Imprisonment - Maximum two years and
• Fine - Minimum one thousand rupees for every day during which such default continues and
 the company shall be liable to pay simple interest at the rate of eighteen per cent per annum during the period for
which such default continues:
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Section 127 --> Punishment for failure to Distribute Dividends`
No offence and no liability of company or director in the following cases:-
1. Where the dividend could not be paid by reason of the operation of any law
2. Where a shareholder has given directions to the company regarding the payment of the dividend and those directions
cannot be complied with and the same has been communicated to him
3. Where there is a dispute regarding the right to receive the dividend
4. Where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder
5. Where the failure to pay the dividend or to post the warrant within the period under this section was not due to any
default on the part of the company
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Section 127 --> Punishment for failure to Distribute Dividends`
In case of Nidhi Company,
where the dividend payable to a member is one hundred rupees or less
It is sufficient if the declaration of dividend is announced in the local language in one local newspaper of wide
circulation and announcement of the said declaration is also displayed on the notice board of the Nidhi for at least three
months.
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Concept Questions
If dividend has not been paid by the company within 30 days of declaration, then simple interest @ _______________ p.a.
shall be levied.
18%
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Happy Learning!
Chapter X of Companies Act – Audit and Auditors
Sections 144 to 148
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Companies Act 2013 -> Section 144 – Auditor not to Render Certain Services
Auditor not to Render Certain Services
1. Auditor shall provide services as are approved by the Board of Directors or the audit committee
2. Auditors shall not provide the following services directly or indirectly to the company or its holding company or
subsidiary company
I. accounting and bookkeeping services
II. internal audit;
III. design and implementation of any financial information system;
IV. actuarial services;
V. investment advisory services, investment banking services and Financial services;
VI. Management service
Term Explainer : Directly and Indirectly

1. In case auditor is individual then any of his relative or any entity in which auditor has influence or control or any entity
who brand name is used by auditor will be directly or indirectly related to the auditor and services provided by them
would be directly or indirectly provided by auditor
2. In case of auditor being a firm , any partner of the firm, parent entity or subsidiary of the firm or any entity in which
partner has influence or control or any entity who brand name is used by firm or its partners will be directly or
indirectly related to the auditor and services provided by them would be directly or indirectly provided by auditor
Companies Act 2013 -> Section 145 – Auditor to Sign Audit Reports, etc.
Auditor to Sign Audit Reports, etc.
1. The person appointed as an auditor of the company shall sign the auditor’s report
2. Observations or comments on financial transactions which have any adverse effect on the functioning of the
company mentioned in the auditor’s report shall be read before the company in general meeting and shall be open
to inspection by any member of the company
Companies Act 2013 -> Section 146 – Auditor to attend General Meeting.
Auditor to attend General Meeting
1. All notices of related to any general meeting shall be forwarded to the auditor of the company
2. The auditor shall (unless otherwise exempted by the company) attend all general meeting. If auditor is not able to
attend the meeting, then he shall send his authorized representative and that authorized representative shall also be
qualified to be an auditor.
3. In general meeting auditor shall have right to be heard or put across his view on any part of the business which
concerns him as the auditor.
Companies Act 2013 -> Section 147 – Punishment for Contravention
Punishment for Contravention
Punishment can be for Violation by Companies or by Auditors
Punishment to Companies Punishment to Auditors
Let's Discuss them one by one

Punishment to Companies
The company shall be punishable with fine of minimum of twenty-five thousand rupees, but which may be extended
to five lakh rupees
Every officer of the company who is in default shall be punishable with
1. Imprisonment for a term up to to one year or

2. Fine which shall not be less than ten thousand rupees, but which may extend to one lakh rupees or
3. Both Imprisonment and Fine
If the directors of the company have acted in a fraudulent manner or colluded in any fraud, then the criminal or civil
liability in such a case shall be of both the firm and the directors
Term Explainer : Criminal and Civil Liability

1. Civil liability is where case is settled through payment of damages to other party (no punishment) whereas criminal
liability means they can be punished for a crime
Punishment to Auditors
Violation of any of provision of the following If the violation is just due to lax attitude but is not intended to
sections by auditor willfully deceive the company and its shareholders, then auditor
shall be punishable with fine
Section 139 - Appointment of Auditors 1. Minimum - twenty-five thousand rupees
Section 143 – Powers and Duties of Auditor except 2. Maximum - Five lakh rupees or four times the remuneration
Reporting of Frauds of the auditor, whichever is less
Section 144 – Auditor not to render certain services
Section 145 – Auditor to Sign Audit Reports, etc. If the violation is intended to willfully deceive the company and
its shareholders, then auditor shall be punishable with
1. Imprisonment for a term up to one year And

2. Fine
I. Minimum - Fifty thousand rupees
II. Maximum - Twenty-five lakh rupees or eight times the
remuneration of the auditor, whichever is less
Punishment to Auditors If the auditor has been punished either due to lax attitude or for
willfully deceiving the company and its shareholders, then
additionally he is liable to do the following also
1. He shall refund the remuneration received by him to the

company
2. Pay for damages to the company, statutory bodies or
authorities or to members or creditors of the company for
loss arising out of incorrect or misleading statements made in
his audit report.
1. If damages are to be collected from the auditor, then the

Central Government shall specify any authority or an officer
for ensuring prompt payment of damages by the auditor
If the auditors of the company have acted in a fraudulent manner or colluded in any fraud, then
1. The civil liability in such a case shall be of both the audit firm and the partners of the audit firm
2. The criminal liability

I. related to fine in such a case shall be of both the audit firm and the partners of the audit firm
II. related to any other punishment apart from fine in such a case shall be of the audit firm and only the
partners who colluded in fraud
Companies Act 2013 -> Section 148 – Central Government to Specify Audit of Items of Cost in Respect of Certain Companies
The Companies (Cost Records and Audit) Rules, 2014 – Rule 3 and 4
Central Government to Specify Audit of Items of Cost in Respect of Certain Companies
The Central Government may direct companies (having an overall turnover >= 35 crore from all its products and services
the immediately preceding financial year) that Cost data for specific items related to the utilization of material or labor
shall also be included in the books of account
Specific Items for which cost data needs to be maintained

1. Category A -> Regulated Sectors such as Telecom, Pharma, Petroleum, Fertilizers, sugar
2. Category B -> Non-Regulated Sectors such as Machinery, Turbo jets, Steel, Coffee, Tea, Minerals, Rubber, Roads and
Railways, Radars, Tanks, Arms and Ammunitions, Paper, Tyres, Milk Power, Glass etc.
Criteria for Cost Audit
The central government can also direct for cost audit of companies meeting below requirements shall be conducted
1. For the items under Category A need to conduct cost audit if

I. The overall annual turnover of the company from all its products and services during the immediately preceding
financial year is >= 50 crore And
II. The aggregate turnover of the individual product or products or services for which cost records are required to be
maintained is >= 25 crore.
2. For the items under category B, need to conduct cost audit if

II. The aggregate turnover of the individual product or products or service or services for which cost records are
required to be maintained is >= 35 crore .
Exception: A company meeting above criteria need not conduct cost audit if
I. Revenue from exports, in foreign exchange, exceeds seventy-five per cent of its total revenue or
II. It is operating from special Economic Zone
III. It is engaged in generation of electricity for captive consumption (Captive Consumption means electricity generation
facility used and managed by an industrial or commercial energy user for their own energy consumption
The Companies (Cost Records and Audit) Rules, 2014 – Rule 15
Who Shall Conduct Cost Audit
The audit shall be conducted by a Cost Accountant. The cost accountant shall be appointed in the following manner
1. In the case of companies which are required to constitute an audit committee-
I. The Board shall appoint an individual who is a cost accountant or a firm of cost accountants as cost auditor on the
recommendations of the Audit committee
II. The Audit committee shall also recommend the remuneration of the cost auditor and same shall be considered and
approved by the Board of Directors and ratified subsequently by the shareholders
2. In the case of other companies which are not required to constitute an audit committee, the Board shall appoint an
individual who is a cost accountant or a firm of cost accountants as cost auditor and the remuneration of such cost auditor
shall be ratified by shareholders subsequently
No Person appointed as Financial Auditor of the company shall be appointed for conducting the audit of cost records
Auditor conducting the cost audit shall comply with the cost auditing standards which are specified by Institute of Cost
Accountants of India
Submission of Cost Audit to Central Government
The cost auditor shall prepare a report submit to the Board of Directors of the company
Company shall within thirty days from the date of receipt of a copy of the cost audit report should send the report to Central
Government
Central Government feels some additional information is required then it can ask the company to provide the same within
such time as may be specified by that Government.
Concept Check
A company is dealing in category A products such as Pharma and Telecom, then for the company to come under the ambit of
conducting a mandatory cost audit, its overall annual turnover shall be ______ crore or more and aggregate turnover of the
individual product or products or services for which cost records are required to be maintained is _______crore or more
1. 50,25
2. 100,50
3. 100,25
4. 50,50
Ans: Option 1
If auditor has willfully deceived the company them what is maximum fine which can be imposed on him given his
remuneration is 1 lakh
1. 25 lakh
2. 33 Lakh
3. 8 lakh
4. 50 lakh
Ans: Option 3
Closure
All the sections (139 to 148) that

we discussed in Chapter X – Audit Became effective on 1/4/2014
and Auditors
Thanks
Section 143
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Companies Act 2013 -> Section 143 (1) – Powers and Duties of Auditors and Auditing Standards
Power of auditor
1. Auditor would always have a right of access to the books of account and vouchers of the company and to inquire into
following matters
I. Company has taken securities against loans given to various entities
II. All the transactions are done in the interest of the company
III. All the accounting is being done as per accounting standards
2. The auditor of a company which is a holding company shall also have the right of access to the records of all
subsidiaries and associate companies wherever it is required for consolidation of Annual Statements
Companies Act 2013 -> Section 143 (2,3 and 4) – Powers and Duties of Auditors and Auditing Standards
The Companies (Audit and Auditors) Rules, 2014 – Rule 11 – Matters to be Included in Auditor Report
Duties of Auditor
1. The auditor shall present a report in the general meeting with respect to the financial statements of the company that
he has examined the financial statements and they represent true and fair picture of the company
2. The auditor report shall also mention

I. whether, in his opinion, the financial statements comply with the accounting standards
II. whether any director is disqualified from being appointed as a director
III. any qualification, reservation or adverse remark relating to the maintenance of accounts
IV. whether the company has adequate internal financial controls in place to mitigate risk (Exception: This point is
not valid (Auditor need not include this in report) for a private company which is
I. which is a one-person company or a small company or
II. which has turnover < than rupees fifty crores as per latest audited financial statement and which has
aggregate borrowings from banks or financial institutions < than 25 crores
V. whether the company has disclosed the impact, if any, of pending litigations on the financial Position of company
VI. Whether Company has made provision for any foreseeable losses in future
VII. whether there has been any delay in transferring amounts, required to be transferred, to the Investor Education
and Protection Fund by the company.
Duties of Auditor
Additionally, following are the duties of auditor which shall apply for all the companies except
1. a banking company and Insurance company
2. One-person Company
3. a private limited company, not being a subsidiary or holding company of a public company and
I. having a paid-up capital and reserves and surplus <= one crore rupees and
II. total borrowings <= one crore rupees from any bank or financial institution at any point of time during the
financial year and
III. total revenue <= ten crore rupees during the financial year as per the financial statements and
1. whether the company is maintaining proper records showing details and situation of Property, Plant and Equipment
2. whether the company is maintaining proper records showing full particulars of intangible assets
3. whether the title deeds of all the immovable properties take on lease are in favor of company
4. whether the company has revalued its Property, Plant and or intangible assets during the year and, if yes then auditor
must specify the amount of change in value after revaluation if the change is more than 10%
5. whether physical verification of inventory has been conducted at reasonable intervals by the management whether
any discrepancies of 10% or more in the aggregate for each class of inventory were noticed
Continued on next slide
Duties of Auditor
1. whether during any point of time of the year, the company has been sanctioned working capital limits in excess of five
crore rupees, in aggregate, from banks or financial institutions based on security of current assets
2. whether during the year the company has made investments or provided any secured or unsecured loans to
companies, firms, Limited Liability Partnerships
3. If company is required to do cost audit or maintain cost records, then whether the company is doing so or not
4. whether the company has defaulted in repayment of loans or other borrowings or in the payment of interest to any
lender and if yes then what is amount of principal/Interest not paid and since how many days
5. whether the company is a declared willful defaulter by any bank or financial institution or other lender
6. whether term loans were applied for the purpose for which the loans were obtained; if not, the amount of loan so
diverted and the purpose for which it is used may be reported
7. whether funds raised on short term basis have been utilized for long term purposes, if yes, the nature and amount to
be indicated
8. whether the company has raised loans during the year on the pledge of securities
9. whether moneys raised by way of initial public offer or further public offer (including debt instruments) during the year
were applied for the purposes for which those are raised
10. whether the company has made any preferential allotment or private placement of shares
Duties of Auditor
In case of Government companies, additionally to what we have discussed till now with respect to duties of Auditor
1. CAG can direct the auditor regarding the manner which the accounts of the company are required to be audited and
auditor shall submit a report to CAG
2. CAG with in 60 days from the date of receipt of the audit report can conduct a supplementary audit
3. CAG can also conduct a test audit
Test audit is like selecting some random samples from the overall accounts and not auditing the whole accounts
The Companies (Audit and Auditors) Rules, 2014 – Rule 12 – Duties and powers of the company’s auditor with reference
to the audit of the branch and the branch auditor:
Duties of Auditor – Branch Office
1. If there is branch office (with in India or Outside India) , then the accounts of that branch must also be audited by the
company’s auditor or any other person who is not appointed auditor to company but is eligible to be appointed as
auditor
2. The person doing audit of branch shall be called branch auditor
3. The branch auditor shall submit his report to company’s auditor if branch auditor is different from company’s auditor
4. The company’s auditor shall also consider the branch audit report while making his own report and any observations
in the branch audit report shall be made in the main report
Companies Act 2013 -> Section 143 (9 and 10) – Powers and Duties of Auditors and Auditing Standards
Auditing Standards
1. Every auditor shall comply with the auditing standards
Who makes auditing Standards
The Central Government may

prescribe the standards of auditing,
as recommended by the Institute If no standards are specified by Central government
of Chartered Accountants of India, then standards of auditing specified by the Institute of
in consultation with National Chartered Accountants of India shall be deemed to be
Financial Reporting Authority the auditing standards
The auditing standards notified by

Central government may be
notified after certain modifications
in the standards recommended by
ICAI
Auditing Standards
Central Government in consultation with National Financial Reporting Authority (NFRA) can direct that auditor’s report
should include information related to certain matters
If NFRA is not constituted, then Central Government may hold consultation with the Committee whose details are given
below
1. The committee shall be chaired by an officer of the rank of Joint Secretary or equivalent in the Ministry of corporate
Affairs
2. The committee shall have the representatives from
I. Institute of Chartered Accountants of India and Industry Chambers
II. National Advisory Committee on Accounting Standards
III. The office of the Comptroller and Auditor-General
Duties of Auditor – Reporting Frauds
Frauds can be categorized into two categories based on amount
Frauds >= 1 crore Frauds < 1 crore
Reported to Central Government Reported to Audit Committee (if there

is one) or to the Board
The Companies (Audit and Auditors) Rules, 2014 – Rule 13 – Reporting of Frauds
Duties of Auditor – Reporting Frauds >= 1 Crore
If an auditor of a company has reason to believe that an offence of fraud of >= 1 crore amount has been committed in
the company by its officers or employees, the auditor shall report the matter to the Central Government within certain
timeline as per guidelines
Timeline/Format for sending report to Central government
The auditor shall with in 2 days of If the reply comes with in 45 days
The auditor shall ask the board or auditor shall forward his report and
fraud coming to his knowledge shall audit committee to reply with in 45
report the matter to the Board or the reply or observations of the
days Board or the Audit Committee along
the Audit Committee
with his comments on such reply
If the reply does not come with in 45 with in 15 days from the date of
days auditor shall forward his report receipt of such reply
to Central Government (No time
period specified for this in act/rules)
1. Report shall be on the Auditor’s letter head containing postal and email address, contact number and Membership Number
2. The report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover by Registered Post or by Speed
Post followed by an e-mail in confirmation of the same;
Duties of Auditor – Reporting Frauds < 1 Crore
Fraud involving lesser than 1 crore, the auditor shall report the matter to the audit committee (if there is audit
committee) or to the Board in other within such time as prescribed by the timelines
Timeline/Format for sending report to Board or the audit Committee
The auditor shall with in 2 days of The report shall contain the following details
fraud coming to his knowledge shall (a) Nature of Fraud with description
report the matter to the Board or (b) Approximate amount involved
the Audit Committee (c) Parties involved.
These details shall also be included in the annual report by Board

Duties of Auditor – Penalties for not Reporting Frauds
Auditor shall be punishable with fine which

minimum of one lakh rupees, but which
may be extend to twenty-five lakh rupees.
Power and Duties of Financial Auditor Applies to Cost Auditor and Secretarial Auditor
Types of Auditors
Financial Auditor Cost Auditor Secretarial Auditor
Verification of Financial Verification of Cost compliance with the

Statements such as Reports, Cost sheets, provisions of various
Balance Sheet, Income Cost Statement etc. laws and rules/
statement, Cash Flow regulations/procedures
Statement Such as compliance
with company’s Act
Till now we meant Financial Auditor by the word Auditor

All the provisions and rules discussed in section 143 applies also to Cost Auditor and Secretarial Auditor

This penalty also applies to

Cost Auditor and
Secretarial Auditor
Cost Auditor Secretarial Auditor

Concept Check
If no standards are specified by Central government for Financial audit, then standards of auditing specified by the
__________of India shall be deemed to be the auditing standards
1. Institute of Cost Accountants
2. Institute of Chartered Accountants
3. Institute of Company Secretary
4. Any of the above
Ans: Option 2
Concept Check
Frauds of value >= ____ are reported to Central government by Auditors?
1. 200 lakh
2. 500 Lakh
3. 100 lakh
4. 50 Lakh
Ans: Option 3
In case auditor does not reports the frauds then Auditor shall be punishable with fine which minimum of _____lakh rupees,
but which may be extend to _____lakh rupees
1. 10,50
2. 20,100
3. 1,25
4. None of the above
Ans: Option 3
Thanks
Section 139
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Important Information
We shall not be discussing 100% Sections and Sub-sections
The unimportant ones we shall be leaving and when we say unimportant ones, they shall be around 5-10% of the overall act
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Term Explainer for Future Sections
Term Explainer: General Meeting, Annual General Meeting and Extraordinary General Meeting
A general meeting is a meeting of a company's shareholders (unlike a board meeting, which is a meeting of the directors)
There are 2 types of General Meetings: AGM and EGM
1. Annual General Meeting (AGM): The AGM of a company or organization is a meeting which it holds once a year in order
to discuss the previous year's activities and accounts
2. Extraordinary General Meeting (EGM):An Extraordinary General Meeting (an EGM) can be defined as a meeting of
shareholders which is not an Annual General Meeting(an AGM). It is held when some urgent issue becomes about the
company arises or any situation of crisis
Term Explainer: Members of Company
1. Every person holding shares of the company

2. 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
3. The subscriber to the memorandum of the company who shall be deemed to have agreed to become member of the
company
Memorandum of Company in short is like constitution of company
Term Explainer
Auditors : An auditor is a person authorized to review and verify the accuracy of financial records and ensure that
companies comply with tax laws
Acts and Rule : An act is a law or the statute which has been passed by the legislature and approved by the President of
India whereas Rules provide the details which have not been provided for in the Act
Paid up Share Capital: Paid-up capital is the amount of money a company has received from shareholders in exchange
for shares of stock. Paid-up capital is created when a company sells its shares on the primary market, directly to investors
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Companies Act 2013 -> Section 139 (1) – Appointment of Auditors
Appointment of Auditors
Government Companies : Companies Directly or Non-Government Companies: Companies other than

Indirectly Owned by Central Government or State which are Directly or Indirectly Owned by Central
Government or Both Government or State Government or Both
The procedure for appointment of auditors is different in both. Let's discuss them one by
one
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Appointment of Auditors - Non-Government Companies
Shall Appoint an Individual or Firm as an Auditor at its first

Every Company Annual General Meeting
The Auditor appointed shall hold office from the conclusion of that
There is a proper Manner and Procedure meeting till the conclusion of its sixth annual general meeting and
for selection of Auditors thereafter till the conclusion of every sixth meeting with the meeting
wherein such appointment has been made being counted as the first
meeting
Appointment of Auditors - Non-Government Companies
Shall Appoint an Individual or Firm as an Auditor at its first

Every Company Annual General Meeting
The Auditor appointed shall hold office from the conclusion of that
There is a proper Manner and Procedure meeting till the conclusion of its sixth annual general meeting and
for selection of Auditors thereafter till the conclusion of every sixth meeting with the meeting
wherein such appointment has been made being counted as the first
meeting
The Companies (Audit and Auditors) Rules, 2014 – Rule 3 – Manner and procedure of selection and appointment of auditors:
Manner and procedure of selection and appointment of auditors - Non-Government Companies

If a company has Audit Committee then Audit the committee shall recommend the name of an individual or a firm as
auditor to the Board for consideration otherwise the Board shall consider and recommend an individual or a firm as
auditor to the members in the annual general meeting for appointment.
If the Initial recommendation was made by audit Committee to the Board then Board can send back or approve that
recommendation
I. if the Board agrees with the recommendations of the Audit Committee, it shall place the matter for
consideration by members in the annual general meeting.
II. In case of rejection, Audit committee will reconsider the firm or Individual whose name was proposed earlier and
may withdraw its recommendation. In such a case the board send its own recommendation for consideration of
the members in the annual general meeting
Question: What will happen if the recommendation send back by Board to auditor is not withdrawn by audit Committee?
Answer: There is no mention of this scenario in the act/rules, so it means ultimately will of Board shall prevail
The Audit Committee or the Board (as the case will be ) shall take into consideration the qualifications and experience of
the individual or the firm proposed to be considered for appointment as auditor to decide whether the qualification and
experience of the firm are good enough to act as an auditor
While considering the firm or Individual to act as an Auditor the Audit Committee or the board shall take into
consideration any disciplinary order against the firm or individual by any court or Institute of Chartered Accountants
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The Companies (Audit and Auditors) Rules, 2014 – Rule 4 – Conditions for appointment and notice to Registrar:
Appointment of Auditors – Non-Government Companies
The auditor to be appointed before the appointment must give a written consent and a certificate be obtained from him
The certificate shall contain

1. The individual or the firm, as the case may be, is eligible for appointment and is not disqualified for appointment
under the Act
2. The proposed appointment is as per the term provided under the Act
3. The list of proceedings against the auditor or audit firm or any partner of the audit firm pending with respect to
professional matters of conduct, as disclosed in the certificate, is true and correct.
Once the certificate is obtained and Auditor is appointed, the company shall inform the auditor concerned of his or its
appointment and file a notice of such appointment with the Registrar within fifteen days of the meeting in which the
auditor is appointed.
The notice to Registrar shall be in Form ADT-1
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The Companies (Audit and Auditors) Rules, 2014 – Rule 4 – Conditions for appointment and notice to Registrar:
Appointment of Auditors – Non-Government Companies
Once the certificate is obtained and Auditor is appointed, the company shall inform the auditor concerned of his or its
appointment and file a notice of such appointment with the Registrar within fifteen days of the meeting in which the
auditor is appointed.
Exceptions:
For any IFSC Public or IFSC Private Company the notice of appointment of auditor to Registrar should be sent with in
30 Days of the meeting in which the auditor is appointed.
Term Explainer
International Financial Services Center (IFSC) is not defined in companies act but as per notification of government of
India it is an unlisted “public company” or “private company” which is licensed to operate by the Reserve Bank of India
or the Securities and Exchange Board of India or the IRDAI
As per Companies Act, Public companies are those which have at least 7 members and no restriction on maximum
members and they can issue shares to public where a Private companies are those which have minimum of 2 members
and maximum of 200 members, but they cannot issue shares to Public
First Appointment of Auditors - Non-Government

Despite what is mentioned in sub-section (1)
The first auditor of a company shall be appointed by the

Board of Directors within thirty days from the date of
registration of the company and such auditor shall hold
office till the conclusion of the first annual general meeting
In the case of failure of the Board to appoint such auditor

with 30 Days, it shall inform the members of the company,
who shall within ninety days at an extraordinary general
meeting appoint such auditor and such auditor shall hold
office till the conclusion of the first annual general meeting.
Concept Check
If a company calls an emergency meeting to discuss some urgent issues, then what kind of meeting it would be?
(Ans: EGM)
The first auditor of a non-government company needs to appointed by the Board in how many days from the date of
registration of the company?
(Ans: 30 Days)
In the case of failure of the Board to appoint first auditor with 30 Days of registration of non-government company, it shall
inform the members of the company, who shall with in __________ days at an ________ appoint such auditor and such
auditor shall hold office till the conclusion of the first annual general meeting
1. 30, AGM
2. 30, EGM
3. 90, AGM
4. 90, EGM
Ans: Option 4
Concept Check
The non-government company except for IFSC Company shall file a notice of appointment of auditor in the annual general
meeting with the Registrar within ____ days of the meeting in which the auditor is appointed
1. 10
2. 15
3. 20
4. 30
Ans: Option 2
The appointment of auditor other than the first auditor by a non-government company needs to placed for consideration by
members in _______
1. AGM
2. EGM
3. AGM if AGM is available in next 30 days of appointment of auditor
4. EGM is no AGM is available in next 30 days of appointment of auditor
Ans: Option 1
General Definitions to understand future Sections
Term Explainer : Public Company, Private Company, Listed and Unlisted Company
Public Company Private Company

1. At least 7 members 1. At least 2 members
2. No Restriction on max members 2. Max 200 members
3. Can issue its shares to Public 3. Cannot Issue its shares to Public
Private Company can be of 2 types
Public Company can be of 2 : Small Company and One Person
types: Listed and Unlisted Company
Small Company
Unlisted Company
Listed Company 1. Paid-up share capital of which does
It is that company
It is that company whose not exceed fifty lakh rupees, or
whose securities are One Person Company
securities are listed on such higher amount as may be
not listed on A special case of
recognized stock prescribed which shall not be more
recognized stock Private company is
exchange than ten crore rupees
exchange One-person company
2. Turnover in immediately preceding
financial year does not exceed two which will have just
crore rupees or such higher one member
amount as may be prescribed
which shall not be more than one
hundred crore rupees
The Companies (Audit and Auditors) Rules, 2014 – Rule 5 – Classes of Companies
Appointment of Auditors – Non-Government Companies - Term

Individual shall not be
All the below companies except One an individual as auditor for eligible for
Person and Small Companies more than one term of five Reappointment for 5
consecutive years years from the date of
Listed Company completion of his term
Shall not
All unlisted public companies having
Appoint
paid up share capital of rupees ten
crore or more Audit Firm shall not be
an audit firm as auditor for eligible for
All private limited companies having Reappointment for 5
paid up share capital of rupees fifty more than two terms of five
consecutive years: years from the date of
crore or more completion of such term
Any Company having paid up share
capital less than rupees ten crore but Even audit firm having a common partner or partners to the other audit firm or
having public borrowings from if a partner joins another audit firm and leaves the first one, whose tenure has
financial institutions, banks or public expired in a company immediately preceding the financial year, shall not be
deposits of rupees fifty crores or appointed as auditor of the same company for a period of five years from the
more. date of completion of such term
Companies Act 2013 -> Section 139 (3 and 4) – Appointment of Auditors
The Companies (Audit and Auditors) Rules, 2014 – Rule 6 – Manner of rotation of auditors by the companies on expiry of term:
Appointment of Auditors – Non-Government Companies - Rotation
(a) in the audit firm appointed, the auditing partner

and his team shall be rotated at such intervals as
may be resolved by members
(b)the audit shall be conducted by more than one

auditor.
Rules are prescribed for rotation of auditors

Appointment of Auditors – Non-Government Companies - Rotation Rules are prescribed for rotation of auditors
A break in the term for a continuous period of five

years shall be considered as fulfilling the
requirement of rotation
The incoming auditor or audit firm shall not be

eligible if such auditor or audit firm is associated with
the outgoing auditor or audit firm under the same
network of audit firms.
The term “same network” includes the firms

operating or functioning, under the same brand name,
trade name or common control.
Appointment of Auditors – Non-Government Companies - Rotation Rules are prescribed for rotation of auditors
if a company has appointed two or more individuals

or firms or a combination thereof as joint auditors,
the company may follow the rotation of auditors in
such a manner that both or all of the joint auditors,
as the case may be, do not complete their term in
the same year.
Concept Check
What is the minimum number of people with which company can be formed?
1. 2
2. 1
3. 3
4. 4
Ans: Option 2
The minimum number of members in public company are ______ where as maximum number of members in private
company are __________-
1. 6,100
2. 7,200
3. 2,200
4. 7, no limit
Ans: Option 2
Concept Check
Which of the following are exempted from appointing individual auditors for not more than one term of five consecutive
years
1. One Person Company
2. Listed Companies
3. All unlisted public companies having paid up share capital of rupees ten crore or more
4. All private limited companies having paid up share capital of rupees fifty crore or more
Ans: Option 1
The Individual can be appointed as auditor for one term of ___ consecutive years and after that can be re-appointed as an
auditor after a cooling off period of ________years
1. 10,5
2. 5,10
3. 5,5
4. 10,10
Ans: Option 3
Concept Check
Which of the following statement is false?

