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CA Intermediate Paper-2
CA Intermediate Paper-2
PRELIMINARY
4 Chapter 1 : Preliminary
OR
Define Private Company. Briefly explain the privileges and exemptions for a private company as
provided under the Companies Act, 2013.
Ans. ‘Private company’ means a company having such minimum paid-up share capital as may be prescribed,
and which by its articles,-
 Restricts the right to transfer its shares;
 Except in case of OPC, limits the number of its members to 200:
 Provided that where 2 or more persons hold 1 or more shares in a company jointly, they shall, for
the purposes of this clause, be treated as a single member:
 Provided further that-
o Persons who are in employment of the company; and
o Persons who, having been formerly in the employment of the company, where members of
the company while in that employment and have continued to be
o members after the employment ceased, shall not be included in the number of members;
and -Prohibits any invitation to the public to subscribe for any securities of the company.
The procedure for converting a public company will require:
(i) Passing of a Special Resolution authorizing the conversion and altering the articles so as to include
therein the restrictions specified in Section 2(68)
(ii) Changing the name clause of the Memorandum of the company by omitting the word “Private”.
(iii) Obtaining the approval of the Tribunal as required by Section 14(1).
(iv) Filing of the documents along with a printed copy of the articles as altered with the Registrar
within 15 days. [Section 14 (2)]
Public company:
‘Public company’ means a company which-
 Is not a private company;
 Has such minimum paid up capital, as may be prescribed.
 Provided that a company which is a subsidiary of a company, not being a private company, shall be
deemed to be a public company for the purpose of this Act even where such subsidiary company
continues to be a private company in its articles.
One Person Company (OPC) :
‘One Person Company’ means a company which has only one person as a member.
 Provisions applicable to OPC:
¾ OPC is also private company.
¾ Except for the specific provision applicable to OPC, all the provisions of the Act and the Rules as
are applicable to a ‘private company’, shall equally apply to OPC.
¾ In case the company proposed to be formed is OPC, the memorandum must be subscribed to by
1 person.
¾ In the case of OPC, the memorandum shall state the name of a person, who, in the event of death
or incapacity of the member, shall become the member of the OPC.
¾ In the case of OPC, the words ‘One Person Company’ shall be mentioned in brackets below the
name.
Navkar Institute | CA Intermediate | Paper 2 : Corporate and Other Laws 5
¾ Every private company shall have a minimum of 2 members, However, OPC shall have 1 member
only.
¾ The number of members shall not exceed 200 in case of a private company. However, OPC shall
have 1 member only.
¾ Every private company shall have a minimum of 2 directors, however, every OPC shall have a
minimum of 1 director.
Small Company:
Q-4 Define the term ‘Small Company’ as contained in the Companies Act, 2013]
A company shall be a small company only if it satisfies both the following conditions:
 Its paid up share capital does not exceed-
· Rs. 50 lakh; or
· Such higher amount as may be prescribed (not being more than Rs. 5 crore).
 Its turnover (as per the last profit and loss account) does not exceed-
· Rs. 2 crore; or
· Such higher amount as may be prescribed (not being more than Rs. 20 crore).
A company shall not be a small company, if -
 It is a public company; or
 It is a holding company of any company; or
 It is a subsidiary company of any company; or
 It is a company registered u/s 8 (viz. it is a non-profit company); or
 It is a company or a body corporate governed by any Special Act.
COMPANY LIMITED BY SHARES:
‘Company limited by Shares’ means a company having the liability of its members limited by the
memorandum to the amount, if any, unpaid on the shares respectively held by them.
Q-5 Under what circumstances a company becomes subsidiary of another company under the provisions of
the Companies Act, 2013?
‘Subsidiary company’, in relation to any other company (that is to say the holding company), means a
company in which the holding company-
 Controls the composition of the Board of Directors; or
 Exercises or controls more than one-half of the total voting power either at its own or together
with one or more of its subsidiary companies.
Restrictions on layers :
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.
General Circular No. 20/2013 dated 27.12.2013:
MCA has vide General Circular No. 20/2013 dated 27.12.2013, clarified that the shares held by a company or
power exercisable by it in another company in a ‘fiduciary capacity’ shall not be counted for the purpose of
determining the holding-subsidiary relationship in terms of the provision of section 2(87).
Provisions contained in the Companies (Restriction on Number of Layers) Rules, 2017:
Restriction on number of layers for certain classes of holding companies:
6 Chapter 1 : Preliminary
 On and from the date of commencement of these Rules, no company shall have more than 2 layers of
subsidiaries.
 However, this restriction shall not affect a company from, acquiring a company incorporated outside
India with subsidiaries beyond 2 layers as per the laws of such country.
 For the purpose of computing the number of layers, one layer which consists of one or more wholly
owned subsidiary or subsidiaries shall not taken into account.
Provisions for existing companies:
Every company existing on the commencement f these Rules, which has number of layers of subsidiaries in
excess of the layers specified under these Rules-
 Shall file, with the registrar a return in form CRL-1 disclosing the details specified therein, within a
period of 150 days from the date of publication of these Rules in the Official Gazette.
 Shall not, after the date of commencement of these Rules, have any additional layer of subsidiaries
over and above the layers existing on such date; and
 Shall not, in case one or more layers are reduced by it subsequent to the commencement of these
Rules, have the numbers of layers beyond the number of layers it has after such reduction or maximum
layers allowed under these Rules, whichever is more.Punishment for contravention:
 If any company contravenes any provision of these Rules the company and every officer of the company
who is in default shall be punishable with fine which may extend to Rs. 10,000 and where the
contravention continuing one, with a further fine which may extend to Rs. 1000 for every day after the
first during which such contravention continues.
Non-applicability of the Rules:
Nothing continued in these Rules shall apply to the following classes of companies:
 A banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949.
 A Non-Banking Financial Company as defined in clause (f) of section 45-I of the Reserve Bank of India
and considered as systematically important non-banking financial company by the RBI.
 An insurance company being a company which carries on the business of insurance in accordance with
provisions of Insurance Act, 1938 and the Insurance Regulatory Development Authority Act, 1999.
 A government company referred to in clause (45) of section 2 of the Act.
DEFINITIONS:
Section 2 states that- In this Act, unless the context otherwise requires,—
Section:1 Abridged prospectus: means a memorandum containing such salient features of a prospectus
as may be specified by the Securities and Exchange Board by making regulations in this behalf;
Section:2 Accounting standards: means the standards of accounting or any addendum thereto for
companies or class of companies referred to in section 133;
Section 133 of the Act deals with the Central Government to Prescribe Accounting Standards. As per
the section, 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 theChartered Accountants Act, 1949, in consultation with and after examination of the
recommendations made by the National Financial Reporting Authority.
Section 133 is to be read with Rule 7 of the Companies (Accounts) Rules, 2014.
Accordingly,
I. The standards of accounting as specified under the Companies Act, 1956 shall be deemed to be the
8 Chapter 1 : Preliminary
Section:11 Body corporate or Corporation: includes a company incorporated outside India, but does
not include—
(i) a co-operative society registered under any law relating to co-operative societies; and
(ii) any other body corporate (not being a company as defined in this Act), which the Central
Government may, by notification, specify in this behalf;
Section:12 Book and Paper and Book or Paper : include books of account, deeds, vouchers, writings,
documents, minutes and registers maintained on paper or in electronic form;
 As per the Companies (Specification of definitions details) Rules, 2014, “e-Form” means a form in
the electronic form as prescribed under the Act or the rules made thereunder and notified by the
Central Government under the Act;
Section:13 “Books of account” includes records maintained in respect of—
(a) all sums of money received and expended by a company and matters in relation to which the
receipts and expenditure take place;
(b) all sales and purchases of goods and services by the company;
(c) the assets and liabilities of the company; and
(d) the items of cost as may be prescribed under section 148 in the case of a company which belongs
to any class of companies specified under that section;
 Section 148 of the Companies Act, 2013 authorises Central Government to Specify Audit of Items of
Cost in Respect of Certain Companies.
Section:15 Called-up capital : means such part of the capital, which has been called for payment;
Section:16 Charge : means an interest or lien created on the property or assets of a company or any of
its undertakings or both as security and includes a mortgage;
Section:17 Chartered Accountant : means a chartered accountant as defined in clause (b) of sub-
section (1) of section 2 of the Chartered Accountants Act, 1949 who holds a valid certificate
of practice under sub-section (1) of section 6 of that Act;
Section:20 Company: means a company incorporated under this Act or under any previous company
law;
[Refer clause 67 of section 2 (Previous Company Law) along with the above definition]
Section:21 Company limited by guarantee : means a company having the liability of its members
limited by the memorandum to such amount as the members may respectively undertake
to contribute to the assets of the company in the event of its being wound up;
Section:22 “Company limited by shares: means a company having the liability of its members limited
by the memorandum to the amount, if any, unpaid on the shares respectively held by
them;
Section:24 Company secretary or Secretary: means a company secretary as defined in clause (c) of
sub-section (1) of section 2 of the Company Secretaries Act, 1980 who is appointed by a
company to perform the functions of a company secretary under this Act;
- Exemption: This clause shall not apply to a section 8 (Formation of Companies with
Charitable Objects, etc.) company as per the Notification dated 5th June, 2015.
