Professional Documents
Culture Documents
Corporate and Other Laws - Notes - CA Inter (New) - Dec 2021
Corporate and Other Laws - Notes - CA Inter (New) - Dec 2021
What is a Company?
Company is one of the many structures in which business can be done. Other forms of business
structures include sole proprietor, partnership, societies, etc. The benefits offered by the
company over other forms include separate ownership from management, longevity, expandability
over generations, geographies & products & limited liability of investors.
Basic Features of a Company
Rules: Every chapter of the Companies Act has relevant Rules running parallel to it. They contain
procedures to be followed in order to implement law.
Notifications: MCA brings out amendments in the existing law and rules through notifications in
the official gazette. They must be read along with the Act. Laws are applicable from the effective
date as mentioned in such notifications.
Definition: As per Section 2(58), Notification means a notification published in the Official
Gazette and the expression “notify” shall be construed accordingly
Judicial pronouncements: Even with laws & procedures in place, there may be disputes during
or after implementation or the lack thereof. Such disputes are handled by courts. The judgements
of the different suits are also to be read along with the Act & rules to fully understand law
governing companies.
Judicial courts that handle disputes arising from Companies Act 2013 are:
Regional Directors: RD are in-charge of the respective regions, each region comprising a number
of States and Union Territories. They supervise the working of the offices of the Registrars of
Companies and the Official Liquidators working in their regions.
Registrar of Companies: ROC are vested with the primary duty of registering companies and LLPs,
ensuring compliance with statutory requirements, maintaining registers and records, allowing
their inspection on payment of the prescribed fee, etc. ROC’s have prescribed jurisdiction within
which their powers & functions can be exercised.
ROC
RD
ROC
ROC
MCA RD
ROC
ROC
RD
ROC
Section 3 -22
MOA is a public document prepared in the formation and registration process of a limited
liability company to define its relationship with shareholders.
As per section 2(56) ― memorandum means the memorandum of association of a company
as originally framed or as altered from time to time in pursuance of any previous company
law or of this Act;
It is the base document for the formation of the company and along with the Articles of
Association (AOA) is regarded as the Constitution of the Company.
It contains following clauses:
Object Clause
MOA
Liability Clause
Capital Clause
Situation Clause
Subscription
Clause
1. Name Clause:
- Clause contains the name of the company + suitable suffix like “Pvt Ltd.”/
“Ltd.”/ “producer Co. Ltd.”/ “(OPC) Pvt. Ltd.”/other
- Name of the company should not be
Offensive
Identical to existing Name of another company
Similar to existing Name of another company
Undesirable with respect to the objects of the company
Indicating association with Government of India (unless approved by
Government)
Containing word “national” unless specific permission obtained from
Central Government
Containing word “bank” unless it is involved in banking business.
- Reservation of Name :
Application must be sent to RoC in prescribed form & Fees (Note below)
RoC, if satisfied, may reserve the name of the company for a period of
During this period, the company is required to submit other documents for
incorporation like MoA, AoA etc.
Rule 9: Reservation of Name
An application for reservation of name shall be made through the web service
available at www.mca.gov.in by using [form RUN](Reserve Unique Name)
along with fee as provided in the Companies (Registration offices and fees)
Rules, 2014, which may either be approved or rejected, as the case may be,
by the Registrar, Central Registration Centre after allowing re-submission of
such application within fifteen days for rectification of the defects, if any.
2. Object Clause
- It contains scope of business of the company, ie, main activity and ancillary
activities.
3. Liability Clause
This clause covers details on the liability of members of the company, whether limited
or unlimited. The clause shall also state liabilities as under -
Limited by Unlimited
The shareholder
Shares Guarrantee agrees to have
unlimited liability in
the event of winding
up of the company.
Liability of the
shareholder is limited IF the assets of the
Liability is limited to an company are
to the unpaid amount amount each member
on shares subscribed insufficient to meet
undertakes to contribute - * the liabilities
by him
*(A) to the assets of the company in the event of its being wound-up while he is a
member or within one year after he ceases to be a member, for payment of the
debts and liabilities of the company or of such debts and liabilities as may have
been contracted before he ceases to be a member, as the case may be; and
(B) to the costs, charges and expenses of winding-up
(C) for adjustment of the rights of the contributories among themselves
Nominee Details for OPC: In the case of One Person Company, the name of the person
who in the event of death of the subscriber shall become the member of the company
is also stated in Liability Clause.
5. Domicile/Situation Clause
It contains State in which registered office of the company is situated.
6. Subscription Clause:
It states the purpose of the subscribers to incorporate the company wherein they
agree to take the shares in the company based on the number written in the
Memorandum. It contains signatures of such subscribers.
7. Form of Memorandum
The memorandum of a company shall be in respective forms as outlined in Schedule I
of the Companies Act 2013.
Form Company
Table A MOA of a company limited by shares
Table B MOA of a company limited by guarantee and not having share
capital
- It contains the rules & regulations for the internal management of the company
- Model Articles have been specified in schedule I of the Act
Form Company
Table F AOA of a company limited by shares
Table G AOA of a company limited by guarantee and having share
capital
According to this doctrine, all persons dealing with a company are deemed (or
"construed") to have knowledge of the company's MoA and AoA. The doctrine of indoor
management is an exception to this rule.
It means that persons dealing with the company need not inquire whether the internal
proceedings relating to the contract have been followed as long as they are satisfied that
the transaction is as per the MoA/AoA
This doctrine protects external stakeholders.
Exceptions to this Doctrine:
Negligence on part of external party
External party relies on a Forged document (Co. not responsible)
External party has prior knowledge of irregularity
Comparison between the above two doctrines: Whereas the doctrine of constructive notice
protects a company against outsiders, the doctrine of indoor management protects outsiders
against the actions of a company.
MoA, AoA, Agreement executed or resolution passed by the company or board of directors.
Following documents must be filed with RoC under whose jurisdiction the company functions:
i. MoA signed by all subscribers
ii. AoA signed by all subscribers
iii. Declaration that all requirements of the act & rules have been satisfied by
Person named in AoA : Directors, secretary, Manager and
Persons engaged in formation of company: advocate/ CA/CS/cost accountant
iv. Declaration from subscribers to MoA & first directors stating that:
They are not convicted of any offence in connection with formation of Company
Not g uilty of misfeasance/breach under this or previous Companies Act
All documents & information contained in them are correct as per their
knowledge
v. Address for correspondence till registered office is established
vi. Particulars and identity proof of subscribers to MoA
Once registered, MoA & AoA shall bind the company & members. All monies payable by any
member to the company under MoA/AoA, shall be debt due to company.
Section 10A - Commencement of business, etc.
(Section 11 Omitted)
Section 12 - Registered office of the company
Company shall
Company shall have a send verification
registered office to RoC of the
Incorporation
capable of receiving registered
communications. office.
Within 30 days New
from
incorporation
iv. Labelling:
The company’s name with registered office address shall be mentioned outside the
office, on business cards, bill head, official publications, seal (if any), business card
etc.
ix. If RoC has reasonable cause to believe that company is not carrying on any business,
it may cause physical inspection of registered office after which it may initiate action
for removal of name of company from register under chapter XVIII
Special resolution In General Meeting is required to alter any clause of MoA. Other
requirement with respect to changes in these clauses are as under:
I. Name Clause:
- Central government (RD) Approval along with
- Special Resolution in general meeting
- No approval of CG required to merely delete/add ‘Private ‘ after name of company
- No Alteration allowed [Companies (Incorporation) Rules, 2014] if:
Annual return or financial statement not filed with RoC
Amount due on matured Deposit, Debentures or interest due thereon not
paid
- RoC shall enter into register and issue a fresh ‘Certificate of Incorporation’
Other requirement for change of registered office from one state to another:
- Application must be sent to CG (RD) who shall dispose it off in 60 days
- CG (RD) shall verify that
All debts have been discharged/provided for
Adequate security has been provided for discharge of debts
Consent of creditors, debenture-holders and other concerned persons
has been taken
- File with RoC (within 30 days of order)- Copy of SR & Order of approval from
CG (RD)
- RoC shall issue a fresh “Certificate of Incorporation”
After Alteration of name: Notify RoC about such change along with:
- Copy of resolution
- Order of CG (RD)
Default: Company – Rs 1000 / day
Officer in default- 5000 to 1 lac
RoC shall issue fresh certificate of Incorporation & make suitable changes in MoA
Section 17 - Copies of MoA, AoA, agreement, resolution u/s 117 given to Members
- Company cannot obtain (by itself or through nominee) shares of holding company
- Holding company cannot allot/transfer shares to its subsidiary company
- Exception:
i. Shares held by subsidiary before it became subsidiary of holding (Voting: NOT
allowed)
ii. Shares held as trustee (Voting: Allowed)
iii. Shares held as legal representative of deceased member of holding company
(Voting: Allowed)
Documents are delivered from the company to various stakeholders and vice versa to conduct
business in effective manner. The timing and mode of delivery are very crucial to avoid
disputes/confusions in future. Hence, the Act has prescribed the following modes:-
- Speed post
- Registered post
- Courier
- Physical delivery
- Electronic Mode – Any mode using electronic media which is capable of retention,
including, fax, through company’s network, other.
- Members may request the delivery through any other mode on payment of required
fees
Definition: As per 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.
Definition: As per 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.
Explanation — For the purposes of this clause, the power to do administrative acts of a
routine nature when so authorised by the Board such as:
the power to affix the common seal of the company to any document or
to draw and endorse any cheque on the account of the company in any bank or
to draw and endorse any negotiable instrument or
to sign any certificate of share or to direct registration of transfer of any share,
shall not be deemed to be included within the substantial powers of management
Explanation — For any individual to be called as managing director, an individual shall first
be a director duly appointed by the Company
Company having
common seal
Yes No
authorisation shall
be made by
Company may authorise
any person in writing in
India/Outside India to
use the seal for
specified matters.
2 directors or where the company has
company secretary, then
A Director + CS
Companies have been classified into different sub types under the Act to serve different
business needs.
Few types of companies are:
Government Company
It is a company registered under the Indian Companies Act in which not less than 51% of paid
up share capital is held by the central government or any state government or partly by
central government partly by one or more state governments,
Explanation - For the purposes of this clause, the "paid up share capital" shall be construed
as "total voting power", where shares with differential voting rights have been issued.
After completion of 2 years from Paid up share capital Average turnover during the
incorporation exceeds 50 lakhs relevant period exceeds 2 crore
Section 8 Companies are formed to serve the charitable purpose for promoting commerce,
art, science, sports, education, research, social welfare, religion, charity, protection of
environment or any such other object.
Entire profits are to be reinvested to promote the objects
No dividend can be paid to its members
Any private/public company requires license from CG to operate as a Section 8 Company
It cannot use ‘Pvt Ltd.’ Or ‘Ltd.’ after its name. Its name usually ends with words like
foundation, trust, institution etc. However, it enjoys all the privileges of a limited
company.
Firm may be its member
Alteration of MoA or AoA can be done with CG approval
Reconversion into a private/public/other kind of company requires Special Resolution in
general meeting& Central Government Approval
Prior notice for general meeting: 14 days instead of 21 days
If affairs of the company are conducted fraudulently: Section 447 shall apply
Relaxations to Sec 8 Co.:
- Can call its general meeting by giving a clear 14 days notice instead of 21 days
- Requirement of minimum number of directors, independent
directors etc. does not apply
- Need not constitute Nomination and Remuneration Committee and Shareholders
Relationship Committee
Section 23-42
Note:
i. Right Issue: It is a group of rights offered to existing shareholders to purchase
additional stock shares in proportion to their existing holdings.
ii. Bonus Shares: It is an offer of free additional shares to existing shareholders in
proportion to their existing holdings. (also known as ‘capitalization of profits’)
iii. Private Placement: It means the sale of securities to a relatively small number of
selected investors.
iv. Public Offer: It is the offering of securities of a company or a similar corporation to
the public. In order to do that the securities are to be listed on a stock exchange.
Explanation:
Public offer
FPO is an issue of
additional shares made by OFS is a mechanism
a company that is already where promoters/existing
Offering the stock of a publicly listed and has shareholders in a listed
company on a public stock gone through the IPO company sell
exchange for the first process. their shares directly to the
time.
public in a transparent
manner.
Note:
Securities has been defined u/s 2(81) as Securities means the securities as defined in clause
(h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).
In crux, the definition in SCRA includes shares, debentured, derivatives, Mutual Fund,
Collective investment scheme securities, Government securities, right in securities etc.
Thus, in this chapter, the word security must be construed to include allotment of all the
above types of instruments.
PROSPECTUS
It should be dated. The date indicated in the prospectus shall be deemed to be the
date of its publication.
It should be Signed by every person who is named therein as a director or proposed
director of the company or by his duly authorised attorney.
It should state such information and set out such reports on financial information as
may be specified by the SEBI in consultation with the CG
Declaration of Compliance: It should contain declaration stating that nothing in the
prospectus is contrary to the provisions of this Act, the Securities Contracts
(Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992 and
the rules and regulations made thereunder
Section 26(1) Not applicable:
Delivery of copy to ROC: On or before the date of its publication, Copy of prospectus
should be delivered to the Registrar for filing.
Validity of prospectus: Upto 90 days from the date on which a copy thereof is delivered
to the Registrar
Definition of “Expert” in Sec 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
The promoters of every public company making a public offer of any convertible
securities may hold such securities only in dematerialised form:
Provided that the entire holding of convertible securities of the company by the
promoters held in physical form up to the date of the initial public offer shall be
converted into dematerialised form before such offer is made and thereafter such
promoter shareholding shall be held in dematerialized form only.
4. Every unlisted public company shall facilitate dematerialisation of all its existing securities
by making necessary application to a depository as defined in clause (e) of sub-section (1)
of section 2 of the Depositories Act, 1996 and shall secure International security
Identification Number (ISIN) for each type of security and shall in-form all its existing
security holders about such facility.
8. Every unlisted public company governed by this rule shall submit Form PAS-6 to the
Registrar with such fee as provided in Companies (Registration Offices and Fees)
Rules,2014 within sixty days from the conclusion.of each half year duly certified by a
Company secretary in practice or chartered accountant in practice.
(8A) 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.
9. The grievances, if any, of security holders of unlisted public companies under this rule
shall be filed before the Investor Education and protection Fund Authority.
