MODULE 1 - CORPORATE MANAGEMENT IN INDIA

Meetings
 Requires an agenda (what is going to be beneficial/ corporate welfare), then motion, voting and then it
becomes a resolution.
 Company requires meeting bec. It is not an individual
 Includes in-house meetings, committee meetings, etc
 Agenda-reason for the meeting
 The involvement of types of Stakeholders determines the type of meeting (for eg annual meeting-held by
shareholders)
 The decision is to be taken for the corporate welfare
 There is a presence of reports, information, about corp. performance
 Relevance-- only way to have a collective decision-every person has a right to hold opinion whether
dissenting or not- there is a reviewing and presenting of information
 Requisites- {Chapter 7 of act}
o Appropriate authority- the meeting is to be held and organised by an appropriate authority; board
of directors is the proper authority for AGM and board meeting; shareholders for extraordinary
general meeting(Section 100); tribunal in cases when there is a default in convening the meeting or
it becomes impractical to call a meeting(for eg: there is conflict inside the company) or on request of
director (Sections 97 and 98)
o Proper notice of Meeting – Section 101 – every company is to provide notice for a meeting to
stakeholders(the persons who have the right to vote in the particular meeting)- 21 days prior notice-
this period can be shortened for agm when 95% stakeholders agree-- specify place, date of meeting,
day of meeting, hour of meeting, agenda of the meeting-- to be given to every member, auditor and
director of company- accidental omission of providing notice to any member does not invalidate the
meeting.
o Quorum – Section 103 – min no. of people reqd to be present to have a valid meeting-- reqd to
maintain the sanctity of the meeting, if no quorum, meeting resolution will become an individual
opinion which defeats the purpose-public company--- 5 for <1000 members; 15 for >1000 <5000; 30
for >5000. Private company--- 2 members. If quorum not present in 30mins meeting postponed to
same day next week or other day that board states (AGM only), for other meetings, it is cancelled. If
in adjourned AGM no quorum is present, whoever present constitutes the quorum and meeting is
held.
o Chairperson – Section 104 – members personally present elects a chairperson by show of hands if
not provided in articles- duty to conduct the meeting, maintain decorum and see to that the agenda
of the meeting is reached-- duty to provide the sequence of persons to speak in turns- general
requirements of giving introductions, orientations
o Proxy – Section 105 – any member entitled to vote has the right to appoint another person as a
proxy to attend the meeting on his behalf- proxies are not entitled to speak, and vote except on a
poll-- not applicable to companies which do not have share capital
 KINDS OF MEETINGS:
o Annual General Meeting (AGM) – Section 96 - to be mandatorily held every year(except one-man
company)-- Mandatory notice- election/re-election of directors-presentation of financial
reports/performance of company- not more than 15 months between two agms- in general AGM
should be held within 6 months from the end of fin. year, but after first AGM after incorporation, 9
months-registrar can extend period for agms other than first agm, by not more than 3 months- AGM
to be called at business hours, not on national holiday, at the city/village/area of registered office-
default of not holding even after tribunal order, fine of up to 1lakh imposed on officers who are in
default, extending to 5000 per day if still not complied with
— quorum for AGM - In case of Public Company– 5 if members are less than 1000, 15 if
between 1000-5000 and 30 if more than 5000 members.
Private Company - only 2 that are present will be the quorum.

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 o Extraordinary general meeting (EGM) - Section 100- meeting whenever board deems fit-- the board
shall hold meeting when : 1/10th shareholders or in case of non share capital companies members
with voting rights suggests-- 45 days time given to board to hold egm after such suggestion is made
o Board meetings – Section 173 - First BoD meeting to be held within 30 days of incorporation, 4
minimum board meetings with not more than 120 days interval between two meetings- 7 days
notice-- Quorum for bm- 1/3rd of total strength or 2 directors (whichever is more)
o Other meetings:
- Creditors Meeting (Sec. 230)
- Debenture Holders Meeting with the Board of Directors Audit Committee Meeting (Sec. 177)
Nomination and Remuneration Committee Meeting (Sec. 178)
 Motion is a proposal made in the meeting by a member of the meeting-- proposal can be modified before
becoming a resolution (alteration of motion) - generally positive amendments to be done.
 Types of resolutions-
o Ordinary Resolutions – Section 114 – resolutions of meetings whose notice has been duly provided,
by simple majority
o Special Resolutions – Section 114 – special situations where special majority or other procedures
may be reqd.- valid notice specifying a special resolution- percentage of people for the resolution
not less than 75% of total voting people- resolutions for crucial functions of the company
o Resolutions requiring special notice – Section 115 – when special class of people addresses a
motion for a nuclear set of issues- minimum 1% of total voting power has to be held by the members
who brought the motion
 Minutes of proceedings of general meeting, meeting of Board of Directors and other meeting and
resolutions passed by postal ballot – Section 118 – details about the meeting/ brief points/ record -
maintenance of separate file in sequential order- should contain objective fair summary- appointments
made in the meeting should be included in the minutes- detrimental stuff not to be included- etc.

Directors
 Section 2(34) – “director” is defined as “a director appointed to the board of a company.”
 General concept- somebody having an authority to give directions-person under whose directions or
instructions the board or any other director is accustomed to act
 Need for director- because company is not a natural person, it cannot act on its own; it needs someone to
represent the company; natural person
 Directors separate from owners- Shareholders are known as the real owners of the company that own
equity shares issued by a particular company, whereas Directors on the other hand are the individuals who
are elected to actually act as the representatives of such shareholders by establishing and implementing
policies and decisions and act in the best interests of such shareholders.
 Legal position of director- "Directors are described sometimes as the agent, sometimes as trustees, and
sometimes as managing partners. But each of these expressions is used not as exhaustive of their powers
and responsibilities but as indicating useful points of view from which they may, for the moment and for the
particular purpose, be considered."- Imperial Hydropathic Hotel v. Hampson -- these terms are not meant
to be a limit on the duties and responsibilities of the director but indicative of the role the director is playing.
o Agent- when directors act on behalf of company-- authority is delegated
o Trustee- when directors act on behalf of shareholders-- there is an implied relation of trust-- trusted
to concern with company property to be utilised in the best manner for the benefit of the company--
"bound" to do this--
o Managing partner- if company is considered to be a partnership between shareholders and
directors, directors act as managing partners and shareholders as dormant partners-- certain
restrictions however are imposed in MoA and AoA---
o As an employee
o As an employer
o As the governor
o Percival v. Wright- The directors of the company are not trustees for individual shareholders and
may purchase their shares without disclosing pending negotiations for the sale of the company's
undertaking

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 o Great Eastern rly co v. Turner- directors are mere trustees or agents of the comapany, trustees of
the company's money and property, and agents in transactions which they enter into behalf of the
company
o In re Forest of Dean coal mining co.- directors are trustees of the assets which have come into their
hands or which are under their control, but not of debts due to the company. The company is the
creditor and they are the managing partners
o In re Lands allotment co.- although directors are not trustees to the debts of a company, if the debt
is created by the actions or omissions of the directors then they are liable for that debt
 Requisites of a director:
o Should be a natural person and not another company
o Must have Director Identification Number (DIN) (why?- because of limit of number of companies one
individual can be a director in; to know the history of the director)
 Qualifications: must be a natural person, competent to contract, any person not expressly disqualified as a
director, DIN.
 KINDS OF DIRECTORS:
o Executive and Non-executive(independent directors)
- Executive directors are directly responsible for execution of activities
- Non-executive directors are those which are not related to management and administration
of the company
- Non-executive directors (Independent directors) ensure that not all decisions are taken by
the executive directors, especially in public companies where the interest of the public is
also to be considered
o First director – First directors are the individuals named in the Articles of Association as first
directors. They are the individuals who formed/founded the company as directors.
o Whole-time director - Section 2(94) - includes a director in the whole time employment of the
company--- position is frozen for a specific time--- an executive director
o Managing director - Section 2(54) - director who is entrusted with substantial powers of
management of affairs of the company--- may be called by another name--- an executive director
o Resident director - Section 149(3) - who stays in India for at least 182 days during the financial year--
- Mandatory for the company to have one.
o Woman director – Companies (appointment and qualification of directors) rules 2014, Rule 3-- at
least one director required in listed company, and every other public company having - (a) paid-up
share capital of one hundred crore rupees or more; or (b) turnover of three hundred crore rupees or
more.
o Independent Director - independent of a particular company- not connected to the company in a
way which has an influence on the decision-making-
- Section 149(4) - 1/3rd of total directors shall be independent directors in all listed
companies
- Section 149(6) - Independent director is not a managing director, whole time director or a
nominee director-- a) is a person of integrity, possesses relevant expertise and experience in
the opinion of the board, b) not a promoter of the company, holding, subsidiary or associate
of the company or related to them, c) no financial relationship with the company other than
remuneration, etc. D) relatives not securing more than 2% of the share capital of the
company, indebted to the company, etc.
- Section 149(7,..) - written declaration by person--- Remuneration- fee and reimbursement
only-- independent directors must also meet separately once a year at least (without the
participation of non-independent directors)-- term of up to 5 years, reappointment with
special resolution, eligibility must be rechecked-- code of conduct in schedule IV not
important
- Companies (Appointment and Qualification of Directors) Rules 2014, Rule 4 - Companies
which have to have 2 independent directors at least:
i. the Public Companies having paid up share capital of ten crore rupees or more; or
ii. the Public Companies having turnover of one hundred crore rupees or more; or
iii. the Public Companies which have, in aggregate, outstanding loans, debentures and deposits,
exceeding fifty crore rupees.
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 - Rule 5- Qualification of Independent Director - (1) An independent director shall possess
appropriate skills, experience and knowledge in one or more fields of finance, law,
management, sales, marking, administration, research, corporate governance, technical
operations or other disciplines related to the company's business.
(2) None of the relatives of an independent director-
(i) is indebted to the company, its holding, subsidiary or associate company or their
promoters, or directors; or
(ii) has given a guarantee or provided any security in connection with the indebtedness of
any third person to the company, its holding, subsidiary or associate company or their
promoters, or directors of such holding company,
- Rule 6 – Independent director may be picked from a data bank (names, addresses,
qualification, etc.) of persons offering to be an independent director.
o De jure directors- "directors by law"- person who has legal capacity to act as a director- persons
appointed by some expressed law/legislation
o De facto- "director by fact"- no legal capacity, showing outside the company that he is a director of
the company, only act as a director, but not appointed
o De jure v. De facto- de jure directors are characterised by the position they occupy, the position
remains intact throughout the existence of the company; de facto is associated with the person
occupying the position rather than the position itself; express rights and duties in de jure, subjective
rights and duties in de facto
o Shadow Director- Person who directs the board of directors, acts like a director but is not officially
named as a director.
o Nominee Director – Nominated in cases of tyranny or mismanagement by shareholders, lending
banks/public financial institutions, Central government, etc.
o Managers - A Business Manager is a professional who is responsible for leading and supervising
employees to ensure productivity efficiency of operations and providing direction on how best to
handle different tasks while maintaining customer satisfaction. Not a director. Most involved in daily
management activities.
 Number of directors – Section 149:
- Public companies – minimum 3 and maximum 5, Private Companies – min. 2 and max. 15, One
Person Company – min. 1 and max. 15.
- Can be increased to more than 15 by passing special resolution.
- Mandatory Resident director and in some specified companies, Female director.
 Section 165 – Number of directorships:
o Maximum 20 directorships for a person in total at the same time--- Including a maximum of 10
public companies --- Special resolution may be passed by company limiting the number of
directorships required for qualification
 Section 152 – Appointment of directors:
o First directors are the subscribers of the memorandum, or as mentioned in MoA.
o Every director shall be appointed in general meeting
o DIN required to be furnished in general meeting
o Consent to be director has to be given to registrar
o Section 152(6) - Rotational basis of retirement- Applicable only for Public companies and Deemed
Public Companies (Private companies that are subsidiaries of Public companies) – Does not include
Independent directors and Nominee directors.
- Unless it is provided by the articles of the company that all directors have to retire, at least
2/3rd directors are liable to retire by rotation (rotational directors) and 1/3rd are liable to
retire at every annual general meeting after the meeting at which first directors are
appointed.
- Any fraction in 2/3rd or 1/3rd will be rounded off to the next number as rounding it off to the
nearest number will sometime results in contravention of 2/3rd value.
- The retiring directors can be re-appointed by shareholders by casting votes in favour in
excess of votes casted against the resolution.
o Section 161- AoA may empower BoD to appoint additional directors, alternate directors, and
nominee directors to be in office until next AGM, or last date of AGM, whichever earlier.
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 Section 164 – Disqualifications for appointment of director:
o Unsound mind declared by competent court
o Un-discharged insolvent (a person who is unable to repay debts is insolvent and as long as he
remains in the position, i.e. as long as he has not discharged his debts, he is an un-discharged
insolvent)
o Applied for insolvency, pending application
o Convicted of offence
o An order disqualifying him for appointment as a director by competent authority
o Not paid any calls in respect of shares of the company and six months have elapsed since last
payment of call.
o Has been convicted under related party transactions Section 188 in the last 5 years
o Director has to have DIN
o Is in violation of maximum number of directorships under section 165.
o Private companies, through its articles, may provide for further grounds of disqualification.
o A person shall not be eligible for re-appointment as director in the same company or appointment
as director in another company for a period of 5 years if he is or was the director of a company
which:
(a) has not filed financial statements or annual returns for any continuous period of three financial
years; or
(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any
debentures on the due date or pay interest due thereon or pay any dividend declared and such
failure to pay or redeem continues for one year or more,
 REMOVAL OF DIRECTORS:
o Section 167 – Vacation of office of director
- office shall become vacant if he incurs disqualifications under 164
- he absents himself from all meetings in a period of twelve months
- acts contrary to s184 (s184 requires director to disclose interest in a transaction)
- disqualified by court or tribunal---- disqualification itself amounts to removal
- convicted by a court of any offence, whether involving moral turpitude or otherwise and
- sentenced in respect thereof to imprisonment for not less than six months
o Section 168 - Resignation of director
- resignation by notice to company in writing with reason
- resignation comes into effect when the notice is received by the company
- when all directors resign, promoter or central government to appoint required number of
directors until next general meeting
o Section 169 - Removal of directors by shareholders
- directors can be removed by ordinary resolution (except those appointed by the tribunal
under s242), with reasonable opportunity to be heard
- reappointed independent directors require special resolution
 Section 179 – POWERS OF BOARD:
o Board entitled to exercise all such powers and actions, as the company is authorised to do
o Regulations cannot be made in general meetings that shall invalidate a prior act of the Board
o Miscellaneous powers 179(3)-- certain powers can be delegated to the BoD, who shall perform them
by means of resolutions at meetings: (a) make calls on shareholders in respect of money unpaid on
their shares, (b) authorise buy back of securities, (c) Issue securities and debentures in and outside
India,(d) borrowings, (e) investing company funds, (f) granting loans, (g) approve financial
statements and the Board’s report, (h) diversifying business, (i)approve amalgamation, merger or
reconstruction, (j) take over fully or acquire substantial stake in another company.
 Section 180 – RESTRICTION ON POWERS OF BOARD:
o The BoD can exercise certain powers only with the consent of the company by a special resolution:
a) To sell, lease or otherwise dispose of wholly or substantial part of the company’s undertakings.
b) To invest compensation amount received from merger/amalgamation into trust securities.
c) Borrowing substantial amounts
d) To remit, or give time for the repayment of debt due from a director
 Section 166 – DUTIES OF DIRECTORS:
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  Duty to act in accordance with the articles of the company, subject to the provisions of the
act (1)
 Duty to act in good faith to promote the objects of the company for the benefits of the
members as a whole and in the best interest of the company, employees etc. And for the
protection of the environment (2)
 Duty of acting with reasonable care, skill and diligence, and exercise independent judgment
(3)
 Duty to not involve in situations in which he might have a direct or indirect interest that
conflicts the interest of the company(4)
 Duty to not gain undue advantage, or profit... liable to pay the gain back to the company (5)
 Duty to not assign his office, any such assignment is void (6)
 Liable to pay 1 lakh up to 5 lakh if provisions of this section is violated
 In re city equitable fire insurance co ltd-- duty to reasonable care--
Case Facts for Re City Equitable Fire Insurance Co Ltd (1925):
Gerard Lee Bevan was the chairman of City Equitable Fire Insurance Co Ltd. The company lost
£1,200,000 as the chairman committed fraud. The chairman was convinced of his fraudulent
activities and he was also sentenced.
Moreover, the liquidator also sued the auditors and other directors of the company with alleged
negligence that had brought the company to these losses.
Issue of the Case:
The issue is whether or not the directors and auditors are liable to the actions of the chairman and
that their negligence had resulted in the losses of the company.
Case Decision:
The court ruled that only some of the directors did breach their duty towards the company which
is the duty of care. However, those directors are not liable to pay or reimburse the money that the
company had lost.
The reason for this, according to Romer J, is that the nature of the activities of the company, the
company size, and the manner by which the work is distributed among the directors and even
employees of the company.
According to Romer J, Directors who lack the competencies to exceed their performance or even
perform higher than what is expected of them should not be cited or indicted as someone who can
be liable for negligence that is happening within the company.
With this, as City Equitable Fire Insurance Co Ltd is a life insurance company, the directors are not
expected to or do not guarantee that the skill of a doctor.
Directors duties depend upon nature of companies business, the manner in which the work of the
company is distributed between the directors and the other officials of the company. In discharging
these duties the director must exercise some degree of skill and diligence but he does not owe to
his company the duty to take all possible care or to act with best care. Indeed, he need not exhibit
in the performance of his duties a greater degree of skill than may reasonably be expected from a
person of his knowledge and experience. It is therefore, perhaps another way of stating the same
proposition that directors are not liable for mere errors of judgment.

