Qn 1 Rules for utilization of free reserves for payment of dividend

The key rules regarding utilization of free reserves for payment of dividends:
1. Sources of Dividend Payment:
As per Section 123 of Companies Act 2013, dividend shall be declared or paid
only out of:
(a) Current year's profit: Balance of profit after setting off depreciation and losses
(b) Accumulated profits of the company for previous years which remain
undistributed. This refers to free reserves such as:
- Retained Earnings /Surplus in P&L account
- General Reserves
- Securities Premium Reserves

2. Ineligible Reserves:
Dividends cannot be paid from the following reserves even if they are available:
(a) Capital Reserves
(b) Reserves created by Revaluation of Assets
(c) Unrealized gains (Notional profits)

3. Ceiling Rate of Dividend:

As per Companies Rules, total dividend declared cannot exceed 10% of the Paid
up share capital + Free reserves, unless higher rate is approved by shareholders
in a general meeting.

4. Set off of Losses Required:

Any accumulated losses and depreciation must be written off before arriving
profits available for dividends. Transfer to Debenture Redemption Reserve may
also be needed in some cases.

5. Board Resolution Required:

A specific Board resolution is required for every dividend payment, listing type &
amount of free reserves being used. Format should disclose depreciation & loss
adjustments made.

6. Statutory Records Updates:

Records/registers should be updated about utilisation of reserves for dividends -
in Register of Investments (ROI), annual returns etc.
In summary, Companies Act lays down clear guidelines about dividend payment
process as well as eligible and ineligible reserves. Companies should pay ample
attention to these rules.
Qn 2 Appointment of 1st and subsequent director

Section 152 of the Act deals with the matters relating to appointment of
directors.
Appointment of First Directors
Where no provision is made in the articles of a company for the appointment
of the first directors, the subscribers to the memorandum who are
individuals shall be deemed to be the first directors of the company until the
directors are duly appointed. [Section 152(1)]
In case of a One Person Company (OPC), an individual being member shall
be deemed to be its first director until the director or directors are duly
appointed by the member in accordance with the provisions of this section.
[Section 152(1)]
In simple words, usually, articles of the company contain the names of the
first directors. In case it is not so, then the individual subscribers to the
memorandum are deemed to be the first directors. The corporate bodies, if
they are also subscribers, shall not be capable of becoming directors. The
first directors shall hold the office until the directors are duly appointed. In
fact, the term of first directors is limited to the holding of first Annual
General Meeting (AGM).So far as OPC is concerned, the individual member
of the OPC is deemed as first director. Thereafter, such member may
appoint director or directors as per his requirements.
Appointment of subsequent Directors
Save as otherwise expressly provided in this Act, every director shall be
appointed by the company in general meeting. [refer Section 152(2)]
At a general meeting, the shareholders of the company (i.e. the owners)
gather and take decisions. Generally, every director shall be appointed
by the company in general meeting except where the Companies Act
expressly provides some other procedure for appointment of directors.
For example, it is expressly provided in the Act that additional directors
or alternate directors can be appointed by the Board of Directors if the
articles of the company empower Board in this respect.

Qn 3 What is the time limit of registration of charge?

The registration of charges is the process of registering a charge on property

with the Registrar of Companies (ROC). A charge is a security interest in
property that is created to secure the repayment of a debt. The registration
of charges is important because it provides notice to the public of the
existence of the charge and gives the charge holder priority over other
creditors in the event of a default by the borrower.

Under section 77 of the Companies Act, 2013 every company creating a

charge shall register the particulars of charge signed by the company and its
chargeholder together with the instruments creating the charge. Important
points in the Act relating to charge creation:
— Any charge created within or outside India- —
on property or assets or any of the company ’s
undertakings -
— Whether tangible or otherwise, situated in or outside
India shall be registered.
Hence all types of charges are required under the Act to be registered
whether created within or outside India.

Under the Companies Act, 2013, every company that creates a charge on its
property is required to register the charge with the ROC within 30 days of
the creation of the charge in such form and on payment of such fees as may
be prescribed. The particulars of the charge that need to be registered with
the ROC are:

1) The name of the company creating the charge.

2) The name of the person in whose favour the charge is created.
3) The amount of the charge.
4) The description of the property that is charged.
5) The date on which the charge is created.

The registration of charges can be done online or offline. The online

registration process is faster and more convenient. To register a charge
online, the company can use the e-filing portal of the Ministry of Corporate
Affairs (MCA).

The offline registration process can be done by submitting the following

documents to the ROC:

• Form CHG-1: This is the form that is used to register a charge.

• A copy of the instrument creating the charge.
• A proof of payment of the registration fee.
The registration fee for registering a charge is INR 500 for the first INR 10
lakhs of the amount of the charge and INR 100 for every additional INR 1
lakh. If a company fails to register a charge within the stipulated time
period, it may be liable to penalties. The penalties for failing to register a
charge are:

• A fine of INR 10,000 for the first default.

• A fine of INR 20,000 for the second default.
• A fine of INR 50,000 for the third and subsequent defaults.

If the company fails to register the charge within 30 days the Registrar may
on an application by the company allow registration of charge within three
hundred days of creation or modification of charge on payment of additional
fee. The Registrar may, on being satisfied that the company had sufficient
cause for not filing the particulars and instrument of charge, if any, within a
period of thirty days from the date of creation of the charge, may allow the
registration of the same after thirty days but within a period of three hundred
days of the date of creation of such charge or modification of such charge on
payment of additional fee. The application for delay shall be made in Form
No.CHG-10

The registration of charges is an important legal requirement for companies

that create charges on their property. By registering a charge, the company
can protect its interest in the property and ensure that it has priority over
other creditors in the event of a default by the borrower.