10. The Investor Education and protection Fund Authority shall initiate any action against a
depository or participant or registrar to an issue and share transfer agent after prior
consultation with the securities and Exchange Board of India
11. 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.
Sec 29 &
Rules
Company making public offer and Class of unlisted companies Other company [Sec
prescribed companies [Sec 29(1)] as may be prescribed [Sec 29(2)]
29(1A)]
Issue shares Rule 9: issuing demat shares or
in Promoters to Rule 9A: Securities Converting physical
Dematerialis ensure Unlisted to be held shares to demat
ed form + securities are public or (Optional)
comply held in compani transferred
Depositories dematerialsed es in
Act 1996 form demateriali comply Depositories Act
sed form 1996
Meaning: It is the prospectus with the shelf life, ie, a validity period. In this type of
public offering, company is allowed to offer and sell securities to the public without
a separate prospectus for each act of offering.
Max Period of validity: 1 year
Information memorandum: Every subsequent offer requires issuing an ‘information
memorandum’ containing the details of changes that took place from the previous
issue.
o Financial changed
o New charges created
o Other material facts
If Advance is received for further shares before the issue of Information
memorandum: then,
o Company must intimate the investor of all changes using Info. Memo. and
o Give an ‘Exit Option’ (Investor may withdraw his money. The refund shall be
processed in 15 days.
Meaning: In this kind of public offering, the Price and quantity of shares to be allotted
are not included in prospectus. Thus the prospectus is incomplete.
Filling with RoC: Red herring prospectus must be filled with RoC at least 3 days prior
to issuing to public.
After closing of the offer: Upon closing of the offer, the prospectus stating the total
capital raised (by debt/share capital) and closing price of securities along with other
prescribed details, shall be filled with RoC and SEBI.
Meaning: Shares of existing shareholder are sold off in public to new shareholders. It
does not involve issue of new securities.
Objective: To dilute promotors’ holding or provide exit route to venture capitalists.
The document inviting public to purchase such shares shall be deemed prospectus and
all provisions applicable to normal prospectus would apply.
All details u/s 26 shall be included in prospectus
Deemed OFS:
o If offer to sell securities to public is made within 6 months from original
allotment or
o At the time of making offer to public, the whole consideration has not been
received on securities
Hence, all requirement of issue of prospectus & this section must be followed.
Additional Matters to be disclosed:
o Consideration received/to be received in respect of securities offered
o Time and place at which the allotment contract can be inspected
Members may offer whole or part of their shareholding for sale to public provided BoD
approves.
Document offered to public inviting subscription shall be Deemed Prospectus. All
provisions applicable to normal prospectus shall apply.
Individuals/Body corporates whose shares are being OFS, shall
o authorize company to do the same
o reimburse company of all related expenses
(1) The provisions of Part I of Chapter III namely "Prospectus and Allotment of Securities" and
rules made there under shall be applicable to an offer of sale referred to in section 28 except
for the following, namely:-
(a) the provisions relating to minimum subscription;
(b) the provisions for minimum application value;
(c) the provisions requiring any statement to be made by the Board of directors in respect
of the utilization of money; and
(d) any other provision or information which cannot be compiled or gathered by the
offeror, with detailed justifications for not being able to comply with such provisions.
(2) The prospectus issued under section 28 shall disclose the name of the person or persons
or entity bearing the cost of making the offer of sale along with reasons.
Rule 7 Variation in Terms of Contracts Referred to in the Prospectus or Objects for Which
Prospectus was Issued
(1) Where the company has raised money from public through prospectus and has any
unutilized amount out of the money so raised, it shall not vary the terms of contracts referred
to in the prospectus or objects for which the prospectus was issued except by passing a
special resolution through postal ballot and the notice of the proposed special resolution
shall contain the following particulars, namely:-
(a) the original purpose or object of the Issue;
(b) the total money raised;
(c) the money utilised for the objects of the company stated in the prospectus;
(d) the extent of achievement of proposed objects(that is fifty percent, sixty percent,
etc);
(e) the unutilised amount out of the money so raised through prospectus,
(2) The advertisement of the notice for getting the resolution passed for varying the terms
of any contract referred to in the prospectus or altering the objects for which the prospectus
was issued, shall be in Form PAS-1 and such advertisement shall be published simultaneously
with dispatch of Postal Ballot Notices to Shareholders.
(3) The notice shall also be placed on the web-site of the company, if any.
I. Listing of securities
Before any public offer, the companies must apply to SEBI & Recognized stock
exchanges for listing. Public offer cannot be made without listing.
Prospectus must contain details of stock exchange on which securities shall be listed
Separate bank A/c must be maintained by the company to receive monies from offer
and adjust refunds (Not company’s general bank account).
Nothing can be written in the prospectus to waive this section.
Default in compliance:
o Company: 5L-50L
o Officer in default:
Imprisonment up to 1 year or
Fine 50K – 3 L or
Both
II. Underwriting Commission:
Meaning: Underwriting is the process through which an individual or institution takes
on financial risk for a fee. In this case, such institutions agree to take over the un-
subscribed portion of securities offered to public to meet minimum subscription.
Conditions for underwriting a public offer:
AOA Authorizes
Underwriting Commission is paid out of
o profit or
o proceeds of issue of securities
Maximum Rate of commission
Meaning: when the ownership of shared is given in the name of shareholder and entry is
made in the register of members. It brings shares into existence.
Conditions prescribed for allotment of securities by company:
i. Minimum subscription amount stated in the prospectus and application money is
received
ii. Amount payable on application is not less than 5% of nominal value of securities.
iii. If application money and minimum subscription is not received within 30 days of issue
of prospectus (or longer period prescribed by SEBI), all moneys received must be
refunded.
iv. After allotment, Return of Allotment must be filed with RoC
v. Default in refunding money or filing Return of Allotment:
Company/officer in default: Rs 1000/day (Max 1 Lakh)
If the stated minimum amount has not been subscribed and the sum payable on application
is not received within the period specified therein,
then the application money shall be repaid within a period of fifteen days from the
closure of the issue and
if any such money is not so repaid within such period, the directors of the company
who are officers in default shall jointly and severally be liable to repay that money
with interest at the rate of 15% p.a.
(1) Whenever a company having a share capital makes any allotment of its securities, the
company shall, within thirty days thereafter, file with the Registrar a return of allotment
in Form PAS-3, along with the prescribed fee.
(2) There shall be attached to the Form PAS-3 a list of allottees stating their names, address,
occupation, if any, and number of securities allotted to each of the allottees and the list
shall be certified by the signatory of the Form PAS-3 as being complete and correct as per
the records of the company.
(3) In the case of securities (not being bonus shares) allotted as fully or partly paid up for
consideration other than cash, there shall be attached to the Form PAS-3 a copy of the
contract, duly stamped, pursuant to which the securities have been allotted together with
any contract of sale if relating to a property or an asset, or a contract for services or other
consideration.
(4) Where a contract referred to in sub-rule (3) is not reduced to writing, the company shall
furnish along with the Form PAS-3 complete particulars of the contract stamped with the
same stamp duty as would have been payable if the contract had been reduced to writing
and those particulars shall be deemed to be an instrument within the meaning of the Indian
Stamp Act, 1899 (2 of 1899), and the Registrar may, as a condition of filing the particulars,
require that the stamp duty payable thereon be adjudicated under section 31 of the Indian
Stamp Act, 1899.
(5) A report of a registered valuer in respect of valuation of the consideration shall also be
attached along with the contract as mentioned in sub-rule (3) and sub-rule (4).
(6) In the case of issue of bonus shares, a copy of the resolution passed in the general
meeting authorizing the issue of such shares shall be attached to the Form PAS-3.
(7) In case the shares have been issued in pursuance of clause (c) of sub-section (1) of section
62 by a company other than a listed company whose equity shares or convertible preference
shares are listed on any recognised stock exchange, there shall be attached to Form PAS-3,
the valuation report of the registered valuer.
- Any person
- Knowingly/recklessly
- Promises/conceals deliberately/ misleads
- Another person to enter into
i. Acquiring or underwriting securities
ii. Enter into any agreement based on security price
fluctuation to gain profit
iii. Get credit from bank or financial institute
Liable
u/s 447
Company must state the provisions and penalties specified u/s 38 in the prospectus
Amount received through disgorgement of gain shall be credit to IEPF Account
[Investor Education & Protection Fund]
Disgorgement of gain means recovering gains made unfairly by seizure/disposal of
such securities.
Meaning: These are instrument issued to the foreign investors to raise more capital. The
share capital of the company is packed into depository receipts with suitable denomination
and value to fit the needs of the foreign investor and market.
Relevant Rules: Companies (Issue of Global Depository Receipts) Rules, 2014
Conditions:
Company is eligible as per FEMA Rules
BoD Resolution in board meeting
Special Resolution in general Meeting
RBI regulations must be complied
Section 43-72
Share Capital
Preference Shares:
Equity Shares: Allowed to vote only if:
-get right to vote in GM. -Resolution directly affects them
-In Poll- the vote is -Winding up resolution
proportion to the paid
up share capital value. -Repayment/reduction of Preference
share capital
In above cases, voting in proportion to
paid up capital.
If both vote in GM, then - If dividend remains unpaid for 2 or
the same proportion more years then they CAN VOTE on all
vote as to paid up resolutions.
capital allowed.
Conditions:
1) AOA must authorise variation (else, alter AoA u/s 14). It is not necessary to alter AoA
if contract for the issue of shared authorise for variation of rights.
2) Special Resolution in Class Meeting of such shareholders whose rights are being
affected.
3) Even after SR is passed, dissenting shareholders can apply to NCLT within 21 days of
SR. Minimum shares required to be held by applicants : 10% of such amount of shares
4) NCLT’s order must be followed by the company & filed with RoC within 30 days.
5) Default:
o Company: 25k to 5L
o Officer in default:
Imprisonment up to 6 months or
Fine 25k – 5L or
Both
(Note: Section is applicable on all types of shares: Preference & Equity)
If the shares of the company are partly paid up, then the company may call for the
remaining amount due on such shares at any time. This is known as “calls” on shares.
Section 49 Company must make calls uniformly to all shareholders in one class of shares.
(It cannot call for different amount of calls from different shareholders in the same class
of shares)
For the purposes of this section, shares of the same nominal value on which different
amounts have been paid-up shall not be deemed to fall under the same class.
Section 50 Shareholder can make advance payment for money due on calls/ subscription
only if it is so authorised by AoA. However, no additional rights are allowed to such
shareholder.
Section 51 Dividend must be paid based on number of shares. However, it may be paid
proportional to paid up value if AoA authorise.
The purpose for giving discount or premium on shares is to fairly price the shares based
on its demand & supply.
Section 52 - Security premium
Whenever shares are issued at a premium, such access amount must be transferred
to ‘Security Premium A/c’
This section N/A on Debentures & bonds.
Such ‘Security Premium A/c’ must be used only for the following purposes
i. Issuing bonus shares
ii. Buy back of shares
iii. Writing off preliminary expenses
iv. Writing off discount on issue of shares/ debentures
v. Providing for premium on redemption of preference shares/debentures
vi. Writing off commission paid on issue of shares/debentures
Section 53 - Issuing shares at discount
Validity of Special Resolution [Rule 8(3)]: 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.
Limit on issue of Sweat Equity Shares [Rule 8(4)]: The company shall not issue sweat
equity shares for more than fifteen percent of the existing paid up equity share capital
in a year or shares of the issue value of rupees five crores, whichever is higher:
Provided that the issuance of sweat equity shares in the Company shall not exceed twenty
five percent, of the paid up equity capital of the Company at any time.
Provided further that a startup company, may issue sweat equity shares not exceeding
fifty percent of its paid up capital upto ten years from the date of its incorporation or
registration.
Lock-in Period [Rule 8 (5)]: The sweat equity shares issued to directors or employees
shall be locked in/non transferable for a period of three years from the date of allotment
and the fact that the share certificates are under lock-in and the period of expiry of lock
in shall be stamped in bold or mentioned in any other prominent manner on the share
certificate.
Valuation of Sweat Equity Shares [Rule 8 (6)]: The sweat equity shares to be issued shall
be valued at a price determined by a registered valuer as the fair price giving justification
for such valuation.
Valuation of IPR [Rule 8 (7)]: The valuation of intellectual property rights or of know
how or value additions for which sweat equity shares are to be issued, shall be carried
out by a registered valuer, who shall provide a proper report addressed to the Board of
directors with justification for such valuation.
Treatment of non-cash consideration [Rule 8 (9)]: Where sweat equity shares are issued
for a non-cash consideration on the basis of a valuation report in respect thereof
obtained from the registered valuer, such non-cash consideration shall be treated in the
following manner in the books of account of the company-
(a) where the non-cash consideration takes the form of a depreciable or amortizable
asset, it shall be carried to the balance sheet of the company in accordance with the
accounting standards; or
(b) where clause (a) is not applicable, it shall be expensed as provided in the
accounting standards.
Maintenance of Register [Rule 8(14)]: The company shall maintain a Register of Sweat
Equity Shares in Form No. SH.3 and shall forthwith enter therein the particulars of Sweat
Equity Shares issued under section 54. It shall be maintained at the registered office of
the company or such other place as the Board may decide.
redeemable
cumulative convertible
Participatory
Transfer Vs Transmission
Sec 56 applies to both transfer and transmission of securities. Differences between
the two terms are:
Forged Transfer
It means use of fake identity to obtain shares/warrants/other rights from the company.
Punishment:
Imprisonment 1 year -3 year
AND
Fine 1L – 5L
Tribunal shall:
- Hear both parties
- Mass suitable order Directing company to
o Register transfer/transmission of securities within 10 days of order
o Pay damages to affected parties
o Rectify register of security holders
Contravention of order of the Tribunal:
- Where the members name is not entered, incorrectly entered or there is delay in
entering in the register of members then,
- Company/member/Legal representative of deceased member may apply to
NCLT/competent court outside India.
- Tribunal shall hear both parties & pass following orders:
o Register the name/rectify the register within 10 days of order
o Company may be ordered to pay damages to aggrieved parties
o If transfer is in contravention of SEBI/SCRA/other laws, tribunal may order to
rectify such contraventions
- Member may transfer such shares anytime. However, the tribunal may hold its voting
rights till the order is passed
- Default:-
Company- 1L-5L
Officer in default-
Imprisonment up to 1 year (or)
Fine 1L-5L (or)
Both
AoA must authorise before any alteration. RoC must be intimated within 30 days of
alteration.