Section:25 Company secretary in practice: means a company secretary who is deemed to be in practice
under sub-section (2) of section 2 of the Company Secretaries Act, 1980;
12 Chapter 1 : Preliminary
Section:61 Official Liquidator : means an Official Liquidator appointed under sub-section (1) of section
359.
Section:62 One Person Company : means a company which has only one person as a member;
Section:63 Ordinary or special resolution : means an ordinary resolution, or as the case may be, special
resolution referred to in section 114 (Ordinary and Special Resolution);
Section:64 Paid-up share capital or share capital paid-up : means such aggregate amount of money
credited as paid-up as is equivalent to the amount received as paid- up in respect of shares
issued and also includes any amount credited as paid-up in respect of shares of the company,
but does not include any other amount received in respect of such shares, by whatever
name called;
Section:65 Postal ballot : means voting by post or through any electronic mode;
 This definition is related to section 110 to be read with Rule 22 of the Companies (Management
and Administration) Rules, 2014 specifying the procedure to be followed for conducting of business
through postal ballot and provides the list of items of business which should be transacted only
by means of voting trough a postal ballot.
Section:66 Prescribed : means prescribed by rules made under this Act;
Section:68 Private company : means a company having a minimum paid-up share capital as may be rescribed,
and which by its articles,—
(i) restricts the right to transfer its shares;
(ii) except in case of One Person Company, limits the number of its members to two hundred:
¾ Provided that where two or more persons hold one or more shares in a company jointly, they
shall, for the purposes of this clause, be treated as a single member:
¾ Provided further that—
(A) persons who are in the employment of the company; and
(B) persons who, having been formerly in the employment of the company, were members
of the company while in that employment and have continued to be members after
the employment ceased, shall not be included in the number of members; and
(iii) prohibits any invitation to the public to subscribe for any securities of the company;
- The requirement of having a minimum paid up share capital shall not apply to a section 8
company vide notification dated 5th June 2015.
¾ Since nothing has been prescribed so far. Thus, there is no minimum paid up share
capital to form a private company.
¾ [Exemptions given to specified IFSC public company vide notification dated 4th January,
2017.]
Section:69 Promoter:
Q-6 Who shall be considered as promoter according to the definition given in the Companies Act, 2013?
Explain.
means a person—
(a) who has been named as such in a prospectus or is identified by theB company in the annual
return, or
(b) who has control over the affairs of the company, directly or indirectly whether as a shareholder,
director or otherwise; or
14 Chapter 1 : Preliminary
Section: 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 or his relative is a member or director;
(v) a public company in which a director and manager is a director and holds along with his relatives,
more than two per cent of its paid-up share capital;
(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act
in accordance with the advice, directions or instructions of a director or manager;
(vii) any person on whose advice, directions or instructions a director or manager is accustomed to
act:
Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions
given in a professional capacity;
(viii) any 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; This Clause (viii) shall not
apply with respect to section 188 to a private company vide Notification No. G.S.R. 464(E)
dated 5th June, 2015.
(ix) such other person as may be prescribed;
As per Rule 3 given in the Companies (Specification of Definitions Details) Rules, 2014, for the purposes
of sub-clause (ix) of clause (76) of section 2 of the Act, a director (other than an independent director)
or key managerial personnel of the holding company or his relative with reference to a company, shall
be deemed to be a related party.
Section:77 Relative, with reference to any person, means anyone 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; Rule 4 given in the
Companies (Specification of Definitions Details) Rules, 2014 provides of the List of Relatives in
terms of Clause (77) of section 2. Accordingly,
a person shall be deemed to be the relative of another, if he or she is related to another in the
following manner, namely:-
(1) Father: Provided that the term “Father” includes step-father.
(2) Mother: Provided that the term “Mother” includes the step-mother.
(3) Son: Provided that the term “Son” includes the step-son.
(4) Son’s wife.
(5) Daughter.
(6) Daughter’s husband.
(7) Brother: Provided that the term “Brother” includes the step-brother;
(8) Sister: Provided that the term “Sister” includes the step-sister.
Section: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
Limited by shares/ guarantee
OR
Unlimited company
Restriction : prohibit the payment of Restriction / Intension : apply its profits, if any
any dividend to its members or other income in promoting its object
(1) Power of central government to issue license :
This section allows the central government to register such person or association of person as company
with limited liability without addition of words “limited” or “private limited” to its name by issuing license
with such conditions as its deems fit.
Where it is proved to the satisfaction of the central government that any company whether the limited or
any private limited company was formed the act or under any previous law with the objects specified under
the section 8 of the Companies act 2013.
(2) It on satisfaction grant license under sec.8 to such company with such restriction and regulation as it
deems fit.
(3) Privileges of limited company:
On issue of license under these section company enjoys same privileges as that of the limited company.
(4) A firm can be a member of the company registered under section 8.
(5) Alteration of memorandum & articles:
A company registered under this section shall not alter the provision of its memorandum or articles
except with the prior approval of the central government.
(6) Conversion into any other kind of company: a company registered under this section may convert into
company of any other kind only after complying with such conditions as may be prescribed.
- For conversion of section 8 company into such other kind the company needs to provide a special
resolution in its general meeting for approval of such conversion.
(7) Central government may on being satisfied by order revoke the license issued under section 8 if it feels
that the company contravenes the provision or violate the objects or affairs of company are being
conducted in detrimental manner. But before such revocation of license the C.G. must give written
notice of its intention to revoke license and opportunity of being heard should be given.
(8) On satisfaction if C.G revokes the license it may order for dissolution of such company or given order
for the amalgamation with such other company registered under this section.
(9) If on winding up of the company whose license is revoked C.G order for disposals of the assets and pay
off the liabilities of the company and if after payment of such liabilities any assets or money is left it
may order to deposit the same to the insolvency and bankruptcy fund formed under section 244 of the
insolvency and bankruptcy code, 2016.
(10) If company fails to comply with the provision of the these section then it shall be liable for a fine
varying from 10 lakhs to 1 crore rupees and directors & every officer of the company who is in default
shall be punishable with imprisonment for a term which may extend to 3 years or fine from 25000 to 25
lakhs rupees or both.
Enables the shareholders, creditors & Anyone dealing with the company will know whether
Those who deal with the company the transaction he intends to make with the company is
To know – what its power are & within the objects of the company and not ultra vires.
-what is the range of its activities
 Memorandum contains the fundamental conditions upon which alone the company is allowed to be
incorporated.
IMPORTANCE of memorandum:
Memorandum is also called as the charter of the company because it is:
 Key document containing: vital detail of the company.
 Most important document as regards incorporation of the company is concerned.
ÂMost fundamental document of the company specifying:
The most important information relating to the company.
Memorandum is a public document. i.e any person (member or not) can inspect it in office of registrar.
No company can be registered without a memorandum.
It is one of the main document required to be filed with the registrar at the time of registration of the
company.
The memorandum of a company shall state/ contents of memorandum / clauses contained in the
memorandum:
I. Name clause :
 State the name of the company.
 In case of Public company: “Limited” shall be the last word of the name of the company.
company Private company: “Private Limited “shall be the last word of the name of the Company.
 Requirement of the word Limited and Private Limited not apply to the company registered u/s 8.
II. Situation clause :
 Mention the name of the state in which the registered office of the company is proposed to be
situated.
III. Object clause :
 State the object for which the company is proposed to be incorporated and any matter considered
necessary in furtherance of.
Navkar Institute | CA Intermediate | Paper 2 : Corporate and Other Laws 23
IV. Liability clause :
 State the liability of members of the company is limited or unlimited.
 In case of a company limited by
Shares Guarantee
Liability to the amount unpaid, if any, the amount up to which each member
On the shares held by them. Undertakes to contribute in the event of
Winding up of the company.
- The articles of a company shall be in such form ( viz. Table F, G, H, I and J) as may be applicable to
it.
Provision contained in the Companies (Incorporation) Rules, 2014 w.r.t. signing of memorandum and articles:
 The memorandum and articles shall be signed by each subscriber to the memorandum.
 Each subscriber have to add his name, address and occupation, if any, in the presence of at least 1
witness who shall attest the signature and shall likewise sign and add his name, address and occupation,
if any.
 The witness shall state that “I witness to subscribers, who have subscribed and signed in my presence
(date and place to be given); further, I have verified their identity details (ID) for their identification
and satisfied myself of their identification particulars as filled in”.