1. A break in the term for a continuous period of five years shall be considered as fulfilling the requirement of rotation
2. The incoming auditor or audit firm shall not be eligible if such auditor or audit firm is associated with the outgoing
auditor or audit firm under the same network
3. Joint auditors shall mandatorily complete their term on the same date
4. The incoming audit firm after the expiry of outgoing audit firm shall not have any common partners
Ans: Option 3
There is a condition for certain firms that individual auditor shall not be appointed for more than one term of 5 consecutive
years. Which of the following firms will note come under this condition?
1. unlisted public companies having paid up share capital of rupees 15 crore
2. private limited companies having paid up share capital of rupees 125 crore
3. A company having paid up share capital of < 10 crore but having borrowings from banks of 25 crores
4. Listed Company having paid up share capital of 25 crores
Ans: Option 3
Appointment of Auditors – Government Companies Despite what is mentioned in 139 (1), In the case of a
1. Government company or
2. Any other Company owned or controlled, directly or

indirectly, by the Central Government, or by any State
Government or Governments or
3. Partly by the Central Government and partly by one or

more State Governments
The Comptroller and Auditor-General of India shall appoint

an auditor within a period of one hundred and eighty days
from the commencement of the financial year
The auditor shall hold office till the conclusion of the annual
general meeting
The first auditor shall be appointed by the Comptroller and

First Appointment of Auditors - Government Companies Auditor-General of India within sixty days from the date of
registration of the company
In case the Comptroller and Auditor-General of India does

not appoint such auditor within the said period, the Board
of Directors of the company shall appoint such auditor
within the next thirty days
In the case of failure of the Board to appoint such auditor

within the next thirty days, it shall inform the members of
the company who shall appoint such auditor within the
sixty days at an extraordinary general meeting, who shall
hold office till the conclusion of the first annual general
meeting
Concept/Fact Check
In case of government company the _________of India shall appoint an auditor within a period of _____ days from the
commencement of the financial year and he shall hold office till the conclusion of next ______
1. CAG, 90, AGM

2. CAG, 180, EGM
3. CAG, 90, EGM
4. CAG,180, AGM
Ans: Option 4
Casual Vacancy of the Auditor means a vacancy caused

Casual Vacancy of Auditor
due to death, resignation, disqualification
Vacancy shall be If such casual vacancy is as a result of the

For Non-Government
filled by the Board resignation of an auditor, such appointment by
Companies
in consultation with board shall also be approved by the company at
audit Committee (if a general meeting convened within three
there is Audit months of the recommendation of the Board
Committee) within and the auditor shall hold the office till the
thirty days conclusion of the next annual general meeting
In case the Comptroller and

Auditor-General of India does not
For Government Companies Vacancy shall be filled by the
fill the vacancy within the said
Comptroller and Auditor-General
period, the Board of Directors
of India within thirty days:
shall fill the vacancy within next
thirty days.
Concept/Fact Check
In case of casual vacancy of auditor for non-government companies, the board shall fill the vacancy with in ____days from
date of vacancy. If such vacancy is due to resignation of an auditor then such appointment by board shall also be approved by
the company at a ___________convened within ______months of the recommendation
1. 30,AGM,6
2. 30,General Meeting, 3
3. 60,AGM,3
4. 60, EGM, 6
Ans: Option 2
Thanks

Sections 140 to 142
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Companies Act 2013 -> Section 140 (1) – Removal, Resignation of Auditor and Giving of Special Notice
The Companies (Audit and Auditors) Rules, 2014 – Rule 7 – Removal of Auditor before the expiry
Removal of Auditor
The auditor appointed for the company (government or non-government company) may be removed from his office
before the expiry of his term only by a special resolution of the company, after obtaining the previous approval of
the Central Government in the prescribed manner
Prescribed Manner to Remove the Auditor as per Rules
1. The application to the Central Government for removal of auditor shall be made in Form ADT-2
2. The application shall be made to the Central Government within thirty days of the resolution passed by the Board.
3. The company shall hold the general meeting within sixty days of receipt of approval of the Central Government for
passing the special resolution.
Term Explainer : Ordinary Resolution and Special Resolution

An ordinary resolution refers to a resolution, passed by the members of the company by a bare majority. A special
resolution, on the other hand, is the resolution, that is affirmed by the members of the company by three-fourth
majority.
The Companies (Audit and Auditors) Rules, 2014 – Rule 7 – Removal of Auditor before the expiry
Removal of Auditor
The auditor appointed for the company (government or non-government company) may be removed from his office
before the expiry of his term only by a special resolution of the company, after obtaining the previous approval of
the Central Government in the prescribed manner
Prescribed Manner to Remove the Auditor as per Rules
1. The application to the Central Government for removal of auditor shall be made in Form ADT-2
2. The application shall be made to the Central Government within thirty days of the resolution passed by the Board.
3. The company shall hold the general meeting within sixty days of receipt of approval of the Central Government for
passing the special resolution.
Exception:
In case of IFSC Public and IFSC Private Company, if no decision is communicated by the Central Government to the
company with In 60 days of application being made to central government then it would be taken as approval from
central government and the company shall appoint new auditor at a general meeting convened within three months
from the date of expiry of sixty days period
Companies Act 2013 -> Section 140 (2 and 3) – Removal, Resignation of Auditor and Giving of Special Notice
The Companies (Audit and Auditors) Rules, 2014 – Rule 8 – Resignation of Auditor
Resignation of Auditor
In case of Govt. Companies and Non-Govt. Companies -> The auditor who has resigned from the company shall file
within a period of thirty days from the date of resignation, a statement (using Form ADT-3) with the company and the
Registrar indicating the reasons and other facts related to his resignation
In case of Govt. Companies -> In case of government company, the auditor shall additionally also file a statement within a
period of thirty days from the date of resignation with the Comptroller and Auditor-General of India, indicating the
reasons and other facts related to his resignation
Penalty for non-compliance by auditor
If the auditor does not comply with the above provisions, he or it shall be liable to a penalty of fifty thousand rupees or
an amount equal to the remuneration of the auditor, whichever is less
In case of continuing failure, an additional penalty of five hundred rupees for each day of violation during which such
failure continues, subject to a maximum of five lakh rupees
Removal on Orders by Tribunal
Tribunal can act on application by Any Person or Central Govt.
Tribunal on receiving application by the Central Government against the

Tribunal on application made to it by any auditor finds out that auditor has acted in fraudulent manner and feels
person concerned finds out that auditor of that the change of the auditor is required then within fifteen days of
a company has acted in a fraudulent receipt of such application it shall make an order that auditor shall not
manner then it can direct the company to function as an auditor anymore and the Central Government may
change its auditors appoint another auditor in his place
The auditor, whether individual or firm, against whom final order has been passed by the Tribunal shall not be eligible to
be appointed as an auditor of any company for a period of five years from the date of passing of the order
Term Explainer : Tribunal

Tribunal means National Company law Tribunal (NCLT) : The NCLT operates as an authority which handles settles disputes
which are related to corporate cases. The NCLT is formed on Article 245 in the constitution of India.
Concept Check
The auditor who has resigned from the company shall file a statement within a period of ________days from the date of
resignation with the company using form _______
1. 60, ADT-2
2. 30, ADT-2
3. 60,ADT-3
4. 30, ADT-3
Ans: Option 4
If the Tribunal passes an order to change the auditor of the company because of auditor acting in fraudulent manner, then
auditor shall not be eligible to be appointed as an auditor of any company for a period of _______years
1. 5
2. 2
3. 10
4. 15
Ans: Option 1
Companies Act 2013 -> Section 141 (1, 2 and 3) – Eligibility, Qualifications and Disqualifications of Auditors
Eligibility of Auditor
A firm whereof majority of partners practicing in India

are chartered Accountants may be appointed by its firm
A person shall be eligible for appointment as name to be auditor of a company
an auditor of a company only if he is a
chartered accountant: When a firm is appointed as an auditor of a company,
only the partners who are chartered accountants shall
be authorized to act and sign on behalf of the firm.
Companies Act 2013 -> Section 141 (1, 2 and 3) – Eligibility, Qualifications and Disqualifications of Auditors
The Companies (Audit and Auditors) Rules, 2014 – Rule 10 – Disqualification of Auditors
Qualification and Disqualification of Auditor
Qualification : Following shall not be appointed as auditors
1. An officer or employee of the company or anyone who is further employee of any officer or employee of company
2. A person who is partner in the company
3. A person or a firm who has business relationship with the company
4. A person who's relative is director or key management personnel in the company
5. A person who in full time employment in some other company
6. IF person or partner of firm is already holding appointment of more than twenty companies (These twenty companies
shall not include one person companies, small companies and private companies having paid-up share capital less than
one hundred crore rupee)
7. A person convicted by court for a fraud or any other offence till 10 years from date of conviction
8. a person who, directly or indirectly, renders any service referred to in section 144 to the company or its holding company
or its subsidiary company.
9. A person who himself or his relative or partner is (holding securities of more than 1 lakh) or (Indebted/Owes more than 5
lakh to the company ) or (has given a guarantee of more than 1 lakh for a third person who owes money to the company
or its subsidiary)
Disqualification
If a person appointed as an auditor of a company incurs any of the disqualifications mentioned above after his appointment,
then he shall vacate his office as such auditor and such vacation shall be deemed to be a casual vacancy in the office of the
auditor.
Companies Act 2013 -> Section 142 (1, 2 and 3) – Remuneration of Auditor
Remuneration of Auditor
1. For the first Auditor Appointed by the Board the remuneration shall be fixed by the board
2. The remuneration for auditors appointed in Annual General Meeting may be fixed in the general meeting
1. The remuneration to the auditor shall be in addition to the fee payable to an auditor or expenses to be reimbursed to the
auditor
Concept Check
Under which of the following condition the person can be appointed as an Auditor?
1. Person is an officer or employee of the company

2. Person is an auditor in 20 small companies
3. Person has been convicted by court in last 5 years
4. A person whose relative holds securities of 50,000 in the company
5. Both 2 and 4
Ans: Option 5
Thanks

Section 143
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Power of auditor
1. Auditor would always have a right of access to the books of account and vouchers of the company and to inquire into
following matters
I. Company has taken securities against loans given to various entities
II. All the transactions are done in the interest of the company
III. All the accounting is being done as per accounting standards
2. The auditor of a company which is a holding company shall also have the right of access to the records of all
subsidiaries and associate companies wherever it is required for consolidation of Annual Statements
Duties of Auditor
1. The auditor shall present a report in the general meeting with respect to the financial statements of the company that
he has examined the financial statements and they represent true and fair picture of the company
2. The auditor report shall also mention

I. whether, in his opinion, the financial statements comply with the accounting standards
II. whether any director is disqualified from being appointed as a director
III. any qualification, reservation or adverse remark relating to the maintenance of accounts
IV. whether the company has adequate internal financial controls in place to mitigate risk (Exception: This point is
not valid (Auditor need not include this in report) for a private company which is
I. which is a one-person company or a small company or
II. which has turnover < than rupees fifty crores as per latest audited financial statement and which has
aggregate borrowings from banks or financial institutions < than 25 crores
V. whether the company has disclosed the impact, if any, of pending litigations on the financial Position of company
VI. Whether Company has made provision for any foreseeable losses in future
VII. whether there has been any delay in transferring amounts, required to be transferred, to the Investor Education
and Protection Fund by the company.
Duties of Auditor
Additionally, following are the duties of auditor which shall apply for all the companies except
1. a banking company and Insurance company
2. One-person Company
3. a private limited company, not being a subsidiary or holding company of a public company and
I. having a paid-up capital and reserves and surplus <= one crore rupees and
II. total borrowings <= one crore rupees from any bank or financial institution at any point of time during the
financial year and
III. total revenue <= ten crore rupees during the financial year as per the financial statements and
1. whether the company is maintaining proper records showing details and situation of Property, Plant and Equipment
2. whether the company is maintaining proper records showing full particulars of intangible assets
3. whether the title deeds of all the immovable properties take on lease are in favor of company
4. whether the company has revalued its Property, Plant and or intangible assets during the year and, if yes then auditor
must specify the amount of change in value after revaluation if the change is more than 10%
5. whether physical verification of inventory has been conducted at reasonable intervals by the management whether
any discrepancies of 10% or more in the aggregate for each class of inventory were noticed
Continued on next slide
Duties of Auditor
1. whether during any point of time of the year, the company has been sanctioned working capital limits in excess of five
crore rupees, in aggregate, from banks or financial institutions based on security of current assets
2. whether during the year the company has made investments or provided any secured or unsecured loans to
companies, firms, Limited Liability Partnerships
3. If company is required to do cost audit or maintain cost records, then whether the company is doing so or not
4. whether the company has defaulted in repayment of loans or other borrowings or in the payment of interest to any
lender and if yes then what is amount of principal/Interest not paid and since how many days
5. whether the company is a declared willful defaulter by any bank or financial institution or other lender
6. whether term loans were applied for the purpose for which the loans were obtained; if not, the amount of loan so
diverted and the purpose for which it is used may be reported
7. whether funds raised on short term basis have been utilized for long term purposes, if yes, the nature and amount to
be indicated
8. whether the company has raised loans during the year on the pledge of securities
9. whether moneys raised by way of initial public offer or further public offer (including debt instruments) during the year
were applied for the purposes for which those are raised
10. whether the company has made any preferential allotment or private placement of shares
Duties of Auditor
In case of Government companies, additionally to what we have discussed till now with respect to duties of Auditor
1. CAG can direct the auditor regarding the manner which the accounts of the company are required to be audited and
auditor shall submit a report to CAG
2. CAG with in 60 days from the date of receipt of the audit report can conduct a supplementary audit
3. CAG can also conduct a test audit
Test audit is like selecting some random samples from the overall accounts and not auditing the whole accounts
The Companies (Audit and Auditors) Rules, 2014 – Rule 12 – Duties and powers of the company’s auditor with reference
to the audit of the branch and the branch auditor:
Duties of Auditor – Branch Office
1. If there is branch office (with in India or Outside India) , then the accounts of that branch must also be audited by the
company’s auditor or any other person who is not appointed auditor to company but is eligible to be appointed as
auditor
2. The person doing audit of branch shall be called branch auditor
3. The branch auditor shall submit his report to company’s auditor if branch auditor is different from company’s auditor
4. The company’s auditor shall also consider the branch audit report while making his own report and any observations
in the branch audit report shall be made in the main report
Companies Act 2013 -> Section 143 (9 and 10) – Powers and Duties of Auditors and Auditing Standards
Auditing Standards
1. Every auditor shall comply with the auditing standards
Who makes auditing Standards
The Central Government may

prescribe the standards of auditing,
as recommended by the Institute If no standards are specified by Central government
of Chartered Accountants of India, then standards of auditing specified by the Institute of
in consultation with National Chartered Accountants of India shall be deemed to be
Financial Reporting Authority the auditing standards
The auditing standards notified by

Central government may be
notified after certain modifications
in the standards recommended by
ICAI
Auditing Standards
Central Government in consultation with National Financial Reporting Authority (NFRA) can direct that auditor’s report
should include information related to certain matters
If NFRA is not constituted, then Central Government may hold consultation with the Committee whose details are given
below
1. The committee shall be chaired by an officer of the rank of Joint Secretary or equivalent in the Ministry of corporate
Affairs
2. The committee shall have the representatives from
I. Institute of Chartered Accountants of India and Industry Chambers
II. National Advisory Committee on Accounting Standards
III. The office of the Comptroller and Auditor-General
Duties of Auditor – Reporting Frauds
Frauds can be categorized into two categories based on amount
Frauds >= 1 crore Frauds < 1 crore
Reported to Central Government Reported to Audit Committee (if there

is one) or to the Board
Duties of Auditor – Reporting Frauds >= 1 Crore
If an auditor of a company has reason to believe that an offence of fraud of >= 1 crore amount has been committed in
the company by its officers or employees, the auditor shall report the matter to the Central Government within certain
timeline as per guidelines
Timeline/Format for sending report to Central government
The auditor shall with in 2 days of If the reply comes with in 45 days
The auditor shall ask the board or auditor shall forward his report and
fraud coming to his knowledge shall audit committee to reply with in 45
report the matter to the Board or the reply or observations of the
days Board or the Audit Committee along
the Audit Committee
with his comments on such reply
If the reply does not come with in 45 with in 15 days from the date of
days auditor shall forward his report receipt of such reply
to Central Government (No time
period specified for this in act/rules)
1. Report shall be on the Auditor’s letter head containing postal and email address, contact number and Membership Number
2. The report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover by Registered Post or by Speed
Post followed by an e-mail in confirmation of the same;
Duties of Auditor – Reporting Frauds < 1 Crore
Fraud involving lesser than 1 crore, the auditor shall report the matter to the audit committee (if there is audit
committee) or to the Board in other within such time as prescribed by the timelines
Timeline/Format for sending report to Board or the audit Committee
The auditor shall with in 2 days of The report shall contain the following details
fraud coming to his knowledge shall (a) Nature of Fraud with description
report the matter to the Board or (b) Approximate amount involved
the Audit Committee (c) Parties involved.
These details shall also be included in the annual report by Board


Power and Duties of Financial Auditor Applies to Cost Auditor and Secretarial Auditor
Types of Auditors
Financial Auditor Cost Auditor Secretarial Auditor
Verification of Financial Verification of Cost compliance with the

Statements such as Reports, Cost sheets, provisions of various
Balance Sheet, Income Cost Statement etc. laws and rules/
statement, Cash Flow regulations/procedures
Statement Such as compliance
with company’s Act
Till now we meant Financial Auditor by the word Auditor

All the provisions and rules discussed in section 143 applies also to Cost Auditor and Secretarial Auditor

This penalty also applies to

Cost Auditor and
Secretarial Auditor
Cost Auditor Secretarial Auditor

Concept Check
If no standards are specified by Central government for Financial audit, then standards of auditing specified by the
__________of India shall be deemed to be the auditing standards
1. Institute of Cost Accountants
2. Institute of Chartered Accountants
3. Institute of Company Secretary
4. Any of the above
Ans: Option 2
Concept Check
Frauds of value >= ____ are reported to Central government by Auditors?
1. 200 lakh
2. 500 Lakh
3. 100 lakh
4. 50 Lakh
Ans: Option 3
In case auditor does not reports the frauds then Auditor shall be punishable with fine which minimum of _____lakh rupees,
but which may be extend to _____lakh rupees
1. 10,50
2. 20,100
3. 1,25
Ans: Option 3
Thanks
Sections 144 to 148
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Companies Act 2013 -> Section 144 – Auditor not to Render Certain Services
Auditor not to Render Certain Services
1. Auditor shall provide services as are approved by the Board of Directors or the audit committee
2. Auditors shall not provide the following services directly or indirectly to the company or its holding company or
subsidiary company
I. accounting and bookkeeping services
II. internal audit;
III. design and implementation of any financial information system;
IV. actuarial services;
V. investment advisory services, investment banking services and Financial services;
VI. Management service
Term Explainer : Directly and Indirectly

1. In case auditor is individual then any of his relative or any entity in which auditor has influence or control or any entity
who brand name is used by auditor will be directly or indirectly related to the auditor and services provided by them
would be directly or indirectly provided by auditor
2. In case of auditor being a firm , any partner of the firm, parent entity or subsidiary of the firm or any entity in which
partner has influence or control or any entity who brand name is used by firm or its partners will be directly or
indirectly related to the auditor and services provided by them would be directly or indirectly provided by auditor
Companies Act 2013 -> Section 145 – Auditor to Sign Audit Reports, etc.
Auditor to Sign Audit Reports, etc.
1. The person appointed as an auditor of the company shall sign the auditor’s report
2. Observations or comments on financial transactions which have any adverse effect on the functioning of the
company mentioned in the auditor’s report shall be read before the company in general meeting and shall be open
to inspection by any member of the company
Companies Act 2013 -> Section 146 – Auditor to attend General Meeting.
Auditor to attend General Meeting
1. All notices of related to any general meeting shall be forwarded to the auditor of the company
2. The auditor shall (unless otherwise exempted by the company) attend all general meeting. If auditor is not able to
attend the meeting, then he shall send his authorized representative and that authorized representative shall also be
qualified to be an auditor.
3. In general meeting auditor shall have right to be heard or put across his view on any part of the business which
concerns him as the auditor.
Punishment can be for Violation by Companies or by Auditors
Punishment to Companies Punishment to Auditors
Let's Discuss them one by one

Punishment to Companies
The company shall be punishable with fine of minimum of twenty-five thousand rupees, but which may be extended
to five lakh rupees
1. Imprisonment for a term up to to one year or

2. Fine which shall not be less than ten thousand rupees, but which may extend to one lakh rupees or
3. Both Imprisonment and Fine
If the directors of the company have acted in a fraudulent manner or colluded in any fraud, then the criminal or civil
liability in such a case shall be of both the firm and the directors
Term Explainer : Criminal and Civil Liability

1. Civil liability is where case is settled through payment of damages to other party (no punishment) whereas criminal
liability means they can be punished for a crime
Violation of any of provision of the following If the violation is just due to lax attitude but is not intended to
sections by auditor willfully deceive the company and its shareholders, then auditor
shall be punishable with fine
Section 139 - Appointment of Auditors 1. Minimum - twenty-five thousand rupees
Section 143 – Powers and Duties of Auditor except 2. Maximum - Five lakh rupees or four times the remuneration
Reporting of Frauds of the auditor, whichever is less
Section 144 – Auditor not to render certain services
Section 145 – Auditor to Sign Audit Reports, etc. If the violation is intended to willfully deceive the company and
its shareholders, then auditor shall be punishable with
1. Imprisonment for a term up to one year And

2. Fine
I. Minimum - Fifty thousand rupees
II. Maximum - Twenty-five lakh rupees or eight times the
remuneration of the auditor, whichever is less
Punishment to Auditors If the auditor has been punished either due to lax attitude or for
willfully deceiving the company and its shareholders, then
additionally he is liable to do the following also
1. He shall refund the remuneration received by him to the

company
2. Pay for damages to the company, statutory bodies or
authorities or to members or creditors of the company for
loss arising out of incorrect or misleading statements made in
his audit report.
1. If damages are to be collected from the auditor, then the

Central Government shall specify any authority or an officer
for ensuring prompt payment of damages by the auditor
If the auditors of the company have acted in a fraudulent manner or colluded in any fraud, then
1. The civil liability in such a case shall be of both the audit firm and the partners of the audit firm
2. The criminal liability

I. related to fine in such a case shall be of both the audit firm and the partners of the audit firm
II. related to any other punishment apart from fine in such a case shall be of the audit firm and only the
partners who colluded in fraud
Central Government to Specify Audit of Items of Cost in Respect of Certain Companies
The Central Government may direct companies (having an overall turnover >= 35 crore from all its products and services
the immediately preceding financial year) that Cost data for specific items related to the utilization of material or labor
shall also be included in the books of account
Specific Items for which cost data needs to be maintained

1. Category A -> Regulated Sectors such as Telecom, Pharma, Petroleum, Fertilizers, sugar
2. Category B -> Non-Regulated Sectors such as Machinery, Turbo jets, Steel, Coffee, Tea, Minerals, Rubber, Roads and
Railways, Radars, Tanks, Arms and Ammunitions, Paper, Tyres, Milk Power, Glass etc.
Criteria for Cost Audit
The central government can also direct for cost audit of companies meeting below requirements shall be conducted
1. For the items under Category A need to conduct cost audit if

II. The aggregate turnover of the individual product or products or services for which cost records are required to be
maintained is >= 25 crore.
2. For the items under category B, need to conduct cost audit if

II. The aggregate turnover of the individual product or products or service or services for which cost records are
required to be maintained is >= 35 crore .
Exception: A company meeting above criteria need not conduct cost audit if
I. Revenue from exports, in foreign exchange, exceeds seventy-five per cent of its total revenue or
II. It is operating from special Economic Zone
III. It is engaged in generation of electricity for captive consumption (Captive Consumption means electricity generation
facility used and managed by an industrial or commercial energy user for their own energy consumption
The Companies (Cost Records and Audit) Rules, 2014 – Rule 15
Who Shall Conduct Cost Audit
The audit shall be conducted by a Cost Accountant. The cost accountant shall be appointed in the following manner
1. In the case of companies which are required to constitute an audit committee-
I. The Board shall appoint an individual who is a cost accountant or a firm of cost accountants as cost auditor on the
recommendations of the Audit committee
II. The Audit committee shall also recommend the remuneration of the cost auditor and same shall be considered and
approved by the Board of Directors and ratified subsequently by the shareholders
2. In the case of other companies which are not required to constitute an audit committee, the Board shall appoint an
individual who is a cost accountant or a firm of cost accountants as cost auditor and the remuneration of such cost auditor
shall be ratified by shareholders subsequently
No Person appointed as Financial Auditor of the company shall be appointed for conducting the audit of cost records
Auditor conducting the cost audit shall comply with the cost auditing standards which are specified by Institute of Cost
Accountants of India
Submission of Cost Audit to Central Government
The cost auditor shall prepare a report submit to the Board of Directors of the company
Company shall within thirty days from the date of receipt of a copy of the cost audit report should send the report to Central
Government
Central Government feels some additional information is required then it can ask the company to provide the same within
such time as may be specified by that Government.
Concept Check
A company is dealing in category A products such as Pharma and Telecom, then for the company to come under the ambit of
conducting a mandatory cost audit, its overall annual turnover shall be ______ crore or more and aggregate turnover of the
individual product or products or services for which cost records are required to be maintained is _______crore or more
1. 50,25
2. 100,50
3. 100,25
4. 50,50
Ans: Option 1
If auditor has willfully deceived the company them what is maximum fine which can be imposed on him given his
remuneration is 1 lakh
1. 25 lakh
2. 33 Lakh
3. 8 lakh
4. 50 lakh
Ans: Option 3
Closure
All the sections (139 to 148) that

we discussed in Chapter X – Audit Became effective on 1/4/2014
and Auditors
Thanks
Chapter XI of Companies Act – Appointment and Qualification of Directors
Section 149
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Important Information
We shall not be discussing 100% Sections and Sub-sections
The unimportant ones we shall be leaving and when we say unimportant ones, they shall be around 5-10% of the overall act
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Some Terms for Understanding of future sections
Term Explainer
Section 8 Company: It means company registered under section 8 of companies Act. Any company which wants to register
itself as a charitable company or want to promote commerce, art, science, sports, education, research, social welfare,
religion, environment can register itself under section 8 of companies act. These companies
I. Shall apply their profits to further promote their objective i.e. they cannot use profits for themselves
II. Shall not distribute any dividend
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Some Terms for Understanding of future sections
Non-Executive Directors Executive Directors
Independent Director
Term Explainer
Executive Directors : These are the ones which are part of day to day working of the organization
Non-Executive Director: Non-executive director is a member of a company's board of directors who is not part of
the executive team. A non-executive director typically does not engage in the day-to-day management of the organization
but is involved in policymaking and planning exercises. Non-executive directors may have financial relationship with the
company such as he might have any stock options or performs any business transaction with the company
Independent Directors: Independent Director is non-executive director and does not have financial relationship with the
company such as he does not have any stock options or performs any business transaction with the company
Companies Act 2013 -> Section 149 (1) – Company to have board of directors
The Companies (Appointment and Qualification of Directors) Rules, 2014 – Rule 3 – Woman Director on Board
Company to have board of directors
Every Company
Shall have board of directors
Minimum Directors Except in case of

Public Company – 3 Maximum Directors
15 for all type of companies government
Private Company – 2 Companies and
One Person Company -1 section 8 company
Directors can be increased beyond 15 by passing a special

resolution
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The Companies (Appointment and Qualification of Directors) Rules, 2014 – Rule 3 – Woman Director on Board
Company to have board of directors – Women Directors
Below Company except IFSC Public Companies
Any intermittent vacancy of

Listed Companies
a woman director shall be
At least one women filled-up by the Board at the
Directors earliest but not later than
immediate next Board
This women director is meeting or three months
Unlisted Public companies included in limit of overall from the date of such
Paid up Share Capital >= 100 Crore number of directors vacancy whichever is later.
Or
Turnover >= 300 Crore
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Concept Check
A public listed company has 3 directors , if 2 are male directors then the 3rd one can be
1. Male or Female depending on the paid-up share capital of the company

2. Would definitely be Female
3. Would Definitely be Male
4. Male or Female depending up on the turnover of the company
Ans: Option 2
Company to have board of directors – Enforcement Time
Every company existing on or before the date of commencement of this Act shall comply with the requirements
of subsection(1) within one year from such commencement of this Act
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Company to have board of directors – Stay In India
At least one director should stay in India for a total period of >= than 182 days during the financial year
If company is incorporated in mid of financial year, then the above requirement shall apply in proportion
For example: If company was incorporated on 1st October then company is active for 6 months during financial
year. Hence the requirement to stay in India for 182 days shall also be halved to 91 days
Exception: For IFSC Public company and IFSC Private Company, this requirement shall not be valid in financial
year of its incorporation but only from the next financial year
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Information
Though section 149 is about Company to have board of directors but from subsection 4 to subsection 13 we shall
discuss about the Appointment and Qualification of Independent Directors
The Companies (Appointment and Qualification of Directors) Rules, 2014 – Rule 4 – No. of Independent Directors
Does not apply to section 8 Company

Company to have board of directors – Number of Independent Directors and IFSC Public Company
Each company shall have at least 1/3rd of its directors as independent directors
Note: Any fraction resulting from 1/3rd shall be rounded of to next number (3.4 shall be rounded of to 4)
AND
Public companies as per last date of latest audited

financial statements Shall have at least 2 independent directors
1. Paid up share capital >= 10 crores or

2. Turnover >= 100 Crore or
3. outstanding loans, debentures and deposits >= 50
crore In case this gets violated due to intermittent
vacancy of an independent director then
Except following Public Companies same shall be filled-up by the Board with in 3
1. Unlisted Joint Venture Companies months or by the immediate next Board
2. Unlisted wholly owned subsidiary; meeting whichever is later:
3. Unlisted Dormant company
Company to have board of directors – Independent Directors Enforcement Time Does not apply to section 8
Company and IFSC Public
Company
Every company existing on or before the date

of commencement of this Act shall comply
with the requirements of subsection(4) within
one year from such commencement of this
Act
Concept Check
A company has 2 directors and company is public company with turnover of 150 crores. What shall be the number
of independent directors in company?
1. 1
2. 2
3. 3
4. 4
Ans: The question is wrong. The minimum number of directors in public company are 3
A company has 3 directors and company is public company with turnover of 150 crores. What shall be the number
of independent directors in company?
1. 1
2. 2
3. 3
4. 4
Ans: Option 2
Term Explainer:
Nominee Director: A nominee director is a director appointed to the board of a company to represent the interests of his
appointor on that board. He may be appointed by a shareholder, a creditor or another stakeholder. For example, a bank is
holding large number of shares of Infosys then bank can appoint a nominee director on the board of Infosys and that
nominee director shall represent the bank there
Whole-Time Director: A director who devotes his whole time to the affairs of a company is called a whole-time
director of the company.
Does not apply to section 8

Company to have board of directors – Qualification of Independent Directors Company and IFSC Public
Company
1. Independent directors is the one who must be different from managing director or a whole-time director or a
nominee director
2. Must posses Integrity and relevant experience and expertise
3. He must not be now or in past promoter of the company or its holding, subsidiary or associate company
4. He must not be related to promoters or directors in the company, its holding, subsidiary or associate company;
5. Except Government Companies: He must not be involved in any financial relationship except remuneration during
the two immediately preceding financial years or during the current financial year with the
I. Company or its holding, subsidiary or associate companies
II. Promoters and Directors of Company or its holding, subsidiary or associate companies
Even if he is having any financial relation with the above-mentioned entities then it shall not be more than 10% of
his income during the two immediately preceding financial years or during the current financial year
The Companies (Appointment and Qualification of Directors) Rules, 2014 – Rule 5 – Qualification of independent Directors

Company to have board of directors – Qualification of Independent Directors and IFSC Public Company
None of his relatives shall be
Doing any transaction

holding any security Giving guarantee to any including holding of
(more than 50 lakh or 2% indebted (more than 50 third person who is security, loans and
0f paid up capital which lakh) indebted (more than 50 guarantee which is 2% or
ever is higher) lakh) more of its income or
gross turnover
to the company, its to the company, its

in the company or its holding, subsidiary or with the company or its
holding, subsidiary or holding, subsidiary or
associate company or the associate company or the subsidiary, or its holding
associate company promoters and directors or associate company
promoters and directors
of these companies of these companies
during the two immediately during the two immediately during the two immediately
during the two immediately
preceding financial years or preceding financial years or preceding financial years or
preceding financial years or
during the current financial year during the current financial year during the current financial year
during the current financial year

Company to have board of directors – Qualification of Independent Directos and IFSC Public Company
Independent directors or his relatives
Should not have been Should not hold 2% or Shall not be CEO or
Should not have held any employee or partner or more voting power either director of any Non-Profit
key position or should not owner of/in any auditing independently or Organization which
have been employee firm or legal consulting together with his relative receives 25% or more of
firm dealing its receipts
from the company, any of its

promoters, directors or its
Of company or its with company or its holding, subsidiary or associate
holding, subsidiary or holding, subsidiary or In company company or anyone who holds
associate company associate company two per cent or more of the total
voting power of the company;
in any of the three financial years in any of the three financial years
immediately preceding the immediately preceding the
financial year in which he is financial year in which he is
proposed to be appointed proposed to be appointed
The Companies (Appointment and Qualification of Directors) Rules, 2014 – Rule 5 – Qualification of independent Directors

Company to have board of directors – Qualification of Independent Directos Company and IFSC Public
Company
An independent director shall possess appropriate skills, experience and knowledge in one or more fields of finance,
law, management, sales, marketing, administration, research, corporate governance, technical operations or other
disciplines related to the company’s business.