Unlisted company issuing shares under ESOP Scheme must follow Rule 12 of the Companies
(Shares and Debentures) Rules, 2014. Some of the important provisions are as under:
Rule 12 (1): Issue of Employees’ Stock Option Scheme has been approved by the shareholders
of the company by passing a special resolution.
The term ‘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 clause (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 anybody corporate,
directly or indirectly, holds more than ten per cent of the outstanding equity shares
of the company:
Rule 12 (2): Company shall make the specified disclosures in the explanatory statement
annexed to the notice for passing of the resolution.
Rule 12 (3): Companies granting option to its employees pursuant to Employees Stock Option
Scheme will have the freedom to determine the exercise price in conformity with the
applicable accounting policies, if any.
Rule 12 (6):
(a) There shall be a minimum period of one year between the grant of options and vesting
of option:
Provided that in a case where options are granted by a company under its ESOP
Scheme in lieu of options held by the same person under an ESOP Scheme in another
company, which has merged or amalgamated with the first mentioned company, the
period during which the options granted by the merging or amalgamating company
were held by him shall be adjusted against the minimum vesting period required under
this clause;
(b) The company shall have the freedom to specify the lock-in period for the shares issued
pursuant to exercise of option.
(c) The Employees shall not have right to receive any dividend or to vote or in any manner
enjoy the benefits of a shareholder in respect of option granted to them, till shares
are issued on exercise of option.
Rule 12 (8):
(a) The option granted to employees shall not be transferable to any other person.
(b) The option granted to the employees shall not be pledged, hypothecated, mortgaged
or otherwise encumbered or alienated in any other manner.
(c) Subject to clause (d), no person other than the employees to whom the option is
granted shall be entitled to exercise the option.
(d) In the event of the death of employee while in employment, all the options granted
to him till such date shall vest in the legal heirs or nominees of the deceased
employee.
(e) In case the employee suffers a permanent incapacity while in employment, all the
options granted to him as on the date of permanent incapacitation, shall vest in him
on that day.
(f) In the event of resignation or termination of employment, all options not vested in
the employee as on that day shall expire. However, the employee can exercise the
Meaning: It means issue of shares for FREE to the existing shareholders in proportion
to their share capital.
Source: Company may issue Bonus shares out of its
- Free Reserve
- Secured Premium A/c
- Capital Redemption Reserve A/c
Prohibition: Revaluation reserve cannot be used
Other conditions:
- AoA must authorise the issue
- BoD approval in board meeting
- Ordinary resolution in General Meeting
- Company has not defaulted in payment of
o Interest & principal of fixed deposits/debt securities
o Statutory dues of employees
- Partly paid shares have been made fully paid
- Bonus shares cannot be issued in lieu of dividend
- Other prescribed conditions
Section 64 - Notice to RoC about Alteration of Share Capital
If an unlimited company having share capital converts itself into a limited company then it
shall maintain reserve capital in any of the following ways:
Increase nominal value of the shares that can be Hold some part of uncalled capital in reserve to
called up only at the time of winding up. be called only at the time of winding up.
Conditions:
Applicability of this section: Company limited by shares or company limited by
guarantee but having share capital
AoA must authorise
Special resolution in General Meeting
NCLT permission required
Company should not have any due & payable Interest & principle on deposits
Tribunal notifies CG, Creditors & SEBI who may send recommendations/objections in
this regards. Within 3 months, tribunal passes order as deem fit.
Company must file with RoC within 30 days of Order: A copy of order & Copy of SR.
NCLT Order must be published in newspaper
If Officer conceals/ misrepresents names of creditors to NCLT then : Section 44 shall
be attracted
Section 67 - Restriction on purchase by the company or giving loans by it for
purchase of its shares
Conditions:
Sources of Buy back:
- Free profits/reserves
- Security premium Account
- Proceeds of fresh issue (not the same class of shares)
AoA must authorise
Special resolution must be passed in general meeting
Exception: If buy Back is up to 10% of paid up share capital and free reserves & BoD
resolution is passed to approve it
Maximum Buy Back in a financial year: 25% of aggregate Paid up share capital & Free
Reserve
Maximum Buy Back of Equity shares in a financial year: 25% of total equity Paid up
share capital
Post Buy Back
Where the company has bought back its own shares out of free reserve or securities
premium account, then Nominal value of such shares bought back must be transferred
to CRR A/c.
Not Applicable: if proceeds of fresh issues are used for BB
CRR is used only to issue Bonus shares
Section 71 – Debentures
convertible Non
convertible
secured
redeemable
Mandatory or partially
optionally convertible or
Unsecured convertible fully convertible
irredeemable
Rule 18 (1): The company shall not issue secured debentures, unless it complies with the
following conditions, namely:-
(a) An issue of secured debentures may be made, provided the date of its redemption shall
not exceed ten years from the date of issue.
Provided that the following classes of companies may issue secured debentures for a
period exceeding ten years but not exceeding thirty years,
(i) Companies engaged in setting up of infrastructure projects;
(ii) Infrastructure Finance Companies
(iii) Infrastructure Debt Fund Non-Banking Financial Companies
(iv) Companies permitted by a Ministry or Department of the Central Government oi by
Reserve Bank of India or by the National Housing Bank or by any other statutory
authority to issue debentures for a period exceeding ten years.
Section 73-76A
includes any receipt of money by way but does not include such categories
of deposit or loan or in any other of amount as may be prescribed in
form, by a company consultation with the RBI
Deposits can
be Amounts not considered deposits as per Companies
(Acceptance of Deposits) Rules, 2014:
Section 73 Section 76
member of the company who any person who has made a deposit
has made a deposit with the with a public company u/s 76 of the
company u/s 73 Act ‘Eligible Company’
Any company may raise deposit from its members provided following conditions along
with prescribed rules are satisfied.
No company shall invite, accept or renew deposits under this Act from the public except
in a manner provided under this Chapter
Exceptions:
-Banking Co.
-NBFC (non- banking financial company)
-Registered Housing Finance Co.
-Other companies prescribed by government
Conditions:
1. Resolution at GM
2. RBI/CG regulations shall be followed
3. Circular must be sent to members stating-
financial position of company,
credit rating,
Number of depositors
Amount due to be paid to earlier depositors
Other prescribed details
4. Circular must be filed with RoC within 30 days before the date of issue of circular
5. ‘Deposit Repayment Reserve A/c’ must be opened in a separate scheduled bank and
20% of deposits maturing in a FY and next FY shall be deposited in it. It shall not be
used by the company for any purpose other than repayment of deposits.
6. Security shall be provided on deposits raise. Otherwise such deposits shall be mentioned
as ‘unsecured deposits’ in the circular.
7. Company must certify that the company has not committed any default in the
repayment of deposits accepted either before or after the commencement of this Act
or payment of interest on such deposits and where a default had occurred, the company
made good the default and a period of five years had lapsed since the date of making
good the default.
Above points N/A- Private Company if deposits raised are up to the [paid up capital +
free reserve] of the company
8. Relevant rules must be complied with Companies (Acceptance of deposit) Rules,
2014
Only “eligible public companies” are allowed to accept deposits from public along
with members (refer definition is chart on earlier pages)
Conditions :
o Compliance of conditions u/s 73
o Compliance of prescribed rule Companies (Acceptance of deposit) Rules, 2014
o Obtain credit rating from recognised credit rating agency at the time of invitation of
deposits from the public which ensures adequate safety and the rating shall be obtained
for every year during the tenure of deposits
o Within 30 days of acceptance of deposit charge must be created on assets of the
company (value of security shall not be less than the amount of deposit accepted)
o Other conditions same as on any other deposit (remaining chapter applies mutatis
mutandis)
1. Period
A company cannot accept the following deposit
Demand deposit
Deposits payable within 6 months or after 36 months from the date of acceptance.
Exception- Provided that a company may, for the purpose of meeting any of its
short-term requirements of funds, accept or renew such deposits for repayment
earlier than six months from the date of deposit or renewal, as the case may be,
subject to the condition that-
(a) such deposits shall not exceed ten per cent. of the aggregate of the Paid-up
share capital, free Reserves and securities premium account of the company,
and
(b) such deposits are repayable not earlier than three months from the date of such
deposits or renewal thereof
Sources From Directors & From Directors & From Directors & Members
Members Members & Public
Note:
5. Other points
Where depositors so desire, deposits may be accepted in joint names not
exceeding three, with or without any of the clauses, namely, "Jointly", "Either
or Survivor", "First named or Survivor", "Anyone or Survivor"
Credit rating
(a) Every eligible company shall obtain, at least once in a year, credit rating for
deposits accepted by it and a copy of the rating shall be sent to the Registrar
of Companies along with the return of deposits in Form DPT-3.
(b) The credit rating referred to in clause (a) shall not be below the minimum
investment grade rating or other specified credit rating for fixed deposits,
from any one of the approved credit rating agencies as specified for Non-
Security [Rule 6]
After acceptance of deposit, every company within 30 days from such acceptance must
provide a security either by way of Charge or by way of Mortgage. The amount of
security must not be less than the amount of Unsecured Deposits.
Trustee [Rule 7]
Companies accepting deposits must appoint one or more trustees at least 7 days
before issuing of circular.
If there is Default in paying deposit amount u/s 74 in allowed time & intent to fraud is
proved then
Penalty mentioned u/s 74 applicable +
Penalty u/s 447 +
Officer in default shall be personally liable to compensate for the losses or damages
caused to affected parties +
Aggrieved parties may file a case with tribunal
(Section 77 to 87)
Introduction:
Meaning: In order for the company to take loan from any financial institute/bank, it may be
required to keep any of its asset as security. Fetching a loan on basis of the property is
termed as “creating a charge on asset”. This gives protection to the financial institute/bank.
If the loan is not paid in due time, they have the right to sell the asset and recover the
amount due.
Types of Charges
Meaning Fixed charge refers to a charge thatFloating charge refers to a charge that
can be ascertained with a specific is created on the assets of circulatory
asset, while creating it. nature.
Registration Compulsory
of Compulsory
charge
Dealing in asset The company has no right to deal The company can use or deal with asset,
with the property, but subject to until crystallization.
certain exceptions.
Registration of Charge:
Meaning: Getting the details of charge recorded with the RoC for public record.
Need:
-At the time of winding up of the company, the creditor is treated as secured only
if the charge is registered. Otherwise, they are clubbed with unsecured creditors.
- It creates public record of loans taken on any asset of the company
- Binds parties to contract
- States rights and obligation of parties.
Note: At the time of repayment of loan, the date of creation of charge is relevant to
determine which creditor has first charge. The date of registration of charge is not to be
considered unless it’s winding up.
Chargeholder RoC
Company
Registration Procedure
Charge created
Register Charge within 30 days of creation with instument of charge, charge particulars signed by both
company and chargeholder & prescribed fees paid by company.
NO
Yes
Charge created before 2/11/2018: RoC may allow Charge created after 2/11/2018: RoC may
extended period of 300 days from creation of allow extended period of 60 days from creation
charge, on payment of additional fees. of charge, on payment of additional fees.
No NO Yes
Yes
Asset
Outside
Tangible Intangible In India
India
Its companies’ responsibility to register, hence all cost & fees are to be borne by
company.
Note:
Meaning: Variation in the terms of the charge creation agreement. Eg: Change of interest
rate or repayment schedule, inclusion of second or third charge on the asset, partial release
of charge, etc.
Modification required mandatory registration by the company as per section 77 provision
(mutatis mutandis). “Certificate of registration for Modification of charge” is issued by RoC.
Sec:80 - Person Acquiring Charged Property
Person acquiring charged property where such charge is registered with the RoC, shall be
deemed to have knowledge of the charge from the date of registration of charge.
If the company fails to register charge within 30 days of creation, the chargeholder can apply to RoC with instrument of charge
in prescribed form & fees.
Roc Shall intimate company and give a 14 day period to either register the charge by themselves or object against registration by
chargeholder.
Within 14 days
Objects registration
NO reply
Company may
Register charge by
themself
RoC shall register the charge. Chargeholder shall be
entitled to recover any fees payable for registration
from the company.
Register of Charges
RoC maintains register of charges for every company containing details of charges on
each asset, date of creation, amount, charge holder’s details etc.
Register is open for inspection by anyone on payment of fees.
M.C.A.’s online site contains register of charges (Deemed RoC’s register)
Satisfaction of Charge
Meaning: Where is the secured debt due is paid off/settled and thus the asset no longer is
subject to charge.
Procedure: Sec: 83 - Power of RoC to enter in the Register about Satisfaction of
Charges
If the company has not informed the satisfaction of charge to the RoC & RoC receives
evidence of satisfaction of charge from other source.
RoC will enter in the Register of Charges himself as a memorandum and within 30 days,
intimate affected parties.
Other Provisions
If there is
Omission or delay to intimate payment/satisfaction of charge
Omission or misstatement in filing particulars of registration/
modification/satisfaction of charge
Due to
Accidental/ Inadvertent mistake
Not to prejudice the position of creditors/shareholders
Sufficient cause
Then the company/other interested person may apply to CG for rectification of error or
extension of time for intimation of satisfaction. CG may allow if it deems fit. This shall not
affect the rights of the parties.
Section 96-122
Provided: Such notice is placed on the website AND advance opportunity is given to
members to update their email ids every FY.