 BURLAND VS EARLE
In the case of Burland v Earle [1902], the appellants and respondents were shareholders in a joint
stock company, British American Bank Note Company. The company was formed by the union of
two groups. One represented by the appellant George Burland and the other one by the
respondent Mr Earle. The company’s business was successful. As a result, it paid dividends
exceeding 100 %. Also, the company accumulated undivided profits in the amount of $ 264,167.
In 1897 the respondents initiated an action. They sought a declaration that the accumulated
surplus or reserve fund was either ultra vires or fraudulent, claiming immediate division and
distribution amongst the shareholders.

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 Held:
The Privy Council did not find the existence of fraud in the transaction in which the director had
sold a property purchased by him to the company. The other directors were fully aware of the
transaction and the price was fair. The Privy Council made it clear that this was a matter where the
court would not interfere.
“It is an elementary principle of the law relating to joint stock companies that the Court will not
interfere with the internal management of companies acting within their powers, and in fact has
no jurisdiction to do so. Again, it is clear law that in order to redress a wrong done to the company
or to recover moneys or damages alleged to be due to the company, the action should prima facie
be brought by the company itself. These cardinal principles are laid down in the well-known cases
of Foss v. Harbottle and Mozley v. Alston, and in numerous later cases"

 REGAL (HASTINGS) LTD. v. GULLIVER

Case facts:
- The appellant, “regal” owned and ran cinemas while the respondents were members of the Board of
Directors.
- The BoD formed a lease for acquiring two other cinemas through a subsidiary company, which was
subscribed to by the respondents. Regal, along the subsidiary company, was sold after prolonged
negotiations to a new buyer who also brought in a new BoD for management. A suit was brought to
recover sums from the respondents after it was found that they had made profits in violation of their
fiduciary duties to the shareholders as the Directors.
- The key takeaway is that directors owe a fiduciary duty towards the company and it is the directors
duty to not have conflict between the company’s interest and his personal interest. They can be held
liable for their actions/profits outside the company if their actions relate to the company by virtue of
their position as director of the company. This being one of the landmark cases relating to duties of
directors, has been upheld and relied on in cases like Dale & Carrington v Prathapan and Collyer
Logistics International v Collyer India Freight Forwarding Co.
- The principle has found a conspicuous place under section 166(4) of the Companies Act, 2013.
Replying to a suggestion in reference to pari passu section 166(4) of the Companies Bill, 2011, the
Ministry of Corporate affairs noted that its intention is not to prohibit Directors form from entering in
fair dealings, rather to only prohibit them from making any undue personal gains at the cost
company; they are to make a full disclosure to the company in any such dealings.

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 MODULE 2 - CORPORATE ABUSES AND REMEDIES
Majority and minority rights:
 The principle of rule by majority has been made applicable to the management of the affairs of
companies. The members pass resolutions on various subjects either by simple majority or by three-
fourth majority. Once a resolution is passed by the requisite majority then it is binding on all the
members of the company.

Foss v. Harbottle RULE (Principle of Non-Interference)

 The court will not ordinarily intervene to protect the minority interest affected by the resolution, as
on becoming a member, each person impliedly consents to submit to the will of the majority of the
members. Thus, if wrong is done to the company, it is the company which is the legal entity having
its own personality, and that can only institute a suit against the wrongdoer; and shareholders
(members) individually do not have a right to do so. Two points: company will not interfere if due
procedure is maintained, only the company can be the proper plaintiff.
 Facts- An action was brought by two shareholders, ‘F’ and ‘T’, of a company, on behalf of
themselves and all other shareholders against the directors and solicitor of the company, alleging that
by concerted and illegal transactions they had caused the company’s property to be lost. It was
alleged that the directors were acting in concert and effecting various fraudulent and illegal
transactions whereby the property of the company was misapplied and wasted. It was prayed that the
defendant might be decreed to make good to the company the losses. The question was as to the
maintainability of the suit.
 Held- The Court held that the action could not be brought by the minority shareholders. The wrong
done to the company was one which could be ratified by the majority of members. The company was
the proper plaintiff for wrongs done to the company, and the company can act only through its
majority shareholders. The majority of the members should be left to decide whether to commence
proceedings against the directors.

 This rule is an extension of the principle that a company is a separate legal person from the members
who compose it. Once it is admitted that a company is a separate legal person, it follows that if a
wrong is done to it, the company is the proper person to bring an action. This is a simple rule of
procedure which applies to all wrongs, viz., only the injured party may sue.

 Even if there is an injury on part of the plaintiff he has to further show that the injury was caused due
to a breach of duty. And since directors owe duty to the company and not the individuals, no such
breach arises.

 Application in India- must not be implemented mechanically - ICICI vs Parasrampuria Synthetic

Ltd.
 A person can only be the plaintiff against the wrong done when his individual rights (like right to
vote, right to restrain the company from doing an act which is ultra vires, etc.) have been
violated/denied. These rights are contractual in nature.

 Rajahmundry Electric Supply v. A Nageshwar Rao - The courts will not, in general, intervene at
the instance of shareholders in matters of internal administration and will not interfere with the

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 company's management by its directors so long as they are acting within the powers conferred to
them under the AoA of the company.
Company's management lies in the majority

Foss v. Harbottle EXCEPTIONS

 Ultra Vires Act - Ultra vires acts are outside the ambit of the rule-- individual shareholders are
proper plaintiffs and their suits against the company shall be maintainable. Bharat Insurance Co ltd
vs Kanhaiya Lal Gauba

 Breach of Duty of good faith- if action done by directors is not in good faith. (read with Burland v.
Earle and Regal Hastings) Satya Charan vs Rameshwar Pd. Bajoria- when a director is in breach
of fiduciary duty, every shareholder may be regarded as an authorised organ to bring the action

 Fraudulent discrimination with minority- unfair advantage given to the majority--presence of

malice- Edward vs Haliwell- Where the majority of a company’s members use their power to
defraud or oppress the minority, their conduct is liable to be impeached even by a single shareholder-
- In the words of Lord Davey, in Burland v. Earle [1902] A.C. 83, fraud embraces all cases where
the wrongdoers “are endeavouring, directly or indirectly, to appropriate to themselves money,
property or advantages which belong to the company or in which the other shareholders are entitled
to participate”.
 Grave irregularity/inconsistency
 Wrongdoers are protected by the majority or are a part of the majority
 Statutory Exception-- oppression and mismanagement Sections 241 to 245-- not only imposed to
protect individual interest but also the public interest at large.
o Who can apply- Section 241
 Any member of a company who complains that :
 Affairs of the company are being conducted in a manner prejudicial to the
public or the interest of the company (mismanagement), or in a manner
oppressive to himself, or any other member(s) (oppression)
 A material change has been brought in any manner which would go on to
create a prejudicial structure of managing affairs of the company against the
interests of the members
(provided the person has the right to apply under section 244)

 Central government (against the company) if it is of the opinion that the affairs of the company are
being conducted in a manner prejudicial to public interest. ( Not corporate or individual interest
though)
 Central government (against a person) if:
 The person who is concerned with the management and conduct of the company is guilty of
fraud, misfeasance, persistent negligence or default in carrying out his obligations under the
law of trust
 The person has not conducted the business of the company with sound business principles or
prudent commercial practices.
 The person has conducted or managed the company in such a manner that is likely to cause or
has caused serious injury to the interest of trade, industry, etc.
 The person has conducted the business with intent to defraud the creditors, members of any
other person or in a manner prejudicial to public interest.
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 o Who has the right to apply- Section 244
 in companies with share capital, not less than 100 members or 1/10th of the total members
whichever is less, or any member or members who holds 1/10th of issued share capital
provided he has paid all sums and calls due
 Other companies- not less than 1/5th of the total members
(the tribunal has the right to waive off this requirements on its application)
o Powers of the tribunal- Section 242
 Requirements to pass order as deemed fit by the tribunal- that the company's affairs are
being conducted in a manner prejudicial or oppressive to members, public interest or the
interest of the company itself and that to wind up the company would unfairly prejudice such
member(s), even when winding up would be otherwise justified given the facts and
circumstances.
 General orders such as:
 Regulation of future conduct of the company
 Purchase of shares or interests of any member by the company or other members
 etc. (Not important)
 Suresh Kumar sanghi vs supreme motors ltd--

PREVENTION OF MISMANAGEMENT AND OPPRESSION (Chapter XVI, Sections 241-246):

Prevention of Oppression

Oppression refers to the deviation from fair play in relation to the conditions set out concerning the rights of
the shareholders. Oppression refers to the abuse of power in a company.

Remedies against Oppression:

The provisions of the Companies Act provides for remedial action against the oppression of the majority
against the minority. These provisions are included with an intention. It is to protect the shareholders and
safeguard the public interest. The right so conferred to the minority shareholders through these provisions is
known as “qualified minority rights”.