Company to have board of directors – Declaration of Meeting the Criteria Company and IFSC Public
Company
Every independent director shall at the first meeting of the Board in which he participates as a director and thereafter
at the first meeting of the Board in every financial year shall give a declaration that he meets the criteria of
independence discussed under Qualifications of Independent Director in subsection (6)
Concept Check
Ram is an independent director in public company and his total income is 50 lakh. He wants to have some business
transaction with the company. Taking into account the regulations related to independenc of independent director
how much is max value of all the transactions he can do?
1. 2 lakh
2. 3 Lakh
3. 4 lakh
4. 5 Lakh
Ans: Option 4

Code for Independent Directors
Company
An independent director shall follow these guidelines for Professional Conduct
(1) work with integrity and probity;

(2) act objectively and constructively while exercising his duties;
(3) exercise his responsibilities in the interest of the company;
(4 Make informed and balanced decision making;
(5) not abuse his position to the detriment of the company or its shareholders or for the purpose of gaining direct or
indirect personal advantage
(6) refrain from any action that would lead to loss of his independence;
(7) where circumstances arise which make an independent director lose his independence, the independent director
must immediately inform the Board accordingly;
(8) assist the company in implementing the best corporate governance practices.

Company
An independent director shall perform following Roles and Functions
(1) help in bringing an independent judgment to bear on the Board’s deliberations especially on issues of strategy,
performance, risk management, resources, key appointments and standards of conduct;
(2) scrutinize the performance of management in meeting agreed goals and objectives and monitor the reporting of
performance;
(3) satisfy themselves on the integrity of financial information and that financial controls and the systems of risk
management are robust and defensible;
(4) safeguard the interests of all stakeholders, particularly the minority shareholders;
(5) determine appropriate levels of remuneration of executive directors, key managerial personnel and senior
management and have a prime role in appointing and where necessary recommend removal of executive directors, key
managerial personnel and senior management;

Company
Separate Meetings by Independent Directors

1. The independent directors of the company shall hold at least one meeting in a financial year without the
attendance of non-independent directors and members of management
2. All the independent directors of the company shall strive to be present at such meeting;
3. The meeting shall:

(a) review the performance of non-independent directors and the Board as a whole;
(b) review the performance of the Chairperson of the company, taking into account the views of executive directors
and non-executive directors;
(c) assess the quality, quantity and timeliness of flow of information between the company management and the
Board that is necessary for the Board to effectively and reasonably perform their duties.

Company to have board of directors – Independent Directors Remuneration
Company
Independent Director shall not receive any stock options from the company
Independent directors may receive remuneration as sum of following components

1. Fee
2. Reimbursement of expenses for participation in Board Meetings
3. Profit Related Commission as approved by the board
Companies Act 2013 -> Section 149 (10 and 11) – Company to have board of directors

Company to have board of directors – Independent Directors Term Company and IFSC Public
Company
Independent director shall be eligible for
An independent director shall hold office for a reappointment after first term on passing of a
term up to five consecutive years on the Board of special resolution by the company and disclosure
a company of such appointment in the Board's report
After two consecutive terms he will again become

An Independent directors shall hold office for a
eligible for appointment after a cooling of period
maximum of two consecutive terms
of 3 years after his term ends provided that he is
not associated with the company in any capacity
during these 3 years
Note: 5 years is maximum duration of one term, but the term can be lesser than this also. We shall study some
conditions with respect to term of directors in section 152 and no condition in that section shall be violated by
Independent directors also

Company to have board of directors – Liability of Independent Directors
Company
Any independent director shall be liable for any fraud or wrongdoing only if such an act had occurred with his
knowledge, consent or connivance
Concept Check
Which of the following component shall not be part of Independent director’s remuneration
1. Fee
2. Commission based in profits
3. Stock Option
4. Reimbursements for attending meetings
Ans: Option 3
The independent directors of the company shall hold at least ___ meeting(s) in a financial year without the
attendance of non-independent directors and members of management
1. 1
2. 2
3. 3
4. 4
Ans: Option 1
Concept Check
An Independent directors can hold office for a maximum of ___ consecutive terms and post the completion of
these maximum number of consecutive terms, the independent director needs to serve a cooling of period of ____
years before he again become eligible for the post
1. 2,2
2. 2,3
3. 3,2
4. 3,5
Ans: Option 2
Thanks
Chapter X of Companies Act – Appointment and Qualification of Directors
Section 150 to 152
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Companies Act 2013 -> Section 150 (1,2,3 and 4) – Manner of Selection of Independent Directors

Manner of Selection of Independent Directors
Company
1. Subject to qualification of independent director , an independent director may be selected from a data bank
containing names, addresses and qualifications of persons who are eligible and willing to act as independent
directors
2. The appointment of independent director shall be approved by the company in general meeting by the
shareholders
3. While selecting independent directors the Board shall ensure that there is appropriate balance of skills,
experience and knowledge in the Board to enable the Board to discharge its functions and duties effective
4. The re-appointment of independent director shall be based on report of performance evaluation shall be done
by the entire Board of Directors, excluding the director being evaluated.
Term Explainer
Data bank: Data bank is basically a list of persons who are willing to be appointed as independent directors
Companies Act 2013 -> Section 150 (1,2,3 and 4) – Manner of Selection of Independent Directors
The Companies (Appointment and Qualification of Directors) Rules, 2014 – Rule 6 – Compliance for Independent Director

Manner of Selection of Independent Directors (Data bank Inclusion Details)
Company
Every individual whose name is

1. Every individual with in 5 months of Shall apply online for inclusion so included in the data bank
appointment as independent of his name in the data bank shall pass an online proficiency
director or for a period of one year or five self-assessment test with 60%
years or for his life-time marks conducted by the
2. Every individual who wants to get institute within a period of
appointed as independent director one year from the date of
inclusion of his name in the
data bank
Shall apply for renewal for one Exception: Individual who has
year or five years or for his life- served as director for 10 years
time with in 30 days after expiry or more as director on the
period of his name being date of inclusion of his name in
included in data bank the databank need not pass
the test
Companies Act 2013 -> Section 151 – Appointment of Director Elected by Small Shareholder
The Companies (Appointment and Qualification of Directors) Rules, 2014 – Rule 7 – Small shareholder director
Appointment of Director Elected by Small Shareholder
A listed company may have one director elected by such small shareholders
Small shareholders” means a shareholder holding shares of nominal value (face value) of not more than twenty
thousand rupees
The small shareholders needs to be appointed as per prescribed procedure discussed in next slide
The small shareholders intending to propose a

A listed company, may upon notice of not less than one person as a candidate for the post of small
thousand small shareholders or one-tenth of the total shareholders’ director shall leave a notice of their
number of such shareholders, whichever is lower, have intention with the company at least fourteen days
a small shareholders’ director elected by the small before the meeting
shareholders:
In the notice they shall specify the name, address,
shares held and folio number of the person whose
name is being proposed for the post of director and
of the small shareholders who are proposing such
person for the office of director
Provided that if the person being proposed does not

hold any shares in the company, the details of shares
held, and folio number need not be specified in the
notice
Small Shareholder Director director shall be considered as an independent director and he must meet all the conditions
for independent director discussed in subsection (6) of Section 149 and his giving a declaration of his independence in line
with sub-section (7) of section 149 of the Act.
If small shareholder director is appointed in any other company then the second company in which he has been appointed
shall not be in a business which is competing or is against the business of the first company.
Term:
1. Tenure as small shareholders’ director shall not exceed a period of three consecutive years
2. On expiry of term small shareholder director is not eligible for reappointment
3. The small shareholder director shall be qualified as per requirements of section 164 (section 164 is on disqualification
criteria)
4. A small shareholders’ director shall not be appointed in or be associated with such company in any other capacity,
either directly or indirectly, for a period of three years from the date on which he ceases to hold office as a small
shareholders’ director in a company
Note: Small Shareholder director will not be liable for rotation which shall be discussed in section 152
Concept Check
Small shareholders” means a shareholder holding shares of nominal value (face value) of not more than
________rupees
1. 20,000
2. 2,00,000
3. 2,000
4. 200
Ans: Option 1
If a company has 90,000 small shareholders in total then how many minimum number of small shareholder shall be
required to serve a notice to appoint small shareholder director?
1. 10,000
2. 45,000
3. 9,000
4. 1,000
Ans: Option 4
Some General Terms to help us understand future sections
Term Explainer:
The memorandum of association is the document that sets up the company, it defines the scope of activities and powers
of the company. It is like the constitution of the company. Memorandum of association can be defined as something on
which Articles of Association are based. This is mandatory and cannot be amended
Articles of association form a document that specifies the regulations for a company's operations. The document lays out
how tasks are to be accomplished within the organization, including the process for appointing directors and the handling
of financial records. This is not mandatory for all the companies and can be amended
Companies Act 2013 -> Section 152 (1) – Appointment of Directors
Appointment of Directors
All Companies except One In case of One Person Company

Person Company
Individual member shall be

If no provision is made in the deemed to be its first director
articles of a company for the until the director or directors
appointment of the first director are duly appointed by the
then the subscribers to the member
memorandum shall be deemed
to be the first directors of the
company until the directors are
duly appointed
Companies Act 2013 -> Section 152 (2) –Appointment of Directors
Appointment of Director
Every director shall be appointed by the company in general meeting except if at some point in the act it is
mentioned otherwise
We shall study later that some types of directors need not be appointed through general meeting
Companies Act 2013 -> Section 152 (3 and 4) – Appointment of Directors
Appointment of Director – Director Identification Number
No person shall be appointed as a director of a company unless he has been allotted the Director Identification
Number or any other number as specified by Central government
Every person proposed to be appointed as a director by the company in general meeting or otherwise, shall furnish
his
I. Director Identification Number or any other number as prescribed by central government
II. A declaration that he is not disqualified to become a director under this Act.
Term Explainer
Director Identification Number: Director identification number is a unique number allotted by Central government to
each director which acts as an source of unique identification for that director
Companies Act 2013 -> Section 152 (5) – Appointment of Directors
The Companies (Appointment and Qualification of Directors) Rules, 2014 – Rule 8 – Consent by Director
Appointment of Director – Consent by Director
A person appointed as a director shall not act as a director unless he gives his consent to hold the office as director
using form DIR- 2
Such consent must be filed with the Registrar within thirty days of his appointment in such manner
Exception: In case of IFSC Public Company, it shall be 60 days and not 30 days within which consent need to filed with
registrar
Appointment of Director – Rotation/Term of Directors Except in case of government companies or its subsidiary
other than Independent Directors and IFSC Public Company
Articles provide for the retirement of all directors at every annual general meeting
If articles does not provide for this, then
At least 2/3rd of the total number of directors (except independent directors and small shareholder director) shall
be such that their term shall be decided by rotation
In every annual general meeting after the general meeting to appoint first directors, 1/3rd of directors among these
whose tenure is based on rotation shall retire by rotation
The basis for deciding who shall retire will be based on that those who have been longest in office since their last
appointment shall retire
At the annual general meeting at which a director retires, the company may fill up the vacancy by appointing the
retiring director again or some other person in his place
Appointment of Director – Rotation/Term of Directors

other than Independent Directors
If the vacancy for retiring director is not filled in the The meeting shall be called the same day next week
meeting in which he retired and if again the vacancy is not filled then the retiring
director is assumed to be director except when
1. His candidature was already discussed and

rejected
2. He himself is not interested
3. He is not qualified anymore
Concept Check
If total number of directors are 100 and 39 are independent and 1 is small shareholder director then minimum how
many of them shall be liable to retire by rotation?
1. 40
2. 30
3. 50
4. 30
Ans: Option 1
The consent of director to be appointed as director shall be sent to Registrar in how many days in case of non IFSC
public company?
1. 20
2. 30
3. 40
4. 50
Ans: Option 2
Thanks
Chapter X of Companies Act – Appointment and Qualification of Directors
Section 153 to 160
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Companies Act 2013 -> Section 153 – Application for Allotment of DIN (Director identification Number)
The Companies (Appointment and Qualification of Directors) Rules, 2014 – Rule 9 – Application for allotment of DIN
Application for Allotment of DIN (Director identification Number)
Every individual intending to be appointed as director of a company shall make an application for allotment of DIN to
Central Government using form DIR-3 and fees of 5000 which shall be available on the website of the Ministry of
Corporate Affairs
Along with application the applicant shall also attach

I. Photo
II. Proof of identity
III. Proof of Residence
IV. board resolution proposing his appointment as director in an existing company
Form DIR-3 shall be signed and submitted electronically by the applicant using his or her own Digital signature
certificate and shall be verified digitally by a company secretary in full time employment of the company or by the
managing director or director or CEO or CFO of the company in which the applicant is intended to be appointed as
director in an existing company
Exception: Central Government may prescribe any identification number which shall be treated as Director
Identification Number and in case any individual holds or acquires such identification number, the requirement of this
section shall not apply
Companies Act 2013 -> Section 154 and 155 –Allotment of DIN (Director identification Number)
The Companies (Appointment and Qualification of Directors) Rules, 2014 – Rule 10 – Allotment of DIN
Allotment of DIN (Director identification Number)
In case application is accepted, the central In case application is rejected, it shall intimate
government shall allot DIN within one month from regarding defect by placing it on the website and by
the receipt of the application for allotment of email to the applicant
Director Identification Number and inform the
applicant The applicant shall resubmit the same with in 15
days of such placing on the website
The Director Identification Number so allotted under these rules is valid for the life-time of the applicant and shall not
be allotted to any other person.
No Individual shall apply for or obtain another DIN if he/she already has one DIN
Companies Act 2013 -> Section 156 – Director to Intimate his DIN
Existing Director to Intimate his DIN
Existing Director at the time of

commencement of this provision
Once the DIN is allotted the director shall

inform the company within one month of
the receipt of Director Identification
Number
Companies Act 2013 -> Section 157 – Company to Inform Director DIN to Registrar
Company to Inform Director DIN to Registrar
Every company with in 15 days of the receipt of DIN by the director shall inform the Registrar using FORM DIR 3B
Penalty
If any company fails to furnish the Director Identification Number with in 15 days then such company shall be liable to a
penalty of minimum of twenty-five thousand rupees and in case of continuing failure, with further penalty of one
hundred rupees for each day subject to a maximum of one lakh rupee
Every officer of the company who is in default shall be liable to a penalty of minimum of twenty-five thousand rupees
and in case of continuing failure, with further penalty of one hundred rupees for each day to a maximum of one lakh
rupees.
Companies Act 2013 -> Section 158 – Obligation to share DIN in relevant Documents
Obligation to share DIN
Whenever any information is to be shared in relation to a director then his DIN must be shared as part of that
information since it is his unique identification number
Companies Act 2013 -> Section 159 – Penalty
Penalty
Violation of section 156

Violation of section 152 Violation of section 155
Once the DIN is allotted
1. Consent by Director No Individual shall apply the director shall inform
2. Declaration that he is for or obtain another DIN the company within one
qualified if he/she already has one month of the receipt of
3. Rotation of Directors DIN Director Identification
Number
Penalty
Director of the company shall be liable to a penalty up to fifty thousand rupees and
If the default is on continuous basis then a further penalty up to to five hundred rupees for each day of violation
Concept Check
The application for allotment of DIN needs to made to which entity?

1. Ministry of Welfare
2. SEBI
3. Ministry of Corporate Affairs
4. Ministry of Finance
Ans: Option 3
If any company fails to furnish the Director Identification Number with in ___ days of receiving intimation from
director then such company shall be liable to a penalty of minimum of _______thousand rupees and in case of
continuing failure, with further penalty of ____ hundred rupees for each day subject to a maximum of ___ lakh
rupee
1. 15,25,2,5
2. 15,25,5,2
3. 30,50,5,2
4. 15, 25,1,1
Ans: Option 4
Concept Check
In case of violation of section 155 where individual tries to obtain 2 DIN numbers then Director of the company
shall be liable to fined up to _________rupees and in case of continuous failure with a further penalty of
________rupees for each day of violation
1. 25000 and 250
2. 50,000 and 500
3. 25000 and 500
4. 50000 and 250
Ans: Option 2
Companies Act 2013 -> Section 160 – Right of Persons Other than Retiring Directors to Stand for Directorship
Right of Persons Other than Retiring Directors to Stand for Not applicable to private company, government company and in
Directorship case of IFSC Public company it shall apply as per their articles
There are two ways a person who want to be a director can put his candidature ahead provided he is qualified to be a
director:
A person by himself with a min of 14 days Any member with a min of 14 days before meeting
before meeting has to leave a notice can leave a notice signifying his intention to propose
signifying his candidature as a director along the person as a director along with the deposit
with the deposit of one lakh rupees or such of one lakh rupees or such higher amount as may be
higher amount as may be prescribed prescribed
The deposit shall be refundable if the person gets elected as director or he gets more than twenty-five per cent. of
total valid votes cast
Exception: Requirements of deposit of amount shall not apply in case of appointment of an independent director or a
director recommended by the Nomination and Remuneration Committee or director recommended by Board
Companies Act 2013 -> Section 160 – Right of Persons Other than Retiring Directors to Stand for Directorship
The Companies (Appointment and Qualification of Directors) Rules, 2014 – Rule 13 – Notice of Candidature for Directorship
Right of Persons Other than Retiring Directors to Stand for Not applicable to private company, government company and in
Directorship case of IFSC Public company it shall apply as per their articles
Once the candidature has been put through
The company shall inform its members of the candidature of a person for the office of director at least seven days
before the general meeting through
I. Sending Individual Notices through letter or email AND
II. by placing notice of such candidature or intention on the website of the company
The company can do away the with requirement of sending individual notices if company advertises such information
at least seven days before the general meeting in the local language newspaper of 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
Concept Check
A person by himself or through any member with a min of ____days before meeting must leave a notice signifying
his candidature as a director along with the deposit of ____rupees or such higher amount as may be prescribed
1. 14, 10 thousand
2. 14, 100 thousand
3. 30, 10 thousand
4. 30, 100 thousand
Ans: Option 2
Thanks
161 to 164
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Companies Act 2013 -> Section 161 (1) – Appointment of Additional, Alternate and Nominee Director
Appointment of Additional Director
To appoint any person except that person who has

The company may give power earlier failed to get appointed as a director in a
to the board of directors general meeting, as an additional director at any time
through artices of Association
Additional Director shall hold office up to the date of

the next annual general meeting
Note: Please note that earlier we discussed in section 152 that all the directors need to be appointed in general
meeting except those for which otherwise is mentioned in the Act. Now Additional Director is such case which can
be appointed by Board of Directors without it being approved in general meeting
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Appointment of Alternate Director
To appoint a person to act as an alternate director for

The company may give a director during his absence for a period of not less
authorize to the board of than three months from India
directors through artices of
Association or by passing a The person being appointed
special resolution 1. shall not be a person holding any alternate
directorship for any other director in the
company or
Alternate director shall not hold office for a period longer 2. Shall not be a person holding any directorship in
than that permissible to the director in whose place he the same company
has been appointed 3. The person if being appointed as alternate director
Alternate Director shall vacate office when the director in for independent director then he must meet the
whose place he has been appointed returns to India criteria for independent director
Note: Please note that earlier we discussed in section 152 that all the directors need to be appointed in general
meeting except those for which otherwise is mentioned in the Act. Now Alternate Director is such case which can be
appointed by Board of Directors without it being approved in general meeting
Appointment of Nominee Director
The company may give

appoint any person as a director nominated by any
authorize to the board of
institution as a nominee Director
directors through artices of
Association
Term of Nominee Director is not mentioned
Nominee Directors are normally appointed by large

shareholding institutions like Investment bank to act
as their representative
Note: Please note that earlier we discussed in section 152 that all the directors need to be appointed in general meeting
except those for which otherwise is mentioned in the Act. Now Nominee Director is such case which can be appointed by
Board of Directors without it being approved in general meeting
Appointment in case of Vacancy
Unless and until something else To appoint any person as director in the meeting of the
is mentioned in Articles, by board to fill the casual vacancy
default the board has powers
This must be approved in next annual general meeting
Any person so appointed shall hold office only up to the

date up to which the director in whose place he is
appointed would have held office if it had not been vacated
Casual Vacancy means sudden vacancy caused due to Disqualification, Removal, Death and resignation. In this office gets
vacated by the person before his/her term ends. Retirement is not a casual vacancy
Note: Please note that earlier we discussed in section 152 that all the directors need to be appointed in general meeting
except those for which otherwise is mentioned in the Act. Now Director in case of Casual Vacancy is such case which can be
appointed by Board of Directors without it being approved in same meeting but in next annual general meeting
Companies Act 2013 -> Section 162 – Appointment of Directors to be Voted Individually
Appointment of Directors to be Voted Individually Shall not apply to Private company, IFSC Public
Company and Fully owned Govt Company
At a general meeting of a company, a motion for the appointment of two or more persons as directors of the company by a
single resolution shall not be moved i.e. the voting for approval for appointment of 2 or more directors should not be
done in one go, it should be done separately for each director
Exception: The appointment of 2 or more directors can can be done in one go only if the prior approval has been taken for
it and while taking prior approval not even a single person raised objection
Any appointment done by violating above provision will not be a valid appointment
Concept Check
The board of the company gets its powers through special resolution to appoint which of the following directors?
1. Additional Director
2. Alternate Director
3. Nominee Director
4. Any of the above
Ans: Option 2
Alternate director can be appointed
1. Only in place of independent directors

2. In place of all directors except independent directors
3. In place of any director during his absence from India
4. In place of any director during his absence for a period of min of 3 months from india
Ans: Option 4
Companies Act 2013 -> Section 163 – Option to Adopt Principle of Proportional Representation for Appointment of
Directors.
Option to Adopt Principle of Proportional Representation for Shall not apply to fully owned Govt.
Appointment of Directors Companies
First, please note that this is optional and not mandatory and if company opts for this then it must be mentioned in
articles of association
The articles of a company may provide for the appointment of not less than two-thirds of the total number of the
directors of a company in accordance with the principle of proportional representation
Term in this case shall be 3 years
Any Casual vacancy shall be filled as per subsection 4 of section 161
Term Explainer: Proportional representation is a system used to elect a country's government. If proportional
representation is used in an election, a political party that wins 10% of the vote, will win 10% of the seats in parliament
and a party that wins 20% of the vote, will win 20% of the seats
Companies Act 2013 -> Section 164(1) – Disqualifications for Appointment of Director
Disqualifications for Appointment of Director
1)A person shall not be eligible for appointment as a director of a company, if
(a) he is of unsound mind and stands so declared by a competent court;

(b) he is an undischarged insolvent;
(c) he has applied to be adjudicated as an insolvent and his application is pending
(d) he has been convicted by a court of any offence and has been sentenced to imprisonment for not less than six months,
but less than 7 years and a period of five years has not elapsed from the date of expiry of the sentence:
if a person has been convicted of any offence and sentenced to imprisonment for a period of seven years or more then he
shall not be eligible to be appointed as a director in any company;
(e) an order disqualifying him for appointment as a director has been passed by a court or Tribunal
(f) he has not paid any call money in respect of any shares of the company held by him, whether alone or jointly with
others, and six months have elapsed from the last day fixed for the payment of the call;
(g) He has been convicted of the offence dealing with related party transaction at any time during the last preceding
five years
(h) He has not complied with requirement of subsection(3) section 152 i.e. he is not having a DIN or if he an existing
director at the time of commencement of this act, then he has not applied for DIN
(i) Has not compiled with provision of subsection (1) of section 165 ( Section 165 is related to number of
directorships)
Disqualifications for Appointment of Director Shall not apply to government company
If a person is a director or was a director in the company which

1. has not filed financial statements or annual returns for any continuous period of three financial years or
2. has failed to repay or redeem the following continuously for 1 year or more
I. Deposits accepted by it or Pay interest on the deposits or
II. Redeem any debentures on the due date or pay interest on this debentures on due date
III. Any dividend declared but not paid
Then the director of this company which has done of the above things shall not be eligible to be re-appointed as a
director of this same company for a period of five years from the date on which the said company is doing such
defaults
Then the director of this company which has done of the above things shall not be eligible to be appointed as a
director of any other company for a period of five years from the date on which the said company is doing such
defaults
If someone else is appointed as a director in the company which has defaulted on above mentioned points shall not be
disqualified from existing position for a period of six months from the date of his appointment
Private Company can through by its articles provide for any disqualifications for appointment as a director in addition
to those specified in sub-sections (1) and (2):
Note: We have earlier studied the stringent conditions for appointment of Independent director, so for independent
director those are in addition to these requirements that we have studied in section 164
Concept Check
A person who has been imprisoned for 7 years or more cannot be appointed director till completion of ______years from
date of expiry of sentence
1. 5
2. 7
3. 8
4. NOTA
Ans: Option 4 (he is not eligible for lifetime if he has been imprisoned for 7 years or more)
The articles of a company may provide for the appointment of not less than two-thirds of the total number of the directors
of a company in accordance with the principle of proportional representation. Which company is exception to this?
1. Private Company
2. All Unlisted Public Companies
3. All Listed Companies
4. Government Companies
Ans: Option 4
Thanks
165 to 168
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Companies Act 2013 -> Section 165 (1) – Number of Directorships
Number of Directorships Exception: Section 8 Company
A person can be a director (including alternate directorship) in maximum of 20 companies subject to that he can be a
director in maximum of 10 Public companies
Note:
When we count directorship of max in 20 companies then dormant companies must not be included
For the limit of directorship of max 10 in public companies, directorship in private companies that are either holding or
subsidiary company of a public company shall be included.
Number of Directorships
The members of a company may, pass a special

resolution to specify any lesser number of
companies in which a director of the company may
act as directors
Example: A special resolution can be passed that all

the directors of this company shall not hold more
than 15 directorships. In this case for the directors
of this company the max limit shall become 15 and
not 20. This is done to make directors give decent
amount to time to this company
Companies Act 2013 -> Section 165 (3 and 4) – Number of Directorships
At the time of commencement of this act if any

director is violating provisions related to this then
with in one year
1. He should resign from directorship in certain
companies
2. He should intimate regarding this to the
Registrar and other companies where he
intends to continue
3. He should not be director anymore as soon as
he dispatches the information to the concerned
company regarding his resignation
Penalty for violation of subsection (1) of 165
The person shall liable to a penalty of five thousand

rupees for each day after the first day during which
such contravention continues
Concept Check
A person is director in 20 companies, out of which 9 are public and rest are private. Among the private companies in this
case how many at maximum would be subsidiaries of Public companies
1. 1
2. 3
3. 10
4. 11
Ans: Option 1
A person is a director in 23 companies, out of which 8 are public, 7 are dormant and all dormant are private. Assuming no
private company is subsidiary of public company then in how many more private companies he can become a director
1. 1
2. 2
3. 3
4. 4
Ans: Option 3
Concept Check
If a person is holding directorship in 12 private companies then he is liable for penalty of

1. five thousand rupees for each day of violation
2. Ten thousand rupees for each day of violation
3. Fifteen thousand rupees for each day of violation
4. NOTA
Ans: Option 4 (Holding directorship in 12 private companies is not a violation)

Companies Act 2013 -> Section 166 – Duties of Director
Duties of Directors
Subject to the provisions of this Act
1. A director of a company shall act in accordance with the articles of the company.
2. A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its
members, and in the best interests of the company, its employees, the shareholders, the community and for the
protection of environment.
3. A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts,
or possibly may conflict, with the interest of the company.
4. A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to
his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to
pay an amount equal to that gain to the company.
5. A director of a company shall not assign his office and any assignment so made shall be void.
Penalty
If a director of the company contravenes the provisions of this section such director shall be punishable with fine
Min of one lakh rupees, but which may extend to five lakh rupees.
Companies Act 2013 -> Section 167 (1)– Vacation of Office of Director
Vacation of Office of Director
The office of Director shall become vacant

1. If director incurs any of the disqualifications specified in section 164 (in section 164 we discussed about Disqualification
of director)
If the Disqualification is with respect to section 164

and subsection (2) then the office of the director
shall become vacant in all the companies, other than
the company which is in default under that sub-
section
The office of Director shall become vacant

1. If director incurs any of the disqualifications specified in section 164 (in section 164 we discussed about Disqualification
of director)
Apart from this point which we discussed in previous slide there are other points also as mentioned below
2. He absents himself from all the meetings of the Board of Directors held during a period of twelve months with or
without seeking leave of absence of the Board
3. He acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements in which he
is directly or indirectly interested (Section 184 is about that directors disclose his interest in other companies)
4. He fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in
contravention of the provisions of section 184
5. He is convicted by a court of any offence and sentenced to imprisonment for not less than six months
6. He is removed as per section 169 (Section 169 is related to removal of director)

7. He was appointed as a director by virtue of his holding any office or other employment in the holding, subsidiary or
associate company, so he would cease to be a director when he ceases to hold such office
2. He absents himself from all the meetings of the Board of

Directors held during a period of twelve months with or
For Points 5 and 6
without seeking leave of absence of the Board
1) he shall not vacate office for thirty days
3. He acts in contravention of the provisions of section
from the date of conviction or order of
184 relating to entering contracts or arrangements in which
disqualification
he is directly or indirectly interested
2) If an appeal or petition is preferred within
4. He fails to disclose his interest in any contract or
thirty days against the conviction, then he
arrangement in which he is directly or indirectly interested,
shall not vacate office until expiry of
in contravention of the provisions of section 184
seven days from the date on which such
appeal or petition is disposed of
5. he becomes disqualified by an order of a court or the
Tribunal
3) If Any further appeal against the order of
first appeal with in 7 days, he shall not
6. He is convicted by a court of any offence and sentenced to
vacate office until this further appeal is
imprisonment for not less than six months
disposed of
Punishment in case Non-Vacation of Office of Director
1. He shall be punishable with imprisonment for a

