THE COMPANIES ACT, 2013

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ARRANGEMENT OF SECTIONS
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CHAPTER I

PRELIMINARY

CHAPTER II

INCORPORATION OF COMPANY AND MATTERS INCIDENTAL THERETO

CHAPTER III

PROSPECTUS AND ALLOTMENT OF SECURITIES

PART I.—Public offer

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PART II.—Private placement

CHAPTER IV

SHARE CAPITAL AND DEBENTURES

CHAPTER V

ACCEPTANCE OF DEPOSITS BY COMPANIES

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SECTIONS

CHAPTER VI

REGISTRATION OF CHARGES

CHAPTER VII

MANAGEMENT AND ADMINISTRATION

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SECTIONS

CHAPTER VIII

DECLARATION AND PAYMENT OF DIVIDEND

CHAPTER IX

ACCOUNTS OF COMPANIES

CHAPTER X

AUDIT AND AUDITORS

CHAPTER XI

APPOINTMENT AND QUALIFICATIONS OF DIRECTORS

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SECTIONS

CHAPTER XII

MEETINGS OF BOARD AND ITS POWERS

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CHAPTER XIII

APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL

SECTIONS

CHAPTER XIV

INSPECTION, INQUIRY AND INVESTIGATION

CHAPTER XV

COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS

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SECTIONS

CHAPTER XVI

PREVENTION OF OPPRESSION AND MISMANAGEMENT

CHAPTER XVII

REGISTERED VALUERS

CHAPTER XVIII

REMOVAL OF NAMES OF COMPANIES FROM THE REGISTER OF COMPANIES

CHAPTER XIX

REVIVAL AND REHABILITATION OF SICK COMPANIES

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CHAPTER XX

WINDING UP

SECTIONS

PART II.—Voluntary winding up

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SECTIONS

PART III.—Provisions applicable to every mode of winding up

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PART IV.—Official Liquidators

SECTIONS

CHAPTER XXI

PART I.—Companies authorised to Register under this Act

PART II.—Winding up of unregistered companies

CHAPTER XXII

COMPANIES INCORPORATED OUTSIDE INDIA

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CHAPTER XXIV

REGISTRATION OFFICES AND FEES

SECTIONS

CHAPTER XXIII

GOVERNMENT COMPANIES

CHAPTER XXV

COMPANIES TO FURNISH INFORMATION OR STATISTICS

CHAPTER XXVI

NIDHIS

CHAPTER XXVII

NATIONAL COMPANY LAW TRIBUNAL AND APPELLATE TRIBUNAL

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SECTIONS

CHAPTER XXVIII

SPECIAL COURTS

CHAPTER XXIX

MISCELLANEOUS

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SECTIONS

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THE COMPANIES ACT, 2013

ACT NO. 18 OF 2013

[29th August, 2013.]

CHAPTER I

PRELIMINARY

		 
		 
		 
1. 1st April 2014 – S. 2(2), (7), (13), (31), (41), (42), (47), (48), (62), (83), (85) and Explanation (d) of clause (87); ss. 3, 4, 5, 6;
s. 7 [except sub-section (7)]; s. 8 [except sub-section (9)]; ss. 9, 10, 11, 12 and 13; s. 14 [except second proviso to sub-section (1)
and sub-section (2)]; ss. 15, 16, 17 and 18; section 20; clause (b) of sub-section (1) and sub-section (2) of section 23; sub-section
(3) of section 25; ss. 26, 27 and 28; sub-section (3) of s. 33; clause (e) of sub-section (1) of s. 35; sub-section (4) of s. 39; subsection
(6) of s. 40; ss. 41, 42 and 43; ss. 46 and 47; ss. 52, 53 and 54; s. 55 [except sub-section (3)]; s. 56; s. 61 [except proviso
to clause (b) of sub-section (1)]; s. 62 [except sub-sections (4) to (6)]; ss. 63 and 64; ss. 67 and 68; sub-section (2) of section 70;
s. 71 [except sub-sections (9) to (11)]; ss. 72 and 73; sub-section (1) of s. 74; ss. 76, 77, 78, 79, 80, 81, 82, 83, 84 and 85; ss. 87,
88, 89 and 90; ss. 92, 93, 94, 95 and 96; sub-section (6) of s.100; s. 101; third and fourth provisos to sub-section (1) and subsection
(7) of s. 105; ss. 108, 109 and 110; clause (b) of sub-section (1) of s. 113; s. 115; ss. 117 and 118; s. 119 [except subsection
(4)]; ss. 120, 121, 122 and 123; s. 126; ss. 128 and 129; s.134; ss. 136, 137, 138 and 139; s. 140 [except second proviso to
sub-section (4) and sub-section (5)]; ss. 141, 142, 143, 144, 145, 146, 147, 148, 149, 150, 151, 152, 153, 154, 155, 156, 157, 158,
159 and 160; sub-section (2) of s. 161; ss. 164, 165, 166, 167 and 168; s. 169 [except sub-section (4)]; ss. 170, 171, 172, 173, 174
and 175; ss. 177, 178 and 179; s. 184; ss. 186, 187, 188, 189, 190 and 191; s. 193; ss. 196, 197, 198, 199, 200 and 201; ss. 203,
204, 205, 206, 207, 208, 209, 210 and 211; s. 212 [except references of sub-section (10) of s. 66, sub-section (5) of s. 140], s.
213, sub-section (1) of s. 251 and sub-section (3) of s. 339 made in sub-section (6) and also sub-sections (8) to (10)]; ss. 214,
215; s. 216 [except sub-section (2)]; s. 217; ss. 219 and 220; s. 223; s. 224 [except sub-sections (2) and (5)]; s. 225; ss. 228 and
229; ss. 366, 367, 368 and 369; s. 370 (except the proviso); s. 371; s. 374; ss. 380 and 381; ss. 384 and 385; clause (a) of s. 386;
ss. 387, 388, 389 and 390; sub-section (1) of s. 391; ss. 392 and 393; ss. 395, 396, 397 and 398; s. 399 [except reference of word
Tribunal in sub-section (2)]; ss. 400, 401, 402, 403 and 404; s. 406; s. 442; ss. 454 and 455; s. 464; Schs. I, II, III, IV, V and VI,
vide notification No. S.O. 902(E), dated 26th March, 2014, see Gazette of India, Extraordinary, Part II, sec.3(ii).
1st April, 2014 – S. 135 and Sch. VII, vide notification No. S.O. 582(E), dated 27th February, 2014, see Gazette of India,
Extraordinary, Part II, sec. 3 (ii).
6th June, 2014 –Sub-sections (2) and (3) of s. 74, vide notification No. S.O. 1459(E), dated 6th June, 2014, see Gazette of India,
Extraordinary, Part II, sec. 3(ii	
		  
		 
14
		                     
		  

(e) any other company governed by any special Act for the time being in force, except in so far as
        the said provisions are inconsistent with the provisions of such special Act; and

(f) such body corporate, incorporated by any Act for the time being in force, as the Central
        Government may, by notification, specify in this behalf, subject to such exceptions, modifications or
        adaptation, as may be specified in the notification.

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(B) not less than fifty-one per cent. of the paid-up share capital is held or controlled by the
Central Government or by any State Government or Governments or partly by the Central
Government and partly by one or more State Governments;

(73) ―recognised stock exchange‖ means a recognised stock exchange as defined in clause (f) of
section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(74) ―register of companies‖ means the register of companies maintained by the Registrar on paper or
in any electronic mode under this Act;

(75) ―Registrar‖ means a Registrar, an Additional Registrar, a Joint Registrar, a Deputy Registrar or
an Assistant Registrar, having the duty of registering companies and discharging various functions underthis Act;

(76) ―related party‖, with reference to a company, means—

(I) a director or his relative;

(II) a key managerial personnel or his relative;

(III) a firm, in which a director, manager or his relative is a partner;

(IV) a private company in which a director or manager is a member or director;

(V) a public company in which a director or manager is a director or holds along with his

(VI) any body corporate whose Board of Directors, managing director or manager is accustomed
to act in accordance with the advice, directions or instructions of a director or manager;

(VII) any person on whose advice, directions or instructions a director or manager is
accustomedto act:

Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions
given in a professional capacity;

(VIII) any company which is—

(A) a holding, subsidiary or an associate company of such company; or

(B) a subsidiary of a holding company to which it is also a subsidiary;

(IX) such other person as may be prescribed;

(77) ‗‗relative‘‘, with reference to any person, means any one who is related to another, if—

(I) they are members of a Hindu Undivided Family;

(II) they are husband and wife; or

(III) one person is related to the other in such manner as may be prescribed;

(78) ―remuneration‖ means any money or its equivalent given or passed to any person for services
rendered by him and includes perquisites as defined under the Income-tax Act, 1961 (43 of 1961);

(79) ―Schedule‖ means a Schedule annexed to this Act;

(80) ―scheduled bank‖ means the scheduled bank as defined in clause (e) of section 2 of the Reserve
Bank of India Act, 1934 (2 of 1934);

(81) ―securities‖ means the securities as defined in clause (h) of section 2 of the Securities Contracts
(Regulation) Act, 1956 (42 of 1956);

(82) ―Securities and Exchange Board‖ means the Securities and Exchange Board of India established
under section 3 of the Securities and Exchange Board of India Act,1992 (15 of 1992);

(83) ―Serious Fraud Investigation Office‖ means the office referred to in section 211;

(84) ―share‖ means a share in the share capital of a company and includes stock;

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(85) ‗‗small company‘‘ means a company, other than a public company,—

(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may
be prescribed which shall not be more than five crore rupees; or

(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or
such higher amount as may be prescribed which shall not be more than twenty crore rupees:

Provided that nothing in this clause shall apply to—

(A) a holding company or a subsidiary company;

(B) a company registered under section 8; or

(C) a company or body corporate governed by any special Act;

(86) ―subscribed capital‖ means such part of the capital which is for the time being subscribed by the
members of a company;

(87) ―subsidiary company‖ or ―subsidiary‖, in relation to any other company (that is to say the
holding company), means a company in which the holding company—

(i) controls the composition of the Board of Directors; or

(ii) exercises or controls more than one-half of the total share capital either at its own or together
with one or more of its subsidiary companies:

Provided that such class or classes of holding companies as may be prescribed shall not have layers of
subsidiaries beyond such numbers as may be prescribed.

Explanation.—For the purposes of this clause,—

(a)a company shall be deemed to be a subsidiary company of the holding company even if the
control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding
company;

(b) the composition of a company‘s Board of Directors shall be deemed to be controlled by
another company if that other company by exercise of some power exercisable by it at its discretion
can appoint or remove all or a majority of the directors;

(c) the expression ―company‖ includes any body corporate;

(d) ―layer‖ in relation to a holding company means its subsidiary or subsidiaries;

(88) ―sweat equity shares‖ means such equity shares as are issued by a company to its directors or
employees at a discount or for consideration, other than cash, for providing their know-how or making
available rights in the nature of intellectual property rights or value additions, by whatever name called;

(89) ―total voting power‖, in relation to any matter, means the total number of votes which may be
cast in regard to that matter on a poll at a meeting of a company if all the members thereof or their proxies
having a right to vote on that matter are present at the meeting and cast their votes;

(90) ―Tribunal‖ means the National Company Law Tribunal constituted under section 408;

(91) ―turnover‖ means the aggregate value of the realisation of amount made from the sale, supply or
distribution of goods or on account of services rendered, or both, by the company during a financial year;

(92) ―unlimited company‖ means a company not having any limit on the liability of its members;

(93) ―voting right‖ means the right of a member of a company to vote in any meeting of the company
or by means of postal ballot;

(94) ―whole-time director‖ includes a director in the whole-time employment of the company;

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(95) words and expressions used and not defined in this Act but defined in the Securities Contracts
(Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of
1992) or the Depositories Act, 1996 (22 of 1996) shall have the meanings respectively assigned to them
in those Acts

CHAPTER II

INCORPORATION OF COMPANY AND MATTERS INCIDENTAL THERETO

3. Formation of company.— (1) A company may be formed for any lawful purpose by—

(a) seven or more persons, where the company to be formed is to be a public company;

(b) two or more persons, where the company to be formed is to be a private company; or

(c) one person, where the company to be formed is to be One Person Company that is to say, a
private company,

by subscribing their names or his name to a memorandum and complying with the requirements of this
Act in respect of registration:

Provided that the memorandum of One Person Company shall indicate the name of the other person,
with his prior written consent in the prescribed form, who shall, in the event of the subscriber‘s death or
his incapacity to contract become the member of the company and the written consent of such person
shall also be filed with the Registrar at the time of incorporation of the One Person Company along with
its memorandum and articles:

Provided further that such other person may withdraw his consent in such manner as may be
prescribed:

Provided also that the member of One Person Company may at any time change the name of such
other person by giving notice in such manner as may be prescribed:

Provided also that it shall be the duty of the member of One Person Company to intimate the
company the change, if any, in the name of the other person nominated by him by indicating in the
memorandum or otherwise within such time and in such manner as may be prescribed, and the company
shall intimate the Registrar any such change within such time and in such manner as may be prescribed:

Provided also that any such change in the name of the person shall not be deemed to be an alteration
of the memorandum.

(2) A company formed under sub-section (1) may be either—

(a) a company limited by shares; or

(b) a company limited by guarantee; or

(c) an unlimited company.

4. Memorandum.— (1) The memorandum of a company shall state—

(a) the name of the company with the last word ―Limited‖ in the case of a public limited
company, or the last words ―Private Limited‖ in the case of a private limited company:

Provided that nothing in this clause shall apply to a company registered under section 8;

(b) the State in which the registered office of the company is to be situated;

(c) the objects for which the company is proposed to be incorporated and any matter considered
necessary in furtherance thereof;

(d) the liability of members of the company, whether limited or unlimited, and also state,—

(I) in the case of a company limited by shares, that liability of its members is limited to the
amount unpaid, if any, on the shares held by them; and

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(II) in the case of a company limited by guarantee, the amount up to which each member
undertakes to contribute—

(A) to the assets of the company in the event of its being wound-up while he is a member
or within one year after he ceases to be a member, for payment of the debts and liabilities of
the company or of such debts and liabilities as may have been contracted before he ceases to
be a member, as the case may be; and

(B) to the costs, charges and expenses of winding-up and for adjustment of the rights of
the contributories among themselves;

(e) in the case of a company having a share capital,—

(i) the amount of share capital with which the company is to be registered and the division
thereof into shares of a fixed amount and the number of shares which the subscribers to the
memorandum agree to subscribe which shall not be less than one share; and

(ii) the number of shares each subscriber to the memorandum intends to take, indicated
opposite his name;

(f) in the case of One Person Company, the name of the person who, in the event of death of the
subscriber, shall become the member of the company

(2) The name stated in the memorandum shall not—

(a) be identical with or resemble too nearly to the name of an existing company registered under
this Act or any previous company law; or

(b) be such that its use by the company—

(II) will constitute an offence under any law for the time being in force; or

(II) is undesirable in the opinion of the Central Government.

(3) Without prejudice to the provisions of sub-section (2), a company shall not be registered with a
name which contains—

(a) any word or expression which is likely to give the impression that the company is in any way
connected with, or having the patronage of, the Central Government, any State Government, or any
local authority, corporation or body constituted by the Central Government or any State Government
under any law for the time being in force; or

(b) such word or expression, as may be prescribed,

unless the previous approval of the Central Government has been obtained for the use of any such word or
expression.

(4) A person may make an application, in such form and manner and accompanied by such fee, as
may be prescribed, to the Registrar for the reservation of a name set out in the application as—

(a) the name of the proposed company; or

(b) the name to which the company proposes to change its name.

(5) (i) Upon receipt of an application under sub-section (4), the Registrar may, on the basis of
information and documents furnished along with the application, reserve the name for a period of sixty
days from the date of the application.

(II) Where after reservation of name under clause (i), it is found that name was applied by furnishing
wrong or incorrect information, then,—

(a) if the company has not been incorporated, the reserved name shall be cancelled and the person
making application under sub-section (4) shall be liable to a penalty which may extend to one lakh
rupees;

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(b) if the company has been incorporated, the Registrar may, after giving the company an
opportunity of being heard—

(I) either direct the company to change its name within a period of three months, after passing
an ordinary resolution;

(II) take action for striking off the name of the company from the register of companies; or

(III) make a petition for winding up of the company.

(6) The memorandum of a company shall be in respective forms specified in Tables A, B, C, D and E
in Schedule I as may be applicable to such company.

(7) Any provision in the memorandum or articles, in the case of a company limited by guarantee and
not having a share capital, purporting to give any person a right to participate in the divisible profits of the
company otherwise than as a member, shall be void.

5. Articles.— (1) The articles of a company shall contain the regulations for management of the company

(2) The articles shall also contain such matters, as may be prescribed:

Provided that nothing prescribed in this sub-section shall be deemed to prevent a company from
including such additional matters in its articles as may be considered necessary for its management.

(3) The articles may contain provisions for entrenchment to the effect that specified provisions of the
articles may be altered only if conditions or procedures as that are more restrictive than those applicable
in the case of a special resolution, are met or complied with.

(4) The provisions for entrenchment referred to in sub-section (3) shall only be made either on
formation of a company, or by an amendment in the articles agreed to by all the members of the company
in the case of a private company and by a special resolution in the case of a public company.

(5) Where the articles contain provisions for entrenchment, whether made on formation or by
amendment, the company shall give notice to the Registrar of such provisions in such form and manner as
may be prescribed

(6) The articles of a company shall be in respective forms specified in Tables, F, G, H, I and J in
Schedule I as may be applicable to such company.

(7) A company may adopt all or any of the regulations contained in the model articles applicable to
such company

(8) In case of any company, which is registered after the commencement of this Act, in so far as the
registered articles of such company do not exclude or modify the regulations contained in the model
articles applicable to such company, those regulations shall, so far as applicable, be the regulations of that
company in the same manner and to the extent as if they were contained in the duly registered articles of
the company.

(9) Nothing in this section shall apply to the articles of a company registered under any previous
company law unless amended under this Act.

6. Act to override memorandum, articles, etc.— Save as otherwise expressly provided in this
Act—

(a) the provisions of this Act shall have effect notwithstanding anything to the contrary contained
in the memorandum or articles of a company, or in any agreement executed by it, or in any resolution
passed by the company in general meeting or by its Board of Directors, whether the same be
registered, executed or passed, as the case may be, before or after the commencement of this Act; and

(b) any provision contained in the memorandum, articles, agreement or resolution shall, to the
extent to which it is repugnant to the provisions of this Act, become or be void, as the case may be.

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7. Incorporation of company.— (1) There shall be filed with the Registrar within whose jurisdiction
the registered office of a company is proposed to be situated, the following documents and information
for registration, namely:—

(a) the memorandum and articles of the company duly signed by all the subscribers to the
memorandum in such manner as may be prescribed;

(b) a declaration in the prescribed form by an advocate, a chartered accountant, cost accountant or
company secretary in practice, who is engaged in the formation of the company, and by a person
named in the articles as a director, manager or secretary of the company, that all the requirements of
this Act and the rules made thereunder in respect of registration and matters precedent or incidental
thereto have been complied with;

(c) an affidavit from each of the subscribers to the memorandum and from persons named as the
first directors, if any, in the articles that he is not convicted of any offence in connection with the
promotion, formation or management of any company, or that he has not been found guilty of any
fraud or misfeasance or of any breach of duty to any company under this Act or any previous
company law during the preceding five years and that all the documents filed with the Registrar for
registration of the company contain information that is correct and complete and true to the best of his
knowledge and belief;

(d) the address for correspondence till its registered office is established;

(e) the particulars of name, including surname or family name, residential address, nationality and
such other particulars of every subscriber to the memorandum along with proof of identity, as may be
prescribed, and in the case of a subscriber being a body corporate, such particulars as may be
prescribed;

(f) the particulars of the persons mentioned in the articles as the first directors of the company,
their names, including surnames or family names, the Director Identification Number, residential
address, nationality and such other particulars including proof of identity as may be prescribed; and

(g) the particulars of the interests of the persons mentioned in the articles as the first directors of
the company in other firms or bodies corporate along with their consent to act as directors of the
company in such form and manner as may be prescribed.

(2) The Registrar on the basis of documents and information filed under sub-section (1) shall register
all the documents and information referred to in that subsection in the register and issue a certificate of
incorporation in the prescribed form to the effect that the proposed company is incorporated under this
Act.

(3) On and from the date mentioned in the certificate of incorporation issued under sub-section (2),
the Registrar shall allot to the company a corporate identity number, which shall be a distinct identity for
the company and which shall also be included in the certificate.

(4) The company shall maintain and preserve at its registered office copies of all documents and
information as originally filed under sub-section (1) till its dissolution under this Act

(5) If any person furnishes any false or incorrect particulars of any information or suppresses any
material information, of which he is aware in any of the documents filed with the Registrar in relation to
the registration of a company, he shall be liable for action under section 447.

(6) Without prejudice to the provisions of sub-section (5) where, at any time after the incorporation of
a company, it is proved that the company has been got incorporated by furnishing any false or incorrect
information or representation or by suppressing any material fact or information in any of the documents
or declaration filed or made for incorporating such company, or by any fraudulent action, the promoters,
the persons named as the first directors of the company and the persons making declaration under clause
(b) of subsection (1) shall each be liable for action under section 447.

(7) Without prejudice to the provisions of sub-section (6), where a company has been got
incorporated by furnishing any false or incorrect information or representation or by suppressing any
material fact or information in any of the documents or declaration filed or made for incorporating such

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company or by any fraudulent action, the Tribunal may, on an application made to it, on being satisfied
that the situation so warrants,—

(a) pass such orders, as it may think fit, for regulation of the management of the company
including changes, if any, in its memorandum and articles, in public interest or in the interest of the
company and its members and creditors; or

(b) direct that liability of the members shall be unlimited; or

(c) direct removal of the name of the company from the register of companies; or

(d) pass an order for the winding up of the company; or

(e) pass such other orders as it may deem fit:

Provided that before making any order under this sub-section,—

(I) the company shall be given a reasonable opportunity of being heard in the matter; and

(II) the Tribunal shall take into consideration the transactions entered into by the company,
including the obligations, if any, contracted or payment of any liability.

8. Formulation of companies with charitable objects, etc.— (1) Where it is proved to the
satisfaction of the Central Government that a person or an association of persons proposed to be
registered under this Act as a limited company—

(a) has in its objects the promotion of commerce, art, science, sports, education, research, social
welfare, religion, charity, protection of environment or any such other object;

(b) intends to apply its profits, if any, or other income in promoting its objects; and

(c) intends to prohibit the payment of any dividend to its members,

the Central Government may, by licence issued in such manner as may be prescribed, and on such
conditions as it deems fit, allow that person or association of persons to be registered as a limited
company under this section without the addition to its name of the word ―Limited‖, or as the case may be,
the words ―Private Limited‖ , and thereupon the Registrar shall, on application, in the prescribed form,
register such person or association of persons as a company under this section

(2) The company registered under this section shall enjoy all the privileges and be subject to all the
obligations of limited companies.

(3) A firm may be a member of the company registered under this section.

(4) (i) A company registered under this section shall not alter the provisions of its memorandum or
articles except with the previous approval of the Central Government.

(ii) A company registered under this section may convert itself into company of any other kind only
after complying with such conditions as may be prescribed.

(5) Where it is proved to the satisfaction of the Central Government that a limited company registeredunder this Act or under any previous company law has been formed with any of the objects specified in
clause (a) of sub-section (1) and with the restrictions and prohibitions as mentioned respectively in
clauses (b) and (c) of that sub-section, it may, by licence, allow the company to be registered under this
section subject to such conditions as the Central Government deems fit and to change its name by
omitting the word ―Limited‖, or as the case may be, the words ―Private Limited‖ from its name and
thereupon the Registrar shall, on application, in the prescribed form, register such company under this
section and all the provisions of this section shall apply to that company.

(6) The Central Government may, by order, revoke the licence granted to a company registered under
this section if the company contravenes any of the requirements of this section or any of the conditions
subject to which a licence is issued or the affairs of the company are conducted fraudulently or in a
manner violative of the objects of the company or prejudicial to public interest, and without prejudice to
any other action against the company under this Act, direct the company to convert its status and change
its name to add the word ―Limited‖ or the words ―Private Limited‖, as the case may be, to its name and
thereupon the Registrar shall, without prejudice to any action that may be taken under sub-section (7), on
application, in the prescribed form, register the company accordingly:

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Provided that no such order shall be made unless the company is given a reasonable opportunity
ofbeing heard:

(7) Where a licence is revoked under sub-section (6), the Central Government may, by order, if it is
satisfied that it is essential in the public interest, direct that the company be wound up under this Act or
amalgamated with another company registered under this section:

Provided that no such order shall be made unless the company is given a reasonable opportunity of
being heard.

(8) Where a licence is revoked under sub-section (6) and where the Central Government is satisfied
that it is essential in the public interest that the company registered under this section should be
amalgamated with another company registered under this section and having similar objects, then,
notwithstanding anything to the contrary contained in this Act, the Central Government may, by order
provide for such amalgamation to form a single company with such constitution, properties, powers,
rights, interest, authorities and privileges and with such liabilities, duties and obligations as may be
specified in the order

(9) If on the winding up or dissolution of a company registered under this section, there remains, after
the satisfaction of its debts and liabilities, any asset, they may be transferred to another company
registered under this section and having similar objects, subject to such conditions as the Tribunal may
impose, or may be sold and proceeds thereof credited to the Rehabilitation and Insolvency Fund formed
under section 269

(10) A company registered under this section shall amalgamate only with another company registered
under this section and having similar objects.

(11) If a company makes any default in complying with any of the requirements laid down in this
section, the company shall, without prejudice to any other action under the provisions of this section, be
punishable with fine which shall not be less than ten lakh rupees but which may extend to one crore
rupees and the directors and every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to three years or with fine which shall not be less than twentyfive
thousand rupees but which may extend to twenty-five lakh rupees, or with both:

Provided that when it is proved that the affairs of the company were conducted fraudulently, every
officer in default shall be liable for action under section 447.

9. Effect of registration.— From the date of incorporation mentioned in the certificate of
incorporation, such subscribers to the memorandum and all other persons, as may, from time to time,
become members of the company, shall be a body corporate by the name contained in the memorandum,
capable of exercising all the functions of an incorporated company under this Act and having perpetual
succession 1
*** with power to acquire, hold and dispose of property, both movable and immovable,
tangible and intangible, to contract and to sue and be sued, by the said name

10. Effect of memorandum and articles.— (1) Subject to the provisions of this Act, the
memorandum and articles shall, when registered, bind the company and the members thereof to the same
extent as if they respectively had been signed by the company and by each member, and contained
covenants on its and his part to observe all the provisions of the memorandum and of the articles.

(2) All monies payable by any member to the company under the memorandum or articles shall be a
debt due from him to the company.

11. [Commencement of business, etc.] Omitted by the Companies (Amendment) Act, 2015 (21 of
2015), s. 4 (w.e.f. 29-5-2015).

__________________

1. The words ―and a common seal‖ omitted by Act 21 of 2015, s.3 (w.e.f. 29-5-2015)

29

12. Registered office of company.— (1) A company shall, on and from the fifteenth day of its
incorporation and at all times thereafter, have a registered office capable of receiving and acknowledging
all communications and notices as may be addressed to it.

(2) The company shall furnish to the Registrar verification of its registered office within a period of
thirty days of its incorporation in such manner as may be prescribed

(3) Every company shall—

(a) paint or affix its name, and the address of its registered office, and keep the same painted or
affixed, on the outside of every office or place in which its business is carried on, in a conspicuous
position, in legible letters, and if the characters employed therefor are not those of the language or of
one of the languages in general use in that locality, also in the characters of that language or of one of
those languages;

1[(b) have its name engraved in legible characters on its seal, if any;]

(c) get its name, address of its registered office and the Corporate Identity Number along with
telephone number, fax number, if any, e-mail and website addresses, if any, printed in all its business
letters, billheads, letter papers and in all its notices and other official publications; and

(d) have its name printed on hundies, promissory notes, bills of exchange and such other
documents as may be prescribed:

Provided that where a company has changed its name or names during the last two years, it shall paint
or affix or print, as the case may be, along with its name, the former name or names so changed during the
last two years as required under clauses (a) and (c):

Provided further that the words ‗‗One Person Company‘‘ shall be mentioned in brackets below the
name of such company, wherever its name is printed, affixed or engraved.

(4) Notice of every change of the situation of the registered office, verified in the manner prescribed,
after the date of incorporation of the company, shall be given to the Registrar within fifteen days of the
change, who shall record the same.

(5) Except on the authority of a special resolution passed by a company, the registered office of the
company shall not be changed,—

(a) in the case of an existing company, outside the local limits of any city, town or village where
such office is situated at the commencement of this Act or where it may be situated later by virtue of
a special resolution passed by the company; and

(b) in the case of any other company, outside the local limits of any city, town or village where
such office is first situated or where it may be situated later by virtue of a special resolution passed by
the company:

Provided that no company shall change the place of its registered office from the jurisdiction of one
Registrar to the jurisdiction of another Registrar within the same State unless such change is confirmed by
the Regional Director on an application made in this behalf by the company in the prescribed manner.

(6) The confirmation referred to in sub-section (5) shall be communicated within a period of thirty
days from the date of receipt of application by the Regional Director to the company and the company
shall file the confirmation with the Registrar within a period of sixty days of the date of confirmation who
shall register the same and certify the registration within a period of thirty days from the date of filing of
such confirmation.

(7) The certificate referred to in sub-section (6) shall be conclusive evidence that all the requirements
of this Act with respect to change of registered office in pursuance of subsection (5) have been complied
with and the change shall take effect from the date of the certificate

__________________

1. Subs. by Act 21 of 2015, s. 5, for cl. (b) (w.e.f. 29-5-2015).

30

(8) If any default is made in complying with the requirements of this section, the company and every
officer who is in default shall be liable to a penalty of one thousand rupees for every day during which the
default continues but not exceeding one lakh rupees.

13. Alteration of memorandum.— (1) Save as provided in section 61, a company may, by a special
resolution and after complying with the procedure specified in this section, alter the provisions of its
memorandum.

(2) Any change in the name of a company shall be subject to the provisions of subsections (2) and (3)
of section 4 and shall not have effect except with the approval of the Central Government in writing:

Provided that no such approval shall be necessary where the only change in the name of the company
is the deletion therefrom, or addition thereto, of the word ―Private‖, consequent on the conversion of any
one class of companies to another class in accordance with the provisions of this Act.

(3) When any change in the name of a company is made under sub-section (2), the Registrar shall
enter the new name in the register of companies in place of the old name and issue a fresh certificate of
incorporation with the new name and the change in the name shall be complete and effective only on the
issue of such a certificate.

(4) The alteration of the memorandum relating to the place of the registered office from one State to
another shall not have any effect unless it is approved by the Central Government on an application in
such form and manner as may be prescribed.

(5) The Central Government shall dispose of the application under sub-section (4) within a period of
sixty days and before passing its order may satisfy itself that the alteration has the consent of the
creditors, debenture-holders and other persons concerned with the company or that the sufficient
provision has been made by the company either for the due discharge of all its debts and obligations or
that adequate security has been provided for such discharge

(6) Save as provided in section 64, a company shall, in relation to any alteration of its memorandum,
file with the Registrar—

(a) the special resolution passed by the company under sub-section (1);

(b) the approval of the Central Government under sub-section (2), if the alteration involves any
change in the name of the company.

(7) Where an alteration of the memorandum results in the transfer of the registered office of a
company from one State to another, a certified copy of the order of the Central Government approving the
alteration shall be filed by the company with the Registrar of each of the States within such time and in
such manner as may be prescribed, who shall register the same, and the Registrar of the State where the
registered office is being shifted to, shall issue a fresh certificate of incorporation indicating the alteration.

(8) A company, which has raised money from public through prospectus and still has any unutilised
amount out of the money so raised, shall not change its objects for which it raised the money through
prospectus unless a special resolution is passed by the company and—

(I) the details, as may be prescribed, in respect of such resolution shall also be published in the
newspapers (one in English and one in vernacular language) which is in circulation at the place where
the registered office of the company is situated and shall also be placed on the website of the
company, if any, indicating therein the justification for such change;

(II) the dissenting shareholders shall be given an opportunity to exit by the promoters and
shareholders having control in accordance with regulations to be specified by the Securities and
Exchange Board

(9) The Registrar shall register any alteration of the memorandum with respect to the objects of the
company and certify the registration within a period of thirty days from the date of filing of the special
resolution in accordance with clause (a) of sub-section (6) of this section.

(10) No alteration made under this section shall have any effect until it has been registered in
accordance with the provisions of this section.

31

(11) Any alteration of the memorandum, in the case of a company limited by guarantee and not
having a share capital, purporting to give any person a right to participate in the divisible profits of the
company otherwise than as a member, shall be void.

14. Alteration of articles.— (1) Subject to the provisions of this Act and the conditions contained in
its memorandum, if any, a company may, by a special resolution, alter its articles including alterations
having the effect of conversion of—

(a) a private company into a public company; or

(b) a public company into a private company:

Provided that where a company being a private company alters its articles in such a manner that they
no longer include the restrictions and limitations which are required to be included in the articles of a
private company under this Act, the company shall, as from the date of such alteration, cease to be a
private company:

Provided further that any alteration having the effect of conversion of a public company into a private
company shall not take effect except with the approval of the Tribunal which shall make such order as it
may deem fit.

(2) Every alteration of the articles under this section and a copy of the order of the Tribunal approving
the alteration as per sub-section (1) shall be filed with the Registrar, together with a printed copy of the
altered articles, within a period of fifteen days in such manner as may be prescribed, who shall register the
same.

(3) Any alteration of the articles registered under sub-section (2) shall, subject to the provisions of
this Act, be valid as if it were originally in the articles.

15. Alteration of memorandum or articles to be noted in every copy.— (1) Every alteration made
in the memorandum or articles of a company shall be noted in every copy of the memorandum or articles,
as the case may be.

(2) If a company makes any default in complying with the provisions of sub-section (1), the company
and every officer who is in default shall be liable to a penalty of one thousand rupees for every copy of
the memorandum or articles issued without such alteration

16. Rectification of name of company.— (1) If, through inadvertence or otherwise, a company on its
first registration or on its registration by a new name, is registered by a name which,—

(a) in the opinion of the Central Government, is identical with or too nearly resembles the name
by which a company in existence had been previously registered, whether under this Act or any
previous company law, it may direct the company to change its name and the company shall change
its name or new name, as the case may be, within a period of three months from the issue of such
direction, after adopting an ordinary resolution for the purpose;

(b) on an application by a registered proprietor of a trade mark that the name is identical with or
too nearly resembles to a registered trade mark of such proprietor under the Trade Marks Act, 1999,
made to the Central Government within three years of incorporation or registration or change of name
of the company, whether under this Act or any previous company law, in the opinion of the Central
Government, is identical with or too nearly resembles to an existing trade mark, it may direct the
company to change its name and the company shall change its name or new name, as the case may be,
within a period of six months from the issue of such direction, after adopting an ordinary resolution
for the purpose

(2) Where a company changes its name or obtains a new name under sub-section (1), it shall within a
period of fifteen days from the date of such change, give notice of the change to the Registrar along with
the order of the Central Government, who shall carry out necessary changes in the certificate of
incorporation and the memorandum.

(3) If a company makes default in complying with any direction given under sub-section (1), the
company shall be punishable with fine of one thousand rupees for every day during which the default

32

continues and every officer who is in default shall be punishable with fine which shall not be less than
five thousand rupees but which may extend to one lakh rupees.

17. Copies of memorandum, articles, etc., to be given to members.— (1) A company shall, on
being so requested by a member, send to him within seven days of the request and subject to the payment
of such fees as may be prescribed, a copy of each of the following documents, namely:—

(a) the memorandum;

(b) the articles; and

(c) every agreement and every resolution referred to in sub-section (1) of section 117, if and in so
far as they have not been embodied in the memorandum or articles.

(2) If a company makes any default in complying with the provisions of this section, the company and
every officer of the company who is in default shall be liable for each default, to a penalty of one
thousand rupees for each day during which such default continues or one lakh rupees, whichever is less

18. Conversion of companies already registered.— (1) A company of any class registered under
this Act may convert itself as a company of other class under this Act by alteration of memorandum and
articles of the company in accordance with the provisions of this Chapter.

(2) Where the conversion is required to be done under this section, the Registrar shall on an
application made by the company, after satisfying himself that the provisions of this Chapter applicable
for registration of companies have been complied with, close the former registration of the company and
after registering the documents referred to in sub-section (1), issue a certificate of incorporation in the
same manner as its first registration.

(3) The registration of a company under this section shall not affect any debts, liabilities, obligations
or contracts incurred or entered into, by or on behalf of the company before conversion and such debts,
liabilities, obligations and contracts may be enforced in the manner as if such registration had not been
done.

19. Subsidiary company not to hold shares in its holding company.— (1) No company shall,
either by itself or through its nominees, hold any shares in its holding company and no holding company
shall allot or transfer its shares to any of its subsidiary companies and any such allotment or transfer of
shares of a company to its subsidiary company shall be void:

Provided that nothing in this sub-section shall apply to a case—

(a) where the subsidiary company holds such shares as the legal representative of a deceased
member of the holding company; or

(b) where the subsidiary company holds such shares as a trustee; or

(c) where the subsidiary company is a shareholder even before it became a subsidiary company of
the holding company:

Provided further that the subsidiary company referred to in the preceding proviso shall have a right to
vote at a meeting of the holding company only in respect of the shares held by it as a legal representative
or as a trustee, as referred to in clause (a) or clause (b) of the said proviso.

(2) The reference in this section to the shares of a holding company which is a company limited by
guarantee or an unlimited company, not having a share capital, shall be construed as a reference to the
interest of its members, whatever be the form of interest.