These business are compulsorily dealt with in the AGM. Any business other than
They include: ordinary business is called
1. Considering FS 'Special Business'.
2. Declaration of dividend (NOTE: It may require OR/
3. Appointment and retirement of Directors SR depending on the
provisions of Co. Act 2013)
4. Appointment & fixing remuneration of Auditors
Where any special business is to be transacted at the company’s general meeting, then an
‘Explanatory Statement’ should be annexed to the notice calling such general meeting, which
must specify
nature of concern/interest of every director/manager/KMP and their relatives.
relevant & material information and facts related to such business
where any item of special business to be transacted at a meeting of the company
relates to or affects any other company, the extent of shareholding interest in that
other company of every promoter, director, manager, if any, and of every other key
managerial personnel of the first mentioned company shall, if the extent of such
shareholding is not less than 2% of the paid-up share capital of that company, also be
set out in the statement
Where any item of business refers to any document, which is to be considered at the
meeting, the time and place where such document can be inspected shall be specified
Contravention of sec 102: Every promoter, director, manager, or other key managerial
personnel or other officer in default:
Fine 50,000 or
Whichever is Lower
5 times of benefits accruing to them
Company Quorum
Private company Minimum 2 members
Public Company having
Upto 1000 member 5 members personally present
1001-5000 members 15 members personally present
More than 5000 members 30 members personally present
Election of Chairman:
o AoA may specify, otherwise
o members, personally present, shall elect the Chairman among themselves by
show of hands
If a poll is demanded on the election of the Chairman, it shall be taken forthwith
in accordance with the provisions of this Act and the Chairman elected on a show
of hands under sub-section (1) shall continue to be the Chairman of the meeting
until some other person is elected as Chairman as a result of the poll, and such
other person shall be the Chairman for the rest of the meeting.
Powers and functions of chairman:
o Manages GM
o Must be impartial and fair
o Maintains decorum of the GM
o Has the power of Casting vote in board meeting and GM if so allowed in AoA.If
not mentioned in AoA, then ordinary resolution on which there is equality of
votes is deemed to be dropped.
{Meaning: in event of the equality of vote on a particular business being
transacted at the meeting, the Chairman shall have a right to cast a second
vote.}
o Can demand a poll under Section 109
Meaning: Any member of a company who is entitled to attend and vote at a meeting
of the company shall be entitled to appoint another person as a proxy to attend and
vote at the meeting on his behalf in case he is unable to attend.
Role of Proxy
o Cannot participate in discussion in GM
o Cannot vote other than vote by poll
o Is not counted for quorum
o can demand a poll
o can act as proxy for more than one member provided it is not more than
50 members or
Whichever less
Section 106 Section 107 Section 108 Section 109 Section 110
Restriction on
Voting Show of hands Electronic Mode Poll Postal Ballot
Unless the voting is demanded by way of poll (u/s 109) or by electronic means (u/s
108), the voting should be by way of show of hands in the first instance.
Declaration by Chairman in the minutes books conclusive evidence that the
resolution is passed.
Procedure/Steps:
i. Notice of GM:
Must contain the usual details and sent as per section 101
Must be placed on Co. website and 2 newspapers (vernacular and English)
Additional disclosure:
Chairman along with the scrutinizer shall count all those members who are present
at the general meeting but have not cast their votes by availing the remote e-
voting facility. Such members shall be allowed to vote at GM
The scrutinizer shall Count all the votes in the presence of at least 2 witnesses.
Witness shall not be employee of company.
He must prepare report within 3 days.
Results shall be posted on the Co. Website. And sent to relevant stock exchanges
scrutiniser shall maintain a register either manually or electronically to record the
assent or dissent received with details of member
register and all other papers shall remain in the safe custody of the scrutiniser
until minutes are prepared
Date of resolution shall be date of General Meeting
Meaning: A polling paper is circulated among the members present in the GM wherein
they cast their votes. The voting is based on the % of share capital having voting rights
held by the member
Who can demand a poll?
o Chairman or
Meaning: A post is sent to every member of the company along with the notice wherein
the shareholder has the option to cast its vote and send the same back to the company
within prescribed time. If the vote is casted through post, such member shall not be
allowed to vote in GM.
Section 2(65) of the Act defines: "Postal ballot" means voting by post or through any
electronic mode
Mandatory Postal Ballot instead of conducting business at GM:
(a) alteration of the objects clause of the memorandum and in the case of the
company in existence immediately before the commencement of the Act,
alteration of the main objects of the memorandum;
(b) alteration of articles of association in relation to insertion or removal of
provisions which, under sub-section (68) of section 2, are required to be
included in the articles of a company in order to constitute it a private
company;
(c) change in place of registered office outside the local limits of any city, town or
village as specified in sub-section (5) of section 12;
(d) change in objects for which a company has raised money from public through
prospectus and still has any unutilized amount out of the money so raised under
sub-section (8) of section 13;
(e) issue of shares with differential rights as to voting or dividend or otherwise
under sub-clause (ii) of clause (a) of section 43;
(f) variation in the rights attached to a class of shares or debentures or
other securities as specified under section 48;
(g) buy-back of shares by a company under sub-section (1) of section 68;
(h) election of a director under section 151 of the Act;
(i) sale of the whole or substantially the whole of an undertaking of a company
as specified under sub-clause (a) of sub-section (1) of section 180;
(j) giving loans or extending guarantee or providing security in excess of the limit
specified under sub-section (3) of section 186 :
Postal Ballot cannot be used for:
o Ordinary Business and
o Any business in respect of which directors or auditors have a right to be heard at the
meeting.
Postal ballot may be used by companies at their option except above mentioned
resolutions.
Companies that have to mandatorily provide the option of voting by E-Mode, may conduct
the above business in GM instead of postal ballot
o Appointed by BoD
o Can be 1 or more
o Suitably qualified
o Should NOT BE EMPLOYEE OF Co.
o His function is to count the votes in a fair manner and prepare its report
o Vote counting after the meeting in presence of 2 witness (not employees)
o Report shall be prepared and submitted to the BoD within 7 days of close
of voting
o Shall hold relevant document/records till minutes are prepared
o maintains register of accent/dissent
Result of voting declared on Co. Website
Any Body Corporates who are members/creditor of a company may appoint their
representative at any meeting by resolution of its directors or other governing body. Such
Representative shall have all rights and powers of member. Such representative shall be
appointed by resolution of the board of directors or of the governing body of such
corporation.
Section 111 - Circulation Of Member’s Resolutions
Members may request any resolution to be considered in an Annual general meeting. The
company shall be bound to give notice to members of details of such resolution and consider
the same at the GM.
Conditions:
Minimum eligibility criteria for requisitions:
o For Company not having share capital: Members holding 1/10thor more of the total
voting power in the company may submit the request
o For Company having share capital: Members holding 1/10thor more of the paid up
equity share capital of the company may submit the request
written request with signatures of members shall be submitted at Registered office
a sum reasonably sufficient to meet the company’s expenses must be submitted
Time of submission:
(i) in the case of a requisition requiring notice of a resolution, not less than six weeks
before the meeting;
(ii) in the case of any other requisition, not less than two weeks before the meeting;
Exception (No need for the company to circulate such notice):
Motion Resolution
Oral opinion or recommendation/proposalsActual
of votes in favour and against are cast
resolution to be passed. to adopt a motion.
No need of quorum Quorum is mandatory
No types Types : OR/SR
Eg: fixing a date of adjournment of GM Eg: Appointing Auditor/Director: OR
required
Including casting vote of chairman and Notice must specify that SR is required for the
proxies' votes particular business.
Note: For Section 114, votes may be cast by way of show of hands, poll. E mode, or postal
ballot. Votes of proxy (in case of poll) and members present in person shall both be
considered.
Meaning: In order to consider certain types of resolutions as mentioned under this section
or AoAspecial notice may be required to be given by the company to all shareholders in
prescribed manner.
u/s 115 Special notice is required to pass following resolutions:
To appoint as auditor a person other than a retiring auditor – Section 140;
Providing expressly that a retiring auditor shall not be re-appointed – Section 140;
To remove a director under section 169(2) or
To appoint a person to fill the vacancy caused by the dismissal of a director under
section 169 at the same meeting.
Other resolutions company may specify in its AoA
Application to consider such resolution shall be made to the company
Signed by a minimum:
o members holding not less than 1% of the total voting power or
o holding shares on which such aggregate sum not exceeding ` 5,00,000, has been
paid-up
When:
o At least 14 days prior to the GM
o Maximum 3 months prior to the GM
o Excluding date of GM and notice given
On receipt of Application
o the company shall give its members, notice of the resolution at least 7 days
before the meeting (exclusive of the day of dispatch of notice and day of the
meeting)
o Where it is not practicable to give the notice in the same manner Notice in 2
Newspapers (vernacular + English)+ Company Website {7 days prior to GM}
Every Resolutions and agreements shall be filed with the RoC, together with the
explanatory statement, within 30 days of its passing Form MGT- 14
Special resolution
Unanimous resolutions
Board Resolution for appointment/ reappointment of MD
Resolution of class of shareholders
Resolution u/s 180
Winding up resolution
Resolution u/s 179
Other prescribed resolution/agreements
If for any reason, it is impracticable to call an EGM NCLT may call so on application of
any director/member of the company/Suo Moto
Company/Officer in default:
Fine up to 1L
Continuous default 5K/day
Without prejudice to any other provisions of this Act, any document, record, register,
minutes, etc.,—
(a) required to be kept by a company; or
(b) allowed to be inspected or copies to be given to any person by a company under
this Act, may be kept or inspected or copies given, as the case may be, in
electronic form in such form and manner as may be prescribed.
Section refers to Rules w.r.t maintaining and inspecting document, record, register or
minute in electronic form
{Rule 27} Mandatory for following companies to maintain document in E-format
o Listed Co. or
o Co. having 1000 or more security holders (debenture-holders/
shareholders/etc.)
{Rule 28} Persons responsible for maintaining:
o MD
o CS
o Other director/officer authorised by BoD
{Rule 29} Company shall have the same responsibilities to make those records
available for inspection or to provide copies of the whole/ part of those records.
Details of registration
Particulars of the company’s registered office
Principal business activities pursued by the company
Particulars of Holding, Subsidiary and Associate Companies
Particulars of the shares, debentures and other securities of the company
Particulars of turnover and net worth of the company
Details of shareholding pattern.
Indebtedness
Details of members, debenture holders and other securities holder
Details of shares/Debenture transfers of the particular financial year
Particulars of promoters
Particulars of directors
Particulars Key Managerial Personnel
Details of meetings of members/class of members/Board/Committees of the
Board of Directors
Remuneration of directors
Remuneration of Key Managerial Personnel
Details on penalties/punishment/compounding of offences on company,
directors and other officers in default
Details of matters pertaining to certification of compliances and disclosure
Details in respect of shares held by or on behalf of the Foreign Institutional
Investor (FII)
Details of other pertinent disclosures
Registered office
Other place In India
Provided:
SR passed at GM +
1/10th or more of members
reside in that place in India
Inspection:
o Allowed to interested parties (debenture-holders, deposit holders,
shareholders etc.)
o During business hours
o On payment of fees
All the registers. returns and its copies shall be allowed as prime facie evidence in the court
of law.
Section 88 – Registers
Register of Members
Form No. MGT-1
Contains following details
o Members details: name, address, nationality, PAN, DOB, nominee details,
email, joint holder name, if it is a minor then details of guardian
o Shareholding details: Amount, share type (Equity/preference), details of
hypothecation/pledge, court order related
o Date of purchase
o Date of cessation
o Guarantee amount (if company limited by guarantee)
o Notice relating to instruction given by shareholder
o Any changed in above
Preservation: Permanently
Register maintained by the Depository is “deemed register” and in compliance with section
88.
Foreign Registers
o Meaning: Separate Register maintained outside India to record the transactions of
foreign security holders.
o It’s is deemed part of the principal register.
o Company may maintain such register provided following conditions followed:
Opening foreign register
AoA must authorise (else alter AoA)
Open Foreign register and send a copy to registered office in home country
Within 30 days of receipt of register in home country, RoC must be informed
in form No. MGT 3-
o address where foreign register is maintained
o change in address
o discontinuance details
Discontinuing foreign register
Form MGT – 3 must be filed with Roc
Declaration to Company:
o Any individual (alone/with other person or trustIn/outside India)
o having beneficial interest in shares of company of not less than 25% or such
percentage as may be prescribed /significant influence or control over the
company
o must file declaration
Form BEN-1 to company
within 30 days of acquiring interest
Content of declaration: nature of interest, amount, date of creation etc.
CG may exempt certain class of person
Duty of Companies
Register of declarations of beneficial interest
o shall be maintained by Co.
o Contents : name, address, DoB,, details of ownership, other prescribed details
o Inspection: allowed to members on payment of prescribed fees
Return with RoC:
o Return of significant beneficial owners shall be filed by Co. to RoC
o Form BEN-2 + fees
o within 30 days from receipt of declaration
Every company shall take necessary steps to identify an individual who is a
significant beneficial owner in relation to the company and require him to
comply with the provisions of this section.
Such person shall send his details to the company within 30 days of date of notice
If such information is not received in allowed time/received but is not satisfactory then,
company may apply to tribunal within 15 days of above time.
Within 60 days of application, Tribunal shall give opportunity of being heard to parities
concerned & pass order restricting rights attached with shares
Person aggrieved by order can apply to tribunal within 1 year requesting to relax the
restrictions. Otherwise, after 1 year shares are transferred to IEPF (U/s 125){Investor Education
and Protection Fund)
Penalty:
o Company fails to maintain register/file information with RoC/allow
inspection/take necessary steps to identify significant beneficial owners
shall be liable to
Fine 10L- 50L
If failure continues, Rs. 1000/day after first penalty
o Person required to make declaration fails to do so:
Imprisonment upto 1 yr or
Fine 1Lakh to 10 Lakh or
Both
If failure continues, Rs. 1000/day after first penalty
Section 123-127
Dividend:
Section 2(35) of the Companies Act, 2013, simply states that “dividend” includes any
interim dividend.
A dividend is a payment made by a company to its shareholders, usually as a
distribution of profits
Types of Dividend:
c) Amount so drawn shall first be utilised to set off the losses incurred in the financial
year in which dividend is declared
d) Balance of reserves after such withdrawal not less than 15% of its paid up share
capital in latest audited financial statement.
IX. Section 8 Company cannot pay/declare dividend to its members. Their profits are
intended to be applied only in promoting the objects of the company.
Established by CG
Credit of amount to the Fund
Where any instrument of transfer of shares has been delivered to any company for registration
and the transfer of such shares has not been registered by the company then
Such transferor may authorise in writing to the In absense of such request, such Dividend shall be
company to transfer such Dividend declared to transfered to to the Unpaid Dividend Account u/s
transferee 124. ,
• Bonus shares & right shares w.r.t such unregistered transfer of shares shall be
kept in abeyance (on hold till the transfer is registered).