If a person, functions as a director even when he term which may extend to one year or
knows that the office of director held by him has 2. With fine which shall not be less than one lakh
become vacant on account of any of the rupees, but which may extend to five lakh rupees
disqualifications specified in subsection (1) or
3. with both Imprisonment and Fine
Vacation of Office of All or some directors
In general the vacation of office of director is filled by

casual vacancy provision as discussed in 161 (4) earlier
The promoter shall become the director or if

promoter is not there then central government shall
But In case all the directors of the company vacate
appoint required number of directors till new
office for disqualification under subsection (1)
directors are appointed by the company in general
meeting
Private Companies Additional Conditions – Vacation of Office
Private Company can also add conditions to what is specified in subsection(1) of this section related to vacation of
director
Concept Check
The penalty related to five thousand rupees for each day of violation is related to which clause
1. Violation of Duties of director under section 166
2. Violation of 165(1) – Number of Directorship director is allowed to hold
3. Violation of 167 (1) - Non-Vacation of Office of Director though director is not eligible anymore
4. NOTA
Ans: Option 2
Concept Check
Which of the section deals with provisions regarding number of directorship a director can hold?
1. 164
2. 165
3. 166
4. 167
Ans: Option 2
What is the maximum period a director can abstain from attending meetings to prevent himself from being forced to vacate
the office of director
1. Period of 12 months without taking approval from board
2. Period of 18 months with approval of board
3. Period of 2 years in case of serious illness and taking approval from board
4. Period of 12 months with or without taking approval from board
Ans: Option 4
Thanks
169 to 172
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Companies Act 2013 -> Section 168 (1)– Resignation of Director
Resignation of Director - Procedure
Director can resign By Notice to Company
Board of the company shall inform the registrar

within thirty days from the date of receipt of notice
of resignation from a director using Form DIR 12
Board shall also include the details of resignation in

the following General Meeting of the company
The director who has resigned can himself also forward a copy of his resignation along with detailed reasons for the
resignation to the Registrar within thirty days of resignation using FORM DIR 11
The foreign director can authorize in writing a practicing-chartered accountant or cost accountant in practice or
company secretary in practice or any other resident director of the company to sign Form DIR-11 and file the same on
his behalf intimating the reasons for the resignation.
Resignation of Director – Effective Date of Resignation
The resignation of a director shall take effect from the date on which the notice is received by the company or the date, if
any, specified by the director in the notice, whichever is later:
But the director even after his resignation remains liable for the offences that occurred during his tenure
Resignation of Director – All Directors Resigning
The promoter shall become the director or if

In case all the directors of the company resign from promoter is not there then central government shall
office for any reason appoint required number of directors till new
directors are appointed by the company in general
meeting
Concept Check
Form DIR-11 is used by which of the following entity to inform registrar regarding the resignation of Director
1. Company
2. Board of Directors
3. Director himself who has resigned
4. Any of them
Ans: Option 3
Companies Act 2013 -> Section 169 (1)– Removal of Director
Removal of Director
By Passing an ordinary Resolution before the expiry of his

A company can remove a director term after giving him an opportunity to present his case
Exception: If a director has been appointed by Tribunal

then it cannot be removed
Term Explainer
What are directors appointed by Tribunal: Tribunal is a body that settles disputes related to companies. Now if tribunal
in certain cases feel that it needs to appoint director(s) to the company who can report to tribunal regarding the
function of the company then tribunal can appoint such directors
Removal of Director
A company can remove a director By Passing an ordinary Resolution before the expiry of his
term after giving him an opportunity to present his case
More Exceptions:
1. An independent director re-appointed for second

term under sub-section (10) of section 149 shall be
removed by the company only by passing a special
resolution and after giving him a reasonable
opportunity of being heard
Removal of Director
A company can remove a director By Passing an ordinary Resolution before the expiry of his
term after giving him an opportunity to present his case
More Exceptions:
Nothing contained in this sub-section(1) of section 169

shall apply where the company has availed itself of the
option given to it under section 163 to appoint not less
than two thirds of the total number of directors according
to the principle of proportional representation.
Companies Act 2013 -> Section 169 (3,4)– Removal of Director
Removal of Director - Procedure
A special notice shall be required to remove a The company shall forward a copy of notice related to the
director under this section, or to appoint resignation of director to the director who is to be
somebody in place of a director so removed removed
If director wants, he can represent his case and he can ask

this representation to be send to the members
If the time permits, then company needs to send this

representation to the members, but if time is less to send
the same before the meeting then director can ask for
this to orally read out in the meeting
Companies Act 2013 -> Section 169 (5,6 and 7)– Removal of Director
Removal of Director – Filling up of Vacancy
A vacancy created by the removal of a director under this section may be filled by the appointment of another director in his place at the
meeting at which he is removed subject to that special notice was served for the same
A director so appointed shall hold office till the date up to which his predecessor would have held office if he had not been removed.
If the vacancy is not filled as mentioned above it may be filled as a casual vacancy as discussed in subsection (4) of section 161 subject to
that the director removed shall not be appointed as the director again
Concept Check
An independent director who has been appointed for the first time in a company
1. Cannot be removed
2. Can be removed by passing a ordinary resolution
3. Can be removed by passing a special resolution
4. Can be removed just by board of directors
Ans: Option 2
Who all are exempted from being removed as a director from company?
1. Directors appointed by Tribunal
2. Directors appointed under optional scheme where the company has availed itself of the option given to it under section
163 to appoint not less than two thirds of the total number of directors according to the principle of proportional
representation.
3. Independent directors appointed for the second term
4. Both 1 and 2
5. All of the above
Ans: Option 4
Companies Act 2013 -> Section 170 – Registration of Directors and Key Management Personnel
Registration of Directors and Key Management Personnel Not applicable in case of government
company
A Every company shall keep at its registered office a register containing such particulars of its directors and key
managerial personnel which shall include the details of securities held by each of them in the company or its holding,
subsidiary, subsidiary of company’s holding company or associate companies
A return containing the particulars of appointment of new director or key managerial personnel and if there are changes
in details of existing director or key Management Personnel, shall be filed with the Registrar in Form DIR-12 within thirty
days of such appointment or change, as the case may be.
Exception:
In case of IFSC public company or IFSC private company, the details of new director or key managerial personnel or
change in details of existing director or key Management Personnel shall be filed in 60 days instead of 30 days
Companies Act 2013 -> Section 171 – Member Right to Inspect
Member Right to Inspect Not applicable in case of government

company
The register containing information as discussed in section 170

1. shall be open for inspection during business hours and the members shall have a right to take extracts therefrom and
copies
2. On a request by the members, the register shall be provided to them free of cost within thirty days
3. shall also be kept open for inspection at every annual general meeting of the company and shall be made accessible
to any person attending the meeting.
If access to register is refused or if copy on request is not provided with in 30 days, then aggrieved party can make a
request to the Registrar and registrar can then direct the company to comply immediately
Companies Act 2013 -> Section 172 – Penalty where no penalty is provided
Generic Punishment for violation of sections 149 to 171
For violations of many sections, we have already discussed the penalty
For violation of certain sections no penalty has bee mentioned, in such cases the penalty shall be fine which shall not be
less than fifty thousand rupees but which may extend to five lakh rupees.
Concept Check
What is the penalty in such cases where no specific penalty has been defined?
1. Min fine of five thousand rupees and maximum up to five lakh rupees
2. Min fine of five thousand rupees and maximum up to ten lakh rupees
3. Min fine of fifty thousand rupees and maximum up to five lakh rupees
4. Min fine of ten thousand rupees and maximum up to two lakh rupees
Answer: Option 3
Thanks
Chapter XII of Companies Act – Meeting of Board of Directors and its Powers
173
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Companies Act 2013 -> Section 173 (1) – Meetings of Board
Meeting of Board and Its Powers – Number of Meetings
After the first meeting Board of directors shall hold a

Every company shall hold the first minimum number of four meetings every year in such
meeting of the Board of Directors a manner that not more than one hundred and
within thirty days of the date of its twenty days shall intervene between two consecutive
incorporation meetings of the Board:
Exception :
IFSC Public Company and IFSC Private Company shall hold first meeting of the Board of Directors within sixty days
of its incorporation and thereafter hold at least one meeting of the Board of Directors in each half of a calendar
year
Section 8 Companies shall hold at least one meeting within every six calendar months and there is no
requirement to conduct first meeting in certain number of days
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Companies Act 2013 -> Section 173 (1) – Meeting of Board
Meeting of Board and Its Powers – Number of Meetings
After the first meeting Board of directors shall hold a

Every company shall hold the first minimum number of four meetings every year in such
meeting of the Board of Directors a manner that not more than one hundred and
within thirty days of the date of its twenty days shall intervene between two consecutive
incorporation meetings of the Board:
If the first meeting of BOD is held on 1st April, then what can be last date of second meeting assuming no
exceptional case?
Ans: 1st April + 120 Days (Somewhere around 29th July)
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Quorum of Meeting: The minimum number of voting members that must attend a meeting of an organization for the
decisions taking in that meeting to be valid.
Example 1: Suppose there are 10 directors in Board of directors and Quorum is presence of 3 directors
If 2 directors are present, then it shall not constitute a Quorum and hence it will not be valid
If 4 directors are present, then it shall constitute a Quorum and hence it will be valid
Example 2: Suppose there are 10 directors in Board of directors and Quorum is presence of 3 independent directors
If 4 executive directors and 2 independent directors are present, then it shall not constitute a Quorum and hence it will
not be valid
If 4 independent directors are present, then it shall constitute a Quorum and hence it will not be valid
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The Companies (Meetings of Board and its Powers) Rules, 2014 – Rule 3 – Matters Not to be dealt through Video Conference
Meeting of Board and Its Powers – Meeting through Audio-Visual Means
Exceptions:
The meeting can be conducted through
The following matters shall not be dealt with in any meeting held
video conferencing, but such means
through video conferencing or other audio-visual means after 30th
shall able to record and store the
June 2020
proceedings of such meetings along
with date and time
(i) the approval of the annual financial statements;
(ii) the approval of the Board’s report;
(iii) the approval of the prospectus;
(iv) the Audit Committee Meetings for consideration of financial
statement including consolidated financial statement if any, to be
approved by the board
(v) the approval of the matter relating to amalgamation, merger,
demerger, acquisition and takeover
But if there is quorum presence in a meeting through physical presence of directors, any other director may participate
conferencing through video or other audio-visual means and the matters in the above list can be taken up for discussion
The Companies (Meetings of Board and its Powers) Rules, 2014 – Rule 3 – Matters Not to be dealt through Video Conference
Company has 9 directors and Quorum of meeting is 3

directors. If 3 directors are present physically in a room then
can rest join through video conferencing and take up
approval of annual Financial Statements ? Yes
Company has 9 directors and Quorum of meeting is 3

directors. If 2 directors are present physically in a room then
can rest join through video conferencing and take up
approval of annual Financial Statements ? No
The Companies (Meetings of Board and its Powers) Rules, 2014 – Rule 3 – Meeting of Board through Audio-Video Means
Meeting through Audio-Visual Means
Guidelines for Meeting through Audio-Visual Means
The Chairperson of the meeting and the company secretary, if any, shall take due and reasonable care –
1. to safeguard the integrity of the meeting by ensuring sufficient security and identification procedures
2. To ensure availability of proper video conferencing or other audio-visual equipment or facilities for providing
transmission of the communications for effective participation of the directors and other authorized participants at
the Board meeting
3. to record proceedings and prepare the minutes of the meeting;
4. to ensure that no person other than the concerned director are attending or have access to the proceedings of the
meeting through video conferencing mode or other audio-visual means except that the persons, who are differently
abled, may make request to the Board to allow a person to accompany him
5. to ensure that participants attending the meeting through audio visual means can hear and see the other
participants clearly during the meeting:
Procedure for Meeting through Audio-Visual Means
1. A director intending to participate for a particular meeting through video conferencing or audio-visual means shall
communicate his intention to the Chairperson or the company secretary of the company.
2. Any director who intends to participate in all the meetings through electronic mode may intimate about such
participation at the beginning of the calendar year and such declaration shall be valid for one year. In case he wants
to join some meeting in person then he can join in person also by providing notice about such participation in
advance
3. A director participating in a meeting through video conferencing or other audio visual means shall be counted for
the purpose of quorum
4. if a motion is objected to and there is a need to put it to vote, the Chairperson shall call the roll and note the vote of
each director who shall identify himself while casting his vote
Companies Act 2013 -> Section 173 (2) – Meeting of Board and Its Powers
Procedure for Meeting through Audio-Visual Mean
5. The draft minutes of the meeting shall be circulated among all the directors within fifteen days of the meeting either
in writing or in electronic mode as may be decided by the Board
6. Every director who attended the meeting, whether personally or through video conferencing or other audio-visual
means, shall confirm about the accuracy of recording of the proceedings within seven days or some reasonable time
as decided by the Board after receipt of the draft minutes. If he does not give approval or raises any objection, then it
would be assumed as approval from him
Companies Act 2013 -> Section 173 (3 and 4) – Meeting of Board and Its Powers
Notice for Board Meetings
The notice must be in writing and it must be sent to

A meeting of the Board shall be called by giving a
every director at his address registered by hand
notice minimum of 7 days before meeting
delivery or by post or by electronic means:
Exceptions
The meeting of the Board may be called with a notice lesser than 7 days to transact urgent business subject to the
condition that at least one independent director shall be present at the meeting
Further that of independent directors then decisions taken at such a meeting shall be circulated to all the
directors and shall be final only on ratification thereof by at least one independent director
Penalty for not sending Notice for Board Meeting

Every officer of the company whose duty is to give notice under this section and who fails to do so shall be liable to a
penalty of twenty-five thousand rupees.
Meeting of Board– Meeting of Board in Special Cases
One Person Company
If one Director is there, then nothing mentioned in this section 173 shall apply to them and its logical because
there is no need of meeting in case of one-person company
If more than one Director is there, they can comply with provisions of section 173 by just having at least one
meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the
two meetings is not less than ninety days
Inference: In this case the requirement of subsection 2,3 and 4 shall not be applicable
Meeting of Board and Its Powers – Meeting of Board in Special Cases
Dormant Company, Small Company and Private Company (in case private company is startup)
These companies can comply with provisions of section 173 by just having at least one meeting of the Board of
Directors in each half of a calendar year and the gap between the two meetings is not less than ninety days
Inference: In this case the requirement of subsection 2, 3,4 shall not be applicable
Concept Check
In case of company what is the max number of days that can be there between two consecutive meetings assuming no
exceptional cases?
1. 90
2. 120
3. 150
4. 180
Ans: Option 2
Which of the following cannot be discussed in meeting which is taking through Video Conferencing and Quorum is not
present physically?
1. Approval of annual Financial Statements
2. Approval of Prospectus
3. Approval of Board’s Report
4. Approval of Merger with other company
5. All the above
Ans: Option 5
Concept Check
The draft minutes of the meeting which is done electronically shall be circulated among all the directors within ________
days of the meeting either in writing or in electronic mode
1. 60
2. 15
3. 20
4. 30
Ans: Option 2
If officer of the company who is supposed to sent notice for board meeting but fails to do so then he would be liable to a
penalty of ______________ rupees
1. 50000
2. 40000
3. 25000
4. 10000
Ans: Option 3
Thanks
174 to 176
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Companies Act 2013 -> Section 174 (1) – Quorum for Meetings of Board
Quorum for Meetings of Board
The quorum for a meeting of the Board of The participation of the directors by video conferencing or
Directors of a company shall be by other audio-visual means shall also be counted for the
purposes of quorum
1/3rd of its total strength or two directors,
whichever is higher Except: If certain cases are not to be approved in electronic
meeting such as Approval of financial statements then for
Total Strength does not include directors those cases members attending through electronic means
whose places are vacant shall not be counted
Exception:
In case of section 8 company The quorum for a meeting of the Board of Directors of a company shall be
8 members or 25 per cent, of its total strength whichever is less subject to that is should not be less than 2
Concept Check
A company being not a section 8 company has 11 director. The two seats are vacant. What shall be the minimum number of
directors' present in meeting constitute a quorum in this case?
1. 1
2. 2
3. 3
4. Any of the above
Ans: Option 3
A company is a section 8 company has 4 directors. What shall be the minimum number of directors' present in meeting
constitute a quorum in this case?
1. 1
2. 2
3. 3
4. Any of the above
Ans: Option 2
Quorum for Meetings of Board
If number of directors are reduced below Remaining Directors will not be able to
Quorum due to vacancy then take any decision. So what do they do?
They can increase the directors to

constitute a quorum by appointing
alternate Directors or additional directors
OR
Summon a general meeting and appoint

new directors in general meeting
Quorum for Meetings of Board in case of Interested Directors
In case number of Interested Directors >= 2/3rd of the total strength of the Board of Directors
Then the quorum shall be minimum of 2 directors who are not interested directors i.e. minimum of 2 non-interests
director shall be present at the meeting
Term Explainer: Interested Directors

Any directors who is interested in entering into contract with some other body corporate in which he holds more than 2%
shareholding of that body corporate
Adjournment of Meeting
When a board meeting of the Board could not be held because quorum was not there then unless the articles
of the company otherwise provide, the meeting shall automatically stand adjourned
The next meeting shall take place on the same day at the same time and place in the next week. If that day is a
national holiday, then the next day which is not a national holiday and at the same time and place.
Note: Any fraction of a number shall be rounded off as one i.e. 3.3 shall be rounded of to 4
Concept Check
A company being not a section 8 company has total 12 directors. Out of this 9 are interested directors. In this case what
shall be the minimum number of non-interested directors' present in the meeting to constitute a Quorum?
1. 4 interested directors
2. 8 interested directors
3. 2 non-interested directors
4. 12 directors in total irrespective of whether they are interested or not
Ans: Option 3
A company being not a section 8 company has 4 directors and none of them is interested director. The two seats are vacant.
What shall be the minimum number of directors' present in meeting constitute a quorum in this case?
1. 1
2. 2
3. 3
4. Any of the above
Ans: Option 2
Terms
Term Explainer: Resolution by Circulation
Generally, important matters are discussed at the meetings of Board of Directors and accordingly resolutions are passed, but
sometimes the approval is urgent in nature and the board cannot wait for board meeting to happen
In such cases the resolution by circulation is passed in which the details of the resolution to be passed are drafted and send
to registered address of directors and their approval is taken
Companies Act 2013 -> Section 175 – Passing of Resolution by Circulation
Passing of Resolution by Circulation
To pass a resolution by Circulation following conditions need to be met
1. The resolution has been circulated to all the directors, or members of the committee at their addresses registered
with the company in India by hand delivery or by post or by courier, or through such electronic means
2. It must be approved by a majority of the directors who are entitled to vote on the resolution
3. If one-third or more of the total number of directors of the company think that any resolution under circulation
must be decided at a meeting, the chairperson shall put the resolution to be decided at a meeting of the Board.
Companies Act 2013 -> Section 176 – Defects in Appointment of Directors not to Invalidate Actions Taken
Defects in Appointment of Directors not to Invalidate Actions Taken
The actions or decisions taken by the director when he was in office would not become invalid, just because it was
subsequently noticed that his appointment was invalid by reason of any defect or disqualification
Concept Check
If _______ or more of the total number of directors of the company think that any resolution under circulation must be
decided at a meeting, the chairperson shall put the resolution to be decided at a meeting of the Board.
1. 1/5
2. 1/3
3. 2/3
4. 2/5
Ans: Option 2
Thanks
177 and 178
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What is an Audit Committee?
Every board of company has committees so as they can look into specific area
1. Audit Committee
2. Nomination and Remuneration Committee
3. Stakeholder Relationship Committee
Its responsible for charge of overseeing financial reporting and disclosure

Audit such as reviewing of financial statements, evaluating the auditors of the
Committee company
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Companies Act 2013 -> Section 177 (1) – Audit Committee
Who shall constitute Audit Committee
Every Listed Public Company
AND
Non-listed Public companies as per last date of
latest audited financial statements having
shall constitute an Audit Committee
1. Paid up share capital >= 10 crores or
3. outstanding loans, debentures and deposits >=
50 crore
Except following Public Companies

1. Unlisted Joint Venture Companies
2. Unlisted wholly owned subsidiary;
Formation of Audit Committee
The Audit Committee shall consist of a minimum of three directors
AND
Majority of Members of Audit Committee shall be Independent Directors except in

case of section 8 company
AND
Majority of members of Audit Committee including its Chairperson shall be

persons with ability to read and understand, the financial statement.
Can a chairperson of Audit Committee be Executive Director?
Yes, chairperson of Audit Committee can be either executive or non-executive director. There is no such condition
imposed on chairperson of Audit Committee
Quick Questions
There are 8 members in Audit committee and 4 are independent directors then
Is audit committee valid? No
How many min Directors must be independent directors? 5
A unlisted public company has turnover of 150 crores. Will it be required to have Audit Committee Yes
Functions of Audit Committee
Every Audit Committee shall perform following functions
1. The recommendation for appointment, remuneration and terms of appointment of auditors of the company
2. Review and monitor the auditor’s independence and performance, and effectiveness of audit process
3. Examination of the financial statement and the auditors’ report thereon
4. Approval of transactions of the company with related parties
Further Conditions on Related Party Transactions
1. In case of related party transactions the Audit Committee can also specify criteria for Omnibus approval in which
certain repetitive transactions with a certain max value are approved automatically
2. Normally details are required beforehand of such Omnibus Transactions to be submitted to Audit Committee
beforehand but when need for related party transaction cannot be foreseen and such details are not available, audit
committee may make omnibus approval for such transactions subject to their value not exceeding rupees one crore
per transaction.
3. Omnibus approval shall be valid for a period not exceeding one financial year and shall require fresh approval after
the expiry of such financial year
4. Omnibus approval shall not be made for transactions in respect of selling or disposing of the undertaking of the
company (Undertaking means an entity in which company has investment)
In case any transaction with related party involving

any amount < = one crore rupees is entered into by
a director or officer of the company without
obtaining the approval of the Audit Committee and
it is not ratified by the Audit Committee within
three months from the date of the transaction
Such transaction will become void and the director

concerned shall indemnify the company against any
loss incurred by it:
Every Audit Committee shall perform following functions
2. Review and monitor the auditor’s independence and performance, and effectiveness of audit process
3. Examination of the financial statement and the auditors’ report thereon
4. Approval of transactions of the company with related parties
Some More Functions of Audit Committee
1. Scrutiny of inter-corporate loans and investments
2. Valuation of undertakings or assets of the company, wherever it is necessary
3. Evaluation of internal financial controls and risk management systems
4. Monitoring the end use of funds raised through public offers and related matters.
Powers of Audit Committee
The Audit Committee shall have authority to

investigate into any matter in relation to the
items specified in sub-section (4) or referred to
it by the Board
To investigate the matter as mentioned above

Audit committee can obtain professional advice
from external sources and have full access to
information contained in the records of the
company.
Quick Questions
Omnibus approval is for how many years? 1 Financial Year
Omnibus approval cannot be given for selling of? Undertaking
Omnibus approval without getting details can be given for max of ___ crore per Transaction 1
Power to Vote in Meetings of Audit Committee
The auditors of a company and the key managerial personnel shall have a right to be heard in the meetings of the Audit
Committee when it considers the auditor’s report but shall not have the right to vote
Inclusion of Composition of Audit Committee in the Board’s Report
The Board’s report shall disclose the composition of an Audit Committee and
If the Board had not accepted any recommendation of the Audit Committee, the same shall be disclosed in such report
along with the reasons for not accepting the recommendation
Vigil Mechanism (Whistle blower)
1. The Companies which accept deposits Shall establish a vigil mechanism for directors and employees
from the public or to report genuine concerns
2. The Companies which have borrowed

Concerns shall be reported
money from banks and public financial
to whom
institutions in excess of fifty crore
rupees.
To audit committee in Director nominated by
case there is audit board to play the role
committee of audit committee
Concept Check
Who among the below shall mandatorily constitute an audit committee?
1. Every Unlisted Company

2. Every Private Company
3. Every unlisted public company
4. Every unlisted public company having turnover of >= 100 crore
Ans: Option 4
In an audit committee there are 6 members then how many minimum of them shall be independent?
1. 2
2. 3
3. 4
4. 5
Ans: Option 3
Concept Check
Omnibus approvals are given for how much time?
1. 6 months
2. 1 year
3. 18 Months
4. 2 years
Ans: Option 2
Normally details of Omnibus Transactions are required to be submitted to Audit Committee beforehand but when need for
related party transaction cannot be foreseen and such details are not available, audit committee may make omnibus
approval for such transactions subject to their value not exceeding rupees ____ per transaction ?
1. 100 Crore
2. 100 lakh
3. 10 crore
4. 10 lakh
Ans: Option 2
What is N&R Committee
N&R It is basically a committee responsible for specifying criteria for appointing

Committee directors, evaluating their performance, deciding their remuneration etc.
What is Stakeholder Relationship Committee
Stakeholder
Relationship It looks into grievances of security holders like somebody has not received
Committee the dividend payment or problems in transfer of shares
Companies Act 2013 -> Section 178 (1) – Nomination & Remuneration Committee and Stakeholder Relationship Committee
Who shall Constitute Nomination and Remuneration Committee Section 178 not applicable to section 8
company and IFSC Public Company
Every Listed Public Company
AND
Non-listed Public companies as per last date of
latest audited financial statements having
1. Paid up share capital >= 10 crores or shall constitute a Nomination and Remuneration Committee
3. outstanding loans, debentures and deposits >=
50 crore
Except following Public Companies

1. Unlisted Joint Venture Companies
2. Unlisted wholly owned subsidiary;
Formation of Nomination and Remuneration Committee
1. 3 or more Non-Executive Directors
2. Among non-executive directors at least ½ should be

independent directors
3. Chairperson can be appointed member of this committee

irrespective of whether he is executive or non-executive but
he shall not chair this committee
Can a chairperson of Nomination and Remuneration Committee be Executive Director?
Yes, chairperson of Nomination and Remuneration Committee can be executive or non-executive director though the
chairperson of company irrespective of he being executive or non-executive cannot be chairperson of Nomination and
Remuneration Committee
Quick Questions
There are 2 non-executive directors in N&R committee
Is N&R committee valid? No
Every Listed public company shall have N&R Committee? Yes
If there are 6 non-executive directors in N&R committee, how many min of them shall be independent 3
Functions of Nomination and Remuneration Committee Not applicable to government company
1. Shall formulate the criteria for determining qualifications and independence of a director
2. Shall identify persons who are qualified to become directors and recommend to the board for appointment
3. Shall specify criteria for evaluation of directors and various committees and its independent directors
4. Recommendation regarding removal of directors
Companies Act 2013 -> Section 178 (3 and 4) – Nomination & Remuneration Committee and Stakeholder Relationship
Committee
Functions of Nomination and Remuneration Committee Not applicable to government company
Policy related to remuneration for the directors, key managerial personnel and other employees
The remuneration Policy shall take care of following Points
1. The level and composition of remuneration should be reasonable and sufficient to attract, retain and motivate
directors
2. Remuneration to directors, key managerial personnel and senior management involves a balance between fixed and
incentive pay reflecting short and long-term performance objectives
The policy related to remuneration shall be placed on the website of the company and shall be disclosed in the Board's
report
Who shall Constitute Stakeholder Relationship Committee
Company which consists of more than one The Board of Directors of a company shall
thousand shareholders, debenture- constitute a Stakeholders Relationship
holders, deposit-holders and any other Committee
security holders at any time during a
financial year
Formation
The chairperson shall be non-executive
director and it shall consist of some other
members as decided by the board
Function of Stakeholder Relationship Committee
The Stakeholders Relationship Committee shall consider and resolve the grievances of security holders of the
company such as
1) Dividend not received

2) Rights issue subscription problem
3) Transfer of shares
4) Others
Chairperson of various Committees to attend General Meetings of Company
The chairperson of each of the committees constituted under this section (Nomination and Remuneration Committee
and Stakeholder Relationship Committee) shall attend the general meetings of the company.
If chairman is not available, then any other member of the committee authorized by him shall attend the general
meetings of the company.
Penalty
Violation of any provision of this section or section 177 (related to Audit Committee) will lead to a penalty to the
company and the individual responsible for violation
The company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five
lakh rupees

I. Imprisonment for a term which may extend to one year or
II. Fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees or
III. with both:
Note: Inability to resolve or consider any grievance by the Stakeholders Relationship Committee in good faith shall not
constitute a contravention of this section
Concept Check
Every Listed Company shall have?

1. Nomination and Remuneration Committee
2. Stakeholder Relationship Committee
3. Audit Committee
4. Both 1 and 3
5. 1,2 and 3
Ans: Option 4
Which of the following statement is true?