20. Service of documents.— (1) A document may be served on a company or an officer thereof by
sending it to the company or the officer at the registered office of the company by registered post or by
speed post or by courier service or by leaving it at its registered office or by means of such electronic or
other mode as may be prescribed:

Provided that where securities are held with a depository, the records of the beneficial ownership may
be served by such depository on the company by means of electronic or other mode.

33

(2) Save as provided in this Act or the rules made thereunder for filing of documents with the
Registrar in electronic mode, a document may be served on Registrar or any member by sending it to him
by post or by registered post or by speed post or by courier or by delivering at his office or address, or by
such electronic or other mode as may be prescribed:

Provided that a member may request for delivery of any document through a particular mode, for
which he shall pay such fees as may be determined by the company in its annual general meeting.

Explanation.—For the purposes of this section, the term ‗‗courier‘‘ means a person or agency which
delivers the document and provides proof of its delivery.

21. Authentication of documents, proceedings and contracts.— Save as otherwise provided in this Act,—

(a) a document or proceeding requiring authentication by a company; or

(b) contracts made by or on behalf of a company,

may be signed by any key managerial personnel or an officer of the company duly authorised by the
Board in this behalf

22. Execution of bills of exchange, etc.— (1) A bill of exchange, hundi or promissory note shall be
deemed to have been made, accepted, drawn or endorsed on behalf of a company if made, accepted,
drawn, or endorsed in the name of, or on behalf of or on account of, the company by any person acting
under its authority, express or implied.

(2) A company may, by writing 1 [under its common seal, if any,] authorise any person, either
generally or in respect of any specified matters, as its attorney to execute other deeds on its behalf in any
place either in or outside India:

2[Provided that in case a company does not have a common seal, the authorisation under this subsection
shall be made by two directors or by a director and the Company Secretary, wherever the
company has appointed a Company Secretary.]

(3) A deed signed by such an attorney on behalf of the company and under his seal shall bind the
company 3***.

CHAPTER III

PROSPECTUS AND ALLOTMENT OF SECURITIES

PART I.—Public offer

23. Public offer and private placement.— (1) A public company may issue securities—

(a) to public through prospectus (herein referred to as "public offer") by complying with the
provisions of this Part; or

(b) through private placement by complying with the provisions of Part II of this Chapter; or

(c) through a rights issue or a bonus issue in accordance with the provisions of this Act and in
case of a listed company or a company which intends to get its securities listed also with the
provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the rules and
regulations made thereunder

(2) A private company may issue securities—

(a) by way of rights issue or bonus issue in accordance with the provisions of this Act; or

(b) through private placement by complying with the provisions of Part II of this Chapter.

Explanation.—For the purposes of this Chapter, "public offer" includes initial public offer or further
public offer of securities to the public by a company, or an offer for sale of securities to the public by an
existing shareholder, through issue of a prospectus.

__________________

1. Subs. by Act 21 of 2015, s. 6, for ―under its common seal‖ (w.e.f. 29-5-2015).

2. Ins. by s. 6, ibid. (w.e.f. 29-5-2015).

3. The words ―and have the effect as if it were made under its common seal‖ omitted by s. 6, ibid. (w.e.f. 29-5-2015)

34

24. Power of Securities and Exchange Board to regulate issue and transfer of securities, etc.—
(1) The provisions contained in this Chapter, Chapter IV and in section 127 shall,—

(a) in so far as they relate to —

(i) issue and transfer of securities; and

(II) non-payment of dividend,

by listed companies or those companies which intend to get their securities listed on any recognised
stock exchange in India, except as provided under this Act, be administered by the Securities and
Exchange Board by making regulations in this behalf;

(b) in any other case, be administered by the Central Government.

Explanation.—For the removal of doubts, it is hereby declared that all powers relating to all other
matters relating to prospectus, return of allotment, redemption of preference shares and any other matter
specifically provided in this Act, shall be exercised by the Central Government, the Tribunal or the
Registrar, as the case may be.

(2) The Securities and Exchange Board shall, in respect of matters specified in subsection (1) and the
matters delegated to it under proviso to sub-section (1) of section 458, exercise the powers conferred upon
it under sub-sections (1), (2A), (3) and (4) of section 11, sections 11A, 11B and 11D of the Securities and
Exchange Board of India Act, 1992 (15 of 1992).

25. Document containing offer of securities for sale to be deemed prospectus.— (1) Where a
company allots or agrees to allot any securities of the company with a view to all or any of those
securities being offered for sale to the public, any document by which the offer for sale to the public is
made shall, for all purposes, be deemed to be a prospectus issued by the company; and all enactments and
rules of law as to the contents of prospectus and as to liability in respect of mis-statements, in and
omissions from, prospectus, or otherwise relating to prospectus, shall apply with the modifications
specified in subsections (3) and (4) and shall have effect accordingly, as if the securities had been offered
to the public for subscription and as if persons accepting the offer in respect of any securities were
subscribers for those securities, but without prejudice to the liability, if any, of the persons by whom the
offer is made in respect of mis-statements contained in the document or otherwise in respect thereof.

(2) For the purposes of this Act, it shall, unless the contrary is proved, be evidence that an allotment
of, or an agreement to allot, securities was made with a view to the securities being offered for sale to the
public if it is shown—

(a) that an offer of the securities or of any of them for sale to the public was made within six
months after the allotment or agreement to allot; or

(b) that at the date when the offer was made, the whole consideration to be received by the
company in respect of the securities had not been received by it.

(3) Section 26 as applied by this section shall have effect as if —

(i) it required a prospectus to state in addition to the matters required by that section to be stated
in a prospectus—

(a) the net amount of the consideration received or to be received by the company in respect
of the securities to which the offer relates; and

(b) the time and place at which the contract where under the said securities have been or are
to be allotted may be inspected;

(II) the persons making the offer were persons named in a prospectus as directors of a company.

(4) Where a person making an offer to which this section relates is a company or a firm, it shall be
sufficient if the document referred to in sub-section (1) is signed on behalf of the company or firm by two
directors of the company or by not less than one-half of the partners in the firm, as the case may be.

35

26. Matters to be stated in prospectus.— (1) Every prospectus issued by or on behalf of a public
company either with reference to its formation or subsequently, or by or on behalf of any person who is
or has been engaged or interested in the formation of a public company, shall be dated and signed and
shall—

(a) state the following information, namely:—

(I) names and addresses of the registered office of the company, company secretary, Chief
Financial Officer, auditors, legal advisers, bankers, trustees, if any, underwriters and such other
persons as may be prescribed;

(II) dates of the opening and closing of the issue, and declaration about the issue of allotment
letters and refunds within the prescribed time;

(III) a statement by the Board of Directors about the separate bank account where all monies
received out of the issue are to be transferred and disclosure of details of all monies including
utilised and unutilised monies out of the previous issue in the prescribed manner;

(IV) details about underwriting of the issue;

(V) consent of the directors, auditors, bankers to the issue, expert‘s opinion, if any, and of
such other persons, as may be prescribed;

(VI) the authority for the issue and the details of the resolution passed therefor;

(VII) procedure and time schedule for allotment and issue of securities;

(VIII) capital structure of the company in the prescribed manner;

(IX) main objects of public offer, terms of the present issue and such other particulars as may
be prescribed;

(X) main objects and present business of the company and its location, schedule of
implementation of the project;

(XI) particulars relating to—

(A) management perception of risk factors specific to the project;

(B) gestation period of the project;

(C) extent of progress made in the project;

(D) deadlines for completion of the project; and

(E) any litigation or legal action pending or taken by a Government Department or a
statutory body during the last five years immediately preceding the year of the issue of
prospectus against the promoter of the company;

(XII) minimum subscription, amount payable by way of premium, issue of shares otherwiseM
than on cash;—

(XIII) details of directors including their appointments and remuneration, and such particulars
of the nature and extent of their interests in the company as may be prescribed; and

(XIV) disclosures in such manner as may be prescribed about sources of promoter‘s
contribution;

(b) set out the following reports for the purposes of the financial information, namely:—

(I) reports by the auditors of the company with respect to its profits and losses and assets and
liabilities and such other matters as may be prescribed;

(II) reports relating to profits and losses for each of the five financial years immediately
preceding the financial year of the issue of prospectus including such reports of its subsidiaries
and in such manner as may be prescribed:

36

Provided that in case of a company with respect to which a period of five years has not
elapsed from the date of incorporation, the prospectus shall set out in such manner as may be
prescribed, the reports relating to profits and losses for each of the financial years immediately
preceding the financial year of the issue of prospectus including such reports of its subsidiaries;

(iii) reports made in the prescribed manner by the auditors upon the profits and losses of the
business of the company for each of the five financial years immediately preceding issue and
assets and liabilities of its business on the last date to which the accounts of the business were
made up, being a date not more than one hundred and eighty days before the issue of the
prospectus:

Provided that in case of a company with respect to which a period of five years has not
elapsed from the date of incorporation, the prospectus shall set out in the prescribed manner, the
reports made by the auditors upon the profits and losses of the business of the company for all
financial years from the date of its incorporation, and assets and liabilities of its business on the
last date before the issue of prospectus; and

(iv) reports about the business or transaction to which the proceeds of the securities are to be
applied directly or indirectly;

(c) make a declaration about the compliance of the provisions of this Act and a statement to the
effect that nothing in the prospectus is contrary to the provisions of this Act, the Securities Contracts
(Regulation) Act, 1956 (42 of 1956) and the Securities and Exchange Board of India Act, 1992 (15 of
1992) and the rules and regulations made thereunder; and

(d) state such other matters and set out such other reports, as may be prescribed.

(2) Nothing in sub-section (1) shall apply—

(a) to the issue to existing members or debenture-holders of a company, of a prospectus or form
of application relating to shares in or debentures of the company, whether an applicant has a right to
renounce the shares or not under sub-clause (ii) of clause (a) of sub-section (1) of section 62 in favour
of any other person; o

(b) to the issue of a prospectus or form of application relating to shares or debentures which are,
or are to be, in all respects uniform with shares or debentures previously issued and for the time being
dealt in or quoted on a recognised stock exchange.

(3) Subject to sub-section (2), the provisions of sub-section (1) shall apply to a prospectus or a form
of application, whether issued on or with reference to the formation of a company or subsequently.

Explanation.—The date indicated in the prospectus shall be deemed to be the date of its publication.

(4) No prospectus shall be issued by or on behalf of a company or in relation to an intended company
unless on or before the date of its publication, there has been delivered to the Registrar for registration,
copy thereof signed by every person who is named therein as a director or proposed director of the
company or by his duly authorised attorney.

(5) A prospectus issued under sub-section (1) shall not include a statement purporting to be made by
an expert unless the expert is a person who is not, and has not been, engaged or interested in the formation
or promotion or management, of the company and has given his written consent to the issue of the
prospectus and has not withdrawn such consent before the delivery of a copy of the prospectus to the
Registrar for registration and a statement to that effect shall be included in the prospectus.

(6) Every prospectus issued under sub-section (1) shall, on the face of it,—

(a) state that a copy has been delivered for registration to the Registrar as required under subsection(4); and

(b) specify any documents required by this section to be attached to the copy so delivered or refer
to statements included in the prospectus which specify these documents.

37

(7) The Registrar shall not register a prospectus unless the requirements of this section with respect to
its registration are complied with and the prospectus is accompanied by the consent in writing of all the
persons named in the prospectus.

(8) No prospectus shall be valid if it is issued more than ninety days after the date on which a copy
thereof is delivered to the Registrar under sub-section (4).

(9) If a prospectus is issued in contravention of the provisions of this section, the company shall be
punishable with fine which shall not be less than fifty thousand rupees but which may extend to three lakh
rupees and every person who is knowingly a party to the issue of such prospectus shall be punishable with
imprisonment for a term which may extend to three years or with fine which shall not be less than fifty
thousand rupees but which may extend to three lakh rupees, or with both.

27. Variation in terms of contract or objects in prospectus.—(1) A company shall not, at any time,
vary the terms of a contract referred to in the prospectus or objects for which the prospectus was issued,
except subject to the approval of, or except subject to an authority given by the company in general
meeting by way of special resolution:

Provided that the details, as may be prescribed, of the notice in respect of such resolution to
shareholders, shall also be published in the newspapers (one in English and one in vernacular language) in
the city where the registered office of the company is situated indicating clearly the justification for such
variation:

Provided further that such company shall not use any amount raised by it through prospectus for
buying, trading or otherwise dealing in equity shares of any other listed company.

(2) The dissenting shareholders being those shareholders who have not agreed to the proposal to vary
the terms of contracts or objects referred to in the prospectus, shall be given an exit offer by promoters or
controlling shareholders at such exit price, and in such manner and conditions as may be specified by the
Securities and Exchange Board by making regulations in this behalf.

28. Offer of sale of shares by certain members of company.— (1) Where certain members of a
company propose, in consultation with the Board of Directors to offer, in accordance with the provisions
of any law for the time being in force, whole or part of their holding of shares to the public, they may do
so in accordance with such procedure as may be prescribed.

(2) Any document by which the offer of sale to the public is made shall, for all purposes, be deemed
to be a prospectus issued by the company and all laws and rules made thereunder as to the contents of the
prospectus and as to liability in respect of mis-statements in and omission from prospectus or otherwise
relating to prospectus shall apply as if this is a prospectus issued by the company.

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

29. Public offer of securities to be in dematerialised form.— (1) Notwithstanding anything
contained in any other provisions of this Act,—

(a) every company making public offer; and

(b) such other class or classes of public companies as may be prescribed,

shall issue the securities only in dematerialised form by complying with the provisions of the Depositories
Act, 1996 (22 of 1996) and the regulations made thereunder.

(2) Any company, other than a company mentioned in sub-section (1), may convert its securities into
dematerialised form or issue its securities in physical form in accordance with the provisions of this Act
or in dematerialised form in accordance with the provisions of the Depositories Act, 1996 (22 of 1996)
and the regulations made thereunder.

30. Advertisement of prospectus.— Where an advertisement of any prospectus of a company is
published in any manner, it shall be necessary to specify therein the contents of its memorandum as

38

regards the objects, the liability of members and the amount of share capital of the company, and the
names of the signatories to the memorandum and the number of shares subscribed for by them, and itscapital structure.

31. Shelf prospectus.— (1) Any class or classes of companies, as the Securities and Exchange Board
may provide by regulations in this behalf, may file a shelf prospectus with the Registrar at the stage of the
first offer of securities included therein which shall indicate a period not exceeding one year as the period
of validity of such prospectus which shall commence from the date of opening of the first offer of
securities under that prospectus, and in respect of a second or subsequent offer of such securities issued
during the period of validity of that prospectus, no further prospectus is required.

(2) A company filing a shelf prospectus shall be required to file an information memorandum
containing all material facts relating to new charges created, changes in the financial position of the
company as have occurred between the first offer of securities or the previous offer of securities and the
succeeding offer of securities and such other changes as may be prescribed, with the Registrar within the
prescribed time, prior to the issue of a second or subsequent offer of securities under the shelf prospectus:

Provided that where a company or any other person has received applications for the allotment of
securities along with advance payments of subscription before the making of any such change, the
company or other person shall intimate the changes to such applicants and if they express a desire to
withdraw their application, the company or other person shall refund all the monies received as
subscription within fifteen days thereof

(3) Where an information memorandum is filed, every time an offer of securities is made under subsection
(2), such memorandum together with the shelf prospectus shall be deemed to be a prospectus.

Explanation.—For the purposes of this section, the expression "shelf prospectus" means a prospectus
in respect of which the securities or class of securities included therein are issued for subscription in one
or more issues over a certain period without the issue of a further prospectus.

32. Red herring prospectus.— (1) A company proposing to make an offer of securities may issue a
red herring prospectus prior to the issue of a prospectus.

(2) A company proposing to issue a red herring prospectus under sub-section (1) shall file it with the
Registrar at least three days prior to the opening of the subscription list and the offer.

(3) A red herring prospectus shall carry the same obligations as are applicable to a prospectus and any
variation between the red herring prospectus and a prospectus shall be highlighted as variations in theprospectus.

(4) Upon the closing of the offer of securities under this section, the prospectus stating therein the
total capital raised, whether by way of debt or share capital, and the closing price of the securities and any
other details as are not included in the red herring prospectus shall be filed with the Registrar and the
Securities and Exchange Board.

Explanation.—For the purposes of this section, the expression "red herring prospectus" means a
prospectus which does not include complete particulars of the quantum or price of the securities includedtherein.

33. Issue of application forms for securities.— (1) No form of application for the purchase of any
of the securities of a company shall be issued unless such form is accompanied by an abridgedprospectus

Provided that nothing in this sub-section shall apply if it is shown that the form of application was
issued—

(a) in connection with a bona fide invitation to a person to enter into an underwriting agreement with respect to such securities; or

(b) in relation to securities which were not offered to the public.

(2) A copy of the prospectus shall, on a request being made by any person before the closing of the
subscription list and the offer, be furnished to him.

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(3) If a company makes any default in complying with the provisions of this section, it shall be liable
to a penalty of fifty thousand rupees for each default.

34. Criminal liability for mis-statements in prospectus.— Where a prospectus, issued, circulated
or distributed under this Chapter, includes any statement which is untrue or misleading in form or context
in which it is included or where any inclusion or omission of any matter is likely to mislead, every person
who authorises the issue of such prospectus shall be liable under section 447:

Provided that nothing in this section shall apply to a person if he proves that such statement or
omission was immaterial or that he had reasonable grounds to believe, and did up to the time of issue of
the prospectus believe, that the statement was true or the inclusion or omission was necessary

35. Civil liability for mis-statements in prospectus.—(1) Where a person has subscribed for
securities of a company acting on any statement included, or the inclusion or omission of any matter, in
the prospectus which is misleading and has sustained any loss or damage as a consequence thereof, the
company and every person who—

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

(b) has authorised himself to be named and is named in the prospectus as a director of the
company, or has agreed to become such director, either immediately or after an interval of time;

(c) is a promoter of the company;

(d) has authorised the issue of the prospectus; and

(e) is an expert referred to in sub-section (5) of section 26,

shall, without prejudice to any punishment to which any person may be liable under section 36, be liable
to pay compensation to every person who has sustained such loss or damage.

(2) No person shall be liable under sub-section (1), if he proves—

(a) that, having consented to become a director of the company, he withdrew his consent before
the issue of the prospectus, and that it was issued without his authority or consent; or

(b) that the prospectus was issued without his knowledge or consent, and that on becoming aware
of its issue, he forthwith gave a reasonable public notice that it was issued without his knowledge or
consent.

(3) Notwithstanding anything contained in this section, where it is proved that a prospectus has been
issued with intent to defraud the applicants for the securities of a company or any other person or for any
fraudulent purpose, every person referred to in subsection (1) shall be personally responsible, without any
limitation of liability, for all or any of the losses or damages that may have been incurred by any person
who subscribed to the securities on the basis of such prospectus.

36. Punishment for fraudulently inducing persons to invest money. — Any person who, either
knowingly or recklessly makes any statement, promise or forecast which is false, deceptive or misleading,
or deliberately conceals any material facts, to induce another person to enter into, or to offer to enter
into,—

(a) any agreement for, or with a view to, acquiring, disposing of, subscribing for, or under writing securities; or

(b) any agreement, the purpose or the pretended purpose of which is to secure a profit to any of
the parties from the yield of securities or by reference to fluctuations in the value of securities; or

shall be liable for action under section 447.

37. Action by affected persons.—A suit may be filed or any other action may be taken under section
34 or section 35 or section 36 by any person, group of persons or any association of persons affected by
any misleading statement or the inclusion or omission of any matter in the prospectus

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38. Punishment for personation for acquisition, etc., of securities.—(1) Any person who—

(a) makes or abets making of an application in a fictitious name to a company for acquiring, or
subscribing for, its securities; or

(b) makes or abets making of multiple applications to a company in different names or in
different combinations of his name or surname for acquiring or subscribing for its securities; or

(c) otherwise induces directly or indirectly a company to allot, or register any transfer of,
securities to him, or to any other person in a fictitious name,

shall be liable for action under section 447.

(2) The provisions of sub-section (1) shall be prominently reproduced in every prospectus issued by a
company and in every form of application for securities

(3) Where a person has been convicted under this section, the Court may also order disgorgement of
gain, if any, made by, and seizure and disposal of the securities in possession of, such person.

(4) The amount received through disgorgement or disposal of securities under subsection (3) shall be
credited to the Investor Education and Protection Fund

39. Allotment of securities by company.—(1) No allotment of any securities of a company offered
to the public for subscription shall be made unless the amount stated in the prospectus as the minimum
amount has been subscribed and the sums payable on application for the amount so stated have been paid
to and received by the company by cheque or other instrument.

(2) The amount payable on application on every security shall not be less than five per cent. of the
nominal amount of the security or such other percentage or amount, as may be specified by the Securities
and Exchange Board by making regulations in this behalf

(3) If the stated minimum amount has not been subscribed and the sum payable on application is not
received within a period of thirty days from the date of issue of the prospectus, or such other period as
may be specified by the Securities and Exchange Board, the amount received under sub-section (1) shall
be returned within such time and manner as may be prescribed.

(4) Whenever a company having a share capital makes any allotment of securities, it shall file with
the Registrar a return of allotment in such manner as may be prescribed.

(5) In case of any default under sub-section (3) or sub-section (4), the company and its officer who is
in default shall be liable to a penalty, for each default, of one thousand rupees for each day during which
such default continues or one lakh rupees, whichever is less

40. Securities to be dealt with in stock exchanges.—(1) Every company making public offer shall,
before making such offer, make an application to one or more recognised stock exchange or exchanges
and obtain permission for the securities to be dealt with in such stock exchange or exchanges.

(2) Where a prospectus states that an application under sub-section (1) has been made, such
prospectus shall also state the name or names of the stock exchange in which the securities shall be dealt
with.

(3) All monies received on application from the public for subscription to the securities shall be kept
in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than—

(b) for the repayment of monies within the time specified by the Securities and Exchange Board,
received from applicants in pursuance of the prospectus, where the company is for any other reason
unable to allot securities.

(4) Any condition purporting to require or bind any applicant for securities to waive compliance with
any of the requirements of this section shall be void.

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(5) If a default is made in complying with the provisions of this section, the company shall be
punishable with a fine which shall not be less than five lakh rupees but which may extend to fifty lakh
rupees and every officer of the company who is in default shall be punishable with imprisonment for a
term which may extend to one year or with fine which shall not be less than fifty thousand rupees but
which may extend to three lakh rupees, or with both.

(6) A company may pay commission to any person in connection with the subscription to its
securities subject to such conditions as may be prescribed

41. Global depository receipt.— A company may, after passing a special resolution in its general
meeting, issue depository receipts in any foreign country in such manner, and subject to such conditions,
as may be prescribed

PART II.—Private placement

42. Offer or invitation for subscription of securities on private placement.—(1) Without
prejudice to the provisions of section 26, a company may, subject to the provisions of this section, make
private placement through issue of a private placement offer letter

(2) Subject to sub-section (1), the offer of securities or invitation to subscribe securities, shall be
made to such number of persons not exceeding fifty or such higher number as may be prescribed,
[excluding qualified institutional buyers and employees of the company being offered securities under a
scheme of employees stock option as per provisions of clause (b) of sub-section (1) of section 62], in a
financial year and on such conditions (including the form and manner of private placement) as may be
prescribed.

Explanation I.—If a company, listed or unlisted, makes an offer to allot or invites subscription, or
allots, or enters into an agreement to allot, securities to more than the prescribed number of persons,
whether the payment for the securities has been received or not or whether the company intends to list its
securities or not on any recognised stock exchange in or outside India, the same shall be deemed to be an
offer to the public and shall accordingly be governed by the provisions of Part I of this Chapter.

Explanation II.—For the purposes of this section, the expression—

(i) "qualified institutional buyer‘‘ means the qualified institutional buyer as defined in the
Securities and Exchange Board of India (Issue of Capital and Disclosure Requirments) Regulations,
2009 as amended from time to time

(ii) "private placement" means any offer of securities or invitation to subscribe securities to a
select group of persons by a company (other than by way of public offer) through issue of a private
placement offer letter and which satisfies the conditions specified in this section.

(3) No fresh offer or invitation under this section shall be made unless the allotments with respect to
any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or
abandoned by the company.

(4) Any offer or invitation not in compliance with the provisions of this section shall be treated as a
public offer and all provisions of this Act, and the Securities Contracts (Regulation) Act, 1956 (42 of
1956) and the Securities and Exchange Board of India Act, 1992 (15 of 1992) shall be required to be
complied with

(5) All monies payable towards subscription of securities under this section shall be paid through
cheque or demand draft or other banking channels but not by cash.

(6) A company making an offer or invitation under this section shall allot its securities within sixty
days from the date of receipt of the application money for such securities and if the company is not able to
allot the securities within that period, it shall repay the application money to the subscribers within fifteen
days from the date of completion of sixty days and if the company fails to repay the application money
within the aforesaid period, it shall be liable to repay that money with interest at the rate of twelve per
cent. per annum from the expiry of the sixtieth day:

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Provided that monies received on application under this section shall be kept in a separate bank
account in a scheduled bank and shall not be utilised for any purpose other than—

(a) for adjustment against allotment of securities; or.

(b) for the repayment of monies where the company is unable to allot securities.

(7) All offers covered under this section shall be made only to such persons whose names are
recorded by the company prior to the invitation to subscribe, and that such persons shall receive the offer
by name, and that a complete record of such offers shall be kept by the company in such manner as may
be prescribed and complete information about such offer shall be filed with the Registrar within a period
of thirty days of circulation of relevant private placement offer letter

(8) No company offering securities under this section shall release any public advertisements or
utilise any media, marketing or distribution channels or agents to inform the public at large about such an
offer.

(9) Whenever a company makes any allotment of securities under this section, it shall file with the
Registrar a return of allotment in such manner as may be prescribed, including the complete list of all
security-holders, with their full names, addresses, number of securities allotted and such other relevant
information as may be prescribed.

(10) If a company makes an offer or accepts monies in contravention of this section, the company, its
promoters and directors shall be liable for a penalty which may extend to the amount involved in the offer
or invitation or two crore rupees, whichever is higher, and the company shall also refund all monies to
subscribers within a period of thirty days of the order imposing the penalty

CHAPTER IV

SHARE CAPITAL AND DEBENTURES

43. Kinds of share capital.—The share capital of a company limited by shares shall be of two kinds,
namely:—

(a) equity share capital—

(i) with voting rights; or

(ii) with differential rights as to dividend, voting or otherwise in accordance with such rules
as may be prescribed; and

(b) preference share capital:

Provided that nothing contained in this Act shall affect the rights of the preference shareholders who
are entitled to participate in the proceeds of winding up before the commencement of this Act.

Explanation.—For the purposes of this section,—

(i) ‗‗equity share capital‘‘, with reference to any company limited by shares, means all share
capital which is not preference share capital;

(II) ‗‗preference share capital‘‘, with reference to any company limited by shares, means that part
of the issued share capital of the company which carries or would carry a preferential right with
respect to—

(a) payment of dividend, either as a fixed amount or an amount calculated at a fixed rate,
which may either be free of or subject to income-tax; and

(b) repayment, in the case of a winding up or repayment of capital, of the amount of the share
capital paid-up or deemed to have been paid-up, whether or not, there is a preferential right to the
payment of any fixed premium or premium on any fixed scale, specified in the memorandum or
articles of the company;

(III) capital shall be deemed to be preference capital, notwithstanding that it is entitled to either or
both of the following rights, namely:—

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(a) that in respect of dividends, in addition to the preferential rights to the amounts specified
n sub-clause (a) of clause (ii), it has a right to participate, whether fully or to a limited extent,
with capital not entitled to the preferential right aforesaid;

(b) that in respect of capital, in addition to the preferential right to the repayment, on a
winding up, of the amounts specified in sub-clause (b) of clause (ii), it has a right to participate,
whether fully or to a limited extent, with capital not entitled to that preferential right in any
surplus which may remain after the entire capital has been repaid

44. Nature of shares or debentures.—The shares or debentures or other interest of any member in a
company shall be movable property transferable in the manner provided by the articles of the company

45. Numbering of shares.— Every share in a company having a share capital shall be distinguished
by its distinctive number:

Provided that nothing in this section shall apply to a share held by a person whose name is entered as
holder of beneficial interest in such share in the records of a depository.

44. Nature of shares or debentures.—The shares or debentures or other interest of any member in a
company shall be movable property transferable in the manner provided by the articles of the company.

45. Numbering of shares.— Every share in a company having a share capital shall be distinguished
by its distinctive number:

Provided that nothing in this section shall apply to a share held by a person whose name is entered as
holder of beneficial interest in such share in the records of a depository.
by its distinctive number:

46. Certificate of shares.—(1) A certificate, 1
[issued under the common seal, if any, of the company
or signed by two directors or by a director and the Company Secretary, wherever the company has
appointed a Company Secretary], specifying the shares held by any person, shall be prima facie evidence
of the title of the person to such shares

(2) A duplicate certificate of shares may be issued, if such certificate —

(b) has been defaced, mutilated or torn and is surrendered to the company.

(3) Notwithstanding anything contained in the articles of a company, the manner of issue of a
certificate of shares or the duplicate thereof, the form of such certificate, the particulars to be entered in
the register of members and other matters shall be such as may be prescribed

(4) Where a share is held in depository form, the record of the depository is the prima facie evidence
of the interest of the beneficial owner

(5) If a company with intent to defraud issues a duplicate certificate of shares, the company shall be
punishable with fine which shall not be less than five times the face value of the shares involved in the
issue of the duplicate certificate but which may extend to ten times the face value of such shares or rupees
ten crores whichever is higher and every officer of the company who is in default shall be liable for action
under section 447

47. Voting rights.—(1) Subject to the provisions of section 43 and sub-section (2) of section 50,—

(a) every member of a company limited by shares and holding equity share capital therein, shall
have a right to vote on every resolution placed before the company; and

(b) his voting right on a poll shall be in proportion to his share in the paid-up equity share capitalof the company.

(2) Every member of a company limited by shares and holding any preference share capital therein
shall, in respect of such capital, have a right to vote only on resolutions placed before the company which
directly affect the rights attached to his preference shares and, any resolution for the winding up of the
company or for the repayment or reduction of its equity or preference share capital and his voting right on
a poll shall be in proportion to his share in the paid-up preference share capital of the company:

Provided that the proportion of the voting rights of equity shareholders to the voting rights of the
preference shareholders shall be in the same proportion as the paid-up capital in respect of the equity
shares bears to the paid-up capital in respect of the preference shares

__________________

1. Subs. by Act 21 of 2015, s. 7, for ―issued under the common seal of the company‖ (w.e.f. 29-5-2015).

44

Provided further that where the dividend in respect of a class of preference shares has not been paid
for a period of two years or more, such class of preference shareholders shall have a right to vote on all
the resolutions placed before the company

48. Variations of shareholders‘ rights.—(1) Where a share capital of the company is divided into
different classes of shares, the rights attached to the shares of any class may be varied with the consent in
writing of the holders of not less than three-fourths of the issued shares of that class or by means of a
special resolution passed at a separate meeting of the holders of the issued shares of that class,—

(a) if provision with respect to such variation is contained in the memorandum or articles of thecompany; or

(b) in the absence of any such provision in the memorandum or articles, if such variation is not
prohibited by the terms of issue of the shares of that class:

Provided that if variation by one class of shareholders affects the rights of any other class of
shareholders, the consent of three-fourths of such other class of shareholders shall also be obtained and
the provisions of this section shall apply to such variation.

(2) Where the holders of not less than ten per cent. of the issued shares of a class did not consent to
such variation or vote in favour of the special resolution for the variation, they may apply to the Tribunal
to have the variation cancelled, and where any such application is made, the variation shall not have effect
unless and until it is confirmed by the Tribunal:

Provided that an application under this section shall be made within twenty-one days after the date on
which the consent was given or the resolution was passed, as the case may be, and may be made on behalf
of the shareholders entitled to make the application by such one or more of their number as they may
appoint in writing for the purpose.

(3) The decision of the Tribunal on any application under sub-section (2) shall be binding on the
shareholders

(4) The company shall, within thirty days of the date of the order of the Tribunal, file a copy thereof
with the Registrar

(5) Where any default is made in complying with the provisions of this section, the company shall be
punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to
five lakh rupees and every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to six months or with fine which shall not be less than twentyfive
thousand rupees but which may extend to five lakh rupees, or with both.

49. Calls on shares of same class to be made on uniform basis.—Where any calls for further share
capital are made on the shares of a class, such calls shall be made on a uniform basis on all shares falling
under that class

Explanation.—For the purposes of this section, shares of the same nominal value on which different
amounts have been paid-up shall not be deemed to fall under the same class.

50. Company to accept unpaid share capital, although not called up.—(1) A company may, if so
authorised by its articles, accept from any member, the whole or a part of the amount remaining unpaid on
any shares held by him, even if no part of that amount has been called up.

(2) A member of the company limited by shares shall not be entitled to any voting rights in respect of
the amount paid by him under sub-section (1) until that amount has been called up

51. Payment of dividend in proportion to amount paid-up.—A company may, if so authorised by
its articles, pay dividends in proportion to the amount paid-up on each share.

52. Application of premiums received on issue of shares.—(1) Where a company issues shares at a
premium, whether for cash or otherwise, a sum equal to the aggregate amount of the premium received on
those shares shall be transferred to a ―securities premium account‖ and the provisions of this Act relating
to reduction of share capital of a company shall, except as provided in this section, apply as if the
securities premium account were the paid-up share capital of the company

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(2) Notwithstanding anything contained in sub-section (1), the securities premium account may be
applied by the company—

(a) towards the issue of unissued shares of the company to the members of the company as fully
paid bonus shares;

(b) in writing off the preliminary expenses of the company;

(c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of
shares or debentures of the company;

(d) in providing for the premium payable on the redemption of any redeemable preference shares
or of any debentures of the company; or

(e) for the purchase of its own shares or other securities under section 68.

(3) The securities premium account may, notwithstanding anything contained in sub-sections (1) and
(2), be applied by such class of companies, as may be prescribed and whose financial statement comply
with the accounting standards prescribed for such class of companies under section 133,—

(a) in paying up unissued equity shares of the company to be issued to members of the company
as fully paid bonus shares; or

(b) in writing off the expenses of or the commission paid or discount allowed on any issue of
equity shares of the company; or

(c) for the purchase of its own shares or other securities under section 68.

54. Issue of sweat equity shares.—(1) Notwithstanding anything contained in section 53, a company
may issue sweat equity shares of a class of shares already issued, if the following conditions are fulfilled,
namely:

(a) the issue is authorised by a special resolution passed by the company;

(b) the resolution specifies the number of shares, the current market price, consideration, if any,
and the class or classes of directors or employees to whom such equity shares are to be issued;

(c) not less than one year has, at the date of such issue, elapsed since the date on which the
company had commenced business; and

(d) where the equity shares of the company are listed on a recognised stock exchange, the sweat
equity shares are issued in accordance with the regulations made by the Securities and Exchange
Board in this behalf and if they are not so listed, the sweat equity shares are issued in accordance with
such rules as may be prescribed

(2) The rights, limitations, restrictions and provisions as are for the time being applicable to equity
shares shall be applicable to the sweat equity shares issued under this section and the holders of such
shares shall rank pari passu with other equity shareholders

55. Issue and redemption of preference shares.—(1) No company limited by shares shall, after the
commencement of this Act, issue any preference shares which are irredeemable.

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(2) A company limited by shares may, if so authorised by its articles, issue preference shares which
are liable to be redeemed within a period not exceeding twenty years from the date of their issue subject
to such conditions as may be prescribed:

Provided that a company may issue preference shares for a period exceeding twenty years for
infrastructure projects, subject to the redemption of such percentage of shares as may be prescribed on an
annual basis at the option of such preferential shareholders:

Provided further that—

(a) no such shares shall be redeemed except out of the profits of the company which would
otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for the
purposes of such redemption;

(b) no such shares shall be redeemed unless they are fully paid;

(c) where such shares are proposed to be redeemed out of the profits of the company, there shall,
out of such profits, be transferred, a sum equal to the nominal amount of the shares to be redeemed, to
a reserve, to be called the Capital Redemption Reserve Account, and the provisions of this Act
relating to reduction of share capital of a company shall, except as provided in this section, apply as if
the Capital Redemption Reserve Account were paid-up share capital of the company; and

(d) (i) in case of such class of companies, as may be prescribed and whose financial statement
comply with the accounting standards prescribed for such class of companies under section 133, the
premium, if any, payable on redemption shall be provided for out of the profits of the company,
before the shares are redeemed:

Provided also that premium, if any, payable on redemption of any preference shares issued on or
before the commencement of this Act by any such company shall be provided for out of the profits of
the company or out of the company‘s securities premium account, before such shares are redeemed.

(II) in a case not falling under sub-clause (i) above, the premium, if any, payable on redemption
shall be provided for out of the profits of the company or out of the company‘s securities premium
account, before such shares are redeemed.

(3) Where a company is not in a position to redeem any preference shares or to pay dividend, if any,
on such shares in accordance with the terms of issue (such shares hereinafter referred to as unredeemed
preference shares), it may, with the consent of the holders of three-fourths in value of such preference
shares and with the approval of the Tribunal on a petition made by it in this behalf, issue further
redeemable preference shares equal to the amount due, including the dividend thereon, in respect of the
unredeemed preference shares, and on the issue of such further redeemable preference shares, the
unredeemed preference shares shall be deemed to have been redeemed

Provided that the Tribunal shall, while giving approval under this sub-section, order the redemption
forthwith of preference shares held by such persons who have not consented to the issue of further
redeemable preference shares

Explanation.—For the removal of doubts, it is hereby declared that the issue of further redeemable
preference shares or the redemption of preference shares under this section shall not be deemed to be an
increase or, as the case may be, a reduction, in the share capital of the company.

(4) The capital redemption reserve account may, notwithstanding anything in this section, be applied
by the company, in paying up unissued shares of the company to be issued to members of the company as
fully paid bonus shares.