In the Companies Act of 2013, sections 241 and 242 hold for the relief:

 The first remedy available to the affected minority is to apply to the tribunal. Under section 241(1) of
the Act, it is explained that if any members are disappointed that the company’s matters are being
carried out in a prejudicial, oppressive or in a manner that is against the public interest, such persons
may apply to the tribunal for relief.

 Further, it holds that any member who complains that a material change has been brought about
without protecting the interests of the shareholders, debenture holders and so on, for which the
material change is prejudicial, oppressive or is in a manner that is against the public interest, the
members may apply to the tribunal as in the manner prescribed in section 244 of the Companies Act.

Instances of Oppression:

These are instances for which various judgements are passed against the oppressing majority:

 The majority shareholders force the minority with risky objects without their willingness.
10
  If a member is prohibited or deprived of his ordinary membership rights.

 When the majority is putting the minority shareholders under a heavy burden which is unjust, unfair,
harsh and inhuman.

 If the company’s affairs are being carried out in a matter that is not in compliance with the provisions
of the Companies Act.

Prevention of Mismanagement

If the company affairs are being carried out in a prejudicial manner against public or company’s interest, or
if any material change is brought about management and control of the company, then relief can be availed
as per section 241(1)(b) of the Companies Act, 2013.

Material change here refers to any change brought or alteration made in the Board of Directors, company
shares ownership and so on. If there is proof that the affairs are being carried out in a prejudicial manner,
then that will be sufficient for the relief.

Tribunal and Its Powers

The tribunals have a wide power when it comes to the question of oppression and mismanagement in the
companies. The powers of the tribunals are provided under sections 241 and 242 of the Companies Act. The
tribunal may make any order as it finds necessary to regulate the conduct of the company’s affairs:

 Winding up order: The tribunal may pass a winding-up order if it believes that the affairs of the
company are being conducted in an oppressive or prejudicial manner. Moreover, it affects the
interests and rights of the members as well as the public. Further, if the tribunal holds that it is just
and equitable to wind up the company, it may do so by taking into consideration all the aspects of the
same. But the tribunals avoid the same because it will lead to a worse situation, and eventually, the
company’s business will be dealt with by the majority.

 Other orders dealing with the regulation of the conduct of the company’s affairs, purchase of shares,
termination, setting aside or modification of any agreement and so on as per section 242(2) of the
Companies Act, 2013.

 Interim relief as per section 242(4) of the Companies Act, 2013: Any party to the proceeding can
make an application for interim relief. This is to ensure proper regulation relating to the conduct of
affairs of the company.

Case Laws Related to Oppression and Mismanagement in Companies

Rajahmundry Electric Supply Corporation vs A Nageshwara Rao (1956)

In this case, the court observed whether mismanagement is sufficient to pass a winding-up order. The
contention was that the mere misconduct on the part of the director would not amount to mismanagement,
and a winding-up order cannot be passed as it is an affair of ‘internal management. Hence, it was contended
that no courts can interfere.

11
The court here ruled that, if circumstances exist, apart from that misconduct, which renders it necessary to
protect the interest of the shareholders for which they want nothing but winding up, then the court may look
into the same.

In this case, the Vice-Chairman of the company mismanaged the affairs of the company and drew huge
amounts from the company to satisfy his personal affairs. Here, there was sufficient evidence of
mismanagement.

Mohan Lal Chandumall vs Punjab Co. Ltd (1961)

In this case, the court held that depriving a member of his ordinary membership rights amounts to
oppression. Here, a public company had to amend its Articles due to compulsion under statutory direction.
The non-trading members were deprived of their right to vote, to call meetings and so on.

The court held that there was oppression and directed the company to buy shares of the members who
complained and to allow them to walk out with the money they invested therein.

Tata Consultancy Services Ltd. v. Cyrus Investment Pvt. Ltd.-

The Supreme Court observed that unless the removal of a person as a chairman of a company is oppressive
or mismanaged or done in a prejudicial manner damaging the interests of the company, its members or the
public at large, the Company Law Tribunal cannot interfere with the removal of a person as a Chairman of a
Company in a petition under Section 241 of the Companies Act, 2013.

CLASS ACTION SUITS (Section 245)

Class action refers to a law suit where one or several persons join together and sue on behalf of a larger
group of persons-- generally done for more general grievances-- cannot be issued against a banking
company
o Who may file-
 In companies with share capital, more than 100 members, or not less than certain prescribed
percentage of members, or member(s) holding a certain prescribed percentage of shares,
provided he has paid all calls and sums due, An application on behalf of depositors to be
made by not less than 100 depositors, or not less than certain prescribed percentage of
depositors in total, or depositor(s) to whom the company owes certain prescribed percentage
of total deposits of the company
 Otherwise, not less than 1/5th of total members
o Relief provided under this section:
 Various types of reliefs are provided under this section (sub section (1)(a) to (h) ranging from
restraining the company from committing an ultra vires act to restraining the company from
committing breach of a provision in the articles of the company, etc.
o Tribunal shall take into account:
 Applicant acting in good faith
 Involvement of other persons other than the directors or officers
 Whether the applicant could have pursued the action on his own right rather than an action
under this section
 Whether the company is likely to ratify the disputed act or omission
o Procedural requirements
 Public notice to members and depositors
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  All similar applications to be consolidated into a single application
 2 class actions for the same cause of action not to be allowed
 Cost of proceedings to be borne by the company or person involved in the act of oppression

The key difference between the two remedies under 241/244 and 245 are set out below:

Application under Section Application under

241/244 Section 245

Who can apply Members of the company; Members and Depositors

Central Government of the company

Against whom Company and its management Company, Directors, Auditors,

(managing director, manager or Experts or
any of the directors) advisors or consultants or
any other person as
mentioned

Matters for which Oppression, mismanagement, Acts involving violation of

relief may be prejudicial to any member,
requested members or interest of the
company or prejudicial to
public interest , both past and
continuing
law, ultra vires the articles
or memorandum.
Fraudulent, unlawful or
wrongful act or omission
or improper or misleading
statements
Cover past, present and
future activities as well.

National Company Law Tribunal – Section 408

 Composition- One president, judicial members and technical members
 Qualifications-
o President- must have been a judge of the high court for 5 years
o Judicial member-been a judge of a high court or a district judge for five years or 10 years as
an advocate of a court
o Technical member- been a member of Indian Corporate Law Service or Indian Legal service
for 15 years with at least 3 years in the pay-scale of Joint secretary to the govt of India or
higher or been a CA for 15 yrs or cost accountant for 15 yrs or company secretary for 15 yrs
or is a person competent enough with special knowledge and experience in the relevant fields
or been a presiding officer of a labour court, tribunal or national tribunal under industrial
disputes act 1947

National Company Law Appellate Tribunal – Section 410

 Qualifications-
o Chairperson: The chairperson shall be a person who is or has been a Judge of the Supreme
Court or the Chief Justice of a High Court.

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 o Judicial Members: A Judicial Member shall be a person who is or has been a Judge of a High Court
or is a Judicial Member of the Tribunal for five years.
o Technical Member: A Technical Member shall be a person of proven ability,
integrity and standing having special knowledge and experience, of not less than
twenty-five years, in law, industrial finance, industrial management or administration, industrial
reconstruction, investment and accountancy.
Order of the tribunal:
 Tribunal can rectify it's order anytime within 2 years of passing order, of a mistake is brought before
the tribunal. This rectification cannot be done if there's an appeal against the order.

Section 421 - Appeal to NCLAT within 45 days

Section 423 - Appeal to SC within 60 days

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 MODULE 3 - CORPORATE GOVERNANCE
 Governance is about guiding or driving something to a particular position, or end point.

 Corporate governance is how you govern a company in the best possible manner-- set of policies and
practices by which a company is governed

 Corporate governance goes beyond just the rules and regulations mandatory for a company to follow,
these guidelines are there for the company to run itself in the best possible manner

 Best possible manner-- balance of both the interests of shareholders as well as company( example)

 Explanation by Cadbury committee- "Corporate governance is the system by which companies are
directed and controlled. Boards of directors are responsible for the governance of their companies.
The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy
themselves that an appropriate governance structure is in place. The responsibilities of the board
include setting the company’s strategic aims, providing the leadership to put them into effect,
supervising the management of the business and reporting to shareholders on their stewardship. The
board’s actions are subject to laws, regulations and the shareholders in general meeting."

SCOPE AND RELEVANCE OF CORPORATE GOVERNANCE

Corporate governance extends beyond corporate law. Its fundamental objective is not mere fulfilment of
requirements of law but in ensuring commitment of the Board and its senior officers in managing the
company in a transparent manner for, inter alia, maximising long term shareholders value.

Scope of corporate governance

1. Accountability – Accountability means a situation in which any person is responsible and needs to give a
satisfactory reason for anything wrong in work. Corporate governance makes accountability.

(a) Accountability ensures that working management i.e. Managers, Employees is responsible to the Board
Of Directors (BOD).

(b) Further, Accountability Ensure that the BOD is accountable to shareholders if anything bad happens.

2. Fairness
(a) Corporate governance (CG ) protects the rights of Shareholders.
(b) CG treat all shareholders equally including minorities i.e. who has small part of company’s ownership.
(c) Provides effective redressal for any violations i.e Customer care

3. Transparency
(a) CG makes ensure timely, accurate disclosure on all material matters of the company including the
financial situation, performance, ownership.

4. Independence
(a) CG makes procedures, rules, and structures in place to minimize or avoid conflicts of interest
(b) CG appoints Independent Directors and Advisers i.e. to take the free decision from the influence of
others

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5. Compliance with rules
(a) CG ensures compliance with all the laws and code of spirit.
(b) Corporate governance is necessary to meet the requirement of SEBI for listed companies.

Importance Of Corporate Governance

1. Brings Honesty & Transparency

Corporate governance is important to promote the honest and transparent monitoring of each and every
activity of the company. It helps the company to maintain the rules and standards of the company. Corporate
governance also assists the training and development of directors so that they can perform well in the
decision-making process.

2. Access Foreign Capital

Foreign capital means getting capital investment from foreign countries. Foreign capital markets want high
standards for efficiency & transparency of the company. Good corporate governance is important to bring
efficiency & transparency to the company which helps the global market players to gains credibility and
trust.

3. Protection of Investor
The next importance of corporate governance is to protect the rights of investors. Every investor wants their
rights to be protected by companies. Bringing corporate governance in a company can protect investors’
interests by improving the efficiency of corporate enterprises.

4. Fairness In Financial Reporting & Accountability

Financial reporting is the financial results of a company in which company provides the results to its
stakeholders and the public. Corporate governance ensures sound, transparent, and credible financial
reporting. Corporate governance also makes accountability ( Responsibility ) of employees & managers for
their work to increase their effectiveness.

5. Improves Shareholder Communication

Shareholder communication refers to the right to vote in the decision-making process. It is the another way
in which investors can communicate with the companies. Corporate governance is important to set up the
right for shareholder communication. Nowadays more importance is giving to corporate governance.

Example- In 2003, New provisions are added in corporate governance in order to improve shareholder’s
involvement in decision making.

6. Increases Goodwill and market reputation

Corporate governance is important to increase goodwill and market reputation. As corporate governance
ensures the protection of rights, the efficiency of a company, right decisions, etc.

7. Enhancing Company Valuation

Improved management, accountability, good market reputation, and transparency fulfil the investor’s need
and confidence in the company. This increases the value of the company in the market.

Need for corporate governance

 Confederation of Indian Industry- "Strong corporate governance is indispensable to resilient and

vibrant capital markets and is an important instrument of investor protection. It is the blood that fills
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 the veins of transparent corporate disclosure and high quality accounting practices. It's the muscle
that moves a viable and accessible financial reporting structure."-- investor protection, transparency
and disclosure, financial reporting and accounting practices

1. Growing Number of Scams

Misuse and misappropriation of public money are happening everywhere i.e stock market, banks, financial
institutions, companies, and government offices. In order to avoid these financial irregularities, companies
need to start using corporate governance.

2. Takeovers and Mergers

There are many takeovers and mergers are going on in the business world. The need of corporate
governance is to protect the interest of all the parties during takeovers and mergers.

3. Comply with SEBI Requirement

SEBI has made corporate governance compulsory for certain companies i.e for listed companies to comply
with its provisions. This SEBI requirement protects the interest of the investors and other stakeholders. If
any company doesn’t comply with SEBI rules, it can bring a high penalty.

4. Need of Social Responsibility

Today, social responsibility is given a lot of importance. The Board of Directors (BOD) has to protect the
rights of the customers, employees, shareholders, suppliers, local communities, government, etc. This is
possible only if they use corporate governance.

DIFFERENT MODELS OF CORPORATE GOVERNANCE

1. ANGLO-AMERICAN MODEL

Under the Anglo-American Model of corporate governance, the shareholder rights are recognised and given
importance. They have the right to elect all the members of the Board and the Board directs the management
of the company. Some of the features of this model are:

 This is shareholder oriented model. It is also called Anglo-Saxon approach to corporate governance
being the basis of corporate governance in Britain, Canada, America, Australia and Common Wealth
Countries including India

 Directors are rarely independent of management

 Companies are run by professional managers who have negligible ownership stake. There is clear
separation of ownership and management.

 Institution investors like banks and mutual funds are portfolio investors. When they are not satisfied
with the company’s performance they simple sell their shares in market and quit.