Qn.4 Types of charge?

Charge is a security interest created over the assets of a company to secure

the repayment of a debt. There are two main types of charges: fixed charges
and floating charges.

A. Floating Charge
a. A floating charge is a security interest created over a company's
assets that are constantly changing, such as stock, receivables,
and inventory. The floating charge is said to "float" over the
assets until the company defaults on the debt secured by the
charge. At that point, the charge crystalizes and becomes a fixed
charge over the assets that were covered by the floating charge
at the time of default.
 b. Floating charges are often used by companies to secure loans
from banks and other lenders. They are attractive to lenders
because they give them a security interest in a wide range of
assets, which can be helpful if the company defaults on the
loan.
c. However, floating charges can also be risky for lenders. This is
because the company can freely dispose of the assets that are
subject to the floating charge until the company defaults. This
means that the lender may not be able to recover the full
amount of the loan if the company defaults.
d. To protect themselves, lenders will often require companies to
create a fixed charge over some of their assets, such as land or
buildings. This will give the lender a security interest in assets
that are less likely to be disposed of by the company.
e. The following are some of the key features of a floating charge:
i. It is a security interest over a company's assets that are
constantly changing. ii. The charge does not attach to
specific assets, but rather to a class of assets.
iii. The charge crystalizes into a fixed charge when the
company defaults on the debt secured by the charge. iv. The
charge is subject to the pari passu rule, which means that all
creditors with floating charges over the same assets share
equally in the proceeds of the sale of those assets.
B. Fixed Charge
a. A fixed charge is a security interest created over specific assets
of a company, such as land or buildings. The charge attaches to
the assets and cannot be removed without the consent of the
charge holder. This means that the company cannot sell or
dispose of the assets without the consent of the charge holder.
b. Fixed charges are often used to secure loans from banks and
other lenders. They are attractive to lenders because they give
them a security interest in assets that are less likely to be
disposed of by the company.
c. The following are some of the key features of a fixed charge:
i. It is a security interest over specific assets of the
company.
ii. The charge attaches to the assets and cannot be removed
without the consent of the charge holder.
iii. The charge is not subject to the pari passu rule, which
means that the charge holder has priority over other
creditors in the event of the company's liquidation.
 d. Fixed charges are generally considered to be more secure than
floating charges. This is because the company cannot sell or
dispose of the assets without the consent of the charge holder.
e. However, fixed charges can also be more restrictive for the
company. This is because the company may need to obtain the
consent of the charge holder before it can sell or dispose of the
assets.
f. The creation of a fixed charge must be in writing and signed by
the company and the charge holder. The charge must also be
registered with the Registrar of Companies (ROC) within 30 days
of its creation.

Qn 5 DIN

Director Identification Number (DIN) is an unique identification number allotted

by the Central Government to any individual, intending to be appointed as
director or to any existing director of a company, for the purpose of his
identification as a director of a company.
DIN is specific to a person, which means even if he is a director in two or more
companies, he has to obtain only one DIN and if he leaves a company and joins
some other, the same DIN would work in the other company as well. “Director
Identification Number” (DIN) includes the Designated Partnership Identification
Number (DPIN) issued under section 7 of the Limited Liability Partnership Act,
2008 and rules made thereunder.
Section 152 (4) mandates that every person proposed to be appointed as a
director by the company in general meeting or otherwise, shall furnish his
Director Identification Number or such other number as may be prescribed
under section 153 and a declaration that he is not disqualified become a
director under this Act.
As per Section 153 of the Act, every individual intending to be appointed as
director in an existing company shall make an application electronically in
Form DIR-3 for allotment of director Identification Number to the Central
Government along with the prescribed fees.
Further, DINs to the proposed first directors (not having approved DIN) in
respect of new companies would be mandatorily required to apply for it in
web form SPICe+ (Simplified Proforma for Incorporating company
Electronically Plus: INC-32) forms (subject to a ceiling of 3 new DINs) only.
The Companies Amendment Act, 2017 provides that the Central Government
may prescribe any identification number which shall be treated as Director
Identification Number for the purposes of this Act and in case any individual
holds or acquires such identification number, the requirement of this section
shall not apply or apply in such manner as may be prescribed.
Qn 6 Separate Legal Entity (As seen in Section 9)

A company incorporated under the Act is vested with a corporate personality

so it bears its own name, acts under name, may have a seal of its own and its
assets are separate and distinct from those of its members. It is a different
‘person’ from the members who compose it. Therefore, it is capable of owning
property, incurring debts, borrowing money, having a bank account,
employing people, entering into contracts and suing or being sued in the
same manner as an individual. Its shareholders are its notional owners and
do not own anything in it except ownership of shares issued and they can be
its creditors simultaneously. A shareholder cannot be held liable for the acts
of the company even if he holds virtually the entire share capital. A veil or
corporate veil is created between the company and its members and the co. is
not liable for acts committed by its members.
Case Law
1.

Jhunjhunwala]
2.
3.
Qn 7 Buyback (Jhabwala Pg 144)

Qn 8 Process for Alteration in registered office of co. (Rega Rao Pg 91)