 Where a subscriber to the memorandum is illiterate, he shall affix his thumb impression which shall be
described as such by the person, writing for him, who shall place the name of the subscriber against or
below the thumb impression and authenticate it by his own signature and he shall also write against
the name of the subscriber, the number of shares taken by him.
 Such person shall also read and explain the contents of the memorandum and articles of association to
the subscriber and make an endorsement to the effect on the memorandum and articles of association.
 The type written or printed particulars of the subscribers and witnesses shall be allowed as if it is
written by the subscriber and witness respectively so long as the subscriber and the witness, as the
case may be, affix his or her signature or thumb impression, as the case may be.
ACT TO OVER-RIDE MEMORANDUM, ARTICLES, ETC.
 The provisions of the Companies Act, 2013 shall have effect, notwithstanding anything to the contrary
contained in –
¾ Memorandum of a company; or
¾ Articles of a company; or
¾ Any agreement executed by a company; or
¾ Any resolution passed by the company in general meeting; or
28 Chapter 2 : Incorporation of Company and Matters Incidental Thereto
¾ Any resolution passed by the company in board meeting.
 If any provision contained in the –
¾ Memorandum of a company; or
¾ Articles of a company; or
¾ Any agreement executed by a company; or
¾ Any resolution passed by the company in general meeting; or
¾ Any resolution passed by the company in board meeting.
Is consistent with the provisions contained in the Act, then such provision shall be void to the extent of
such inconsistency.
BINDING FORCE OF MEMORANDUM AND ARTICLES:
 Every member is given some individual rights under the Act and the articles. If a company deprives
(take away possession) any of its members of such rights, such a member can sue the company for
enforcement of his rights.
 The company is bound to comply with all the terms and conditions contained in the memorandum and
articles.
Therefore, the following conclusion may be drawn:
- If a company is about to commit a breach of any terms and conditions of memorandum and
articles, any member may obtain an injunction from the court thereby restraining the company
from committing such breach.
- If a company has already committed a breach of any terms and conditions of memorandum or
articles, any member may sue the company, directors and the persons responsible for such breach.
 When memorandum and articles are registered, it shall be deemed that these documents were signed
by every member of the company individually.
 Every member shall be bound to comply with the provisions contained in the memorandum and articles.
 In case of non-compliance, the company may sue a member.
 There is no privacy of contract between the members.
 However a member may enforce his rights against another member through the company, but not
directly.
 The memorandum and the articles do not bind a company to the outsiders. This is based on the general
rule of law that a stranger to a contract does not acquire any rights under the contract.
 Therefore, an outsider cannot take the help of the articles to establish a contract with the company.
Q-2 Explain the limitations relating to alternation of Articles of Association of a company.
Ans. Limits on the Alteration of Articles: Every company has a right to alter its articles by following a simple
process laid down in section 14 of the Companies Act, 2013.
Generally speaking the right of a company to alter its Articles is without and restriction. However,
section 14 of the Act limits the right of the company to alter its Articles by imposing the following
restrictions:
(i) The alteration cannot override its Memorandum or in any way conflict with the provisions thereof.
(ii) It cannot not be in violation of any provision of the Companies Act or any other statute.
(iii) It cannot allow an activity which is illegal (as a company can be formed only for a lawful object).
CONVERSION OF COMPANIES FROM ONE CLASS TO ANOTHER CLASS/ CONVERSION OF COMPANIES ALREADY
REGISTERED :
State the conditions necessary for converting a class of company into another class of company
OR
The Directors of a company registered and incorporated in the name “Mars Textile India Ltd.” desire to
change the name of the company entitled “National Textiles and Industries Ltd.” Advise as to what procedure
is required to be followed under the Companies Act, 2013?
Ans.
According to the Companies Act, 2013, a company may convert itself in some other class of company by
altering its memorandum and articles of association.
Following is the law with respect to the conversion of the companies already registered.
1. By alteration of memorandum and articles:
- 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
provision of this chapter.
DEFINITION:
 Fraud:
“Fraud” in relation to affairs of a company or any body corporate, includes-
• any act,
• omission,
• concealment of any fact, or
• abuse of position
committed by any person, or any other person with the connivance in any manner, with intent to deceive,
to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or
any other person, whether or not there is any wrongful gain or wrongful loss;
• Wrongful gain:
“Wrongful gain” means the gain by unlawful means of property to which the person gaining is not
legally entitled;
(d) Disclosure of the particulars : the prospectus of the company shall disclose the following particulars -
(i) the name of the underwriters;
(ii) the rate and amount of the commission payable to the underwriter; and
(iii) The number of securities which is to be underwritten or subscribed by the underwriter absolutely
or conditionally.
(e) No commission to be paid : there shall not be paid commission to any underwriter on securities
which are not offered to the public for subscription;
(f) Copy of payment of commission to be delivered to registrar: a copy of the contract for the payment of
commission is delivered to the Registrar at the time of delivery of the prospectus for registration.
For section 42 of the principal Act, the following section shall be substituted, namely:—’42.
(1) A company may, subject to the provision s of this section, make a private placement of securities.
(2) A private placement shall be made only to a select group of persons who have been identified by the
Board (herein referred to as “identified persons”), whose number shall not exceed fifty or such higher
number as may be prescribed [excluding the qualified institutional buyers and employees of the
company being offered securities under a scheme of employees stock option in terms of provisions of
clause (b) of sub-section (1) of section 62], in a financial year subject to such conditions as may be
prescribed.
(3) A company making private placement shall issue private placement offer and application in such form
and manner as may be prescribed to identified persons, whose names and addresses are recorded by
5. Application money payable on securities is each day during which such default continues or
less than 5% of the nominal value of the Rs.1lakh,
security or such other percentage or whichever is less.
amount, as may be specified by SEBI in
contravention of Sec.39.
6. Return of allotment is not filed with the
Registrar after making allotment of securities
in contravention of Sec.39.
7. Public offer of securities is made by the Company:
company without first obtaining the Minimum fine:Rs.500,000;
permission for listing of securities from Maximum fine:Rs.50,00,000
any stock exchange in contravention of Sec.40. Every officer of the company who is in default:
With differential
rights as to
dividend, voting or
Kinds of share otherwise
capital
Number of
shares
The class of
directors or
employees to SR specify the Current market
whom sweat particulars of price
equity shares are
to be issued
Consideration , if
any
In the prescribed
form;
The notice of
redemtion of
preference
shares is to be
given to ROC :
In the prescribed
form
The notice of
redemtion of
preference
shares is to be
given to ROC
The Tribunal
SEBI , in the case of
The creditors of shall give notice
listed companies
the company of such
application to
the
Registrar
 The Tribunal shall take into consideration the representations, if any, made to it, within 3 months from
the date of receipt of notice given by the Tribunal, by –
CG
the Registrar
Has been
dischared;
or
 The Tribunal may impose such terms and conditions while confirming the reduction of share capital as
it may deem fit.
 The Tribunal shall not confirm the reduction of share capital unless –
(a) The accounting treatment proposed by the company for reduction of share capital is in conformity
with the accounting standards specified in section 133 or any other provision of this Act; and
(b) A certificate to that effect is given by the company’s auditor, and such certificate has been filed
with the Tribunal.
 The order of confirmation of the reduction of share capital shall be published by the company in such
manner as may be directed by the Tribunal.
v. Registration of order of the Tribunal and minute approved by the Tribunal:
 Where the reduction of share capital is confirmed by the Tribunal, the Tribunal shall approve a
minute stating –
(a) The amount of the share capital;
(b) The number of share into which the share capital is to be divided;
(c) The amount of each share; and
(d) The amount, if any, which shall be deemed to be paid-up on each share.
 The company shall deliver to ROC for registration –
(a) A certified copy of the order of the Tribunal; and
(b) A certified copy of the minute approved by the Tribunal.
 The registrar shall register the order of the Tribunal and the minute produced before him. He shall
issue a certificate of registration of reduction of share capital.
Navkar Institute | CA Intermediate | Paper 2 : Corporate and Other Laws 75
DIFFERENCE BETWEEN REDUVTION OF CAPITAL AND DMINUTION OF CAPITAL:
Basis ofdistinction Reduction of capital(Sec.66) Diminution of capital(Sec.61)
1. Meaning It means reduction of Cancellation of shares u/s 61 does notanyway affect
issued capital. the issued capital. It results
indiminution of authorised capital.
2. Method a) Cancellation of paid up Cancellation of shares which have
capitalwhich is lost or is not beentaken or agreed to be taken by any person.
unrepresented bythe assets
of the company.b) Return of
capital which is in excessof
needs of the company.
c) Reduction in unpaid capital.
3. Interest of
creditors Interest of creditors affected. Interest of creditors are not affected.