1. Stakeholder and Relationship committee is only required in case of listed companies
2. If there are 6 members in nomination and remuneration committee and out of them 4 are non-executive directors then
at least 2 shall be independent directors
3. At least 1/3rd members of audit committee shall be independent directors
4. Audit committee shall consist of at least 2 directors
Ans: Option 2
Concept Check
Which of the following is not a function of N&R committee?
1. formulate the criteria for determining qualifications, positive attributes and independence of a director
2. Shall specify criteria for evaluation of directors
3. Formulating Policy related to remuneration for the directors, key managerial personnel and other employees
Ans: Option 4
What shall be the penalty to the company if Audit committee or N&R committee is not discharging its functions?
1. fine which shall not be less than 5 lakh rupees but which may extend to 20 lakh rupees
Ans: Option 2
Thanks
Chapter XII of Companies Act – Meeting of Board of Directors
179 to 183
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Companies Act 2013 -> Section 179 (1 and 2)– Powers of the Board
Powers of the Board
The Board of Directors of a company shall be entitled to exercise all such powers as the company is authorized to exercise
and do but it shall not
1. Violate any provision of the act
2. Violate anything mentioned in memorandum or articles of the company
3. Not do anything which is to be done by company in general meeting
If a regulation has been passed in general meeting, then the decisions taken by the board in the past violating that regulation
shall still be valid
Companies Act 2013 -> Section 179 (3)– Powers of the Board
The Companies (Meetings of Board and its Powers) Rules, 2014 – Rule 8 – Powers of Board
Powers of the Board
The Board of Directors of a company shall exercise the following powers on behalf of the company by means of resolutions
passed at meetings of the Board, namely
(a) to make calls on shareholders in respect of money unpaid on their shares;
(b) to authorize buy-back of securities
(c) to issue securities, including debentures, whether in or outside India;
(d) to borrow monies (for banking company borrowing money from RBI or another bank or accepting deposit from people
shall not be constituted as borrowing of money)
(e) to invest the funds of the company;
(f) to grant loans or give guarantee or provide security in respect of loans
(g) to approve financial statement and the Board’s report;
(h) to diversify the business of the company;
(i) to approve amalgamation, merger or reconstruction;
(j) to take over a company or acquire a controlling or substantial stake in another company
(k) to make political contributions;
(l) to appoint or remove key managerial personnel (KMP);
The powers specified in clauses (d) to (f) can be delegated by board by a resolution passed at a meeting.
It can be delegated to committee of directors, the managing director, the manager or any other principal officer of the
company
Companies Act 2013 -> Section 179 (3)– Powers of the Board
The Companies (Meetings of Board and its Powers) Rules, 2014 – Rule 8 – Powers of Board
Powers of the Board
In general these powers can be exercised only

bypassing resolutions at the meetings of the board but
there are certain exceptions
1. In case of IFSC Public company and IFSC Private
Company the Board can exercise powers by means
of resolutions passed at the meetings of the Board
or through resolutions passed by circulation.
2. In case if section 8 company the powers under (d),

(e) and (f) can be exercised by board by means of
resolutions passed at the meetings of the Board or
through resolutions passed by circulation
Quick Questions
1. Can Board of Directors take any decision which is to be approved in General Meeting of Company N
2. Can the board delegate Power to invest funds of company Y
3. In Section 8 Company the resolution for granting loans can be passed through circulation Y
4. Does board has power to approve amalgamation and merger of company Y

Companies Act 2013 -> Section 180 (1 )– Restrictions on the Powers of the Board
Restriction of Powers of the Board
The Board of Directors of a company shall exercise the following powers only with the consent of the company by passing a
special resolution
(a) to sell, lease or otherwise dispose of the whole or large part of the undertaking(s) of the company
undertaking shall mean an

1. undertaking in which the investment of the company exceeds twenty per cent. of its net worth as per the audited balance
sheet of the preceding financial year or
2. An undertaking which generates twenty per cent. of the total income of the company during the previous financial year
Large Part of Undertaking shall mean

1. Twenty per cent. or more of the value of the undertaking as per the audited balance sheet of the preceding financial year
Companies Act 2013 -> Section 180 (1 )– Restrictions on the Powers of the Board
Restriction of Powers of the Board
The Board of Directors of a company shall exercise the following powers only with the consent of the company by passing a
special resolution
(a) to sell, lease or otherwise dispose of the whole or large part of the undertaking(s) of the company
(b)to borrow money, where the money to be borrowed, together with the money already borrowed by the company will
exceed aggregate of its paid-up share capita, free reserves and securities premium. Borrowed money shall not include
temporary loans obtained from the company’s bankers in the ordinary course of business
(c) To give time for repayment of any debt due from a director
Temporary Loans means loans repayable on demand or within six months from the date of the loan such as short-term,
cash credit arrangements, the discounting of bills but does not include loans raised for the purpose of financial expenditure
of a capital nature
Quick Questions
1. Company B in which company A has investment which is 18% of net worth of company B would be undertaking of
company A N
2. Can the board dispose of 18% of undertaking without passing special resolution Y
3. To borrow money apart from temporary loans which is > paid up share capital + Free Reserves + Securities Premium,
does board needs to have special resolution passed Y
Concept Check
Which of the following powers of the board require special resolution to be passed by the company?
1. to authorize buy-back of securities

2. to invest the funds of the company
3. to take over a company or acquire a controlling or substantial stake in another company
4. To sell 23% of the stake in undertaking
Ans: Option 4
Which of the following powers of the board can be delegated to Managing director?
1. to authorize buy-back of securities
2. to approve amalgamation, merger or reconstruction
3. to make political contributions
4. to grant loans
5. Both 2 and 4
Ans: Option 4
Companies Act 2013 -> Section 181 – Company to Contribute to Bona Fide and Charitable Funds etc.
Contribute to Bona Fide and Charitable Funds etc.
The Board of Directors of a company may contribute to bona fide charitable and other funds
Provided that prior permission of the company in general meeting shall be required if
Aggregate amount in a financial year > five per cent. of its average net profits for the 3 preceding financial years.
Companies Act 2013 -> Section 182 – Prohibitions and Restrictions Regarding Political Contributions
Prohibitions and Restrictions Regarding Political Contributions
A company, (except Government company and a company which has been in existence for less than three financial years),
may contribute any amount directly or indirectly to any political party only if a resolution authorizing the same is passed at
a meeting of the Board of Directors
The donation to the following entities shall also be considered as a donation to a political party
1. To a person who is carrying on any activity to affect public support for a political party
2. The amount of expenditure incurred by a company on an advertisement in any publication is being run by the political
party or being in some way is related to political party
Every company shall disclose in its profit and loss account the total amount contributed by it under this section during the
financial year
The contribution under this section shall not be made except by an account payee cheque drawn on a bank or an account
payee bank draft or use of electronic clearing system through a bank account:
Companies Act 2013 -> Section 182 – Prohibitions and Restrictions Regarding Political Contributions
Prohibitions and Restrictions Regarding Political Contributions
Penalty for Violation of Section 182
1. The company shall be punishable with fine which may extend to five times the amount so contributed and
2. Every officer of the company who is in default shall be punishable with

I. imprisonment for a term which may extend to six months and
II. with fine which may extend to five times the amount so contributed
For reference of section 182 Political party” means a political party registered under section 29A of the Representation of
the People Act, 1951.
Quick Questions
1. Permission to donate to charitable funds is required in general meeting when aggregate amount of donation in a financial
year which exceeds ______of its average net profits for the three immediately preceding financial years 5%
2. Max imprisonment to officer of company who is in default of section 182 is 6 months

Companies Act 2013 -> Section 183 – Contributions to National Defence Fund, etc.
Power of Board and Other Persons to Make Contributions to National Defence Fund, etc.
Irrespective of what is mentioned in any other provision of this Act or in the memorandum, articles
1. The Board of Directors of any company may contribute to the National Defence Fund or any other Fund approved by the
Central Government for the purpose of national defense.
2. Every company shall disclose in its profits and loss account the total amount or amounts contributed by it to the Fund
referred to in sub-section (1) during the financial year
Concept Check
The contribution to which of the following funds need not be shown in Profit and Loss Account?
1. Charitable Funds
2. Funds for Political parties
3. Funds for National Defense
4. NOTA
Ans: Option 1
The penalty which can be levied on a company for violation of section 182 ?
1. Fine up to 2 times the contribution made to the political party

Ans: Option 2
Thanks
184 to 185
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Companies Act 2013 -> Section 184 – Disclosure of Interest by Director
Disclosure of Interest by Director
Ram
Director
Ram is a shareholder in company B or has Company A

such relation that he can benefit from
company B
Ram would be interested in company B
Company B
Companies Act 2013 -> Section 184 (1) – Disclosure of Interest by Director
Director should disclose his interest in any company or association at the following times by giving a notice in
FORM MBP1
1. In the first meeting of Board of directors after his appointment as director

2. In first meeting of board of directors each financial year
3. Whenever there is a change in disclosure already made like increase in shareholding from 3 %to 5%
All Such notices given by directors disclosing his interest shall kept for a period of eight years from the
end of the financial year
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Ram
Director
Ram alone or together with

other director holds > 2%
shareholding in Company B
or Company A
is partner, owner, promoter
or CEO in Firm B Company or Firm B
In a meeting in which such contract is being discussed by directors of company A, such a director or directors shall disclose
their interest and should not participate in that meeting (except in case of private company where director can participate in
a meeting after disclosing his interest )
If a director is not interested in company at the time when contract was entered into but became interested later, then he
should disclose his interest in the immediate next meeting of Board of Directors
Exception: In case of section 8 company this subsection is only valid if transaction size exceeds 1 lakh rupees
Disclosure of Interest by Director – Cancellation of Contract
If a contract is entered by violating these conditions

like interested director not disclosing his interest or
participating in a meeting in which the contract was
discussed, then
1. Contract can become void if company wants to

cancel the contract
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Penalty for Non-Disclosure of Interest by Director
If director violates either of the conditions discussed in subsection 184(1) and 184 (2), director shall be punishable with
I. Imprisonment for a term which may extend to one year or
II. with fine which may extend to one lakh rupees or
III. with both.
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Concept check
The notice given by director disclosing his interest in certain company shall be preserved by company for how many years
1. 3
2. 5
3. 8
4. 10
Ans Option 3
In Case of section 8 company what is the transaction size for stopping a director to participate in the meeting in which that
transaction with a company in which a director is interested is being discussed? More than1 lakh
What is maximum fine if the director does not disclose his interest in any other company or participates in a meeting in
which a transaction with that company in which a director has interest is being discussed? 1 lakh
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Companies Act 2013 -> Section 185 (1) – Loans to Directors
Loans to Directors
Any Director of the company or holding

company
Shall not advance any loan or Any relative or partner of director

give guarantee or security for
Company any loan taken by
Any other firm or company in which director or
relative of director is partner
As per this clause can a company A give a loan to other company B in which director of Company A is a director?
Yes because as per this clause only the company in which director of company A is partner is prohibited from
being given a loan
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Loans to Interested Parties with Directors
Any Party with whom the director is interested in
Can advance loan or give Subject to Following Conditions

guarantee or security for any
loan taken by A special resolution is passed by the company in
general meeting
Company
The loans are utilized by the borrowing company for its
Meaning of Any party with whom director is interested in principal business activities (Principal Activity means
the main activity the company is operating in)
1. Any private company of which any such director is a director or member or

2. Any company where not less than twenty-five per cent. of the total voting power may be exercised or controlled by any
such director, or by two or more such directors, together
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Three Exceptions in case Loans to Directors
Loan can be given to a managing or whole-time director (whole-time director” includes a director in the whole-time
employment of the company) when
1. That is being given as part of scheme introduced for the employees of the company
2. As part of any scheme passed by special resolution
A company which usually is in the business of giving loans or security towards any loans can give loans without any
restrictions mentioned in this section provided they charge rate not less than the rate of prevailing rate of government
securities of the same duration.
Example: if loan is being provided for 5 years and rate of 5 years of Government bonds is 5% then rate of interest on loan
shall not be less than 5%
Loan given by Holding company to its subsidiary company or security or guarantee given by holding company for loan
taken by subsidiary company shall be exempted from all such restrictions provided these loans are used by subsidiary
company for principal activities
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Quick questions
If Ram is director in Company A and Sham who is relative of Ram is a partner in company B then can company A provide loan
to company B? No
Company B is subsidiary of Company A. If Ram is director in Company A and Sham who is relative of Ram is a partner in
company B then can company A provide loan to company B? yes
Can loan be provided to whole time directors because of his position even if there is no policy to give such loans to the
employees of the company? No
Can loan be provided to independent directors provide there is a policy to give such loans to the employees of the company
who are associated with the company? No
The loan can be given to company in which a director is interested by passing a ordinary resolution? No
Punishment in case violation of 185
To the Company:
Fine which shall not be less than five lakh rupees, but which may extend to twenty-five lakh rupees
To the Officer of the company who is in default

I. Imprisonment for a term which may extend to six months or
II. with fine which shall not be less than five lakh rupees, but which may extend to twenty-five lakh rupees
To the Director the director or the other person to whom any loan is advanced or guarantee or security is given
I. Imprisonment which may extend to six months or
II. with fine which shall not be less than five lakh rupees, but which may extend to twenty-five lakh rupees, or
III. with both
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Concept check
The company can give loan to which of the following?

1. Any director of the company
2. Relative or partner of the director of the company
3. Any firm in which director or his relative is partner
4. Any firm in which relative of director is director
Ans Option 4
The loan given by company to interested party needs to be passed in
1. Special Resolution in general meeting of the company
2. Ordinary resolution in general meeting of company
3. Special resolution in meeting of board of directors
4. Ordinary resolution in meeting of board of directors
Ans Option 1
The penalty to the officer or the company who is default : Fine up to maximum of
1. 5 lakh
2. 10 lakh
3. 15 lakh
4. 25 lakh
Ans Option 4
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Thanks
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Section 186 and 187
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Companies Act 2013 -> Section 186 (1) – Loans and Investment by Companies
Loans and Investment by Companies
Layers of Companies: It means subsidiaries of Companies
Meaning of Subsidiary
Company A Controls the composition of the Board of Directors of company

B i.e. Company A can remove or appoint directors in Company
Company B would be
OR
Subsidiary of
Company A Company A Exercises or controls more than one-half of the total voting power
of company B either at its own or together with one or more of its subsidiary
companies:
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Meaning of Investment Company
Investment company” means a company whose principal business is the acquisition of shares, debentures or other securities
Definition of Principal Business
Assets in the form of investment in income derived from investment

shares, debentures or other business constitutes not less than fifty
OR
securities constitute not less than fifty per cent. as a proportion of its gross
per cent. of its total assets income
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A company shall not make investment through more than two layers of investment companies
So if any investment is done through subsidiary which is 3rd

layer investment company then that shall not be valid
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Companies Act 2013 -> Section 186 (2 and 3) – Loans and Investment by Companies
1. Give any loan to any person except employees or other body corporate
Company shall not 2. or provide security in connection with a loan to any other Give any
guarantee body corporate or person and
3. Acquire or purchase the securities of any other body corporate
exceeding sixty per cent. of its paid-up share capital, free reserves and
securities premium account or
one hundred per cent. of its free reserves and securities premium account,
whichever is more.
If the paid-up share capital is 20, free reserves is 50 and security premium account is 30 then
60% of 100 = 60
100% of 80 = 80
So max limit shall be 80 for giving a loan to these parties as per this example
If company wants to exceed this limit then special resolution needs to be passed
Exception: If a loan or guarantee or is given or where a

security has been provided by a company to its wholly
owned subsidiary company or a joint venture company
then the requirements of this section does not apply
Company shall give such details in the financial

statement of the company
Quick Questions
Company B would be Subsidiary of Company A if company A controls more than ______ of voting power of Company B
1/2
Investment company would have acquisition of shares, debentures or other securities has its principle business if Assets in the
form of investment in shares, debentures or other securities constitute not less than ____ of its total assets or income derived
from investment business constitutes not less than ____as a proportion of its gross income
50%, 50%
Company shall not give any loan or provide security in connection with a loan or Acquire or purchase the securities exceeding
_______of its paid-up share capital, free reserves and securities premium account or one hundred per cent. of its free
reserves and securities premium account, whichever is higher
60%
Companies Act 2013 -> Section 186 (4 to 6) – Investments of Company to be Held in its Own Name
The company shall disclose in the financial statement the full particulars of the loans given, investment made, or guarantee
given, or security provided and the purpose for which the loan or guarantee or security is proposed to be utilized by the
recipient of the loan or guarantee or security.
No investment shall be made or loan or guarantee or security given by the company unless the resolution sanctioning it is
passed at a meeting of the Board with the consent of all the directors present at the meeting
No company, which is registered under section 12 of the SEBI Act, 1992 and covered shall take inter-corporate loans
exceeding the limits mentioned in the regulations by SEBI
The companies registered under section 12 can be stock-broker, sub- broker, share transfer agent, banker to an issue,
trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such
other intermediary dealing in securities
Rate at which Loans or Investments are transacted
No loan shall be given under this section at a rate of interest lower than the prevailing yield of that number of years as the
duration of the loan
Example: if loan is being provided for 5 years and yield of 5 years of Government bonds is 5% then rate of interest on loan
shall not be less than 5%
Maintaining Register for Loans and Investment by Companies
Every company giving loan or giving a guarantee or providing security or making an investment under this section shall keep
a register
The company shall maintain a register using FORM MBP2 and enter in that the details of particulars of loans and guarantees
given, securities provided, and acquisitions made
The entries in the register shall be made chronologically and within seven days of doing such transactions
The register can be maintained manually or electronically and shall be authenticated by the company secretary of the
company
The extracts of the register shall be available to any member of the company on making such a request
The register shall be kept at the registered office of the company

Certain Exceptions for Loans and Investment by Companies
Loan or guarantee or security provided, or investment

made by following entities shall be exempted
Except what we discussed in subsection 1, no other
section shall be applicable in these cases 1) Housing Finance Companies
2) Banking Company
3) Insurance Company
4) Any other company with these activities as its
principal activities
Any investment done by following entities shall be

exempted
1) Investment made by investment company

2) Investment made by investing rights issues of shares
made by some other company
3) Investment done by NBFC whose principal business
is acquisition of securities
Quick Questions
Is the company required to pass a resolution at the meeting of board of directors while giving loans, guarantee, security or
making any investments
Yes
Every company giving loan or giving a guarantee or providing security or making an investment under this section shall keep
a register and the entries in the register shall be made chronologically and within ____ days of doing such transactions
Can housing company make loan exceeding sixty per cent. of its paid-up share capital, free reserves and securities premium
account or one hundred per cent. of its free reserves and securities premium account, whichever is more. Yes
Punishment for Section 186
To the Company
Fine which shall not be less than twenty-five thousand rupees, but which may extend to five lakh rupees
To the officer who is in default

I. Imprisonment for a term which may extend to two years and
II. with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees.
Concept check
A company shall not make investment through more than ___layers of investment companies
1. 1
2. 2
3. 3
4. 4
Ans Option 2
Investment made in other company is exempted under section 186 for which of the following type of shares
1. Redeemable Debentures
2. Irredeemable Debentures
3. Sweat Equity Shares
4. Shares issued under rights issue
Ans Option 4
A banking company will be exempted from all of following activities under section 186 except
1. Maintaining of Register for details of loans and guarantees given
2. Passing a resolution in meeting of BOD when giving loans
3. Making investment through 3rd layer of investment company
4. Disclose the full particulars of the loans given in the financial Statement
Ans Option 3
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Companies Act 2013 -> Section 187– Investments of Company to be Held in its Own Name
Investments of Company to be Held in its Own Name
All investments made or held by a company in any property, security or other asset shall be made and held by it in its own
name:
For some Operational reason company can have investments not in its name
Depositing any shares or securities for the Banker of the

Company company
collection of any dividend or interest with
Depositing or transferring shares or securities, in Banker of the

Company company
order to facilitate the transfer with
depositing or transferring to any person any Person

Company shares or securities as a security for the
repayment of any loan advanced
Holding shares with depository as registered Depository

Company owner and Company as beneficial owner
Investments of Company to be Held in its Own Name
In the last point where shares are held with

company as beneficial owner, company needs to
maintain a register using FORM MBP 3 with detail
of all such shares
The register shall be authenticated by the company

secretary of the company or by any other person
authorized by the Board for the purpose
Punishment
To Company
fine which shall not be less than twenty-five thousand rupees, but which may extend to twenty-five lakh
rupees
To Officer of Company
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 one lakh
rupees, or with both.
Concept check
The details of investment of company in shares in which company is beneficiary owner needs to be maintained in register
using FORM
1. MBP 1
2. MBP 2
3. MBP 3
4. MBP 4
Ans Option 3
The maximum fine to officer of the company for violation of section 187 which is related to investments of company in its
own name can be
1. 1 lakh
2. 5 lakh
3. 10 lakh
4. 25 lakh
Ans Option 1
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188 to 195
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Companies Act 2013 -> Section 188 – Related Party Transactions
Related Party Transactions
What is Related Party

a director or his relative
a key managerial personnel or his relative
A firm in which director, manager or his relative is a partner

Company
A holding, subsidiary or an associate company of
such company; or a private company in which a director or manager or his
a subsidiary of a holding company to which it is relative is a member or director
also a subsidiary; or
an investing company or the venture of the
company; a public company in which a director or manager is a director
and along with his relatives holds more than two per cent of
any person on whose advice, directions or its paid-up share capital.
instructions a director or manager is accustomed
to act:
Who is relative
1. They are members of a Hindu Undivided Family
2. They are husband and wife;
3. Father including step father
4. Mother including step Mother
5. Son including step son and Son’s wife
6. Daughter and daughter’s husband
7. Brother including step brother
8. Sister including step sister

What is Arms Length Transaction?
A transaction between two related parties that is conducted as if they were unrelated, so that there is no conflict of
interest.
So in general all the transactions between related parties shall occur arms length transaction
Difference between Related Party Contracts and Interested Contracts
Company Company
Does a transaction with wife of Director Does a transaction with a friend of

director or does a transaction with a
known person of director
Is it a related party ? Yes Is it a related party ? No
But here director is interested as he may

gain benefit from this transaction
Companies Act 2013 -> Section 188(1) – Related Party Transactions
Limits for Related Party Transactions Requiring Boards Approval or Shareholder Approval
Area of Transaction Approval of board by passing a Approval of Shareholder by

resolution in meeting of BOD Passing a resolution in GM
sale, purchase or supply of any goods or materials amounting to < 10% of the turnover amounting to >= 10% of the
directly or through agent of the company turnover of the company
selling or otherwise disposing of, or buying, amounting to < 10% of the net worth amounting to >= 10% of the
property of any kind directly or through agent of the company net worth of the company
leasing of property of any kind amounting to` amounting to < 10% of the turnover amounting to >= 10% of the
of the company turnover of the company
availing or rendering of any services directly or amounting to < 10% of the turnover amounting to >= 10% of the
through agent amounting to of the company turnover of the company
such related party's appointment to any office or monthly remuneration <= 2.5 lakh monthly remuneration > 2.5
place of profit in the company, its subsidiary lakh
company or associate company
underwriting the subscription of any securities or remuneration for underwriting <= 1% remuneration for
derivatives thereof, of the company of the net worth of the company underwriting > 1% of the net
worth of the company
Companies Act 2013 -> Section 188(1) – Related Party Transactions
Related Party Transactions Requiring Boards Approval
Where Boards consent is required Boards

Consent must be obtained by passing a
resolution in meeting of board of directors
In the meeting following details shall be

presented
1. name of the related party and nature of
relationship
2. nature, duration of the contract and

particulars of the contract or arrangement
3. Terms of the contract or arrangement

including the value, if any;
4. the manner of determining the pricing and

other commercial terms
Companies Act 2013 -> Section 188 (1) – Related Party Transactions
Related Party Transactions Requiring Shareholders Approval
Where shareholder approval is required , Resolution needs to be passed by members of company in general meeting of
company
While passing a resolution for a particular contract then the member which is a related party with respect to that contract
shall not participate in that voting with an exception that if 90% or more of members are relatives of promoters or are related
parties then even related members can participate in meeting or in case of private company related parties can vote
Companies Act 2013 -> Section 188 (1)– Related Party Transactions
Exceptions for Related Party Transactions
Exceptions
No Resolution shall be required to be passed

by the company if the transaction are
between holding and wholly owned
subsidiary of that company irrespective of
their value. Resolution by BOD shall suffice
Transactions between government

companies shall not require resolution to be
passed by shareholders
Companies Act 2013 -> Section 188 (2) – Related Party Transactions
Related Party Transactions to be included in Board’s Report
Every contract or arrangement entered into under sub-section (1) shall be referred to in the Board’s report to the
shareholders along with the justification for entering into such contract or arrangement.
Companies Act 2013 -> Section 188(3 and 4) – Related Party Transactions
Related Party Transactions by Directors if not done through Proper channel
If any related party contract is entered into by a director or any employee without obtaining the consent of the Board or
approval by a resolution in the general meeting as per requirement under sub-section (1) then it can be ratified by the
board or as the case may be, by the shareholders at a meeting within three months from the date on which such contract
or arrangement was entered
if it is not ratified by the Board or, as the case may be, by the shareholders at a meeting within three months the board or
the shareholders has the option to cancel
In case of any loss to the company due to contract being cancelled the director concerned shall indemnify the company
against any loss incurred by it.
Companies Act 2013 -> Section 188(3 and 4) – Related Party Transactions
Punishment for Violation of Related party Transactions
A director or employee in case of listed company
Imprisonment for a term which may extend to one year or

with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees or
with both
A director or employee in case any other company than mentioned above
fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees
Concept check
A public company in which a director or manager of company A is a director and along with his relatives holds more than
___ percent of its paid-up share capital shall be called related party of Company A
1. 1
2. 2
3. 3
4. 4
Ans Option 2
The transactions such as sale, purchase or supply of any goods or materials directly or through agent amounting to 18% of
the turnover of the company shall be approved
1. Resolution in meeting of BOD
2. Resolution in general meeting of the company
3. Special resolution in meeting of BOD
4. Special resolution in general meeting of company
Ans Option 2
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Concept check
No Resolution shall be required to be passed by the company if the transaction is between holding and wholly owned
subsidiary of that company irrespective of their value Yes
Every contract or arrangement entered into under definition of related party transaction shall be referred to in the
financial statement of the company NO
In case of listed company the director who is in violation related to related party transactions shall be fined with a min
value of
1. 5000
2. 10000
3. 25000
4. 50000
Ans: Option 3
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Companies Act 2013 ->Section 189 – Register of Contracts or Arrangements in Which Directors are Interested
Register of Contracts or Arrangements in Which Directors are Interested
Company shall maintain Done under 184 (where director is interested party)
register(s) using MBP 4 for
details of transactions Done under section 188 where it is a related party
exceeding 5 lakh in a year transaction
After entering the register it shall be placed before the next meeting of the Board and signed by all the directors
present at the meeting
Every director or key managerial personnel shall, within a period of thirty days of his appointment, or relinquishment of
his office must disclose to the company relating to his concern or interest in the other associations which are required to
be included in the register
Penalty
Director who fails to comply with the provisions of this section and the rules made thereunder shall be liable to a penalty
of twenty-five thousand rupees
Companies Act 2013 ->Section 189 – Register of Contracts or Arrangements in Which Directors are Interested
Procedure for Maintaining Register of Contracts or Arrangements in Which Directors are Interested
The register shall be kept at the registered office of the

company and the register shall be preserved
permanently and shall be kept in the custody of the
company secretary of the company or any other person
authorized by the Board for the purpose
The company shall provide extracts from such register

to a member of the company on his request, within
seven days from the date on which such request
Register shall be open for inspection at registered

office during business hours
The register to be kept under this section shall also be

produced at the commencement of every annual
general meeting of the company and shall remain open
and accessible during the continuance of the meeting
to any person having the right to attend the meeting
Concept check
Company shall maintain register(s) using MBP 4 for details of transactions exceeding ___ lakh in a year done under section
184 and 188 5
Every director or key managerial personnel shall, within a period of ___ days of his appointment, or relinquishment of his
office must disclose to the company relating to his concern or interest in the other associations which are required to be
included in the register for maintaining transactions under section 184 and 188 30
Director who fails to comply with the provisions of this section and the rules made thereunder shall be liable to a penalty
of ______rupees
1. 5000
2. 10000
3. 25000
4. 50000
Ans: Option 3
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Companies Act 2013 ->Section 190 – Contract of Employment with Managing or Whole-Time Directors
Contract of Employment with Managing or Whole-Time Directors
Should have a written contract with the MD and other

Company except Private
whole-time director
Company
OR
A written memorandum setting out terms of

employment
The copies of the contract or the memorandum shall be open to inspection by any member of the company without
payment of fee
Penalty
To Company: penalty of twenty-five thousand rupees for each default

To Officer in default: penalty of five thousand rupees for each default
Companies Act 2013 ->Section 191 – Payment to Director for Loss of Office, etc., in Connection with Transfer of
Undertaking, Property or Shares
Payment to Director for Loss of Office, etc., in Connection with Transfer of Undertaking, Property or Shares
Director in Company A
Director might have to leave Company A is selling an undertaking

Director will suffer some
his office when stake in of company or selling stake in
monetary Loss in this case
company is sold company
Section 191 says that any payment made to director for loss of office shall be made only if following are disclosed to the
members of the company and they pass a resolution at a general meeting approving the payment of such amount
(a) name of the director; (b) amount proposed to be paid; (c) event due to which compensation become payable; (d) date of
Board meeting recommending such payment; (e) basis for the amount determined; (f) reason or justification for the payment;
(g) manner of payment - whether payable in cash or otherwise and how;(h) sources of payment
Note: The payment made to the director shall not exceed the remuneration which he would have earned if he had been in
office for the remainder of his term or for three years, whichever is shorter
Companies Act 2013 ->Section 191 – Payment to Director for Loss of Office, etc., in Connection with Transfer of
Undertaking, Property or Shares
Payment to Director for Loss of Office, etc., in Connection with Transfer of Undertaking, Property or Shares
Penalty
If a director of the company makes any default in

complying with the provisions of this section, such
director shall be liable to a penalty of one lakh
rupees
Companies Act 2013 ->Section 192 – Restriction on Non-cash Transactions Involving Directors.
Restriction on Non-cash Transactions Involving Directors.
Director of Company A or Director of holding, Acquire assets for consideration other than cash, from
subsidiary or associate company of Company A or any the company A
person connected with director OR
Company A acquires or is to acquire assets for Director of Company A or Director of holding,
consideration other than cash subsidiary or associate company of Company A or any
person connected with director
In such a case the resolution needs to be passed by the company A in general meeting and if the director is a director of
its holding company then the resolution needs to be passed by holding company also
Example: Suppose director takes a big car from company for the promise that he will work hard in coming years. Now this
car is not bonus for good results given to director instead it is being given as arrangement that director will work hard in
coming time. Here hard work is being exchanged for car and hence it is an example of non-cash transaction
This has been implemented because many a times promoters who are directors engage in such non-cash transaction
which have no basis but to evade tax liabilities
Companies Act 2013 ->Section 193 – Contract by One Person Company
Contract by One Person Company
enters into a contract with the sole

One Person Company member of the company who is also the
director of the company
Such contracts shall discussed in

immediate next board meeting and
approved there
The company shall inform the Registrar within a

period of fifteen days of the date of approval by
the Board of Directors
Companies Act 2013 ->Section 194 – Prohibition on Forward Dealings in Securities of Company by Director
Prohibition on Forward Dealings in Securities of Company by Director
Scrapped now
Companies Act 2013 ->Section 195 – Prohibition on Insider Trading of Securities
Prohibition on Insider Trading of Securities
Scrapped now
Concept check
Which company is exempted from having a written contract with the MD and other whole-time director Private
The payment made to the director in lieu of loss of office shall not exceed the remuneration which he would have earned
if he had been in office for the remainder of his term or for three years, whichever is____ lower
The payment made to the director in lieu of loss of office shall be passed by resolution in meeting of BOD NO
The penalty to a director for violation section 191 related to payment to a director for loss of office is 1 lakh
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Chapter XXVII of Companies Act – National Company Law Tribunal and Appellate Tribunal
Section 408 to 418
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Introduction
What is NCLT and NCLAT
Adjudicate issued related to matters in

1. Company Law
2. Insolvency resolution and liquidation for corporates under section
61 of Insolvency and Bankruptcy Code, 2016
NCLT
It’s a Quasi Judicial Body

Company
Example: If director of company is appointed though he is disqualified then this would be adjudicated by NCLT as in
whether he was really disqualified or not and NCLT will decide the punishment in case of any wrongdoing
Quasi Judicial Body: It is an entity such as an arbitrator or tribunal board which has powers and procedures resembling
those of a court of law or judge
Note: Only the insolvency resolution and liquidation for corporates under Insolvency and Bankruptcy Code, 2016 is handled
by NCLT, the insolvency resolution and liquidation for Partnership firms and individuals is handled by Debt Recovery
Tribunal
Introduction
Adjudicate issued related to matters in Company Law and

insolvency resolution and liquidation for corporates under
NCLT Insolvency and Bankruptcy Code, 2016
Appeals Against orders of NCLT are made to NCLAT. Its just like appeals of high
court being challenged in supreme court
Company
1. NCLAT is also the Appellate Tribunal for hearing appeals against the orders
passed by Insolvency and Bankruptcy Board of India under Section 202 and
NCLAT Section 211 of IBC
Appeals Against orders
2. NCLAT is also the Appellate Tribunal to hear and dispose of appeals against
of IBB and CCI and
order passed by the Competition Commission of India (CCI) under section 53N
NFRA
of competition Act
3. NCLAT is also the Appellate Tribunal for Orders passed by NFRA (National
Financing Reporting Authority)
Introduction
NCLT NCLT was set up as a result of Eradi Committee
In 1999, a committee constituted by the Government of

India under Justice V. Balakrishna Eradi suggested the
setting up of NCLT as one of the steps for faster
resolution of disputes and winding up related to
companies
The setting up of NCLT was challenged in various courts

and due to such delays, it got legal validity only much
later in 2016
Companies Act 2013 -> Section 408 – NCLT and NCLAT
Constitution of Tribunal also known as NCLT
Central Government on notification

Constitutes NCLT
(Notification came on 1st June , 2016)
The number of members shall be decided by