 The disclosure norms are comprehensive and rules against the insider trading are tight

 The small investors are protected and large investors are discouraged to take active role in corporate
governance.

2. GERMAN MODEL

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This is also called European Model. It is believed that workers are one of the key stakeholders in the
company and they should have the right to participate in the management of the company. The corporate
governance is carried out through two boards, therefore it is also known as two-tier board model. These two
boards are:

i. Supervisory Board: The shareholders elect the members of Supervisory Board. Employees also
elect their representative for Supervisory Board which are generally one-third or half of the Board.

ii. Board of Management or Management Board: The Supervisory Board appoints and monitors the
Management Board. The Supervisory Board has the right to dismiss the Management Board and re-
constitute the same.

3. JAPANESE MODEL

Japanese companies raise significant part of capital through banking and other financial institutions. Since
the banks and other institutions stakes are very high in businesses, they also work closely with the
management of the company. The shareholders and main banks together appoint the Board of Directors and
the President. In this model, along with the shareholders, the interest of lenders is recognised.

4. SOCIAL CONTROL MODEL

Social Control Model of corporate governance argues for full-fledged stakeholder representation in the
board. According to this model, creation of Stakeholders Board over and above the shareholders determined
Board of Directors would improve the internal control systems of the corporate governance. The
Stakeholders Board consists of representation from shareholders, employees, major consumers, major
suppliers, lenders etc.

INDIAN MODEL:

In India there are mainly three types of companies’ viz. private companies, public companies and public
sector undertakings. Each of these companies has distinct kind of shareholding pattern. Thus the corporate
governance model in India is a mix of Anglo-American and German Models.

FOUR PILLARS OF CORPORATE GOVERNANCE

i. Accountability: Accountability is a liability to explain results of one’s decisions taken in the interest
of others. In the context of CG, accountability implies the responsibility of the Chairman, the Board
of Directors and the Chief Executive for the use of company’s resources (over which they have
authority) in the best interest of company and its stakeholders.
ii. Fairness: Fairness touches on the points of uniform and equal treatment of all the shareholders in
reference to receival of considerations regarding shareholdings. The fairer the company seems to
shareholders, the more likely it is that it can endure in the competitive market.
iii. Transparency: Transparency means the quality of something which enables one to understand the
truth easily. In the context of CG, it implies an accurate, adequate and timely disclosure of relevant
information about the operating results, etc. of the corporate enterprise to the stakeholders. For
ensuring transparency in corporate administration, a company should publish relevant information
about corporate affairs in leading newspapers, etc. of a quarterly or half-yearly or annual basis.
iv. Independence: Independence means free from the influence of others. Good corporate governance
requires independence on the part of the top management of the corporation i.e. the Board of
18
 Directors must be strong non-partisan body; so that it can take all corporate decisions based on
business prudence. Good corporate governance will only be a mere dream without the top
management of the company being independent.

PRINCIPLES, POLICIES, AND BEST PRACTICES

I. CADBURY COMMITTEE REPORT (‘The Financial Aspects of Corporate Governance,

1992’):
 The Setting for the Report - The country’s economy depends on the drive and efficiency of its
companies. Thus the effectiveness with which their boards discharge their responsibilities determines
Britain’s competitive position. The Committee’s recommendations are focused on the control and
reporting functions of boards, and on the role of auditors. At the heart of the Committee’s
recommendations is a Code of Best Practice designed to achieve the necessary high standards of
corporate behaviour.
 Introduction - Corporate governance is the system by which companies are directed and controlled.
Boards of directors are responsible for the governance of their companies. The shareholders’ role in
governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate
governance structure is in place.
- Corporate governance is the way in which boards set financial policy and oversee its
implementation, including the use of financial controls, and the process whereby they report
on the activities and progress of the company to the shareholders.
 Code Principles - The principles on which the Code is based are those of openness, integrity and
accountability. They go together. Openness on the part of companies, within the limits set by their
competitive position, is the basis for the confidence which needs to exist between business and all
those who have a stake in its success.
- Integrity means both straightforward dealing and completeness.
- Boards of directors are accountable to their shareholders and both have to play their part in
making that accountability effective.
 Board Effectiveness - Every public company should be headed by an effective board which can
both lead and control the business.
- All directors are equally responsible in law for the board’s actions and decisions. Certain
directors may have particular responsibilities, as executive or non-executive directors, for
which they are accountable to the board.
 The Chairman - Chairmen are primarily responsible for the working of the board, for its balance of
membership subject to board and shareholders’ approval, for ensuring that all relevant issues are on
the agenda, and for ensuring that all directors, executive and non-executive alike, are enabled and
encouraged to play their full part in its activities.
 Non-Executive Directors - The Committee believes that the calibre of the nonexecutive members of
the board is of special importance in setting and maintaining standards of corporate governance.
- Non-executive directors should bring an independent judgement to bear on issues of strategy,
performance, resources, including key appointments, and standards of conduct. We
recommend that the calibre and number of non-executive directors on a board should be such
that their views will carry significant weight in the board’s decisions.
- An essential quality which non-executive directors should bring to the board’s deliberations
is that of independence of judgement.

19
  Board Structures and Procedures - The basic procedural requirements are that the board should
meet regularly, with due notice of the issues to be discussed supported by the necessary paperwork,
and should record its conclusions.
 The Company Secretary - The company secretary has a key role to play in ensuring that board
procedures are both followed and regularly reviewed. The chairman and the board will look to the
company secretary for guidance on what their responsibilities are under the rules and regulations to
which they are subject and on how those responsibilities should be discharged.
 Standards of Conduct - It is important that all employees should know what standards of conduct
are expected of them.
 Nomination Committees - One approach to making board appointments. which makes clear how
these appointments are made and assists boards in making them, is through the setting up of a
nomination committee, with the responsibility of proposing to the board, in the first instance, any
new appointments, whether of executive or of non-executive directors. A nomination committee
should have a majority of non-executive directors on it and be chaired either by the chairman or a
non-executive director.
 Audit Committees- Since 1978, the New York Stock Exchange has required all listed companies to
have audit committees composed solely of independent directors and the 1987 report of the
American Treadway Commission concluded that audit committees had a critical role to play in
ensuring the integrity of US company financial reports. While experience of audit committees in this
country is shorter, it is encouraging, and around two-thirds of the top 250 UK listed companies now
have them in place.
- The Committee, therefore, recommends that all listed companies should establish an audit
committee.
 Board Remuneration - We also recommend that boards should appoint remuneration committees,
consisting wholly or mainly of non-executive directors and chaired by a non-executive director, to
recommend to the board the remuneration of the executive directors in all its forms, drawing on
outside advice as necessary.
 The Code of Best Practice:

1. The Board of Directors

1.1 The board should meet regularly, retain full and effective control over the company and monitor the
executive management.

1.2 There should be a clearly accepted division of responsibilities at the head of a company, which will
ensure a balance of power and authority, such that no one individual has unfettered powers of decision.
Where the chairman is also the chief executive, it is essential that there should be a strong and independent
element on the board, with a recognised senior member.

1.3 The board should include non-executive directors of sufficient calibre and number for their views to
carry significant weight in the board’s decisions.

1.4 The board should have a formal schedule of matters specifically reserved to it for decision to ensure that
the direction and control of the company is firmly in its hands.

1.5 There should be an agreed procedure for directors in the furtherance of their duties to take independent
professional advice if necessary, at the company’s expense.

20
1.6 All directors should have access to the advice and services of the company secretary, who is responsible
to the board for ensuring that board procedures are followed and that applicable rules and regulations are
complied with. Any question of the removal of the company secretary should be a matter for the board as a
whole.

2. Non-Executive Directors

2.1 Non-executive directors should bring an independent judgement to bear on issues of strategy,
performance, resources, including key appointments, and standards of conduct.

2.2 The majority should be independent of management and free from any business or other relationship
which could materially interfere with the exercise of their independent judgement. apart from their fees and
shareholding. Their fees should reflect the time which they commit to the company.

2.3 Non-executive directors should be appointed for specified terms and reappointment should not be
automatic.

2.4 Non-executive directors should be selected through a formal process and both this process and their
appointment should be a matter for the board as a whole.

3. Executive Directors

3.1 Directors’ service contracts should not exceed three years without shareholders’ approval.

3.2 There should be full and clear disclosure of directors’ total emoluments and those of the chairman and
highest-paid UK director, including pension contributions and stock options. Separate figures should be
given for salary and performance-related elements and the basis on which performance is measured should
be explained.

3.3 Executive directors’ pay should be subject to the recommendations of a remuneration committee made
up wholly or mainly of non-executive directors.

4. Reporting and Controls

4.1 It is the board’s duty to present a balanced and understandable assessment of the company’s position.

4.2 The board should ensure that an objective and professional relationship is maintained with the auditors.

4.3 The board should establish an audit committee of at least three non-executive directors with written
terms of reference which deal clearly with its authority and duties.

4.4 The directors should explain their responsibility for preparing the accounts next to a statement by the
auditors about their reporting responsibilities.

4.5 The directors should report on the effectiveness of the company’s system of internal control.

4.6 The directors should report that the business is a going concern, with supporting assumptions or
qualifications as necessary.

II. KUMAR MANGALAM BIRLA COMMITTEE (1999)- stressed on the optimum blend of
executive and non-executive directors and it is very imp to strike a balance in their interests,
21
 avoiding any disputes which may delay the functions of the company-- determining the
independence of a particular person (when determining whether the person is an independent dir.)---
standards as to disclosures, information to be provided in the annual report of the company

III. NARESH CHANDRA COMMITTEE (2002)- stressed on the mandatory requirement of

independent directors in certain classes of companies-- auditing standards and persons who can be
considered for auditing-- some recommendations are as follows:

o presence of nomination committee to Search for, evaluate, shortlist and recommend

appropriate independent directors and NEDs, subject to the broad directions of the full Board;
and • Design processes for evaluating the effectiveness of individual directors as well as the
Board as a whole.---

o Letter of Appointment to Directors which will have certain guidelines and information as to
powers and duties of the director concerned

o Fixed Contractual Remuneration for Non-executive directors

o Guidelines for a structure of compensation to NEDs (should not be much, etc. to maintain
the independence of NEDs)

o Establishment of a 3 member audit committee

o Separation of the office of Chairperson and CEO

IV. Narayana Murthy Committee, 2003

The key mandatory recommendations focus on strengthening the responsibilities of audit committees;
improving the quality of financial disclosures, including those pertaining to related party transactions and
proceeds from initial public offerings; requiring corporate executive boards to assess and disclose business
risks in the annual reports of companies; introducing responsibilities on boards to adopt formal codes of
conduct; the position of nominee directors; and stock holder approval and improved disclosures relating to
compensation paid to non-executive directors. Non-mandatory recommendations include moving to a
regime where corporate financial statements are not qualified; instituting a system of training of board
members; and the evaluation of performance of board members.

V. OECD Principles, 2004 (Paris, France) (Organisation for Economic Co-operation and
Development)

The OECD Principles cover five aspects of governance: (a) the rights of shareholders (b) the equitable
treatment of shareholders (c) the role of stakeholders (d) disclosure and transparency (e) the responsibilities
of the board.

VI. J.J. Irani Committee (2005)

The main recommendations are no/any limit to the maximum numbers of directors in a company. This
should be decided by the companies or by its Articles of Association. There should be at least one director
resident in India. Both the managing director as also the whole time directors should not be appointed for
22
more than five years at a time. Age limit of the director may be prescribed in the law. There should be
adequate disclosure of age of the directors in the company’s document. A minimum of one-third of the total
strength of the BoD as independent directors. Detail of transactions of the company should be placed
periodically before the board through the audit committee. All non-audit services may be pre-approved by
audit committee. The rights of minority shareholders should be protected during general meetings of the
company. Majority of the directors of the audit committee should be independent directors if the company is
required to appoint independent directors. The Committee kept silence on two major issues on corporate
governance: (i) Chairman and CEO duality (particularly in regard to separation of these two posts), and (ii)
Appointment of nomination committee.

VII. CII (Confederation of Indian Industry) REPORTS ON CORPORATE GOVERNANCE (1996

and 2009)
 In 1996, CII taking up the first institutional initiative in the Indian industry took a special step on
corporate governance. The aim was to promote and develop a code for companies, be in the public
sectors or private sectors, financial institutions or banks, all the corporate entities. The steps taken by
CII addressed public concerns regarding the security of the interest and concern of investors,
especially the small investors; the promotion and encouragement of transparency within industry and
business, the necessity to proceed towards international standards of disclosure of information by
corporate bodies, and through all of this to build a high level of people’s confidence in business and
industry. The final draft of this Code was introduced in April 1998
 India’s corporate community experienced a significant shock in January 2009 with damaging
revelations about board failure and colossal fraud in the financials of Satyam. The Satyam scandal
also served as a catalyst for the Indian Government to rethink the corporate governance, disclosure,
accountability and enforcement mechanisms in place. Industry response shortly after news of the
scandal broke, the CII began examining the corporate governance issues arising out of the Satyam
scandal. Other industry groups also formed corporate governance and Ethics Committees to study the
impact and lessons of the scandal. In late 2009, a CII task force put forth corporate governance
reform recommendations.
In its report the CII emphasised the unique nature of the Satyam scandal, noting that—Satyam is a
one-off incident. The overwhelming majority of corporate India is well run, well regulated and does
business in a sound and legal manner.