Explanation.—For the purposes of sub-section (2), the term ‗‗infrastructure projects‘‘ means the
infrastructure projects specified in Schedule VI.

56. Transfer and transmission of securities.—(1) A company shall not register a transfer of
securities of the company, or the interest of a member in the company in the case of a company having no
share capital, other than the transfer between persons both of whose names are entered as holders of
beneficial interest in the records of a depository, unless a proper instrument of transfer, in such form as

47

may be prescribed, duly stamped, dated and executed by or on behalf of the transferor and the transferee
and specifying the name, address and occupation, if any, of the transferee has been delivered to the
company by the transferor or the transferee within a period of sixty days from the date of execution, along
with the certificate relating to the securities, or if no such certificate is in existence, along with the letter
of allotment of securities:

Provided that where the instrument of transfer has been lost or the instrument of transfer has not been
delivered within the prescribed period, the company may register the transfer on such terms as to
indemnity as the Board may think fit.

(2) Nothing in sub-section (1) shall prejudice the power of the company to register, on receipt of an
intimation of transmission of any right to securities by operation of law from any person to whom such
right has been transmitted.

(3) Where an application is made by the transferor alone and relates to partly paid shares, the transfer
shall not be registered, unless the company gives the notice of the application, in such manner as may be
prescribed, to the transferee and the transferee gives no objection to the transfer within two weeks from
the receipt of notice.

(4) Every company shall, unless prohibited by any provision of law or any order of Court, Tribunal or
other authority, deliver the certificates of all securities allotted, transferred or transmitted—

(a) within a period of two months from the date of incorporation, in the case of subscribers to the
memorandum;

(b) within a period of two months from the date of allotment, in the case of any allotment of any
of its shares

(c) within a period of one month from the date of receipt by the company of the instrument of
transfer under sub-section (1) or, as the case may be, of the intimation of transmission under subsection
(2), in the case of a transfer or transmission of securities;

(d) within a period of six months from the date of allotment in the case of any allotment of
debenture:

Provided that where the securities are dealt with in a depository, the company shall intimate the
details of allotment of securities to depository immediately on allotment of such securities.

(5) The transfer of any security or other interest of a deceased person in a company made by his legal
representative shall, even if the legal representative is not a holder thereof, be valid as if he had been the
holder at the time of the execution of the instrument of transfer

(6) Where any default is made in complying with the provisions of sub-sections (1) to (5), the
company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which
may extend to five lakh rupees and every officer of the company who is in default shall be punishable
with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees

(7) Without prejudice to any liability under the Depositories Act, 1996 (22 of 1996), where any
depository or depository participant, with an intention to defraud a person, has transferred shares, it shall
be liable under section 447.

57. Punishment for personation of shareholder.—If any person deceitfully personates as an owner
of any security or interest in a company, or of any share warrant or coupon issued in pursuance of this
Act, and thereby obtains or attempts to obtain any such security or interest or any such share warrant or
coupon, or receives or attempts to receive any money due to any such owner, he shall be punishable with
imprisonment for a term which shall not be less than one year but which may extend to three years and
with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

58. Refusal of registration and appeal against refusal.—(1) If a private company limited by shares
refuses, whether in pursuance of any power of the company under its articles or otherwise, to register the
transfer of, or the transmission by operation of law of the right to, any securities or interest of a member
in the company, it shall within a period of thirty days from the date on which the instrument of transfer, or

48

the intimation of such transmission, as the case may be, was delivered to the company, send notice of the
refusal to the transferor and the transferee or to the person giving intimation of such transmission, as the
case may be, giving reasons for such refusal.

(2) Without prejudice to sub-section (1), the securities or other interest of any member in a public
company shall be freely transferable:

Provided that any contract or arrangement between two or more persons in respect of transfer of
securities shall be enforceable as a contract

(3) The transferee may appeal to the Tribunal against the refusal within a period of thirty days from
the date of receipt of the notice or in case no notice has been sent by the company, within a period of sixty
days from the date on which the instrument of transfer or the intimation of transmission, as the case may
be, was delivered to the company

(4) If a public company without sufficient cause refuses to register the transfer of securities within a
period of thirty days from the date on which the instrument of transfer or the intimation of transmission,
as the case may be, is delivered to the company, the transferee may, within a period of sixty days of such
refusal or where no intimation has been received from the company, within ninety days of the delivery of
the instrument of transfer or intimation of transmission, appeal to the Tribunal.

(5) The Tribunal, while dealing with an appeal made under sub-section (3) or sub-section (4), may,
after hearing the parties, either dismiss the appeal, or by order—

(a) direct that the transfer or transmission shall be registered by the company and the company
shall comply with such order within a period of ten days of the receipt of the order; or

(b) direct rectification of the register and also direct the company to pay damages, if any,
sustained by any party aggrieved.

(6) If a person contravenes the order of the Tribunal under this section, he shall be punishable with
imprisonment for a term which shall not be less than one year but which may extend to three years and
with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

59. Rectification of register of members.—(1) If the name of any person is, without sufficient
cause, entered in the register of members of a company, or after having been entered in the register, is,
without sufficient cause, omitted therefrom, or if a default is made, or unnecessary delay takes place in
entering in the register, the fact of any person having become or ceased to be a member, the person
aggrieved, or any member of the company, or the company may appeal in such form as may be
prescribed, to the Tribunal, or to a competent court outside India, specified by the Central Government by
notification, in respect of foreign members or debenture holders residing outside India, for rectification of
the register

(2) The Tribunal may, after hearing the parties to the appeal under sub-section (1) by order, either
dismiss the appeal or direct that the transfer or transmission shall be registered by the company within a
period of ten days of the receipt of the order or direct rectification of the records of the depository or the
register and in the latter case, direct the company to pay damages, if any, sustained by the party
aggrieved

(3) The provisions of this section shall not restrict the right of a holder of securities, to transfer such
securities and any person acquiring such securities shall be entitled to voting rights unless the voting
rights have been suspended by an order of the Tribunal.

(4) Where the transfer of securities is in contravention of any of the provisions of the Securities
Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15
of 1992) or this Act or any other law for the time being in force, the Tribunal may, on an application
made by the depository, company, depository participant, the holder of the securities or the Securities and
Exchange Board, direct any company or a depository to set right the contravention and rectify its register
or records concerned

(5) If any default is made in complying with the order of the Tribunal under this section, the company
shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five

49

lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for
a term which may extend to one year or with fine which shall not be less than one lakh rupees but which
may extend to three lakh rupees, or with both.

60. Publication of authorised, subscribed and paid-up capital.—(1) Where any notice,
advertisement or other official publication, or any business letter, billhead or letter paper of a company
contains a statement of the amount of the authorised capital of the company, such notice, advertisement or
other official publication, or such letter, billhead or letter paper shall also contain a statement, in an
equally prominent position and in equally conspicuous characters, of the amount of the capital which has
been subscribed and the amount paid-up.

(2) If any default is made in complying with the requirements of sub-section (1), the company shall
be liable to pay a penalty of ten thousand rupees and every officer of the company who is in default shall
be liable to pay a penalty of five thousand rupees, for each default

61. Power of limited company to alter its share capital.—(1) A limited company having a share
capital may, if so authorised by its articles, alter its memorandum in its general meeting to—

(a) increase its authorised share capital by such amount as it thinks expedient;

(b) consolidate and divide all or any of its share capital into shares of a larger amount than its
existing shares:

Provided that no consolidation and division which results in changes in the voting percentage of
shareholders shall take effect unless it is approved by the Tribunal on an application made in the
prescribed manner

(c) convert all or any of its fully paid-up shares into stock, and reconvert that stock into fully
paid-up shares of any denomination;

(d) sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the
memorandum, so, however, that in the sub-division the proportion between the amount paid and the
amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from
which the reduced share is derived;

(e) cancel shares which, at the date of the passing of the resolution in that behalf, have not been
taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount
of the shares so cancelled.

(2) The cancellation of shares under sub-section (1) shall not be deemed to be a reduction of sharecapital.

62. Further issue of share capital.—(1) Where at any time, a company having a share capital
proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered—

(a) to persons who, at the date of the offer, are holders of equity shares of the company in
proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a
letter of offer subject to the following conditions, namely:—

(I) the offer shall be made by notice specifying the number of shares offered and limiting a
time not being less than fifteen days and not exceeding thirty days from the date of the offer
within which the offer, if not accepted, shall be deemed to have been declined;

(II) unless the articles of the company otherwise provide, the offer aforesaid shall be deemed
to include a right exercisable by the person concerned to renounce the shares offered to him or
any of them in favour of any other person; and the notice referred to in clause (i) shall contain a
statement of this right;

(III) after the expiry of the time specified in the notice aforesaid, or on receipt of earlier
intimation from the person to whom such notice is given that he declines to accept the shares
offered, the Board of Directors may dispose of them in such manner which is not disadvantageous
to the shareholders and the company;

50

(b) to employees under a scheme of employees‘ stock option, subject to special resolution passed
by company and subject to such conditions as may be prescribed; or

(c) to any persons, if it is authorised by a special resolution, whether or not those persons include
the persons referred to in clause (a) or clause (b), either for cash or for a consideration other than
cash, if the price of such shares is determined by the valuation report of a registered valuer subject to
such conditions as may be prescribed.

(2) The notice referred to in sub-clause (i) of clause (a) of sub-section (1) shall be despatched through
registered post or speed post or through electronic mode to all the existing shareholders at least three days
before the opening of the issue

(3) Nothing in this section shall apply to the increase of the subscribed capital of a company caused
by the exercise of an option as a term attached to the debentures issued or loan raised by the company to
convert such debentures or loans into shares in the company:

Provided that the terms of issue of such debentures or loan containing such an option have been
approved before the issue of such debentures or the raising of loan by a special resolution passed by the
company in general meeting

(4) Notwithstanding anything contained in sub-section (3), where any debentures have been issued, or
loan has been obtained from any Government by a company, and if that Government considers it
necessary in the public interest so to do, it may, by order, direct that such debentures or loans or any part
thereof shall be converted into shares in the company on such terms and conditions as appear to the
Government to be reasonable in the circumstances of the case even if terms of the issue of such
debentures or the raising of such loans do not include a term for providing for an option for such
conversion:

Provided that where the terms and conditions of such conversion are not acceptable to the company, it
may, within sixty days from the date of communication of such order, appeal to the Tribunal which shall
after hearing the company and the Government pass such order as it deems fit

(5) In determining the terms and conditions of conversion under sub-section (4), the Government
shall have due regard to the financial position of the company, the terms of issue of debentures or loans,
as the case may be, the rate of interest payable on such debentures or loans and such other matters as it
may consider necessary.

(6) Where the Government has, by an order made under sub-section (4), directed that any debenture
or loan or any part thereof shall be converted into shares in a company and where no appeal has been
preferred to the Tribunal under sub-section (4) or where such appeal has been dismissed, the
memorandum of such company shall, where such order has the effect of increasing the authorised share
capital of the company, stand altered and the authorised share capital of such company shall stand
increased by an amount equal to the amount of the value of shares which such debentures or loans or part
thereof has been converted into.

63. Issue of bonus shares.—(1) A company may issue fully paid-up bonus shares to its members, in
any manner whatsoever, out of—

(i) its free reserves;

(II) the securities premium account; or

(III) the capital redemption reserve account:

Provided that no issue of bonus shares shall be made by capitalising reserves created by the
revaluation of assets.

(2) No company shall capitalise its profits or reserves for the purpose of issuing fully paid-up bonus
shares under sub-section (1), unless—

(a) it is authorised by its articles;

51

(b) it has, on the recommendation of the Board, been authorised in the general meeting of the
company;

(c) it has not defaulted in payment of interest or principal in respect of fixed deposits or debt
securities issued by it;

(d) it has not defaulted in respect of the payment of statutory dues of the employees, such as,
contribution to provident fund, gratuity and bonus;

(e) the partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up;

(f) it complies with such conditions as may be prescribed.

(3) The bonus shares shall not be issued in lieu of dividend.

64. Notice to be given to Registrar for alteration of share capital.—(1) Where —

(a) a company alters its share capital in any manner specified in sub-section (1) of section 61;

(b) an order made by the Government under sub-section (4) read with sub-section (6) of section
62 has the effect of increasing authorised capital of a company; or

(c) a company redeems any redeemable preference shares,

the company shall file a notice in the prescribed form with the Registrar within a period of thirty days of
such alteration or increase or redemption, as the case may be, along with an altered memorandum.

(2) If a company and any officer of the company who is in default contravenes the provisions of subsection
(1), it or he shall be punishable with fine which may extend to one thousand rupees for each day
during which such default continues, or five lakh rupees, whichever is less.

65. Unlimited company to provide for reserve share capital on conversion into limited
company.—An unlimited company having a share capital may, by a resolution for registration as a
limited company under this Act, do either or both of the following things, namely—

(a) increase the nominal amount of its share capital by increasing the nominal amount of each of
its shares, subject to the condition that no part of the increased capital shall be capable of being called
up except in the event and for the purposes of the company being wound up;

(b) provide that a specified portion of its uncalled share capital shall not be capable of being
called up except in the event and for the purposes of the company being wound up.

66. Reduction of share capital.—(1) Subject to confirmation by the Tribunal on an application by
the company, a company limited by shares or limited by guarantee and having a share capital may, by a
special resolution, reduce the share capital in any manner and in particular, may—

(a) extinguish or reduce the liability on any of its shares in respect of the share capital not paidup;
or

(b) either with or without extinguishing or reducing liability on any of its shares,—

(i) cancel any paid-up share capital which is lost or is unrepresented by available assets; or

(II) pay off any paid-up share capital which is in excess of the wants of the company,

alter its memorandum by reducing the amount of its share capital and of its shares accordingly:

Provided that no such reduction shall be made if the company is in arrears in the repayment of any
deposits accepted by it, either before or after the commencement of this Act, or the interest payable
thereon

(2) The Tribunal shall give notice of every application made to it under sub-section (1) to the Central
Government, Registrar and to the Securities and Exchange Board, in the case of listed companies, and the
creditors of the company and shall take into consideration the representations, if any, made to it by that
Government, Registrar, the Securities and Exchange Board and the creditors within a period of three
months from the date of receipt of the notice:

52

Provided that where no representation has been received from the Central Government, Registrar, the
Securities and Exchange Board or the creditors within the said period, it shall be presumed that they have
no objection to the reduction.

(3) The Tribunal may, if it is satisfied that the debt or claim of every creditor of the company has been
discharged or determined or has been secured or his consent is obtained, make an order confirming the
reduction of share capital on such terms and conditions as it deems fit:

Provided that no application for reduction of share capital shall be sanctioned by the Tribunal unless
the accounting treatment, proposed by the company for such reduction is in conformity with the
accounting standards specified in section 133 or any other provision of this Act and a certificate to that
effect by the company‘s auditor has been filed with the Tribunal.

(4) The order of confirmation of the reduction of share capital by the Tribunal under sub-section (3)
shall be published by the company in such manner as the Tribunal may direct.

(5) The company shall deliver a certified copy of the order of the Tribunal under sub-section (3) and
of a minute approved by the Tribunal showing—

(a) the amount of share capital;

(b) the number of shares into which it is to be divided;

(c) the amount of each share; and

(d) the amount, if any, at the date of registration deemed to be paid-up on each share,

to the Registrar within thirty days of the receipt of the copy of the order, who shall register the same and
issue a certificate to that effect

(6) Nothing in this section shall apply to buy-back of its own securities by a company under section 68.

(7) A member of the company, past or present, shall not be liable to any call or contribution in respect
of any share held by him exceeding the amount of difference, if any, between the amount paid on the
share, or reduced amount, if any, which is to be deemed to have been paid thereon, as the case may be,
and the amount of the share as fixed by the order of reduction.

(8) Where the name of any creditor entitled to object to the reduction of share capital under this
section is, by reason of his ignorance of the proceedings for reduction or of their nature and effect with
respect to his debt or claim, not entered on the list of creditors, and after such reduction, the company is
unable, within the meaning of sub-section (2) of section 271, to pay the amount of his debt or claim,—

(a) every person, who was a member of the company on the date of the registration of the order
for reduction by the Registrar, shall be liable to contribute to the payment of that debt or claim, an
amount not exceeding the amount which he would have been liable to contribute if the company had
commenced winding up on the day immediately before the said date; and

(b) if the company is wound up, the Tribunal may, on the application of any such creditor and
proof of his ignorance as aforesaid, if it thinks fit, settle a list of persons so liable to contribute, and
make and enforce calls and orders on the contributories settled on the list, as if they were ordinary
contributories in a winding up.

(9) Nothing in sub-section (8) shall affect the rights of the contributories among themselves.

(10) If any officer of the company—

(a) knowingly conceals the name of any creditor entitled to object to the reduction;

(b) knowingly misrepresents the nature or amount of the debt or claim of any creditor; or

(c) abets or is privy to any such concealment or misrepresentation as aforesaid,

he shall be liable under section 447.

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(11) If a company fails to comply with the provisions of sub-section (4), it shall be punishable with
fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees.

67. Restriction on purchase by company or giving of loans by it for purchase of its shares.—(1)
No company limited by shares or by guarantee and having a share capital shall have power to buy its own
shares unless the consequent reduction of share capital is effected under the provisions of this Act.

(2) No public company shall give, whether directly or indirectly and whether by means of a loan,
guarantee, the provision of security or otherwise, any financial assistance for the purpose of, or in
connection with, a purchase or subscription made or to be made, by any person of or for any shares in the
company or in its holding company.

(3) Nothing in sub-section (2) shall apply to—

(a) the lending of money by a banking company in the ordinary course of its business;

(b) the provision by a company of money in accordance with any scheme approved by company
through special resolution and in accordance with such requirements as may be prescribed, for the
purchase of, or subscription for, fully paid-up shares in the company or its holding company, if the
purchase of, or the subscription for, the shares held by trustees for the benefit of the employees or
such shares held by the employee of the company;

(c) the giving of loans by a company to persons in the employment of the company other than its
directors or key managerial personnel, for an amount not exceeding their salary or wages for a period
of six months with a view to enabling them to purchase or subscribe for fully paid-up shares in the
company or its holding company to be held by them by way of beneficial ownership:

Provided that disclosures in respect of voting rights not exercised directly by the employees in respect
of shares to which the scheme relates shall be made in the Board's report in such manner as may be
prescribed

(4) Nothing in this section shall affect the right of a company to redeem any preference shares issued
by it under this Act or under any previous company law.

(5) If a company contravenes the provisions of this section, it shall be punishable with fine which
shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer
of the company who is in default shall be punishable with imprisonment for a term which may extend to
three years and with fine which shall not be less than one lakh rupees but which may extend to twentyfive
lakh rupees.

68. Power of company to purchase its own securities.—(1) Notwithstanding anything contained in
this Act, but subject to the provisions of sub-section (2), a company may purchase its own shares or other
specified securities (hereinafter referred to as buy-back) out of—

(a) its free reserves;

(b) the securities premium account; or

(c) the proceeds of the issue of any shares or other specified securities:

Provided that no buy-back of any kind of shares or other specified securities shall be made out of the
proceeds of an earlier issue of the same kind of shares or same kind of other specified securities

(2) No company shall purchase its own shares or other specified securities under sub-section (1),
unless—

(a) the buy-back is authorised by its articles;

(b) a special resolution has been passed at a general meeting of the company authorising the buyback:

Provided that nothing contained in this clause shall apply to a case where—

(i) the buy-back is, ten per cent. or less of the total paid-up equity capital and free reserves of the
company; and

54

(II) such buy-back has been authorised by the Board by means of a resolution passed at its
meeting;

(c) the buy-back is twenty-five per cent. or less of the aggregate of paid-up capital and freereserves of the company

Provided that in respect of the buy-back of equity shares in any financial year, the reference to
twenty-five per cent. in this clause shall be construed with respect to its total paid-up equity capital in thatfinancial year

(d) the ratio of the aggregate of secured and unsecured debts owed by the company after buy-back
is not more than twice the paid-up capital and its free reserves:

Provided that the Central Government may, by order, notify a higher ratio of the debt to capital
and free reserves for a class or classes of companies;

(e) all the shares or other specified securities for buy-back are fully paid-up;

(f) the buy-back of the shares or other specified securities listed on any recognised stock
exchange is in accordance with the regulations made by the Securities and Exchange Board in this behalf; and

(g) the buy-back in respect of shares or other specified securities other than those specified in
clause (f) is in accordance with such rules as may be prescribed:

Provided that no offer of buy-back under this sub-section shall be made within a period of one year
reckoned from the date of the closure of the preceding offer of buy-back, if any.

(3) The notice of the meeting at which the special resolution is proposed to be passed under clause (b)
of sub-section (2) shall be accompanied by an explanatory statement stating—

(a) a full and complete disclosure of all material facts;

(b) the necessity for the buy-back;

(c) the class of shares or securities intended to be purchased under the buy-back;

(d) the amount to be invested under the buy-back; and

(e) the time-limit for completion of buy-back.

(4) Every buy-back shall be completed within a period of one year from the date of passing of the
special resolution, or as the case may be, the resolution passed by the Board under clause (b) of subsection
(2);

(5) The buy-back under sub-section (1) may be—

(a) from the existing shareholders or security holders on a proportionate basis;

(b) from the open market;

(c) by purchasing the securities issued to employees of the company pursuant to a scheme of
stock option or sweat equity.

(6) Where a company proposes to buy-back its own shares or other specified securities under this
section in pursuance of a special resolution under clause (b) of sub-section (2) or a resolution under item
(ii) of the proviso thereto, it shall, before making such buy-back, file with the Registrar and the Securities
and Exchange Board, a declaration of solvency signed by at least two directors of the company, one of
whom shall be the managing director, if any, in such form as may be prescribed and verified by an
affidavit to the effect that the Board of Directors of the company has made a full inquiry into the affairs of
the company as a result of which they have formed an opinion that it is capable of meeting its liabilities
and will not be rendered insolvent within a period of one year from the date of declaration adopted by the
Board:

Provided that no declaration of solvency shall be filed with the Securities and Exchange Board by a
company whose shares are not listed on any recognised stock exchange.

55

(7) Where a company buys back its own shares or other specified securities, it shall extinguish and
physically destroy the shares or securities so bought back within seven days of the last date of completion
of buy-back

(8) Where a company completes a buy-back of its shares or other specified securities under this
section, it shall not make a further issue of the same kind of shares or other securities including allotment
of new shares under clause (a) of sub-section (1) of section 62 or other specified securities within a period
of six months except by way of a bonus issue or in the discharge of subsisting obligations such as
conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or
debentures into equity shares

(9) Where a company buys back its shares or other specified securities under this section, it shall
maintain a register of the shares or securities so bought, the consideration paid for the shares or securities
bought back, the date of cancellation of shares or securities, the date of extinguishing and physically
destroying the shares or securities and such other particulars as may be prescribed.

(10) A company shall, after the completion of the buy-back under this section, file with the Registrar
and the Securities and Exchange Board a return containing such particulars relating to the buy-back
within thirty days of such completion, as may be prescribed:

Provided that no return shall be filed with the Securities and Exchange Board by a company whose
shares are not listed on any recognised stock exchange.

(11) If a company makes any default in complying with the provisions of this section or any
regulation made by the Securities and Exchange Board, for the purposes of clause (f) of sub-section (2),
the company shall be punishable with fine which shall not be less than one lakh rupees but which may
extend to three lakh rupees and every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to three years or with fine which shall not be less than one
lakh rupees but which may extend to three lakh rupees, or with both

Explanation I.—For the purposes of this section and section 70, ―specified securities‖ includes
employees‘ stock option or other securities as may be notified by the Central Government from time to
time.

Explanation II.—For the purposes of this section, ―free reserves‖ includes securities premium
account.

69. Transfer of certain sums to capital redemption reserve account.—(1) Where a company
purchases its own shares out of free reserves or securities premium account, a sum equal to the nominal
value of the shares so purchased shall be transferred to the capital redemption reserve account and details
of such transfer shall be disclosed in the balance sheet

(2) The capital redemption reserve account may be applied by the company, in paying up unissued
shares of the company to be issued to members of the company as fully paid bonus shares

70. Prohibition for buy-back in certain circumstances.—(1) No company shall directly or
indirectly purchase its own shares or other specified securities—

(a) through any subsidiary company including its own subsidiary companies;

(b) through any investment company or group of investment companies; or

(c) if a default, is made by the company, in the repayment of deposits accepted either before or
after the commencement of this Act, interest payment thereon, redemption of debentures or
preference shares or payment of dividend to any shareholder, or repayment of any term loan or
interest payable thereon to any financial institution or banking company:

Provided that the buy-back is not prohibited, if the default is remedied and a period of three years
has lapsed after such default ceased to subsist

(2) No company shall, directly or indirectly, purchase its own shares or other specified securities in
case such company has not complied with the provisions of sections 92, 123, 127 and section 129.

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71. Debentures.—(1) A company may issue debentures with an option to convert such debentures
into shares, either wholly or partly at the time of redemption:

Provided that the issue of debentures with an option to convert such debentures into shares, wholly or
partly, shall be approved by a special resolution passed at a general meeting

(2) No company shall issue any debentures carrying any voting rights.

(3) Secured debentures may be issued by a company subject to such terms and conditions as may be
prescribed

(4) Where debentures are issued by a company under this section, the company shall create a
debenture redemption reserve account out of the profits of the company available for payment of dividend
and the amount credited to such account shall not be utilised by the company except for the redemption of
debentures

(5) No company shall issue a prospectus or make an offer or invitation to the public or to its members
exceeding five hundred for the subscription of its debentures, unless the company has, before such issue
or offer, appointed one or more debenture trustees and the conditions governing the appointment of such
trustees shall be such as may be prescribed.

(6) A debenture trustee shall take steps to protect the interests of the debenture-holders and redress
their grievances in accordance with such rules as may be prescribed

(7) Any provision contained in a trust deed for securing the issue of debentures, or in any contract
with the debenture-holders secured by a trust deed, shall be void in so far as it would have the effect of
exempting a trustee thereof from, or indemnifying him against, any liability for breach of trust, where he
fails to show the degree of care and due diligence required of him as a trustee, having regard to the
provisions of the trust deed conferring on him any power, authority or discretion:

Provided that the liability of the debenture trustee shall be subject to such exemptions as may be
agreed upon by a majority of debenture-holders holding not less than three-fourths in value of the total
debentures at a meeting held for the purpose.

(8) A company shall pay interest and redeem the debentures in accordance with the terms and
conditions of their issue

(9) Where at any time the debenture trustee comes to a conclusion that the assets of the company are
insufficient or are likely to become insufficient to discharge the principal amount as and when it becomes
due, the debenture trustee may file a petition before the Tribunal and the Tribunal may, after hearing the
company and any other person interested in the matter, by order, impose such restrictions on the incurring
of any further liabilities by the company as the Tribunal may consider necessary in the interests of the
debenture-holders

(10) Where a company fails to redeem the debentures on the date of their maturity or fails to pay
interest on the debentures when it is due, the Tribunal may, on the application of any or all of the
debenture-holders, or debenture trustee and, after hearing the parties concerned, direct, by order, the
company to redeem the debentures forthwith on payment of principal and interest due thereon.

(11) If any default is made in complying with the order of the Tribunal under this section, every
officer of the company who is in default shall be punishable with imprisonment for a term which may
extend to three years or with fine which shall not be less than two lakh rupees but which may extend to
five lakh rupees, or with both.

(12) A contract with the company to take up and pay for any debentures of the company may be
enforced by a decree for specific performance

(13) The Central Government may prescribe the procedure, for securing the issue of debentures, the
form of debenture trust deed, the procedure for the debenture-holders to inspect the trust deed and to
obtain copies thereof, quantum of debenture redemption reserve required to be created and such other
matters.

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72. Power to nominate.—(1) Every holder of securities of a company may, at any time, nominate, in
the prescribed manner, any person to whom his securities shall vest in the event of his death.

(2) Where the securities of a company are held by more than one person jointly, the joint holders may
together nominate, in the prescribed manner, any person to whom all the rights in the securities shall vest
in the event of death of all the joint holders

(3) Notwithstanding anything contained in any other law for the time being in force or in any
disposition, whether testamentary or otherwise, in respect of the securities of a company, where a
nomination made in the prescribed manner purports to confer on any person the right to vest the securities
of the company, the nominee shall, on the death of the holder of securities or, as the case may be, on the
death of the joint holders, become entitled to all the rights in the securities, of the holder or, as the case
may be, of all the joint holders, in relation to such securities, to the exclusion of all other persons, unless
the nomination is varied or cancelled in the prescribed manner.

(4) Where the nominee is a minor, it shall be lawful for the holder of the securities, making the
nomination to appoint, in the prescribed manner, any person to become entitled to the securities of the
company, in the event of the death of the nominee during his minority.

CHAPTER V

ACCEPTANCE OF DEPOSITS BY COMPANIES

73. Prohibition on acceptance of deposits from public.—(1) On and after the commencement of
this Act, no company shall invite, accept or renew deposits under this Act from the public except in a
manner provided under this Chapter:

Provided that nothing in this sub-section shall apply to a banking company and nonbanking financial
company as defined in the Reserve Bank of India Act, 1934 (2 of 1934) and to such other company as the
Central Government may, after consultation with the Reserve Bank of India, specify in this behalf.

(e) the time-limit for completion of buy-back.

(2) A company may, subject to the passing of a resolution in general meeting and subject to such rules
as may be prescribed in consultation with the Reserve Bank of India, accept deposits from its members on
such terms and conditions, including the provision of security, if any, or for the repayment of such
deposits with interest, as may be agreed upon between the company and its members, subject to the
fulfilment of the following conditions, namely:—

(a) issuance of a circular to its members including therein a statement showing the financial
position of the company, the credit rating obtained, the total number of depositors and the amount due
towards deposits in respect of any previous deposits accepted by the company and such other
particulars in such form and in such manner as may be prescribed;

(b) filing a copy of the circular along with such statement with the Registrar within thirty days
before the date of issue of the circular;

(c) depositing such sum which shall not be less than fifteen per cent. of the amount of its deposits
maturing during a financial year and the financial year next following, and kept in a scheduled bank
in a separate bank account to be called as deposit repayment reserve account;

(d) providing such deposit insurance in such manner and to such extent as may be prescribed;

(e) certifying that the company has not committed any default in the repayment of deposits
accepted either before or after the commencement of this Act or payment of interest on such deposits;
and

(f) providing security, if any for the due repayment of the amount of deposit or the interest
thereon including the creation of such charge on the property or assets of the company:

Provided that in case where a company does not secure the deposits or secures such deposits
partially, then, the deposits shall be termed as ‗‗unsecured deposits‘‘ and shall be so quoted in every
circular, form, advertisement or in any document related to invitation or acceptance of deposits.

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(3) Every deposit accepted by a company under sub-section (2) shall be repaid with interest in
accordance with the terms and conditions of the agreement referred to in that sub-section.

(4) Where a company fails to repay the deposit or part thereof or any interest thereon under subsection
(3), the depositor concerned may apply to the Tribunal for an order directing the company to pay
the sum due or for any loss or damage incurred by him as a result of such non-payment and for such other
orders as the Tribunal may deem fit.

(5) The deposit repayment reserve account referred to in clause (c) of sub-section (2) shall not be used
by the company for any purpose other than repayment of deposits.

74. Repayment of deposits, etc., accepted before commencement of this Act.—(1) Where in
respect of any deposit accepted by a company before the commencement of this Act, the amount of such
deposit or part thereof or any interest due thereon remains unpaid on such commencement or becomes
due at any time thereafter, the company shall—

(a) file, within a period of three months from such commencement or from the date on which
such payments, are due, with the Registrar a statement of all the deposits accepted by the company
and sums remaining unpaid on such amount with the interest payable thereon along with the
arrangements made for such repayment, notwithstanding anything contained in any other law for the
time being in force or under the terms and conditions subject to which the deposit was accepted or
any scheme framed under any law; and

(b) repay within one year from such commencement or from the date on which such payments are due, whichever is earlier.

(2) The Tribunal may on an application made by the company, after considering the financial
condition of the company, the amount of deposit or part thereof and the interest payable thereon and such
other matters, allow further time as considered reasonable to the company to repay the deposit.

(3) If a company fails to repay the deposit or part thereof or any interest thereon within the time
specified in sub-section (1) or such further time as may be allowed by the Tribunal under sub-section (2),
the company shall, in addition to the payment of the amount of deposit or part thereof and the interest
due, be punishable with fine which shall not be less than one crore rupees but which may extend to ten
crore rupees and every officer of the company who is in default shall be punishable with imprisonment
which may extend to seven years or with fine which shall not be less than twenty-five lakh rupees but
which may extend to two crore rupees, or with both.

75. Damages for fraud.—(1) Where a company fails to repay the deposit or part thereof or any
interest thereon referred to in section 74 within the time specified in sub-section (1) of that section or such
further time as may be allowed by the Tribunal under sub-section (2) of that section, and it is proved that
the deposits had been accepted with intent to defraud the depositors or for any fraudulent purpose, every
officer of the company who was responsible for the acceptance of such deposit shall, without prejudice to
the provisions contained in subsection (3) of that section and liability under section 447, be personally
responsible, without any limitation of liability, for all or any of the losses or damages that may have been
incurred by the depositors.

(2) Any suit, proceedings or other action may be taken by any person, group of persons or any
association of persons who had incurred any loss as a result of the failure of the company to repay the
deposits or part thereof or any interest thereon.

76. Acceptance of deposits from public by certain companies.—(1) Notwithstanding anything
contained in section 73, a public company, having such net worth or turnover as may be prescribed, may
accept deposits from persons other than its members subject to compliance with the requirements
provided in sub-section (2) of section 73 and subject to such rules as the Central Government may, in
consultation with the Reserve Bank of India, prescribe:

Provided that such a company shall be required to obtain the rating (including its networth, liquidity
and ability to pay its deposits on due date) from a recognised credit rating agency for informing the public

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the rating given to the company at the time of invitation of deposits from the public which ensures
adequate safety and the rating shall be obtained for every year during the tenure of deposits:

Provided further that every company accepting secured deposits from the public shall within thirty
days of such acceptance, create a charge on its assets of an amount not less than the amount of deposits
accepted in favour of the deposit holders in accordance with such rules as may be prescribed.

(2) The provisions of this Chapter shall, mutatis mutandis, apply to the acceptance of deposits from
public under this section.

1[76A. Punishment for contravention of section 73 or section 76.—Where a company accepts or
invites or allows or causes any other person to accept or invite on its behalf any deposit in contravention
of the manner or the conditions prescribed under section 73 or section 76 or rules made thereunder or if a
company fails to repay the deposit or part thereof or any interest due thereon within the time specified
under section 73 or section 76 or rules made thereunder or such further time as may be allowed by the
Tribunal under section 73,—

(a) the company shall, in addition to the payment of the amount of deposit or part thereof and the
interest due, be punishable with fine which shall not be less than one crore rupees but which may
extend to ten crore rupees; and

(b) every officer of the company who is in default shall be punishable with imprisonment which
may extend to seven years or with fine which shall not be less than twenty-five lakh rupees but which
may extend to two crore rupees, or with both:

Provided that if it is proved that the officer of the company who is in default, has contravened such
provisions knowingly or wilfully with the intention to deceive the company or its shareholders or
depositors or creditors or tax authorities, he shall be liable for action under section 447.]

CHAPTER vi

REGISTRATION OF CHARGES

77. Duty to register charges, etc.—(1) It shall be the duty of every company creating a charge
within or outside India, on its property or assets or any of its undertakings, whether tangible or otherwise,
and situated in or outside India, to register the particulars of the charge signed by the company and the
charge-holder together with the instruments, if any, creating such charge in such form, on payment of
such fees and in such manner as may be prescribed, with the Registrar within thirty days of its creation:

Provided that the Registrar may, on an application by the company, allow such registration to be
made within a period of three hundred days of such creation on payment of such additional fees as may be
prescribed:

Provided further that if registration is not made within a period of three hundred days of such
creation, the company shall seek extension of time in accordance with section 87:

Provided also that any subsequent registration of a charge shall not prejudice any right acquired in
respect of any property before the charge is actually registered.

(2) Where a charge is registered with the Registrar under sub-section (1), he shall issue a certificate of
registration of such charge in such form and in such manner as may be prescribed to the company and, as
the case may be, to the person in whose favour the charge is created.

(3) Notwithstanding anything contained in any other law for the time being in force, no charge
created by a company shall be taken into account by the liquidator or any other creditor unless it is duly
registered under sub-section (1) and a certificate of registration of such charge is given by the Registrar
under sub-section (2).

(4) Nothing in sub-section (3) shall prejudice any contract or obligation for the repayment of the
money secured by a charge.

_______________________

1. Ins. by Act 21 of 2015, s. 8 (w.e.f. 29-5-2015).

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78. Application for registration of charge.—Where a company fails to register the charge within
the period specified in section 77, without prejudice to its liability in respect of any offence under this
Chapter, the person in whose favour the charge is created may apply to the Registrar for registration of
the charge along with the instrument created for the charge, within such time and in such form and
manner as may be prescribed and the Registrar may, on such application, within a period of fourteen days
after giving notice to the company, unless the company itself registers the charge or shows sufficient
cause why such charge should not be registered, allow such registration on payment of such fees, as may
be prescribed:

Provided that where registration is effected on application of the person in whose favour the charge is
created, that person shall be entitled to recover from the company the amount of any fees or additional
fees paid by him to the Registrar for the purpose of registration of charge.

79. Section 77 to apply in certain matters.—The provisions of section 77 relating to registration of
charges shall, so far as may be, apply to—

(a) a company acquiring any property subject to a charge within the meaning of that section; or

(b) any modification in the terms or conditions or the extent or operation of any charge registered under that section

80. Date of notice of charge.—Where any charge on any property or assets of a company or any of
its undertakings is registered under section 77, any person acquiring such property, assets, undertakings or
part thereof or any share or interest therein shall be deemed to have notice of the charge from the date of
such registration.