4. Consent of
creditors a) The consent of creditors The creditors have no right to object andtherefore there
must beobtained; orb) The is no need to obtain theconsent of the creditors.
creditors must be discharged
;orc) Reduction in unpaid
capital.
5. Approvalof
Tribunal Approval of the Tribunal is
required. Approval of the Tribunal is not required.
6. Nature of
resolution SR is required. OR is required.
7. Effect onm
emorandum Reduction may not result Diminution of capital always results inalteration of
in alterationof capital clause authorised capital resulting in analteration in capital
of memorandum. clause of memorandum.
RIGHT SHARES OR RIGHT OF PRE-EXEMPTION (FURTHER ISSUE OF SHARES) [SEC.62]:
1. Applicability of Sec.62:
· Sec 62 applies to all companies having a share capital.
· Sec 62 applies when a company proposes to issue further shares.
2. Offer of further shares to existing shareholders (i.e. Right Shares):
i. Nature of right:
Further shares shall be offered to the existing equity share holders in proportion to the paid
up share capital held by them.
Every existing shareholder shall have a right to –
76 Chapter 4 : Share Capital and Debentures
 Accept the offer of shares offered to him; or
 Decline the offer of shares offered to him; or
 Renounce the shares offered to him in favour of any other person (unless the article restrict
such right).
ii. Letter of offer
Further shares shall be offered to the existing shareholders by sending to each of them, a
letter of offer.
The letter of offer shall be despatched to all the existing shareholder by –
 Registered post; or
 Speed post; or
 Electronic mode.
The letter of offer shall specify –
 The member of shares offered;
 The time (minimum 15 days maximum 30 days) within which the offer may be accepted
(however, in case of a private company, if 90% of the members give their consent in
writing or in electronic mode, the periods lesser than ‘minimum 15 days’ and ‘maximum
30 days’ shall apply, as per Notification No. G.S.R. 464(E) dated 5th June, 2015);
 A statement that if the offer is not accepted with the time specified in the letter of
offer, the offer shall be deemed to have been declined; and
 A statement that every shareholder has a right to renounce the shares offered to him
to any other person (unless the articles restrict such right).
iii. Disposal of shares, if offer is not accepted:
The shares which remain unsubscribed by the existing shareholders, may be disposed off by
the board of directors in such manner which is not disadvantageous to the shareholders and
the company.
Q-11 When can a Public Company offer the new shares (further issue of shares) to persons other than the
existing shareholders of the Company? Can these shares be offered to the Preference Shareholders?
[hint: point 3 & 4 , shares can be issued to any persons who may be preference shareholders as well
provided such issue is authorized by a special resolution of the company and are issued on such
conditions as may be prescribed.
OR
A listed company at Bombay Stock Exchange, intends to offer its new shares to non-members. State
whether it is permitted under the Companies Act, 2013.
Ans.
1. Offer of further shares to employees:
Further shares may be offered to the employees, if such further shares are offered –
Under Employees’ Stock Option Scheme;
Under an authority of SR passed by the company; and
By complying with such conditions as may be prescribed.
However in case of private company, instead of ‘SR’, an ‘OR’ shall be sufficient.
2. Offer of further shares to any person:
Further shares may be offered to any persons (whether or not those persons include the existing
shareholders or employees, and whether there shares are issued for cash or for consideration
other than cash), if –
5. Right to renounce The existing share holder has a right to No existing share holder has a right
renounce the shares offered to him. to renounce the bonus shares.
NOTICE TO BE GIVEN TO REGISTRAR FOR ALTERATION OF SHARE CAPITAL [SECTION 64]
Where–
 a company alters its share capital in any manner specified in section 61 (1) ,
 an order made by the Government under section 62(4) read with 62(6) has the effect of increasing
authorised capital of a company; or
 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.
In default : If a company and any officer of the company who is in default contravenes the provisions of
sub-section (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.
PURCHASE BY A COMPANY OF ITS OWN SHARES [SEC.67]:
Prohibition on buying own share:
 No company (whether public or private) shall buy its own shares.
 However, the right of the company to redeem the preference shares shall not be effected.
Giving financial assistance for purchases of shares:
 General Rule:
 No public company shall give financial assistance for purchase of its own shares or its holding company.
 The restriction applies to every kind of financial assistance, whether it is direct or indirect, and whether
it is given by way of a loan, guarantee, provision of security or otherwise.
¾ Exception (financial assistance is permitted):
(a) Lending of money by banking company in the ordinary course of his business.
(b) The provision of money by a company.
o In accordance with any scheme.
o Approved by company through special resolution, and
o In accordance with such requirements as may be prescribed.
o For the purchase of 50 paid up shares in the company or its holding company.
o Being a purchase of shares by the trustee.
o For the benefit of employees.
Convertible
Secured Redeemable
(mandatority or
optionally , partially
or fully)
In the case of a transfer or transmission of Within a period of one month from the date of receipt
securities by the company of the instrument of transfer or the
intimation of transmission
In the case of any allotment of debenture. Within a period of six months from the date of allotment
 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.
 In case of a Specified IFSC public company, it shall deliver the certificates of all securities to subscribers
after incorporation, allotment, transfer or transmission within a period of sixty days.” – Notification
Dated 4th January, 2017
 Whereas in case of Specified IFSC Private Company - a Specified IFSC private company shall deliver the
certificates of all securities to subscribers after incorporation, allotment, transfer or transmission
within a period of sixty days.”.- Notification Dated 4th January, 2017
(1) Transfer of security of the deceased:
• 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.
REFUSAL OF REGISTRATION AND APPEAL AGAINST REFUSAL [SECTION 58]:
 Section 58 of the Companies Act, 2013, deals with process of the company to be followed by on refusal
to register the transfer of securities.
i. If a private company limited by shares refuses, to register the transfer of, or the transmission of
the right to any securities or interest of a member in the company, then the company shall send
notice of the refusal to the transferor and the transferee or to the person giving intimation of
such transmission, within a period of thirty days from the date on which the instrument of transfer,
or the intimation of such transmission, was delivered to the company.
DEPOSIT:
According to the section 2(31) of the Companies Act,2013, the term ‘deposit’ includes any receipt of money
by way of deposit or loan or in any other form, by a company, but does not include such categories of amount
as may be prescribed in consultation with the RBI.
According to the Companies (acceptance of deposits) Rules, 2014, following categories of amount may
not be considered as deposits-
Q-1 What os not deposit as per Rule 2(1)(c) of the Companies (Acceptance of Deposit) Rules, 2014?
Ans. :
1. Amount received from government etc.:
Any amount received from-
(a) The central government; or
(b) Any state government; or
(c) Any local authority; or
(d) A statutory authority constituted under an Act of Parliament or a State Legislature; or
(e) Any source whose repayment is guaranteed by CG or SG.
2. Amount received from foreign government etc.:
Any amount received, in accordance with the provisions of Foreign Exchange Management Act, 1999
and Rules and regulations made thereunder, from-
(a) Foreign government; or
(b) Foreign or international banks; or
(c) Foreign governments owned development financial institutions; or
CHARGE:
According to section 2(16) of the Companies Act, 2013 “charge” has been defined as an interest or lien
created on the property or assets of a company or any of its undertakings or both as security and includes
mortgage.
- Thus, charge is :
· An interest on lien
· Created on the property or assets
· Of a company or any of its undertakings or both
· As security and includes a mortgage.
Q-1 Why creating a charge is a necessary for companies?
Ans.
 Generally, companies depend on share capital for funding their projects.
 When the company raises money through borrowings, they may issue debentures or by obtaining
loans from financial institutions/banks.
 These financial institutions/banks need a surety regarding the repayment of their funds.
 Thus, they create a mortgage or hypothecation on the assets of the company for safe and secured
lending of the funds.
 This creation of right on the assets and properties of the borrower companies is known as a charge on
assets.
Once charge is registered and filed, it becomes an information in public domain as to how much company
has borrowed against its assets and from whom.
Sec. 77 requires registration of every charge created on any property of the company, whether such property
is-
 Movable or immovable
 Tangible or intangible
 Situated in India or outside India.
The charge shall be registered in such form, in such manner and on payment of such fees, as may be prescribed.
The prescribed form containing the particulars of the charge shall be signed by the company and the charge-
holder.
The charge and the instrument creating a charge, if any shall also be filed with the Registrar of Companies.
REGISTER OF MEMBERS:
1. Provisions contained in the Act:
I. Applicability of Sec.88:
 Sec 88 applies to every company, whether public or private, whether having a share capital
or not.
II. Legal requirements:
 Every company shall keep and maintain the following registers:
(a) Register of Members (separately indicating each class of equity and preference shares
held by every member, whether residing in India or outside India)
(b) Register of Debenture-holders
(c) Register of any other security holders.