What are Technical or Judicial Members? the government
1. Judicial Members means a person with experience in
Judiciary like a judge of High Court
It shall consist of 2 types of members
1. Technical Members
2. Technical Member means person with experience in
2. Judicial Members
company law i.e. who understands company law to the
core or has experience in CA or Cost Accounting
There should be a president appointed for
NCLT
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Qualification of Members and President of NCLT
For President
A person who is or has been a Judge of a High Court for five years
Question: Can a person with 5 years of experience in Supreme court be eligible for this post?
Ans: The law does not mention about this, but logical inference shall be that anybody having higher qualification
shall also be eligible
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Judicial Member
1. A judge of a High Court at present or in the past or
2. District Judge for at least five years at present or in the past or
3. Advocate of a court for at least ten years
For 3rd point, the experience of person in holding any judicial office or as a member of any tribunal shall also be
counted
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Technical Member
1. Member of the Indian Corporate Law Service or Indian Legal Service for at least fifteen years and has been
holding the rank of Secretary or Additional Secretary to the Government of India or
2. Practice as a chartered accountant for at least fifteen years or
3. Practice as a cost accountant for at least fifteen years or
4. Practice as a company secretary for at least fifteen years or
5. Person who is capable and has professional experience of not less than fifteen years in industrial finance,
industrial management, industrial reconstruction, investment and accountancy or
6. Presiding officer of a Labor Court, Tribunal or National Tribunal constituted under the Industrial Disputes Act,
1947 for at least 5 years
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Important Inference President (Judicial Member)
Judicial Technical
Members Members
If we analyze the qualification of President,

we can say that President is one of the
Judicial Member
If we use the term member, in includes

President as well
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Concept Check
NCLAT is appellate Tribunal for hearing orders passed by
1. NCLT under company Law and section 61 of Insolvency and Bankruptcy Code
2. Insolvency and Bankruptcy Board of India under Section 202 and Section 211 of IBC
3. Competition Commission of India
4. All the above
Ans: Option 4
NCLT was set up as result of which committee
1. Justice V. Balakrishna Eradi Committee

2. Injeti Srinivas Committee
3. Tapan Ray Committee
4. M. Ganguly Committee
Ans: Option 1
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Concept Check
Which of the following is min qualification for a person to be appointed President of NCLT?
1. Judge of District Court for 10 Years
2. Judge of Hight Court for 5 Years
3. Judge of High Court for 10 years
4. Either 1 or 2
Ans: Option 2
Which of the following cannot be appointed as the Technical Member of NCLT?
1. Practice as a chartered accountant for at least fifteen years

2. Practice as a cost accountant for at least fifteen years
3. Member of the Indian Corporate Law Service or Indian Legal Service for at least fifteen years
4. Professional experience of not less than fifteen years in industrial finance, industrial management, industrial
reconstruction, investment and accountancy
5. NOTA
Ans: Option 5
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Constitution of Appellate Tribunal also known as NCLAT
Central Government through notification Constitutes NCLAT

Notification came on 1st June, 2016
The number of members shall not be more

than 11
It shall consist of 2 types of members

1. Technical Members
2. Judicial Members
There should be a Chairperson appointed for

NCLAT
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Qualification of Members of NCLAT
Chairperson
A person who is or has been a Judge of the Supreme Court or the Chief Justice of a High Court.
Judicial Member
Judge of a High Court or is a Judicial Member of the Tribunal for five years.
Technical Member
Professional experience of not less than twenty-five years in industrial finance, industrial management, industrial
reconstruction, investment and accountancy
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Qualification of Members of NCLAT
Chairperson (Judicial Member)
Judicial Members Technical Members
If we use the term member, even a chairperson is included in that
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Selection of Members of Tribunal and Appellate Tribunal.
Category 1 for Selection Process

President of NCLT Chairperson of NCLAT
Judicial Members of NCLAT
(Judicial Member) (Judicial Member)
Technical Member of NCLT Technical Member of NCLAT Judicial Member of NCLT
Different Selection Process is followed for Category 1 and Category 2
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President of NCLT Chairperson of NCLAT
Judicial Members of NCLAT
(Judicial Member) (Judicial Member)
They shall be appointed by Govt. of India after consultation with the Chief Justice of India.
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Technical Member of NCLT Technical Member of NCLAT Judicial Member of NCLT
These shall be appointed on the recommendation of a Selection Committee consisting of—
1. Chief Justice of India or his nominee who shall also be the Chairperson of the committee
2. Senior Judge of the Supreme Court or Chief Justice of High Court— Member;
3. Secretary in the Ministry of Corporate Affairs—Member and Convener
4. Secretary in the Ministry of Law and Justice—Member
No appointment of the Members of the Tribunal or the Appellate Tribunal shall be invalid merely by reason of any vacancy
or any defect in the constitution of the Selection Committee
Note: In case of tie during voting, the chairperson shall have casting vote
Casting vote is an extra vote given by a chairperson to decide an issue when the votes on each side are equal.
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Concept Check
The maximum number of members in NCLAT can be

1. 9
2. 10
3. 11
4. 12
Ans: Option 3
The chairperson of NCLAT shall be

1. Judge of the Supreme Court or the Chief Justice of a High Court
2. Judge of High Court
3. Judge of Supreme Court
4. Chief Justice of Supreme Court
Ans: Option 1
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Concept Check
Judicial Members of NCLAT are appointed by

1. Government of India
2. Government of India in consultation with CJI
3. Selection Committee consisting of members of Judiciary and Industry
4. Chief Justice of India
Ans: Option 2
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Term of Office of President, Chairperson and Other Members of NCLT and NCLAT
Members (Both Judicial and Technical)of NCLT
Members including President – Term is of 5 years and can be re-appointed for another term of 5 years
President can hold office till age of 67 years

Other Members can hold office till Age of 65 Years
For president and Member the min age to be appointed is 50 years
Member may retain his lien with his parent cadre or Ministry or Department while holding office as such for a period not
exceeding one year
Lien: A privilege granted by some employers to employees assuring them that they will have their jobs held while absent.
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Term of Office of President, Chairperson and Other Members of NCLT and NCLAT
Members (Both Judicial and Technical)of NCLAT
Members including Chairperson – Term is of 5 years and can be re-appointed for another term of 5 years
Chairperson can hold office till age of 70 years

Other Members can hold office till Age of 67 Years
For Chairperson and Member the min age to be appointed is 50 years
Member may retain his lien with his parent cadre or Ministry or Department while holding office as such for a period not
exceeding one year
Lien: A privilege granted by some employers to employees assuring them that they will have their jobs held while absent.
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Salaries and Allowances of Members
The salary, allowances and other terms and conditions of service of the Members of the Tribunal and the Appellate
Tribunal shall be such prescribed
In case of NCLAT
1. Chairperson – 90000 + other Allowances

2. Judicial and Technical Member – 80000 + other allowances
In case of NCLT
There is no mention of salary and allowances
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Acting President of NCLT and Chairperson of NCLAT
If the office of President or Chairperson falls Vacant due to death or resignation, then the senior most member shall act as
the President or the Chairperson until the date on which a new President or Chairperson appointers as per procedure
joins the office
If the President or the Chairperson is unable to discharge his functions owing to absence, illness or any other cause, then
the senior-most Member shall discharge the functions of the President or the Chairperson until the date on which the
President or the Chairperson resumes his duties.
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Resignation of Members
All the members including President and Chairperson can resign by giving a notice to Central government
The member shall continue to hold office after the resignation till the any of the following occurs
1. 3 months from receipt of notice by central government

2. A successor is appointed by the government
3. His term expires
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Removal of Members
The Central Government may, after consultation with the Chief Justice of India, remove any member including president
and chairperson who
1. has been adjudged an insolvent; or

2. has been convicted of an offence which, in the opinion of the Central Government, involves moral turpitude or
3. has become physically or mentally incapable of acting as such President, the Chairperson, or Member; or
4. has acquired such financial or other interest as is likely to affect prejudicially his functions as such President, the
Chairperson or Member; or
5. has so abused his position as to render his continuance in office prejudicial to the public interest
There is a procedure to be followed by removing the members
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Procedure for Removal of Members
Nominates a Judge of supreme

Central Government Consults Chief Justice of India court to conduct Inquiry
The government passes final Member including chairperson

order on the basis of the The judge submits his report to and President are informed of the
report central government charges against them and are
given a reasonable opportunity of
being heard.
The Central Government in consultation with CJI can suspend the concerned member from office till the report of Judge is
given to central government and Orders are passed by central govt. based on that report
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Staff of NCLT and NCLAT
The Central Government in consultation with the Tribunal and the Appellate Tribunal must provide them with such officers
and other employees as may be necessary for the exercise of the powers and discharge of the functions of the Tribunal and
the Appellate Tribunal.
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Concept Check
The single term of members of NCLT and NCLAT is _____years and they can reappointed for another ____term(s) of 5 years
1. 5,0
2. 5,1
3. 5,2
4. 5,5
Ans: Option 2
Member of NCLT who is not a President and Member of NCLAT who is not a chairperson can serve uptil ___ and ____age
respectively
1. 65,67
2. 67,70
3. 60,65
4. 58,60
Ans: Option 1
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Concept Check
If the office of President or Chairperson falls Vacant due to death or resignation, then the ____member shall act as the
President or the Chairperson until the date on which a new President or Chairperson appointers as per procedure joins the
office
1. Senior Most
2. Newly Elected
3. Recently Retired
4. Newly Appointed
Ans: Option 1
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Chapter XXVII of Companies Act – National Company Law Tribunal and Appellate
Tribunal
Section 419 to 434
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Benches of Tribunal
Bench 1
President (Judicial Member) Divided into
Bench 2
Judicial Technical
Members Members Bench 3
Bench 4
Tribunal
Each bench consist of certain members and hear different

cases assigned to them
Its just like benches of supreme court
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Benches of Tribunal
The number of benches are notified by Central government considering the number of cases to be heard including the cases
under Insolvency and Bankruptcy Code
The Principal bench shall be in New Delhi and shall be presided by the president
Each bench shall have at least 2 members (one judicial and one technical)
President of Tribunal can also decide certain kind of cases which can be decided by single Judicial Member. If the case is
being herd by single judicial member then at any stage if he feels that matter is complex, he can refer it to President who
can then transfer the same to the bench of his choice
If in any case being decided by bench of multiple members, the case shall be decided by majority
In case there is tie, the members shall state the points where they differ, and those points shall be referred by President to
other member or members of the tribunal. Such points shall be decided according to the opinion of the majority of
Members who have heard the case, including those who first heard it.
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Orders of Tribunal
Can pass order in cases being heard by it after giving

NCLT
reasonable opportunity to present their case to all the partied
involved
The Tribunal shall send a copy of every order passed under this
section to all the parties concerned
Tribunal can amend any order passed by it to rectify mistake in

earlier order within two years from the date of the order
Exception: Tribunal cannot amend the order if an appeal has

already been made to NCLAT
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Appeal to NCLAT Against orders of Tribunal
Can file an appeal to NCLAT within forty-five days from the date on which a
Any person who is not
copy of the order of the Tribunal is made available to the person
satisfied with order of
Tribunal
Exception: if a person has some valid reason because of which he could not file
appeal with in 45 days and NCLAT is satisfied with the same, then NCLAT can
accept an appeal even after deadline of 45 days but with in further period of
another 45 days
Example: if order by NCLT has been passed and received on 1st Jan then person
under no exception can file an appeal by 1st Jan + 45 days
Under an exception he can file an appeal with 1st Jan + 90 days
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Appeal to NCLAT Against orders of Tribunal
NCLAT can pass orders for an appeals made to it after giving an opportunity to all the parties concerned
NCLAT shall send a copy of every order made by it to the Tribunal and the parties to appeal.
In the orders it can
1. Confirm/Agree with the orders passed by NCLT

2. Cancel the orders passed by NCLT
3. Modify (modify the punishment) the orders passed by NCLT
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Expeditious Disposal by NCLT and NCLAT
NCLT and NCLAT shall try to dispose of the appeal with in 3 months of the appeal being made to them
If appeal is not disposed with

in 3 months
If appeal is not disposed with in 3 months, then NCLT /NCLAT shall record the reasons for not disposing with in 3 months
The President in case of NCLT and Chairperson in case of NCLAT can extend the timeline to dispose the appeal by a
maximum of 90 days after reading the reasons
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Appeal to Supreme Court
Order Passed by Appeal can be made Appeal to the

Tribunal in NCLAT Supreme Court
With in 45 days With in 60 days

under no exception under no
and another 45 exception and
days under another 60 days
exception under exception
Any person aggrieved by any order of the Appellate Tribunal can file an appeal to the Supreme Court within sixty days
from the date of receipt of the order of the Appellate Tribunal by him
Exception: if a person has some valid reason because of which he could not file appeal with in 60 days and Supreme
court is satisfied with the same, then supreme court can accept an appeal even after the deadline of 60 days but
with in further period of another 60 days
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Concept Check
The Principal bench of NCLT is in ________

1. Mumbai
2. New Delhi
3. Chennai
4. Bangalore
Ans: Option 2
Under Normal Conditions each bench shall have _______members except for certain kind of cases which can be decided by
single Judicial Member
1. 1
2. 2
3. 3
4. 4
Ans: Option 2
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Concept Check
NCLT can amend its order with ______years from date of order provided appeal has not already been made to NCLAT
1. 4
2. 3
3. 2
4. 1
Ans: Option 3
Appeal against orders of NCLT can be filed with NCLAT in how many days of orders being received by person assuming no
exceptional grace period?
1. 30
2. 15
3. 45
4. 60
Ans: Option 3
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Procedure Before Tribunal and Appellate Tribunal
Tribunal shall not be bound by the procedure laid down in the Code of Civil Procedure, 1908
Tribunal shall be guided by the principles of natural justice and it can make its own procedure to deal with cases
Mainly there are two principles of natural Justice
1. Nemo in propria causa judex, esse debet – no one should be made a judge in his own cause
2. Audi alteram partem – no one should be condemned without a fair hearing.
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Procedure Before Tribunal and Appellate Tribunal
The Tribunal and the Appellate Tribunal shall have same powers as that of civil court under the Code of Civil Procedure,
1908 in the following matters
(a) summoning and enforcing the attendance of any person and examining him on oath;
(b) requiring the discovery and production of documents;
(c) receiving evidence on affidavits;
(d) Requisitioning any public record or document or a copy of such record or document from any office;
(e)issuing commissions for the examination of witnesses or documents;
(f) Deciding cases ex parte;
(h) any other matter which may be prescribed.
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Power to Punish for Contempt
Contempt of Court means when somebody acts against the orders of the court. For example if you have ordered somebody
to produce some documents and if those documents are not produced then it will be contempt of court
Courts are given powers to punish anyone who indulges in contempt of court
On the same lines the Tribunal and the Appellate Tribunal shall have same powers and authority as with High court in
dealing with contempt
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Delegation of Powers
The tribunal or Appellate Tribunal can direct or authorize any of its offices or employees to inquire into any matter
concerned with the proceeding
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President, Members, Officers, etc., to be Public Servants
The President, Members, officers and other employees of the Tribunal and the Chairperson, Members, officers and other
employees of the Appellate Tribunal shall be deemed to be public servants
So all the clauses applicable to public servants shall be applicable to them
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Protection of Action Taken in Good Faith
No Legal action shall be taken against any member or employee of tribunal for any damage caused by the action taken by
them in good faith under the law
Member of Tribunal
Punished the Director
for wrongdoing
In this case member of Tribunal shall Director Commits

not be responsible Suicide
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Power to seek Assistance of Metropolitan Magistrate
In case of winding up of Company

Request the Chief Metropolitan
Magistrate, Chief Judicial Magistrate or
Tribunal if it wants to take possession of all
the District Collector to
property, books of account or other documents
Take possession of such property, books

of account or other documents and give
the same to the tribunal
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Civil Court not to have any Jurisdiction
No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the
Appellate Tribunal is empowered to determine by or under this Act
No injunction shall be granted by any court in respect of any action taken by the Tribunal or the Appellate Tribunal.
Injunction means order
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Vacancy in Tribunal or Appellate Tribunal Not to Invalidate Acts or Proceedings
If there is any vacancy in the tribunal or defect in constitution of Tribunal or Appellate Tribunal, it will not lead to actions
taken by tribunal becoming invalid
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Right to Legal Representation
A party to case being heard before the Tribunal or the Appellate Tribunal can appear in person or can authorize one or
more chartered accountants or company secretaries or cost accountants or legal practitioners or any other person to
present his case
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Transfer of Certain Pending Proceedings.
Before the setting up of Tribunal
Cases were decided by
Company Law Board District or High Courts
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Transfer of Certain Pending Proceedings.
On such date as may be notified by the Central Government
Cases Pending before Company Law Board shall stand transferred to the Tribunal
If the case is decided already by the Person can file an appeal to high court with in 60 days under
company law board normal scenario and with in further another 60 days in case
of exceptional scenario
Cases Pending in District courts or high
court related to Company Law other than shall stand transferred to the Tribunal
winding up (Effective from 15/12/2016)
For cases related to winding up it may be

done as per notification of central
government
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Concept Check
Meaning of Audi alteram partem

1. Everybody is guilty until proved innocent
2. Everybody is innocent until proved Guilty
3. no one should be condemned without a fair hearing
4. Only those who deserve shall be given a fair hearing
Ans: Option 3
A concerned party can authorize whom among the below to appear before the Tribunal?
1. Chartered Accountants
2. Cost Accountants
3. Legal Practioners
4. All of the above
Ans: Option 4
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Thanks
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Chapter XXVII of Companies Act – National Company Law Tribunal and Appellate Tribunal
Current Situation of NCLT and NCLAT
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Benches and Members in NCLT
The Central Government has constituted National Company Law Tribunal (NCLT) under section 408 of the Companies Act,
2013 w.e.f. 01st June 2016 to resolve company disputes
It also adjudicates matter related to insolvency resolution and liquidation for corporates under section 61 Insolvency and
Bankruptcy Code, 2016 w.e.f from 1st December 2016
Initially it had 11 benches
1. Principal Bench at New Delhi

2. Another Bench at New Delhi
3. Ahmadabad Initially it had 26 members
4. Allahabad
5. Bengaluru 1. 17 Judicial Members including
6. Chandigarh President
7. Chennai 2. 9 Technical Members
8. Guwahati
9. Hyderabad
10. Kolkata
11. Mumbai
Benches and Members in NCLT
Later 5 new benches were set up at following location

taking the count to 16
1. Cuttack
2. Jaipur
3. Kochi
4. Amravati
5. Indore
Total number of members now stand at 48
1. 23 Judicial Members including President

2. 25 Technical Members
Sh. Bethala Shanta Vijaya Prakash Kumar is Acting President

Benches and Members in NCLAT
National Company Law Appellate Tribunal (NCLAT) was constituted under Section 410 of the Companies Act, 2013 for
hearing appeals against the orders of National Company Law Tribunal(s) (NCLT), with effect from 1st June 2016.
NCLAT is also the Appellate Tribunal for hearing appeals against the orders passed by NCLT(s) under Section 61 of the
Insolvency and Bankruptcy Code, 2016 (IBC), with effect from 1st December 2016.
NCLAT is also the Appellate Tribunal for hearing appeals against the orders passed by Insolvency and Bankruptcy Board of
India under Section 202 and Section 211 of IBC.
NCLAT is also the Appellate Tribunal to hear and dispose of appeals against orders passed by the Competition Commission
of India (CCI) –with effect from 26th May 2017.
Currently there is only one bench in NCLAT situated at New Delhi and it has territorial Jurisdiction all over India
Justice Bansi Lal Bhat is the acting Chairperson
Total 11 members : 5 Judicial Members Including Chairperson and 6 Technical Members

Thanks
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Chapter IX of Companies Act – Accounts of Company
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Chapter IX ACCOUNTS OF COMPANY
Section 128 – Books of Account to be kept by company
1. Books of Company can also

Every company account If books kept at any
keep the aforesaid
shall prepare and 2. Financial other place, company
documents at any
keep at registered statements shall inform ROC with a
other place in
office 3. Relevant books notice in writing within
India if BOD
and papers 7 days of the decision in
decides
FORM AOC-5. The notice
Of the company shall give the address of
and its branch the other place
offices
• Such books should be made on accrual basis and according to double entry system of accounting
• They shall explain all the transactions effected at registered office and branches
• The financial statements should give a true and fair view of the affairs of the company.
• Company can keep the books and papers in ELECTRONIC MODE in the manner as prescribed.
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In case of branch office(whether in India or outside
• The books (in India) shall be open for inspection by
India) it is even allowed that
any director during business hours.
❖ The books of accounts are kept at branch office
AND
• In case of financial Information maintained outside
❖ Periodic summarised returns are sent by branch
India, copies of such information shall be
office to the registered office or such other place.
maintained and produced for inspection by any
director subject to conditions prescribed.
• The inspection in respect of books of subsidiary

company shall be done only by person authorised
The officers and employees shall give all assistance to by BOD by a resolution
the person making inspection
Financial statements means:-

• Balance sheet
• Profit & Loss A/c
• Cash flow statement
• Notes and annexures to
financial statements
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Company shall maintain books of accounts and
vouchers for a period of atleast 8 financial years. Where investigation has been ordered in respect of
(In case of company having existence less than 8 years, the company, CG can ask the company to keep books
it shall keep books and vouchers for all the preceding for period exceeding 8 years.
years.)
Penalty for contravention for above provisions

Penalty on • Imprisonment – Maximum 1 year
• Managing Director,
• Whole time director in charge of finance, • Fine- Minimum Rs. 50 Thousand
• Chief Financial Officer or Maximum Rs. 5 Lakh
• any other person who has to comply with
the provisions of this section OR BOTH
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Extract of Rule 3 of The Companies (Accounts) Rules (NOT RELEVANT)
1) The books of account and other relevant books and papers maintained in electronic mode shall remain accessible in India so as to
be usable for subsequent reference.
2) The books of account and other relevant books and papers shall be retained completely in the format in which they were originally
generated, sent or received, or in a format which shall present accurately the information generated, sent or received and the
information contained in the electronic records shall remain complete and unaltered.
3) The information received from branch offices shall not be altered and shall be kept in a manner where it shall depict what was
originally received from the branches.
4) The information in the electronic record of the document shall be capable of being displayed in a legible form.
5) The back-up of the books of account and other books and papers of the company maintained in electronic mode, including at a
place outside India, if any, shall be kept in servers physically on a periodic basis. located in India
6) The company shall intimate to the Registrar on an annual basis at the time of filing of financial statement-
(a) the name of the service provider;
(b) the internet protocol address of service provider;
(c) the location of the service provider (wherever applicable);
(d) where the books of account and other books and papers are maintained on cloud, such address as provided by the service provider.
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Extract of Rule 4 of The Companies (Accounts) Rules
❖ The summarised returns of the books of account of the company kept and maintained outside India shall be sent to the
registered office at quarterly intervals, which shall be kept and maintained at the registered office of the company and
kept open to directors for inspection.
❖ Where any other financial information maintained outside the country is required by a director, the director shall furnish
a request to the company setting out the full details of the financial information sought, the period for which such
information is sought.
❖ The company shall produce such financial information to the director within fifteen days of the date of receipt of the
written request.
❖ The financial information required shall be sought for by the director himself and not by or through his power of agent or
representative.
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Concept Check
Can the books of account be kept at any place other than registered office?
Yes, they can be kept at any other place other than registered office. About such place, a notice shall be
given to ROC within 7 days of the decision in FORM AOC 5
Practice Questions
For atleast how many years a company shall keep books of account and vouchers for particular financial year?
1. 5 years
2. 3 years
3. 8 years
4. 10 years
Ans: Option 3
What shall be the maximum penalty that can be imposed on a the person in default if books of account are not kept for the
minimum period?
1. 5 Lacs
2. 10 Lacs
3. 15 Lacs
4. 25 Lacs
Ans: Option 1
Chapter IX Account of Companies --> Section 129 --> Financial Statement
The Financial statements shall
Comply with
Give True
+ accounting + Shall be in Point to remember:- If the
and fair view
standards as form as per financial statements of
of the affairs
per section Schedule III these companies do not
of company
133 disclose such facts which
are not required to be
disclosed by their
respective governing acts,
there is no problem.
Exceptions:- This section shall not apply to
Nobody will say that they
✓ Insurance Company
are not disclosing true and
✓ Banking company
fair view.
✓ Electricity company
✓ Any other company governed by a special act
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Holding
Company
Owns/ Controls> 50% Owns/ control- 20% to

total share capital 49.9% share capital
Subsidiary Associate
company company
At AGM of the company, BOD shall lay the financial
statements for that financial year before the Provisions of this act shall apply to consolidated financial
company. statements also.
In case company has subsidiaries company or Company shall attach a statement containing salient
associate companies, company shall also prepare features of financial statements of its subsidiary or
consolidated financial statements in the same manner associate companies in Form AOC-1.
and lay them in AGM before the shareholders.
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If the company is not complying with the accounting
standards under section 133, company shall disclose CG has the power to exempt certain class of
in the financial statements companies, (if it considers in public interest), for
o The deviation from the accounting standards complying with certain provisions of this section with
o The reasons for deviation conditions or unconditionally.
o The financial effect of the deviation.
Penalty for contravention

Penalty on
• Managing Director, • Imprisonment – Maximum 1 year
• Whole time director in charge of finance,
• Chief Financial Officer or • Fine- Minimum Rs. 50 Thousand
• any other person who has to comply Maximum Rs. 5 Lakh
with the provisions of this section.
• In absence of any officers mentioned OR BOTH
above, ALL DIRECTORS
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Concept Check
When can CG exempt any class of companies for complying with provisions of Section 129?
CG has the power to exempt certain class of companies, (if it considers in public interest), for complying
with certain provisions of this section
Practice Questions
Section 129 is not applicable to?
1. Insurance company
2. Electricity company
3. Banking company
4. All of the above
Ans: Option 4
Statement containing salient features of subsidiary company’s financial statement shall be attached in Form No……..
1. AOC 1
2. AOC 2
3. AOC 3
4. AOC 4
Ans: Option 1
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Chapter IX Account of Companies --> Section 130 --> Reopening of Accounts on Court’s or Tribunal’s orders
Only if application is made by an

A company can open its  The Central Government To a court of competent
books of account and  The Income Tax Authorities jurisdiction or the Tribunal
recast its financial  The SEBI or who shall give an order.
statements  Any other statutory regulatory
authority.
 Any person concerned
The order shall give an effect that—

Tribunal shall give notice to CG, (i) the relevant earlier accounts were prepared in a
SEBI, ITA, Regulatory authority fraudulent manner;
The accounts so revised or and shall take their or
re-cast shall be final. representations into (ii) the affairs of the company were mismanaged during
considerations before passing an the relevant period, casting a doubt on the reliability of
order. financial statements.
Explainer:-
 No order shall be made in respect of re-opening of books of account relating to a period earlier than eight financial years immediately
preceding the current financial year.
 Where a direction has been issued by the Central Government for keeping of books of account for a period longer than eight years, the books
of account may be ordered to be re-opened within such longer period.
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Chapter IX Account of Companies --> Section 131 --> Voluntary Revision of Financial Statements or Board’s Report
If it appears to the directors of a company that— • Before doing so they need to

(a)the financial statement of the company; or They may prepare revised financial obtain approval of the
(b) the report of the Board, statement or a revised report in Tribunal on an application
respect of any of the three made by the company.
preceding financial years • Further a copy of the order
do not comply with the provisions of section passed by the Tribunal shall
129 or section 134 be filed with the Registrar
Detailed reasons for revision of The Tribunal shall give notice to the
Central Government and the Income tax
such financial statement or report
Such revised financial statement or authorities and shall take into
shall also be disclosed in the
report shall be prepared or filed only for consideration the representations, if any,
Board's report in the relevant made by that Government or the
financial year in which such revision
once in a financial year.
authorities before passing any order under
is being made. this section
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a) the correction in respect of
Where copies of the previous
which the previous financial
financial statement or report have
statement or report do not
been sent out to members or
comply with the provisions
delivered to the Registrar or laid
of section 129 or section 134;
before the company in general
and
meeting, the revisions must be
(b) the making of any necessary
confined to—
consequential alternation.
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Practice Questions
Which authority has the power to give order for reopening of books of accounts ?
2. ROC
3. NCLT
4. SEBI
Ans: Option 3
Financial statements can be revised only…….. for a financial year.

1. Once
2. Twice
3. Thrice
4. Four times
Ans: Option 1
Chapter IX Account of Companies --> Section 132 --> Constitution of National Financial Reporting Authority
The Central Government may constitute a National Financial Reporting

Authority to provide for matters relating to accounting and auditing
standards under this Act which shall-
Make recommendations to the

CG on the formulation and laying
Monitor and enforce the compliance Oversee the quality of service of the
down of accounting and auditing
policies and standards for
with accounting standards and professions associated with ensuring
adoption by companies or their auditing standards compliance with such standards
auditors
Suggest measures required for

improvement in quality of Perform such other functions
service and such other related relating to above clauses
matters as may be prescribed;
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The National Financial Reporting Authority
shall consist of a chairperson, who shall be a The chairperson and members shall make a declaration to
person of eminence and having expertise in the Central Government in the prescribed form regarding
accountancy, auditing, finance or law to be no conflict of interest or lack of independence in respect
appointed by the Central Government and of his or their appointment
such other members not exceeding fifteen
consisting of part-time and full-time members.
Each division of the National Financial The chairperson and members, who are in full-time
Reporting Authority shall be presided over by employment with National Financial Reporting Authority
the Chairperson or a full-time Member shall not be associated with any audit firm (including
authorised by the Chairperson. related consultancy firms) during the course of their
appointment and two years after ceasing to hold such
appointment.
There shall be an executive body of the
National Financial Reporting Authority
consisting of the Chairperson and full-time
Members of such Authority for efficient
The terms and conditions and the manner of appointment
discharge of its functions under sub-section (2)
of the chairperson and members shall be such as may be
[other than clause (a)] and sub-section (4).]
(recommendations to the Central Government on the formulation prescribed in rules
and laying down of accounting and auditing policies and standards)
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Powers of National Financial Reporting Authority.
NFRA shall have the power to No other body shall initiate or

investigate, either on his own or on a continue any proceedings in such
reference made to it by the Central matters of misconduct where the
Government, into the matters of National Financial Reporting
professional or other misconduct Authority has initiated an
committed by any member or firm of investigation.
chartered accountants.
NFRA has the same powers as are vested in a civil court under the Code of Civil Procedure while trying a suit, in respect of
the following matters, namely:—
(i) discovery and production of books of account and other documents
(ii) summoning and enforcing the attendance of persons and examining them on oath.
(iii) inspection of any books, registers and other documents of any person
(iv) issuing commissions for examination of witnesses or documents.
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Where professional or other misconduct is proved, NFRA has the power to make order for—
(A) imposing penalty of—

(I) in case of individuals, Minimum one lakh rupees,
Maximum five times of the fees received
(II) in case of firms, Minimum five lakh rupees
Maximum ten times of the fees received
(B) debarring the member or the firm from—

I. being appointed as an auditor or internal auditor or undertaking any audit in respect of financial statements or internal audit of any
company or
II. performing any valuation
for a minimum period of six months or such higher period not exceeding ten years as may be determined by the National Financial
Reporting Authority.
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Any person aggrieved by any order of the National CG may appoint a secretary and such other employees
Financial Reporting Authority may make an appeal for the efficient performance of functions by the
before the Appellate Tribunal National Financial Reporting Authority under this Act.
The National Financial Reporting Authority shall

The head office of the National Financial Reporting
maintain such books of account as CG directs (on
Authority shall be at New Delhi.
consultation with CAG)
The accounts of the National Financial Reporting Authority The National Financial Reporting Authority shall prepare for
shall be audited by the Comptroller and Auditor-General of each financial year its annual report giving a full account of its
India & such accounts as certified by the Comptroller and activities during the financial year and forward a copy thereof
Auditor-General of India together with the audit report to the Central Government and the Central Government shall
thereon shall be forwarded annually to the Central cause the annual report and the audit report given by the
Government by the National Financial Reporting Authority. Comptroller and Auditor-General of India to be laid before
each House of Parliament.
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Concept Check
Mr. Raman, a member who has recently retired from NFRA, wants to join an audit firm. Can he do so?
The chairperson and members, who are in full-time employment with National Financial Reporting
Authority shall not be associated with any audit firm (including related consultancy firms) during the
course of their appointment and two years after ceasing to hold such appointment.
Practice Questions
What is maximum limit for number of members in NFRA?
1. 10
2. 12
3. 15
4. 20
Ans: Option 3
Who shall audit the accounts of NFRA?