81. Register of charges to be kept by Registrar.—(1) The Registrar shall, in respect of every
company, keep a register containing particulars of the charges registered under this Chapter in such form
and in such manner as may be prescribed

(2) A register kept in pursuance of this section shall be open to inspection by any person on payment
of such fees as may be prescribed for each inspection.

82. Company to report satisfaction of charge.—(1) A company shall give intimation to the
Registrar in the prescribed form, of the payment or satisfaction in full of any charge registered under this
Chapter within a period of thirty days from the date of such payment or satisfaction and the provisions of
sub-section (1) of section 77 shall, as far as may be, apply to an intimation given under this section.

(2) The Registrar shall, on receipt of intimation under sub-section (1), cause a notice to be sent to the
holder of the charge calling upon him to show cause within such time not exceeding fourteen days, as
may be specified in such notice, as to why payment or satisfaction in full should not be recorded as
intimated to the Registrar, and if no cause is shown, by such holder of the charge, the Registrar shall order
that a memorandum of satisfaction shall be entered in the register of charges kept by him under section 81
and shall inform the company that he has done so:

Provided that the notice referred to in this sub-section shall not be required to be sent, in case the
intimation to the Registrar in this regard is in the specified form and signed by the holder of charge.

(3) If any cause is shown, the Registrar shall record a note to that effect in the register of charges and
shall inform the company.

(4) Nothing in this section shall be deemed to affect the powers of the Registrar to make an entry in
the register of charges under section 83 or otherwise than on receipt of an intimation from the company.

83. Power of Registrar to make entries of satisfaction and release in absence of intimation from
company.—(1) The Registrar may, on evidence being given to his satisfaction with respect to any
registered charge,—

(a) that the debt for which the charge was given has been paid or satisfied in whole or in part; or

(b) that part of the property or undertaking charged has been released from the charge or hasceased to form part of the company‘s property or undertaking,

61

enter in the register of charges a memorandum of satisfaction in whole or in part, or of the fact that part of
the property or undertaking has been released from the charge or has ceased to form part of the
company‘s property or undertaking, as the case may be, notwithstanding the fact that no intimation has
been received by him from the company.

(2) The Registrar shall inform the affected parties within thirty days of making the entry in the
register of charges kept under sub-section (1) of section 81.

84. Intimation of appointment of receiver or manager.—(1) If any person obtains an order for the
appointment of a receiver of, or of a person to manage, the property, subject to a charge, of a company or
if any person appoints such receiver or person under any power contained in any instrument, he shall,
within a period of thirty days from the date of the passing of the order or of the making of the
appointment, give notice of such appointment to the company and the Registrar along with a copy of the
order or instrument and the Registrar shall, on payment of the prescribed fees, register particulars of the
.receiver, person or instrument in the register of charges

(2) Any person appointed under sub-section (1) shall, on ceasing to hold such appointment, give to
the company and the Registrar a notice to that effect and the Registrar shall register such notice.

85. Company‘s register of charges.—(1) Every company shall keep at its registered office a register
of charges in such form and in such manner as may be prescribed, which shall include therein all charges
and floating charges affecting any property or assets of the company or any of its undertakings, indicating
in each case such particulars as may be prescribed:

Provided that a copy of the instrument creating the charge shall also be kept at the registered office of
the company along with the register of charges.

(2) The register of charges and instrument of charges, kept under sub-section (1) shall be open for
inspection during business hours—

(a) by any member or creditor without any payment of fees; or

87. Rectification by Central Government in register of charges.—(1) The Central Government on
being satisfied that—

86. Punishment for contravention.—If any company contravenes any provision of this Chapter, the
company shall be punishable with fine which shall not be less than one lakh rupees but which may extend
to ten lakh rupees and every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to six months or with fine which shall not be less than twentyfive
thousand rupees but which may extend to one lakh rupees, or with both

(2) The register of charges and instrument of charges, kept under sub-section (1) shall be open for
inspection during business hours—

(i) (a) the omission to file with the Registrar the particulars of any charge created by a company
or any charge subject to which any property has been acquired by a company or any modification of such charge; or

(b) the omission to register any charge within the time required under this Chapter or the
omission to give intimation to the Registrar of the payment or the satisfaction of a charge, within the
time required under this Chapter; or

(c) the omission or mis-statement of any particular with respect to any such charge or
modification or with respect to any memorandum of satisfaction or other entry made in pursuance of
section 82 or section 83,

was accidental or due to inadvertence or some other sufficient cause or it is not of a nature to prejudice
the position of creditors or shareholders of the company; or

(II) on any other grounds, it is just and equitable to grant relief,

(a) by any member or creditor without any payment of fees; or

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particulars or for the registration of the charge or for the giving of intimation of payment or satisfaction
shall be extended or, as the case may require, that the omission or mis-statement shall be rectified

(2) Where the Central Government extends the time for the registration of a charge, the order shall
not prejudice any rights acquired in respect of the property concerned before the charge is actually registered.

CHAPTER VII

MANAGEMENT AND ADMINISTRATION

88. Register of members, etc.—(1) Every company shall keep and maintain the following registers
in such form and in such manner as may be prescribed, namely:—

(a) register of members indicating separately for each class of equity and preference shares held
by each member residing in or outside India;

(b) register of debenture-holders; and

(c) register of any other security holders.

(2) Every register maintained under sub-section (1) shall include an index of the names included
therein.

(3) The register and index of beneficial owners maintained by a depository under section 11 of the
Depositories Act, 1996 (22 of 1996), shall be deemed to be the corresponding register and index for the
purposes of this Act

(4) A company may, if so authorised by its articles, keep in any country outside India, in such manner
as may be prescribed, a part of the register referred to in sub-section (1), called ―foreign register‖
containing the names and particulars of the members, debenture-holders, other security holders or
beneficial owners residing outside India.

(5) If a company does not maintain a register of members or debenture-holders or other security
holders or fails to maintain them in accordance with the provisions of sub-section (1) or sub-section (2),
the company and every officer of the company who is in default shall be punishable with fine which shall
not be less than fifty thousand rupees but which may extend to three lakh rupees and where the failure is a
continuing one, with a further fine which may extend to one thousand rupees for every day, after the first
during which the failure continues

89. Declaration in respect of beneficial interest in any share.—(1) Where the name of a person is
entered in the register of members of a company as the holder of shares in that company but who does not
hold the beneficial interest in such shares, such person shall make a declaration within such time and in
such form as may be prescribed to the company specifying the name and other particulars of the person
who holds the beneficial interest in such shares

(2) Every person who holds or acquires a beneficial interest in share of a company shall make a
declaration to the company specifying the nature of his interest, particulars of the person in whose name
the shares stand registered in the books of the company and such other particulars as may be prescribed.

(3) Where any change occurs in the beneficial interest in such shares, the person referred to in subsection
(1) and the beneficial owner specified in sub-section (2) shall, within a period of thirty days from
the date of such change, make a declaration to the company in such form and containing such particulars
as may be prescribed.

(4) The Central Government may make rules to provide for the manner of holding and disclosing
beneficial interest and beneficial ownership under this section.

(5) If any person fails, to make a declaration as required under sub-section (1) or sub-section (2) or
sub-section (3), without any reasonable cause, he shall be punishable with fine which may extend to fifty
thousand rupees and where the failure is a continuing one, with a further fine which may extend to one
thousand rupees for every day after the first during which the failure continues.

63

(6) Where any declaration under this section is made to a company, the company shall make a note of
such declaration in the register concerned and shall file, within thirty days from the date of receipt of
declaration by it, a return in the prescribed form with the Registrar in respect of such declaration with
such fees or additional fees as may be prescribed, within the time specified under section 403

(7) If a company, required to file a return under sub-section (6), fails to do so before the expiry of the
time specified under the first proviso to sub-section (1) of section 403, the company and every officer of
the company who is in default shall be punishable with fine which shall not be less than five hundred
rupees but which may extend to one thousand rupees and where the failure is a continuing one, with a
further fine which may extend to one thousand rupees for every day after the first during which the failure
continues.

(8) No right in relation to any share in respect of which a declaration is required to be made under this
section but not made by the beneficial owner, shall be enforceable by him or by any person claiming through him.

(9) Nothing in this section shall be deemed to prejudice the obligation of a company to pay dividend
to its members under this Act and the said obligation shall, on such payment, stand discharged.

90. Investigation of beneficial ownership of shares in certain cases.—Where it appears to the
Central Government that there are reasons so to do, it may appoint one or more competent persons to
investigate and report as to beneficial ownership with regard to any share or class of shares and the
provisions of section 216 shall, as far as may be, apply to such investigation as if it were an investigation
ordered under that section.

91. Power to close register of members or debenture-holders or other security holders.—(1) A
company may close the register of members or the register of debenture-holders or the register of other
security holders for any period or periods not exceeding in the aggregate forty-five days in each year, but
not exceeding thirty days at any one time, subject to giving of previous notice of at least seven days or
such lesser period as may be specified by Securities and Exchange Board for listed companies or the
companies which intend to get their securities listed, in such manner as may be prescribed.

(2) If the register of members or of debenture-holders or of other security holders is closed without
giving the notice as provided in sub-section (1), or after giving shorter notice than that so provided, or for
a continuous or an aggregate period in excess of the limits specified in that sub-section, the company and
every officer of the company who is in default shall be liable to a penalty of five thousand rupees for
every day subject to a maximum of one lakh rupees during which the register is kept closed.

92. Annual return.—(1) Every company shall prepare a return (hereinafter referred to as the annual
return) in the prescribed form containing the particulars as they stood on the close of the financial year
regarding—

(a) its registered office, principal business activities, particulars of its holding, subsidiary and
associate companies;

(b) its shares, debentures and other securities and shareholding pattern;

(c) its indebtedness;

(d) its members and debenture-holders along with changes therein since the close of the previous
financial year;

(e) its promoters, directors, key managerial personnel along with changes therein since the close
of the previous financial year;

(f) meetings of members or a class thereof, Board and its various committees along with
attendance details;

(g) remuneration of directors and key managerial personnel;

(h) penalty or punishment imposed on the company, its directors or officers and details of
compounding of offences and appeals made against such penalty or punishment;

64

(i) matters relating to certification of compliances, disclosures as may be prescribed;

(j) details, as may be prescribed, in respect of shares held by or on behalf of the Foreign
Institutional Investors indicating their names, addresses, countries of incorporation, registration and
percentage of shareholding held by them; and

(k) such other matters as may be prescribed,

and signed by a director and the company secretary, or where there is no company secretary, by a
company secretary in practice:

Provided that in relation to One Person Company and small company, the annual return shall be
signed by the company secretary, or where there is no company secretary, by the director of the company.

(2) The annual return, filed by a listed company or, by a company having such paid-up capital and
turnover as may be prescribed, shall be certified by a company secretary in practice in the prescribed
form, stating that the annual return discloses the facts correctly and adequately and that the company has
complied with all the provisions of this Act.

(3) An extract of the annual return in such form as may be prescribed shall form part of the Board‘s report.

(4) Every company shall file with the Registrar a copy of the annual return, within sixty days from the
date on which the annual general meeting is held or where no annual general meeting is held in any year
within sixty days from the date on which the annual general meeting should have been held together with
the statement specifying the reasons for not holding the annual general meeting, with such fees or
additional fees as may be prescribed, within the time as specified, under section 403.

(5) If a company fails to file its annual return under sub-section (4), before the expiry of the period
specified under section 403 with additional fees, the company shall be punishable with fine which shall
not be less than fifty thousand rupees but which may extend to five lakhs rupees and every officer of the
company who is in default shall be punishable with imprisonment for a term which may extend to six
months or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh
rupees, or with both.

(6) If a company secretary in practice certifies the annual return otherwise than in conformity with the
requirements of this section or the rules made thereunder, he shall be punishable with fine which shall not
be less than fifty thousand rupees but which may extend to five lakh rupees

93. Return to be filed with Registrar in case promoters‘ stake changes.—Every listed company
shall file a return in the prescribed form with the Registrar with respect to change in the number of shares
held by promoters and top ten shareholders of such company, within fifteen days of such change

94. Place of keeping and inspection of registers, returns, etc.—(1) The registers required to be kept
and maintained by a company under section 88 and copies of the annual return filed under section 92 shall
be kept at the registered office of the company:

Provided that such registers or copies of return may also be kept at any other place in India in which
more than one-tenth of the total number of members entered in the register of members reside, if
approved by a special resolution passed at a general meeting of the company and the Registrar has been
given a copy of the proposed special resolution in advance:

Provided further that the period for which the registers, returns and records are required to be kept
shall be such as may be prescribed.

(2) The registers and their indices, except when they are closed under the provisions of this Act, and
the copies of all the returns shall be open for inspection by any member, debenture-holder, other security
holder or beneficial owner, during business hours without payment of any fees and by any other person on
payment of such fees as may be prescribed

(3) Any such member, debenture-holder, other security holder or beneficial owner or any other person
may—

(a) take extracts from any register, or index or return without payment of any fee; or

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(b) require a copy of any such register or entries therein or return on payment of such fees as may
be prescribed

(4) If any inspection or the making of any extract or copy required under this section is refused, the
company and every officer of the company who is in default shall be liable, for each such default, to a
penalty of one thousand rupees for every day subject to a maximum of one lakh rupees during which the
refusal or default continues.

(5) The Central Government may also, by order, direct an immediate inspection of the document, or
direct that the extract required shall forthwith be allowed to be taken by the person requiring it.

95. Registers, etc., to be evidence.—The registers, their indices and copies of annual returns
maintained under sections 88 and 94 shall be prima facie evidence of any matter directed or authorised to
be inserted therein by or under this Act.

96. Annual general meeting.— (1) Every company other than a One Person Company shall in each
year hold in addition to any other meetings, a general meeting as its annual general meeting and shall
specify the meeting as such in the notices calling it, and not more than fifteen months shall elapse
between the date of one annual general meeting of a company and that of the next:

Provided that in case of the first annual general meeting, it shall be held within a period of nine
months from the date of closing of the first financial year of the company and in any other case, within a
period of six months, from the date of closing of the financial year:

Provided further that if a company holds its first annual general meeting as aforesaid, it shall not be
necessary for the company to hold any annual general meeting in the year of its incorporation:

Provided also that the Registrar may, for any special reason, extend the time within which any annual
general meeting, other than the first annual general meeting, shall be held, by a period not exceeding three
months

(2) Every annual general meeting shall be called during business hours, that is, between 9 a.m. and 6
p.m. on any day that is not a National Holiday and shall be held either at the registered office of the
company or at some other place within the city, town or village in which the registered office of the
company is situate:

Provided that the Central Government may exempt any company from the provisions of this subsection
subject to such conditions as it may impose.

Explanation.—For the purposes of this sub-section, ―National Holiday‖ means and includes a day
declared as National Holiday by the Central Government

97. Power of Tribunal to call annual general meeting.—(1) If any default is made in holding the
annual general meeting of a company under section 96, the Tribunal may, notwithstanding anything
contained in this Act or the articles of the company, on the application of any member of the company,
call, or direct the calling of, an annual general meeting of the company and give such ancillary or
consequential directions as the Tribunal thinks expedient:

Provided that such directions may include a direction that one member of the company present in
person or by proxy shall be deemed to constitute a meeting.

(2) A general meeting held in pursuance of sub-section (1) shall, subject to any directions of the
Tribunal, be deemed to be an annual general meeting of the company under this Act.

98. Power of Tribunal to call meetings of members, etc.—(1) If for any reason it is impracticable
to call a meeting of a company, other than an annual general meeting, in any manner in which meetings of
the company may be called, or to hold or conduct the meeting of the company in the manner prescribed
by this Act or the articles of the company, the Tribunal may, either suo motu or on the application of any
director or member of the company who would be entitled to vote at the meeting,—

(a) order a meeting of the company to be called, held and conducted in such manner as the
Tribunal thinks fit; and

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(b) give such ancillary or consequential directions as the Tribunal thinks expedient, including
directions modifying or supplementing in relation to the calling, holding and conducting of the
meeting, the operation of the provisions of this Act or articles of the company:

Provided that such directions may include a direction that one member of the company present in
person or by proxy shall be deemed to constitute a meeting

(2) Any meeting called, held and conducted in accordance with any order made under sub-section (1)
shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted.

99. Punishment for default in complying with provisions of sections 96 to 98.—If any default is
made in holding a meeting of the company in accordance with section 96 or section 97 or section 98 or in
complying with any directions of the Tribunal, the company and every officer of the company who is in
default shall be punishable with fine which may extend to one lakh rupees and in the case of a continuing
default, with a further fine which may extend to five thousand rupees for every day during which such
default continues

100. Calling of extraordinary general meeting.—(1) The Board may, whenever it deems fit, call an
extraordinary general meeting of the company.

(2) The Board shall, at the requisition made by,—

(a) in the case of a company having a share capital, such number of members who hold, on the
date of the receipt of the requisition, not less than one-tenth of such of the paid-up share capital of the
company as on that date carries the right of voting;

(b) in the case of a company not having a share capital, such number of members who have, on
the date of receipt of the requisition, not less than one-tenth of the total voting power of all the
members having on the said date a right to vote,

call an extraordinary general meeting of the company within the period specified in sub-section (4).

(3) The requisition made under sub-section (2) shall set out the matters for the consideration of which
the meeting is to be called and shall be signed by the requisitionists and sent to the registered office of the
company.

(4) If the Board does not, within twenty-one days from the date of receipt of a valid requisition in
regard to any matter, proceed to call a meeting for the consideration of that matter on a day not later than
forty-five days from the date of receipt of such requisition, the meeting may be called and held by the
requisitionists themselves within a period of three months from the date of the requisition.

(5) A meeting under sub-section (4) by the requisitionists shall be called and held in the same manner
in which the meeting is called and held by the Board.

(6) Any reasonable expenses incurred by the requisitionists in calling a meeting under sub-section (4)
shall be reimbursed to the requisitionists by the company and the sums so paid shall be deducted from any
fee or other remuneration under section 197 payable to such of the directors who were in default in calling
the meeting.

101. Notice of meeting.—(1) A general meeting of a company may be called by giving not less than
clear twenty-one days‘ notice either in writing or through electronic mode in such manner as may be
prescribed:

Provided that a general meeting may be called after giving a shorter notice if consent is given in
writing or by electronic mode by not less than ninety-five per cent. of the members entitled to vote at such
meeting.

(2) Every notice of a meeting shall specify the place, date, day and the hour of the meeting and shall
contain a statement of the business to be transacted at such meeting.

(3) The notice of every meeting of the company shall be given to—

(a) every member of the company, legal representative of any deceased member or the assignee
of an insolvent member;

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(b) the auditor or auditors of the company; and

(c) every director of the company.

(4) Any accidental omission to give notice to, or the non-receipt of such notice by, any member or
other person who is entitled to such notice for any meeting shall not invalidate the proceedings of the
meeting.

102. Statement to be annexed to notice.—(1) A statement setting out the following material facts
concerning each item of special business to be transacted at a general meeting, shall be annexed to the
notice calling such meeting, namely:—

(a) the nature of concern or interest, financial or otherwise, if any, in respect of each items of—

(i) every director and the manager, if any;

(ii) every other key managerial personnel; and

(iii) relatives of the persons mentioned in sub-clauses (i) and (ii);

(b) any other information and facts that may enable members to understand the meaning, scope
and implications of the items of business and to take decision thereon.

(2) For the purposes of sub-section (1),—

(a) in the case of an annual general meeting, all business to be transacted thereat shall be deemed
special, other than—

(i) the consideration of financial statements and the reports of the Board of Directors and
auditors;

(II) the declaration of any dividend;

(III) the appointment of directors in place of those retiring;

(IV) the appointment of, and the fixing of the remuneration of, the auditors; and

(b) in the case of any other meeting, all business shall be deemed to be special:

Provided that where any item of special business to be transacted at a meeting of the company relates
to or affects any other company, the extent of shareholding interest in that other company of every
promoter, director, manager, if any, and of every other key managerial personnel of the first mentioned
company shall, if the extent of such shareholding is not less than two per cent. of the paid-up share capital
of that company, also be set out in the statement.

(3) Where any item of business refers to any document, which is to be considered at the meeting, the
time and place where such document can be inspected shall be specified in the statement under subsection
(1).

(4) Where as a result of the non-disclosure or insufficient disclosure in any statement referred to in
sub-section (1), being made by a promoter, director, manager, if any, or other key managerial personnel,
any benefit which accrues to such promoter, director, manager or other key managerial personnel or their
relatives, either directly or indirectly, the promoter, director, manager or other key managerial personnel,
as the case may be, shall hold such benefit in trust for the company, and shall, without prejudice to any
other action being taken against him under this Act or under any other law for the time being in force, be
liable to compensate the company to the extent of the benefit received by him.

(5) If any default is made in complying with the provisions of this section, every promoter, director,
manager or other key managerial personnel who is in default shall be punishable with fine which may
extend to fifty thousand rupees or five times the amount of benefit accruing to the promoter, director,
manager or other key managerial personnel or any of his relatives, whichever is more.

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103. Quorum for meetings.—(1) Unless the articles of the company provide for a larger number,—

(a) in case of a public company,—

(I) five members personally present if the number of members as on the date of meeting is not
more than one thousand;

(II) fifteen members personally present if the number of members as on the date of meeting is
more than one thousand but up to five thousand;

(III) thirty members personally present if the number of members as on the date of the
meeting exceeds five thousand;

(b) in the case of a private company, two members personally present, shall be the quorum for ameeting of the company.

(2) If the quorum is not present within half-an-hour from the time appointed for holding a meeting of the company—

(a) the meeting shall stand adjourned to the same day in the next week at the same time and place,
or to such other date and such other time and place as the Board may determine; or

(b) the meeting, if called by requisitionists under section 100, shall stand cancelled:

Provided that in case of an adjourned meeting or of a change of day, time or place of meeting under
clause (a), the company shall give not less than three days notice to the members either individually or by
publishing an advertisement in the newspapers (one in English and one in vernacular language) which is
in circulation at the place where the registered office of the company is situated.

(3) If at the adjourned meeting also, a quorum is not present within half-an-hour from the time
appointed for holding meeting, the members present shall be the quorum.

104. Chairman of meetings.—(1) Unless the articles of the company otherwise provide, the
members personally present at the meeting shall elect one of themselves to be the Chairman thereof on ashow of hands.

(2) If a poll is demanded on the election of the Chairman, it shall be taken forthwith in accordance
with the provisions of this Act and the Chairman elected on a show of hands under sub-section (1) shall
continue to be the Chairman of the meeting until some other person is elected as Chairman as a result of
the poll, and such other person shall be the Chairman for the rest of the meeting.

105. Proxies.— (1) Any member of a company entitled to attend and vote at a meeting of the
company shall be entitled to appoint another person as a proxy to attend and vote at the meeting on his behalf

Provided that a proxy shall not have the right to speak at such meeting and shall not be entitled to
vote except on a poll:

Provided further that, unless the articles of a company otherwise provide, this subsection shall not
apply in the case of a company not having a share capital:

Provided also that the Central Government may prescribe a class or classes of companies whose
members shall not be entitled to appoint another person as a proxy:

Provided also that a person appointed as proxy shall act on behalf of such member or number of
members not exceeding fifty and such number of shares as may be prescribed.

(2) In every notice calling a meeting of a company which has a share capital, or the articles of which
provide for voting by proxy at the meeting, there shall appear with reasonable prominence a statement
that a member entitled to attend and vote is entitled to appoint a proxy, or, where that is allowed, one or
more proxies, to attend and vote instead of himself, and that a proxy need not be a member.

(3) If default is made in complying with sub-section (2), every officer of the company who is in
default shall be punishable with fine which may extend to five thousand rupees.

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(4) Any provision contained in the articles of a company which specifies or requires a longer period
than forty-eight hours before a meeting of the company, for depositing with the company or any other
person any instrument appointing a proxy or any other document necessary to show the validity or
otherwise relating to the appointment of a proxy in order that the appointment may be effective at such
meeting, shall have effect as if a period of forty-eight hours had been specified in or required by such
provision for such deposit

(5) If for the purpose of any meeting of a company, invitations to appoint as proxy a person or one of
a number of persons specified in the invitations are issued at the company‘s expense to any member
entitled to have a notice of the meeting sent to him and to vote thereat by proxy, every officer of the
company who knowingly issues the invitations as aforesaid or wilfully authorises or permits their issue
shall be punishable with fine which may extend to one lakh rupees:

Provided that an officer shall not be punishable under this sub-section by reason only of the issue to a
member at his request in writing of a form of appointment naming the proxy, or of a list of persons
willing to act as proxies, if the form or list is available on request in writing to every member entitled to
vote at the meeting by proxy.

(6) The instrument appointing a proxy shall—

(a) be in writing; and

(b) be signed by the appointer or his attorney duly authorised in writing or, if the appointer is a
body corporate, be under its seal or be signed by an officer or an attorney duly authorised by it.

(7) An instrument appointing a proxy, if in the form as may be prescribed, shall not be questioned on
the ground that it fails to comply with any special requirements specified for such instrument by the
articles of a company

(8) Every member entitled to vote at a meeting of the company, or on any resolution to be moved
thereat, shall be entitled during the period beginning twenty-four hours before the time fixed for the
commencement of the meeting and ending with the conclusion of the meeting, to inspect the proxies
lodged, at any time during the business hours of the company, provided not less than three days‘ notice in
writing of the intention so to inspect is given to the company

106. Restriction on voting rights.—(1) Notwithstanding anything contained in this Act, the articles
of a company may provide that no member shall exercise any voting right in respect of any shares
registered in his name on which any calls or other sums presently payable by him have not been paid, or
in regard to which the company has exercised any right of lien.

(2) A company shall not, except on the grounds specified in sub-section (1), prohibit any member
from exercising his voting right on any other ground.

(3) On a poll taken at a meeting of a company, a member entitled to more than one vote, or his proxy,
where allowed, or other person entitled to vote for him, as the case may be, need not, if he votes, use all
his votes or cast in the same way all the votes he uses.

107. Voting by show of hands.—(1) At any general meeting, a resolution put to the vote of the
meeting shall, unless a poll is demanded under section 109 or the voting is carried out electronically, be
decided on a show of hands.

(2) A declaration by the Chairman of the meeting of the passing of a resolution or otherwise by show
of hands under sub-section (1) and an entry to that effect in the books containing the minutes of the
meeting of the company shall be conclusive evidence of the fact of passing of such resolution or
otherwise

108. Voting through electronic means.—The Central Government may prescribe the class or classes
of companies and manner in which a member may exercise his right to vote by the electronic means.

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109. Demand for poll.—(1) Before or on the declaration of the result of the voting on any resolution
on show of hands, a poll may be ordered to be taken by the Chairman of the meeting on his own motion,
and shall be ordered to be taken by him on a demand made in that behalf,—

(a) in the case a company having a share capital, by the members present in person or by proxy,
where allowed, and having not less than one-tenth of the total voting power or holding shares on
which an aggregate sum of not less than five lakh rupees or such higher amount as may be prescribed
has been paid-up; and

(b) in the case of any other company, by any member or members present in person or by proxy,
where allowed, and having not less than one-tenth of the total voting power.

(2) The demand for a poll may be withdrawn at any time by the persons who made the demand.

(3) A poll demanded for adjournment of the meeting or appointment of Chairman of the meeting shall
be taken forthwith.

(4) A poll demanded on any question other than adjournment of the meeting or appointment of
Chairman shall be taken at such time, not being later than forty-eight hours from the time when the
demand was made, as the Chairman of the meeting may direct.

(5) Where a poll is to be taken, the Chairman of the meeting shall appoint such number of persons, as
he deems necessary, to scrutinise the poll process and votes given on the poll and to report thereon to him
in the manner as may be prescribed

(6) Subject to the provisions of this section, the Chairman of the meeting shall have power to regulate
the manner in which the poll shall be taken

(7) The result of the poll shall be deemed to be the decision of the meeting on the resolution on which
the poll was taken.

110. Postal ballot.—(1) Notwithstanding anything contained in this Act, a company—

(a) shall, in respect of such items of business as the Central Government may, by notification,
declare to be transacted only by means of postal ballot; and

(b) may, in respect of any item of business, other than ordinary business and any business in
respect of which directors or auditors have a right to be heard at any meeting, transact by means of
postal ballot

in such manner as may be prescribed, instead of transacting such business at a general meeting.

(2) If a resolution is assented to by the requisite majority of the shareholders by means of postal
ballot, it shall be deemed to have been duly passed at a general meeting convened in that behalf.

111. Circulation of members‘ resolution.—(1) A company shall, on requisition in writing of such
number of members, as required in section 100,—

(a) give notice to members of any resolution which may properly be moved and is intended to be
moved at a meeting; and

(b) circulate to members any statement with respect to the matters referred to in proposed
resolution or business to be dealt with at that meeting.

(2) A company shall not be bound under this section to give notice of any resolution or to circulate
any statement unless—

(a) a copy of the requisition signed by the requisitionists (or two or more copies which, between
them, contain the signatures of all the requisitionists) is deposited at the registered office of the company,—

(i) in the case of a requisition requiring notice of a resolution, not less than six weeks before
the meeting;

(II) in the case of any other requisition, not less than two weeks before the meeting; and

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(b) there is deposited or tendered with the requisition, a sum reasonably sufficient to meet the
company‘s expenses in giving effect thereto:

Provided that if, after a copy of a requisition requiring notice of a resolution has been deposited at the
registered office of the company, an annual general meeting is called on a date within six weeks after the
copy has been deposited, the copy, although not deposited within the time required by this sub-section,
shall be deemed to have been properly deposited for the purposes thereof.

(3) The company shall not be bound to circulate any statement as required by clause (b) of subsection
(1), if on the application either of the company or of any other person who claims to be aggrieved,
the Central Government, by order, declares that the rights conferred by this section are being abused to
secure needless publicity for defamatory matter.

(4) An order made under sub-section (3) may also direct that the cost incurred by the company by
virtue of this section shall be paid to the company by the requisitionists, notwithstanding that they are not
parties to the application

(5) If any default is made in complying with the provisions of this section, the company and every
officer of the company who is in default shall be liable to a penalty of twenty-five thousand rupees.

112. Representation of President and Governors in meetings.—(1) The President of India or the
Governor of a State, if he is a member of a company, may appoint such person as he thinks fit to act as his
representative at any meeting of the company or at any meeting of any class of members of the company.

(2) A person appointed to act under sub-section (1) shall, for the purposes of this Act, be deemed to
be a member of such a company and shall be entitled to exercise the same rights and powers, including
the right to vote by proxy and postal ballot, as the President or, as the case may be, the Governor could
exercise as a member of the company.

113. Representation of corporations at meeting of companies and of creditors.—(1) A body
corporate, whether a company within the meaning of this Act or not, may, —

(a) if it is a member of a company within the meaning of this Act, by resolution of its Board of
Directors or other governing body, authorise such person as it thinks fit to act as its representative at
any meeting of the company, or at any meeting of any class of members of the company;

(b) if it is a creditor, including a holder of debentures, of a company within the meaning of this
Act, by resolution of its directors or other governing body, authorise such person as it thinks fit to act
as its representative at any meeting of any creditors of the company held in pursuance of this Act or
of any rules made thereunder, or in pursuance of the provisions contained in any debenture or trust
deed, as the case may be

(2) A person authorised by resolution under sub-section (1) shall be entitled to exercise the same
rights and powers, including the right to vote by proxy and by postal ballot, on behalf of the body
corporate which he represents as that body could exercise if it were an individual member, creditor or
holder of debentures of the company

114. Ordinary and special resolutions.—(1) A resolution shall be an ordinary resolution if the
notice required under this Act has been duly given and it is required to be passed by the votes cast,
whether on a show of hands, or electronically or on a poll, as the case may be, in favour of the resolution,
including the casting vote, if any, of the Chairman, by members who, being entitled so to do, vote in
person, or where proxies are allowed, by proxy or by postal ballot, exceed the votes, if any, cast against
the resolution by members, so entitled and voting

(2) A resolution shall be a special resolution when—

(a) the intention to propose the resolution as a special resolution has been duly specified in the
notice calling the general meeting or other intimation given to the members of the resolution;

(b) the notice required under this Act has been duly given; and

(c) the votes cast in favour of the resolution, whether on a show of hands, or electronically or on a
poll, as the case may be, by members who, being entitled so to do, vote in person or by proxy or by

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postal ballot, are required to be not less than three times the number of the votes, if any, cast against
the resolution by members so entitled and voting.

115. Resolutions requiring special notice.—Where, by any provision contained in this Act or in the
articles of a company, special notice is required of any resolution, notice of the intention to move such
resolution shall be given to the company by such number of members holding not less than one per cent.
of total voting power or holding shares on which such aggregate sum not exceeding five lakh rupees, as
may be prescribed, has been paid-up and the company shall give its members notice of the resolution in
such manner as may be prescribed.

116. Resolutions passed at adjourned meeting.—Where a resolution is passed at an adjourned
meeting of—

(a) a company; or

(c) the Board of Directors of a company,

(b) there is depositedompany‘s expenses in giving effect thereto:

the resolution shall, for all purposes, be treated as having been passed on the date on which it was in fact
passed, and shall not be deemed to have been passed on any earlier date

117. Resolutions and agreements to be filed.—(1) A copy of every resolution or any agreement, in
respect of matters specified in sub-section (3) together with the explanatory statement under section 102,
if any, annexed to the notice calling the meeting in which the resolution is proposed, shall be filed with
the Registrar within thirty days of the passing or making thereof in such manner and with such fees as
may be prescribed within the time specified under section 403:

Provided that the copy of every resolution which has the effect of altering the articles and the copy of
every agreement referred to in sub-section (3) shall be embodied in or annexed to every copy of the
articles issued after passing of the resolution or making of the agreement.

(2) If a company fails to file the resolution or the agreement under sub-section (1) before the expiry of
the period specified under section 403 with additional fees, the company shall be punishable with fine
which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees and every
officer of the company who is in default, including liquidator of the company, if any, shall be punishable
with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

(3) The provisions of this section shall apply to—

(a) special resolutions;

(b) resolutions which have been agreed to by all the members of a company, but which, if not so
agreed to, would not have been effective for their purpose unless they had been passed as special
resolutions;

(c) any resolution of the Board of Directors of a company or agreement executed by a company,
relating to the appointment, re-appointment or renewal of the appointment, or variation of the terms
of appointment, of a managing director;

(d) resolutions or agreements which have been agreed to by any class of members but which, if
not so agreed to, would not have been effective for their purpose unless they had been passed by a
specified majority or otherwise in some particular manner; and all resolutions or agreements which
effectively bind such class of members though not agreed to by all those members;

(e) resolutions passed by a company according consent to the exercise by its Board of Directors
of any of the powers under clause (a) and clause (c) of sub-section (1) of section 180;

(f) resolutions requiring a company to be wound up voluntarily passed in pursuance of section
304;

(g) resolutions passed in pursuance of sub-section (3) of section 179: 1

__________________

1. The word ―and‖ omitted by Act 21 of 2015, s. 9 (w.e.f. 29-5-2015).

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1[Provided that no person shall be entitled under section 399 to inspect or obtain copies of
such resolutions; and]

(h) any other resolution or agreement as may be prescribed and placed in the public domain.

118. Minutes of proceedings of general meeting, meeting of Board of Directors and other
meeting and resolutions passed by postal ballot.—(1) Every company shall cause minutes of the
proceedings of every general meeting of any class of shareholders or creditors, and every resolution
passed by postal ballot and every meeting of its Board of Directors or of every committee of the Board, to
be prepared and signed in such manner as may be prescribed and kept within thirty days of the conclusion
of every such meeting concerned, or passing of resolution by postal ballot in books kept for that purpose
with their pages consecutively numbered

(2) The minutes of each meeting shall contain a fair and correct summary of the proceedings thereat.

(3) All appointments made at any of the meetings aforesaid shall be included in the minutes of the
meeting.

(4) In the case of a meeting of the Board of Directors or of a committee of the Board, the minutes
shall also contain—

(a) the names of the directors present at the meeting; and

(b) in the case of each resolution passed at the meeting, the names of the directors,

if any, dissenting from, or not concurring with the resolution.

(5) There shall not be included in the minutes, any matter which, in the opinion of the Chairman of
the meeting,—

(a) is or could reasonably be regarded as defamatory of any person; or

(b) is irrelevant or immaterial to the proceedings; or

(c) is detrimental to the interests of the company.

(6) The Chairman shall exercise absolute discretion in regard to the inclusion or non-inclusion of any
matter in the minutes on the grounds specified in sub-section (5).

(7) The minutes kept in accordance with the provisions of this section shall be evidence of the
proceedings recorded therein.

(8) Where the minutes have been kept in accordance with sub-section (1) then, until the contrary is
proved, the meeting shall be deemed to have been duly called and held, and all proceedings thereat to
have duly taken place, and the resolutions passed by postal ballot to have been duly passed and in
particular, all appointments of direct
practice, shall be deemed to be valid.

(9) No document purporting to be a report of the proceedings of any general meeting of a company
shall be circulated or advertised at the expense of the company, unless it includes the matters required by
this section to be contained in the minutes of the proceedings of such meeting.

(10) Every company shall observe secretarial standards with respect to general and Board meetings
specified by the Institute of Company Secretaries of India constituted under section 3 of the Company
Secretaries Act, 1980 (56 of 1980), and approved as such by the Central Government

(11) If any default is made in complying with the provisions of this section in respect of any meeting,
the company shall be liable to a penalty of twenty-five thousand rupees and every officer of the company
who is in default shall be liable to a penalty of five thousand rupees

(12) If a person is found guilty of tampering with the minutes of the proceedings of meeting, he shall
be punishable with imprisonment for a term which may extend to two years and with fine which shall not
be less than twenty-five thousand rupees but which may extend to one lakh rupees.