Dividend declared but not been paid within 30 days from declaration:
o Directors knowingly part of the default imprisonment upto 2 years + fine
1000/day
o Company 18% p.a. interest till the delay continues shall be paid to the
members
Exceptions to above (No penalty applicable): where the dividend could not be paid to
shareholder due to
a. operation of any law;
b. 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;
c. dispute regarding the right to receive the dividend;
d. dividend has been lawfully adjusted by the company against any sum due to it
from the shareholder;
e. any other reason where the failure to pay the dividend was not due to any
default on the part of the company.
Section 128-138
Company must keep its ‘Books of A/c’ and papers for every Financial Year
True & fair view
Double entry
Accrual basis
Definition of ‘Books of Accounts’ u/s 2(13) can be summarised as under:
Books of Accounts
‘Books & Papers’ u/s 2(12) says “Book or Paper” include accounts, deeds, vouchers,
writings, and documents.
Place of Keeping the BoA: Registered office of the Company.
However, the BoD may decide another place in India to keep them. Notice of such
place must be given to RoC within 7 days.
Maintaining BoA in Electronic Form [Rule 3 of Companies (Accounts) Rules, 2014]:
Companies have the option to maintain its BOA & other papers in electronic form
provided following conditions are satisfied:
BoA accessible in India
Information contained is retained in the original format
Information is complete and accurate
It is displayed in legible form
It includes branch information
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 located in India on a
periodic basis.
balance statement of
sheet cash flow profit and loss any explanatory
changes
statement account note annexed
in equity
As per schedule III of the Companies Act 2013 [Not Applicable: Electricity
generating Co., Insurance Co., Banking Co. & company governed by other
law]
Should give true and fair view of the business of the company
Application to be
made by
(Securities &
(Central Income Tax Statutory Other prescribed
Exchange Board
Government) CG Authorities Regulatory Body bodies
of India) SEBI
Notice shall be served to the applicants, Central Government, the Income-tax authorities, the
Securities and Exchange Board or any other statutory regulatory body or authority concerned or
any other person concernedtheir representation shall be considered and order shall be passed.
Note: Time Limit in respect of re-opening of books of account: No order shall be made
under sub-section (1) in respect of re-opening of books of account relating to a period
earlier than eight financial years immediately preceding the current financial year.
Provided that where a direction has been issued by the Central Government under the
proviso to sub-section (5) of section 128 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
Under this section the CG has established a separate and independent regulatory body
to assist in the framing and enforcement of legislation relating to accounting &
auditing called NFRA.
Role:
Makes recommendations to CG regarding Accounting and Auditing standards
and procedures to be followed by companies
Monitors their compliance
Oversees the quality of service provided by associated professionals
Other prescribed functions
Composition:
1 Chairperson
Maximum 15 members
Divisions of NFRA:
NFRA shall perform its functions through such divisions as may be prescribed
Each division of the National Financial Reporting Authority shall be presided
over by the Chairperson or a full-time Member authorised by the Chairperson
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 discharge of its functions
Qualification of members/chairperson:
expertise in accountancy, auditing, finance or law
As per NFRA rules, NFRA shall have power to monitor and enforce compliance with
accounting standards and auditing standards, oversee the quality of service under
sub-section (2) of section 132 or undertake investigation under sub-section (4) of
such section of the auditors of the following class of companies and bodies
corporate:
a) companies whose securities are listed on any stock exchange in India or outside
India;
b) unlisted public companies having paid-up capital of not less than rupees five
hundred crores or having annual turnover of not less than rupees one thousand
crores or having, in aggregate, outstanding loans, debentures and deposits of not
The Central Government may prescribe the standards of accounting or any addendum
thereto, as recommended by the Institute of Chartered Accountants of India, constituted
under section 3 of the Chartered Accountants Act, 1949, in consultation with and after
examination of the recommendations made by the National Financial Reporting Authority.
Provided that until the National Financial Reporting Authority is constituted under section
132 of the Companies Act, 2013 (18 of 2013), the Central Government may prescribe the
standards of accounting or any addendum thereto, as recommended by the Institute of
Chartered Accountants of India, constituted under section 3 of the Chartered Accountants
Act, 1949 (38 of 1949), in consultation with and after examination of the recommendations
made by National Advisory Committee on Accounting Standards Constituted under section
210A of the Companies Act, 1956".
I. Financial Statement
It must be attached with Audit Report, Board report and other relevant
documents.
FS must be approved by the BOD and signed by
o chairperson of the co. where he is authorised by the board or any 2
directors out of which one shall be the MD and
o CEO
o CFO
o CS
For OPC having only one director: such director must sign
II. Board Report
Prepared by the BOD
Attached with the Financial Statement
Rule 8(5) ADDITIONAL DISCLOSURES in Board Report (N/A – OPC & small company)
In addition to the information and details specified in sub-rule (4), the report of the Board
shall also contain -
(i) the financial summary or highlights;
(ii) the change in the nature of business, if any;
(iii) the details of directors or key managerial personnel who were appointed or have
resigned during the year;
(iiia) a statement regarding opinion of the Board with regard to integrity, expertise and
experience (including the proficiency) of the independent directors appointed during the
year”
Explanation- For the purposes of this clause, the expression “proficiency” means the
proficiency of the independent director as ascertained from the online proficiency self-
assessment test conducted by the institute notified under Section 150 (1).
(iv) the names of companies which have become or ceased to be its Subsidiaries, joint
ventures or associate companies during the year;
(vi) the details of deposits which are not in compliance with the requirements of Chapter
V of the Act;
(viii) the details in respect of adequacy of internal financial controls with reference to
the Financial Statements.
(x) a statement that the company has complied with provisions relating to the
constitution of Internal Complaints Committee under the Sexual Harassment of
Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013
(1) Eradicating hunger, poverty and malnutrition, promoting health care including
preventive health care and sanitation including contribution to the Swach Bharat
Kosh set-up by the Central Government for the promotion of sanitation] and
making available safe drinking water.
(2) promoting education, including special education and employment enhancing
vocation skills especially among children, women, elderly and the differently
abled and livelihood enhancement projects.
(3) promoting gender equality, empowering women, setting up homes and hostels
for women and orphans; setting up old age homes, day care centres and such other
facilities for senior citizens and measures for reducing inequalities faced by
socially and economically backward groups.
(4) ensuring environmental sustainability, ecological balance, protection of flora and
fauna, animal welfare, agroforestry, conservation of natural resources and
maintaining quality of soil, air and water [including contribution to the Clean
Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.
(5) protection of national heritage, art and culture including restoration of buildings
and sites of historical importance and works of art; setting up public libraries;
promotion and development of traditional art and handicrafts;
(6) measures for the benefit of armed forces veterans, war widows and their
dependents, Central Armed Police Forces (CAPF) and Central Para Military Forces
(CPMF) veterans, and their dependents including widows
(7) training to promote rural sports, nationally recognised sports, paralympic sports
and olympic sports
(8) contribution to the prime minister's national relief fund or Prime Minister’s Citizen
Assistance and Relief in Emergency Situations Fund (PM CARES Fund)or any other
fund set up by the central govt. for socio economic development and relief and
11. slum area development. [For the purposes of this item, the term `slum area' shall
mean any area declared as such by the Central Government or any State
Government or any other competent authority under any law for the time being
in force.
must be sent to
Provided also that every listed company having a subsidiary or subsidiaries shall
- place separate audited accounts in respect of each of subsidiary on its website, if
any
- provide a copy of separate audited or unaudited financial statements, as the case
may be, as prepared in respect of each of its subsidiary, to any member of the
company who asks for it
Provided also that a listed company which has a subsidiary incorporated outside India
(herein referred to as "foreign subsidiary")—
(a) where such foreign subsidiary is statutorily required to prepare consolidated
financial statement under any law of the country of its incorporation, the
requirement of this proviso 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
under any law of the country of its incorporation and which does not get such
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.
Inspection: Documents must be kept open for inspection during business hours at the
registered office. A copy must also be published on the company website. Company
shall allow every member or trustee of the holder of any debentures issued by the
company to inspect.
Provided that every company having a subsidiary or subsidiaries shall provide a copy
of separate audited or unaudited financial statements, as the case may be, as
prepared in respect of each of its subsidiary to any member of the company who asks
for it.
Default :
o Company: 25K Rs.
o Officer in default: 5K Rs.
AGM
Copy of FS +CFS
+other documents
Company must file with RoC within 30
days from the last date on which AGM
should have been held, prescribed
documents, reasons of not holding
adopted AGM.
not adopted at
AGM/Meeting
adjourned
o Officer in default (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 liable):
Penalty of 1 lac Rs. And
In case of continuing failure, with further penalty of one hundred rupees for
each day after the first during which such failure continues, subject to a
maximum of five lakh rupees
(1) The following class of companies shall file their financial statements and other
documents under section 137 of the Act with the Registrar in e-form AOC-4 XBRL as
per Annexure-I:-
(i) companies listed with stock exchanges in India and their Indian subsidiaries;
(ii) companies having paid up capital of five crore rupees or above;
(iii) companies having turnover of one hundred crore rupees or above;
(iv) all companies which are required to prepare their financial statements in
accordance with Companies (Indian Accounting Standards) Rules, 2015
(3) The companies which have filed their financial statements under the erstwhile rules,
namely the Companies (Filing of Documents and Forms in Extensible Business
Reporting Language) Rules, 2011, shall continue to file their financial statements and
other documents as prescribed in sub-rule (1) though they do not fall under the class
of companies specified therein.
Date of
Government-Sec registration
C&AG BOD Members in EGM
139(7)
Non- Date of
BOD Members in EGM
Government- Sec registration
139(6)
Appointment of 0 Day 30 Days 90 Days
Auditor
Date of FY C&AG
Government Sec- Commencement
139(5)
st th
1 AGM 6 AGM
Provisions to Sec 139(1)
2nd Proviso Before appointment company shall obtain Written consent and a certificate from the auditor (Rule 4)
3rd Proviso Certificate shall indicate whether auditor has satisfied the criteria as provided u/s 141.
th
4 Proviso Company shall inform the auditor and ROC within 15 days of appointment in Form ADT-1
Sec139(4) - Rules
Sec 139(2) - Appointment of auditor/frim of auditors Sec 139(3) -
by Central
for a term of 5 years and 10 years respectively Members resolve
Government
C&AG BOD
BOD
Sec 139(8)-Filling
of casual vacancy
Resignation
Approved in General Meeting convened in 3
0 Days months 30 Days
Non-
Government BOD
Other reasons
0 Days 30 Days
30 days 60 days
Date of Resignation
Special Notice
requirement
Representation need not be sent or read out at meeting, if on application of company or other person ,
Tribunal passes order
Definition: As per Section 2(17), Chartered Accountant means a chartered accountant as defined in clause
(b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 who holds a valid certificate of
practice under sub-section (1) of section 6 of that Act.
If an auditor occurs any disqualification mentioned in Sec 141(3) after his appointment then he shall vacate the office and
such vacation shall be treated as “Casual vacancy”
Authority to fix
remuneration
Right to
Right to access
information
Duties of Auditor
Inquire into the Propriety matters (Sec 143(1))
• Loans and advances are properly secured and terms are prejudicial
• Book entries are prejudicial
• Shares, debentures and other securities are sold at a price less than acquisition cost in case of non banking and
non investment company
• Loans and advances made are shown as deposits.
• Personal expenses charged to revenue account
• Cash has actually been received on shares allotted for cash, if not received, correct position shown in books and
balance sheet
Rule 11
i. Disclosure of impact of pending litigations on financial position.
ii. Provisions for Material Foreseeable losses on long term contracts made
iii. Any delay in transferring amounts to IEPF
iv. Whether management has represented that, to best of its knowledge and belief, other than as disclosed
in notes to accounts,
a. no funds have been advanced/loaned/invested by company to or in any other person(s) or entity(ies),
0 Days 60 Days
Test Audit (Sec 143(7))
C&AG may, if considers necessary, by an order, cause text audit of accounts of Government Companies
Branch audit
Accountant or any
Any other person
Company's Auditor Company's Auditor other person qualified
qualified to be Auditor
to be Auditor
Fraud reporting
BOD/AC
Auditor
Reply
Signing of Audit Reports (Sec 145) - Shall be in accordance with Sec 141(2)
Maximum-
Minimum Lower of the
two
8 times the
Rs. 50,000 Rs. 25,00,000
remuneration
Auditor convicted u/s 147(2) shall be liable to refund all remuneration and damages back to company.
In case of criminal liability of an audit firm, only the partners found guilty of fraud shall be liable.
Within 30 days from receipt of a copy of the cost audit report, Co. shall furnish the same to CG along with full
information and explanation on every reservation or qualification contained therein. [e-form CRA-4]
CG may call for any further information or explanation is necessary. Company shall furnish the same within such
time as may be specified by that Government.
Default: Same as section 147 for Company and Auditor
Section 143 applicable mutatis mutandis on cost audit.
Section 124-147
Contract of Indemnity
Definition u/s 124: “a contract by which one party promises to save the other from
loss caused to him by the conduct of the promisor himself, or by the conduct of any
other person.”
Basic Conditions:
“existence of loss” is essential to the promise
Such loss is caused by:
• conduct of the promisor himself or
• conduct of any other person.
Loss occasioned by the conduct accident or an act of God is not covered.
It could be either
• Express Contract: a person expressly promises to compensate the other from
loss written/oral
• Implied Contract: it is to be inferred from the conduct of the parties or from
the circumstances of the case
• Must fulfil all the essentials of a valid contract which includes:
• Offer and acceptance
• Intention to create legal obligation
• Consideration
• Competency to contract
• Free consent
• Lawful object
• The agreement must not be expressly declared to be void- eg: an agreement
in restraint of trade/ marriage etc.
• The terms of the agreement must not be vague or uncertain
• The agreement must be capable of performance- An agreement to do an
impossible act is void.
• Legal formalities complied
Example: A asks B to beat C promising to indemnify him against the consequences.
The promise of A cannot be enforced. Suppose, B beats C and is fined ` 1000, B cannot
claim this amount from A because the object of the agreement is unlawful.
Insurance Contracts
When does the liability of an indemnifier commence? (as per court rulings. Act is
silent)
as soon as the liability of the indemnity-holder becomes:
• Absolute: 100% surety of the liability
and
• Certain: Amount is fixed/can be calculated definitely.