CORPORATE GOVERNANCE vis-a-vis COMPANIES ACT, 2013

 Section 125- Investor Education and Protection fund- Investor protection is a vital part of
corporate governance- Central government to establish an investor education and protection fund-
utilised for refund of unclaimed dividends, matured deposits, etc. promotion of investor's awareness,
education etc.; reimbursement of legal expenses or compensations awarded by the court

 Section 129 - Financial Statement - True and fair financial statements with proper standards of
accounting.

 Section 132- Constitution of a National Financial Reporting Authority- Created by central

government to set the standards of accounting and auditing under the act and monitor and enforce
such standards.

 Section 35- Corporate Social Responsibility--- MODULE 4

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 CHAPTER X (139-148) - Audits and auditors

o Only an individual who is a chartered accountant or a firm where majority of partners

practising in India are qualified as such can be an auditor

o Any Person is disqualified from being an auditor if he/she is related to the company in any
way, because that shall undermine the independence and non-partiality of the post of auditor

o Remuneration to the auditor must include only fees for the audit and expenses therein, and
not any remuneration paid in lieu of any other work done for the company by the auditor

 Sections 149, 150- Independent directors

 Section 165- Number of directorship

 Sections 177 - Audit committee and Section 178 - Nomination and remuneration committee,
Stakeholders Relationship committee:-

o Audit committee- for the purpose of selecting the auditor-- it is a part of the board of
directors-- 3 directors at least with majority of independent directors-- functions:

 recommendation for appointment, remuneration, terms of appointment of auditors of

the company

 Review and monitor auditor's independence performance, and effectiveness

 Examination of financial statement and auditors' report thereon

 Approval or any subsequent modification of transactions of the company with related

parties

o Nomination and remuneration committee-functions:

 identifying persons qualified to become directors and who may be appointed in senior
positions;

 recommend their appointment or removal to the board;

 specify the manner of evaluation of performance of the board, it's committees and
individual directors and review it's implementation and compliance

 Set the criteria for determining qualifications, independence and recommend a

remuneration policy to the board

o Stakeholders Relationship committee- to be established when there are more than 1000
stakeholders in a company-- main function is to resolve grievances of security holders of the
company

 Section 211- Establishment of Serious fraud Investigation office, - by central government, to

consist of directors and experts from various fields like banking, corporate affairs, taxation, etc.
Function: To investigate frauds relating to a company

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  Section 212 - Investigation into affairs of Company by Serious Fraud Investigation Office –
Necessary when:

a) on receipt of a report of the Registrar or inspector under section 208 (Report on inspection
made);
b) on intimation of a special resolution passed by a company that its affairs are required to be
investigated;
c) in the public interest; or
d) on request from any Department of the Central Government or a State Government,

 Chapter XVI - Prevention of oppression and mismanagement – MODULE 2

FAILURES OF CORPORATE GOVERNANCE

1. TATA-MISTRY DISPUTE (Tata Consultancy Services Ltd. v. Cyrus Investment Pvt. Ltd.)
(2021)

Background

 Tata Consultancy Services (TCS) is a division of Tata Sons founded on April 1, 1968. It is an
Indian multinational information technology (IT) services and consulting company having its
headquartered in Mumbai, Maharashtra, India. TCS operates in 46 countries throughout the world.

 Cyrus Investments Private Limited is a Non-govt company, incorporated on 7 March, 1923.

It operates as an investment advisor. It’s a private unlisted company and is classified as ‘company
limited by shares’.

 Ratan Tata is an Indian industrialist as well as one of India’s most prominent business leaders. He
was the former Chairman of Tata Sons and also the former Chairman of Tata Group.

 Cyrus Mistry is an Indian businessman. He served as the Chairman (2012–16) of the gigantic Tata
Group conglomerate. He is also one of the directors of Cyrus Investments Private Limited.

Timeline of events and the Disputes

 In December, 2012: Cyrus Mistry was appointed as the Chairman of Tata Sons Limited chosen by a
selection panel of Tata Group when Ratan Tata stepped down from the post.

 In October, 2016: Cyrus Mistry was removed from the post of Chairman of Tata Sons Limited by a
majority of the Board of Directors for loss of confidence.

 On January 12, 2017: Tata Sons names N Chandrashekaran as the Chairman of Tata Sons Limited,
the then TCS Chief Executive Officer and Managing Director.

 In February, 2017: Cyrus Mistry was removed as a Director of the board of Tata Sons, by the
shareholders’ vote during a general meeting.

 Thereafter, Cyrus Mistry files a suit under Sections 241, 242 and 244 of the Companies Act, 2013
before National Company Law Tribunal (NCLT), Mumbai alleging oppression of minority
shareholder rights and operational mismanagement of the Tata Sons.
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Mistry’s charges alleging oppression and mismanagement

Charges that Cyrus Mistry’s made on part of Tata Sons to Show Oppression and mismanagement by the
group:

 Tata Sons abused their powers under few articles and Tata Trust exercised control over the Tata Sons
board.

 Removal of Cyrus Mistry as an executive chairman from Tata Sons Limited.

 Transactions made with Siva and Sterling Group of Companies by Tata Groups.

 Fraudulent transaction worth Rs. 22 crore in Air Asia by Tata Trusts.

 The losses suffered in Nano car project clearly depicts the oppression of minority shareholder rights
and mismanagement by the Tata Group.

 The acquisition of Corus at overpayment by Tata Trusts.

NCLT, Mumbai Verdict

 In July 2018, NCLT Mumbai Bench dismissed all the charges made against Tata Sons. The bench
also rules that the Board of Directors of Tata Sons are competent enough to remove Cyrus Mistry
From the post of Chairman of Tata Sons Limited.

 For the allegation regarding Air Asia, the bench held that it have been made with impunity by Cyrus
Mistry flouting all legal principles.

 As regards allegations on the Nano project, NCLT held that allegations were made without making
Tata Motors a party to the case.

 The NCLT also rejected allegations on the acquisition of Corus and the transactions made with Shiva
and Sterling Group by Tata Group.

 The bench also states that it found no merit in the arguments on the oppression of minority
shareholder rights and operational mismanagement of the Tata Sons.

National Company Law Appellate Tribunal (NCLAT) Verdict

 In December, 2019, the National Company Law Appellate Tribunal (NCLAT) overturns the NCLT,
Mumbai Bench judgment, and had ruled in favour of Cyrus Mistry firms. The NCLAT states that
Mistry’s removal as Chairman of Tata Sons was illegal. The NCLAT also ordered to reinstate Cyrus
Mistry as chairman of Tata Sons and also termed N Chandrasekaran’s appointment to the chairman’s
post of the over USD 100 billion salt-to-software conglomerates as ‘illegal’.

Tata’s contentions

 In January, 2020, Tata Sons and Ratan Tata moved to Supreme Court and challenged the NCLAT
decision before the Supreme Court. In its appeal Tata has contended that there was no wrongdoing
involved on the part of Tata Group in the removal of Cyrus Mistry as chairman of Tata Sons Limited
in October, 2016, the Tata Group also added that the board was “well within its rights to do so”.

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  Subsequently, in January, 2020 the Supreme Court granted relief to Tata Group and stays the
NCLAT order of December 2019 to reinstate Cyrus Mistry as the executive chairman of Tata Sons.

Governing Laws

 Section 241 of the Companies Act, 2013 – This section provides relief to the members of a
company in cases of oppression.

Any member of a company has a right to apply to the Tribunal if the affairs of the company have been or are
being mismanaged and are conducted in an oppressive manner damaging the interests of the company, its
members or the public at large. The central government can also make an application to the tribunal under
this section if it feels that the affairs of the company are being conducted in a prejudicial or oppressive
manner.

 Section 242 of the Companies Act, 2013 – Powers of the Tribunal

Section 242 states that if, on any application made by any member of a company or the central government
under Section 241, the Tribunal believes that the affairs of the company have been or are being mismanaged
and are conducted in an oppressive manner damaging the interests of the company, its members or the
public at large, or the winding-up of the company would unfairly prejudice such member or members, the
Tribunal may, intending to bring to an end the matters complained of, make an order to regulate the conduct
of affairs of the company regarding the purchase of shares, restriction on the transfer of the share,
termination, setting aside or modification of any agreement, setting aside of any transfer or any orders as the
tribunal thinks fit.

 Section 244 of the Companies Act, 2013 – This section provides for the eligibility criteria to file an
application under section 241 of the Companies Act, 2013.

Section 244 of the act lays down the qualification to be met for an application to be maintainable under
Section 241 of the Companies Act, 2013.

Supreme Court Verdict

 The Supreme Court on March 26, 2021, pronounced its long-awaited judgement in the Tata- Cyrus
Mistry case. The judgement was pronounced by a bench of Supreme Court headed by Chief Justice S
A Bobde and comprising Justice V Ramasubramanian and Justice A S Bopanna. The judgement was
pronounced in favour of the Tata Group. The bench dismissed all the charges of oppression and
mismanagement against the Tata Sons Limited made by entities owned by Cyrus Mistry.

 The Supreme Court observed that “unless the removal of a person as a chairman of a company is
oppressive or mismanaged or done in a prejudicial manner damaging the interests of the company, its
members or the public at large, the Company Law Tribunal cannot interfere with the removal of a
person as a Chairman of a Company in a petition under Section 241 of the Companies Act, 2013.

 The court held that mere removal of a person as Chairman of the Company is not a subject matter
under Section 241 unless it is shown to be “oppressive or prejudicial”. The court held that Sections
241 and 242 of the Companies Act, 2013 do not specifically confer the power of reinstatement.

 Therefore, The Supreme Court set aside the December 18, 2019 order of the National Company Law
Appellate Tribunal (NCLAT) to reinstate Cyrus Mistry as executive chairman of Tata Sons.
27
  The bench also held that there was never a case, to begin with, the only dispute that arise was the
removal of Cyrus Mistry as chairman of Tata Sons Limited and the companies were padding up their
actual grievance with various historical facts.

Conclusion

 The five-year-long and the most high-profile corporate legal battle between Cyrus Mistry and Ratan
Tata gave us the precise definition of Section 241 of the Companies Act, 2013 and its applicability.

 The Judgement also gave a brief idea concerning the power of the Company Law Tribunal and held
that it cannot interfere with the removal of a person as a Chairman of a Company in a petition under
Section 241 of the Companies Act, 2013 unless such removal is “oppressive or prejudicial in nature”.

 There wasn’t a case, to begin with, as the only dispute that arose was the removal of Cyrus Mistry as
chairman of Tata Sons Limited.

 Cyrus Mistry was removed from the post of Executive Chairman of Tata Sons Limited on October
24, 2016, is because the Majority Shareholders and Board of Directors of the company lost
confidence in Cyrus Mistry as Chairman, not because by contemplating that Cyrus Mistry would
cause discomfort to Ratan Tata.

2. SATYAM SCANDAL (2009)

Satyam Computer Services scandal was a corporate scandal affecting India-based company Satyam
Computer Services in 2009, in which Chairman Ramalinga Raju admitted that the company’s accounts had
been manipulated. The Satyam scandal was a Rs 7000 crore corporate scandal in which accounts had been
manipulated. On 7-1-2009, Ramalinga Raju sent an e-mail to SEBI, wherein he confessed to falsify the cash
and bank balances of the company. Weeks before the scam began to unravel with his popular statement that
he was riding a tiger and did not know how to get down without being killed. Raju had said in an interview
that Satyam, the fourth largest IT company, had a cash balance of Rs 4000 crore and could leverage it
further to raise another Rs 15,000-20,000 crore.

Ramalinga Raju was convicted with 10 other members on 9-4-2015. Ramalinga Raju and three others were
given six months jail term by Serious Fraud Investigation Office (SFIO) on 8-12-2014. Even auditors Price
Waterhouse Coopers (PWC) had to face a hard time.

Corporate Governance Issues:

On a quarterly basis, Satyam earnings grew. Mr. Raju admitted that the fraud which he committed amounted
to nearly $276 million. In the process, Satyam grossly violated all rules of corporate governance. The
Satyam scam had been the example for following “poor” Corporate Governance practices. It had failed to
show good relation with the shareholders and employees. Corporate Governance issue at Satyam arose
because of non-fulfillment of obligation of the company towards the various stakeholders. If we talk
specifically the following interests need to be taken care of: distinguishing the roles of board and
management; separation of the roles of the CEO and chairman; appointment to the board; directors and
executive compensation; protection of shareholders rights and their executives.

 It is well known that a shareholder has a right to get information from the organization; such
information could be with respect to the merger and acquisition. Shareholders expect transparent
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 dealing in an organization. They even have right to get the financial reporting and records. In the
case of satyam, the above obligations were never fulfilled. The acquisition of maytas infrastructure
and properties were announced, without the consent of shareholders. They were even provided with
false inflated financial reports. The shareholders were cheated.

 The collapse of any organization’s reputation has adverse impact on the employee’s job. As per the
instant case, employees were shown with an inflated figure. The excess of employees in the
organization were kept under VIRTUAL POOL who received just 60% of their salaries and several
were removed. The entire scam had its impact on management. Questions were raised over the
credibility of management.