III. Form and manner of maintenance of registers:
 All the aforesaid registers shall be maintained in such form and manner, as may be prescribed
by CG.
IV. Index of names to be a part of registers:
 All the aforesaid registers shall contain an index of the names included therein.
V. Register and index in case of demat:
 The register and index of beneficial owner maintained by a depository shall be deemed to
be the registers maintained by the company.
VI. Foreign registers:
 A company may keep outside India, a part of the registers required to be maintained under
this section (termed as ‘foreign register’).
 The foreign register shall contain the names and particulars of members, debenture-holders
or other security holders residing outside India.
 The foreign register can be maintained only if the company is so authorised by its articles.
 The foreign register shall be maintained in such manner, as may be prescribed by CG.
2. Provision contained in the Rules:
I. Form:
 Every company limited by shares shall maintain the register of members in Form No. MGT-1.
II. Time limit for maintenance of register of members:
 The register of members shall be maintained from the date of registration of the company.
Navkar Institute | CA Intermediate | Paper 2 : Corporate and Other Laws 113
 In the case of a company existing on the date of commencement of the Companies Act, 2013,
the particulars as available in the register of members maintained under the Companies Act,
1956 shall be transferred to the new register of members, and in case additional information,
required as per the provisions of the Companies Act, 2013 and the rules made thereunder, is
provided by the members.
 Such information may also be added in the register as and when provided.
III. Particulars to be contained in register of members in case of a company having no share capital:
Q-1 What are the particulars company required to keep when compny has no share capital?
Ans.
 With respect to each member-
(a) His name and address (registered office address in case the member is a body corporate);
e-mail address; PAN or CIN; Unique Identification Number; if any; Father’s/ Mother’s/ Spouse’s
name; Occupation; Status; Nationality;
in case member is a minor, name of the guardian and the date of birth of the member; name and
address of nominee;
(b) Date of becoming member;
(c) Date of cessation;
(d) Amount of guarantee if any;
(e) Any other interest if any; and
(f) Instruction, if any, given by the member with regard to sending of notices etc.
IV. Particulars to be contained in other registers:
 Every company which issues or allots debentures or any other security shall maintain a separate
register of debenture holders or security holders, as the case may be, for each type of debentures
or other securities in Form No. MGT-2.
V. Manner of maintenance of all the registers required to be maintained u/s 88:
Q-2 State the manner in which register required to u/s 88 should be maintain by company?
Ans.
a. Time limit for making entries : The entries in the registers shall be made within 7 days after the Board
of Directors or its duly constituted committee approves the allotment or transfer of shares, debentures
or any other securities.
b. Place of keeping the registers : The registers shall be maintained at the registered office of the
company unless SR is passed in GM authorizing the keeping of the register at any other place within the
city, town, or village in which the registered office is situated or any other place in India in which more
than 1/10th of the total number of members reside.
VI. Index of names to be included in Registers:
(a) Every register required to be maintained u/s 88 shall include an index of the names entered in the
respective registers and the index shall, in respect of each folio, contain sufficient indication to
enable the entries relating to that folio in the register to be readily found.
(b) The index shall not be necessary in case the number of members is less than 50.
(c) The company shall make the necessary entries in the index simultaneously with the entry for
allotment or transfer of any security in such Register.
1. Properly called:
 The meeting must be called by a proper authority; and
 Proper notice must be served in the manner specified under the Act.(Sec. 101&102)
2. Properly convened:
 Proper quorum must be present in the general meeting.(Sec.103)
 Proper chairman must preside the meeting(Sec.104)
3. Properly conducted:
 The business must be validly transacted at the meeting (i.e. resolution must be properly moved
and passed, and voting by show of hands and on poll must be proper)(Sec.105, 106, 107, 108,109,
112, 113, 114, 115, 116, 117, and 121)
 Proper minutes of meeting must be prepared.(Sec. 118 and 119)
PROPER AUTHORITY TO CALL AGM:
1. Board:
 Board has power at common law to call any GM (viz. AGM as well as EGM).
 Sec.100 confers an express power on the Board to call an EGM, whenever the Board may deem fit.
 An individual director has no power to call a GM.
 Notice of a GM given by a secretary or a director is invalid if it is given without the sanction of the
Board.
 However, the notice may be ratified by the Board.
2. Members:
 Members who fulfil the requirements of Sec. 100 are eligible to requisition an EGM.
 In case of failure of the Board to call the EGM within the time limits given u/s 100, the members
may themselves call an EGM as per the provisions of Sec. 100.
members
legal
represent
ative of
the
Directora Notice should deceased
be served to member
Assignee
Auditor of the
of the insolvent
Company member
Ordinary
Appoinment of and fixing of
business
the remuneration of the Declaration of dividend
auditors [ Sec 102(2)]
Appoinment of directors in
place of those retring
Eligible members
By registered post
By courier service
Throuh electronic means
[registered e-mail ID of the
recepient]
(b) During the period when facility for remote e-voting is provided, the members of the company,
holding shares either in physical form or in dematerialized form, as on the cut-off date, may opt
for remote e-voting.
(c) Once a member has cast his vote on a resolution, he shall not be allowed to change it subsequently
or cast the vote again.
(d) A member may participate in GM even after exercising his right to vote through remote e-voting,
but he shall not be allowed to vote again.
(e) At the end of the rempte e-voting period, the facility for remote e-voting shall forthwith be
blocked.
10. Appointment of scrutinizer:
(a) The Board of Directors shall appoint one or more scrutinizers.
Navkar Institute | CA Intermediate | Paper 2 : Corporate and Other Laws 149
(b) The scrutinizers may be Chartered Accountant in practice, Cost Accountant in practice, or Company
Secretary in practice or an Advocate, or any other person who is not in employment of the company
and is a person of repute who, in the opinion of the board can scrutinize the voting and remote e-
voting process in a fair and transparent manner.
(c) The scrutinizer(s) may take assistance of a person who is not in employment of the company and
who is well-versed with the electronic voting system.
(d) The scrutinizer shall be willing to be appointed.
(e) The scrutinizer shall be available for the purpose of ascertaining the requisite majority.
(f) The scrutinizer(s) shall maintain a register to record the assent or dissent received, mentioning
the particulars of members.
(g) The register & all other papers relating to voting by electronic means shall remain in the safe
custody of the scrutinizer(s) until the chairman considers, approves and signs the minutes and
thereafter, the scrutinizer(s) shall hand over the register and other related paper to the company.
11. Voting at GM:
(a) During GM, a company may opt to provide the same electronic voting system as used during
remote e-voting.
(b) In such a case, the members attending the GM and who have not exercised their right to vote
through remote e-voting, shall be entitled to vote using the electronic voting system.
(c) At the GM, after conclusion of discussion, the chairman shall, with the assistance of scrutinizer(s)
allow voting on the resolutions, by use of polling paper or by using an electronic voting system for
all those members who are present at the GM but have not cast their votes by availing the remote
e-voting facility.
12. Declaration of result of voting:
(a) The scrutinizer(s) shall, immediately after the conclusion of voting at the GM, first count the vote
cast at the GM, and thereafter, the scrutinizer(s) shall unblock the votes cast through remote e-
voting in the presence of at least 2 witnesses not in the employment of the company.
(b) The scrutinizer(s) shall make, not later than 3 days of conclusion of the GM, a consolidated
scrutinizer’s report to the Chairman. The report shall contain the total votes cast in favour of, and
against, the resolution.
(c) The chairman shall declare the result of the voting forthwith.
(d) The manner in which members have cast their votes, that is, affirming or negating the resolution,
shall remain secret and shall not be available to the chairmen, scrutinizer or any other person till
the votes are cast in the GM.
(e) If the requsite number of votes are cast in favour of the resolution, the resolution deemed to be
passed on the date of the relevant GM.
(f) The result declared along with the report of the scrutinizer shall be placed on the website of the
company, if any, immediately after the result is declared by the chairman.
PASSING OF RESOLUTIONS BY POSTAL BALLOT [SEC.110]:
A. Provisions w.r.t. postal ballot as contained in the Act:
1. Applicability : The provisions relating to passing of resolution by postal ballot are contained in Sec. 110
read with Rule 22 of the Companies (Management and Administration) Rules, 2014.
2. Postal ballot mandatory for certain business : Every company shall transact such items of business by
postal ballot, as CG may, by notification, declare to be transacted only by means of postal ballot.
150 Chapter 7 : Management & Administration
3. Postal ballot optional for certain business : Any company may use postal ballot for transacting 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 the meeting.
4. Manner of transacting business by postal ballot:
 The manner of transacting business by postal ballot shall be such as may be prescribed by CG.
 Where any business is transacted by postal ballot, such business shall not be transacted at GM.