__________________

1. Ins. by Act 21 of 2015, s. 9 (w.e.f. 29-5-2015).

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119. Inspection of minute-books of general meeting.—(1) The books containing the minutes of the
proceedings of any general meeting of a company or of a resolution passed by postal ballot, shall—

(a) be kept at the registered office of the company; and

(b) be open, during business hours, to the inspection by any member without charge, subject to
such reasonable restrictions as the company may, by its articles or in general meeting, impose, so,
however, that not less than two hours in each business day are allowed for inspection.

(2) Any member shall be entitled to be furnished, within seven working days after he has made a
request in that behalf to the company, and on payment of such fees as may be prescribed, with a copy of
any minutes referred to in sub-section (1).

(3) If any inspection under sub-section (1) is refused, or if any copy required under sub-section (2) is
not furnished within the time specified therein, the company shall be liable to a penalty of twenty-five
thousand rupees and every officer of the company who is in default shall be liable to a penalty of five
thousand rupees for each such refusal or default, as the case may be.

(4) In the case of any such refusal or default, the Tribunal may, without prejudice to any action being
taken under sub-section (3), by order, direct an immediate inspection of the minute-books or direct that
the copy required shall forthwith be sent to the person requiring it.

120. Maintenance and inspection of documents in electronic form.—Without prejudice to any
other provisions of this Act, any document, record, register, minutes, etc.,—

(a) required to be kept by a company; or

(b) allowed to be inspected or copies to be given to any person by a company under this Act, may
be kept or inspected or copies given, as the case may be, in electronic form in such form and manner
as may be prescribed

121. Report on annual general meeting.—(1) Every listed public company shall prepare in the
prescribed manner a report on each annual general meeting including the confirmation to the effect that
the meeting was convened, held and conducted as per the provisions of this Act and the rules made
thereunder.

(2) The company shall file with the Registrar a copy of the report referred to in subsection (1) within
thirty days of the conclusion of the annual general meeting with such fees as may be prescribed, or with
such additional fees as may be prescribed, within the time as specified, under section 403

(3) If the company fails to file the report under sub-section (2) before the expiry of the period
specified under section 403 with additional fees, the company shall be punishable with fine which shall
not be less than one lakh rupees but which may extend to five lakh rupees and every officer of the
company who is in default shall be punishable with fine which shall not be less than twenty-five thousand
rupees but which may extend to one lakh rupees.

122. Applicability of this Chapter to One Person Company.—(1) The provisions of section 98 and
sections 100 to 111 (both inclusive) shall not apply to a One Person Company.

(2) The ordinary businesses as mentioned under clause (a) of sub-section (2) of section 102 which a
company, other than a One Person Company, is required to transact at its annual general meeting, shall be
transacted, in case of One Person Company, as provided in sub-section (3)

(3) For the purposes of section 114, any business which is required to be transacted at an annual
general meeting or other general meeting of a company by means of an ordinary or special resolution, it
shall be sufficient if, in case of One Person Company, the resolution is communicated by the member to
the company and entered in the minutes-book required to be maintained under section 118 and signed and
dated by the member and such date shall be deemed to be the date of the meeting for all the purposes
under this Act.

(4) Notwithstanding anything in this Act, where there is only one director on the Board of Director of
a One Person Company, any business which is required to be transacted at the meeting of the Board of
Directors of a company, it shall be sufficient if, in case of such One Person Company, the resolution by

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such director is entered in the minutes-book required to be maintained under section 118 and signed and
dated by such director and such date shall be deemed to be the date of the meeting of the Board of
Directors for all the purposes under this Act.

CHAPTER VII

DECLARATION AND PAYMENT OF DIVIDEND

123. Declaration of dividend.—(1) No dividend shall be declared or paid by a company for any
financial year except—

(a) out of the profits of the company for that year arrived at after providing for depreciation in
accordance with the provisions of sub-section (2), or out of the profits of the company for any
previous financial year or years arrived at after providing for depreciation in accordance with the
provisions of that sub-section and remaining undistributed, or out of both; or

(b) out of money provided by the Central Government or a State Government for the payment of
dividend by the company in pursuance of a guarantee given by that Government:

Provided that a company may, before the declaration of any dividend in any financial year, transfer
such percentage of its profits for that financial year as it may consider appropriate to the reserves of the
company

Provided further that where, owing to inadequacy or absence of profits in any financial year, any
company proposes to declare dividend out of the accumulated profits earned by it in previous years and
transferred by the company to the reserves, such declaration of dividend shall not be made except in
accordance with such rules as may be prescribed in this behalf:

Provided also that no dividend shall be declared or paid by a company from its reserves other than free reserves:

1[Provided also that no company shall declare dividend unless carried over previous losses and
depreciation not provided in previous year or years are set off against profit of the company for the
current year.]

(2) For the purposes of clause (a) of sub-section (1), depreciation shall be provided in accordance
with the provisions of Schedule II.

(3) The Board of Directors of a company may declare interim dividend during any financial year out
of the surplus in the profit and loss account and out of profits of the financial year in which such interim
dividend is sought to be declared:

Provided that in case the company has incurred loss during the current financial year up to the end of
the quarter immediately preceding the date of declaration of interim dividend, such interim dividend shall
not be declared at a rate higher than the average dividends declared by the company during the
immediately preceding three financial years.

(4) The amount of the dividend, including interim dividend, shall be deposited in a scheduled bank in
a separate account within five days from the date of declaration of such dividend.

(5) No dividend shall be paid by a company in respect of any share therein except to the registered
shareholder of such share or to his order or to his banker and shall not be payable except in cash:

Provided that nothing in this sub-section shall be deemed to prohibit the capitalization of profits or
reserves of a company for the purpose of issuing fully paid-up bonus shares or paying up any amount for
the time being unpaid on any shares held by the members of the company:

Provided further that any dividend payable in cash may be paid by cheque or warrant or in any
electronic mode to the shareholder entitled to the payment of the dividend.

(6) A company which fails to comply with the provisions of sections 73 and 74 shall not, so long as
such failure continues, declare any dividend on its equity shares

__________________

1. Ins. by Act 21 of 2015, s. 10 (w.e.f. 29-5-2015).

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124. Unpaid Dividend Account.— (1) Where a dividend has been declared by a company but has
not been paid or claimed within thirty days from the date of the declaration to any shareholder entitled to
the payment of the dividend, the company shall, within seven days from the date of expiry of the said
period of thirty days, transfer the total amount of dividend which remains unpaid or unclaimed to a
special account to be opened by the company in that behalf in any scheduled bank to be called the Unpaid
Dividend Account

(2) The company shall, within a period of ninety days of making any transfer of an amount under subsection
(1) to the Unpaid Dividend Account, prepare a statement containing the names, their last known
addresses and the unpaid dividend to be paid to each person and place it on the website of the company, if
any, and also on any other website approved by the Central Government for this purpose, in such form,
manner and other particulars as may be prescribed.

(3) If any default is made in transferring the total amount referred to in sub-section (1) or any part
thereof to the Unpaid Dividend Account of the company, it shall pay, from the date of such default,
interest on so much of the amount as has not been transferred to the said account, at the rate of twelve per
cent. per annum and the interest accruing on such amount shall ensure to the benefit of the members of
the company in proportion to the amount remaining unpaid to them.

(4) Any person claiming to be entitled to any money transferred under sub-section (1) to the Unpaid
Dividend Account of the company may apply to the company for payment of the money claimed.

(5) Any money transferred to the Unpaid Dividend Account of a company in pursuance of this section
which remains unpaid or unclaimed for a period of seven years from the date of such transfer shall be
transferred by the company along with interest accrued, if any, thereon to the Fund established under subsection
(1) of section 125 and the company shall send a statement in the prescribed form of the details of
such transfer to the authority which administers the said Fund and that authority shall issue a receipt to the
company as evidence of such transfer

(6) All shares in respect of which 1[dividend has not been paid or claimed for seven consecutive years
or more shall be] transferred by the company in the name of Investor Education and Protection Fund
along with a statement containing such details as may be prescribed:

Provided that any claimant of shares transferred above shall be entitled to claim the transfer of shares
from Investor Education and Protection Fund in accordance with such procedure and on submission of
such documents as may be prescribed.

2[Explanation.— For the removal of doubts, it is hereby clarified that in case any dividend is paid or
claimed for any year during the said period of seven consecutive years, the share shall not be transferred
to Investor Education and Protection Fund.]

(7) If a company fails to comply with any of the requirements of this section, the company shall be
punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five
lakh rupees and every officer of the company who is in default shall be punishable with fine which shall
not be less than one lakh rupees but which may extend to five lakh rupees.

125. Investor Education and Protection Fund.— (1) The Central Government shall establish a
Fund to be called the Investor Education and Protection Fund (herein referred to as the Fund).

(2) There shall be credited to the Fund—

(a) the amount given by the Central Government by way of grants after due appropriation made
by Parliament by law in this behalf for being utilised for the purposes of the Fund;

(b) donations given to the Fund by the Central Government, State Governments, companies or
any other institution for the purposes of the Fund;

__________________

1. Subs. by Act 21 of 2015, s. 11,. for ―unpaid or unclaimed dividend has been transferred under sub-section (5) shall also be‖
(w.e.f. 29-5-2015)

2. Ins. by s. 11, ibid. (w.e.f. 29-5-2015).

77

(c) the amount in the Unpaid Dividend Account of companies transferred to the Fund under subsection
(5) of section 124;

(d) the amount in the general revenue account of the Central Government which had been
transferred to that account under sub-section (5) of section 205A of the Companies Act, 1956 (1 of
1956), as it stood immediately before the commencement of the Companies (Amendment) Act, 1999
(21 of 1999), and remaining unpaid or unclaimed on the commencement of this Act;

(e) the amount lying in the Investor Education and Protection Fund under section 205C of the
Companies Act, 1956 (1 of 1956);

(f) the interest or other income received out of investments made from the Fund;

(g) the amount received under sub-section (4) of section 38;

(h) the application money received by companies for allotment of any securities and due for
refund

(i) matured deposits with companies other than banking companies;

(j) matured debentures with companies;

(k) interest accrued on the amounts referred to in clauses (h) to (j);

(l) sale proceeds of fractional shares arising out of issuance of bonus shares, merger and
amalgamation for seven or more years;

(m) redemption amount of preference shares remaining unpaid or unclaimed for seven or more
years; and

(n) such other amount as may be prescribed:

Provided that no such amount referred to in clauses (h) to (j) shall form part of the Fund unless such
amount has remained unclaimed and unpaid for a period of seven years from the date it became due for
payment

(3) The Fund shall be utilised for—

(a) the refund in respect of unclaimed dividends, matured deposits, matured debentures, the
application money due for refund and interest thereon;

(b) promotion of investors‘ education, awareness and protection;

(c) distribution of any disgorged amount among eligible and identifiable applicants for shares or
debentures, shareholders, debenture-holders or depositors who have suffered losses due to wrong
actions by any person, in accordance with the orders made by the Court which had ordered
disgorgement;

(d) reimbursement of legal expenses incurred in pursuing class action suits under sections 37 and
245 by members, debenture-holders or depositors as may be sanctioned by the Tribunal; and

(e) any other purpose incidental thereto,

in accordance with such rules as may be prescribed:

Provided that the person whose amounts referred to in clauses (a) to (d) of sub-section (2) of section
205C transferred to Investor Education and Protection Fund, after the expiry of the period of seven years
as per provisions of the Companies Act, 1956 (1 of 1956), shall be entitled to get refund out of the Fund
in respect of such claims in accordance with rules made under this section

Explanation.—The disgorged amount refers to the amount received through disgorgement or disposal
of securities

(4) Any person claiming to be entitled to the amount referred in sub-section (2) may apply to the
authority constituted under sub-section (5) for the payment of the money claimed.

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(5) The Central Government shall constitute, by notification, an authority for administration of the
Fund consisting of a chairperson and such other members, not exceeding seven and a chief executive
officer, as the Central Government may appoint.

(6) The manner of administration of the Fund, appointment of chairperson, members and chief
executive officer, holding of meetings of the authority shall be in accordance with such rules as may be
prescribed.

(7) The Central Government may provide to the authority such offices, officers, employees and other
resources in accordance with such rules as may be prescribed.

(8) The authority shall administer the Fund and maintain separate accounts and other relevant records
in relation to the Fund in such form as may be prescribed after consultation with the Comptroller and
Auditor-General of India.

(9) It shall be competent for the authority constituted under sub-section (5) to spend money out of the
Fund for carrying out the objects specified in sub-section (3).

(10) The accounts of the Fund shall be audited by the Comptroller and Auditor-General of India at
such intervals as may be specified by him and such audited accounts together with the audit report
thereon shall be forwarded annually by the authority to the Central Government.

(11) The authority shall prepare in such form and at such time for each financial year as may be
prescribed its annual report giving a full account of its activities during the financial year and forward a
copy thereof to the Central Government and the Central Government shall cause the annual report and the
audit report given by the Comptroller and Auditor-General of India to be laid before each House of
Parliament.

126. Right to dividend, rights shares and bonus shares to be held in abeyance pending
registration of transfer of shares.—Where any instrument of transfer of shares has been delivered to
any company for registration and the transfer of such shares has not been registered by the company, it
shall, notwithstanding anything contained in any other provision of this Act,—

(a) transfer the dividend in relation to such shares to the Unpaid Dividend Account referred to in
section 124 unless the company is authorised by the registered holder of such shares in writing to pay
such dividend to the transferee specified in such instrument of transfer; and

(b) keep in abeyance in relation to such shares, any offer of rights shares under clause (a) of subsection
(1) of section 62 and any issue of fully paid-up bonus shares in pursuance of first proviso to
sub-section (5) of section 123

127. Punishment for failure to distribute dividends.—Where a dividend has been declared by a
company but has not been paid or the warrant in respect thereof has not been posted within thirty days
from the date of declaration to any shareholder entitled to the payment of the dividend, every director of
the company shall, if he is knowingly a party to the default, be punishable with imprisonment which may
extend to two years and with fine which shall not be less than one thousand rupees for every day during
which such default continues and the company shall be liable to pay simple interest at the rate of eighteen
per cent. per annum during the period for which such default continues:

Provided that no offence under this section shall be deemed to have been committed:—

(a) where the dividend could not be paid by reason of the operation of any law;

(b) where a shareholder has given directions to the company regarding the payment of the
dividend and those directions cannot be complied with and the same has been communicated to him;

(c) where there is a dispute regarding the right to receive the dividend;

(d) where the dividend has been lawfully adjusted by the company against any sum due to it from
the shareholder; or

(e) where, for any other reason, the failure to pay the dividend or to post the warrant within the
period under this section was not due to any default on the part of the company

79

CHAPTER IX

ACCOUNTS OF COMPANIES

128. Books of account, etc., to be kept by company.—(1) Every company shall prepare and keep at
its registered office books of account and other relevant books and papers and financial statement for
every financial year which give a true and fair view of the state of the affairs of the company, including
that of its branch office or offices, if any, and explain the transactions effected both at the registered office
and its branches and such books shall be kept on accrual basis and according to the double entry system
of accounting:

Provided that all or any of the books of account aforesaid and other relevant papers may be kept at
such other place in India as the Board of Directors may decide and where such a decision is taken, the
company shall, within seven days thereof, file with the Registrar a notice in writing giving the full address
of that other place:

Provided further that the company may keep such books of account or other relevant papers in
electronic mode in such manner as may be prescribed.

(2) Where a company has a branch office in India or outside India, it shall be deemed to have
complied with the provisions of sub-section (1), if proper books of account relating to the transactions
effected at the branch office are kept at that office and proper summarized returns periodically are sent by
the branch office to the company at its registered office or the other place referred to in sub-section (1).

(3) The books of account and other books and papers maintained by the company within India shall
be open for inspection at the registered office of the company or at such other place in India by any
director during business hours, and in the case of financial information, if any, maintained outside the
country, copies of such financial information shall be maintained and produced for inspection by any
director subject to such conditions as may be prescribed:

Provided that the inspection in respect of any subsidiary of the company shall be done only by the
person authorised in this behalf by a resolution of the Board of Directors

(4) Where an inspection is made under sub-section (3), the officers and other employees of the
company shall give to the person making such inspection all assistance in connection with the inspection
which the company may reasonably be expected to give.

(5) The books of account of every company relating to a period of not less than eight financial years
immediately preceding a financial year, or where the company had been in existence for a period less than
eight years, in respect of all the preceding years together with the vouchers relevant to any entry in such
books of account shall be kept in good order:

Provided that where an investigation has been ordered in respect of the company under Chapter XIV,
the Central Government may direct that the books of account may be kept for such longer period as it
may deem fit.

(6) If the managing director, the whole-time director in charge of finance, the Chief Financial Officer
or any other person of a company charged by the Board with the duty of complying with the provisions of
this section, contravenes such provisions, such managing director, whole-time director in charge of
finance, Chief Financial officer or such other person of the company shall be punishable with
imprisonment for a term which may extend to one year or with fine which shall not be less than fifty
thousand rupees but which may extend to five lakh rupees or with both.

129. Financial statement.— (1) The financial statements shall give a true and fair view of the state
of affairs of the company or companies, comply with the accounting standards notified under section 133
and shall be in the form or forms as may be provided for different class or classes of companies in
Schedule III:

Provided that the items contained in such financial statements shall be in accordance with the
accounting standards:

80

Provided further that nothing contained in this sub-section shall apply to any insurance or banking
company or any company engaged in the generation or supply of electricity, or to any other class of
company for which a form of financial statement has been specified in or under the Act governing such
class of company:

Provided also that the financial statements shall not be treated as not disclosing a true and fair
view
of the state of affairs of the company, merely by reason of the fact that they do not disclose—

(a) in the case of an insurance company, any matters which are not required to be disclosed by the
Insurance Act, 1938 (4 of 1938), or the Insurance Regulatory and Development Authority Act, 1999(41 of 1999);

(b) in the case of a banking company, any matters which are not required to be disclosed by the
Banking Regulation Act, 1949 (10 of 1949);

(c) in the case of a company engaged in the generation or supply of electricity, any matters which
are not required to be disclosed by the Electricity Act, 2003 (36 of 2003);

(d) in the case of a company governed by any other law for the time being in force, any matters
which are not required to be disclosed by that law.

(2) At every annual general meeting of a company, the Board of Directors of the company shall lay
before such meeting financial statements for the financial year.

(3) Where a company has one or more subsidiaries, it shall, in addition to financial statements
provided under sub-section (2), prepare a consolidated financial statement of the company and of all the
subsidiaries in the same form and manner as that of its own which shall also be laid before the annual
general meeting of the company along with the laying of its financial statement under sub-section (2):

Provided that the company shall also attach along with its financial statement, a separate statement
containing the salient features of the financial statement of its subsidiary or subsidiaries in such form as
may be prescribed:

Provided further that the Central Government may provide for the consolidation of accounts of
companies in such manner as may be prescribed.

Explanation.—For the purposes of this sub-section, the word ―subsidiary‖ shall include associate
company and joint venture

(4) The provisions of this Act applicable to the preparation, adoption and audit of the financial
statements of a holding company shall, mutatis mutandis, apply to the consolidated financial statements
referred to in sub-section (3).

(5) Without prejudice to sub-section (1), where the financial statements of a company do not comply
with the accounting standards referred to in sub-section (1), the company shall disclose in its financial
statements, the deviation from the accounting standards, the reasons for such deviation and the financial
effects, if any, arising out of such deviation.

(6) The Central Government may, on its own or on an application by a class or classes of companies,
by notification, exempt any class or classes of companies from complying with any of the requirements of
this section or the rules made thereunder, if it is considered necessary to grant such exemption in the
public interest and any such exemption may be granted either unconditionally or subject to such
conditions as may be specified in the notification

(7) If a company contravenes the provisions of this section, the managing director, the whole-time
director in charge of finance, the Chief Financial Officer or any other person charged by the Board with
the duty of complying with the requirements of this section and in the absence of any of the officers
mentioned above, all the directors shall be punishable with imprisonment for a term which may extend to
one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh
rupees, or with both

Explanation.—For the purposes of this section, except where the context otherwise requires, any
reference to the financial statement shall include any notes annexed to or forming part of such financial

81

statement, giving information required to be given and allowed to be given in the form of such notes
under this Act

130. Re-opening of accounts on court‘s or Tribunal‘s orders.— (1) A company shall not re-open
its books of account and not recast its financial statements, unless an application in this regard is made by
the Central Government, the Income-tax authorities, the Securities and Exchange Board, any other
statutory regulatory body or authority or any person concerned and an order is made by a court of
competent jurisdiction or the Tribunal to the effect that—

(i) the relevant earlier accounts were prepared in a fraudulent manner; or

(II) the affairs of the company were mismanaged during the relevant period, casting a doubt on
the reliability of financial statements:

Provided that the court or the Tribunal, as the case may be, shall give notice to the Central
Government, the Income-tax authorities, the Securities and Exchange Board or any other statutory
regulatory body or authority concerned and shall take into consideration the representations, if any,
made by that Government or the authorities, Securities and Exchange Board or the body or authority
concerned before passing any order under this section.

(2) Without prejudice to the provisions contained in this Act the accounts so revised or re-cast under
sub-section (1) shall be final.

131. Voluntary revision of financial statements or Board‘s report.—(1) If it appears to the
directors of a company that—

(a) the financial statement of the company; or

(b) the report of the Board,

do not comply with the provisions of section 129 or section 134 they may prepare revised financial
statement or a revised report in respect of any of the three preceding financial years after obtaining
approval of the Tribunal on an application made by the company in such form and manner as may be
prescribed and a copy of the order passed by the Tribunal shall be filed with the Registrar

Provided that the Tribunal shall give notice to the Central Government and the Income-tax authorities
and shall take into consideration the representations, if any, made by that Government or the authorities
before passing any order under this section:

Provided further that such revised financial statement or report shall not be prepared or filed more
than once in a financial year:

Provided also that the detailed reasons for revision of such financial statement or report shall also be
disclosed in the Board's report in the relevant financial year in which such revision is being made

(2) Where copies of the previous financial statement or report have been sent out to members or
delivered to the Registrar or laid before the company in general meeting, the revisions must be confined
to—

(a) the correction in respect of which the previous financial statement or report do not comply
with the provisions of section 129 or section 134; and

(b) the making of any necessary consequential alternation.

(3) The Central Government may make rules as to the application of the provisions of this Act in
relation to revised financial statement or a revised director's report and such rules may, in particular—

(a) make different provisions according to which the previous financial statement or report are
replaced or are supplemented by a document indicating the corrections to be made;

(b) make provisions with respect to the functions of the company's auditor in relation to the revised financial statement or report;

(c) require the directors to take such steps as may be prescribed.

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132. Constitution of Natural Financial Reporting Authority.— (1) The Central Government may,
by notification, constitute a National Financial Reporting Authority to provide for matters relating to
accounting and auditing standards under this Act.

(2) Notwithstanding anything contained in any other law for the time being in force, the National
Financial Reporting Authority shall—

(a) make recommendations to the Central Government on the formulation and laying down of
accounting and auditing policies and standards for adoption by companies or class of companies or
their auditors, as the case may be;

(b) monitor and enforce the compliance with accounting standards and auditing standards in such
manner as may be prescribed;

(c) oversee the quality of service of the professions associated with ensuring compliance with
such standards, and suggest measures required for improvement in quality of service and such other
related matters as may be prescribed; and

(d) perform such other functions relating to clauses (a), (b) and (c) as may be prescribed.

(3) The National Financial Reporting Authority shall consist of a chairperson, who shall be a person
of eminence and having expertise in accountancy, auditing, finance or law to be appointed by the Central
Government and such other members not exceeding fifteen consisting of part-time and full-time members
as may be prescribed:

Provided that the terms and conditions and the manner of appointment of the chairperson and
members shall be such as may be prescribed:

Provided further that the chairperson and members shall make a declaration to the Central
Government in the prescribed form regarding no conflict of interest or lack of independence in respect of
his or their appointment:

Provided also that the chairperson and members, who are in full-time employment with National
Financial Reporting Authority shall not be associated with any audit firm (including related consultancy
firms) during the course of their appointment and two years after ceasing to hold such appointment.

(4) Notwithstanding anything contained in any other law for the time being in force, the National
Financial Reporting Authority shall—

(a) have the power to investigate, either suo motu or on a reference made to it by the Central
Government, for such class of bodies corporate or persons, in such manner as may be prescribed into
the matters of professional or other misconduct committed by any member or firm of chartered
accountants, registered under the Chartered Accountants Act, 1949 ( 38 of 1949):

Provided that no other institute or body shall initiate or continue any proceedings in such matters
of misconduct where the National Financial Reporting Authority has initiated an investigation under
this section;

(b) have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908),
while trying a suit, in respect of the following matters, namely:—

(i) discovery and production of books of account and other documents, at such place and at
such time as may be specified by the National Financial Reporting Authority;

(II) summoning and enforcing the attendance of persons and examining them on oath;

(III) inspection of any books, registers and other documents of any person referred to in
clause (b) at any place;

(IV) issuing commissions for examination of witnesses or documents;

(c) where professional or other misconduct is proved, have the power to make order for—

(A) imposing penalty of—

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(I) not less than one lakh rupees, but which may extend to five times of the fees received,
in case of individuals; and

(II) not less than ten lakh rupees, but which may extend to ten times of the fees received,
in case of firms;

(B) debarring the member or the firm from engaging himself or itself from practice as
member of the Institute of Chartered Accountant of India referred to in clause (e) of sub-section
(1) of section 2 of the Chartered Accountants Act, 1949 (38 of 1949) for a minimum period of six
months or for such higher period not exceeding ten years as may be decided by the National
Financial Reporting Authority

Explanation.—For the purposes of this sub-section, the expression "professional or other misconduct"
shall have the same meaning assigned to it under section 22 of the Chartered Accountants Act, 1949 ( 38
of 1949).

(5) Any person aggrieved by any order of the National Financial Reporting Authority issued under
clause (c) of sub-section (4), may prefer an appeal before the Appellate Authority constituted under subsection
(6) in such manner as may be prescribed.

(6) The Central Government may, by notification, constitute, with effect from such date as may be
specified therein, an Appellate Authority consisting of a chairperson and not more then two other
members, to be appointed by the Central Government, for hearing appeals arising out of the orders of the
National Financial Reporting Authority

(7) The qualifications for appointment of the chairperson and members of the Appellate Authority,
the manner of selection, the terms and conditions of their service and the requirement of the supporting
staff and procedure (including places of hearing the appeals, form and manner in which the appeals shall
be filed) to be followed by the Appellate Authority shall be such as may be prescribed.

(8) The fee for filing the appeal shall be such as may be prescribed.

(9) The officer authorised by the Appellate Authority shall prepare in such form and at such time as
may be prescribed its annual report giving a full account of its activities and forward a copy thereof to the
Central Government and the Central Government shall cause the annual report to be laid before each
House of Parliament.

(10) The National Financial Reporting Authority shall meet at such times and places and shall
observe such rules of procedure in regard to the transaction of business at its meetings in such manner as
may be prescribed

(11) The Central Government may appoint a secretary and such other employees as it may consider
necessary for the efficient performance of functions by the National Financial Reporting Authority under
this Act and the terms and conditions of service of the secretary and employees shall be such as may be
prescribed.

(12) The head office of the National Financial Reporting Authority shall be at New Delhi and the
National Financial Reporting Authority may, meet at such other places in India as it deems fit.

(13) The National Financial Reporting Authority shall cause to be maintained such books of account
and other books in relation to its accounts in such form and in such manner as the Central Government
may, in consultation with the Comptroller and Auditor-General of India prescribe.

(14) The accounts of the National Financial Reporting Authority shall be audited by the Comptroller
and Auditor-General of India at such intervals as may be specified by him and such accounts as certified
by the Comptroller and Auditor-General of India together with the audit report thereon shall be forwarded
annually to the Central Government by the National Financial Reporting Authority.

(15) The National Financial Reporting Authority shall prepare in such form and at such time for each
financial year as may be prescribed its annual report giving a full account of its activities during the
financial year and forward a copy thereof to the Central Government and the Central Government shall

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cause the annual report and the audit report given by the Comptroller and Auditor-General of India to be
laid before each House of Parliament.

133. Central Government to prescribe accounting standards.— The Central Government may
prescribe the standards of accounting or any addendum thereto, as recommended by the Institute of
Chartered Accountants of India, constituted under section 3 of the Chartered Accountants Act, 1949 (38
of 1949), in consultation with and after examination of the recommendations made by the National
Financial Reporting Authority.

134. Financial statement, Board‘s report, etc.— (1) The financial statement, including consolidated
financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf
of the Board at least by the chairperson of the company where he is authorised by the Board or by two
directors out of which one shall be managing director and the Chief Executive Officer, if he is a director
in the company, the Chief Financial Officer and the company secretary of the company, wherever they are
appointed, or in the case of a One Person Company, only by one director, for submission to the auditor
for his report thereon

(3) There shall be attached to statements laid before a company in general meeting, a report by its
Board of Directors, which shall include—

(a) the extract of the annual return as provided under sub-section (3) of section 92;

(b) number of meetings of the Board;

(c) Directors‘ Responsibility Statement;

1[(ca) details in respect of frauds reported by auditors under sub-section (12) of section 143 other
than those which are reportable to the Central Government;]

(d) a statement on declaration given by independent directors under sub-section (6) of section
149;

(e) in case of a company covered under sub-section (1) of section 178, company‘s policy on
directors‘ appointment and remuneration including criteria for determining qualifications, positive
attributes, independence of a director and other matters provided under sub-section (3) of section 178;

(f) explanations or comments by the Board on every qualification, reservation or adverse remark
or disclaimer made—

(i) by the auditor in his report; and

(II) by the company secretary in practice in his secretarial audit report;

(g) particulars of loans, guarantees or investments under section 186;

(h) particulars of contracts or arrangements with related parties referred to in sub-section (1) of
section 188 in the prescribed form;

(i) the state of the company‘s affairs;

(j) the amounts, if any, which it proposes to carry to any reserves;

(k) the amount, if any, which it recommends should be paid by way of dividend;

(l) material changes and commitments, if any, affecting the financial position of the company
which have occurred between the end of the financial year of the company to which the financial
statements relate and the date of the report;

(m) the conservation of energy, technology absorption, foreign exchange earnings and outgo, in
such manner as may be prescribed;

__________________

1. Ins. by Act 21 of 2015, s. 12 (w.e.f. 29-5-2015).

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(n) a statement indicating development and implementation of a risk management policy for the
company including identification therein of elements of risk, if any, which in the opinion of the Board
may threaten the existence of the company;

(o) the details about the policy developed and implemented by the company on corporate social
responsibility initiatives taken during the year;

p) in case of a listed company and every other public company having such paid-up share capital
as may be prescribed, a statement indicating the manner in which formal annual evaluation has been
made by the Board of its own performance and that of its committees and individual directors;

(q) such other matters as may be prescribed.

(4) The report of the Board of Directors to be attached to the financial statement under this section
shall, in case of a One Person Company, mean a report containing explanations or comments by the
Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his
report

(5) The Directors‘ Responsibility Statement referred to in clause (c) of sub-section (3) shall state
that—

(a) in the preparation of the annual accounts, the applicable accounting standards had been
followed along with proper explanation relating to material departures;

(b) the directors had selected such accounting policies and applied them consistently and made
judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state
of affairs of the company at the end of the financial year and of the profit and loss of the company for
that period;

(c) the directors had taken proper and sufficient care for the maintenance of adequate accounting
records in accordance with the provisions of this Act for safeguarding the assets of the company and
for preventing and detecting fraud and other irregularities;

(d) the directors had prepared the annual accounts on a going concern basis; and

(e) the directors, in the case of a listed company, had laid down internal financial controls to be
followed by the company and that such internal financial controls are adequate and were operating
effectively

Explanation.—For the purposes of this clause, the term ―internal financial controls‖ means the
policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its
business, including adherence to company‘s policies, the safeguarding of its assets, the prevention
and detection of frauds and errors, the accuracy and completeness of the accounting records, and the
timely preparation of reliable financial information;

(f) the directors had devised proper systems to ensure compliance with the provisions of all
applicable laws and that such systems were adequate and operating effectively

(6) The Board‘s report and any annexures thereto under sub-section (3) shall be signed by its
chairperson of the company if he is authorised by the Board and where he is not so authorised, shall be
signed by at least two directors, one of whom shall be a managing director, or by the director where there
is one director.

(7) A signed copy of every financial statement, including consolidated financial statement, if any,
shall be issued, circulated or published along with a copy each of—

(a) any notes annexed to or forming part of such financial statement;

(b) the auditor‘s report; and

(c) the Board‘s report referred to in sub-section (3).

(8) If a company contravenes the provisions of this section, the company shall be punishable with fine
which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and

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every officer of the company who is in default shall be punishable with imprisonment for a term which
may extend to three years or with fine which shall not be less than fifty thousand rupees but which may
extend to five lakh rupees, or with both.

135. Corporate Social Responsibility.— (1) 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

(2) The Board's report under sub-section (3) of section 134 shall disclose the composition of the
Corporate Social Responsibility Committee.

(3) The Corporate Social Responsibility Committee shall,—

(a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall
indicate the activities to be undertaken by the company as specified in Schedule VII;

(b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a);
and

(c) monitor the Corporate Social Responsibility Policy of the company from time to time.

(4) The Board of every company referred to in sub-section (1) shall,—

(a) after taking into account the recommendations made by the Corporate Social Responsibility
Committee, approve the Corporate Social Responsibility Policy for the company and disclose
contents of such Policy in its report and also place it on the company's website, if any, in such manner
as may be prescribed; and

(b) ensure that the activities as are included in Corporate Social Responsibility Policy of the
company are undertaken by the company

(5) The Board of every company referred to in sub-section (1), shall ensure that the company spends,
in every financial year, at least two per cent. of the average net profits of the company made during the
three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:

Provided that the company shall give preference to the local area and areas around it where it
operates, for spending the amount earmarked for Corporate Social Responsibility activities:

Provided further that if the company fails to spend such amount, the Board shall, in its report made
under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.

Explanation.—For the purposes of this section ―average net profit‖ shall be calculated in accordance
with the provisions of section 198.

136. Right of member to copies of audited financial statement.— (1) Without prejudice to the
provisions of section 101, a copy of the financial statements, including consolidated financial statements,
if any, auditor‘s report and every other document required by law to be annexed or attached to the
financial statements, which are to be laid before a company in its general meeting, shall be sent to every
member of the company, to every trustee for the debenture-holder of any debentures issued by the
company, and to all persons other than such member or trustee, being the person so entitled, not less than
twenty-one days before the date of the meeting:

Provided that in the case of a listed company, the provisions of this sub-section shall be deemed to be
complied with, if the copies of the documents are made available for inspection at its registered office
during working hours for a period of twenty-one days before the date of the meeting and a statement
containing the salient features of such documents in the prescribed form or copies of the documents, as
the company may deem fit, is sent to every member of the company and to every trustee for the holders of
any debentures issued by the company not less than twenty-one days before the date of the meeting unless
the shareholders ask for full financial statements:

Provided further that the Central Government may prescribe the manner of circulation of financial
statements of companies having such net worth and turnover as may be prescribed:

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Provided also that a listed company shall also place its financial statements including consolidated
financial statements, if any, and all other documents required to be attached thereto, on its website, which
is maintained by or on behalf of the company:

Provided also that every company having a subsidiary or subsidiaries shall,—

(a) place separate audited accounts in respect of each of its subsidiary on its website, if any;

(b) provide a copy of separate audited financial statements in respect of each of its subsidiary, to
any shareholder of the company who asks for it.

(2) A company shall allow every member or trustee of the holder of any debentures issued by the
company to inspect the documents stated under sub-section (1) at its registered office during business
hours

(3) If any default is made in complying with the provisions of this section, the company shall be liable
to a penalty of twenty-five thousand rupees and every officer of the company who is in default shall be
liable to a penalty of five thousand rupees

137. Copy of financial statement to be filed with Registrar.— (1) A copy of the financial
statements, including consolidated financial statement, if any, along with all the documents which are
required to be or attached to such financial statements under this Act, duly adopted at the annual general
meeting of the company, shall be filed with the Registrar within thirty days of the date of annual general
meeting in such manner, with such fees or additional fees as may be prescribed within the time specified
under section 403:

Provided that where the financial statements under sub-section (1) are not adopted at annual general
meeting or adjourned annual general meeting, such unadopted financial statements along with the
required documents under sub-section (1) shall be filed with the Registrar within thirty days of the date of
annual general meeting and the Registrar shall take them in his records as provisional till the financial
statements are filed with him after their adoption in the adjourned annual general meeting for that
purpose:

Provided further that financial statements adopted in the adjourned annual general meeting shall be
filed with the Registrar within thirty days of the date of such adjourned annual general meeting with such
fees or such additional fees as may be prescribed within the time specified under section 403:

Provided also that a One Person Company shall file a copy of the financial statements duly adopted
by its member, along with all the documents which are required to be attached to such financial
statements, within one hundred eighty days from the closure of the financial year:

Provided also that a company shall, along with its financial statements to be filed with the Registrar,
attach the accounts of its subsidiary or subsidiaries which have been incorporated outside India and which
have not established their place of business in India

(2) Where the annual general meeting of a company for any year has not been held, the financial
statements along with the documents required to be attached under sub-section (1), duly signed along with
the statement of facts and reasons for not holding the annual
general meeting shall be filed with the
Registrar within thirty days of the last date before which the annual general meeting should have been
held and in such manner, with such fees or additional fees as may be prescribed within the time specified,under section 403.

(3) If a company fails to file the copy of the financial statements under sub-section (1) or sub-section
(2), as the case may be, before the expiry of the period specified in section 403, the company shall be
punishable with fine of one thousand rupees for every day during which the failure continues but which
shall not be more than ten lakh rupees, and the managing director and the Chief Financial Officer of the
company, if any, and, in the absence of the managing director and the Chief Financial Officer, any other
director who is charged by the Board with the responsibility of complying with the provisions of this
section, and, in the absence of any such director, all the directors of the company, shall be punishable with
imprisonment for a term which may extend to six months or with fine which shall not be less than one
lakh rupees but which may extend to five lakh rupees, or with both.