1. SEBI
3. CAG
Ans: Option 3
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Chapter IX Account of Companies --> Section 133 --> Central Government to prescribe Accounting Standards
 The Central Government may prescribe the standards of accounting ,(as recommended by the Institute of
Chartered Accountants of India in consultation with the National Financial Reporting Authority.)
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Chapter IX Account of Companies --> Section 134 --> Financial Statement, Board’s Report etc.
The financial statement, including consolidated financial

statement,
i. shall be approved by the Board of Directors The auditors’ report shall be attached to every financial
ii. Shall be signed by the chairperson of the company statement.
(where he is authorised by the Board) or by two
directors out of which one shall be managing director,
if any, AND
iii. shall also be signed by the Chief Executive Officer, the
Chief Financial Officer and the company secretary of The Central Government may prescribe an abridged
the company, wherever they are appointed, Board's report, for the purpose of compliance with this
iv. in the case of One Person Company, only by one section by One Person Company or small company
director, for submission to the auditor for his report
thereon.
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The Board’s report and any annexures shall be signed by
A signed copy of every financial statement shall be
issued circulated or published along with a copy each
i. its chairperson of the company if he is authorised
of—
by the Board and
(a) any notes annexed to or forming part of such
ii. where he is not so authorised, shall be signed by at
financial statement;
least two directors, one of whom shall be a
managing director,
(b)the auditor’s report; and
iii. or by the director where there is one director.( In
(c) the Board’s report
case of OPC)
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The Directors’ Responsibility Statement shall state that—
(a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper
explanation relating to material departures(deviations);
(b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates
that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the
financial year and of the profit and loss of the company for that period;
(c) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance
with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and
other irregularities;
(d) the directors had prepared the annual accounts on a going concern basis and
(e) the directors, in the case of a listed company, had laid down internal financial controls to be followed by the company
and that such internal financial controls are adequate and were operating effectively.
(f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such
systems were adequate and operating effectively.
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Every Officer in default

Company
• Imprisonment - Maximum 3 years
 Minimum – Rs.50 Thousand
• Fine - Minimum – Rs.50 Thousand
Maximum - Rs. 5 Lacs
 Maximum - Rs. 25 Lacs
or both
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Rule 8 of The Companies Accounts Rules, 2014
The report of the Board shall contain the particulars of contracts and arrangements with related parties in the Form AOC 2
Matters to be included in Board’s Report
The Foreign
Conservation Technology
exchange
of energy absorption
inflow and
outgo
Not applicable
for Govt.
Defence
Company
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 Every listed company and

 Every unlisted public company having a paid up share capital of twenty five crore rupees or more
calculated at the end of the preceding financial year shall include in Director’s Report
Statement The details

indicating the of directors A statement
manner in which regarding opinion
or key
formal annual of the Board with
The managerial
evaluation has regard to integrity, The details
The change personnel
expertise and
been made of its financial in the The who were relating to
experience of the
own performance summary nature of appointed deposits
independent
and that of its business or have
directors
committees and resigned appointed during
individual during the the year
directors. year
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A disclosure, as to
The names of A statement that the
whether maintenance
companies which company has complied
of cost records is Significant
have become or with provisions relating
required by the orders passed
ceased to be its to the constitution of
Company and by Committeethe under
Subsidiaries, joint
a statement such has complied with provisions relating to Internal
that the company
accordingly Complaints
the constitution of Internal Complaints
the Sexual
accounts and Harassment
records
ventures
of Women at Workplace or
(Prevention, Prohibition for Act, 2013regulators
Committeeand Redressal) [14 of 2013 or
associate companies prevention of Sexual courts
are made and
during the year Harassment of women.
maintained
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Concept Check/Practice Questions
What shall be the maximum penalty that can be imposed on a company for contravening the provisions of Board Report?
1. 5 Lacs
2. 10 Lacs
3. 15 Lacs
4. 25 Lacs
Ans: Option 4
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Chapter IX Account of Companies --> Section 135 --> Corporate Social Responsibility
Every company with the following in the immediately preceding financial year shall constitute a CSR committee of the
board consisting of atleast 3 directors, out of which 1 shall be independent director.
Net worth of OR Turnover of Rs. OR

Net profit of Rs. 5
Rs.500 crore or 1000 croreOR or
crore or more
more more
Where a company is not required to appoint an independent director, it shall have in its Corporate Social
Responsibility Committee minimum two directors.
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FUNCTIONS OF CSR COMMITTEE
Formulate and recommend to the Board,

a Corporate Social Responsibility Policy Recommend the amount of expenditure
which shall indicate the activities to be to be incurred on the CSR activities
undertaken by the company
Monitor the CSR Policy of the company

from time to time.
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DUTIES OF BOARD
Approve the CSR Policy for the Ensure that the activities as are included
company and disclose contents of in Corporate Social Responsibility Policy
such Policy in its report and also place of the company are undertaken by the
it on the company's website. company.
The Board of Directors shall ensure that the company spends, in every
financial year, at least two per cent. of the average net profits of the
company made during the three immediately preceding financial years or
where the company has not completed the period of three financial years
since its incorporation, during such immediately preceding financial years,
in pursuance of its Corporate Social Responsibility Policy.
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The company shall give preference to the local area and
areas around it where it operates, for spending the
amount earmarked for Corporate Social Responsibility If the company fails to spend such
activities. amount, the Board shall in its Director’s
report, specify the reasons for not
spending the amount and, (unless the
unspent amount relates to any ongoing
project), transfer such unspent amount
to a Fund specified in Schedule VII,
within a period of six months of the
expiry of the financial year
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Any amount remaining unspent because of any
ongoing project shall be transferred by the If a company contravenes the provisions ,
company within a period of thirty days from the ❑ the company shall be punishable with fine
end of the financial year to a special account to be ➢ minimum fifty thousand rupees
opened by the company in that behalf for that ➢ maximum twenty-five lakh rupees and
financial year in any scheduled bank to be called the
Unspent Corporate Social Responsibility Account, ❑ every officer of such company who is in default shall
and such amount shall be spent by the company be punishable with
according to the CSR Policy within a period of three ➢ imprisonment for maximum three years or
financial years from the date of such transfer, ➢ with fine
failing which, the company shall transfer the same ▪ minimum fifty thousand rupees
to a Fund specified in Schedule VII, within a period ▪ maximum five lakh rupees, or
of thirty days from the date of completion of the ➢ with both.
third financial year.
Section 135 shall not apply for a period of five years from the commencement of business of a Specified IFSC company
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Extract of The Companies (Corporate Social Responsibility) Rules
❑ Every company which ceases to be a company covered under subsection (1) of section 135 of the Act for three
consecutive financial years shall not be required to -
(a) constitute a CSR Committee; and
(b) comply with the provisions of said section
Some of the activities included in Schedule VII of CSR
❑ Eradicating hunger, poverty and malnutrition

❑ promoting education
❑ promoting gender equality, empowering women
❑ environmental sustainability, ecological balance, protection of flora and fauna, animal welfare,
❑ protection of national heritage, art and culture
❑ measures for the benefit of armed forces veterans, war widows and their dependents
❑ slum area development
❑ Disaster management, including relief, rehabilitation and reconstruction activities.]
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❑ Contribution of any amount directly or indirectly to any political party, shall not be considered as CSR activity.
❑ Companies may build CSR capacities of their own personnel as well as those of their Implementing agencies through
Institutions with established track records of at least three financial years but such expenditure (including
expenditure on administrative overheads) shall not exceed five percent of total CSR expenditure of the company in
one financial year.
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Concept Check
Can the company develop its own personnel from CSR fund?
Yes, the company can develop its own personnel from money available in CSR fund but the amount so
spent(including administrative overheads) shall not exceed 5% of total CSR expenditure for that year.
Practice Questions
Companies with net worth of ……………. Or more shall constitute a CSR committee
1. 100 crore
2. 200 crore
3. 500 crore
4. 1000 crore
Ans: Option 3
Companies with turnover of ……………. Or more shall constitute a CSR committee
1. 100 crore
2. 200 crore
3. 500 crore
4. 1000 crore
Ans: Option 4
Thanks

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Chapter IX Account of Companies --> Section 136 --> Right of Members to copies of Audited Financial Statements
❑ A copy of the financial statements, including consolidated financial statements

❑ Auditor’s report and
❑ Every other document required by law to be annexed or attached to the financial statements
which are to be laid before a company in its general meeting, shall be sent to
➢ every member of the company,

➢ every trustee of the debenture-holder, and
➢ to all persons other than such member or trustee, being the person so entitled,
Atleast 21 days before the date of the meeting.
Exception 1
In case of Section 8 company, the time limit is 14 days instead of 21 days.
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Exception 2
If the copies of the above documents are sent less than 21 days before the meeting date, then it will be assumed to
have been duly sent only if:-
a) It is agreed by members holding atleast 95% of paid up capital( in case of company having share capital)
b) It is agreed by members having atleast 95% of total voting power (in case of company having guarantee)
Exception 3
In case of listed company, the provisions of this section shall be deemed to have been complied with if
i. the copies of the documents are made available for inspection at its registered office during working hours for a
period of 21 days before the date of the meeting and
ii. a statement containing the salient features of such documents in the Form AOC 3 (AOC- 3A for companies
complying with Indian Accounting Standards) or copies of the documents, as the company may deem fit, is sent
to every member of the company and to every debenture trustee atleast 21 days before the date of the meeting
(unless the shareholders ask for full financial statements.)
Exception 4
In case of Nidhi company,
In the case of members who do not individually or jointly hold shares of
▪ more than one thousand rupees in face value or
▪ more than one per cent, of the total paid-up share capital whichever is less,
it shall be sufficient compliance with the provisions of the section if an intimation is sent by public notice in newspaper
circulated in the district in which the Registered Office of the Nidhi is situated stating
i. the date, time and venue of Annual General Meeting and
ii. the financial statement with its enclosures can be inspected at the registered office of the company, and
iii. the financial statement with enclosures are affixed in the Notice Board of the company and
iv. a member is entitled to vote either in person or through proxy.
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Every listed company is required to place its financial statements including consolidated financial statements and
all other documents required to be attached thereto, on its website.
Every listed company ,having a subsidiary, shall place separate audited accounts in respect of each of subsidiary on
its website.
Also a listed company which has a foreign subsidiary and
(a) Where such foreign subsidiary is required to prepare consolidated financial statement under any law of its
own country, the requirement of this section shall be met if consolidated financial statement of such foreign
subsidiary is placed on the website of the listed company.
(b) Where such foreign subsidiary is not required to get its financial statement audited, the holding Indian Listed
company may place such unaudited financial statement on its website
and where such financial statement is in a language other than English, a translated copy of the financial
statement in English shall also be placed on the website.
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A company shall allow every member or debenture trustee to inspect the documents at its registered office during
business hours.
Provided that every company having a subsidiary shall provide a copy of separate audited or unaudited financial
statements, as the case may be, to any member of the company who asks for it.
PENAL PROVISIONS
If any default is made in complying with the provisions of this section,

✓ the company shall be liable to a penalty of twenty-five thousand rupees and
✓ every officer of the company who is in default shall be liable to a penalty of five thousand rupees.
Rule 11 of The Companies( Accounts) Rules--> Manner of Circulation of Financial Statements in Certain Cases
Circulation of financial
statements
Unlisted Public companies With

Listed companies A) Net worth of more than 1 crore Rupees AND
B) Turnover of more than 10 crore rupees
1. By Electronic mode
a. To such members whose shareholding is in dematerialised format and whose email Ids are registered with Depository
b. Where Shares are not held in dematerialised format, to such members who have positively consented in writing for
receiving by electronic mode.
2. By despatch of physical copies through any recognised mode of delivery like courier, registered post, hand delivery,
speed post etc. in all other cases.
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Concept Check
Can a member asks for financial statements of subsidiary companies ?
Every company having a subsidiary shall provide a copy of separate audited or unaudited financial
statements, as the case may be, to any member of the company who asks for it.
Practice Questions
Copies of financial statement shall be sent to the members atleast…… days before the AGM
1. 10 days
2. 15 days
3. 21 days
4. 30 days
Ans: Option 3
What shall be the penalty that can be imposed on a company if it does not give right to persons entitled to inspect the books
?
1. 25000
2. 50000
3. 100000
4. 200000
Ans: Option 1
Thanks

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Chapter IX Account of Companies --> Section 137 --> Copy of Financial Statements to be filed with the Registrar
Where the financial statements

A copy of the are not adopted at annual
financial statement general meeting, such Financial statements
shall be filed with the
(along with all the unadopted financial statements adopted in the
Registrar within thirty
documents which are along with the required adjourned annual
days of the date of
required to be documents shall be filed with general meeting shall be
annual general meeting
attached), duly the Registrar within thirty days filed with the Registrar
in Form AOC-4 (AOC 4
adopted at the of the date of annual general within thirty days of the
CFS for consolidated
annual general meeting and the Registrar shall date of such adjourned
financial statements).
meeting of the take them in his records as annual general meeting
company, provisional till the adopted
financial statements are filed.
1. Every Non-Banking Financial Company (NBFC) that is required to comply with (Ind AS) shall file the financial statements in Form
AOC - 4 NBFC (Ind AS) and the consolidated financial statement in Form AOC - 4 CFS NBFC (Ind AS).
2. The class of companies as may be notified by the Central Government from time to time, shall mandatorily file their financial
statement in Extensible Business Reporting Language (XBRL) format.
❑ A One Person Company shall file a copy of the adopted financial statements within one hundred eighty
days from the closure of the financial year.
❑ A company shall, along with its financial statements to be filed with the Registrar, attach the accounts of
its subsidiary which have been incorporated outside India and which have not established their place of
business in India.
❑ In the case of a foreign subsidiary( which is not required to get its financial statement audited) under any
law of its country and which does not get such financial statement audited, the requirements of this
section shall be met,
if the holding Indian company files such unaudited financial statement along with a declaration to
this effect and where such financial statement is in a language other than English, along with a
translated copy of the financial statement in English.
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the financial statements along with the
shall be filed with the Registrar within
Where the annual general documents attached, duly signed along
thirty days of the last date before
meeting of a company for any with the statement of fact and reasons
which the annual general meeting
year has not been held for not holding the annual general
should have been held.
meeting
PENAL PROVISIONS
If a company fails to file the copy of the financial statements before the expiry of the period specified
❑ the company shall be liable to a penalty LOWER of

➢ One thousand rupees for every day during which the failure continues
➢ Ten lakh rupees
❑ And the managing director and the Chief Financial Officer of the company, if any, and, in the absence of the managing
director and the Chief Financial Officer, any other director who is charged by the Board with the responsibility of
complying with the provisions of this section, and, in the absence of any such director, all the directors of the
company, shall be shall be liable to a penalty
➢ Of one lakh rupees and
➢ In case of continuing failure, with further penalty of one hundred rupees for each day subject to a maximum of five
lakh rupees.
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Concept Check/ Practice Questions
OPC shall file a copy of the adopted financial statements within ……….. from the closure of the financial year.
1. 90 days
2. 120 days
3. 180 days
4. 200 days
Ans: Option 3
Full form of XBRL?

1. Extensible Business Reporting Language
2. Extension Business Reporting Language
3. Extensible Business Report Language
4. Extensible Business Reliable Language
Ans: Option 1
Chapter IX Account of Companies --> Section 138 --> Internal Audit
Such class of companies shall be required to

appoint an internal auditor, who shall either be The Central Government may, by rules,
a chartered accountant or a cost accountant, or prescribe the manner and the intervals in which
such other professional as may be decided by the internal audit shall be conducted and
the Board to conduct internal audit of the reported to the Board.
functions and activities of the company.
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Which company shall be required to appoint internal auditor?
Every listed company Every unlisted public company having-

Every private company having-
(i) paid up share capital of 50 crore rupees or
more during the preceding financial year (i) turnover of 200 crore rupees or
OR more during the preceding financial
year or
(ii) turnover of 200 crore rupees or more
during the preceding financial year OR (ii) Outstanding loans or borrowings
from banks or public financial
(iii) Outstanding loans or borrowings from institutions exceeding 100 crore
banks or public financial institutions rupees or more at any point of time
exceeding 100 crore rupees or more at any during the preceding financial year
point of time during the preceding financial
year OR
(iv) Outstanding deposits of 25 crore rupees or

more at any point of time during the
preceding financial year.
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Concept Check
Can the internal auditor appointed be the employee of the company?
Yes, The internal auditor may or may not be an employee of the company.
The Chartered accountant or cost accountant appointed as internal auditor shall always be in practice.
Is the above statement correct?
No, CA or CMA appointed may or may not be in practice. They can be not practicing also. Even a body
corporate appointing CA or CMA can also be appointed as internal auditor of any other company.
Practice Questions
In case of unlisted public company, Which of these is a criteria for applicability for internal audit?
1. Turnover 100 crores or more

2. Paid up capital 50 crores or more
3. Outstanding deposits 50 crore or more
4. All of the above
Ans: Option 2
In case of private company, Which of these is a criteria for applicability for internal audit?
1. Turnover 200 crores or more

2. Paid up capital 50 crores or more
3. Outstanding deposits 50 crore or more
4. All of the above
Ans: Option 1
Thanks

Chapter XIII of Companies Act – Appointment and
Remuneration of Managerial Personnel
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Term Explainer
 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.
 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.
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Companies Act 2013 -> Section 196 – Appointment of Managing Director, Whole Time Director or Manager
Company shall not appoint or

No company shall appoint or
re-appoint any person as its
employ at the same time a
managing director, whole-time
managing director and a
director or manager for a term
manager
exceeding five years at a time.
This provision is not

applicable to government
company.
No re-appointment shall be
made earlier than one year
before the expiry of his term.
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For appointment or continuation of a person aged
(a) is below the age of more than 70 years, follow either of the steps:-
twenty-one years or has a. Pass Special Resolution in General Meeting OR
attained the age of seventy b. Pass Ordinary Resolution + satisfaction of CG
years. that such appointment is beneficial to the
company
(b) is an undischarged
Company shall not insolvent or has at any time
appoint or continue been adjudged as an
the employment of insolvent
any person as
managing director, (c) has at any time
whole-time director suspended payment to his
or manager who — creditors or has at any time
made a composition with
them
(d) has at any time been
convicted by a court of an
offence and sentenced for a
period of more than six
months
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 The appointment and terms and conditions of such appointment and remuneration payable Not applicable to
shall be Specified IFSC
 approved by the Board of Directors at a meeting Public company
 further approved by a resolution at the next general meeting of the company and by the
Central Government in case such appointment is at variance to the conditions. Application to
CG in Form No. MR 2 within 90 days of appointment.
 A return in the Form No. MR.1 shall be filed within sixty days of such appointment with the
Registrar. These
provisions not
applicable for
 private and
 government
companies
 Where an appointment of a managing director, whole-time director or manager is not
approved by the company at a general meeting, any act done by him before such approval
shall not be deemed to be invalid.
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Concept Check
Company can do reappointment of a managing director 2 years before the expiry of their term. True or False
(Ans: False. Reappointment can be done only one year prior to expiry of term)
Concept Check
Minimum age limit of a person for appointment as a MD is………..years.

1. 18
2. 21
3. 25
4. 30
Ans: Option 2
Return of appointment of MD or manager must be filed in……. Days of the appointment.

1. 60
2. 90
3. 180
4. 240
Ans: Option 1
Section 197 – Overall Maximum Managerial Remuneration and Managerial Remuneration in Case of Absence or Inadequacy of Profits
The total managerial remuneration payable by a public company, to all its directors, including managing director and
whole-time director, and its manager in respect of any financial year shall not exceed 11 per cent of the net profits
(before salary deduction) of that company for that financial year
(The company in general meeting may authorise the payment of remuneration exceeding eleven per cent. of the net
profits of the company, subject to the provisions of Schedule V)
A company may pay a sitting fee to a director for attending meetings of the Board or committees which shall not
exceed one lakh rupees per meeting of the Board or committee thereof:
The sitting fee payable to Independent Directors and Women Director shall not be less than the sitting fee payable to
other directors.
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Condition Max Remuneration in any financial year
Company with one Managing director/whole time 5% of the net profits of the company
director/manager
Company with more than one Managing 10% of the net profits of the company
director/whole time director/manager
Overall Limit on Managerial Remuneration (for all 11% of the net profits of the company
directors whether WTD, MD, Manager or simple
directors)
Remuneration payable to directors who are neither managing directors nor whole-time directors
For directors who are neither managing director or 1% of the net profits of the company if there is a
whole-time directors. managing director/whole time director
For directors who are neither managing director or 3% of the net profits of the company if there is no
whole-time directors. managing director/whole time director
The percentages displayed above shall be exclusive of any sitting fees payable to directors.
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If any director receives This recovery
A company can pay can be waived
remuneration in excess
its managerial only by
of the limit prescribed by
personnel In case a company passing SR
this section or without
remuneration in has defaulted in within 2 years
approval required under
excess of above paying its dues or of amount
this section, he shall
limits without prior failed to pay its becoming due.
refund such sums to the
approval of the dues, approval Also approval
company, within two
Central from the lenders or of lenders
years or such lesser
Government. A banks or required if
period as may be
special resolution debentureholders default made
allowed by the
approved by the will be necessary. in their
company, and until such
shareholders will payment.
sum is refunded, hold it
be sufficient.
in trust for the company.
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When the company has inadequate profits/no profits: In case a company has inadequate profits/no profits in any
financial year, no amount shall be payable by way of remuneration except if these provisions are followed.
Where the effective capital is Limits of yearly remuneration
Negative or less than 5 Crores 60 Lakhs
5 crores and above but less than 100 Crores 84 Lakhs
100 Crores and above but less than 250 Crores 120 Lakhs
250 Crores and above 120 Lakhs plus 0.01% of the effective capital in excess
of 250 Crores
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If any person or the company makes any default in complying with the provisions of this
section,
 Penalty on that person one lakh rupees

 Penalty on the company five lakh rupees.
Sect
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Companies Act-->Section 198--> Calculation of Profits
Deliberately omitted by faculty since it is not relevant as per faculty’s opinion.
Sect
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Concept Check
Does the company need approval of CG for paying remuneration more than the limits specifies?
(Ans: The company can pay remuneration more than the limits specified by passing a SR at general meeting. No
requirement of CG approval is there.)
Concept Check
In case the effective capital of the company is negative what can be the maximum remuneration to all the directors?
1. 20 lakhs
2. 50 lakhs
3. 60 lakhs
4. 75 lakhs
Ans: Option 3
What can be the maximum percentage of profits which can be given as remuneration to directors who are neither managing
director or whole-time directors, if there is no managing director or WTD?
1. 1
2. 3
3. 5
4. 10
Ans: Option 2
Thanks

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Companies Act-->Section 199--> Recovery of Remuneration in Certain Cases
The company shall

recover from any past
or present managing
director or whole-
Where a company is Received the
time director or
required to re-state remuneration(including
manager or Chief
its financial ESOP) in excess of what
Executive Officer (by
statements due to would have been
whatever name
fraud or non- payable to him as per
called) who, during
compliance. restatement of financial
the period for which
statements.
the financial
statements are
required to be re-
stated
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Companies Act--> Section 200--> Company to Fix Limit with regard to remuneration
CG or company before appointing or fixing the remuneration of any KMP shall give regard to-
Remuneration
Professional
or commission Remuneration
Financial qualifications
drawn by the drawn by him
position of the and experience
individual in from any other
company of the
any other company
individual
capacity
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Companies Act--> Section 201-->Forms of and Procedures in relation to certain application ( Not relevant)
Every application made to the Central Government under Section 196 shall be in Form MR 2.
A general notice (indicating the nature of the application proposed to be made) must be issued to the members before
making application to CG
Notice shall be published at least once in a newspaper in the principal language of the district in which the registered office
of the company is situated and circulating in that district, and at least once in English in an English newspaper circulating in
that district. Copies of notice shall be attached with application.
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Concept Check
Form No. ………. Is the form in which application is to be made u/s 196 to Central Government?
1. MR 1
2. MR 2
3. MR 3
4. MR 4
Ans: Option 2
Companies Act--> Section 202-->Compensation for loss of office of Managing Director or WTD or Manager
A company may make payment to a managing or whole-time director or manager, but not to any other director, by way of
compensation for loss of office, or as consideration for retirement from office or in connection with such loss or
retirement
Any payment made to a managing or whole-time director or manager in pursuance of sub-section (1) shall not exceed the
remuneration which he would have earned if he had been in office for the remainder of his term or for three years,
whichever is shorter.
Such remuneration shall be calculated on the basis of the average remuneration actually earned by him during a period
of three years immediately preceding the date on which he ceased to hold office.
No such payment shall be made to the director in the event of the commencement of the winding up of the company,
whether before or at any time within twelve months after, the date on which he ceased to hold office, if the assets of
the company on the winding up, after deducting the expenses thereof, are not sufficient to repay to the shareholders the
share capital, including the premiums.
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No payment shall be made under this section:-
Where there is a reconstruction or amalgamation of

Where the
the company and is appointed as the managing or Where the office of the
director himself
whole-time director, manager or other officer of the director is vacated
resigns from his
reconstructed company or of the body corporate under section 167
office
resulting from the amalgamation.
Where the director has been guilty of fraud

Where the director has
Due to the negligence of the or breach of trust in relation to, or of gross
instigated, or has taken
director, there was winding up negligence in or gross mismanagement of,
part directly or indirectly
of the company. the conduct of the affairs of the company or
in bringing about, the
any subsidiary company or holding
termination of his office
company
Nothing in this section shall prohibit the payment to a managing or whole-time director, or manager, of any
remuneration for services rendered by him to the company in any other capacity.
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Concept Check
Can the company pay compensation to a Non Executive director or Independent Director for loss of office?
(Ans: No, Compensation for loss of office shall be made to only a MD or WTD or manager.)
Concept Check
Any payment made to a managing or whole-time director or manager in pursuance of sub-section (1) shall not exceed the
remuneration which he would have earned if he had been in office for the remainder of his term or for …………….. years,
whichever is shorter.
1. 2
2. 3
3. 4
4. 5
Ans: Option 2
Remuneration in the above question shall be calculated on the basis of the average remuneration actually earned by him
during a period of ……………. years immediately preceding the date on which he ceased to hold office.
1. 3
2. 4
3. 5
4. 6
Ans: Option 1
Thanks

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Companies Act--> Section 203-->Appointment of Key Managerial Personnel
Term Explainer
KMP
Section 2(51) provides that in relation to a company, a KMP 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.
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Companies Act--> Section 203-->Appointment of Key Managerial Personnel
 Every listed company and

 Unlisted public company having paid up share capital of 10 crore or more
shall have the following whole-time key managerial personnel—
(i)Managing director, or Chief Executive Officer or manager and in their absence, a whole-time director
(ii) Company secretary and
(iii) Chief Financial Officer
Every private company which has a paid up share capital of ten crore rupees or more shall have a whole -time company
secretary.(This is amendment effective from 1st April 2020. Earlier the limit was Rs.5 crores)
Every whole-time key managerial personnel of a company shall be appointed by means of a resolution of the Board
containing the terms and conditions of the appointment including the remuneration.
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An individual in normal cases shall not be appointed as the chairperson of the company as well as the managing director
or Chief Executive Officer of the company at the same time .
Exception:- A person can be appointed Chairperson and MD(or CEO) at same time only if any of following condition
satisfies:-
(a) the articles of such a company provide for such appointment OR
(b) the company does not carry multiple businesses
A whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company
at the same time.
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Exception 1
Nothing contained in this sub-section shall disentitle a key managerial personnel from being a director of any
company with the permission of the Board
Exception 2
A company may appoint or employ a person as its managing director, if he is the managing director or manager of
one, and of not more than one, other company and such appointment or employment is made or approved by a
resolution passed at a Board with the consent of all the directors present at the meeting and of which meeting, and
of the resolution to be moved thereat, specific notice has been given to all the directors then in India.
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If the office of any whole-time key managerial personnel is vacated, the resulting vacancy shall be filled-up by the Board
at a meeting of the Board within a period of six months from the date of such vacancy.
If any company makes any default in complying with the provisions of this section,
 such company shall be liable to a penalty of five lakh rupees and
 every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty
thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each
day during which such default continues but not exceeding five lakh rupees.
Provisions of this section are not applicable to government company.
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Concept Check
Who shall fill the casual vacancy of KMP?