5. Resolution deemed to be passed in GM:
 If a resolution is assented to by the ‘requisite majority’ by means of postal ballot, it shall be
deemed to have been duly passed at GM convened in that behalf.
6. Meaning of postal ballot: ‘Postal ballot’ means voting by post or through any electronic mode. [Sec.2(65)]
B. Provisions w.r.t. postal ballot as contained in Rule 22 of the Companies (Management and Administration)
Rules, 2014 – Procedure for passing resolution by postal ballot:
1. Postal ballot mandatory for certain business:
 The following items of business shall be transacted only by means of voting through a postal
ballot:
(a) Alteration of the Object Clause of MOA
(b) Alteration of articles for insertion or removal of provisions defining a private company
(c) Change in place of Registered office outside the local limits of any city, town or village
(d) Change in Objects for which a company has raised money from public through prospectus
and still has any unutilized amount out of the money so raised u/s 13(8)
(e) Issue of shares with differential rights as to voting or dividend or otherwise
(f) Variation in the rights attached to a class of shares or debentures or other securities
(g) Buy-back of own shares by the company
(h) Election of a small shareholders director u/s 151.
(i) Sale of the whole or substantially the whole of an undertaking u/s 180(1)(a).
(j) Giving loans, or extending guarantee or providing security in excess of the limits specified
u/s 186(3).
 Following companies are not required to transact any business through postal ballot:
Ö One person companies
Ö All other companies having members up to 200.
2. Notice to be sent by the company:
 The company shall send to all the shareholders, notice of postal ballot containing –
Ö Draft resolution;
Ö Reasons for passing the resolution by postal ballot;
Ö A request to the shareholders to send to the company their assent or dissent in writing on a
postal ballot within 30 days.
3. Mode of sending documents:
 The notice of postal ballot shall be sent by –
4. Issue of advertisement:
 The company shall cause an advertisement to be published stating that the ballot papers have
been despatched.
 The advertisement shall be published –
¾ Atleast once in a vernacular newspaper in the principal vernacular language of the district in
which the registered office of the company is situated, and having a wide circulation in that
district; and
¾ At least once in English language in an English newspaper having country-wide circulation.
 The advertisement shall be published at least 5 days before the date of beginning of the voting
period.
 The advertisement shall specify the following matters:
(a) A statement that the business is to be transacted by postal ballot.
(b) The date of completion of dispatch of notices
(c) The date of commencement of voting through postal ballot
(d) The date of end of voting through postal ballot
(e) A statement that any postal ballot received after the date of end of voting shall not be valid
(f) A statement that the members, who have not received postal ballot forms, may apply to the
Company and obtain a duplicate thereof
(g) The contact details of the person responsible to address the grievances connected with the
voting by postal ballot.
5. Notice to be placed on website:
 The notice of the postal ballot shall also be placed on the website of the company forthwith after
the notice is sent to the members.
 Such notice shall remain on such website till the last date for receipt of the postal ballots from the
member.
6. Appointment of scrutinizer:
 The board of directors shall appoint one scrutinizer.
 A person who is in the employment of the company shall not be appointed as a Scrutinizer.
 The scrutinizer must be a person who can conduct the postal ballot voting process in a fair and
transparent manner.
 A person shall be appointed as a Scrutinizer only if he is willing to be so appointed.
 The Scrutinizer must be available for the purpose of ascertaining the requisite majority.
152 Chapter 7 : Management & Administration
7. Register to be maintain by scrutinizer:
 The scrutinizer shall maintain a register either manually or electronically.
 The register shall contain, with respect to voting by shareholders by postal ballot, -
(a) His assent or dissent received;
(b) His name, address, folio number or client ID.
(c) Number of shares held by him, nominal value of such shares and whether the shares have
differential voting rights;
(d) Details of postal ballots which are received in defaced or mutilated form;
(e) Details of postal ballot forms which are invalid.
8. Safe custody of register and other papers:
 The postal ballot received back from the shareholders and all other papers relating to postal
ballot including voting by electronic means, shall remain in the safe custody of the scrutinizer
until the chairman considers, approves and signs a minutes.
 Thereafter, the scrutinizer shall return the ballot papers and other related papers or register to
the company who shall preserve such ballot papers and other related papers or register safely.
9. Report of the scrutinizer:
 The scrutinizer shall submit his report as soon as possible after the last date of receipt of postal
ballots but not later than 7 days thereof.
 The assent or dissent received after 30 days from the date of issue of notice shall be treated as if
reply from the member has not been received.
10. Prohibition on destroying postal ballot:
 No parson shall deface or destroy the postal ballot papers received back from the shareholders.
 No person shall declare the identity or any shareholder who has recorded his assent or dissent on
the postal ballot.
11. Display of result on the website:
Meaning:
 A dividend is a payment made by a company to its shareholders, usually as a distribution of profits i.e.
a portion of profits earned and allocated as payable to the shareholders yearly or whenever declared.
 A dividend is allocated as a fixed amount per share, with shareholders receiving a dividend in proportion
to their shareholding.
 Dividend includes any interim dividend.
 The term ‘interim dividend’ means the dividend declared between 2 AGMs.
TYPES OF DIVIDEND:
1. Dividend payable on the basis of time (when declared)
Dividend
Interim Final
dividend dividend
a. Interim dividend:
When the Board of Directors declare dividend between two AGM of the company, such dividend
is known as Interim dividend.
b. Final dividend:
When the dividend is declared at the AGM of the company, it is known as Final dividends.
 All the provisions applicable on dividend are also applicable on interim dividend.
2. Dividend payable on the basis of Nature of shares:
Preference
shares
Profits of current FY
(after providing for
depreciation)
Sourses of dividend
Moneys provided by
Undistributed profits
CG or SG in pursuance of a
of previous FY(s)
guarantee given by it.
(after providing for
depreciation)
Profits of current FY
4. Restriction w.r.t. rate of interim dividend:
 When is the restriction applicable? :
¾ Where the company has incurred loss during the current FY upto the end of immediately
preceding quarter.
 Effect of restriction:
Company engaged in the generation Matters which are not required to bedisclosed by the
or supply of electricity Electricity Act, 2003
Company governed by any otherLaw Matters which are not required to bedisclosed by that
law.
174 Chapter 9 : Accounts of Companies
IV. Laying of financial statements:
 At every AGM, the Board shall lay the following documents:
¾ FS of the company; and
¾ CFS of the company and of all the subsidiaries, if any.
V. Form and items contained in financial statements:
 Rule 4A of the Companies (Accounts) Rules, 2014 makes the following documents:
¾ The FS shall be in the form specified in Schedule III to the Act and comply with AS or Indian
Accounting Standards, as applicable.
¾ The items contained in the FS shall be prepared in accordance with the definition and other
requirements specified in the AS or Indian Accounting Standards, as the case may be.
VI. Consolidated financial statements:
¾ The CFS which are required to be laid before the AGM, shall be prepared in the same form and
same manner in which the FS of the company are prepared.
¾ CG may provide for the consolidation of FS of companies in such manner as may be prescribed.
 Rule 6 of the Companies (Accounts) Rules, 2014 lays down the following provisions:
(a) The consolidation of FS of the company shall be made in accordance with the provisions of
Schedule III of the Act and the applicable AS.
(b) If a company is not required to prepare CFS under the AS, it shall be sufficient if the company
complies with the provisions contained in Schedule III of the Act.
(c) Preparation of CFS shall not be required if all the following conditions are satisfied:
i. The company is wholly owned subsidiary, or is partially owned subsidiary of another
company and all its other members, having been intimated in writing and for which the
proof of delivery of such intimation is available with the company, do not object to the
company not preparing the CFS.
ii. It is a company whose securities are not listed and are not in the process of listing on
any stock exchange, whether in India or outside India.
iii. Its ultimate or any intermediate holding company files CFS with the Registrar which are
in compliance with the applicable AS.
(d) A company which does not have any subsidiary but has one or more associate companies or
joint ventures or both, is not required to prepare CFS in respect of associate companies or
joint venture or both. However, this relaxation shall be available only for the FY 2014-2015
(e) A company which does not have any subsidiary in India, but has one or more subsidiaries
incorporated outside India, is not required to prepare CFS in respect of the subsidiaries
incorporated outside India. However, this relaxation shall be available only for the FY 2014-
2015.
VII. Statement containing salient features of the subsidiary:
¾ The company shall also attach along with its FS, a separate statement containing the salient
features of the FS of its subsidiary or subsidiaries in such form as may be prescribed, viz. Form No.
AOC-1, as per Rule 5.
VIII. Exemption:
(a) CG may, by notification, exempt any class or classes of companies from complying with any of the
requirements of this section or the rules made thereunder.
Navkar Institute | CA Intermediate | Paper 2 : Corporate and Other Laws 175
(b) CG may grant such exemption on its own or on application by a class or classes of companies.