 Any organization has its obligation towards the Government by means of timely payment of taxes
and abiding by the rules and laws framed up by the Government. As per the instant
case, the company did not pay advance tax for the financial year 2009. As per the rule, the advance
taxes to be paid were 4 times in a year; such was not fulfilled by them.

 Despite the shareholders not being taken into confidence, the directors went ahead with
the management’s decision.

 The government too is equally guilty in not having managed to save the shareholders, the employees
and some clients of the company from losing heavily.

 Simple manipulation of revenues and earnings.

 Operating profits were artificially boosted from the actual Rs. 61crore to Rs. 649crore. Its financial
statements for years were totally false and cooked up.

 Satyam Computer Consultancy Ltd. didn’t have good relationship with the bank too. The company as
stated in the facts was blacklisted by World Bank over charges of Bribery. It was declared ineligible
for contracts for providing:

 improper benefit to bank staff.

 failing to maintain documentation to support fees.

3. ENRON SCANDAL (2001)

 Enron Corporation was a US energy, commodities, and services company based out of Houston,
Texas. In one of the most controversial accounting scandals in the past decade, it was discovered in
2001 that the company had been using accounting loopholes to hide billions of dollars of bad debt,
while simultaneously inflating the company’s earnings. The scandal resulted in shareholders losing
over $74 billion as Enron’s share price collapsed from around $90 to under $1 within a year.
 An SEC investigation revealed that the company’s CEO, Jeff Skillings, and former CEO, Ken Lay,
had kept billions of dollars of debt off the company’s balance sheet. In addition, they had pressured
the company’s auditing firm, Arthur Andersen, to ignore the issue.
 The two were convicted, largely based on the testimony of former Enron employee, Sherron
Watkins. However, Lay died before serving time in prison. Jeff Skillings was sentenced to 24 years
in prison. The scandal led to the bankruptcy of Enron and dissolution of Arthur Andersen.

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 After the fact, the convictions were as controversial as the company’s collapse had been shocking, as
prosecutor Andrew Weissman indicted not just individuals, but the entire accounting firm of Arthur
Andersen, effectively putting the company out of business. It was little consolation to the 20,000
employees who had lost their jobs when the conviction was later overturned.

4. WorldCom SCANDAL (2002)

 WorldCom was an American telecommunications company based out of Ashburn, Virginia. In 2002,
just a year after the Enron scandal, it was discovered that WorldCom had inflated its assets by almost
$11 billion, making it by far one of the largest accounting scandals ever.
 The company had underreported line costs by capitalizing instead of expensing them and had inflated
its revenues by making false entries. The scandal first came to light when the company’s internal
audit department found almost $3.8 billion in fraudulent accounts. The company’s CEO, Bernie
Ebbers, was sentenced to 25 years in prison for fraud, conspiracy, and filing false documents. The
scandal resulted in over 30,000 job losses and over $180 billion in losses by investors.

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 MODULE 4: CORPORATE SOCIAL RESPONSIBILITY
Concept of CSR

 UNIDO (United Nations Industrial Development Organisation) - "Corporate Social Responsibility is

a management concept whereby companies integrate social and environmental concerns in their
business operations and interactions with their stakeholders.

CSR is generally understood as being the way through which a company achieves a balance of economic,
environmental and social imperatives (“Triple-Bottom-Line- Approach”), while at the same time addressing
the expectations of shareholders and stakeholders. In this sense it is important to draw a distinction between
CSR, which can be a strategic business management concept, and charity, sponsorships or philanthropy.
Even though the latter can also make a valuable contribution to poverty reduction, will directly enhance the
reputation of a company and strengthen its brand, the concept of CSR clearly goes beyond that."

 The EC defines CSR as “the responsibility of enterprises for their impacts on society”. To
completely meet their social responsibility, enterprises “should have in place a process to integrate
social, environmental, ethical human rights and consumer concerns into their business operations and
core strategy in close collaboration with their stakeholders

 The WBCSD (World Business Council for Sustainable Development) defines CSR as “the
continuing commitment by business to contribute to economic development while improving the
quality of life of the workforce and their families as well as of the community and society at large.”

Facets of CSR (give examples basically)

 Economic+ Environmental

 Legal

 Ethical

 philanthropical

Relevance

 Helps in enhancing the reputation of the company

 Application of innovation eventually increases sustainability in business

 Attracting larger sections of investors by indulging in value centered affairs

 Employee satisfaction leading to high retention rates

 Customer satisfaction leading to loyalty retention and brand building

 Enhanced standard of society, environment

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Historical backdrop(not important)

 First used by Howard Bowen in 1953, came in trend in the late 20th century worldwide through
emphasis shift towards social responsibilities of a business

 Damn he gave like zero importance to this topic

DIMENSIONS OF CSR

There are two dimensions of CSR and these dimensions of CSR cover the internal and external management
of an organization. These are as follow:-

1. Internal Dimension:-

This gives attention towards those practices of corporate which relate to the stakeholders inside of an
organization. The focal point of this dimension is internal interested parties of business houses. These
practices and operations should be alienated with the standards of CSR or corporate citizenship. The internal
dimension covers the following concerns:-

 Human resource management

 Health and safety at workplace
 Organizational dexterity to change
 Management of environmental conditions or impacts
 Wise use of natural resources

2. External Dimension:-

The external dimension of CSR gives attention towards those operations and practices of corporate which
relate to the stakeholders connect with outside the organization. The focal point of this dimension is external
interested parties of an organization. These practices should be alienated with the international regulations or
standards of business operations’. The external dimension covers the following concerns:-

 Business participants
 Local public/community/society
 Suppliers/venders
 Consumers

CSR in India

 Pre 2013- It was a choice of the companies to indulge in CSR activities or not.

 Post 2013- laws mandating certain companies to indulge in CSR activities laid down in Companies
act (s135 and Schedule VII).

 Schedule VII includes Activities which may be included by companies in their Corporate Social
Responsibility Policies, viz eradicating extreme hunger and poverty; promotion of education;
promoting gender equality and empowering women; reducing child mortality and improving
maternal health, rural development projects, slum development, etc.
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 Section 135- Every company having net worth of rupees five hundred crore or more, or turnover of
rupees one thousand crore or more or a net profit of rupees five crore or more during any financial
year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or
more directors, out of which at least one director shall be an independent director.

o (3) Responsibilities of the CSR Committee:

a. CSR policy to be formulated and recommended to the board which indicates the activities to
be done by the company (in issues mentioned in Schedule VII
b. Recommend the expenditure that may be incurred in following the policy
c. Monitor the policy from time to time

o (4) the Board shall:

a. Take into consideration the recommendations of the csr committee and approve the
CSR policy, and disclose it in its report, website, etc

b. Ensure the proper undertaking of the activities mentioned in the policy

o At least 2% of average profits of the last 3 financial years is to be allotted to CSR activities

o Company to give preference to local areas

o (5) if company fails to spend ascribed amount, it shall give reasons for such failure, unless the
non expenditure relates to subsection (6) (below), such unspent amount shall be transferred to
a Fund mentioned in schedule VII.

o (6) if any amount is unspent relating to an ongoing CSR project from the allotted funds,
unspent funds are to be transferred to a new bank account of the company called the Unspent
CSR Account within 30 days from the end of the financial year. This money has to be spent
within 3 financial years from the date of transfer, failing which it shall be transferred to any
Funds specified under schedule VII within 30 days of completion of the .

o If company spends in excess, it may set off excess amount against the expenditures required
to be made in the succeeding years

o If company defaults in payment under this ssection, liable to a penalty of a sum amounting to
twice the sum due ( sum not forwarded to the Fund under SVII or Unspent CSR Account) or
1 crore rupees, whichever is less, and every officer in default is liable to pay fine amounting
to 1/10th of the sum due.

o Besides, the central govt can issue general or special directions as it deems fit in the
pursuance of proper compliance with the provisions of this section, and the companies or
group of companies to which they are addressed shall comply with such directions

o If the amount calculated to be spent on CSR comes out to be less than 50lakh rupees, a CSR
committee need not be formed and their duties to be carried out by the BOD

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ISSUES AND CHALLENGES OF CORPORATE SOCIAL RESPONSIBILITY

Although companies are proactive for taking up the CSR initiatives in India apart from that there various
issues and challenges in the way of effectiveness of CSR interventions in India which influence the impact
of these initiatives. These are as follow:-

 Lack of Participation by Society:-

Firstly, the hurdle in the way of CSR initiatives in India is that community and general public do not take
interest in the CSR projects and activities because there is a communication gap between the corporate
involved in the CSR initiatives and general public.

 Need For Expertise and Trained Organizations:-

Lack of expertise organizations is another obstacle in the way of effectiveness of CSR initiatives. There is
need to constitute a well-trained and expert non-government organizations those can contribute efficiently to
CSR interventions. This will enhance the level of CSR initiatives in India.

 Non- Transparency in CSR Initiatives:-

Some companies are not transparent about the CSR initiatives organized by them, they do not disclose
information about their CSR projects like funds utilized, audit reports, list of CSR initiatives and other
assessments regarding these activities. Because of this these companies are fails to building up a sense of
belongingness and connectivity with the society.

 Narrow Awareness towards CSR Initiatives:-

Government and Non- government agencies, organizations, local community and society give fewer
emphases to CSR initiatives because of their less awareness about these programs. They have narrow
outlook towards CSR interventions. Because of that corporate hesitate that they should want to contribute in
the CSR projects or not.

 No Clear Guidelines about CSR:-

There are no clear principals, guidelines and directions about the CSR initiatives to guide the business
houses, so that they can take up the right direction in the way of CSR. Because of lack of clear cut statutory
guidelines level of CSR depends upon the size of organizations means bigger the organization, bigger the
CSR programs. This is a barrier for the small organizations those want to contribute in this field.

 Absence of Untrained and Underdeveloped Staff:-

Lack of efficient and well trained staff for the execution and management of CSR initiatives is also an
obstruction for the success of CSR initiatives in India. The organizations engaged in the CSR initiatives
should want to take some effective steps for the training and development of staff occupied in the CSR
initiatives.

 Suppliers’ Relations:-

Now day’s suppliers take interest in the companies’ affairs and operations. They also show interest in the
companies’ policies and practices related to CSR initiatives because they want to maintain reputation and
status in the society and do not want to tarnish their reputation. Because of that these stakeholders have a
great interest to working with the organizations those working actively in the field of CSR.
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  Lack of Consensus between The CSR Agencies:-

There is absence of consensus among the organizations those organized and contribute in CSR processes.
Because of that there is duplication of CSR programs by these business houses for the society. Apart from
the duplication of these programs there should be collective efforts and consensus between these
organizations for the success of CSR initiatives in India.

 Changing Behavior Of Employees And Customers:-

In the competitive world employees and customers have a tendency of changing behavior like employees
want something more beyond the salaries and customers want beyond the goods and services. This is a big
challenge for the organizations to understand these changes and needs and organized and implements CSR
projects and processes accordingly.

SUGGESTIONS TO OVERCOME ISSUES AND CHALLENGES OF CSR

For the success and effectiveness of CSR initiatives or interventions it is essential to take some effective
remedial steps to overcome the issues and challenges in the way of CSR initiatives in India. These are as
follow:-

 For the success of CSR initiatives, there is need to spread out the awareness towards CSR initiatives
among the general public.
 There is need of collective efforts by the government, employees, customers, organizations,
stakeholders and general public to make CSR initiatives more effective.
 It is responsibility of government to provide the clear cut guidelines, principals and directions about
the CSR processes.
 There is need of comprehensive approach of CSR which comprises all the matters and themes of
society like child labor, health care, education, girl child, women empowerment and more.
 The government should want to recognize and rewarded the business houses working good in the
area of CSR to motivate them and enhance the scale of CSR in India.
 For the successful outcomes of CSR practices there is need of arrangements to distribute CSR
initiatives equally availability not only in urban areas but in rural areas also. So that CSR processes,
projects and initiatives can reach to the needy persons.
 To spread out the awareness towards CSR in India there is need to set up a particular subject of CSR
in the schools, colleges, universities and other educational institutions.
 Companies want to be transparent and visible about the CSR projects organized and implemented by
the concern. They want to display all the data and information regarding the CSR initiatives.
 For the success, favorable outcomes and bright future of CSR initiatives in India there is need to
build up some well-organized and effective Non –government agencies to contribute in the field of
CSR proves.

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NOTABLE WORK BY SOME COMPANIES

 Ashok Leyland

Operates a FunBus in Chennai and New Delhi. This bus, equipped with a hydraulic lift, takes differently
abled children and those from orphanages and corporation primary schools on a day‘s picnic. The company
also runs AIDS awareness and prevention programmes in its Hosur factories for about 3.5 lakh drivers.

 Axis Bank

The Axis Bank Foundation runs Balwadis which are learning places for children living in large urban slum
clusters. It also conducts skill development programmes (PREMA and Yuva Parivartan) in motor driving,
welding, mobile repairing, tailoring etc, for the youth in backward districts.

 Bharat Petroleum Corporation (BPCL)

Its rain water harvesting project Boond, in association with the Oil Industries Development Board, selects
draught-stricken villages to turn them from “water-scarce” to “water-positive”. Some of BPCL’ s other
social programmes include adoption of villages, prevention and care for HIV/AIDS and rural health care.