(Ans: Board of Directors shall fill the vacancy within 6 months of the vacancy.)
Concept Check
What is the minimum paid up capital requirement for appointment of KMP by unlisted public company?
1. 10 crores
2. 15 crores
3. 20 crores
4. 25 crores
Ans: Option 1
Every private company which has a paid up share capital of ……………. rupees or more shall have a whole -time company
secretary.
1. 10 crores
2. 15 crores
3. 20 crores
4. 25 crores
Ans: Option 1
Companies Act--> Section 204--> Secretarial Audit for Bigger Companies
A company belonging to
Every listed company such class of companies
shall annex with its Board’s report, a secretarial audit

report, given by a company secretary in practice, in Form
No. MR 3
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Such class of company
 Every public company having a paid-up share
capital of fifty crore rupees or more; or
 Every public company having a turnover of two

hundred fifty crore rupees or more; or
 Every company having outstanding loans or

borrowings from banks or public financial
institutions of one hundred crore rupees or
more
The paid up share capital, turnover, or outstanding

loans or borrowings as the case may be, existing on
the last date of latest audited financial statement
shall be taken into account.
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 It shall be the duty of the company to give all assistance and facilities to the company secretary in practice, for
auditing the secretarial and related records of the company.
 The Board of Directors, in their report, shall explain in full any qualification or observation or other remarks
made by the company secretary in practice in his report.
If the provisions of this section are contravened
Penalty on
 Company
 Officer of company Minimum – 1 Lakh Rupees
 Company Secretary Maximum – 5 Lakh Rupees
in Practice
Who are at default
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Companies Act--> Section 205--> Functions of Company Secretary
To obtain
approvals from
To report to the Board the Board,
To ensure that
about compliance To assist the general
the company
with the provisions of Board in the To represent meeting, the
complies
this Act, the rules conduct of the before various government and
applicable
made thereunder and
secretarial affairs of the regulators such other
other laws applicable company authorities as
standards
to the company required under
the provisions of
the Act
To assist and advise the

Board in ensuring good To facilitate the convening of To provide to the directors of the
corporate governance and meetings and attend Board, company, collectively and
in complying with the committee and general meetings individually, such guidance as they
corporate governance and maintain the minutes of these may require, with regard to their
requirements and best meetings duties, responsibilities and powers;
practices
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Concept Check
‘Outstanding loans or borrowings from banks or public financial institutions of one hundred crore rupees or more’- Is this
limit for secretarial audit only for public companies?
(Ans: No, this limit for outstanding loans or borrowings form banks and PFCs is for ALL companies.
Concept Check
Every public company having a paid-up share capital of …………… crores rupees or more shall conduct a secretarial audit of the
company.
1. 20
2. 50
3. 100
4. 120
Ans: Option 2
Every public company having a turnover of …………………………… crores rupees or more shall conduct a secretarial audit of the
company.
1. 100
2. 250
3. 500
4. 1000
Ans: Option 2
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Basics of The Companies Act,2013
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Basics
The Companies Act, 2013 extends to the whole of India.
The long-awaited Companies Bill 2013 got its assent in the Lok Sabha on 18th December, 2012 and in the
Rajya Sabha on 8th August, 2013. After having obtained the assent of the President of India on 29th August, 2013,
it has now become the Companies Act, 2013.
The Companies Act 2013 contains 470 sections under 29 chapters with seven schedules.
However, currently there are only 438 (470-39+7) sections remains in this Act.
The Companies (Amendment) Act, 2019 received the assent of the President on the 31st July, 2019.
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Basics
The provisions of The Companies Act, 2013 are applicable on
Companies incorporated under this Act or Such body corporate, incorporated by any Act
under any previous company law as the Central Government may specify
Any other company

Insurance Banking Electricity governed by any special
companies Companies company Act
If the respective acts of these companies have inconsistent provisions with the Companies Act, then for certain matters
the provisions of those particulars matters shall apply.
Company
• Legal entity
• Formed for legal purposes
• May be for profit or non profit motives. ( Companies with no profit motive is know as Section 8 Company)
• Artificial person in the eyes of law
• Has the right to own assets, borrow money, can sue & be sued in its own name.
• Has a common seal.
• Perpetual succession
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Types of companies
Company
Private(Including One Public

Person Company)
Limited by Limited by
shares shares
Limited by Limited by
guarantee guarantee
Unlimited Unlimited
company company
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Private Company
 Minimum number of members required = 2
 Minimum number of directors= 2
 Has the words Private Limited as a suffix to its name.
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Public Company
 Has the words Limited as a suffix to its name.
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One Person Company
 Has the words OPC as a suffix to its name.
The memorandum of One Person Company shall contain the name of nominee of the member.
• Form for nomination- Form No. INC-32(SPICe)
• Form for giving Consent of nominee- Form No. INC-3
• Form for intimating ROC about the change in nomination- Form No. INC-4
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Section 2 (69) --> Promoter
All person who takes steps for the registration of a company

eg.,
• those associated with the preparation of prospectus or
• in drawing up MOA and
• assisting in registration
are called promoters.
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Section 2 (69) --> Promoter
who has been named as such in a prospectus or is identified

by the company in the annual return as a promoter
Promoter means a person

who has control over the affairs of the company, directly or
indirectly whether as a shareholder, director or otherwise
in accordance with whose advice, directions or instructions

the Board of Directors of the company is accustomed to act
Exception -: This clause does not apply to person acting in a professional capacity.
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Authorised Capital
Gets itself registered with ROC
Authorised capital= Rs.

The company gets itself registered with registered with 1,00,000 shares of Rs. 10 each. 10,00,000
This amount is the amount mentioned in the capital clause

of the Memorandum of Association.
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Section 3A--> Maintain minimum number of members
If at any time the number of

members of a company is reduced The company carries on the
• In case of public company,
below 7
• In case of private company,
+ business for more than 6
months(while the number is
reduced)
below 2
Every person who is a member of the company during the time that it so carries on business after those 6 months and
is aware of the fact-->
shall be severally liable for the payment of all debts contracted by the company after 6 months and may
be severally sued for.
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Section 4--> Memorandum of Association of the Company
It is the principal document of the company. It defines the scope of power of the company.
MOA has the following clauses-:
Name clause Situation clause Object clause
Nomination clause (in

Liability clause Capital/ Subscription clause
case of OPC)
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Section 4--> Memorandum of Association of the Company
Some Important Points
Name Clause :-
1) The name should not

• be identical with or resemble too nearly to the name of an existing company
• constitute an offence under any law
• be undesirable in the opinion of the Central government.
2) Government companies and Section 8 Companies need not suffix the term “Private Limited” or “Limited” with
their name.
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Section 5--> Articles of Association of the Company
The articles of a company shall contain the regulations for management of the company.
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Section 7--> Incorporation of the Company
Drafting & Obtain File

Consent of Submit Pay fees
Reservation signing of Certificate declaration
directors to “Statutory and
of name by MOA & of about
be submitted Declaration amount of
e-filing AOA and Incorporati address of
to ROC of stamp
application submit to on from Registered
electronically Compliance” duty
ROC. ROC Office
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Section 6--> Act to override MOA & AOA
Generally, if the provisions of MOA, AOA or any contract entered by the company are inconsistent to the Companies
Act, then Act shall override them.
Exception :- If any other Section of the Act says that article is superior, then we will treat it accordingly.
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Concept check
Section 47 of The companies Act deals with voting powers of members. And a notification is passed saying that Section 47 is
applicable to a private company subject to its AOA. Now, for a private company, If AOA says that Section 47 is not applicable,
then what will happen?
In this case AOA will become superior and Section 47 shall not be applicable.
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Important Definitions
Section 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
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Section 2(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
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Section 2(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 purpose of this clause,—

(a) the expression "significant influence" means control of at least twenty per cent. of total voting power, or control of
or participation in business decisions under an agreement;
(b) the expression “joint venture" means a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the arrangement.
• Control of at least 20% of total voting power, or

• Control of business decisions under an agreement
Company A Company B
Then, Company B will be associate company of Company A.

Section 2(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
Example :- Suppose a company is registered with a capital of Rs. 10,00,000 divided into
Authorised capital =
1,00,000 shares of Rs. 10 each.
Rs. 10,00,000
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Issued capital=
The company out of the 1,00,000 shares issued only 80000 shares in the market.
Rs.8,00,000
Unissued capital = Rs.2,00,000
Subscribed capital=
Out of the 80000 shares people sent applications(subscribed) for only 70000 shares.
Rs.7,00,000
The company calls the 10 Rs. Amount on shares in parts. Each time the company calls money, it
is called as calls made by the company. Usually, a part is sent at the time of application, a part
at time of share allotment and rest in one or two calls. Called up capital=
70000*7=Rs.4,90,000
Suppose as on date Rs. 7 have been only called up on the 70000 shares.
Paid up capital=
As on today’s date, All the subscribers to shares have paid Rs. 7 on 70000 shares except 1 (69000*7)+(1000*2)=
subscriber holding 1000 shares who has only paid Rs. 2 yet. Rs.4,85,000
Section 2(11)-->
Body corporate 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, which the Central Government may, by notification, specify in this behalf;
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Section 2(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 cost records as specified in Section 148.
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Section 2(23)
Company Liquidator means a person appointed by the Tribunal as the Company Liquidator in accordance with
the provisions for the winding up of a company.
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Section 2(27)-->
Control shall include the right to appoint majority of the directors or to control the management or policy decisions
exercisable by persons, directly or indirectly, by virtue of their shareholding or management rights or shareholders
agreements or voting agreements.
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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.
Provided that—
a) the instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934; and
b) such other instrument, as may be prescribed by the Central Government in consultation with the Reserve Bank of
India, issued by a company,
shall not be treated as debenture.
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Section 2(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 which gives such directors, officers or employees, the benefit or right to
purchase the shares of the company at a future date at a pre-determined price.
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Section 2(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;
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Section 2(40)--> 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.
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Section 2(41) -->

Financial year 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:
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Section 2(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.
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Section 2(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 recognized 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;
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Section 2(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
(v) such other officer, not more than one level below the directors who is in whole-time employment, designated as
key managerial personnel by the Board; and
(vi) such other officer as may be prescribed
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Section 2(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.
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Section 2(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.
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Section 2(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;
(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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Section 2(57) -->
Net worth means the aggregate value of the paid-up share capital and all reserves created out of the profits securities
premium account and debit or credit balance of profit and loss 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.
• Net worth = Paid up capital + Reserves(except revaluation reserves)- {Accumulated losses + Deferred exp.+
Miscellaneous exp not written off}
• Net worth = Total assets – Current Liabilities
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Section 2(64) -->
Paid-up share capital 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.
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Section 2(65) -->
Postal ballot means voting by post or through any electronic mode.
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Section 2(68) -->

Private company means a company 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;
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Section 2(70) -->

Prospectus means any document described or issued as a prospectus and includes
• a red herring prospectus or
• 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
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Section 2(71) -->

Public company means a company which is not a private company
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Section 2(72) --> Public financial institution means
(i) the Life Insurance Corporation of India
(ii) the Infrastructure Development Finance Company Limited
(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 the Companies Act, 1956
(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.
Section 2(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 1[or his relative] is a member or director;
(v) a public company in which a director or manager is a director 2[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;
(viii) any body corporate which is—

(A) a holding, subsidiary or an associate company of such company;
(B) a subsidiary of a holding company to which it is also a subsidiary; or
(C) an investing company or the venturer of the company;";
(ix) such other person as may be prescribed;

Section 2(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) A person shall be deemed to be the relative of another, if he or she is related to another in the following
manner, namely:-
(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
Section 2(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 ten crore rupees and
ii. turnover of which as per profit and loss account for the immediately preceding financial year] does not exceed two
crore rupees or such higher amount as may be prescribed which shall not be more than one hundred 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

Section 2(87) --> Subsidiary company 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 voting power either at its own or together with one or more of
its subsidiary companies.
• controls the composition of the Board of Directors

or
• controls more than 50% of the total voting power
Company A Company B
Then, Company B will be subsidiary company of Company A.

Section 2(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
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Section 447
Any person who is found to be guilty of fraud
Fraud involving an amount of at Fraud involving an amount less

least ten lakh rupees or one per than ten lakh rupees or one per
cent. of the turnover of the cent. of the turnover of the
company, whichever is lower company, whichever is lower
• Imprisonment
• Minimum - six months • Imprisonment
• Maximum - ten years • Maximum -Five years
AND OR
• Fine • Fine
• Minimum - the amount involved in the fraud • Maximum - Fifty lakh rupees
• Maximum - three times the amount OR
involved in the fraud • both.
Where the fraud in question involves public interest, the term of imprisonment shall not be less than three years.
Thanks

The Companies(Amendment) Act,2020
The Companies (Amendment) Act,2020 was passed and received the assent of The President of India on
28th September, 2020.
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AMENDMENTS IN CHAPTER III
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Section 23
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Prior to amendment
Public Offer
A Public company may issue Private Placement

securities through
Right Issue & Bonus issue
Right Issue & Bonus Issue
A Private company may issue

securities through
Private Placement
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Addition due to Amendment
❑ Such class of public companies may issue such class of securities for the purposes of listing on permitted
stock exchanges in permissible foreign jurisdictions or such other jurisdictions, as may be
prescribed.
❑ The Central Government may, by notification, exempt any class of public companies referred to in above
sub section from any of the provisions of Chapter III, Chapter IV, section 89, section 90 or section 127
and a copy of every such notification shall, as soon as may be after it is issued, be laid before both Houses
of Parliament.
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Section 26
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Previous penalty
❑ The company shall be punishable

AND
this section
❑ Every person who is knowingly a party to the issue of such
▪ with Imprisonment- Maximum three years or
▪ with fine Minimum- fifty thousand rupees

▪ Maximum- three lakh rupees, or
▪ with both.
Amendment
❑ The company shall be punishable

AND
this section
❑ Every person who is knowingly a party to the issue of such
▪ with Imprisonment- Maximum three years or
▪ with fine Minimum- fifty thousand rupees

▪ Maximum- three lakh rupees, or
▪ with both.
Section 40
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• 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.
• The prospectus shall state the name of the all stock exchange in which the securities shall be dealt with.
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If even one stock exchange

If stock exchange/s allow
(out of all applied) does not
listing of securities
allow listing of securities

Refund the money
share allotment
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Before Amendment Penalty on the company

under this section
Officer in Default
❑ Imprisonment – Maximum 1 year
❑ Fine
OR
Both
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After Amendment
Penalty on the company

under this section
Officer in Default
❑ Imprisonment – Maximum 1 year
❑ Fine
OR
Both
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THANK YOU
AMENDMENTS IN CHAPTER IV
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Section 48
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Section 48 --> Variation of shareholders’ Rights
If the company wants to vary(change) the rights attached to a particular class of shares
❑ Permission in memorandum or articles of company
❑ No express provision in memorandum or articles--> Such variation shall not be prohibited in Terms of Issue of
shares of that class
❑ Written consent of atleast 3/4th of the holders of issued shares of that class OR a special resolution by holders of
issued shares of that class.
If variation by one class of shareholders affects the rights of any other class of shareholders, the consent of 3/4th of
such other class of shareholders shall also be obtained.
Dissent to such variation

Application be made by minimum 10% of the holders of such class of shares to tribunal--> variation shall not have
effect unless and until it is confirmed by the Tribunal.
(Such application be made within 21 days from the date on which consent was given or SR passed)
Before Amendment
shareholders

tribunal.
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 25 thousand rupees but which may extend to 5 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 25 thousand rupees but which may extend to 5 lakh rupees or with both.
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After Amendment
shareholders

tribunal.
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 25 thousand rupees but which may extend to 5 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 25 thousand rupees but which may extend to 5 lakh rupees or with both.
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Section 56
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Before Amendment
❑ Company --> Fine

Default is made in complying with Minimum- Rs.25,000
the provisions of this sections Maximum- Rs.5,00,000
❑ Officer in default--> Fine

Minimum – Rs.10,000
Maximum – Rs. Rs.1,00,000

defraud a person
After Amendment
Default is made in complying with Company & Officer in default --> Rs.50000/-
the provisions of this sections

defraud a person
Section 59
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Amendment – This penalty has been removed
❑ The company --> Fine

• Maximum five lakh rupees
And
If any default is made in complying with
the order of the Tribunal under this ❑ Every officer in default --> Imprisonment
section
• Maximum one year or
-->Fine

• Maximum three lakh rupees
Or with both.
Section 62
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Before Amendment

o 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.
issue.
After Amendment

o limiting a time not being less than fifteen days(or such lesser days as may be prescribed) 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.
issue.
Section 64
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Companies Act, 2013--> Chapter IV- Share Capital & Debentures- Section 64
Notice to be given to Registrar for Alteration of share capital
A company alters Order by the Government A company redeems any

its share capital by increases authorised capital redeemable preference shares
itself of the company
The company can file a notice of such alteration in the Form No. SH.7 with ROC within a period of 30 days
of the alteration.
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Before Amendment
LOWER LOWER OF
Rs. 1000 for each

day during which Rs. 5 Lakh
default continues
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After Amendment
LOWER
LOWER OF
▪ Rs. 5 Lakh in case of

Rs. 500 for each day during which company
default continues ▪ Rs.1 Lakh in case of officer
in default
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Section 66
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Amendment – This penalty has been removed.
PENAL PROVISIONS
Failure to publish the order of Penalty on company

reduction as per directions of • Minimum= 5 Lacs
Tribunal • Maximum=25 Lacs
Section 68
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Before Amendment
Penalty on Company
Fine
If a company makes any default in
section
And
Imprisonment
Fine
or with both
After Amendment
Penalty on Company
Fine
If a company makes any default in
section
And
Imprisonment
Fine
or with both
Section 71
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Amendment – This penalty has been removed.
If any default is made in complying • imprisonment for a term which may

with the order of the Tribunal extend to three years or
• with fine which shall not be less than

two lakh rupees but which may extend
to five lakh rupees, or
• with both.
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THANK YOU
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AMENDMENTS IN CHAPTER VIII
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Section 124
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Before Amendment
 Company -->
• Fine
• Minimum - Five lakh rupees

• Maximum - Twenty-five lakh rupees and
the requirements of this section,
• Fine

• Maximum - Five lakh rupees.
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After Amendment
 Company -->
• Fine
• One lakh rupees & In case of continuing failure,

with a further penalty of five hundred rupees for
each day subject to maximum of ten lakh rupees.
the requirements of this section.
• Fine
• Twenty five thousand rupees& In case of

continuing failure, with a further penalty of one
hundred rupees for each day after the first
during which such failure continues, subject to a
maximum of two lakh rupees.
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AMENDMENTS IN CHAPTER IX
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Section 128
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Before Amendment
years.)

• Imprisonment – Maximum 1 year
Penalty on
• Fine- Minimum Rs. 50 Thousand
Maximum Rs. 5 Lakh
• Chief Financial Officer or
• any other person who has to comply with the
OR BOTH
provisions of this section
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After Amendment

years.)

• Imprisonment – Maximum 1 year
Penalty on
• Fine- Minimum Rs. 50 Thousand
Maximum Rs. 5 Lakh
• Chief Financial Officer or
• any other person who has to comply with the
OR BOTH
provisions of this section
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Section 129A
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Amendment – New Section Introduced
Chapter IX --> ACCOUNTS OF COMPANY --> Section 129A – Periodical Financial Results
The Central Government may, require such class or classes of unlisted companies, as may be prescribed
• To prepare the • To obtain approval of the Board • File a copy with the
financial results of the of Directors and complete audit Registrar within a period of
company on such or limited review of such thirty days of completion of
periodical basis and in periodical financial results in the relevant period with
such form as may be such manner as may be such fees as may be
prescribed. prescribed. prescribed.
Section 134
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Chapter IX Account of Companies --> Section 134 --> Financial Statement, Board’s Report etc.
The financial statement, including consolidated financial

statement,
i. shall be approved by the Board of Directors The auditors’ report shall be attached to every financial
ii. Shall be signed by the chairperson of the company statement.
(where he is authorised by the Board) or by two
directors out of which one shall be managing director,
if any, AND
iii. shall also be signed by the Chief Executive Officer, the
Chief Financial Officer and the company secretary of The Central Government may prescribe an abridged
the company, wherever they are appointed, Board's report, for the purpose of compliance with this
iv. in the case of One Person Company, only by one section by One Person Company or small company
director, for submission to the auditor for his report
thereon.
The Board’s report and any annexures shall be signed by
A signed copy of every financial statement shall be
issued circulated or published along with a copy each
i. its chairperson of the company if he is authorised
of—
by the Board and
(a) any notes annexed to or forming part of such
ii. where he is not so authorised, shall be signed by at
financial statement;
least two directors, one of whom shall be a
managing director,
(b)the auditor’s report; and
iii. or by the director where there is one director.( In
(c) the Board’s report
case of OPC)
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Before Amendment

Company
• Imprisonment - Maximum 3 years
 Minimum – Rs.50 Thousand
• Fine - Minimum – Rs.50 Thousand
Maximum - Rs. 5 Lacs
 Maximum - Rs. 25 Lacs
or both
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After Amendment

Company
• Penalty --> 50 Thousand rupees
 Penalty --> 3 Lakh Rupees
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Section 135
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Chapter IX Account of Companies --> Section 135 --> Corporate Social Responsibility
DUTIES OF BOARD
Approve the CSR Policy for the Ensure that the activities as are included
company and disclose contents of in Corporate Social Responsibility Policy
such Policy in its report and also place of the company are undertaken by the
it on the company's website. company.
The Board of Directors shall ensure that the company spends, in every
financial year, at least two per cent. of the average net profits of the
company made during the three immediately preceding financial years or
where the company has not completed the period of three financial years
since its incorporation, during such immediately preceding financial years,
in pursuance of its Corporate Social Responsibility Policy.
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Before Amendment
The company shall give preference to the local area and

areas around it where it operates, for spending the If the company fails to spend such
amount earmarked for Corporate Social Responsibility amount, the Board shall in its
activities.
Director’s report, specify the reasons
for not spending the
amount and, (unless the unspent
amount relates to any ongoing project),
transfer such unspent amount to a
Fund specified in Schedule VII, within
a period of six months of the expiry of
the financial year
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After Amendment
If the company fails to spend such

amount, the Board shall in its
The company shall give preference to the local area and Director’s report, specify the reasons
areas around it where it operates, for spending the amount for not spending the
earmarked for Corporate Social Responsibility activities. amount and, (unless the unspent
amount relates to any ongoing project),
transfer such unspent amount to a
Fund specified in Schedule VII, within
a period of six months of the expiry of
the financial year
If the company spends an amount in excess of the
requirements provided under this sub-section, such company
may set off such excess amount against the requirement to
spend under this sub-section for such number of succeeding
financial years as may be prescribed
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Before Amendment
Any amount remaining unspent because of any ongoing If a company contravenes the provisions ,
project shall be transferred by the company within a  the company shall be punishable with fine
period of thirty days from the end of the financial year to  minimum fifty thousand rupees
a special account to be opened by the company in that  maximum twenty-five lakh rupees and
behalf for that financial year in any scheduled bank to be
called the Unspent Corporate Social Responsibility  every officer of such company who is in default
Account, and such amount shall be spent by the company shall be punishable with
according to the CSR Policy within a period of three  imprisonment for maximum three years or
financial years from the date of such transfer, failing  with fine
which, the company shall transfer the same to a Fund  minimum fifty thousand rupees
specified in Schedule VII, within a period of thirty days  maximum five lakh rupees, or
from the date of completion of the third financial year.  with both.
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After Amendment
If a company contravenes the provisions ,

 the company shall be punishable with fine
 Lower of
Any amount remaining unspent because of any ongoing  Twice the amount to be transferred to
project shall be transferred by the company within a Unspent CSR Account or Schedule VII OR
period of thirty days from the end of the financial year to  1 crore
a special account to be opened by the company in that
behalf for that financial year in any scheduled bank to be
called the Unspent Corporate Social Responsibility
Account, and such amount shall be spent by the company  Every officer of such company who is in default
according to the CSR Policy within a period of three shall be punishable with
financial years from the date of such transfer, failing  Lower of
which, the company shall transfer the same to a Fund  One-tenth the amount to be transferred
specified in Schedule VII, within a period of thirty days to Unspent CSR Account or Schedule VII
from the date of completion of the third financial year. OR
 2 lakh
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Amendment – New Insetion
Where the amount to be spent by a company for CSR does not exceed fifty lakh rupees, the requirement for constitution
of the Corporate Social Responsibility Committee shall not be applicable and the functions of such Committee provided
under this section shall in such cases be discharged by the Board of Directors of such company.
Section 137
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Chapter IX Account of Companies --> Section 137 --> Copy of Financial Statements to be filed with the Registrar
Where the financial statements

A copy of the are not adopted at annual
financial statement general meeting, such Financial statements
shall be filed with the
(along with all the unadopted financial statements adopted in the
Registrar within thirty
documents which are along with the required adjourned annual
days of the date of
required to be documents shall be filed with general meeting shall be
annual general meeting
attached), duly the Registrar within thirty days filed with the Registrar
in Form AOC-4 (AOC 4
adopted at the of the date of annual general within thirty days of the
CFS for consolidated
annual general meeting and the Registrar shall date of such adjourned
financial statements).
meeting of the take them in his records as annual general meeting
company, provisional till the adopted
financial statements are filed.
1. Every Non-Banking Financial Company (NBFC) that is required to comply with (Ind AS) shall file the financial statements in Form
AOC - 4 NBFC (Ind AS) and the consolidated financial statement in Form AOC - 4 CFS NBFC (Ind AS).
2. The class of companies as may be notified by the Central Government from time to time, shall mandatorily file their financial
statement in Extensible Business Reporting Language (XBRL) format.
 A One Person Company shall file a copy of the adopted financial statements within one hundred eighty days from the
closure of the financial year.
 A company shall, along with its financial statements to be filed with the Registrar, attach the accounts of its subsidiary
which have been incorporated outside India and which have not established their place of business in India.
 In the case of a foreign subsidiary( which is not required to get its financial statement audited) under any law of its
country and which does not get such financial statement audited, the requirements of this section shall be met,
If the holding Indian company files such unaudited financial statement along with a declaration to this effect and
where such financial statement is in a language other than English, along with a translated copy of the financial statement
in English.
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Before Amendment

meeting
PENAL PROVISIONS
 the company shall be liable to a penalty LOWER of

 One thousand rupees for every day during which the failure continues
 Ten lakh rupees
 And the managing director and the Chief Financial Officer of the company, if any, and, in the absence of the managing
 Of one lakh rupees and
 In case of continuing failure, with further penalty of one hundred rupees for each day subject to a maximum of five
lakh rupees.
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After Amendment

meeting
PENAL PROVISIONS
 the company shall be liable to a penalty

 Ten thousand Rupees and in case of continuing failure, with a further penalty of one hundred for each day during
which such failure continues, subject to a maximum of two lakh rupees.
 And the managing director and the Chief Financial Officer of the company, if any, and, in the absence of the managing
 Of ten thousand rupees and
 In case of continuing failure, with further penalty of one hundred rupees for each day subject to a maximum of fifty
thousand rupees
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Thank You
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AMENDMENTS IN CHAPTER X
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Section 140
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Before Amendment
After Amendment
Penalty for non compliance by auditor
If the auditor does not comply with the above provisions, he or it shall be liable to a penalty of fifty thousand rupees or
an amount equal to the remuneration of the auditor, whichever is less, and in case of continuing failure, with further
penalty of five hundred rupees for each day after the first during which such failure continues, subject to a maximum
of two lakh rupees.
Section 143
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Before Amendment
After Amendment
If any auditor, cost auditor, or secretarial auditor does not comply with the provisions of sub-section (12), he shall
In case of a listed company, be In case of any other company, be

liable to a penalty of five lakh liable to a penalty of one lakh
rupees. rupees.
Section 147
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Before Amendment
After Amendment
AMENDMENTS IN CHAPTER XI
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Section 149
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After Amendment – New Insertion
If a company has no profits or its profits are inadequate, an independent director may receive remuneration,
exclusive of any fees payable under sub-section (5) of section 197(fees for attending meetings).
Section 165
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Before Amendment
After Amendment
If a person accepts an appointment as a director in violation of this section, he shall be liable to a penalty of
two thousand rupees for each day after the first during which such violation continues, subject to a
maximum of two lakh rupees.
Section 167
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Before Amendment
After Amendment
Section 172
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Before Amendment
After Amendment
Companies Act 2013 --> Section 172 --> Penalty where no penalty is provided
Generic Punishment for violation of Section 149 to 171
For violation of such sections where no such penalty is mentioned, the company and every officer of the
company who is in default shall be liable to a penalty of fifty thousand rupees, and in case of continuing
failure, with a further penalty of five hundred rupees for each day during which such failure continues,
subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer
who is in default.
Thank You
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AMENDMENTS IN CHAPTER XII
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Section 178
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Before Amendment
After Amendment
Companies Act-->Section 178(8) --> Nomination & Remuneration Committee and Stakeholders’ Relationship Committee
Penalty
Violation of any provision of this section will lead to a penalty to the company and the individual
responsible for violation
• The company shall be liable to a penalty of five lakh rupees and
• Every officer of the company who is in default shall be liable to a penalty of one lakh rupees.
Section 184
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Before Amendment
After Amendment
If director violates either of the conditions discussed in subsection 184(1)and

184(2), director shall be liable to a penalty of one lakh rupees.
Section 187
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Before Amendment
After Amendment
Companies Act 2013--> Section 187 – Investments of company to be held in its own name
Punishment
The Company shall be liable for a penalty of five lakh rupees.
Every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.
Section 188
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Before Amendment
After Amendment
Companies Act 2013 --> Section 188 -->Related party transactions
Punishment for Violation of Related Party Transaction
A director or employee in case of listed company
Shall be liable to a penalty of twenty five lakh rupees.
A director or employee in case of any other company than mentioned above
Shall be liable to a penalty of five lakh rupees.

AMENDMENTS IN CHAPTER XIII
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Section 204
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Before Amendment
Companies Act 2013 --> Section 204 --> Secretarial Audit for Bigger Companies
If the provisions of this section are contravened, penalty on

❑ Company
❑ Officer of company
❑ Company Secretary in practice
Who are at default
Minimum --> 1 Lakh rupees

Maximum --> 5 Lakh rupees
After Amendment
Companies Act 2013 --> Section 204 --> Secretarial Audit for Bigger Companies
If the provisions of this section are contravened, penalty on

❑ Company
❑ Officer of company
❑ Company Secretary in practice
Who are at default
Liable to a penalty of Two Lakh rupees

AMENDMENTS IN CHAPTER XXVII
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Section 410
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Before Amendment
After Amendment
Section 418A
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Amendment – New Section Introduced
Section 418A --> Benches of Appellate Tribunal
• The powers of the Appellate Tribunal may be exercised by the Benches thereof to be constituted by the
Chairperson
Provided that a Bench of the Appellate Tribunal shall have at least one Judicial Member and one Technical Member
• The Benches of the Appellate Tribunal shall ordinarily sit at New Delhi or such other places as the Central
Government may, in consultation with the Chairperson, notify.
• The Central Government may, by notification, after consultation with the Chairperson, establish such number of
Benches of the Appellate Tribunal, as it may consider necessary, to hear appeals referred to in section 53A of
the Competition Act, 2002 and under section 61 of the Insolvency and Bankruptcy Code, 2016.
Thank You
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Chapter III of Companies Act – Prospectus & Allotment of Securities

A Public company may issue Private Placement

Right Issue & Bonus issue

Right Issue & Bonus Issue

A Private company may issue

Listed companies/ Company intending to get

Matters relating to Other matters All matters

Administered by SEBI Administered by Central Government/ Registrar/ Tribunal

Issuing house company or firm

These will be the security holder of the company.

Main company Public

Conditions for a document to be called deemed prospectus

Effect of deemed prospectus

By Two directors of the

Deemed prospectus shall be signed by The Directors or

By at least half of the

A private company cannot make issue of securities through __________________.

Deemed prospectus is issued by _______________. Issuing house

Directors or partners of the

• shall be dated and signed and

make a declaration about the compliance of

Nothing in this section shall apply

to the issue of a prospectus relating to shares or

Every prospectus issued shall, on the face of it,—

 The company shall be punishable

• with fine Minimum- fifty thousand rupees

 with Imprisonment- Maximum three years or

 with fine Minimum- fifty thousand rupees

The notice shall also be placed on the web-site of the company.

Promoters of the company

The members, (whether individuals or bodies

shall collectively authorise the company, whose

Any document by which the offer of sale to the

Every unlisted public company

a) who intends to transfer such securities shall get such

a) maintains security deposit at all times, of not less than

b) Offer securities or do a buyback of securities or

Reconciliation of share audit report is made in Form ______________. PAS - 6

File shelf prospectus at the time of first offer of securities

File information memorandum at the time of subsequent offer

• Shelf Prospectus shall be valid for maximum on year.

• the company shall intimate the

INFORMATION MEMORANDUM + SHELF PROSPECTUS = DEEMED PROSPECTUS

Definition :- A prospectus which does not include complete particulars of the

It shall be filed with ROC and SEBI at least 3

BOOK BUILDING METHOD

An abridged prospectus is a summary of the prospectus containing such details as

Every application form must be accompanied by an abridged prospectus.

Which prospectus is an incomplete prospectus?

Information Memorandum must be filed ____________ prior to the subsequent

includes any statement which is

every person who authorizes the issue of such prospectus shall be

If any person proves that such statement or omission was

he shall not be punished.

Where a person has

a) is a director of the company at the time of the issue of the prospectus;

No person shall be liable, under previous slide, if he proves

that the prospectus was issued without his knowledge

Any person who, either knowingly or recklessly

Shall be liable u/s 447

Any person who -

makes or abets making of an makes or abets making of Induces directly or indirectly a