(c) CG may grant such exemption if it considers necessary to grant such exemption in the public
interest.
(d) Such exemption may be grant either unconditionally or subject to such conditions as may be
specified in the notification.
IX. Notes:
¾ For the purpose of Sec. 129, any reference to the FS shall include any notes annexed to such FS.
X. Persons responsible and Penalty:
Company Contravenes the provisions of section 129
XI. Exemption:
- Sec.129 shall not apply to the extent of application of AS 17 (Segment Reporting) to the Government
Companies engaged in defence production.
[Notification No. G.S.R. 463(E) dated 5th June, 2015]
RE-OPENING OF ACCOUNTS ON COURT’S OR TRIBUNAL’S ORDER [SEC.130]:
Q-4 Explain the condition under which accounts of the company can be re opened on courts or tribunal
order.
Ans. Conditions for re-opening the books of account and recasting the FS:
(1) An application shall be made to the Court or Tribunal by –
(a) CG; or
176 Chapter 9 : Accounts of Companies
(b) SEBI; or
(c) The income-tax authorities; or
(d) Any other statutory regulatory body or authority; or
(e) Any person concerned.
(2) An order is made by a Court or Tribunal to the effect that –
(a) The relevant earlier accounts were prepared in a fraudulent manner; or
(b) The affairs of the company were mismanaged during the relevant period, because of which doubts
are raised as to whether the FS are reliable or not.
(3) Before passing any order, the Court or Tribunal shall give notice to, and shall take into consideration
the representations, if any, made by –
(a) CG;
(b) SEBI;
(c) The income-tax authorities;
(d) Any other statutory regulatory body or authority; or
Recast account to be final:
 The accounts revised or re-cast u/s 130 shall be final.
VOLUNTARY REVISION OF FS OR BOARD’S REPORT [SEC.131]:
Q-5 Zaveri limited is a company in which public are interested. BOD of the company during an Board
meeting discussed and felt that they are providing wrong accounting treatment to some of the
transaction carried out by the company. Now board wants to revise the accounts of preceding year for
which AGM is been already held. Decide under the light of the companies act whether the decision
taken by the board is viable or not?
Ans. Conditions for voluntary revision:
 The BOD may decide to prepare the revised FS or a revised Board’s Report, if the following
conditions are satisfied:
(a) The Board is of the opinion that –
¾ The FS do not comply with the provisions of Sec. 129; or
¾ The Board’s Report does not comply with the provisions of Sec. 134.
(b) The FS or Board’s Report may be revised only in respect of any of the preceding 3 FY.
(c) The revision of the FS or the Board’s Report may be made only after obtaining the approval
of the Tribunal.
¾ For this purpose the company shall make an application to the Tribunal in such form
and manner as may be prescribed.
¾ Before passing any order, the Tribunal shall give notice to CG and Income Tax Authorities,
and shall take into consideration the representations, if any, made by CG and Income
Tax Authorities.
¾ The copy of the order of the Tribunal shall be filed with the Registrar.
(d) The revised FS or the Revised Board’s Report shall not be prepared more than once in a FY
(e) The detailed reasons for revision of the FS or the Board’s Report shall be disclosed in the
Board’s report prepared for the relevant FY, viz. the FY in which such revision is made.
2. Purpose of constitution:
 The advisory committee shall advice CG on the formulation and laying down of accounting policies
and AS for adoption by the companies.
3. Working of the committee:
 The committee shall give its recommendations to CG on such matters of accounting policies and
standards as may be referred to it from time to time.
4. Terms of appointment of members:
(a) The members of the advisory committee shall hold office for such term as may be determined by
CG at the time of their appointment.
(b) Any vacancy shall be filled by CG.
(c) The non-official members of the Advisory Committee shall be entitled to such fees, travelling,
conveyance and other allowances as are admissible to the officers of CG of the highest rank.
5. Members of the committee:
 The advisory committee shall consist of following members:
(a) A chairperson who shall be a person of eminence well versed in accountancy, finance, business
administration, business law, economics or similar discipline.
(b) One member each nominated by the Institute of Chartered Accountants of India, Institute of
Cost Accountants of India, and Institute of Company Secretary of India.
(c) One representative nominated by CG.
(d) One representative nominated by the RBI.
(e) One representative nominated by the Comptroller and Auditor General of India.
(f) A person who holds or has held the office of professor in accountancy, finance or business
management in any university or deemed university.
(g) The chairman of the Central Board of Direct Tax, or his nominee.
(h) Two members to represent the chambers of commerce and industry to be nominated by CG.
(i) One representative nominated by the SEBI.
FINANCIAL STATEMENT, BOARD’S REPORT, ETC. [SEC.134]:
Section 134 deals with financial statements as well as board’s report. The auditor’s report is to be attached
to every financial statement. A report by the Board of directors containing details on the matters specified,
178 Chapter 9 : Accounts of Companies
including director’s responsibility statement, shall be attached to every financial statement laid before
company. The Board’s report and every annexure has to be duly signed. A signed copy of every financial
statement shall be circulated, issued or published along with all notes or documents, the auditor’s report
and Board’s report.
i. Authentication (i.e. approval and signing) of Financial statements [Section 134(1), (2) & (7)]:
Q-6 State the authorised person who can approve the financial statement of the company?
Ans. Financial Statement
Signed by
(D) the list of proceedings against the auditor or audit firm or any partner of the audit firm pending with
respect to professional matters of conduct, as disclosed in the certificate, is true and correct.
(f) The certificate shall also indicate whether the auditor satisfies the criteria provided in section 141
[Section 141 provides provisions on eligibility, qualification and disqualification of Auditor which will
be discussed later]
(g) Communication to Auditor : Further, the company shall inform the auditor concerned of his or its
appointment, and also file a notice in the prescribed form of such appointment with the Registrar
within 15 days of the meeting in which the auditor is appointed
Here, “appointment” includes reappointment.
TERM OF AUDITOR [SECTION 139(2)]
(a) Section 139(2) provides that listed companies and other prescribed class or classes of companies (except
one person companies and small companies) shall not appoint or re-appoint—
(1) an individual as auditor for more than one term of five consecutive years; and
(2) an audit firm as auditor for more than two terms of five consecutive years.
(b) Rule 5 of the Companies (Audit and Auditors) Rules, 2014 has prescribed the following classes of
companies for the purposes of section 139(2) :]
(1) all unlisted public companies having paid up share capital of rupees 10 crore or more;
(2) all private limited companies having paid up share capital of rupees 20 crore or more;
(3) all companies having paid up share capital of below threshold limit mentioned in (2) and (3)
above, but having public borrowings from financial institutions, banks or public deposits of
rupees 50 crores or more.
(c) Cooling off Period:
(1) An individual auditor who has completed his term (i.e. one term of five consecutive years) shall
not be eligible for re-appointment as auditor in the same company for five years from the
completion of his term;
(2) An audit firm which has completed its term (i.e. two terms of five consecutive years) shall not be
eligible for re- appointment as auditor in the same company for five years from the completion of
such term.
(d) Further, 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.
(e) Transitional period :
¾ Every company, existing on or before the commencement of this Act which is required to comply
with the provisions of this sub-section, shall comply with requirements of this sub-section within
Government company
Appointment of auditor by CAG in
respect of a financial year. Any other company owned or controlled,
by the Central Government/any State
Government /Governments partly by
theCentral Government and partly by one
within 180 days from the or more State Government
commeneement of the F/Y
A Special Notice is received ( from Director/ Member etc.) for Removal of auditor
A Board meeting will be held ( To decide of above & than authorising the filing of
application to CG.
Approval of CG received
o From IDT -3
o From IDT -3
o within 30 days of resignation
Resignation by auditor of
Government company or
o with company, Registrar & CAG
company contrrolled by
CG or SG
Q-22 Difference between bailee’s particular lien and bailee’s general lien
Ans.
Sr.No. Basis of distinction Bailee’s particular lien(sec. 170) Bailee’s general lien(sec.171)
1 Nature of right Particular lien gives right to retain General lien gives right to
only such goods in respect of which retain any goods belonging
charges due remain unpaid. to another person for any
amount due from him.
2 Condition for Particular lien can be excercised General lien may be exercised even
excercising lien only when some labour or skill has though no labour or skill has been
been expended on the goods, expended on the goods.
resulting in an increase in
value of goods.
3 Right to whom? Every bailee is entitled to General lien can be excercised by
particular lien. only such person as are specified
u/s 171.[e.g. bankers, factors,
wharfingers, policy broker.]
Any other bailee may exercise
general lien if there is an
agreement to this effect.
State with reasons whether the following statement are correct or incorrect:
(1) A pledge of documents of title to goods by a mercantile agent is a valid pledge.
Answer: Correct: As per section 178 of the Indian contract act, 1872, a pledge by mercantile agent will
be valid if the agent is in possession of goods or document of title to the goods and if such possession
is with the opinion of the owner.