 Hindalco Industries

Its CSR activities are concentrated in 692 villages and 12 urban slums, where it reaches out to about 26 lakh
people. It has constructed check dams, ponds and bore wells to provide safe drinking water. In education, it
awards scholarships to students from the rural schools it supports. Its other interests include women‘s
empowerment and health care, in which it treats patients in hospitals, runs medical camps and operates rural
mobile medical van services.

 Indian Oil Corporation

It runs the Indian Oil Foundation (IOF), a non-profit trust, which works for the preservation and promotion
of the country‘s heritage. IOCL also offers 150 sports scholarships every year to promising youngsters.
Some of its other initiatives lie in the domains of clean drinking water, education, hospitals and health care.

 Infosys

The Infosys Science Foundation, set up in 2009, gives away the annual Infosys Prize to honour outstanding
achievements in the fields of science and engineering. The company supports causes in health care, culture
and rural development. In an interesting initiative undertaken by it, 100 school teachers in Karnataka, who
were suffering from arthritis, underwent free surgery as a part of a week-long programme.

 Mahindra & Mahindra

Nanhi Kali, a programme runs by the KC Mahindra Education Trust, supports education of over 75,000
underprivileged girls. The trust has awarded grants and scholarships to 83,245 students so far. In vocational
training, the Mahindra Pride School provides livelihood training to youth from socially and economically
disadvantaged communities. M&M also works for causes related to environment, health care, sports and
culture.

 Oil & Natural Gas Corporation (ONGC)

36
It offers community-based health care services in rural areas through 30 Mobile Medicare Units (MMUs).
The ONGC-Eastern Swamp Deer Conservation Project works to protect the rare species of Easter Swamp
Deer at the Kaziranga National Park in Assam. ONGC also supports education and women empowerment.

 Tata Consultancy Services (TCS)

Its Computer Based Functional Literacy (CBFL) initiative for providing adult literacy has already benefitted
1.2 lakh people. The programme is available in nine Indian languages. Besides adult education, TCS also
works in the areas of skill development, health care and agriculture.

 Tata Steel

It comes out with the Human Development Index (HDI), a composite index of health, education and income
levels, to assess the impact of its work in rural areas. Health care is one of its main concerns. The Tata Steel
Rural Development Society aims to improve agricultural productivity and raise farmers standard of living.

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 Module 5 - CORPORATE BREAKDOWN
Winding up
 Gower and Davis- "Winding up of a company is the process whereby its life is ended and it's
property is administered for the benefit of its members and creditors. An administrator, called as a
liquidator is appointed and he takes the control of the company, collects its assets pays its debts, and
finally distributes any surplus among the members in accordance with their rights"
 Pennington- "Winding up is the process by which the management of a company's affairs is taken
out of its directors' hands, it's assets are realised by a liquidator and its an liabilities are discharged
out of the proceeds of realisation and any surplus of assets that is remaining is returned to its
members. At the end of the winding up, the company will not be having any assets or liabilities, and
it will therefore be simply a formal step for it to be dissolved, ie, for its legal personality as a
corporation to be brought to an end"
 The process whereby a company’s life is ended and its property is administered for the benefit of its
creditors and members.
 Winding up is the process by which the management of a company’s affairs is taken out of its
directors’ hands, its assets are realised by a liquidator, and its debts and liabilities are discharged out
of the proceeds of realisation and any surplus of assets remaining is returned to its members or
shareholders. At the end of the winding up the company will have no assets or liabilities, and it will
therefore be simply a formal step for it to be dissolved, that is, for its legal personality as a
corporation to be brought to an end.
 An administrator, called a ‘liquidator’, is appointed and he takes control of the company, collects its
assets, pays its debts and finally distributes any surplus among the members in accordance with their
respective rights.
 Winding up of a company differs from insolvency of an individual in as much as a company cannot
be made insolvent under the insolvency law. Besides, even a solvent company may be wound up.
 Winding up begins from a petition and ends with the removal of the name of the company from the
registrar's list

Who can present a petition for winding up: (Section 272)

 The company (special resolution reqd, s271)
 Any contributory or contributories
 Above people collectively
 The registrar
 Person authorised by central govt
 By the central or State govt themselves if case falls under 271(b)-- undermining the integrity and
Sovereignty of India or breach of security, friendly relation with other states, public order, decency,
or morality

MODES OF WINDING UP

 Section 270(1) – (a) by the tribunal, or (b) voluntary

 Voluntary winding up:
- Insolvency and Bankruptcy Code, 2016
- The code aims to consolidate and amend the laws relating to insolvency resolution of companies
and limited liability entities, partnerships and individuals, which are contained in various enactments,
into a single legislation. The main focus of this legislation is at providing resurrection and resolution

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 in a time bound manner for maximization of value of debtor’s assets. The Code has put forth an
overarching framework to aid sick companies to either wind up their business or engineer a revival
plan, and for investors to exit. Notably, the Code has also empowered the operational creditors
(workmen, suppliers etc.) to initiate the insolvency resolution process, if default occurs.
The code contains provisions for insolvency resolution process as well liquidation of companies. It
also provides for voluntary liquidation of companies. With the passing of the Code, the concept of
voluntary winding up of companies under the Companies Act, 2013 has been removed.
Consequently Sections 304-323 of the Act have been deleted. Likewise Chapter XIX of the Act,
dealing with the Revival and Rehabilitation of Sick Companies has been omitted and Sections 253-
269 of the Act have been deleted. Two of the grounds for winding up by the Tribunal - due to
inability to pay debts and winding up under Chapter XIX - have been omitted. The Insolvency and
Bankruptcy Board of India has notified Insolvency and Bankruptcy Board of India (Voluntary
Liquidation Process) Regulations, 2017, effective 1 April 2017.
 Winding up by the Tribunal:
- Winding-up by the Tribunal, may be ordered in cases mentioned in section 271. The Tribunal
will make an order for winding up on an application by any of the persons enlisted in section
272.
- Apart from sections 271 to 303 (Part I of Chapter XX) which deal specifically with winding up
by the Tribunal, sections 324 to 358 (Part III of Chapter XX), being the provisions applicable to
every mode of winding up, are also relevant to the subject of “winding up by the Tribunal”.
Sections 304 to 323, which dealt with the voluntary winding up, have been deleted, with the
passing of the Insolvency and Bankruptcy Code, 2016.
- Grounds for compulsory winding up [Section 271] - Section 271 provides for circumstances in
which a company may be wound up by Tribunal.

VOLUNTARY WINDING UP:

 Declaration required by the company:
o Prove solvency
o Prove bona fide, no defrauding intention, etc
 Board meeting to be held where a plan of action is to be taken up
 BoD to have a general meeting regarding winding up, gaining approval of shareholders for winding
up through a special resolution, how liquidation is to be carried out, who is liquidator(creditors
decide this), etc
 Mandatory to appoint an insolvency professional as the liquidator as per rules in Insolvency and
Bankruptcy code for liquidation, to maintain transparency.
 Liquidation process
 Application to tribunal

WINDING UP BY THE TRIBUNAL -ANALYSIS OF GROUNDS (Section 271):

a) Winding up by Special Resolution [Section 271(a)]

 Company may pass special resolution for winding up by the Tribunal, for any cause as long as it is
not opposed to public interest or the company’s interests as a whole.
 The Tribunal has to take into account the company’s potential to have a financial revival i.e.
overcome the financial losses that led to passing of the special resolution.

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 This clause is based on the premise that shareholders know what’s best for the company and are the
best at judging whether the company needs to be wound up/dissolved or not, since they had formed
themselves into the company.
 The directors cannot file a winding up petition without a general body meeting ratifying their action.
A special resolution has to be passed for the same, after declaring the grounds for winding up in the
explanatory statement appended thereto.
 However, the tribunal has discretion in the matter, i.e. there is no obligation to order winding up of
company just because the resolution has been passed. The word “may” denotes the same. [New
Kerala Chits & Traders Pvt. Ltd. v. Official Liquidator]
 A company may also present the petition without any such special resolution, through the other
grounds mentioned in Section 271.
b) Company acting against the interests of sovereignty and integrity of India, the security of the
State, the friendly relations with foreign states, public order, decency or morality [Section
271(b)]
 The Tribunal will entertain petitions under this clause only when they’ve been made by the Central
or State governments and the provisio seems to suggest that the Tribunal will order winding up of the
company upon receipt of the petition.
 Grounds like “public order, decency and morality” require more clarification and debating.
c) Company’s affairs been conducted in a fraudulent or unlawful manner etc. [Section 271(c)]
 Application has to be made by the Registrar or any other person authorized by the Central
government.
 Three grounds for winding up under this clause are:
(i) Company’s affairs being conducted in a fraudulent manner,
(ii) Company was formed for fraudulent or unlawful purpose,
(iii) Founders of the company of persons involved in management of affairs are found guilty of
fraud, misfeasance or misconduct.
 Section 213(b) empowers the Tribunal to order investigations into the affairs of the company on the
above grounds.
 Central government may file a petition for winding up of company under Section 224(2)(a).
d) Company making default in filing with the Registrar its Financial Statements or Annual
returns for immediately preceding five consecutive financial years [Section 271(d)]
 Similar to Section 164 which states that any person who is or has been a director of a company
which has not filed financial statements or annual returns for any continuous period of three financial
years shall not be eligible for appointment or reappointment as a director.
 This clause contains two distinct non-compliances (i) non-filing of the financial statements and/or
(ii) non-filing of annual return.
e) Just and Equitable [Section 271(e)]

If tribunal is of the opinion that it is just and equitable that the company should be wound up
a. Aluminium corporation of India ltd v Laxmi ratan cotton mills ltd- Just and equitable must be
interpreted in a responsible manner-- court should have a view if there is other alternatives
available-- if some other remedy is available company must not be wound up (also given in 273(2))--
certain grounds prescribed under this purview (not exhaustive):
i. Substratum (foundation/basis) gone-
1. Seth Mohanlal vs Grain chambers- Company has multiple business areas, one
business did not succeed( loss of substratum), held no need to wind up because
other businesses running

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 2. In re German date coffee- Patent to be granted based on which business was to be
conducted, only one business of the company, patent was not obtained, held just
and equitable to wind up company
3. When company formed, object legal--but law passed later which deemed the
activities illegal, loss of substratum is found
4. Temporary or minor difficulty cannot result in loss of substratum
ii. Deadlock in management- example, no consensus between the management-- when the
affairs of the company completely stops, due to no consensus, or any other reason. Yenitje
Tobacco co. Re- Only Two persons running a company -- they had argument, affairs stopped
completely, held just and equitable to be wound up
iii. Fraud or illegality
iv. Mismanagement or misapplication of company's funds
v. Bubble company
vi. Insolvency(dealt with, later)
vii. Business carried on for the benefit of debenture holders
viii. Provision of the articles

Powers of the tribunal

Tribunal can:
 dismiss it with or without costs
 Make an interim order
 Appoint a provisional liquidator of the company till the making of a winding up order
 order for the winding up of the company with or without costs
 Any other order it deems fit
 (order to be done within 90days of application)

LIQUIDATORS

Meaning- The liquidator is an insolvency professional on whom all the powers of the Board of Directors,
key managerial personnel and the partners, as applicable, of the Corporate Debtor are vested by the
Adjudicating Authority upon Liquidation order being passed under section 33 of the Insolvency and
Bankruptcy Code, 2016. - Person who helps in liquidation, takes action in the process of Liquidation--
Purpose-> to avoid fraud, misrepresentation in case directors were conducting liquidation processes

 APPOINTMENT OF LIQUIDATOR:
Section 275 of Companies Act, 2013:
In case of voluntary winding up, appointed by creditors of the company, in case of winding up by tribunal,
the tribunal appoints the liquidator (generally)
 (1)Tribunal can appoint Official liquidator or from the panel mentioned in (2) as the company
liquidator
 (2) the provisional liquidator or company liquidator to be appointed by the tribunal from amongst
insolvency professionals registered under Insolvency and Bankruptcy Code 2016
 (3) if a provisional liquidator is appointed, the tribunal can limit and restrict his powers, otherwise he
shall have the same powers as a liquidator.. . Process of promoting a provisional liquidator to a
company liquidator is called "escalation", s275(7)--- provisional liquidator is appointed as a
intermediary liquidator before a winding up order is passed so that company directors may not
misappropriate the funds and properties of the company.
 (6) provisional liquidator has to file a declaration with the tribunal within 7 days of appointment
disclosing conflict of interest or lack of independence in respect of his appointment if any, and shall
continue to bear such obligation throughout the term of appointment.