Example: A promises to compensate X for any loss that he may suffer by filling a suit against
Y. The court orders X to pay Y damages of Rs 10000 . As the loss has become certain, X may
claim the amount of loss from A and pass it to Y
Parties:
Example: Mr. X contracts with the Government to return to India after completing his
studies at University of Cambridge and serve the Government for a period of 5 years. If Mr.
Here Indemnifier
And Indemnified
Example: X may agree to indemnify Y for any loss or damage that may occur if a tree on
Y’s neighbouring property blows over. If the tree then blows over and damages Y’s fence,
X will be liable for the cost of fixing the fence.
Example: X, a shareholder of a company lost his share certificate. He applied for the
duplicate. The company agreed to issue the same on the term that X will compensate the
company against the loss where any holder produces the original certificate. Here, there
is contract of indemnity between X and the company.
A Contract of Guarantee:
- to perform the promise, or
- to discharge the liability
of a third person in case of his default is called a contract of guarantee. Guarantee is
a promise to pay a debt owed by a third person in case the latter does not pay. It
is a tripartite agreement between principal debtor, creditor and surety, in effect
three contracts
(i) A principal contract between the principal debtor and the creditor
(ii) A secondary contract between the creditor ad the surety.
(iii) A implied contract between the surety and the principal debtor whereby principal
debtor is under an obligation to indemnify the surety; if the surety is made to pay or
perform.
1) Surety (Guarantor): The person who gives the guarantee is called the surety.
2) Creditor: The person to whom the guarantee is given is called creditor.
3) Principal Debtor: The person in respect of who’s default the guarantee is given is called
At the time of making of contract of guarantee, the surety is at liberty to state the limit
of his liability
He is liable only to the extent of his stated limit on the default of the principal debtor.
Liability of surety is of secondary nature as he is liable only on default of principal
debtor
Where a debtor cannot be held liable on account of any defect in the document, the
liability of the surety also ceases.
In the absence of any such contract, the liability of the surety is co-extensive with that
of the principal debtor. It means that the surety is liable for what the principal debtor
is liable. However, the liability of the surety may be made less than that of the
principal debtor
Surety’s liability continues even if the principal debtor has not been sued or is omitted
from being sued. In other words, a creditor may choose to proceed against a surety
first, unless there is an agreement to the contrary.
Whatever the case may be, the liability of the surety is secondary and conditional that
Kinds of Guarantee:
1) Specific Guarantee: A guarantee given for a single debt/ particular transaction. The
surety’s liability comes to an end when the guaranteed debt is duly discharged
or the promise is duly performed.
2) Continuing Guarantee (Section 129): A guarantee which extends to a series of
transaction. Here, A surety’s liability continues until the revocation of the
guarantee.
Indemnity Guarantee
1) Number of Parties two parties i.e. indemnifier Three
and parties i.e. surety, creditor
indemnified. and principal debtor.
2) Number of Contracts In indemnity there is only In oneguarantee, there are three contracts
contract between indemnifier i.e.
and indemnified. - between surety and creditor
- between surety and principal debtor
- an implied contract of indemnity
between the
principal debtor and surety.
3) Type of contract expressed or Implied. Always an express contract.
4) Nature of Undertaking A contract of indemnity is ofA contract of guarantee is a
contingent nature collateral contract
5) Nature of Liability The liability of indemnifier Here the primary liability is
is Primary, Absolute, Total that of principal debtor. The
liability of surety is
secondary and conditional.
6) Commencement of Liability
The liability of indemnifier The liability of surety commences when
commences when the the principal debtor makes default
indemnified suffer loss
7) Objective To save the indemnified from To provide security to the creditor in
a loss which may occur respect of existing debs and liabilities
to him in the future
Where two persons contract with a third person to undertake a certain liability,
and also contract with each other that one of them shall be liable only on the
default of the other (Guarantee), the creditor cannot sue the guarantor, even if
he is aware of such second contract because he is not party to such contract . The
two debtors shall hold the same liability as per primary contract.
Example: A and B make a joint and several promissory note to C. A makes it, in
fact, as surety for B, and C knows this at the time when the note is made. The fact
that A, to the knowledge of C, made the note as surety for B, is no answer to a suit
by C against A upon the note.
c) By novation [Section 62]: if fresh contract is entered into either between the same
parties or between the other parties, the consideration being the mutual discharge of
the old contract.
Against Creditor:
1) Right of Subrogation [Section 140]: The terms subrogation may be defined as the
substitution of one person with another with same right and liabilities.
After discharging his liability on the default of principal debtor, the surety is vested with
all the rights which the creditor has against the principal debtor, for e.g.
a) Right to recover money paid from debtor
b) Right to securities (if any) held by creditor.
c) Right to initiate proceedings against the principal debtor in his own name.
2) Right to security: On repayment, surety steps into the shoes of the creditor. He has all
the rights of the creditor including the right to sell the security and recover the debt
from debtor.
3) Right to Indemnity [Section 145]: The surety is entitled to recover from the principal
debtor whatever sum he has rightfully paid under the guarantee, but not sums which
he paid wrongfully.
Against Co-Sureties:
Co-sureties (meaning) When the same debt or duty is guaranteed by two or more persons,
such persons are called co-sureties
1) Co-sureties liable to contribute equally (Section 146): when two or more persons are
co-sureties for
the same debt, or duty,
either jointly, or severally and
whether under the same or different contracts and
whether with or without the knowledge of each other,
are liable to pay each an equal share of the whole/part debt.
Any excess paid by one of them can be recovered from other co sureties.
Exceptions the co-sureties have a contract to share debt in different ratios
Example 1: A, B and C are sureties to D for the sum of 3,00,000 rupees lent to E.
E makes default in payment. A, B and C are liable, as between themselves, to pay
1,00,000 rupees each.
Section 148-181
Introduction
What is Bailment?
As per Section 148 of the Act, bailment is the delivery of goods by one person to another for
some purpose, upon a contract, that the goods shall, when the purpose is accomplished, be
returned or otherwise disposed of according to the directions of the person delivering them.
Parties
The person delivering the goods is called the “bailor”.
The person to whom they are delivered is called the “bailee”.
Example : Where ‘X’ delivers his car for repair to ‘Y’, ‘X’ is the bailor and ‘Y’ is the bailee.
Duties of Bailor
1. Bailor’s duty to disclose faults in goods bailed [Section 150) The bailor is bound
to disclose to the bailee faults in the goods bailed, of which the bailor is aware, and which
materially interfere with the use of them, or expose the bailee to extraordinary risks.
If he does not make such disclosure, he is responsible for damage arising to the bailee
directly from such faults.
If the goods are bailed for hire, the bailor is responsible for such damage, whether he was
or was not aware of the existence of such faults in the goods bailed.
Example : A hires a carriage of B. The carriage is unsafe, though B is not aware of it, and
Rights of Bailor :
1. Liability of bailee making unauthorised use of goods bailed [Section 154] bailee is
liable to make compensation to the bailor for any damage arising to the goods from or
during such use of them.
Example : A lends a horse to B for his own riding only. B allows C, a member of his family,
to ride the horse. C rides with care, but the horse accidentally falls and is injured. B is
liable to make compensation to A for the injury done to the horse.
2. Effect of mixture, with bailor’s consent, of his goods with bailee’s [Section 155] : If
the bailee, with the consent of the bailor, mixes the goods of the bailor with his own
goods, the bailor and the bailee shall have an interest, in proportion to their respective
shares, in the mixture thus produced.
3. Effect of mixture, without bailor’s consent, when the goods can be separated [Section
156]
a. If the goods can be separated or divided the property in the goods remains
in the parties respectively and
b. the bailee is bound to bear the expenses of separation or division, and any
damage arising from the mixture.
c. Eg: mixing balls, clothes, furniture of bailor with bailee’s.
4. Effect of mixture, without bailor’s consent, when the goods cannot be separated
[Section 157] the bailor is entitled to be compensated by the bailee for the loss of the
goods.
Eg: mixing flour, oil of bailor with bailee’s.
Termination of bailment
Act done inconsistent with the condition of bailment
Period of bailment expires
Demand for return of goods
Death of bailee
Duties of Bailee
1. Care to be taken by bailee [Section 151] : In all cases of bailment, the bailee is bound
to take as much care of the goods bailed to him as a man of ordinary prudence would,
under similar circumstances, take of his own goods of the same bulk, quality and value as
the goods bailed.
Example : If X bails his ornaments to ‘Y’ and ‘Y’ keeps these ornaments in his own locker
at his house along with his own ornaments and if all the ornaments are lost/ stolen in a
riot ‘Y’ will not be responsible for the loss to ‘X’. If on the other hand ‘X’ specifically
instructs ‘Y’ to keep them in a bank, but ‘Y’ keeps them at his residence, then ‘Y’ would
be responsible for the loss [caused on account of riot].
2. Bailee when not liable for loss, etc., of thing bailed [Section 152] : The bailee, in the
absence of any special contract, is not responsible for the loss, destruction or
Rights of bailee :
(i) to claim compensation for any loss arising from non-dislosure of known defects in the
goods.
(ii) to claim indemnification for any loss or damage as a result of defective title.
(iii) to deliver back the goods to joint bailors according to the agreement or directions.
(iv) If the bailor has no title to the goods, and the bailee, in good faith, delivers them back
to, or according to the directions of, the bailor, the bailee is not responsible to the
owner in respect of such delivery. (Section 166)
(v) to exercise his ‘right of lien’. This right of lien is a right to retain the goods and is
exercisable where charges due in respect of goods retained have not been paid. The
right of lien is a particular lien for the reason that the bailee can retain only these goods
for which the bailee has to receive his fees/remuneration.
(vi) Suit by bailor & bailee against wrong doers [Section 180] : If a third person wrongfully
deprives the bailee of the use or possession of the goods bailed, or does them any injury,
the bailee is entitled to use such remedies (file suit)as the owner might have used in
the like case if no bailment had been made; and either the bailor or the bailee may
bring a suit against a third person for such deprivation or injury.
Whatever is obtained by way of relief or compensation in any such suit shall, as between
the bailor and the bailee, be dealt with according to their respective interests (section
181).
When can the finder sell the goods found [Section 169] :
Owner cannot with reasonable diligence be found, or
if he refuses, upon demand, to pay the lawful charges of the finder
And
when the thing is in danger of perishing or of losing the greater part of its value, or
lawful charges of the finder in respect of the thing found amount to two-thirds of its
value.
Pledge
Meaning: Pledge is a variety or specie of bailment. It is bailment of goods as security for
payment of debt or performance of a promise.
In pledge, there is no change in ownership of the property. Under exceptional circumstances,
the pledgee has a right to sell the property pledged.
Essentials of contract of pledge :
There must be bailment for security for payment of debt/ performance of a promise
Goods must be the subject matter of the contract of pledge.
The goods pledged must be in existence
There must be a delivery of goods from pawnor to pawnee
Parties:
1. he person who pledges[or bails] is known as pledgor or also as pawnor.
2. the bailee is known as pledgee or also as pawnee.
Pawnee’s rights :
(a) Right of retainer [Section 173] : The pawnee may retain the goods pledged, not only
for payment of the debt or the performance of the promise, but for the interest, of the
debt, and all necessary expenses incurred by him in respect of the possession or for the
preservation of the goods pledged.
(b) Right to retention of subsequent debts [Section 174] : Pawnee has a right to retain
the goods pledged towards subsequent advances as well, however subject to such right
Rights of a pawnor
(a) Right to redeem [Section 177] : If a time is stipulated for the payment of the debt, or
performance of the promise, for which the pledge is made, and the pawnor makes default
in payment of the debt or performance of the promise at the stipulated time, he may
redeem the goods pledged at any subsequent time before the actual sale of them; but
he must, in that case, pay, in addition, any expenses which have arisen from his default.
(b) Pledge where pawnor has only a limited interest [Section 179] : Where a person pledges
goods in which he has only a limited interest, the pledge is valid to the extent of that
interest.
Purpose A pledge is made for a specific A bailment can be for any purpose.
purpose as security for payment of
debt or performance of a promise.
Use of Goods A pawnee does not have the right The bailee may use the goods bailed as per the
to use the goods.
terms of the contract.
Lien Lien can be exercised even for A bailee can exercise lien on the goods bailed
non- payment of interest. only for his labour and
skill employed
Sale of Goods The pawnee can sell the goods The bailee has no right of sale.
after due notice to the pawnor.
Nature of Interest
Thein pledgee gets a special The bailee has no right of possession of the
Property property in the goods. The general goods bailed.
property remains with the
pawnor.
Introduction
An agency relationship is established when one party (agent) is authorized by another party
(principal) to act on his/ her behalf.
An agent has the potential to form contracts on behalf of the principal and in doing so,
will bind the principal.
It is a relation of trust and confidence.
What is Agency?
The Indian Contract Act,1872 does not define the word ‘Agency’.
But it does define the term ‘agent’ as “a person employed to do any act for another or to
represent another in dealings with third persons”.
The person for whom the act is done or who is so represented is called “Principal”.
[Section 182].
Test of Agency
(i) Whether the person has the capacity to bind the principal and make him answerable
to the third party bind him in legal relationship
(ii) Whether he can establish Privity of Contract between the principal and third
parties i.e, there is right to sue between principal and 3 rd party
Relevant Maxim The Rule of Agency is based on the maxim “Qui facit per alium, facit
per se” i.e., he who acts through an agent is himself acting.
Who may employ an agent [Section 183]: Who may be an agent [Section 184]:
age of majority + age of majority +
sound mind sound mind
Consideration not necessary [Section 185]:
no consideration is necessary to create an agency
acceptance of the office of an agent is sufficient consideration
Example:
P appoints Q, a minor, to sell his car for not less than ` 2,50,000. Q sells it for` 2,00,000. P
will be held bound by the transaction and further shall have no right against Q for claiming
the compensation for having not obeyed the instructions, since Q is a minor and a contract
with a minor is ‘void-ab-initio’.
Creation of Agency
The authority of an agent means his capacity to bind the principal to third parties.
The agent can bind the principal only if he acts within the scope of his authority.
Sub Agents
Meaning Agent of an agent, ie, person employed by, and acting under the control of,
the original agent
When agent cannot delegate [Section 190]? For those acts which he has expressly or
impliedly undertaken to perform personally. As a general rule agent cannot delegate his
duties to other agents.--> “delegatus non potest delegare”.