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138. Internal audit.— (1) Such class or classes of companies as may be prescribed shall be required
to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant, or such
other professional as may be decided by the Board to conduct internal audit of the functions and activities
of the company

(2) The Central Government may, by rules, prescribe the manner and the intervals in which the
internal audit shall be conducted and reported to the Board.

CHAPTER X

AUDIT AND AUDITORS

139. Appointment of auditors.— (1) Subject to the provisions of this Chapter, every company shall,
at the first annual general meeting, appoint an individual or a firm as an auditor who shall hold office
from the conclusion of that meeting till the conclusion of its sixth annual general meeting and thereafter
till the conclusion of every sixth meeting and the manner and procedure of selection of auditors by the
members of the company at such meeting shall be such as may be prescribed:

Provided that the company shall place the matter relating to such appointment for ratification by
members at every annual general meeting:

Provided further that before such appointment is made, the written consent of the auditor to such
appointment, and a certificate from him or it that the appointment, if made, shall be in accordance with
the conditions as may be prescribed, shall be obtained from the auditor:

Provided also that the certificate shall also indicate whether the auditor satisfies the criteria provided
in section 141:

Provided also that the company shall inform the auditor concerned of his or its appointment, and also
file a notice of such appointment with the Registrar within fifteen days of the meeting in which the
auditor is appointed.

Explanation.—For the purposes of this Chapter, ―appointment‖ includes re-appointment.

(2) No listed company or a company belonging to such class or classes of companies as may be
prescribed, shall appoint or re-appoint—

(a) an individual as auditor for more than one term of five consecutive years; and

(b) an audit firm as auditor for more than two terms of five consecutive years:
Provided that—

(i) an individual auditor who has completed his term under clause (a) shall not be eligible for
re-appointment as auditor in the same company for five years from the completion of his term;

(II) an audit firm which has completed its term under clause (b), shall not be eligible for reappointment
as auditor in the same company for five years from the completion of such term:

Provided further that as on the date of appointment no audit firm having a common partner or partners
to the other audit firm, whose tenure has expired in a company immediately preceding the financial year,
shall be appointed as auditor of the same company for a period of five years:

Provided also that every company, existing on or before the commencement of this Act which is
required to comply with provisions of this sub-section, shall comply with the requirements of this subsection
within three years from the date of commencement of this Act:

Provided also that, nothing contained in this sub-section shall prejudice the right of the company to
remove an auditor or the right of the auditor to resign from such office of the company.

(3) Subject to the provisions of this Act, members of a company may resolve to provide that—

(a) in the audit firm appointed by it, the auditing partner and his team shall be rotated at such
intervals as may be resolved by members; or

(b) the audit shall be conducted by more than one auditor.

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(4) The Central Government may, by rules, prescribe the manner in which the companies shall rotate
their auditors in pursuance of sub-section (2).

Explanation.—For the purposes of this Chapter, the word ―firm‖ shall include a limited liability
partnership incorporated under the Limited Liability Partnership Act, 2008 (6 of 2009)

(5) Notwithstanding anything contained in sub-section (1), in the case of a Government company or
any other company owned or controlled, directly or indirectly, by the Central Government, or by any
State Government or Governments, or partly by the Central Government and partly by one or more State
Governments, the Comptroller and Auditor-General of India shall, in respect of a financial year, appoint
an auditor duly qualified to be appointed as an auditor of companies under this Act, within a period of one
hundred and eighty days from the commencement of the financial year, who shall hold office till the
conclusion of the annual general meeting

(6) Notwithstanding anything contained in sub-section (1), the first auditor of a company, other than a
Government company, shall be appointed by the Board of Directors within thirty days from the date of
registration of the company and in the case of failure of the Board to appoint such auditor, it shall inform
the members of the company, who shall within ninety days at an extraordinary general meeting appoint
such auditor and such auditor shall hold office till the conclusion of the first annual general meeting

(7) Notwithstanding anything contained in sub-section (1) or sub-section (5), in the case of a
Government company or any other company owned or controlled, directly or indirectly, by the Central
Government, or by any State Government, or Governments, or partly by the Central Government and
partly by one or more State Governments, the first auditor shall be appointed by the Comptroller and
Auditor-General of India within sixty days from the date of registration of the company and in case the
Comptroller and Auditor-General of India does not appoint such auditor within the said period, the Board
of Directors of the company shall appoint such auditor within the next thirty days; and in the case of
failure of the Board to appoint such auditor within the next thirty days, it shall inform the members of the
company who shall appoint such auditor within the sixty days at an extraordinary general meeting, who
shall hold office till the conclusion of the first annual general meeting.

(8) Any casual vacancy in the office of an auditor shall—

(i) in the case of a company other than a company whose accounts are subject to audit by an
auditor appointed by the Comptroller and Auditor-General of India, be filled by the Board of
Directors within thirty days, but if such casual vacancy is as a result of the resignation of an auditor,
such appointment shall also be approved by the company at a general meeting convened within three
months of the recommendation of the Board and he shall hold the office till the conclusion of the next
annual general meeting;

(II) in the case of a company whose accounts are subject to audit by an auditor appointed by the
Comptroller and Auditor-General of India, be filled by the Comptroller and Auditor-General of India
within thirty days

Provided that in case the Comptroller and Auditor-General of India does not fill the vacancy
within the said period, the Board of Directors shall fill the vacancy within next thirty days.

(9) Subject to the provisions of sub-section (1) and the rules made thereunder, a retiring auditor may
be re-appointed at an annual general meeting, if—

(a) he is not disqualified for re-appointment;

(b) he has not given the company a notice in writing of his unwillingness to be re-appointed; and

(c) a special resolution has not been passed at that meeting appointing some other auditor or
providing expressly that he shall not be re-appointed

(10) Where at any annual general meeting, no auditor is appointed or re-appointed, the existing
auditor shall continue to be the auditor of the company.

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(11) Where a company is required to constitute an Audit Committee under section 177, all
appointments, including the filling of a casual vacancy of an auditor under this section shall be made after
taking into account the recommendations of such committee.

140. Removal, resignation of auditor and giving of special notice.— (1) The auditor appointed
under section 139 may be removed from his office before the expiry of his term only by a special
resolution of the company, after obtaining the previous approval of the Central Government in that behalf
in the prescribed manner:

Provided that before taking any action under this sub-section, the auditor concerned shall be given a
reasonable opportunity of being heard.

(2) The auditor who has resigned from the company shall file within a period of thirty days from the
date of resignation, a statement in the prescribed form with the company and the Registrar, and in case of
companies referred to in sub-section (5) of section 139, the auditor shall also file such statement with the
Comptroller and Auditor-General of India, indicating the reasons and other facts as may be relevant with
regard to his resignation

(3) If the auditor does not comply with sub-section (2), he or it shall be punishable with fine which
shall not be less than fifty thousand rupees but which may extend to five lakh rupees.

(4) (i) Special notice shall be required for a resolution at an annual general meeting appointing as
auditor a person other than a retiring auditor, or providing expressly that a retiring auditor shall not be reappointed,
except where the retiring auditor has completed a consecutive tenure of five years or, as the
case may be, ten years, as provided under sub-section (2) of section 139.

(II) On receipt of notice of such a resolution, the company shall forthwith send a copy thereof to the
retiring auditor

(III) Where notice is given of such a resolution and the retiring auditor makes with respect thereto
representation in writing to the company (not exceeding a reasonable length) and requests its notification
to members of the company, the company shall, unless the representation is received by it too late for it todo so,—

(a) in any notice of the resolution given to members of the company, state the fact of the
representation having been made; and

(b) send a copy of the representation to every member of the company to whom notice of the
meeting is sent, whether before or after the receipt of the representation by the company,

and if a copy of the representation is not sent as aforesaid because it was received too late or because of
the company‘s default, the auditor may (without prejudice to his right to be heard orally) require that the
representation shall be read out at the meeting:

Provided that if a copy of representation is not sent as aforesaid, a copy thereof shall be filed with the
Registrar:

Provided further that if the Tribunal is satisfied on an application either of the company or of any
other aggrieved person that the rights conferred by this sub-section are being abused by the auditor, then,
the copy of the representation may not be sent and the representation need not be read out at the meeting.

(5) Without prejudice to any action under the provisions of this Act or any other law for the time
being in force, the Tribunal either suo motu or on an application made to it by the Central Government or
by any person concerned, if it is satisfied that the auditor of a company has, whether directly or indirectly,
acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its
directors or officers, it may, by order, direct the company to change its auditors:

Provided that if the application is made by the Central Government and the Tribunal is satisfied that
any change of the auditor is required, it shall within fifteen days of receipt of such application, make an
order that he shall not function as an auditor and the Central Government may appoint another auditor in
his place:

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Provided further that an auditor, whether individual or firm, against whom final order has been passed
by the Tribunal under this section shall not be eligible to be appointed as an auditor of any company for a
period of five years from the date of passing of the order and the auditor shall also be liable for action
under section 447.

Explanation I.—It is hereby clarified that the case of a firm, the liability shall be of the firm and that
of every partner or partners who acted in a fraudulent manner or abetted or colluded in any fraud by, or in
relation to, the company or its director or officers

Explanation II.—For the purposes of this Chapter the word ―auditor‖ includes a firm of auditors.

141. Eligibility, qualifications and disqualifications of auditors.— (1) A person shall be eligible<
for appointment as an auditor of a company only if he is a chartered accountant:

Provided that a firm whereof majority of partners practising in India are qualified for appointment as
aforesaid may be appointed by its firm name to be auditor of a company

(2) Where a firm including a limited liability partnership is appointed as an auditor of a company,
only the partners who are chartered accountants shall be authorised to act and sign on behalf of the firm

(3) The following persons shall not be eligible for appointment as an auditor of a company, namely:—

(a) a body corporate other than a limited liability partnership registered under the Limited
Liability Partnership Act, 2008 (6 of 2009);

(b) an officer or employee of the company;

(c) a person who is a partner, or who is in the employment, of an officer or employee of the company;

(d) a person who, or his relative or partner—

(i) is holding any security of or interest in the company or its subsidiary, or of its holding or
associate company or a subsidiary of such holding company:

Provided that the relative may hold security or interest in the company of face value not
exceeding one thousand rupees or such sum as may be prescribed;

(II) is indebted to the company, or its subsidiary, or its holding or associate company or a
subsidiary of such holding company, in excess of such amount as may be prescribed; or

(III) has given a guarantee or provided any security in connection with the indebtedness of
any third person to the company, or its subsidiary, or its holding or associate company or a
subsidiary of such holding company, for such amount as may be prescribed;

(e) a person or a firm who, whether directly or indirectly, has business relationship with the
company, or its subsidiary, or its holding or associate company or subsidiary of such holding
company or associate company of such nature as may be prescribed

(f) a person whose relative is a director or is in the employment of the company as a director or
key managerial personnel;

(g) a person who is in full time employment elsewhere or a person or a partner of a firm holding
appointment as its auditor, if such persons or partner is at the date of such appointment or
reappointment holding appointment as auditor of more than twenty companies;

(h) a person who has been convicted by a court of an offence involving fraud and a period of ten
years has not elapsed from the date of such conviction;

(i) any person whose subsidiary or associate company or any other form of entity, is engaged as
on the date of appointment in consulting and specialised services as provided in section 144.

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(4) Where a person appointed as an auditor of a company incurs any of the disqualifications
mentioned in sub-section (3) after his appointment, he shall vacate his office as such auditor and such
vacation shall be deemed to be a casual vacancy in the office of the auditor.

142. Remuneration of auditors.— (1) The remuneration of the auditor of a company shall be fixed
in its general meeting or in such manner as may be determined therein:

Provided that the Board may fix remuneration of the first auditor appointed by it.

(2) The remuneration under sub-section (1) shall, in addition to the fee payable to an auditor, include
the expenses, if any, incurred by the auditor in connection with the audit of the company and any facility
extended to him but does not include any remuneration paid to him for any other service rendered by him
at the request of the company.

143. Powers and duties of auditors and auditing standards.— (1) Every auditor of a company
shall have a right of access at all times to the books of account and vouchers of the company, whether
kept at the registered office of the company or at any other place and shall be entitled to require from the
officers of the company such information and explanation as he may consider necessary for the
performance of his duties as auditor and amongst other matters inquire into the following matters,
namely:—

(a) whether loans and advances made by the company on the basis of security have been properly
secured and whether the terms on which they have been made are prejudicial to the interests of the
company or its members;

(b) whether transactions of the company which are represented merely by book entries are
prejudicial to the interests of the company;

(c) where the company not being an investment company or a banking company, whether so
much of the assets of the company as consist of shares, debentures and other securities have been sold
at a price less than that at which they were purchased by the company;

(d) whether loans and advances made by the company have been shown as deposits;

(e) whether personal expenses have been charged to revenue account;

(f) where it is stated in the books and documents of the company that any shares have been
allotted for cash, whether cash has actually been received in respect of such allotment, and if no cash
has actually been so received, whether the position as stated in the account books and the balance
sheet is correct, regular and not misleading:

Provided that the auditor of a company which is a holding company shall also have the right of access
to the records of all its subsidiaries in so far as it relates to the consolidation of its financial statements,
with that of its subsidiaries.

(2) The auditor shall make a report to the members of the company on the accounts examined by him
and on every financial statements which are required by or under this Act to be laid before the company
in general meeting and the report shall after taking into account the provisions of this Act, the accounting
and auditing standards and matters which are required to be included in the audit report under the
provisions of this Act or any rules made thereunder or under any order made under sub-section (11) and
to the best of his information and knowledge, the said accounts, financial statements give a true and fair
view of the state of the company‘s affairs as at the end of its financial year and profit or loss and cash
flow for the year and such other matters as may be prescribed

(3) The auditor‘s report shall also state—

(a) whether he has sought and obtained all the information and explanations which to the best of
his knowledge and belief were necessary for the purpose of his audit and if not, the details thereof and
the effect of such information on the financial statements;

(b) whether, in his opinion, proper books of account as required by law have been kept by the
company so far as appears from his examination of those books and proper returns adequate for the
purposes of his audit have been received from branches not visited by him;

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(c) whether the report on the accounts of any branch office of the company audited under subsection
(8) by a person other than the company‘s auditor has been sent to him under the proviso to
that sub-section and the manner in which he has dealt with it in preparing his report;

(d) whether the company‘s balance sheet and profit and loss account dealt with in the report are in
agreement with the books of account and returns;

(e) whether, in his opinion, the financial statements comply with the accounting standards;

(f) the observations or comments of the auditors on financial transactions or matters which have
any adverse effect on the functioning of the company;

(g) whether any director is disqualified from being appointed as a director under sub-section (2)of section 164;

(h) any qualification, reservation or adverse remark relating to the maintenance of accounts and
other matters connected therewith;

(i) whether the company has adequate internal financial controls system in place and the
operating effectiveness of such controls;

(j) such other matters as may be prescribed.

(4) Where any of the matters required to be included in the audit report under this section is answered
in the negative or with a qualification, the report shall state the reasons therefor.

(5) In the case of a Government company, the Comptroller and Auditor-General of India shall appoint
the auditor under sub-section (5) or sub-section (7) of section 139 and direct such auditor the manner in
which the accounts of the Government company are required to be audited and thereupon the auditor so
appointed shall submit a copy of the audit report to the Comptroller and Auditor-General of India which,
among other things, include the directions, if any, issued by the Comptroller and Auditor-General of
India, the action taken thereon and its impact on the accounts and financial statement of the company.

(6) The Comptroller and Auditor-General of India shall within sixty days from the date of receipt of
the audit report under sub-section (5) have a right to,—

(a) conduct a supplementary audit of the financial statement of the company by such person or
persons as he may authorise in this behalf; and for the purposes of such audit, require information or
additional information to be furnished to any person or persons, so authorised, on such matters, by
such person or persons, and in such form, as the Comptroller and Auditor-General of India may direct; and

(b) comment upon or supplement such audit report:

Provided that any comments given by the Comptroller and Auditor-General of India upon, or
supplement to, the audit report shall be sent by the company to every person entitled to copies of
audited financial statements under sub section (1) of section 136 and also be placed before the annual
general meeting of the company at the same time and in the same manner as the audit report.

(7) Without prejudice to the provisions of this Chapter, the Comptroller and Auditor-General of India
may, in case of any company covered under sub-section (5) or sub-section (7) of section 139, if he
considers necessary, by an order, cause test audit to be conducted of the accounts of such company and
the provisions of section 19A of the Comptroller and Auditor-General‘s (Duties, Powers and Conditions
of Service) Act, 1971 (56 of 1971), shall apply to the report of such test audit

(8) Where a company has a branch office, the accounts of that office shall be audited either by the
auditor appointed for the company (herein referred to as the company‘s auditor) under this Act or by any
other person qualified for appointment as an auditor of the company under this Act and appointed as such
under section 139, or where the branch office is situated in a country outside India, the accounts of the
branch office shall be audited either by the company‘s auditor or by an accountant or by any other person
duly qualified to act as an auditor of the accounts of the branch office in accordance with the laws of that
country and the duties and powers of the company‘s auditor with reference to the audit of the branch and
the branch auditor, if any, shall be such as may be prescribed

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Provided that the branch auditor shall prepare a report on the accounts of the branch examined by him
and send it to the auditor of the company who shall deal with it in his report in such manner as he
considers necessary.

(9) Every auditor shall comply with the auditing standards.

(10) The Central Government may prescribe the standards of auditing or any addendum thereto, as
recommended by the Institute of Chartered Accountants of India, constituted under section 3 of the
Chartered Accountants Act, 1949 (38 of 1949), in consultation with and after examination of the
recommendations made by the National Financial Reporting Authority:

Provided that until any auditing standards are notified, any standard or standards of auditing specified
by the Institute of Chartered Accountants of India shall be deemed to be the auditing standards.

(11) The Central Government may, in consultation with the National Financial Reporting Authority,
by general or special order, direct, in respect of such class or description of companies, as may be
specified in the order, that the auditor‘s report shall also include a statement on such matters as may be specified therein.

1[(12) Notwithstanding anything contained in this section, if an auditor of a company, in the course of
the performance of his duties as auditor, has reason to believe that an offence involving fraud is being or
has been committed against the company by officers or employees of the company, he shall immediately
report the matter to the Central Government within such time and in such manner as may be prescribed.]

(13) No duty to which an auditor of a company may be subject to shall be regarded as having been
contravened by reason of his reporting the matter referred to in sub-section (12) if it is done in good faith.

(14) The provisions of this section shall mutatis mutandis apply to—

(a) the cost accountant in practice conducting cost audit under section 148; or

(b) the company secretary in practice conducting secretarial audit under section 204.

(15) If any auditor, cost accountant or company secretary in practice do not comply with the
provisions of sub-section (12), he shall be punishable with fine which shall not be less than one lakh
rupees but which may extend to twenty-five lakh rupees

144. Auditor not to render certain services.—An auditor appointed under this Act shall provide to
the company only such other services as are approved by the Board of Directors or the audit committee,
as the case may be, but which shall not include any of the following services (whether such services are
rendered directly or indirectly to the company), or its holding company or subsidiary company, namely:—

(a) accounting and book keeping services;

(b) internal audit;

(c) design and implementation of any financial information system;

(d) actuarial services;

(e) investment advisory services;

(f) investment banking services;

__________________

1. Sub-section (12) shall stand substituted (date to be notified) by Act 21 of 2015, s. 13, to read as under:

―(12) Notwithstanding anything contained in this section, if an auditor of a company in the course of the performance of his
duties as auditor, has reason to believe that an offence of fraud involving such amount or amounts as may be prescribed, is being
or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government
within such time and in such manner as may be prescribed

Provided that in case of a fraud involving lesser than the specified amount, the auditor shall report the matter to the audit
committee constituted under section 177 or to the Board in other cases within such time and in such manner as may be
prescribed

Provided further that the companies, whose auditors have reported frauds under this sub-section to the audit committee or
the Board but not reported to the Central Government, shall disclose the details about such frauds in the Board‘s report in such
manner as may be prescribed.‖

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(g) rendering of outsourced financial services;

(h) management services; and

(i) any other kind of services as may be prescribed:

Provided that an auditor or audit firm who or which has been performing any non-audit services on or
before the commencement of this Act shall comply with the provisions of this section before the closure
of the first financial year after the date of such commencement.

Explanation.—For the purposes of this sub-section, the term ―directly or indirectly‖ shall include
rendering of services by the auditor,—

(i) in case of auditor being an individual, either himself or through his relative or any other person
connected or associated with such individual or through any other entity, whatsoever, in which such
individual has significant influence or control, or whose name or trade mark or brand is used by such individual;

(II) in case of auditor being a firm, either itself or through any of its partners or through its parent,
subsidiary or associate entity or through any other entity, whatsoever, in which the firm or any partner
of the firm has significant influence or control, or whose name or trade mark or brand is used by the
firm or any of its partners

145. Auditor to sign audit reports, etc.— The person appointed as an auditor of the company shall
sign the auditor‘s report or sign or certify any other document of the company in accordance with the
provisions of sub-section (2) of section 141, and the qualifications, observations or comments on financial
transactions or matters, which have any adverse effect on the functioning of the company mentioned in
the auditor‘s report shall be read before the company in general meeting and shall be open to inspection
by any member of the company

146. Auditors to attend general meeting.— All notices of, and other communications relating to,
any general meeting shall be forwarded to the auditor of the company, and the auditor shall, unless
otherwise exempted by the company, attend either by himself or through his authorised representative,
who shall also be qualified to be an auditor, any general meeting and shall have right to be heard at such
meeting on any part of the business which concerns him as the auditor.

147. Punishment for contravention.— (1) If any of the provisions of sections 139 to 146 (both
inclusive) is contravened, the company shall be punishable with fine which shall not be less than twentyfive
thousand rupees but which may extend to five lakh rupees and every officer of the company who is in
default shall be punishable with imprisonment for a term which may extend to one year or with fine
which shall not be less than ten thousand rupees but which may extend to one lakh rupees, or with both.

(2) If an auditor of a company contravenes any of the provisions of section 139, section 143, section
144 or section 145, the auditor shall be punishable with fine which shall not be less than twenty-five
thousand rupees but which may extend to five lakh rupees:

Provided that if an auditor has contravened such provisions knowingly or wilfully with the intention
to deceive the company or its shareholders or creditors or tax authorities, he shall be punishable with
imprisonment for a term which may extend to one year and with fine which shall not be less than one lakh
rupees but which may extend to twenty-five lakh rupees.

(3) Where an auditor has been convicted under sub-section (2), he shall be liable to—

(i) refund the remuneration received by him to the company; and

(II) pay for damages to the company, statutory bodies or authorities or to any other persons for
loss arising out of incorrect or misleading statements of particulars made in his audit report

(4) The Central Government shall, by notification, specify any statutory body or authority or an
officer for ensuring prompt payment of damages to the company or the persons under clause (ii) of subsection
(3) and such body, authority or officer shall after payment of damages to such company or persons
file a report with the Central Government in respect of making such damages in such manner as may be
specified in the said notification

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(5) Where, in case of audit of a company being conducted by an audit firm, it is proved that the
partner or partners of the audit firm has or have acted in a fraudulent manner or abetted or colluded in any
fraud by, or in relation to or by, the company or its directors or officers, the liability, whether civil or
criminal as provided in this Act or in any other law for the time being in force, for such act shall be of the
partner or partners concerned of the audit firm and of the firm jointly and severally

148. Central Government to specify audit of items of cost in respect of certain companies.— (1)
Notwithstanding anything contained in this Chapter, the Central Government may, by order, in respect of
such class of companies engaged in the production of such goods or providing such services as may be
prescribed, direct that particulars relating to the utilisation of material or labour or to other items of cost
as may be prescribed shall also be included in the books of account kept by that class of companies:

Provided that the Central Government shall, before issuing such order in respect of any class of
companies regulated under a special Act, consult the regulatory body constituted or established under
such special Act

(2) If the Central Government is of the opinion, that it is necessary to do so, it may, by order, direct
that the audit of cost records of class of companies, which are covered under sub-section (1) and which
have a net worth of such amount as may be prescribed or a turnover of such amount as may be prescribed,
shall be conducted in the manner specified in the order.

(3) The audit under sub-section (2) shall be conducted by a Cost Accountant in practice who shall be
appointed by the Board on such remuneration as may be determined by the members in such manner as
may be prescribed:

Provided that no person appointed under section 139 as an auditor of the company shall be appointed
for conducting the audit of cost records:

Provided further that the auditor conducting the cost audit shall comply with the cost auditing
standards.

Explanation.—For the purposes of this sub-section, the expression ―cost auditing standards‖ mean
such standards as are issued by the Institute of Cost and Works Accountants of India, constituted under
the Cost and Works Accountants Act, 1959 (23 of 1959), with the approval of the Central Government.

(4) An audit conducted under this section shall be in addition to the audit conducted under section
143.

(5) The qualifications, disqualifications, rights, duties and obligations applicable to auditors under this
Chapter shall, so far as may be applicable, apply to a cost auditor appointed under this section and it shall
be the duty of the company to give all assistance and facilities to the cost auditor appointed under this
section for auditing the cost records of the company:

Provided that the report on the audit of cost records shall be submitted by the cost accountant in
practice to the Board of Directors of the company.

(6) A company shall within thirty days from the date of receipt of a copy of the cost audit report
prepared in pursuance of a direction under sub-section (2) furnish the Central Government with such
report along with full information and explanation on every reservation or qualification contained therein.

(7) If, after considering the cost audit report referred to under this section and the information and
explanation furnished by the company under sub-section (6), the Central Government is of the opinion
that any further information or explanation is necessary, it may call for such further information and
explanation and the company shall furnish the same within such time as may be specified by that Government

(8) If any default is made in complying with the provisions of this section,—

(a) the company and every officer of the company who is in default shall be punishable in the
manner as provided in sub-section (1) of section 147;

(b) the cost auditor of the company who is in default shall be punishable in the manner as
provided in sub-sections (2) to (4) of section 147.

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CHAPTER XI

APPOINTMENT AND QUALIFICATIONS OF DIRECTORS

149. Company to have Board of Directors.— (1) Every company shall have a Board of Directors
consisting of individuals as directors and shall have—

(a) a minimum number of three directors in the case of a public company, two directors in the
case of a private company, and one director in the case of a One Person Company; and

(b) a maximum of fifteen directors:

Provided that a company may appoint more than fifteen directors after passing a special resolution:

Provided further that such class or classes of companies as may be prescribed, shall have at least one
woman director

(2) Every company existing on or before the date of commencement of this Act shall within one year
from such commencement comply with the requirements of the provisions of sub-section (1).

(3) Every company shall have at least one director who has stayed in India for a total period of not
less than one hundred and eighty-two days in the previous calendar year.

(4) Every listed public company shall have at least one-third of the total number of directors as
independent directors and the Central Government may prescribe the minimum number of independent
directors in case of any class or classes of public companies.

Explanation.—For the purposes of this sub-section, any fraction contained in such one-third number
shall be rounded off as one.

(5) Every company existing on or before the date of commencement of this Act shall, within one year
from such commencement or from the date of notification of the rules in this regard as may be applicable,
comply with the requirements of the provisions of sub-section (4)

(6) An independent director in relation to a company, means a director other than a managing director
or a whole-time director or a nominee director,—

(a) who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and
experience;

(b) (i) who is or was not a promoter of the company or its holding, subsidiary or associate company;

(ii) who is not related to promoters or directors in the company, its holding, subsidiary or
associate company;

(c) who has or had no pecuniary relationship with the company, its holding, subsidiary or
associate company, or their promoters, or directors, during the two immediately preceding financial
years or during the current financial year;

(d) none of whose relatives has or had pecuniary relationship or transaction with the company, its
holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent.
or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be
prescribed, whichever is lower, during the two immediately preceding financial years or during the
current financial year;

(e) who, neither himself nor any of his relatives—

(i) holds or has held the position of a key managerial personnel or is or has been employee of
the company or its holding, subsidiary or associate company in any of the three financial years
immediately preceding the financial year in which he is proposed to be appointed;

(ii) is or has been an employee or proprietor or a partner, in any of the three financial years
immediately preceding the financial year in which he is proposed to be appointed, of—

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(A) a firm of auditors or company secretaries in practice or cost auditors of the company
or its holding, subsidiary or associate company; or

(B) any legal or a consulting firm that has or had any transaction with the company, its
holding, subsidiary or associate company amounting to ten per cent. or more of the gross turnover of such firm

(III) holds together with his relatives two per cent. or more of the total voting power of the
company; or

(IV) is a Chief Executive or director, by whatever name called, of any nonprofit organisation
that receives twenty-five per cent. or more of its receipts from the company, any of its promoters,
directors or its holding, subsidiary or associate company or that holds two per cent. or more of the
total voting power of the company; or

(f) who possesses such other qualifications as may be prescribed.

an emplproposed to be a of—

(7) Every independent director shall at the first meeting of the Board in which he participates as a
director and thereafter at the first meeting of the Board in every financial year or whenever there is any
change in the circumstances which may affect his status as an independent director, give a declaration that
he meets the criteria of independence as provided in sub-section (6).

Explanation.—For the purposes of this section, ―nominee director‖ means a director nominated by
any financial institution in pursuance of the provisions of any law for the time being in force, or of any
agreement, or appointed by any Government, or any other person to represent its interests.

(8) The company and independent directors shall abide by the provisions specified in Schedule IV.

(9) Notwithstanding anything contained in any other provision of this Act, but subject to the
provisions of sections 197 and 198, an independent director shall not be entitled to any stock option and
may receive remuneration by way of fee provided under sub-section (5) of section 197, reimbursement of
expenses for participation in the Board and other meetings and profit related commission as may be
approved by the members

(10) Subject to the provisions of section 152, an independent director shall hold office for a term up to
five consecutive years on the Board of a company, but shall be eligible for reappointment on passing of a
special resolution by the company and disclosure of such appointment in the Board's report.

(11) Notwithstanding anything contained in sub-section (10), no independent director shall hold
office for more than two consecutive terms, but such independent director shall be eligible for
appointment after the expiration of three years of ceasing to become an independent director

Provided that an independent director shall not, during the said period of three years, be appointed in
or be associated with the company in any other capacity, either directly or indirectly

Explanation.—For the purposes of sub-sections (10) and (11), any tenure of an independent director
on the date of commencement of this Act shall not be counted as a term under those sub-sections.

(12) Notwithstanding anything contained in this Act,—

(I) an independent director;

(II) a non-executive director not being promoter or key managerial personnel,

shall be held liable, only in respect of such acts of omission or commission by a company which had
occurred with his knowledge, attributable through Board processes, and with his consent or connivance or
where he had not acted diligently.

(13) The provisions of sub-sections (6) and (7) of section 152 in respect of retirement of directors by
rotation shall not be applicable to appointment of independent directors.

150. Manner of selection of independent directors and maintenance of databank of independent
directors.— (1) Subject to the provisions contained in sub-section (6) of section 149, an independent
director may be selected from a data bank containing names, addresses and qualifications of persons who
are eligible and willing to act as independent directors, maintained by any body, institute or association,

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as may by notified by the Central Government, having expertise in creation and maintenance of such data
bank and put on their website for the use by the company making the appointment of such directors:

Provided that responsibility of exercising due diligence before selecting a person from the data bank
referred to above, as an independent director shall lie with the company making such appointment.

(2) The appointment of independent director shall be approved by the company in general meeting as
provided in sub-section (2) of section 152 and the explanatory statement annexed to the notice of the
general meeting called to consider the said appointment shall indicate the justification for choosing the
appointee for appointment as independent director.

(3) The data bank referred to in sub-section (1), shall create and maintain data of persons willing to
act as independent director in accordance with such rules as may be prescribed

(4) The Central Government may prescribe the manner and procedure of selection of independent
directors who fulfil the qualifications and requirements specified under section 149.

151. Appointment of director elected by small shareholders.— A listed company may have one
director elected by such small shareholders in such manner and with such terms and conditions as may be prescribed

Explanation.—For the purposes of this section ―small shareholders‖ means a shareholder holding
shares of nominal value of not more than twenty thousand rupees or such other sum as may be prescribed

152. Appointment of directors.— (1) Where no provision is made in the articles of a company for
the appointment of the first director, 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 and in case of a One
Person Company 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.

(2) Save as otherwise expressly provided in this Act, every director shall be appointed by the
company in general meeting.

(3) No person shall be appointed as a director of a company unless he has been allotted the Director
Identification Number under section 154.

(4) Every person proposed to be appointed as a director by the company in general meeting or
otherwise, shall furnish his Director Identification Number and a declaration that he is not disqualified to
become a director under this Act

(5) A person appointed as a director shall not act as a director unless he gives his consent to hold the
office as director and such consent has been filed with the Registrar within thirty days of his appointment
in such manner as may be prescribed:

Provided that in the case of appointment of an independent director in the general meeting, an
explanatory statement for such appointment, annexed to the notice for the general meeting, shall include a
statement that in the opinion of the Board, he fulfils the conditions specified in this Act for such an appointment.

(6) (a) Unless the articles provide for the retirement of all directors at every annual general meeting,
not less than two-thirds of the total number of directors of a public company shall—

(I) be persons whose period of office is liable to determination by retirement of directors by
rotation; and

(II) save as otherwise expressly provided in this Act, be appointed by the company in general meeting.

(b) The remaining directors in the case of any such company shall, in default of, and subject to
any regulations in the articles of the company, also be appointed by the company in general meeting.

(c) At the first annual general meeting of a public company held next after the date of the general
meeting at which the first directors are appointed in accordance with clauses (a) and (b) and at every
subsequent annual general meeting, one-third of such of the directors for the time being as are liable

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to retire by rotation, or if their number is neither three nor a multiple of three, then, the number
nearest to one-third, shall retire from office.

(d) The directors to retire by rotation at every annual general meeting shall be those who have
been longest in office since their last appointment, but as between persons who became directors on
the same day, those who are to retire shall, in default of and subject to any agreement among
themselves, be determined by lot.

(e) At the annual general meeting at which a director retires as aforesaid, the company may fill up

Explanation.—For the purposes of this sub-section, ―total number of directors‖ shall not include
independent directors, whether appointed under this Act or any other law for the time being in force,
on the Board of a company.

(7) (a) If the vacancy of the retiring director is not so filled-up and the meeting has not expressly
resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the next week, at
the same time and place, or if that day is a national holiday, till the next succeeding day which is not a
holiday, at the same time and place

(b) If at the adjourned meeting also, the vacancy of the retiring director is not filled up and that
meeting also has not expressly resolved not to fill the vacancy, the retiring director shall be deemed to
have been re-appointed at the adjourned meeting, unless—

(I) at that meeting or at the previous meeting a resolution for the re-appointment of such director
has been put to the meeting and lost;

(II) the retiring director has, by a notice in writing addressed to the company or its Board of
directors, expressed his unwillingness to be so re-appointed;

(III) he is not qualified or is disqualified for appointment;

(iv) a resolution, whether special or ordinary, is required for his appointment or re-appointment
by virtue of any provisions of this Act; or

(v) section 162 is applicable to the case.

Explanation.—For the purposes of this section and section 160, the expression ―retiring director‖
means a director retiring by rotation

153. Application for allotment of Director Identification Number.— Every individual intending to
be appointed as director of a company shall make an application for allotment of Director Identification
Number to the Central Government in such form and manner and along with such fees as may be
prescribed

154. Allotment of Director Identification Number.— The Central Government shall, within one
month from the receipt of the application under section 153, allot a Director Identification Number to an
applicant in such manner as may be prescribed

155. Prohibition to obtain more than one Director Identification Number.— No individual, who
has already been allotted a Director Identification Number under section 154, shall apply for, obtain or
possess another Director Identification Number

156. Director to intimate Director Identification Number.— Every existing director shall, within
one month of the receipt of Director Identification Number from the Central Government, intimate his
Director Identification Number to the company or all companies wherein he is a director.

157. Company to inform Director Identification Number to Registrar.— (1) Every company
shall, within fifteen days of the receipt of intimation under section 156, furnish the Director Identification
Number of all its directors to the Registrar or any other officer or authority as may be specified by the
Central Government with such fees as may be prescribed or with such additional fees as may be
prescribed within the time specified under section 403 and every such intimation shall be furnished in
such form and manner as may be prescribed.

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(2) If a company fails to furnish Director Identification Number under sub-section (1), before the
expiry of the period specified under section 403 with additional fee, the company shall be punishable with
fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees
and every officer of the company who is in default shall be punishable with fine which shall not be less
than twenty-five thousand rupees but which may extend to one lakh rupees.

158. Obligation to indicate Director Identification Number.— Every person or company, while
furnishing any return, information or particulars as are required to be furnished under this Act, shall
mention the Director Identification Number in such return, information or particulars in case such return,
information or particulars relate to the director or contain any reference of any director

159. Punishment for contravention.— If any individual or director of a company, contravenes any
of the provisions of section 152, section 155 and section 156, such individual or director of the company
shall be punishable with imprisonment for a term which may extend to six months or with fine which may
extend to fifty thousand rupees and where the contravention is a continuing one, with a further fine which
may extend to five hundred rupees for every day after the first during which the contravention continues.

160. Right of persons other than retiring directors to stand for directorship.— (1) A person who
is not a retiring director in terms of section 152 shall, subject to the provisions of this Act, be eligible for
appointment to the office of a director at any general meeting, if he, or some member intending to propose
him as a director, has, not less than fourteen days before the meeting, left at the registered office of the
company, a notice in writing under his hand signifying his candidature as a director or, as the case may
be, the intention of such member to propose him as a candidate for that office, along with the deposit of
one lakh rupees or such higher amount as may be prescribed which shall be refunded to such person or, as
the case may be, to the member, if the person proposed gets elected as a director or gets more than
twenty-five per cent. of total valid votes cast either on show of hands or on poll on such resolution.

(2) The company shall inform its members of the candidature of a person for the office of director
under sub-section (1) in such manner as may be prescribed.