 POWERS AND FUNCTIONS OF LIQUIDATOR:

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 Section 35 of Insolvency and Bankruptcy Code, 2016 enumerates the Powers and Duties of the Liquidator
which includes the following [also Section 290 of Companies Act (same stuff)]:-
i. to verify claims of all the creditors and consolidate them;
ii. to take into his custody or control all the assets, property, effects and actionable claims of the
corporate debtor;
iii. to evaluate the assets and property of the corporate debtor in the manner and prepare a report;
iv. to take such measures to protect and preserve the assets and properties of the corporate debtor;
v. to carry on the business of the corporate debtor for its beneficial liquidation;
vi. to sell the immovable and movable property and actionable claims of the corporate debtor in
liquidation by public auction or private contract, with power to transfer such property to any person
or body corporate, or to sell the same in parcels, though transfer are subjected to section 52 and
further the liquidator shall not sell the immovable and movable property or actionable claims to any
person who is not eligible to be a resolution applicant.
vii. to draw, accept, make and endorse any negotiable instruments on behalf of the corporate debtor, with
the same effect as if such instruments were drawn, accepted, made or endorsed by or on behalf of the
corporate debtor in the ordinary course of its business;
viii. to take out, in his official name, letter of administration to any deceased contributory and to do in his
official name any other act necessary for obtaining payment of any money due and payable from a
contributory or his estate which cannot be ordinarily done in the name of the corporate debtor, and
in all such cases, the money due and payable shall, for the purpose of enabling the liquidator to take
out the letter of administration or recover the money, be deemed to be due to the liquidator himself;
ix. to obtain any professional assistance, in the discharge of his duties, obligations and responsibilities;
x. to invite and settle claims of creditors and claimants and distribute proceeds in accordance with the
provisions of this Code;
xi. to institute or defend any suit, prosecution or other legal proceedings, civil or criminal, in the name
of on behalf of the corporate debtor;
xii. to investigate the financial affairs of the corporate debtor to determine undervalued or preferential
transactions;
xiii. to take all such actions, steps, or to sign, execute and verify any paper, deed, receipt document,
application, petition, affidavit, bond or instrument and for such purpose to use the common seal, if
any, as may be necessary for liquidation, distribution of assets and in discharge of his duties and
obligations and functions as liquidator;
xiv. to apply to the Adjudicating Authority for such orders or directions as may be necessary and to
report the progress of the liquidation process in a manner as may be specified by the Board; and
xv. to perform such other functions as may be specified by the Board.

Other than the ones quoted above the Liquidator has the following Rights and Duties too:-
xvi. To Admit and Reject claims of Creditors,
xvii. Power to access any information system for the purpose of verification of Claims and identification
of assets forming part of Liquidation Estate of the Corporate Debtor from sources such as,
Information Utility, Credit Information Systems, Central and State Government Agency, database
maintained by the Board etc. as specified in Section 37 of the Code.
xviii. To evaluate preferential transactions, if any done by the Corporate Debtor.
xix. Avoid undervalued transactions
xx. Distribute the Liquidation proceeds as per Section 53 of the Code.
xxi. Make application for the Dissolution of the Corporate Debtor once all its assets are duly liquidated.

 REMOVAL OF LIQUIDATOR:
 Section 276 of the Companies Act, 2013 provides for the removal and replacement of liquidators.
 Section 276 of the 2013 Act lists the grounds on which the liquidator maybe removed. Since there is
a panel of liquidators constituted under Section 275 of the 2013 Act, there is no provision for

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 appointment of the official liquidator in a voluntary winding up. There is no specific provision for
the appointment and removal of a liquidator in a voluntary winding up by the tribunal.
 Under Section 275 of the 2013 Act, the power to maintain and accordingly remove professionals
from the panel vests with the central government. Under Section 276, the tribunal has the power to
remove a provisional liquidator or company liquidator. The grounds on which the tribunal may
remove the company liquidator are set out in this section. Additionally, the company liquidator can
be removed on the grounds of:
i. failure to exercise due care and diligence in the performance of his powers and functions,
ii. inability to act as the provisional or company liquidator and
iii. conflict of interest or lack of independence during the term of the appointment that would
justify removal.
 Transfer of company or provisional liquidator in section 276 would arise only in the case of death,
resignation or removal of a company or provisional liquidator.
 The court may remove a liquidator if his duty conflicts with his interests. If there is a conflict of
interest in respect of creditors, it is for the creditors alone to decide what is to be done. For breach of
any of his duties a Voluntary Liquidator may render himself liable for the consequences arising out
of such breach. Thus if he acts partially or commits breach of trust or betrays that fiduciary
relationship in which he stands towards his Company, he shall be liable for the consequences of the
wrongful acts, omission or breach of trust. He must be honest and impartial, and should never act in
his own interest, or else he shall be liable. If he makes any secret profits he shall be liable to make
good to his Company all that he has received secretly. If he is unfair towards the general body of
Creditors or Contributories, an application may be made to the Court for his removal, and the Court
may remove him if it thinks fit to do so.
 He also has the option to resign from the office but to do so, he is required to call a members or
creditors meeting and submit his resignation and he is also obligated to submit record of all his
dealings and actions as the liquidator of the company and he is also required to submit a statement
with respect to his tenure and all other related documents which were in his possession.
 Any vacancy occurring in the office of the company liquidator by reason of removal or resignation or
death shall be filled in the manner provided in Section 310.

REMOVAL OF NAME OF COMPANIES

> Power of Registrar to remove the name of Company (Section 248):

1. The registrar has power to remove the name of company by sending notices to the company and its
directors under the following new grounds:

 Failure to commence its business within one year of its incorporation, or

 Failure in not carrying on any business or operation for period of two immediately preceding
financial years and has not made any application for obtaining status of dormant company under
section 455.

2. If a company extinguishing all its liabilities, by a special resolution, file an application to the Registrar for
removing the name of the company and the Registrar shall on receipt of such application, cause a public
notice and shall published in the official gazette for the information of general public. Provided that, if

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company is regulated under special Act, approval of the regulatory body constituted or established under
that act shall also be obtained and enclosed with application.

3. At the expiry of the time mentioned in Notice, the registrar may, strike off the name of company form the
register of companies and on the publication in the Official Gazette, the company stands dissolved.

4. The liability of every director, manager or other officer exercising any power of management and every
member of company dissolved shall continue and may be enforced as if company had not been dissolved.

> Process for getting the name struck off by company (Companies (Removal of Names of Companies
from the Register of Companies) Rules of 2016, Rule 18):

File duly filled form along with fees of Rs. 5000, with the attachment of following Docs:

i. Indemnity bond duly notarised by every director;

ii. An affidavit by every director of the company;
iii. A statement of accounts certified by a CA;
iv. A copy of resolution signed by director of the company

Following category of companies shall not be removed from the register of companies:

1. Listed companies;
2. Companies under non-compliance of Listing regulations or any other laws;
3. Vanishing companies; (a company, registered under the Companies Act and listed with Stock
Exchange which, has failed to file its returns with Registrar of Companies and Stock Exchange for a
consecutive period of two years, and is not maintaining its registered office at the address notified
with the Registrar of Companies or Stock Exchange and none of its Directors are traceable.)
4. Companies where investigation, inspection and prosecution is pending or carried out;
5. Companies where notice issued under section 206 or 207 have been issued;
6. Companies whose application for compounding is pending before the competent authority;
7. Companies, accepted public deposits which are either outstanding or in default;
8. Companies having charges which are pending for satisfaction; and
9. Companies registered under section 8 of the Act. (company for “promotion of commerce, art,
science, sports, education, research, social welfare, religion, charity, protection of environment,..)

> Situations when a company cannot make application to Registrar if, at any time in the previous
three months, the company (Section 249):

1. Has changed its name or shifted its registered office from one state to another;
2. Has engaged in any other activity except the one which is necessary or expedient for the porpose of
making an application under that section, or deciding whether to do so or concluding the affairs of
the company.
3. Has made an application to the tribunal for the sanctioning of a compromise or arrangement and the
matter has not been finally concluded; or
4. Is being wound up under Chapter XX of this Act or under the Insolvency and Bankruptcy code,
2016.

If a company makes an application in violation of section 248, it shall be punishable with fine up to 1 lakh.

> Effects of a company notified as dissolved (Section 250);

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This section implies that where a company is dissolved under section 248, it shall cease to operate as a
Company and the Certificate of Incorporation (COI) shall be deemed to have been cancelled from such date
except for the purpose of realizing the amount due to the company and for the payment or discharge of the
liabilities of the company.

> Penalties for Fraudulent Application for removal of name. (Section 251)

If a fraudulent application made by a company for removal of its name from the register of companies, with
the intention to deceive the creditors or to defraud any other persons or with the object of evading the
liabilities, the person in charge of the management of the company shall-

i. Be jointly and severally liable to any person or persons who had incurred loss or damage or result of
the company being notified as dissolved; and
ii. Be punishable for fraud as provided in section 447. The registrar may also recommend prosecution
against the persons responsible for the filing of such applications.

> Appeal to Tribunal. (Section 252)

Restoration of Name: If any Person, aggrieved by an order of the ROC, can file an appeal to the Tribunal
within 3 years for restoration of the name of the company. If the Tribunal is of the opinion that removal of
name is not justified, may order for restoration of its name.

If the Registrar believes that the name of the company has been struck off from the register of companies on
the basis of incorrect information, which requires restoration, he may also file an application to Tribunal for
seeking restoration of the name of the company.

A Company/member/creditor/workman, if aggrieved by the company having its name struck off, may apply
to the Tribunal before expiry of Twenty years from the publication in the official gazette of the notice

 Section 302 - Dissolution of the company by tribunal - when order of winding up is passed and
complied, liquidator can pass an application for the dissolution of the company to the tribunal--
tribunal passes dissolution order if circumstances are just and reasonable-- within 30 days send a
copy of dissolution order to registrar-- registrar removes name of the company from the companies
register

WINDING UP, LIQUIDATION AND DISSOLUTION

Winding up of Companies
A company can go completely out of its business affairs on receipt of Wind up notice from the tribunal or
with the voluntary concern of the company members. In the Companies Act, Section 270 to 323 prescribes
the rules and procedures applicable during the wind-up or dissolution process of the company. According to
the act, a company has to wind up its business completely if :
 It fails to pay its debts exceeding Rs 1 lakh.
 It is unable to operate or is incapable of reviving the business of the company from losses.
 It is formed in any fraudulent manner
 It fails to follow due diligence related to the company with the authorities.
 If the tribunal or the members of the company seems the opinion of wind up fit for the company in good
faith.
 If declared involvement or bankrupt under the Insolvency and Bankruptcy Code.
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In case of winding up of the company by the Tribunal
The process of winding up of the company requires the filing of a petition with the tribunal after receipt of
wind up notice. The tribunal issues directions for placing a liquidator to sell off assets of a business and pay
off the company liabilities. After receipt of liquidator reports, the tribunal undertakes the analysis of the
company’s further involvements in frauds or criminal suits pending against the company and takes the
windup process further until the company is finally dissolved.

In case of voluntary winding up of a company

For voluntary winding up of company, it requires passing of a special resolution and appointment of a
liquidator for selling off company assets and prepares liquidation reports of the company. With all
procedures followed and reports prepared, they are to be submitted to the Registrar of Companies for
removal of company name from government records and for completion of the windup/dissolution of
company.

Note: The process of selling assets and paying off company liabilities is undertaken by the liquidator
under the liquidation process. So, liquidation is a part of the wind-up process of a company.

Dissolution of Company
Generally, a company is wound up by making an application to the National Company Law Tribunal
(NCLT) and upon satisfaction of compliance and consent of interested parties is taken, the dissolution order
is sanctioned. Such an order has the following implications:

 The company winding-up procedure is completed as defined in the statute.

 The assets and liabilities have been settled and distributed the remaining amongst stakeholders in order
of preference.
 The company name is then struck off from the registers of the registrar. Hence, dissolution is necessary
to step for winding up of companies.
Whereas in other cases, the company has been dissolved under the scheme of reconstruction or
amalgamation. Such an order has the following implications:
 The company has not applied for winding up of the company rather taken over under the scheme of
reconstruction or amalgamation.
 The winding-up application need not be made for such dissolution.

Liquidation of Companies
A company can only be discharged of its duties and responsibilities when it is fully dissolved with no
obligations or no credit claims pending against the company. Liquidators being a part of the company’s
dissolution/windup process undertake the liquidation of companies. Liquidation of a company involves
selling off assets of the company, paying off its liabilities and preparation of liquidation report by the
liquidator appointed, and submitting it to the tribunal or the winding-up committee for taking the windup
process further.

In the Companies Act, 2013, the Sections 310 to 317, 348 to 353 and 359 to 363 governs the liquidation
process and provisions related to appointment, removal, powers, duties, and actions, etc of the company
liquidator.

The Difference
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Particulars Winding up of Company Liquidation of Company Dissolution of the company
To completely dissolve the
To completely dissolve the To dispose of assets or company and no further
company and no further properties or both of the operations can be done in the
1. Meaning
operations can be done in company to pay off its name of the company. Or in other
the name of the company liabilities. cases, will be carried in another
company name
NCLT (National Company
Law Tribunal) or The Liquidator (appointed by NCLT (National Company Law
2. Moderator
Winding-up Committee of company or tribunal.) Tribunal)
Company
After completion of the
liquidation process, the
company is further detained
After completion of the for civic liabilities or further
windup process, the searches or analyses by After an order of dissolution, the
3. Continuity
company cease to exist in different authorities’. So, the company ceases to operate.
the legal environment company tends to exist in the
environment even after
completion of the liquidation
process.
Filling of resolution/
Appointment of a liquidator,
petition, the appointment of Filing of resolutions, declarations
selling off company assets,
4. Activities the liquidator, receipt of and other documents as required
payment of liabilities and
included declarations, preparation of to complete the procedural
preparation of liquidation
reports, disclosures to formalities.
report.
Registrar of Companies, etc
To conclude, liquidation does not alone result in the death of the company. It is necessary to complete the
windup process for completion of the dissolution of the company whereas the dissolution is closing down
the company without proper formalities. Hence, all these terms are interrelated but if considered in respect
of time and sequence but cannot use interchangeably.

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