Substitute Agent
He is selected/appointed by the agent for a particular task. His name and details
are confirmed and consented by the principal.
He is not sub-agent.
[Reason: such substitute agent may have better qualification/accessibility to
perform part of the business]
Relation between principal and person duly appointed by agent to act in business
of agency
[Section 194]: Where an agent, holding an express or implied authority to name another
person to act for the principal in the business of the agency, has named another person
accordingly, such person is substitute agent for the business entrusted. Principal is
bound by his actions.
Example : A directs B, his solicitor, to sell his estate by auction, and to employ an
auctioneer for the purpose. B names C, an auctioneer, to conduct the sale. C is not a sub-
agent, but is A’s agent for the conduct of the sale.
Agent’s duty in naming such person [Section 195]: In selecting such agent for his
principal, an agent is bound to exercise the same amount of discretion as a man of ordinary
prudence. Principal shall not be responsible in case of negligence of the agent.
Example 1: A instructs B, a merchant, to buy a ship for him. B employs a ship surveyor of
good reputation to choose a ship for A. The surveyor makes the choice negligently and
the ship turns out to be unseaworthy and is lost. B is not, but the surveyor is, responsible
to A.
Rights of Agent
(i) Right of retain out of sums received on principal’s account [Section 217]: Agent
has right to retain out of any sums received on account of the principal in business,
following sums:
a. all moneys due to himself
b. expenses properly incurred by him in conducting such business
(ix) Consequence of inducing agent or principal to act on belief that principal or agent
will be held exclusively liable [Section 234]: When a person who has made a
contract with an agent induces the agent to act upon the belief that the principal
only will be held liable, or induces the principal to act upon the belief that the agent
only will be held liable, he cannot afterwards hold liable the agent or principal
respectively.
(xi) Person falsely contracting agent not entitled to performance [Section 236]: A
person with whom a contract has been entered into in the character of agent, is not
entitled to require the performance of it if he was in reality acting, not as agent,
but on his own account. In simple words, where the person acts as an agent although
he is actually the principal, he shall be denied from enforcing the performance later
in the capacity of the principal
(xii) Liability of principal inducing belief that agent’s unauthorized acts were
authorized [Section 237]: When an agent has, without authority, done acts or
incurred obligations to third persons on behalf of his principal, the principal is bound
by such acts or obligations, if he has by his words or conduct induced such third
persons to believe that such acts and obligations were within the scope of the agent’s
authority.
Example 1: A consigns goods to B for sale, and gives him instructions not to sell under
a fixed price. C, being ignorant of B’s instructions, enters into a contract with B to
buy the goods at a price lower than the reserved price. A is bound by the contract.
Revocation of authority
Introduction
The Act was introduced on 1st March,1881.
The Law in India relating to negotiable instruments is contained in the Negotiable
Instruments Act, 1881.
Applicability :- whole of India and to all persons resident in India, whether foreigners
or Indians.
The Act was amended several times. Recent two amendments made in the
N.I. Act were the Negotiable Instruments (Amendment and Miscellaneous Provisions)
Act, 2002 and the Negotiable Instruments (Amendment) Act, 2015 and shall be
deemed to have come into force on the 15th day of June, 2015
Meaning And Characteristics Of Negotiable Instrument
Meaning: A Negotiable Instrument is a transferrable written piece of paper creating a right
of a person to receive money and a corresponding liability of a person to pay money.
Characteristics:
1. It should be in writing
2. Freely transferable.
3. It should create a right of a person to receive money and a corresponding liability of
a person to pay money.
4. Holder’s title is free from defects. A holder in due course acquires a good title
irrespective of any defect in a previous holder’s title. Conditions:
(i) for consideration
(ii) without notice as to the defect in the title of the transferor; i.e in good faith and
(iii) before maturity
5. A negotiable instrument can be transferred infinitum, i.e., can be transferred any
number of times, till its payment.
Types of N.E.: section 13 of the Act mentions only three kinds of negotiable instruments
namely,
(i) Promissory Notes
(ii) Bills of Exchange
(iii) Cheque.
Promissory Note
Essential requirements
1. Written.
2. Promise to pay.
of a valid promissory
note. However, notice that the use of the word promise is not essential to constitute
an instrument as promissory note.
3. Definite and unconditional promise. The promise to pay must not be
conditional. Therefore, instruments payable on performance or non
performance of a particular act or on the happening or non- happening of an
event, are not promissory notes.
However, the promise to pay may be subject to a condition, which according
to the ordinary experience of mankind, is bound to happen.
4. Certain sum of money.
5. The maker and payee must be certain person. The maker and payee of the
instrument must be certain, definite and different persons. A promissory note
cannot be made payable to the bearer (Sec. 31 of RBI Act). Only the Reserve
Bank or the Central Government can make or issue a promissory note 'payable
to bearer'.
6. Signature. The promissory note must be signed by the maker, otherwise it is
incomplete and ineffective.
7. Promise in money only.
8. Stamping. A promissory note must be properly stamped in accordance with
the provisions of the Indian Stamp Act and such stamp must be duly cancelled
by maker's signatures or initials or otherwise.
Cheque
Note 1:
Meaning: The acceptance is the signature of the drawee of a bill who has signed his assent
upon the bill and delivered it.
Thus, an acceptor is the drawee who has signed his assent upon the bill and delivered it to
the holder
Essentials of 1. In writing,
valid 2. Signed by the drawee or his agent,
Acceptance: 3. On bill of exchange,
4. Completed by delivery to the holder
Writing the word 'Accepted' is immaterial.
An oral acceptance or writing of the word 'Accepted' without the
drawee's signature is not an acceptance.
CLASSIFICATION OF INSTRUMENTS
NEGOTIATION OF INSTRUMENT
Exception : A N.I. delivered on condition that it is not to take effect except in a certain
event is not negotiable (except in the hands of a holder for value without notice of the
condition) unless such event happens.
A N.I. payable to order is negotiable by the holder by indorsement and delivery thereof
(Section 48)
Meaning: When the maker or holder of a negotiable instrument signs the same otherwise
than as such maker, for the purpose of negotiation, on the back or face thereof or on a slip
of paper annexed, he is said to indorse the same and as called the indorser.
The person to whom the instrument is indorsed is called the indorsee.
Example : X, who is the holder of a negotiable instrument writes on the back thereof
: “pay to Y or order” and signs the instrument. In such a case, X is deemed to have endorsed
the instrument to Y. If X delivers the instrument to Y, X ceases to be the holder and Y becomes
the holder.
1. Indorsement in Blank: Where the indorser just puts his signature without specifying
the indorsee, the indorsement is said to be in blank (Section 16). The effect of such an
indorsement is to render the instrument payable to bearer even though originally
payable to order (Section 54).
2. Indorsement in Full: Where along with indorser's signature, the name of the
indorsee is specified, the indorsement is called 'indorsement in full' (Section 16). Thus,
where the instrument states, 'Pay X or order' and is signed by A, the payee, it constitutes
'indorsement in full'.
Who may negotiate? [Section 51] Every sole maker, drawer, payee or indorsee, or all of
Indorser who excludes his own liability or makes it conditional [Section 52]
LIABILITIES OF PARTIES
Holder’s right to duplicate of lost bill [Section 45A] Where a bill of exchange has been
lost before it is overdue,
the person who was the holder of it may apply
to the drawer to give him another bill of the same tenor, giving security to the drawer,
if required,
to indemnify him against all persons whatever in case the bill alleged to have been lost
Instrument acquired after dishonour or when overdue [Section 59] The negotiable
instrument, can be transferred even after dishonour or maturity but the person
obtaining it can never become holder in due course.
However if it is within understanding between parties, the endorsee may accept. He
may demand interest for the overdue period.
Meaning: Presenting the bill to the drawee for payment of money on the due date.
Presentment
Excuse for delay in presentment for acceptance or payment [Section 75A] Delay in
presentment for acceptance or payment is excused if the delay is caused by
circumstances beyond the control of holder and not imputable to his default,
misconduct or negligence. When the cause of delay ceases to operate, presentment
must be made within reasonable time.
Liability of banker for negligently dealing with bill presented for payment [Section
77] When a bill of exchange, accepted payable at a specified bank, has been duly
presented there for payment and dishonored, if the banker so negligently or improperly
keeps, he must compensate the holder for such loss
Discharge
of party of Instrument
Eg: Eg:
ABCB. Here C is ABC. C cancels A’s name.
discharged. Then, the instrument is
Eg: discharged.
ABC. C cancels B’s name. Eg:
Then, only B is discharged. ABCA. Here instrument is
discharged.
Modes of discharge:
One or more parties to a negotiable instrument may be discharged from liability in
either of the following ways :
1. Sec. 82 - By cancellation, Release or Payment :
By cancellation: Cancellation of acceptor’s name will discharge the instrument and
cancellation of any other party will discharge the party.
By release (waivor): Release of acceptor will discharge the instrument and release of
any other party will discharge the party.
By payment: When the amount due on the instrument is paid by the party primarily
liable on the instrument, the instrument is discharged.
2. Sec. 83 By allowing drawee more than 48 hours: If the holder of a bill of exchange
allows the drawee more than 48 hours, exclusive of public holiday(s) to consider
whether he will accept the same, all previous parties not consenting to such allowance
Payment of interest
Where interest rate is expressly made When no rate of interest is specified in the
payable on P/N, BoE instrument
Interest shall be calculated at the rate Interest on the amount due thereon shall
specified on the amount of the principal be calculated at the rate of 18% per
money due thereon, from the date of the annum, from the date at which the same
instrument, until tender or realization of ought to have been paid by the party
such amount, or until such date after the charged, until tender or realization of the
institution of a suit to recover such amount amount due thereon, or until such date
as the court directs. after the institution of a suit to recover
such amount as the court directs.
Person liable is liable to pay interest only
from the time that he receives notice of
the dishonour.
Noting Protest
Sec 99 Sec 100
P/N, BoE, Cheque has been dishonoured by P/N or BoE has been dishonoured by non-
non-acceptance or non-payment— the acceptance or non-payment— the holder
holder may cause such dishonour to be may, cause such dishonour to be noted,
noted by a notary public upon- the and certified by a notary public
instrument, or upon a paper attached
thereto, or partly upon each
Noting is a minute recorded by a notary The Court may not recognize noting
public on the dishonored instrument. however it is bound to recognize a protest.
Notary Public who presents it once again for In protest, a suitable investigation is done
acceptance or payment, as the case may be; to check if the NI is actually dishonored
and if the drawee or acceptor still refuses and accordingly certificate is issued.
to accept or pay the bill, it is noted It is more useful where the parties are
It is mere recognition of dishonor. looking to take legal action against
Sections 138 to 142 provides for criminal penalties in the event of dishonour of cheques
for insufficiency of funds.
Dishonoured due to insufficiency of funds (Sec. 138): The drawer, under Sec. 138,
may be punished with
imprisonment upto 2 years or
fine up to twice the amount of the cheque or
both.
Following conditions must be satisfied for levy of penalty:
1. The cheque should have been dishonoured due to insufficiency of funds in the account
maintained by him with a banker for payment of any amount of money to another
person from out of that account.
As per the Case laws, following are deemed dishonoured due to insufficiency of funds:
(i) stop-payment unless stop-payment can be justified.
(ii) dishonour due to closure of account
(iii) directing the payee not to present
2. The payment for which the cheque was issued should have been in discharge of a legally
enforceable debt or liability in whole or part of it.
3. The cheque should have been presented within 3 months from the date on which it is
drawn.
4. Complaint is filed by the holder in due course/payee within 1 month from expiry of
period given below
No penalty shall be levied if all these conditions are followed:
Cheque presented within validity period/3 months
Payee/holder in due courses notifies in writing to the drawer within 30 days of receipt
of information by him from the bank regarding dishonour and asks for payment and
Drawer makes the payment within 15 days of notice
Note:
Where a cheque is dishonoured the second time, and there was no complaint filed the
first time it was dishonoured, then the complaint cannot be filed the second time.
If the person committing an offence under section 138 is a company,every person who,
at the time the offence was committed—
was in charge of, and
as responsible to the company for the conduct of the business of the company,
as well as the company, shall be deemed to be guilty of the offence and shall be liable
to be proceeded against and punished accordingly.
Exception:
if he proves that the offence was committed without his knowledge, or that he had
exercised all due diligence to prevent
director nominated by CG or SG
(1) Court shall take cognizance of any offence punishable under section 138 only if it is in
writing.
[cognizance of any offence--> means consider any case on an offence]
Time limit for filing the complaint is 1 month.
No court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first
class shall try any offence punishable under section 138.
(2) Place of Jurisdiction of court for the trail of offence : The offence under section 138,
which deals with the dishonour of cheque, shall be inquired into and tried only by a court
within whose local jurisdiction,—
(a) if the cheque is delivered for collection through an account, the branch of the bank
where the payee or holder in due course, as the case may be, maintains the account, is
situated; or
(b) if the cheque is presented for payment by the payee or holder in due course, otherwise
through an account, the branch of the drawee bank where the drawer maintains the
account, is situated.
`
Lucknow April 10,
10,000 2017
Three months after date, I promise to pay Shri Ramesh (Payee) or to his order the sum of Rupees Ten
Thousand, for value received.
Stamp
Sd/- Ram
To, Shri
Ramesh,
Mr. A (Drawer)
48, MP Nagar, Bhopal (M.P.)
April 10, 2015
` 10,000/-
Four months after date, pay to Mr. B (Payee) a sum of Rupees Ten Thousand, for value received.
To,
Mr. C (Drawee)
576, Arera Colony, Bhopal (M.P.)
Signature
Date :....................
Pay ..............................................................................................................................................................
ABC Bank
622, Vijay Nagar, Indore (M. P.)
Signature
provide general definitions which shall be applicable to all Central Acts and
Regulations where there is no definition in those Acts or regulations
shorten language used in parliamentary legislation and to avoid the repetition of the
same words
To state certain rules for the construction and interpretation of central acts.
Legal principals common for interpreting many statutes have been mentioned in this
one act
to avoid superfluity of language in statutes.
In a way it’s the “Law of all Laws”.