161. Appointment of additional director, alternate director and nominee director.— (1) The
articles of a company may confer on its Board of Directors the power to appoint any person, other than a
person who fails to get appointed as a director in a general meeting, as an additional director at any time
who shall hold office up to the date of the next annual general meeting or the last date on which the
annual general meeting should have been held, whichever is earlier.

(2) The Board of Directors of a company may, if so authorised by its articles or by a resolution passed
by the company in general meeting, appoint a person, not being a person holding any alternate
directorship for any other director in the company, to act as an alternate director for a director during his
absence for a period of not less than three months from India:

Provided that no person shall be appointed as an alternate director for an independent director unless
he is qualified to be appointed as an independent director under the provisions of this Act:

Provided further that an alternate director shall not hold office for a period longer than that
permissible to the director in whose place he has been appointed and shall vacate the office if and when
the director in whose place he has been appointed returns to India:

Provided also that if the term of office of the original director is determined before he so returns to
India, any provision for the automatic re-appointment of retiring directors in default of another
appointment shall apply to the original, and not to the alternate director

(3) Subject to the articles of a company, the Board may appoint any person as a director nominated by
any institution in pursuance of the provisions of any law for the time being in force or of any agreement
or by the Central Government or the State Government by virtue of its shareholding in a Government company

(4) In the case of a public company, if the office of any director appointed by the company in general
meeting is vacated before his term of office expires in the normal course, the resulting casual vacancy

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may, in default of and subject to any regulations in the articles of the company, be filled by the Board of
Directors at a meeting of the Board

Provided that any person so appointed shall hold office only up to the date up to which the director in
whose place he is appointed would have held office if it had not been vacated.

162. Appointment of directors to be voted individually.— (1) At a general meeting of a company,
a motion for the appointment of two or more persons as directors of the company by a single resolution
shall not be moved unless a proposal to move such a motion has first been agreed to at the meeting
without any vote being cast against it.

(2) A resolution moved in contravention of sub-section (1) shall be void, whether or not any objection
was taken when it was moved.

(3) A motion for approving a person for appointment, or for nominating a person for appointment as a
director, shall be treated as a motion for his appointment

163. Option to adopt principle of proportional representation for appointment of directors.—
Notwithstanding anything contained in this Act, the articles of a company may provide for the
appointment of not less than two-thirds of the total number of the directors of a company in accordance
with the principle of proportional representation, whether by the single transferable vote or by a system of
cumulative voting or otherwise and such appointments may be made once in every three years and casual
vacancies of such directors shall be filled as provided in sub-section (4) of section 161.

164. Disqualifications for appointment of director.— (1) A person shall not be eligible for
appointment as a director of a company, if —

(a) he is of unsound mind and stands so declared by a competent court;

(b) he is an undischarged insolvent;

(c) he has applied to be adjudicated as an insolvent and his application is pending;

(d) he has been convicted by a court of any offence, whether involving moral turpitude or
otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period
of five years has not elapsed from the date of expiry of the sentence:

Provided that if a person has been convicted of any offence and sentenced in respect thereof to
imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a
director in any company;

(e) an order disqualifying him for appointment as a director has been passed by a court or
Tribunal and the order is in force;

(f) he has not paid any calls in respect of any shares of the company held by him, whether alone
or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;

(g) he has been convicted of the offence dealing with related party transactions under section 188
at any time during the last preceding five years; or

(h) he has not complied with sub-section (3) of section 152.

(2) No person who is or has been a 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

shall be eligible to be re-appointed as a director of that company or appointed in other company for a
period of five years from the date on which the said company fails to do so.

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(3) A private company may by its articles provide for any disqualifications for appointment as a
director in addition to those specified in sub-sections (1) and (2):

Provided that the disqualifications referred to in clauses (d), (e) and (g) of sub-section (1) shall not
take effect—

(I) for thirty days from the date of conviction or order of disqualification;

(II) where an appeal or petition is preferred within thirty days as aforesaid against the conviction
resulting in sentence or order, until expiry of seven days from the date on which such appeal or
petition is disposed off; or

(III) where any further appeal or petition is preferred against order or sentence within seven days,
until such further appeal or petition is disposed off.

165. Number of directorships. — (1) No person, after the commencement of this Act, shall hold
office as a director, including any alternate directorship, in more than twenty companies at the same time:

Provided that the maximum number of public companies in which a person can be appointed as a
director shall not exceed ten.

Explanation.— For reckoning the limit of public companies in which a person can be appointed as
director, directorship in private companies that are either holding or subsidiary company of a public
company shall be included.

(2) Subject to the provisions of sub-section (1), the members of a company may, by special
resolution, specify any lesser number of companies in which a director of the company may act as directors.

(3) Any person holding office as director in companies more than the limits as specified in subsection
(1), immediately before the commencement of this Act shall, within a period of one year from
such commencement,—

(a) choose not more than the specified limit of those companies, as companies in which he wishes
to continue to hold the office of director;

(b) resign his office as director in the other remaining companies; and

(c) intimate the choice made by him under clause (a), to each of the companies in which he was
holding the office of director before such commencement and to the Registrar having jurisdiction in
respect of each such company.

(4) Any resignation made in pursuance of clause (b) of sub-section (3) shall become effective
immediately on the despatch thereof to the company concerned.

(5) No such person shall act as director in more than the specified number of companies,—

(a) after despatching the resignation of his office as director or non-executive director thereof, in
pursuance of clause (b) of sub-section (3); or

(b) after the expiry of one year from the commencement of this Act,

(6) If a person accepts an appointment as a director in contravention of sub-section (1), he shall be
punishable with fine which shall not be less than five thousand rupees but which may extend to twentyfive
thousand rupees for every day after the first during which the contravention continues.

166. Duties of directors.— (1) Subject to the provisions of this Act, a director of a company shall act
in accordance with the articles of the company

(2) A director of a company shall act in good faith in order to promote the objects of the company for
the benefit of its members as a whole, and in the best interests of the company, its employees, the
shareholders, the community and for the protection of environment.

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(2) The resignation of a director shall take effect from the date on which the notice is received by the
company or the date, if any, specified by the director in the notice, whichever is later:

Provided that the director who has resigned shall be liable even after his resignation for the offences
which occurred during his tenure.

(3) Where all the directors of a company resign from their offices, or vacate their offices under
section 167, the promoter or, in his absence, the Central Government shall appoint the required number of
directors who shall hold office till the directors are appointed by the company in general meeting.

169. Removal of directors.— (1) A company may, by ordinary resolution, remove a director, not
being a director appointed by the Tribunal under section 242, before the expiry of the period of his office
after giving him a reasonable opportunity of being heard:

Provided that nothing contained in this sub-section shall apply where the company has availed itself
of the option given to it under section 163 to appoint not less than two-thirds of the total number of
directors according to the principle of proportional representation.

(2) A special notice shall be required of any resolution, to remove a director under this section, or to
appoint somebody in place of a director so removed, at the meeting at which he is removed.

(3) On receipt of notice of a resolution to remove a director under this section, the company shall
forthwith send a copy thereof to the director concerned, and the director, whether or not he is a member of
the company, shall be entitled to be heard on the resolution at the meeting

(4) Where notice has been given of a resolution to remove a director under this section and the
director concerned makes with respect thereto representation in writing to the company and requests its
notification to members of the company, the company shall, if the time permits it to do so,—

(a) in any notice of the resolution given to members of the company, state the fact of the
representation having been made; and

(b) send a copy of the representation to every member of the company to whom notice of the
meeting is sent (whether before or after receipt of the representation by the company),

and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company‘s
default, the director may without prejudice to his right to be heard orally require that the representation
shall be read out at the meeting:

Provided that copy of the representation need not be sent out and the representation need not be read
out at the meeting if, on the application either of the company or of any other person who claims to be
aggrieved, the Tribunal is satisfied that the rights conferred by this sub-section are being abused to secure
needless publicity for defamatory matter; and the Tribunal may order the company‘s costs on the
application to be paid in whole or in part by the director notwithstanding that he is not a party to it.

(5) A vacancy created by the removal of a director under this section may, if he had been appointed
by the company in general meeting or by the Board, be filled by the appointment of another director in his
place at the meeting at which he is removed, provided special notice of the intended appointment has been
given under sub-section (2).

(5) A vacancy created by the removal of a director under this section may, if he had been appointed
by the company in general meeting or by the Board, be filled by the appointment of another director in his
place at the meeting at which he is removed, provided special notice of the intended appointment has been
given under sub-section (2).

(7) If the vacancy is not filled under sub-section (5), it may be filled as a casual vacancy in
accordance with the provisions of this Act:

Provided that the director who was removed from office shall not be re-appointed as a director by the
Board of Directors.

(8) Nothing in this section shall be taken—

(a) as depriving a person removed under this section of any compensation or damages payable to
him in respect of the termination of his appointment as director as per the terms of contract or terms
of his appointment as director, or of any other appointment terminating with that as director; or

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(2) The resignation of a director shall take effect from the date on which the notice is received by the
company or the date, if any, specified by the director in the notice, whichever is later:

Provided that the director who has resigned shall be liable even after his resignation for the offences
which occurred during his tenure.

(3) Where all the directors of a company resign from their offices, or vacate their offices under
section 167, the promoter or, in his absence, the Central Government shall appoint the required number of
directors who shall hold office till the directors are appointed by the company in general meeting.

169. Removal of directors.— (1) A company may, by ordinary resolution, remove a director, not
being a director appointed by the Tribunal under section 242, before the expiry of the period of his office
after giving him a reasonable opportunity of being heard:

Provided that nothing contained in this sub-section shall apply where the company has availed itself
of the option given to it under section 163 to appoint not less than two-thirds of the total number of
directors according to the principle of proportional representation

(2) A special notice shall be required of any resolution, to remove a director under this section, or to
appoint somebody in place of a director so removed, at the meeting at which he is removed.

(3) On receipt of notice of a resolution to remove a director under this section, the company shall
forthwith send a copy thereof to the director concerned, and the director, whether or not he is a member of
the company, shall be entitled to be heard on the resolution at the meeting.

(4) Where notice has been given of a resolution to remove a director under this section and the
director concerned makes with respect thereto representation in writing to the company and requests its
notification to members of the company, the company shall, if the time permits it to do so,—

(a) in any notice of the resolution given to members of the company, state the fact of the
representation having been made; and

(b) send a copy of the representation to every member of the company to whom notice of the
meeting is sent (whether before or after receipt of the representation by the company),

and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company‘s
default, the director may without prejudice to his right to be heard orally require that the representation
shall be read out at the meeting:

Provided that copy of the representation need not be sent out and the representation need not be read
out at the meeting if, on the application either of the company or of any other person who claims to be
aggrieved, the Tribunal is satisfied that the rights conferred by this sub-section are being abused to secure
needless publicity for defamatory matter; and the Tribunal may order the company‘s costs on the
application to be paid in whole or in part by the director notwithstanding that he is not a party to it.

(5) A vacancy created by the removal of a director under this section may, if he had been appointed
by the company in general meeting or by the Board, be filled by the appointment of another director in his
place at the meeting at which he is removed, provided special notice of the intended appointment has been
given under sub-section (2).

(6) A director so appointed shall hold office till the date up to which his predecessor would have held
office if he had not been removed.

(7) If the vacancy is not filled under sub-section (5), it may be filled as a casual vacancy in
accordance with the provisions of this Act:

Provided that the director who was removed from office shall not be re-appointed as a director by the
Board of Directors.

(8) Nothing in this section shall be taken—

(a) as depriving a person removed under this section of any compensation or damages payable to
him in respect of the termination of his appointment as director as per the terms of contract or terms
of his appointment as director, or of any other appointment terminating with that as director; or

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(b) as derogating from any power to remove a director under other provisions of this Act.

170. Register of directors and key managerial personnel and their shareholding.— (1) Every
company shall keep at its registered office a register containing such particulars of its directors and key
managerial personnel as may be prescribed, which shall include the details of securities held by each of
them in the company or its holding, subsidiary, subsidiary of company‘s holding company or associate
companies.

(2) A return containing such particulars and documents as may be prescribed, of the directors and the
key managerial personnel shall be filed with the Registrar within thirty days from the appointment of
every director and key managerial personnel, as the case may be, and within thirty days of any change
taking place

171. Members‘ right to inspect.— (1) The register kept under sub-section (1) of section 170,—

(a) shall be open for inspection during business hours and the members shall have a right to take
extracts therefrom and copies thereof, on a request by the members, be provided to them free of cost
within thirty days; and

(b) shall also be kept open for inspection at every annual general meeting of the company and
shall be made accessible to any person attending the meeting

(2) If any inspection as provided in clause (a) of sub-section (1) is refused, or if any copy required
under that clause is not sent within thirty days from the date of receipt of such request, the Registrar shall
on an application made to him order immediate inspection and supply of copies required thereunder.

172. Punishment.— If a company contravenes any of the provisions of this Chapter and for which no
specific punishment is provided therein, the company and every officer of the company who is in default
shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to
five lakh rupees.

CHAPTER XII

MEETINGS OF BOARD AND ITS POWERS

173. Meetings of Board.— (1) Every company shall hold the first meeting of the Board of Directors
within thirty days of the date of its incorporation and thereafter hold a minimum number of four meetings
of its Board of Directors every year in such a manner that not more than one hundred and twenty days
shall intervene between two consecutive meetings of the Board:

Provided that the Central Government may, by notification, direct that the provisions of this subsection
shall not apply in relation to any class or description of companies or shall apply subject to such
exceptions, modifications or conditions as may be specified in the notification.

(2) The participation of directors in a meeting of the Board may be either in person or through video
conferencing or other audio visual means, as may be prescribed, which are capable of recording and
recognising the participation of the directors and of recording and storing the proceedings of such
meetings along with date and time:

Provided that the Central Government may, by notification, specify such matters which shall not be
dealt with in a meeting through video conferencing or other audio visual means.

(3) A meeting of the Board shall be called by giving not less than seven days‘ notice in writing to
every director at his address registered with the company and such notice shall be sent by hand delivery or
by post or by electronic means:

Provided that a meeting of the Board may be called at shorter notice to transact urgent business
subject to the condition that at least one independent director, if any, shall be present at the meeting:

Provided further that in case of absence of independent directors from such a meeting of the Board,
decisions taken at such a meeting shall be circulated to all the directors and shall be final only on
ratification thereof by at least one independent director, if any.

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(4) Every officer of the company whose duty is to give notice under this section and who fails to do
so shall be liable to a penalty of twenty-five thousand rupees.

(5) A One Person Company, small company and dormant company shall be deemed to have complied
with the provisions of this section if at least one meeting of the Board of Directors has been conducted in
each half of a calendar year and the gap between the two meetings is not less than ninety days:

Provided that nothing contained in this sub-section and in section 174 shall apply to One Person
Company in which there is only one director on its Board of Directors.

174. Quorum for meetings of Board.— (1) The quorum for a meeting of the Board of Directors of a
company hall be one-third of its total strength or two directors, whichever is higher, and the participation
of the directors by video conferencing or by other audio visual means shall also be counted for the
purposes of quorum under this sub-section.

(2) The continuing directors may act notwithstanding any vacancy in the Board; but, if and so long as
their number is reduced below the quorum fixed by the Act for a meeting of the Board, the continuing
directors or director may act for the purpose of increasing the number of directors to that fixed for the
quorum, or of summoning a general meeting of the company and for no other purpose

(3) Where at any time the number of interested directors exceeds or is equal to two-thirds of the total
strength of the Board of Directors, the number of directors who are not interested directors and present at
the meeting, being not less than two, shall be the quorum during such time.

Explanation.—For the purposes of this sub-section, ―interested director‖ means a director within the
meaning of sub-section (2) of section 184

(4) Where a meeting of the Board could not be held for want of quorum, then, unless the articles of
the company otherwise provide, the meeting shall automatically stand adjourned to the same day at the
same time and place in the next week or if that day is a national holiday, till the next succeeding day,
which is not a national holiday, at the same time and place

Explanation.—For the purposes of this section,—

(i) any fraction of a number shall be rounded off as one;

(II) ―total strength‖ shall not include directors whose places are vacant.

175. Passing of resolution by circulation.— (1) No resolution shall be deemed to have been duly
passed by the Board or by a committee thereof by circulation, unless the resolution has been circulated in
draft, together with the necessary papers, if any, to all the directors, or members of the committee, as the
case may be, at their addresses registered with the company in India by hand delivery or by post or by
courier, or through such electronic means as may be prescribed and has been approved by a majority of
the directors or members, who are entitled to vote on the resolution:

Provided that, where not less than one-third of the total number of directors of the company for the
time being require that any resolution under circulation must be decided at a meeting, the chairperson
shall put the resolution to be decided at a meeting of the Board.

(2) A resolution under sub-section (1) shall be noted at a subsequent meeting of the Board or the
committee thereof, as the case may be, and made part of the minutes of such meeting

176. Defects in appointment of directors not to invalidate actions taken.— No act done by a
person as a director shall be deemed to be invalid, notwithstanding that it was subsequently noticed that
his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any
provision contained in this Act or in the articles of the company:

Provided that nothing in this section shall be deemed to give validity to any act done by the director
after his appointment has been noticed by the company to be invalid or to have terminated.

177. Audit Committee.— (1) The Board of Directors of every listed company and such other class or
classes of companies, as may be prescribed, shall constitute an Audit Committee.

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(2) The Audit Committee shall consist of a minimum of three directors with independent directors
forming a majority

Provided that majority of members of Audit Committee including its Chairperson shall be persons
with ability to read and understand, the financial statement.

(3) Every Audit Committee of a company existing immediately before the commencement of this Act
shall, within one year of such commencement, be reconstituted in accordance with sub-section (2).

(4) Every Audit Committee shall act in accordance with the terms of reference specified in writing by
the Board which shall, inter alia, include,—

(i) the recommendation for appointment, remuneration and terms of appointment of auditors of
the company;

(II) review and monitor the auditor‘s independence and performance, and effectiveness of audit process;

(III) examination of the financial statement and the auditors‘ report thereon;

(IV) approval or any subsequent modification of transactions of the company with related parties:

1[Provided that the Audit Committee may make omnibus approval for related party transactions
proposed to be entered into by the company subject to such conditions as may be prescribed;]

(V) scrutiny of inter-corporate loans and investments;

(VII) evaluation of internal financial controls and risk management systems;

(VIII) monitoring the end use of funds raised through public offers and related matters.

(5) The Audit Committee may call for the comments of the auditors about internal control systems,
the scope of audit, including the observations of the auditors and review of financial statement before
their submission to the Board and may also discuss any related issues with the internal and statutory
auditors and the management of the company.

(6) The Audit Committee shall have authority to investigate into any matter in relation to the items
specified in sub-section (4) or referred to it by the Board and for this purpose shall have power to obtain
professional advice from external sources and have full access to information contained in the records of
the company

(7) The auditors of a company and the key managerial personnel shall have a right to be heard in the
meetings of the Audit Committee when it considers the auditor‘s report but shall not have the right to vote.

(8) The Board‘s report under sub-section (3) of section 134 shall disclose the composition of an Audit
Committee and where the Board had not accepted any recommendation of the Audit Committee, the same
shall be disclosed in such report along with the reasons therefor.

(9) Every listed company or such class or classes of companies, as may be prescribed, shall establish
a vigil mechanism for directors and employees to report genuine concerns in such manner as may be prescribed

(10) The vigil mechanism under sub-section (9) shall provide for adequate safeguards against
victimisation of persons who use such mechanism and make provision for direct access to the chairperson
of the Audit Committee in appropriate or exceptional cases:

Provided that the details of establishment of such mechanism shall be disclosed by the company on its
website, if any, and in the Board‘s report.

178. Nomination and Remuneration Committee and Stakeholders Relationship Committee.—
(1) The Board of Directors of every listed company and such other class or classes of companies, as may

_______________________

1. Proviso shall stand inserted (date to be notified) by Act 21 of 2015, s. 14.

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be prescribed shall constitute the Nomination and Remuneration Committee consisting of three or more
non-executive directors out of which not less than one-half shall be independent directors:

Provided that the chairperson of the company (whether executive or non-executive) may be appointed
as a member of the Nomination and Remuneration Committee but shall not chair such Committee.

(2) The Nomination and Remuneration Committee shall identify persons who are qualified to become
directors and who may be appointed in senior management in accordance with the criteria laid down,
recommend to the Board their appointment and removal and shall carry out evaluation of every director‘s performance

(3) The Nomination and Remuneration Committee shall formulate the criteria for determining
qualifications, positive attributes and independence of a director and recommend to the Board a policy,
relating to the remuneration for the directors, key managerial personnel and other employees.

(4) The Nomination and Remuneration Committee shall, while formulating the policy under subsection
(3) ensure that—

(a) the level and composition of remuneration is reasonable and sufficient
to attract, retain and motivate directors of the quality required to run the company successfully;

(b) relationship of remuneration to performance is clear and meets appropriate performance
benchmarks; and

(c) remuneration to directors, key managerial personnel and senior management involves a
balance between fixed and incentive pay reflecting short and long-term performance objectives
appropriate to the working of the company and its goals:

Provided that such policy shall be disclosed in the Board's report.

(5) The Board of Directors of a company which consists of more than one thousand shareholders,
debenture-holders, deposit-holders and any other security holders at any time during a financial year shall
constitute a Stakeholders Relationship Committee consisting of a chairperson who shall be a nonexecutive
director and such other members as may be decided by the Board.

(6) The Stakeholders Relationship Committee shall consider and resolve the grievances of security
holders of the company.

(7) The chairperson of each of the committees constituted under this section or, in his absence, any
other member of the committee authorised by him in this behalf shall attend the general meetings of the
company

(8) In case of any contravention of the provisions of section 177 and this section, the company shall
be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh
rupees and every officer of the company who is in default shall be punishable with imprisonment for a
term which may extend to one year or with fine which shall not be less than twenty-five thousand rupees
but which may extend to one lakh rupees, or with both

Provided that non-consideration of resolution of any grievance by the Stakeholders Relationship
Committee in good faith shall not constitute a contravention of this section.

Explanation.—The expression ‗‗senior management‘‘ means personnel of the company who are
members of its core management team excluding Board of Directors comprising all members of
management one level below the executive directors, including the functional heads.

179. Powers of Board.— (1) The Board of Directors of a company shall be entitled to exercise all
such powers, and to do all such acts and things, as the company is authorised to exercise and do:

Provided that in exercising such power or doing such act or thing, the Board shall be subject to the
provisions contained in that behalf in this Act, or in the memorandum or articles, or in any regulations not
inconsistent therewith and duly made thereunder, including regulations made by the company in general meeting

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Provided further that the Board shall not exercise any power or do any act or thing which is directed
or required, whether under this Act or by the memorandum or articles of the company or otherwise, to be
exercised or done by the company in general meeting

(2) No regulation made by the company in general meeting shall invalidate any prior act of the Board
which would have been valid if that regulation had not been made.

(3) The Board of Directors of a company shall exercise the following powers on behalf of the
company by means of resolutions passed at meetings of the Board, namely:—

(a) to make calls on shareholders in respect of money unpaid on their shares;

(b) to authorise buy-back of securities under section 68;

(c) to issue securities, including debentures, whether in or outside India;

(d) to borrow monies;

(e) to invest the funds of the company;

(f) to grant loans or give guarantee or provide security in respect of loans;

(g) to approve financial statement and the Board‘s report;

(h) to diversify the business of the company;

(i) to approve amalgamation, merger or reconstruction;

(j) to take over a company or acquire a controlling or substantial stake in another company;

(k) any other matter which may be prescribed:

Provided that the Board may, by a resolution passed at a meeting, delegate to any committee of
directors, the managing director, the manager or any other principal officer of the company or in the case
of a branch office of the company, the principal officer of the branch office, the powers specified in
clauses (d) to (f) on such conditions as it may specify:

Provided further that the acceptance by a banking company in the ordinary course of its business of
deposits of money from the public repayable on demand or otherwise and withdrawable by cheque, draft,
order or otherwise, or the placing of monies on deposit by a banking company with another banking
company on such conditions as the Board may prescribe, shall not be deemed to be a borrowing of
monies or, as the case may be, a making of loans by a banking company within the meaning of this section

Explanation I.—Nothing in clause (d) shall apply to borrowings by a banking company from other
banking companies or from the Reserve Bank of India, the State Bank of India or any other banks
established by or under any Act.

Explanation II.—In respect of dealings between a company and its bankers, the exercise by the
company of the power specified in clause (d) shall mean the arrangement made by the company with its
bankers for the borrowing of money by way of overdraft or cash credit or otherwise and not the actual
day-to-day operation on overdraft, cash credit or other accounts by means of which the arrangement so
made is actually availed of.

(4) Nothing in this section shall be deemed to affect the right of the company in general meeting to
impose restrictions and conditions on the exercise by the Board of any of the powers specified in this
section.

180. Restriction on powers of Board.— (1) The Board of Directors of a company shall exercise the
following powers only with the consent of the company by a special resolution, namely:—

(a) to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of
the company or where the company owns more than one undertaking, of the whole or substantially
the whole of any of such undertakings

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Explanation.—For the purposes of this clause,—

(i) ―undertaking‖ shall mean an undertaking in which the investment of the company exceeds
twenty per cent. of its net worth as per the audited balance sheet of the preceding financial year or
an undertaking which generates twenty per cent. of the total income of the company during the
previous financial year;

(ii) the expression ―substantially the whole of the undertaking‖ in any financial year shall
mean twenty per cent. or more of the value of the undertaking as per the audited balance sheet of
the preceding financial year;

(b) to invest otherwise in trust securities the amount of compensation received by it as a result of
any merger or amalgamation;

(c) to borrow money, where the money to be borrowed, together with the money already
borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart
from temporary loans obtained from the company‘s bankers in the ordinary course of business:

Provided that the acceptance by a banking company, in the ordinary course of its business, of
deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque,
draft, order or otherwise, shall not be deemed to be a borrowing of monies by the banking company
within the meaning of this clause.

Explanation.—For the purposes of this clause, the expression ―temporary loans‖ means loans
repayable on demand or within six months from the date of the loan such as short-term, cash credit
arrangements, the discounting of bills and the issue of other short-term loans of a seasonal character,
but does not include loans raised for the purpose of financial expenditure of a capital nature

(d) to remit, or give time for the repayment of, any debt due from a director.

(2) Every special resolution passed by the company in general meeting in relation to the exercise of
the powers referred to in clause (c) of sub-section (1) shall specify the total amount up to which monies
may be borrowed by the Board of Directors.

(3) Nothing contained in clause (a) of sub-section (1) shall affect—

(a) the title of a buyer or other person who buys or takes on lease any property, investment or
undertaking as is referred to in that clause, in good faith; or

(b) the sale or lease of any property of the company where the ordinary business of the company
consists of, or comprises, such selling or leasing

(4) Any special resolution passed by the company consenting to the transaction as is referred to in
clause (a) of sub-section (1) may stipulate such conditions as may be specified in such resolution,
including conditions regarding the use, disposal or investment of the sale proceeds which may result from
the transactions:

Provided that this sub-section shall not be deemed to authorise the company to effect any reduction in
its capital except in accordance with the provisions contained in this Act

(5) No debt incurred by the company in excess of the limit imposed by clause (c) of sub-section (1)
shall be valid or effectual, unless the lender proves that he advanced the loan in good faith and without
knowledge that the limit imposed by that clause had been exceeded

181. Company to contribute to bona fide and charitable funds, etc.— The Board of Directors of a
company may contribute to bona fide charitable and other funds:

Provided that prior permission of the company in general meeting shall be required for such
contribution in case any amount the aggregate of which, in any financial year, exceed five per cent. of its
average net profits for the three immediately preceding financial years.

182. Prohibitions and restrictions regarding political contributions.— (1) Notwithstanding
anything contained in any other provision of this Act, a company, other than a Government company and

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a company which has been in existence for less than three financial years, may contribute any amount
directly or indirectly to any political party:

Provided that the amount referred to in sub-section (1) or, as the case may be, the aggregate of the
amount which may be so contributed by the company in any financial year shall not exceed seven and a
half per cent. of its average net profits during the three immediately preceding financial years:

Provided further that no such contribution shall be made by a company unless a resolution authorising
the making of such contribution is passed at a meeting of the Board of Directors and such resolution shall,
subject to the other provisions of this section, be deemed to be justification in law for the making and the
acceptance of the contribution authorised by it.

(2) Without prejudice to the generality of the provisions of sub-section (1),—

(a) a donation or subscription or payment caused to be given by a company on its behalf or on its
account to a person who, to its knowledge, is carrying on any activity which, at the time at which
such donation or subscription or payment was given or made, can reasonably be regarded as likely to
affect public support for a political party shall also be deemed to be contribution of the amount of
such donation, subscription or payment to such person for a political purpose;

(b) the amount of expenditure incurred, directly or indirectly, by a company on an advertisement
in any publication, being a publication in the nature of a souvenir, brochure, tract, pamphlet or the
like, shall also be deemed,—

(I) where such publication is by or on behalf of a political party, to be a contribution of such
amount to such political party, and

(II) where such publication is not by or on behalf of, but for the advantage of a political party,
to be a contribution for a political purpose

(3) Every company shall disclose in its profit and loss account any amount or amounts contributed by
it to any political party during the financial year to which that account relates, giving particulars of the
total amount contributed and the name of the party to which such amount has been contributed.

(4) If a company makes any contribution in contravention of the provisions of this section, the
company shall be punishable with fine which may extend to five times the amount so contributed and
every officer of the company who is in default shall be punishable with imprisonment for a term which
may extend to six months and with fine which may extend to five times the amount so contributed

Explanation.—For the purposes of this section, ―political party‖ means a political party registered
under section 29A of the Representation of the People Act, 1951 (43 of 1951).

183. Power of Board and other persons to make contributions to national defence fund, etc.—
(1) The Board of Directors of any company or any person or authority exercising the powers of the Board
of Directors of a company, or of the company in general meeting, may, notwithstanding anything
contained in sections 180, 181 and section 182 or any other provision of this Act or in the memorandum,
articles or any other instrument relating to the company, contribute such amount as it thinks fit to the
National Defence Fund or any other Fund approved by the Central Government for the purpose of
national defence

(2) Every company shall disclose in its profits and loss account the total amount or amounts
contributed by it to the Fund referred to in sub-section (1) during the financial year to which the amount relates.

184. Disclosure of interest by director.— (1) Every director shall at the first meeting of the Board in
which he participates as a director and thereafter at the first meeting of the Board in every financial year
or whenever there is any change in the disclosures already made, then at the first Board meeting held after
such change, disclose his concern or interest in any company or companies or bodies corporate, firms, or
other association of individuals which shall include the shareholding, in such manner as may be prescribed

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(2) Every director of a company who is in any way, whether directly or indirectly, concerned or
interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered
into—

(a) with a body corporate in which such director or such director in association with any other
director, holds more than two per cent. shareholding of that body corporate, or is a promoter,
manager, Chief Executive Officer of that body corporate; or

(b) with a firm or other entity in which, such director is a partner, owner or member, as the case may be,

shall disclose the nature of his concern or interest at the meeting of the Board in which the contract or
arrangement is discussed and shall not participate in such meeting:

Provided that where any director who is not so concerned or interested at the time of entering into
such contract or arrangement, he shall, if he becomes concerned or interested after the contract or
arrangement is entered into, disclose his concern or interest forthwith when he becomes concerned or
interested or at the first meeting of the Board held after he becomes so concerned or interested.

(3) A contract or arrangement entered into by the company without disclosure under sub-section (2)
or with participation by a director who is concerned or interested in any way, directly or indirectly, in the
contract or arrangement, shall be voidable at the option of the company.

(4) If a director of the company contravenes the provisions of sub-section (1) or subsection (2), such
director shall be punishable with imprisonment for a term which may extend to one year or with fine
which shall not be less than fifty thousand rupees but which may extend to one lakh rupees, or with both.

(5) Nothing in this section—

(a) shall be taken to prejudice the operation of any rule of law restricting a director of a company
from having any concern or interest in any contract or arrangement with the company;

(b) shall apply to any contract or arrangement entered into or to be entered into between two
companies where any of the directors of the one company or two or more of them together holds or
hold not more than two per cent. of the paid-up share capital in the other company.

185. Loan to directors, etc.— (1) Save as otherwise provided in this Act, no company shall, directly
or indirectly, advance any loan, including any loan represented by a book debt, to any of its directors or to
any other person in whom the director is interested or give any guarantee or provide any security in
connection with any loan taken by him or such other person:

Provided that nothing contained in this sub-section shall apply to—

(a) the giving of any loan to a managing or whole-time director—

(i) as a part of the conditions of service extended by the company to all its employees; or

(II) pursuant to any scheme approved by the members by a special resolution; or

(b) a company which in the ordinary course of its business provides loans or gives guarantees or
securities for the due repayment of any loan and in respect of such loans an interest is charged at a
rate not less than the bank rate declared by the Reserve Bank of India;

1[(c) any loan made by a holding company to its wholly owned subsidiary company or any
guarantee given or security provided by a holding company in respect of any loan made to its wholly
owned subsidiary company; or

(d) any guarantee given or security provided by a holding company in respect of loan made by
any bank or financial institution to its subsidiary company

Provided that the loans made under clauses (c) and (d) are utilised by the subsidiary company for
its principal business activities.]

___________________

1. Ins. by Act 21 of 2015, s. 15 (w.e.f. 29-5-2015).

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Explanation.—For the purposes of this section, the expression ―to any other person in whom
director is interested‖ means—

(a) any director of the lending company, or of a company which is its holding company or
any partner or relative of any such director;

(b) any firm in which any such director or relative is a partner;

(c) any private company of which any such director is a director or member;

(d) any body corporate at a general meeting of which not less than twenty-five per cent. of the
total voting power may be exercised or controlled by any such director, or by two or more such
directors, together; or

(e) any body corporate, the Board of directors, managing director or manager, whereof is
accustomed to act in accordance with the directions or instructions of the Board, or of any
director or directors, of the lending company.

(2) If any loan is advanced or a guarantee or security is given or provided in contravention of the
provisions of sub-section (1), the company shall be punishable with fine which shall not be less than five
lakh rupees but which may extend to twenty-five lakh rupees, and the director or the other person to
whom any loan is advanced or guarantee or security is given or provided in connection with any loan
taken by him or the other person, shall be punishable with imprisonment which may extend to six months
or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh
rupees, or with both

186. Loan and investment by company.— (1) Without prejudice to the provisions contained in this
Act, a company shall unless otherwise prescribed, make investment through not more than two layers of
investment companies:

Provided that the provisions of this sub-section shall not affect,—

(i) a company from acquiring any other company incorporated in a country outside India if such
other company has investment subsidiaries beyond two layers as per the laws of such country;

(ii) a subsidiary company from having any investment subsidiary for the purposes of meeting the
requirements under any law or under any rule or regulation framed under any law for the time being
in force.

(2) No company shall directly or indirectly —

(a) give any loan to any person or other body corporate;

(b) give any guarantee or provide security in connection with a loan to any other body corporate
or person; and

(c) acquire by way of subscription, purchase or otherwise, the securities of any other body
corporate

exceeding sixty per cent. of its paid-up share capital, free reserves and securities premium account or one
hundred per cent. of its free reserves and securities premium account, whichever is more

(3) Where the giving of any loan or guarantee or providing any security or the acquisition under subsection
(2) exceeds the limits specified in that sub-section, prior approval by means of a special resolution
passed at a general meeting shall be necessary.

(4) The company shall disclose to the members in the financial statement the full particulars of the
loans given, investment made or guarantee given or security provided and the purpose for which the loan
or guarantee or security is proposed to be utilised by the recipient of the loan or guarantee or security

(5) No investment shall be made or loan or guarantee or security given by the company unless the
resolution sanctioning it is passed at a meeting of the Board with the consent of all the directors present at
the meeting and the prior approval of the public financial institution concerned where any term loan is
subsisting, is obtained:

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Provided that prior approval of a public financial institution shall not be required where the aggregate
of the loans and investments so far made, the amount for which guarantee or security so far provided to or
in all other bodies corporate, along with the investments, loans, guarantee or security proposed to be made
or given does not exceed the limit as specified in sub-section (2), and there is no default in repayment of
loan instalments or payment of interest thereon as per the terms and conditions of such loan to the public
financial institution

(6) No company, which is registered under section 12 of the Securities and Exchange Board of India
Act, 1992 (15 of 1992) and covered under such class or classes of companies as may be prescribed, shall
take inter-corporate loan or deposits exceeding the prescribed limit and such company shall furnish in its
financial statement the details of the loan or deposits.

(7) No loan shall be given under this section at a rate of interest lower than the prevailing yield of one
year, three year, five year or ten year Government Security closest to the tenor of the loan

(8) No company which is in default in the repayment of any deposits accepted before or after the
commencement of this Act or in payment of interest thereon, shall give any loan or give any guarantee or
provide any security or make an acquisition till such default is subsisting.

(9) Every company giving loan or giving a guarantee or providing security or making an acquisition
under this section shall keep a register which shall contain such particulars and shall be maintained in
such manner as may be prescribed.

(10) The register referred to in sub-section (9) shall be kept at the registered office of the company
and —

(a) shall be open to inspection at such office; and

(b) extracts may be taken therefrom by any member, and copies thereof may be furnished to any
member of the company on payment of such fees as may be prescribed

(11) Nothing contained in this section, except sub-section (1), shall apply—

(a) to a loan made, guarantee given or security provided by a banking company or an insurance
company or a housing finance company in the ordinary course of its business or a company engaged
in the business of financing of companies or of providing infrastructural facilities;

(b) to any acquisition—

(i) made by a non-banking financial company registered under Chapter IIIB of the Reserve
Bank of India Act, 1934 (2 of 1934) and whose principal business is acquisition of securities:

Provided that exemption to non-banking financial company shall be in respect of its
investment and lending activities;

(II) made by a company whose principal business is the acquisition of securities;

(III) of shares allotted in pursuance of clause (a) of sub-section (1) of section 62.