GCA, 1897 is used with reference to all Central legislation and also to rules and
regulations made under a Central Act, ie, :
o Acts of the Indian Parliament (central act) along with the rules and regulations
Preamble: Every Act has a preamble which expresses the scope, object and purpose
of the Act. the Preamble to an Act discloses the primary intention of the legislature
but can only be brought in as an aid to construction if the language of the statute
is not clear. However, it cannot override the provisions of the enactment.
Eg: Preamble of the Companies Act, 2013 states – “An Act to consolidate and amend
the law relating to companies.”
Section 3 - Definitions
Applicability: Section 3, which is the principal section containing definitions, applies to
the General Clauses Act itself and
to post-1897 Central Acts and Regulations
unless
those laws contain separate definitions of their own or
there is something repugnant in the subject or context and hence definition given
in section 3 cannot be applied.
(2) The definitions in the said section of the following words and expressions, that is to say,
"abet", "Chapter", "commencement", "financial year", "local authority", "master",
"offence", "part", "public nuisance", "registered", "schedule", "ship", "sign", "sub-section"
and "writing" apply also, unless there is anything repugnant in the subject or context, to
all [Central Acts] and Regulations made on or after the fourteenth day of January, 1887.
• (Note: Prior to General clause Act 1897, there were similar acts called General clause Act
1868 & General clause Act 1887)
(1) The definitions in section 3 of the expressions "British India", "Central Act", "Central
Government", "Chief Controlling Revenue Authority", "Chief Revenue Authority",
"Constitution", "Gazette", "Government", "Government securities", "High Court", "India",
"Indian law", "Indian State", "merged territories", "Official Gazette", "Part A State", "Part
B State", "Part C State", "Provincial Government", "State", and "State Government" shall
apply, unless there is anything repugnant in the subject or context, to all Indian laws.
Case: In Kolhapur Canesugar Works Ltd. V, Union of India, AIR 2000, SC 811, Supreme Court
held that Section 6 only applies to repeal and not to omissions and applies when the repeal
is of a Central Act or Regulation and not of a Rule
(1) In any Central Act or Regulation made after the commencement of this Act, it shall be
necessary, for the purpose of reviving, either wholly or partially, any enactment wholly
or partially repealed, expressly to state that purpose.
(2) This section applies also to all Central Acts made after the third day of January, 1868,
and to all Regulations made on or after the fourteenth day of January, 1887.
(1) Where this Act, or Central Act or Regulation made after the commencement of this Act,
repeals and re-enacts, with or without modification, any provision of a former enactment,
then references in any other enactment or in any instrument to the provision so repealed
shall, unless a different intention appears, be construed as references to the provision so
re-enacted.
(2) Where before the fifteenth day of August, 1947, any Act of Parliament of the United
Kingdom repealed and re-enacted, with or without modification, any provision of a
former enactment, then references in any Central Act or in any Regulation or instrument
to the provision so repealed shall, unless a different intention appears, be construed as
references to the provision so re-enacted.
Example: In section 115 JB of the Income Tax Act, 1961, for calculation of book profits,
the Companies Act, 1956 are required to be referred. With the advent of Companies Act,
2013, the corresponding change has not been made in section 115 JB of the Income Tax
Act, 1961. On referring of section 8 of the General Clauses Act, book profits to be
calculated under section 115 JB of the Income Tax Act will be as per the Companies
Act,2013.
Case: In Gauri Shankar Gaur v. State of U.P., AIR 1994 SC 169, it was held that every Act
has its own distinction. If a later Act merely makes a reference to a former Act or existing
law, it is only by reference and all amendments, repeals new law subsequently made will
have effect unless its operation is saved by the relevant provision of the section of the
Act.
• This section applies also to all [Central Acts] made after the third day of
January, 1868, and to all Regulations made on or after the fourteenth day of
January, 1887.
• Example: A company declares dividend for its shareholder in its Annual General
Meeting held on 30/09/2016. Under the provisions of the Companies Act, 2013,
company is required to pay declared dividend within 30 days from the date of
declaration i.e. from 01/10/2016 to 30/10/2016. In this series of 30 days,
30/09/2016 will be excluded and last 30th day i.e. 30/10/2016 will be included.
(2) In this Act and in any Central Act or Regulation made after the commencement of this
Act, a description or citation of portion of another enactment shall, unless a different
intention appears, be construed as including the word, section or other part mentioned
or referred to as forming the beginning and as forming the end of the portion comprised
in the description or citation.
Citation means referring/quoting another provision to explain the existing provision. Eg:
‘securities’ have been defined under companies act using the reference of the Securities
contracts (Regulations) Act, 1956.
In this Act the expression Central Act, shall be deemed to include Ordinance made and
promulgated by the Governor General under section 23 of the Indian Councils Act, 1861 or
section 72 of the Government of India Act, 1915, or section 42 of the Government of India
Act, 1935 and an Ordinance promulgated by the President under Article 123 of the
Constitution.
Ordinances are laws that are promulgated by the President of India on the recommendation
of the Union Cabinet. They can only be issued when Parliament is not in session. They enable
the Indian government to take immediate legislative action.
Introduction
Meanings of some basic terms:
Statute:
The term ‘Statute’ has been defined as the written will of the legislature solemnly
expressed according to the forms necessary to constitute it the law of the State.
Normally, the term denotes an Act enacted by the legislative authority (e.g.
Parliament of India).
It means Written Laws and regulations
The terms ‘law’ is defined as including any ordinance, order, bye-law, rule,
regulation, notification, and the like.
Documents:
Section 3 of the Indian Evidence Act, 1872 states that ‘document’ means any matter
expressed or described upon any substance by means of letters, figures or marks
used/intended to be used for recording that matter
Section 3(18) of the General Clauses Act, 1897 states that ‘document’ shall include
any matter written, expressed or described upon any substance by means of letters,
figures or marks, or by more than one of those means which is intended to be used, or
which may be used, for the purpose of recording this matter.
Example: A writing is a document, any words printed, photographed are documents
Elements of document:
o Matter: Purpose
o Record: mutual or mechanical device employed on the substance (eg: pen)
o Substance: element on which a mental or intellectual elements comes to find
a permanent form (eg: paper)
o Means: letters, any figures, marks, symbols which can be used to communicate
between two persons
Instrument:
Formal written legal document which creates or confirms a right or records a fact. Eg:
transfer deed
Purpose: Right/liability of parties is created, transferred, extended, extinguished,
recorded
Example: It is a formal writing of any kind, such as an agreement, deed, charter or
record, drawn up and executed in a technical form
Interpretation:
Process by which real meanings of act/ legal language & intention behind legislature
is ascertained.
It is the process by which the Courts seek to ascertain the meaning of the legislature
through the medium of the authoritative forms in which it is expressed.
Importance/Need for Interpretation:
o Through interpretation, a person is aided in arguing, contesting and
interpreting the proper significance of a section, a proviso, explanation or
schedule to an Act or any document, deed or instrument.
o Two different set of people create legislature and use/interpret it. There may
be bridge in understanding.
o Times in which legislature is prepared and interpreted may be different.
o Process of interpretation makes use of technical legal jargon and methods as
compared to common law rules
o No language is so perfect as to leave no ambiguities. It can be interpreted to
mean many things.
o True intention of law at the time of its writing need to be considered
o Social conditions are different over time leading to different interpretations vs
intention with which law was written
o Statute is enforceable at law, howsoever unreasonable it may be. Until it is
altered or modified or amended, the court has no choice but to enforce the law
as it is.
Legal Doctrinal
when there is an actual rule of law when there is no law to interpret and
which binds the Judge to place a there is need to discover ‘real’ and
certain interpretation of the statute ‘true’ meaning of the statute.
Grammatical Logical
Authentic Usual
court applies only court goes
when rule of when it comes from
the ordinary rules beyond the
interpretation is some other source
of speech for words and tries
derived from the such as custom or
finding out the to discover the
legislator himself case law
meaning of the intention of the
words used in the statute in some
statute other way
Classification of Interpretation
Literal/grammatical Functional/logical
It regards conclusively the verbal It departs from the letter of the law
expression (words and language) of and seeks elsewhere for some other
the law. It does not look beyond. and more satisfactory evidence of
This method is used first. the true intention of the legislature
This method is used when literal
interpretation fails.
Where there are two constructions reasonably applicable to a provision, one of which is
mechanical and based on the rules of grammar, while the other is vibrant and more in tune
with the basic intention of the Act of Parliament, the latter shall be preferred to the former.
(Arora Vs. State of UP)
Interpretation/Construction
Interpretation Construction
Where the language is simple and If such reading leads to absurdity and the
unambiguous, it is to be read with the words are susceptible of another
clear intention of the legislation giving meaning, same has to be read as a whole.
to the words used by the legislature their Drawing of conclusion beyond the direct
ordinary, natural and grammatical expression of the text called
meaning. called interpretation construction
Eg: Certain words which have acquired a definite meaning over a period of time are given
that meaning for interpretation.
Case (Interpretation vs Construction): It is the duty of the courts to give effect to the
meaning of an Act when the meaning can be equitably gathered from the words used. Words
of legal import occurring in a statute which have acquired a definite and precise sense, must
be understood in that sense. (State of Madras v. Gannon Dunkerly Co. AIR 1958)
Process of Interpretation:
Statutory. illustrated by
specific definition contained
in individual Acts
Aids/tools for the
purpose of
interpretation
common law rules of
interpretation
Non-statutory-
illustrated by
case-law relating to the
interpretation of statutes
Rules of Interpretation
Primary Rules
1. Rule of Literal Construction:
words, sentences and phrases of a statute should be read in their ordinary,
natural and grammatical meaning so that they may have effect in their widest
amplitude.
A word which has a definite and clear meaning should be interpreted with that
meaning only, irrespective of its consequences.
Sometimes, occasions may arise when a choice has to be made between two
interpretations – one narrower and the other wider or bolder narrower
interpretation must be considered unless it would fail to achieve the manifest
purpose of the legislation
For example, when we talk of disclosure of the nature of concern or interest,
financial or otherwise’ of a director or the manager of a company in the subject
we have to interpret in its broader sense that any concern or interest containing
any information and facts that may enable members to understand the
meaning, scope and implications of the items of business and to take decision
thereon. Even facts known to family shall be disclosed frankly.
In a question before the court whether the sale of betel leaves was subject to sales
tax. The Supreme Court held that betel leaves could not be given the dictionary,
technical or botanical meaning when the ordinary and natural meaning is clear and
unambiguous. Being the word of everyday use it must be understood in its popular
sense by which people are conversant with it as also the meaning which the statute
dealing with the matter would attribute to it. Therefore, the sale of betel leaves was
liable to sale tax. (Ramavtar V. Assistant Sales Tax Officer, AIR 1961 SC 1325)
b) Explanation of the Rule: Natural, ordinary or popular meaning which they have in
relation to the subject matter with reference & context in which they have been used
in the statute shall be used. Eg: Livestock can have many meanings. The meaning
most relevant to the particular act must be used.
c) Exact meaning, leading to loose meaning: As every word has a secondary meaning
too. Whichever meaning best suits the statute, shall be used in interpretation. Eg:
word ‘obtain’ may mean request to get or acquire without permission. If the second
meaning is preferred in law, it shall be construed.
d) Technical words are understood in the technical sense only Eg: ‘practice’ term
technically means functions of acting and pleading on behalf of a litigant party
1. Effect of usage: It means old statutes and documents should be interpreted as they
would have been at the time when they were enacted/written.
Two relevant Latin maxims are:
i. ‘Optima Legum interpresest consuetudo’ (the custom is the best interpreter of the
law); and
ii. ‘Contempranea expositoest optima et fortissima in lege’ (the best way to interpret
a document is to read it as it would have been read when made).
2. expressio unius est exclusio alterius: the explicit mention of one (thing) is the
exclusion of another. When one or more things of a class are expressly mentioned
others of the same class are excluded. Eg: law allows only a natural person to me
member of OPC. So no other type of person can be.
3. contemporanea exposition: That the meaning of words in a document are to be
understood in the sense which they bore at the time of the document. Eg: the
definitions contained in section 2 of Co. Act 2013 must be used while interpreting co.
law, not the general dictionary meanings/common parlance.
4. Associated Words to be Understood in Common Sense Manner:
When two or more words which are capable of analogous (similar or parallel)
Aids/tools to interpretation/construction
Internal External
These are parts of the enactment These are tools outside of the
can be used to interpret it better particular enactment, which help in
its interpretation
Types:
Long Title Types:
Preamble Historical Setting
Heading and Title of a Chapter Consolidating Statutes & Previous Law
Marginal Notes Usage
Definitional Sections/Interpretation Earlier & Later Acts and Analogous Acts
Clauses Dictionary Definitions
Illustrations Use of Foreign Decisions
Proviso
Explanation
Schedules
‘Read the Statute as a Whole
(ii) Ambiguous definitions: Sometime we may find that the definition section
may itself be ambiguous, and so it may have to be interpreted in the light
of the other provisions of the Act and having regard to the ordinary meaning
of the word defined. Such type of definition is not to be read in isolation.
It must be read in the context of the phrase which it defines.
Termination of service of a seasonal worker after the work was over does
not amount to retrenchment as per the Industrial Disputes Act, 1947. [Anil
Bapurao Karase v. Krishna Sahkari Sakhar Karkhana, AIR 1997 SC 2698]
6. Illustrations :
• These are examples included in law to elaborate its usage.
• It is part of statute
7. Proviso :
• It starts with word ‘provided that’. These are part of the relevant sections and
mentioned after the section. Law is incomplete without them.
• They mention
• Further explanation of the section including terms and conditions or
• Exception to any section or
• the condition without which such law shall not be applicable to the particular
situation.
• Eg: FY for evey company ends on 31st march, provided that for any company
which has foreign subsidiary/holding may seek permission to change its FY
8. Explanation:
• The words most repetitively used in statute are defined in the definition
section.
• However, there are some words that are used in only a few section. Hence,
their meaning is defined under those sections by way of explanation.
• Eg: ‘Office or place of profit’ u/s 188 is defined by way of explanation under
the section.
• all the words in the document/deed concerned are to be considered in their ordinary,
natural sense
• same word cannot have two different meanings in the same document, unless the
context compels the adoption of such a rule
• Words commonly used with a specific meaning due to custom of trade shall be
considered over technical meaning.
• Parts of deeds shall be harmoniously constructed with other clauses