(12) The Central Government may make rules for the purposes of this section.

(13) If a company contravenes the provisions of this section, the company shall be punishable with
fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees
and every officer of the company who is in default shall be punishable with imprisonment for a term
which may extend to two years and with fine which shall not be less than twenty-five thousand rupees but
which may extend to one lakh rupees.

Explanation.—For the purposes of this section,—

(a) the expression ―investment company‖ means a company whose principal business is the
acquisition of shares, debentures or other securities;

(b) the expression ―infrastructure facilities‖ means the facilities specified in Schedule VI.

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187. Investments of company to be held in its own name.— (1) All investments made or held by a
company in any property, security or other asset shall be made and held by it in its own name:

Provided that the company may hold any shares in its subsidiary company in the name of any
nominee or nominees of the company, if it is necessary to do so, to ensure that the number of members of
the subsidiary company is not reduced below the statutory limit.

(a) from depositing with a bank, being the bankers of the company, any shares or securities for
the collection of any dividend or interest payable thereon; or

(b) from depositing with, or transferring to, or holding in the name of, the State Bank of India or a
scheduled bank, being the bankers of the company, shares or securities, in order to facilitate the
transfer thereof:

Provided that if within a period of six months from the date on which the shares or securities are
transferred by the company to, or are first held by the company in the name of, the State Bank of
India or a scheduled bank as aforesaid, no transfer of such shares or securities takes place, the
company shall, as soon as practicable after the expiry of that period, have the shares or securities retransferred
to it from the State Bank of India or the scheduled bank or, as the case may be, again hold
the shares or securities in its own name; or

(c) from depositing with, or transferring to, any person any shares or securities, by way of
security for the repayment of any loan advanced to the company or the performance of any obligation
undertaken by it;

(d) from holding investments in the name of a depository when such investments are in the form
of securities held by the company as a beneficial owner.

(3) Where in pursuance of clause (d) of sub-section (2), any shares or securities in which investments
have been made by a company are not held by it in its own name, the company shall maintain a register
which shall contain such particulars as may be prescribed and such register shall be open to inspection by
any member or debenture-holder of the company without any charge during business hours subject to
such reasonable restrictions as the company may by its articles or in general meeting impose.

(4) If a company contravenes the provisions of this section, the company shall be punishable with fine
which shall not be less than twenty-five thousand rupees but which may extend to twenty-five lakh rupees
and every officer of the company who is in default shall be punishable with imprisonment for a term
which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but
which may extend to one lakh rupees, or with both

188. Related party transactions.— (1) Except with the consent of the Board of Directors given by a
resolution at a meeting of the Board and subject to such conditions as may be prescribed, no company
shall enter into any contract or arrangement with a related party with respect to—

(a) sale, purchase or supply of any goods or materials;

(b) selling or otherwise disposing of, or buying, property of any kind;

(c) leasing of property of any kind;

(d) availing or rendering of any services;

(e) appointment of any agent for purchase or sale of goods, materials, services or property;

(f) such related party's appointment to any office or place of profit in the company, its subsidiary
company or associate company; and

(g) underwriting the subscription of any securities or derivatives thereof, of the company:

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Provided that no contract or arrangement, in the case of a company having a paid-up share capital of
not less than such amount, or transactions exceeding such sums, as may be prescribed, shall be entered
into except with the prior approval of the company by a 1
[resolution]:

Provided further that no member of the company shall vote on such 1
[resolution], to approve any
contract or arrangement which may be entered into by the company, if such member is a related party:

Provided also that nothing in this sub-section shall apply to any transactions entered into by the
company in its ordinary course of business other than transactions which are not on an arm‘s length basis:

2[Provided also that the requirement of passing the resolution under first proviso shall not be
applicable for transactions entered into between a holding company and its wholly owned subsidiary
whose accounts are consolidated with such holding company and placed before the shareholders at the
general meeting for approval.]

Explanation.— In this sub-section,—

(a) the expression ―office or place of profit‖ means any office or place—

(i) where such office or place is held by a director, if the director holding it receives from the
company anything by way of remuneration over and above the remuneration to which he is
entitled as director, by way of salary, fee, commission, perquisites, any rent-free accommodation,
or otherwise;

(II) where such office or place is held by an individual other than a director or by any firm,
private company or other body corporate, if the individual, firm, private company or body
corporate holding it receives from the company anything by way of remuneration, salary, fee,
commission, perquisites, any rent-free accommodation, or otherwise;

(b) the expression ―arm‘s length transaction‖ means a transaction between two related parties that
is conducted as if they were unrelated, so that there is no conflict of interest.

(3) Where any contract or arrangement is entered into by a director or any other employee, without
obtaining the consent of the Board or approval by a 1
[resolution] in the general meeting under sub-section
(1) and if it is not ratified by the Board or, as the case may be, by the shareholders at a meeting within
three months from the date on which such contract or arrangement was entered into, such contract or
arrangement shall be voidable at the option of the Board and if the contract or arrangement is with a
related party to any director, or is authorised by any other director, the directors concerned shall
indemnify the company against any loss incurred by it.

(4) Without prejudice to anything contained in sub-section (3), it shall be open to the company to
proceed against a director or any other employee who had entered into such contract or arrangement in
contravention of the provisions of this section for recovery of any loss sustained by it as a result of such
contract or arrangement.

(5) Any director or any other employee of a company, who had entered into or authorised the contract
or arrangement in violation of the provisions of this section shall,—

(i) in case of listed company, be punishable with imprisonment for a term which may extend to
one year or with fine which shall not be less than twenty-five thousand rupees but which may extend
to five lakh rupees, or with both; and

(II) in case of any other company, be punishable with fine which shall not be less than twenty-five
thousand rupees but which may extend to five lakh rupees

_____________________

1. Subs. by Act 21 of 2015, s. 16, for ―special resolution‖ (w.e.f. 29-5-2015).

2. Ins. by s. 16, ibid. (w.e.f. 29-5-2015)

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189. Register of contracts or arrangements in which directors are interested.— (1) Every
company shall keep one or more registers giving separately the particulars of all contracts or
arrangements to which sub-section (2) of section 184 or section 188 applies, in such manner and
containing such particulars as may be prescribed and after entering the particulars, such register or
registers shall be placed before the next meeting of the Board and signed by all the directors present at the meeting.

(2) Every director or key managerial personnel shall, within a period of thirty days of his
appointment, or relinquishment of his office, as the case may be, disclose to the company the particulars
specified in sub-section (1) of section 184 relating to his concern or interest in the other associations
which are required to be included in the register under that sub-section or such other information relating
to himself as may be prescribed

(3) The register referred to in sub-section (1) shall be kept at the registered office of the company and
it shall be open for inspection at such office during business hours and extracts may be taken therefrom
and copies thereof as may be required by any member of the company shall be furnished by the company
to such extent, in such manner, and on payment of such fees as may be prescribed.

(4) The register to be kept under this section shall also be produced at the commencement of every
annual general meeting of the company and shall remain open and accessible during the continuance of
the meeting to any person having the right to attend the meeting.

(5) Nothing contained in sub-section (1) shall apply to any contract or arrangement—

(a) for the sale, purchase or supply of any goods, materials or services if the value of such goods
and materials or the cost of such services does not exceed five lakh rupees in the aggregate in any year; or

(b) by a banking company for the collection of bills in the ordinary course of its business.

(6) Every director who fails to comply with the provisions of this section and the rules made
thereunder shall be liable to a penalty of twenty-five thousand rupees.

190. Contract of employment with managing or whole-time directions.— (1) Every company
shall keep at its registered office,—

(a) where a contract of service with a managing or whole-time director is in writing, a copy of the contract; or

(b) where such a contract is not in writing, a written memorandum setting out its terms.

(2) The copies of the contract or the memorandum kept under sub-section (1) shall be open to
inspection by any member of the company without payment of fee.

(3) If any default is made in complying with the provisions of sub-section (1) or sub-section (2), the
company shall be liable to a penalty of twenty-five thousand rupees and every officer of the company
who is in default shall be liable to a penalty of five thousand rupees for each default.

(4) The provisions of this section shall not apply to a private company.

191. Payment to director for loss of office, etc., in connection with transfer of undertaking,
property or shares.— (1) No director of a company shall, in connection with—

(a) the transfer of the whole or any part of any undertaking or property of the company; or

(b) the transfer to any person of all or any of the shares in a company being a transfer resulting
from—

(i) an offer made to the general body of shareholders;

(II) an offer made by or on behalf of some other body corporate with a view to a company
becoming a subsidiary company of such body corporate or a subsidiary company of its holding company

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(III) an offer made by or on behalf of an individual with a view to his obtaining the right to
exercise, or control the exercise of, not less than one-third of the total voting power at any general
meeting of the company; or

(Iv) any other offer which is conditional on acceptance to a given extent, receive any payment
by way of compensation for loss of office or as consideration for retirement from office, or in
connection with such loss or retirement from such company or from the transferee of such
undertaking or property, or from the transferees of shares or from any other person, not being
such company, unless particulars as may be prescribed with respect to the payment proposed to
be made by such transferee or person, including the amount thereof, have been disclosed to the
members of the company and the proposal has been approved by the company in general meeting.

(2) Nothing in sub-section (1) shall affect any payment made by a company to a managing director or
whole-time director or manager of the company by way of compensation for loss of office or as
consideration for retirement from office or in connection with such loss or retirement subject to limits or
priorities, as may be prescribed

(3) If the payment under sub-section (1) or sub-section (2) is not approved for want of quorum either
in a meeting or an adjourned meeting, the proposal shall not be deemed to have been approved.

(4) Where a director of a company receives payment of any amount in contravention of sub-section
(1) or the proposed payment is made before it is approved in the meeting, the amount so received by the
director shall be deemed to have been received by him in trust for the company.

(5) If a director of the company contravenes the provisions of this section, such director shall be
punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to
one lakh rupees.

(6) Nothing in this section shall be taken to prejudice the operation of any law requiring disclosure to
be made with respect to any payment received under this section or such other like payments made to a
director.

192. Restriction on non-cash transactions involving directors.— (1) No company shall enter into
an arrangement by which—

(a) a director of the company or its holding, subsidiary or associate company or a person
connected with him acquires or is to acquire assets for consideration other than cash, from the company; or

(b) the company acquires or is to acquire assets for consideration other than cash, from such
director or person so connected,

unless prior approval for such arrangement is accorded by a resolution of the company in general meeting
and if the director or connected person is a director of its holding company, approval under this subsection
shall also be required to be obtained by passing a resolution in general meeting of the holding company

(2) The notice for approval of the resolution by the company or holding company in general meeting
under sub-section (1) shall include the particulars of the arrangement along with the value of the assets
involved in such arrangement duly calculated by a registered valuer.

(3) Any arrangement entered into by a company or its holding company in contravention of the
provisions of this section shall be voidable at the instance of the company unless—

(a) the restitution of any money or other consideration which is the subject matter of the
arrangement is no longer possible and the company has been indemnified by any other person for any
loss or damage caused to it; or

(b) any rights are acquired bona fide for value and without notice of the contravention of the
provisions of this section by any other person

193. Contract by One Person Company.— (1) Where One Person Company limited by shares or by
guarantee enters into a contract with the sole member of the company who is also the director of the

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company, the company shall, unless the contract is in writing, ensure that the terms of the contract or offer are contained in a memorandum or are recorded in the minutes of the first meeting of the Board of Directors of the company held next after entering into contract:

Provided that nothing in this sub-section shall apply to contracts entered into by the company in the ordinary course of its business.

(2) The company shall inform the Registrar about every contract entered into by the company and recorded in the minutes of the meeting of its Board of Directors under sub-section (1) within a period of fifteen days of the date of approval by the Board of Directors.

194. Prohibition on forward dealings in securities of company by director or key managerial personnel.— (1) No director of a company or any of its key managerial personnel shall buy in the company, or in its holding, subsidiary or associate company—

(a) a right to call for delivery or a right to make delivery at a specified price and within a specified time, of a specified number of relevant shares or a specified amount of relevant debentures; or

(b) a right, as he may elect, to call for delivery or to make delivery at a specified price and within a specified time, of a specified number of relevant shares or a specified amount of relevant debentures.

(2) If a director or any key managerial personnel of the company contravenes the provisions of subsection (1), such director or key managerial personnel shall be punishable with imprisonment for a term which may extend to two years or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both.

(3) Where a director or other key managerial personnel acquires any securities in contravention of sub-section (1), he shall, subject to the provisions contained in sub-section (2), be liable to surrender the same to the company and the company shall not register the securities so acquired in his name in the register, and if they are in dematerialised form, it shall inform the depository not to record such acquisition and such securities, in both the cases, shall continue to remain in the names of the transferors

Explanation.—For the purposes of this section, ‗‗relevant shares‘‘ and ‗‗relevant debentures‘‘ mean shares and debentures of the company in which the concerned person is a whole-time director or other key managerial personnel or shares and debentures of its holding and subsidiary companies.

195. Prohibition on insider trading of securities.— (1) No person including any director or key managerial personnel of a company shall enter into insider trading:

Provided that nothing contained in this sub-section shall apply to any communication required in the ordinary course of business or profession or employment or under any law.

Explanation.—For the purposes of this section,—

(a) ―insider trading‖ means—

(i) an act of subscribing, buying, selling, dealing or agreeing to subscribe, buy, sell or deal in any securities by any director or key managerial personnel or any other officer of a company either as principal or agent if such director or key managerial personnel or any other officer of the company is reasonably expected to have access to any non-public price sensitive information in respect of securities of company; or

(II) an act of counselling about procuring or communicating directly or indirectly any nonpublic price-sensitive information to any person;

(b) ―price-sensitive information‖ means any information which relates, directly or indirectly, to a company and which if published is likely to materially affect the price of securities of the company

(2) If any person contravenes the provisions of this section, he shall be punishable with imprisonment for a term which may extend to five years or with fine which shall not be less than five lakh rupees but

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which may extend to twenty-five crore rupees or three times the amount of profits made out of insider
trading, whichever is higher, or with both.

CHAPTER XIII

APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL

196. Appointment of managing director, whole-time director or manager.— (1) No company
shall appoint or employ at the same time a managing director and a manager.

(2) No company shall appoint or re-appoint any person as its managing director, whole-time director
or manager for a term exceeding five years at a time:

Provided that no re-appointment shall be made earlier than one year before the expiry of his term.

(3) No company shall appoint or continue the employment of any person as managing director,
whole-time director or manager who —

(a) is below the age of twenty-one years or has attained the age of seventy years:

Provided that appointment of a person who has attained the age of seventy years may be made by
passing a special resolution in which case the explanatory statement annexed to the notice for such
motion shall indicate the justification for appointing such person;

(b) is an undischarged insolvent or has at any time been adjudged as an insolvent;

(c) has at any time suspended payment to his creditors or makes, or has at any time made, a
composition with them; or

(d) has at any time been convicted by a court of an offence and sentenced for a period of more
than six months

(4) Subject to the provisions of section 197 and Schedule V, a managing director, whole-time director
or manager shall be appointed and the terms and conditions of such appointment and remuneration
payable be approved by the Board of Directors at a meeting which shall be subject to approval by a
resolution at the next general meeting of the company and by the Central Government in case such
appointment is at variance to the conditions specified in that Schedule:

Provided that a notice convening Board or general meeting for considering such appointment shall
include the terms and conditions of such appointment, remuneration payable and such other matters
including interest, of a director or directors in such appointments, if any:

Provided further that a return in the prescribed form shall be filed within sixty days of such
appointment with the Registrar.

(5) Subject to the provisions of this Act, where an appointment of a managing director, whole-time
director or manager is not approved by the company at a general meeting, any act done by him before
such approval shall not be deemed to be invalid.

197. Overall maximum managerial remuneration and managerial remuneration in case of
absence or inadequacy of profits.— (1) The total managerial remuneration payable by a public
company, to its directors, including managing director and whole-time director, and its manager in respect
of any financial year shall not exceed eleven per cent. of the net profits of that company for that financial
year computed in the manner laid down in section 198 except that the remuneration of the directors shall
not be deducted from the gross profits:

Provided that the company in general meeting may, with the approval of the Central Government,
authorise the payment of remuneration exceeding eleven per cent. of the net profits of the company,
subject to the provisions of Schedule V:

Provided further that, except with the approval of the company in general meeting,—

(i) the remuneration payable to any one managing director; or whole-time director or manager
shall not exceed five per cent. of the net profits of the company and if there is more than one such

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director remuneration shall not exceed ten per cent. of the net profits to all such directors and
manager taken together;

(II) the remuneration payable to directors who are neither managing directors nor whole-time
directors shall not exceed,—

(A) one per cent. of the net profits of the company, if there is a managing or whole-time
director or manager;

(B) three per cent. of the net profits in any other case.

(2) The percentages aforesaid shall be exclusive of any fees payable to directors under sub-section (5).

(3) Notwithstanding anything contained in sub-sections (1) and (2), but subject to the provisions of
Schedule V, if, in any financial year, a company has no profits or its profits are inadequate, the company
shall not pay to its directors, including any managing or whole-time director or manager, by way ofremuneration any sum exclusive of any fees payable to directors under sub-section (5) hereunder except
in accordance with the provisions of Schedule V and if it is not able to comply with such provisions, with
the previous approval of the Central Government.

(4) The remuneration payable to the directors of a company, including any managing or whole-time
director or manager, shall be determined, in accordance with and subject to the provisions of this section,
either by the articles of the company, or by a resolution or, if the articles so require, by a special
resolution, passed by the company in general meeting and the remuneration payable to a director
determined aforesaid shall be inclusive of the remuneration payable to him for the services rendered by
him in any other capacity:

Provided that any remuneration for services rendered by any such director in other capacity shall not
be so included if—

(a) the services rendered are of a professional nature; and

(b) in the opinion of the Nomination and Remuneration Committee, if the company is covered
under sub-section (1) of section 178, or the Board of Directors in other cases, the director possesses
the requisite qualification for the practice of the profession.

(5) A director may receive remuneration by way of fee for attending meetings of the Board or
Committee thereof or for any other purpose whatsoever as may be decided by the Board:

Provided that the amount of such fees shall not exceed the amount as may be prescribed:

Provided further that different fees for different classes of companies and fees in respect of
independent director may be such as may be prescribed.

(6) A director or manager may be paid remuneration either by way of a monthly payment or at a
specified percentage of the net profits of the company or partly by one way and partly by the other.

(7) Notwithstanding anything contained in any other provision of this Act but subject to the
provisions of this section, an independent director shall not be entitled to any stock option and may
receive remuneration by way of fees provided under sub-section (5), reimbursement of expenses for
participation in the Board and other meetings and profit related commission as may be approved by the members

(8) The net profits for the purposes of this section shall be computed in the manner referred to in section 198.

(9) If any director draws or receives, directly or indirectly, by way of remuneration any such sums in
excess of the limit prescribed by this section or without the prior sanction of the Central Government,
where it is required, he shall refund such sums to the company and until such sum is refunded, hold it in
trust for the company

(10) The company shall not waive the recovery of any sum refundable to it under sub-section (9)
unless permitted by the Central Government.

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(11) In cases where Schedule V is applicable on grounds of no profits or inadequate profits, any
provision relating to the remuneration of any director which purports to increase or has the effect of
increasing the amount thereof, whether the provision be contained in the company‘s memorandum or
articles, or in an agreement entered into by it, or in any resolution passed by the company in general
meeting or its Board, shall not have any effect unless such increase is in accordance with the conditions
specified in that Schedule and if such conditions are not being complied, the approval of the Central
Government had been obtained

(12) Every listed company shall disclose in the Board‘s report, the ratio of the remuneration of each
director to the median employee‘s remuneration and such other details as may be prescribed.

(13) Where any insurance is taken by a company on behalf of its managing director, whole-time
director, manager, Chief Executive Officer, Chief Financial Officer or Company Secretary for
indemnifying any of them against any liability in respect of any negligence, default, misfeasance, breach
of duty or breach of trust for which they may be guilty in relation to the company, the premium paid on
such insurance shall not be treated as part of the remuneration payable to any such personnel:

Provided that if such person is proved to be guilty, the premium paid on such insurance shall be
treated as part of the remuneration.

(14) Subject to the provisions of this section, any director who is in receipt of any commission from
the company and who is a managing or whole-time director of the company shall not be disqualified from
receiving any remuneration or commission from any holding company or subsidiary company of such
company subject to its disclosure by the company in the Board‘s report

(15) If any person contravenes the provisions of this section, he shall be punishable with fine which
shall not be less than one lakh rupees but which may extend to five lakh rupees.

198. Calculation of profits.— (1) In computing the net profits of a company in any financial year for
the purpose of section 197,—

(a) credit shall be given for the sums specified in sub-section (2), and credit shall not be given for
those specified in sub-section (3); and

(b) the sums specified in sub-section (4) shall be deducted, and those specified in sub-section (5)
shall not be deducted

(2) In making the computation aforesaid, credit shall be given for the bounties and subsidies received
from any Government, or any public authority constituted or authorised in this behalf, by any
Government, unless and except in so far as the Central Government otherwise directs.

(3) In making the computation aforesaid, credit shall not be given for the following sums, namely:—

(a) profits, by way of premium on shares or debentures of the company, which are issued or sold
by the company;

(b) profits on sales by the company of forfeited shares;

(c) profits of a capital nature including profits from the sale of the undertaking or any of the
undertakings of the company or of any part thereof;

(d) profits from the sale of any immovable property or fixed assets of a capital nature comprised
in the undertaking or any of the undertakings of the company, unless the business of the company
consists, whether wholly or partly, of buying and selling any such property or assets:

Provided that where the amount for which any fixed asset is sold exceeds the written-down value
thereof, credit shall be given for so much of the excess as is not higher than the difference between
the original cost of that fixed asset and its written-down value;

(e) any change in carrying amount of an asset or of a liability recognised in equity reserves
including surplus in profit and loss account on measurement of the asset or the liability at fair value.

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(4) In making the computation aforesaid, the following sums shall be deducted, namely:—

(a) all the usual working charges;

(b) directors‘ remuneration;

(c) bonus or commission paid or payable to any member of the company‘s staff, or to any
engineer, technician or person employed or engaged by the company, whether on a whole-time or on
a part-time basis;

(d) any tax notified by the Central Government as being in the nature of a tax on excess or
abnormal profits;

(e) any tax on business profits imposed for special reasons or in special circumstances and
notified by the Central Government in this behalf;

urement value.(f) interest on debentures issued by the company;

(g) interest on mortgages executed by the company and on loans and advances secured by a
charge on its fixed or floating assets;

(h) interest on unsecured loans and advances;

(i) expenses on repairs, whether to immovable or to movable property, provided the repairs are
not of a capital nature;

(j) outgoings inclusive of contributions made under section 181;

(k) depreciation to the extent specified in section 123;

(l) the excess of expenditure over income, which had arisen in computing the net profits in
accordance with this section in any year which begins at or after the commencement of this Act, in so
far as such excess has not been deducted in any subsequent year preceding the year in respect of
which the net profits have to be ascertained;

(m) any compensation or damages to be paid in virtue of any legal liability including a liability
arising from a breach of contract;

(n) any sum paid by way of insurance against the risk of meeting any liability such as is referred to in clause (m);

(o) debts considered bad and written off or adjusted during the year of account.

(5) In making the computation aforesaid, the following sums shall not be deducted, namely:—

(a) income-tax and super-tax payable by the company under the Income-tax Act, 1961 (43 of
1961), or any other tax on the income of the company not falling under clauses (d) and (e) of subsection(4

(b) any compensation, damages or payments made voluntarily, that is to say, otherwise than in
virtue of a liability such as is referred to in clause (m) of sub-section (4);

(c) loss of a capital nature including loss on sale of the undertaking or any of the undertakings of
the company or of any part thereof not including any excess of the written-down value of any asset
which is sold, discarded, demolished or destroyed over its sale proceeds or its scrap value;

(d) any change in carrying amount of an asset or of a liability recognised in equity reserves
including surplus in profit and loss account on measurement of the asset or the liability at fair value.

199. Recovery of remuneration in certain cases.— Without prejudice to any liability incurred under
the provisions of this Act or any other law for the time being in force, where a company is required to restate
its financial statements due to fraud or non-compliance with any requirement under this Act and the
rules made thereunder, the company shall recover from any past or present managing director or wholetime
director or manager or Chief Executive Officer (by whatever name called) who, during the period for
which the financial statements are required to be re-stated, received the remuneration (including stock
option) in excess of what would have been payable to him as per restatement of financial statements.

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200. Central Government or company to fix limit with regard to remuneration.—
Notwithstanding anything contained in this Chapter, the Central Government or a company may, while
according its approval under section 196, to any appointment or to any remuneration under section 197 in
respect of cases where the company has inadequate or no profits, fix the remuneration within the limits
specified in this Act, at such amount or percentage of profits of the company, as it may deem fit and while
fixing the remuneration, the Central Government or the company shall have regard to—

(a) the financial position of the company;

(b) the remuneration or commission drawn by the individual concerned in any other capacity;

(c) the remuneration or commission drawn by him from any other company;

(d) professional qualifications and experience of the individual concerned;

(e) such other matters as may be prescribed.

201. Forms of, and procedure in relation to, certain applications.— (1) Every application made to
the Central Government under this Chapter shall be in such form as may be prescribed.

(2) (a) Before any application is made by a company to the Central Government under any of the
sections aforesaid, there shall be issued by or on behalf of the company a general notice to the members
thereof, indicating the nature of the application proposed to be made.

(b) Such notice shall be published at least once in a newspaper in the principal language of the district
in which the registered office of the company is situate and circulating in that district, and at least once in
English in an English newspaper circulating in that district.

(c) The copies of the notices, together with a certificate by the company as to the due publication
thereof, shall be attached to the application.

202. Compensation for loss of office of managing or whole-time director or manager.— (1) A
company may make payment to a managing or whole-time director or manager, but not to any other
director, by way of compensation for loss of office, or as consideration for retirement from office or in
connection with such loss or retirement.

(2) No payment shall be made under sub-section (1) in the following cases, namely:—

(a) where the director resigns from his office as a result of the reconstruction of the company, or
of its amalgamation with any other body corporate or bodies corporate, and is appointed as the
managing or whole-time director, manager or other officer of the reconstructed company or of the
body corporate resulting from the amalgamation;

(b) where the director resigns from his office otherwise than on the reconstruction of the company
or its amalgamation as aforesaid

(c) where the office of the director is vacated under sub-section (1) of section 167;

(d) where the company is being wound up, whether by an order of the Tribunal or voluntarily,
provided the winding up was due to the negligence or default of the director;

(e) where the director has been guilty of fraud or breach of trust in relation to, or of gross
negligence in or gross mismanagement of, the conduct of the affairs of the company or any subsidiary
company or holding company thereof; and

(f) where the director has instigated, or has taken part directly or indirectly in bringing about, the
termination of his office.

(3) Any payment made to a managing or whole-time director or manager in pursuance of sub-section
(1) shall not exceed the remuneration which he would have earned if he had been in office for the
remainder of his term or for three years, whichever is shorter, calculated on the basis of the average
remuneration actually earned by him during a period of three years immediately preceding the date on
which he ceased to hold office, or where he held the office for a lesser period than three years, during such period:

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Provided that no such payment shall be made to the director in the event of the commencement of the
winding up of the company, whether before or at any time within twelve months after, the date on which
he ceased to hold office, if the assets of the company on the winding up, after deducting the expenses
thereof, are not sufficient to repay to the shareholders the share capital, including the premiums, if any,
contributed by them.

(4) Nothing in this section shall be deemed to prohibit the payment to a managing or whole-time
director, or manager, of any remuneration for services rendered by him to the company in any other
capacity

203. Appointment of key managerial personnel.— (1) Every company belonging to such class or
classes of companies as may be prescribed shall have the following whole-time key managerial
personnel,—

(i) managing director, or Chief Executive Officer or manager and in their absence, a whole-time
director;

(II) company secretary; and

(III) Chief Financial Officer :

Provided that an individual shall not be appointed or reappointed as the chairperson of the
company, in pursuance of the articles of the company, as well as the managing director or Chief
Executive Officer of the company at the same time after the date of commencement of this Act
unless,—

(a) the articles of such a company provide otherwise; or

(b) the company does not carry multiple businesses:

Provided further that nothing contained in the first proviso shall apply to such class of
companies engaged in multiple businesses and which has appointed one or more Chief Executive
Officers for each such business as may be notified by the Central Government.

(2) Every whole-time key managerial personnel of a company shall be appointed by means of a
resolution of the Board containing the terms and conditions of the appointment including the remuneration.

(3) A whole-time key managerial personnel shall not hold office in more than one company except in
its subsidiary company at the same time:

Provided that nothing contained in this sub-section shall disentitle a key managerial personnel from
being a director of any company with the permission of the Board:

Provided further that whole-time key managerial personnel holding office in more than one company
at the same time on the date of commencement of this Act, shall, within a period of six months from such
commencement, choose one company, in which he wishes to continue to hold the office of key managerial personnel:

Provided also that a company may appoint or employ a person as its managing director, if he is the
managing director or manager of one, and of not more than one, other company and such appointment or
employment is made or approved by a resolution passed at a meeting of the Board with the consent of all
the directors present at the meeting and of which meeting, and of the resolution to be moved thereat,
specific notice has been given to all the directors then in India.

(4) If the office of any whole-time key managerial personnel is vacated, the resulting vacancy shall be
filled-up by the Board at a meeting of the Board within a period of six months from the date of such
vacancy.

(5) If a company contravenes the provisions of this section, the company shall be punishable with fine
which shall not be less than one lakh rupees but which may extend to five lakh rupees and every director
and key managerial personnel of the company who is in default shall be punishable with fine which may

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extend to fifty thousand rupees and where the contravention is a continuing one, with a further fine which
may extend to one thousand rupees for every day after the first during which the contravention continues

204. Secretarial audit for bigger companies.— (1) Every listed company and a company belonging
to other class of companies as may be prescribed shall annex with its Board‘s report made in terms of
sub-section (3) of section 134, a secretarial audit report, given by a company secretary in practice, in such
form as may be prescribed.

(2) It shall be the duty of the company to give all assistance and facilities to the company secretary in
practice, for auditing the secretarial and related records of the company

(3) The Board of Directors, in their report made in terms of sub-section (3) of section 134, shall
explain in full any qualification or observation or other remarks made by the company secretary in
practice in his report under sub-section (1)

(4) If a company or any officer of the company or the company secretary in practice, contravenes the
provisions of this section, the company, every officer of the company or the company secretary in
practice, who is in default, shall be punishable with fine which shall not be less than one lakh rupees but
which may extend to five lakh rupees

205. Functions of company secretary.— (1) The functions of the company secretary shall
include,—

(a) to report to the Board about compliance with the provisions of this Act, the rules made
thereunder and other laws applicable to the company;

(b) to ensure that the company complies with the applicable secretarial standards;

(c) to discharge such other duties as may be prescribed.

Explanation.—For the purpose of this section, the expression ―secretarial standards‖ means
secretarial standards issued by the Institute of Company Secretaries of India constituted under section 3 of
the Company Secretaries Act, 1980 (56 of 1980) and approved by the Central Government.

(2) The provisions contained in section 204 and section 205 shall not affect the duties and functions
of the Board of Directors, chairperson of the company, managing director or whole-time director under
this Act, or any other law for the time being in force

CHAPTER XIV

INSPECTION, INQUIRY AND INVESTIGATION

206. Power to call for information, inspect books and conduct inquiries.— (1) Where on a
scrutiny of any document filed by a company or on any information received by him, the Registrar is of
the opinion that any further information or explanation or any further documents relating to the company
is necessary, he may by a written notice require the company—

(a) to furnish in writing such information or explanation; or

(b) to produce such documents,

within such reasonable time, as may be specified in the notice.

(2) On the receipt of a notice under sub-section (1), it shall be the duty of the company and of its
officers concerned to furnish such information or explanation to the best of their knowledge and power
and to produce the documents to the Registrar within the time specified or extended by the Registrar:

Provided that where such information or explanation relates to any past period, the officers who had
been in the employment of the company for such period, if so called upon by the Registrar through a
notice served on them in writing, shall also furnish such information or explanation to the best of their nowledge

(3) If no information or explanation is furnished to the Registrar within the time specified under subsection
(1) or if the Registrar on an examination of the documents furnished is of the opinion that the
information or explanation furnished is inadequate or if the Registrar is satisfied on a scrutiny of the

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documents furnished that an unsatisfactory state of affairs exists in the company and does not disclose a
full and fair statement of the information required, he may, by another written notice, call on the company
to produce for his inspection such further books of account, books, papers and explanations as he may
require at such place and at such time as he may specify in the notice:

Provided that before any notice is served under this sub-section, the Registrar shall record his reasons
in writing for issuing such notice

(4) If the Registrar is satisfied on the basis of information available with or furnished to him or on a
representation made to him by any person that the business of a company is being carried on for a
fraudulent or unlawful purpose or not in compliance with the provisions of this Act or if the grievances of
investors are not being addressed, the Registrar may, after informing the company of the allegations made
against it by a written order, call on the company to furnish in writing any information or explanation on
matters specified in the order within such time as he may specify therein and carry out such inquiry as he
deems fit after providing the company a reasonable opportunity of being heard:

Provided that the Central Government may, if it is satisfied that the circumstances so warrant, direct
the Registrar or an inspector appointed by it for the purpose to carry out the inquiry under this subsection:

Provided further that where business of a company has been or is being carried on for a fraudulent or
unlawful purpose, every officer of the company who is in default shall be punishable for fraud in the
manner as provided in section 447.

(5) Without prejudice to the foregoing provisions of this section, the Central Government may, if it is
satisfied that the circumstances so warrant, direct inspection of books and papers of a company by an
inspector appointed by it for the purpose

(6) The Central Government may, having regard to the circumstances by general or special order,
authorise any statutory authority to carry out the inspection of books of account of a company or class of companies

(7) If a company fails to furnish any information or explanation or produce any document required
under this section, the company and every officer of the company, who is in default shall be punishable
with a fine which may extend to one lakh rupees and in the case of a continuing failure, with an additional
fine which may extend to five hundred rupees for every day after the first during which the failure
continues.

207. Conduct of inspection and inquiry.— (1) Where a Registrar or inspector calls for the books of
account and other books and papers under section 206, it shall be the duty of every director, officer or
other employee of the company to produce all such documents to the Registrar or inspector and furnish
him with such statements, information or explanations in such form as the Registrar or inspector may
require and shall render all assistance to the Registrar or inspector in connection with such inspection.

(2) The Registrar or inspector, making an inspection or inquiry under section 206 may, during the
course of such inspection or inquiry, as the case may be,—

(a) make or cause to be made copies of books of account and other books and papers; or

(b) place or cause to be placed any marks of identification in such books in token of the
inspection having been made

(3) Notwithstanding anything contained in any other law for the time being in force or in any contract
to the contrary, the Registrar or inspector making an inspection or inquiry shall have all the powers as are
vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit in respect
of the following matters, namely:—

(a) the discovery and production of books of account and other documents, at such place and time
as may be specified by such Registrar or inspector making the inspection or inquiry;

(b) summoning and enforcing the attendance of persons and examining them on oath; and

(c) inspection of any books, registers and other documents of the company at any place.

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(4) (i) If any director or officer of the company disobeys the direction issued by the Registrar or the
inspector under this section, the director or the officer shall be punishable with imprisonment which may
extend to one year and with fine which shall not be less than twenty-five thousand rupees but which may
extend to one lakh rupees.

(ii) If a director or an officer of the company has been convicted of an offence under this section, the
director or the officer shall, on and from the date on which he is so convicted, be deemed to have vacated
his office as such and on such vacation of office, shall be disqualified from holding an office in any
company

208. Report on inspection made.— The Registrar or inspector shall, after the inspection of the
books of account or an inquiry under section 206 and other books and papers of the company under
section 207, submit a report in writing to the Central Government along with such documents, if any, and
such report may, if necessary, include a recommendation that further investigation into the affairs of the
company is necessary giving his reasons in support.

209. Search and seizure.— (1) Where, upon information in his possession or otherwise, the
Registrar or inspector has reasonable ground to believe that the books and papers of a company, or
relating to the key managerial personnel or any director or auditor or company secretary in practice if the
company has not appointed a company secretary, are likely to be destroyed, mutilated, altered, falsified or
secreted, he may, after obtaining an order from the Special Court for the seizure of such books and papers,—

(a) enter, with such assistance as may be required, and search, the place or places where such
books or papers are kept; and

(b) seize such books and papers as he considers necessary after allowing the company to take
copies of, or extracts from, such books or papers at its cost.

(2) The Registrar or inspector shall return the books and papers seized under subsection (1), as soon
as may be, and in any case not later than one hundred and eightieth day after such seizure, to the company
from whose custody or power such books or papers were seized:

Provided that the books and papers may be called for by the Registrar or inspector for a further period
of one hundred and eighty days by an order in writing if they are needed again:

Provided further that the Registrar or inspector may, before returning such books and papers as
aforesaid, take copies of, or extracts from them or place identification marks on them or any part thereof
or deal with the same in such other manner as he considers necessary.

(3) The provisions of the Code of Criminal Procedure, 1973 (2 of 1974) relating to searches or
seizures shall apply, mutatis mutandis, to every search and seizure made under this section.

210. Investigation into affairs of company.— (1) Where the Central Government is of the opinion,
that it is necessary to investigate into the affairs of a company,—

(a) on the receipt of a report of the Registrar or inspector under section 208;

(b) on intimation of a special resolution passed by a company that the affairs of the company
ought to be investigated; or

(c) in public interest,

it may order an investigation into the affairs of the company.

(2) Where an order is passed by a court or the Tribunal in any proceedings before it that the affairs of
a company ought to be investigated, the Central Government shall order an investigation into the affairs
of that company

(3) For the purposes of this section, the Central Government may appoint one or more persons as
inspectors to investigate into the affairs of the company and to report thereon in such manner as the
Central Government may direct.

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