(2) If the pawnor makes a default in the payment of debt, or performance of duty, as agreed, the pawnee
has a right to sell the thing pledged for which no reasonable notice of the sale is required.
Answer: Incorrect: As per section 176 of the Indian contract act, 1872, if the pawnor makes any default
(2) An agency in which the agent himself has interest in the subject matter of agency is called:
a. Agency by estoppels b. Agency by holding out
c. Agency by necessity d. Agency coupled with interest
Answer. D. agency coupled with interest
(3) Who may be a principal?
Answer. Competent to contract
(4) …………….Is forbidden by law.
a. Valid contract
b. Illegal agreement
c. Voidable contract
d. Unenforceable contract
Answer. b. illegal agreement
(5) Drawing cash from ATM , sale by fall of hammer at an auction sale, etc. are example of..
a. Express contract
b. Implied contract
c. Tacit contract
d. Unlawful contract
Answer. b. implied contract
INTRODUCTION
• Negotiable instrument is such which can be easily converted in to money.
• This is because it was not practicable for a trading community to carry on with bulk of currency in force,
therefore this instrument is made and based on requirement this instrument is easily converted into
cash whenever the person needs.
• Objective of this act is to legalise system by which instrument contemplate by it could pass from hand
to hand by negotiation .it deals with promissory notes,bills of exchange and cheque. This are negotiable
instrument.
MEANING OF NEGOTIABLE INSTRUMENT
• Instrument Which is transferable by delivery, like cash , and is also capable of being sued upon by
person holding it for time being. The property in such an instrument passes to bona fide transferee for
value.
• Section13 of Negotiable Instrument Act does notodefine NI but mentions three kinds of it namely bills,
notes and cheque. But Transfer of Properties act speaks of instruments which are for the time being, by
law of custom, “Negotiable”.
• Thus in India , Government Promissory notes, Shah jog Hundis , Delivery orders and Railway Receipts
for goods have been negotiable by usage or custom of trade. (Pg.2.1 Q.1PM) (Pg.2.1SM).
QUESTION & ANSWERS
1.) What is promissory note? Explain the essential elements of promissory note?
Ans. A promissory note’ is an instrument in writing (not being a bank-note or a currency note) containing an
unconditional undertaking signed by maker.
To pay certain sum of money only to-
• The certain person or
• The order of the certain person.
Essential characteristic of promissory note.
(a) In writing : an oral promise is not sufficient.
(b) Express promise to pay : there must be an express promise to pay mere acknowledgement ofindebtness
is not sufficient. there must be an express promise not sufficient.
Example :
o I acknowledge myself to be indebted to B in Rs.5000, to be paid on demand for the value received”. the
promise to pay is definite and therefore this is a valid promissory note”.
Mr .B I.O.U Rs 1000.” there is no promise to pay and therefore this is not a valid promissory note.
A B C
Here, A endorse to B and While B is endorsing to C while writing the words sans recourse it means B
excludes liablity and other person are liable to the instrument.
A B C n
Here B while endorsing to C Write the words sans frais in the instrument it means he is excluded from
liability only for expenses.
13.) Explain the terms “Acceptance of honour” and Condition of valid acceptance of 12. honour as used in
the negotiable instrument Act, 1881?
Ans. Meaningsec (7)
`When a bill has been dishonoured and it has been noted or protested for non-acceptance, the holder
may allow any other person to accept it for the honour of the drawer or any one of the endorsers. The
person so accepting the bill is called ‘acceptor for honour’.
Condition of valid acceptance of honour.
(A) The bill must have been dishonoured for non-acceptance.
(B) The bill must have been noted or protested for non-acceptance.
(C) Such Acceptance must be made with the consent of the holder.
(D) The acceptor for honour must not already be liable on the bill (Sec. 108).
(E) It must be indicated on the bill that for whose honour, the bill is accepted. However, if the acceptance
does not indicate for whose honour, acceptance is made, it is deemed to be made for the honour of the
drawer (Sec. 110).
(F) It must be duly signed by acceptor for honour.
SAY YES OR NO
1. When a note is drawn in this form; “I promise to pay Rs. 500 to B only”. Can it be called a negotiable
instrument?
ANS. NO
2. A bill is made payable to “Saroj Sehgal”. Saroj Sehgal endorses it in blank and negotiates it,Is the bill
payable to bearer?
ANS. YES
3. A bill is drawn by an agent acting with the scope of his authority upon his principal. Can the holder
thereof treat it at his option as a note or bill.?
ANS. YES
4. A draws a bill on B and negotiates it away. B is fictitious drawee. Can the holder of the bill treat it as
note made by A ?
ANS. YES
5. A bill is drawn .Pay to X or order the sum of one thousand rupees. In the margin theamount stated is Rs.
100. What is the amount of the bill for ?
ANS. RS.1000
6. When is a negotiable instrument, dated 30th August (in a year) and made payable three months after
date, deemed to be at maturity ?
ANS. 3 rd december
7. A bill of exchange is addressed to Swapan Ganguli. Anil Banerjee writes an acceptance on it. Can Anil
Banerjee bind himself by such acceptance?
ANS. NO
8. Where there are several drawees of a bill, who are not partners, can any one of such drawees accept it
for another without that other’s authority ?
ANS NO
9. A who is the holder of a bill transfers it to B without consideration. B transfers it to C without
consideration. C transfers it to D for value. D transfers it without consideration to E. (a) Can E recover
the amount of the bill from A? (b) Has E any right against D ? Say Yes or No.
ANS. NO
10. A owes to B Rs. 500. B draws a bill on A for Rs. 1,000. A to accommodate B and at his request, accept it.
B sues A on the bill. Can he recover Rs. 1,000 ?
ANS. NO
11. A agrees to supply a quantity of paper to B. B accept a bill for Rs. 1,000 drawn by A, being the price of the
paper. The paper is delivered to B but it turns out to be of a quality different from the stipulated one,
and worth Rs. 500 only. B retains the paper. A sues B on the bill. Is B bound to pay Rs. 1,000 to A ?
INTRODUCTION :-
 The General Clauses Act, 1897 contains ‘Definition’ of some words and some general principles of
interpretation.
 Which shall be applicable to all Central Acts and Regulations where there is no definition in those Acts
or regulation that emerge with the provisions of the Central Acts or in those, Unless there is anything
repugnant(contrary).
 The General Clauses Act has been enacted to shorten language andto avoid the repetition of the same
words in the same course of the same piece of legislation.
 It provides general definitions which shall be applicable to Central Acts and Regulations.
 It provides General principles of Interpretation.
THEORY QUESTIONS :-
Q-1 State the object, scope and applicability of the General Clauses Act, 1897?
Answer
Object:
i. It shortens the language of central Acts.
ii. To provide, as far as possible, for uniformity of expression in Central Acts, by giving definitions of a
series of terms in common use.
Scope :
 Applicable to whole of India except Jammu and Kashmir,
 It came force on 11th march, 1897.
Applicability :
 Its application made under a reference to all Central legislation and also to rules and regulations made
under a Central Act.
 If a central Act is extended to any territory, the General Clauses Act would also deemed to be applicable
in that territory and would apply in the construction of that Central Act.
 Voluntary applicable by court certain case.
 The provisions of General Clauses Act are mere rules of interpretation and it apply automatically in
each and every case.
 The General Clauses Act would also deemed to be applicable in that territory and would apply in
construction of that Central Act.
 And for the purpose of including the last in a series of days or any other period of time, to use the
word ‘to’.
Gender and Number:
 In all legislature and Regulations, unless there is anything repugnant in the subject or context:
1. Masculine Gender shall be taken to include females.
2. Words in singular shall include the plural and vice-versa.
Q-10 Explain the Rules Regarding Computation of Time.
Answer:-
 Where by any Legislature or Regulation,
 Any Act or proceeding is directed or allowed to be done or taken in any Court or Office on a certain day
or within a prescribed period,
 Then, if Court or Office is closed on that day or last day of the prescribed period,
 The Act or proceeding shall be considered as done or
 Taken in due time if it is done or taken on the next day afterwards on which the Court or Office is open.
MCQS :-
Answers:
(1) (d) (2) (a) (3) (a) (4) (d) (5) (c)
(6) (c) (7) (d) (8) (c) (9) (d) (10) (c)
(11) (b) (12) (b) (13) (c)
BASIC CONCEPT
1. Statutes:-
It means the law and regulation of every sort without considering from which source they emanate
(originate).
‘Statutes’ has been defined as the written will of the legislature solemnly expressed according to
the forms necessary to constitute it the law the state. Normally, the term denotes an Act enacted by
legislature authority.
E.g.:- parliament of India
‘Law’ is the defined as including any ordinance, order, bye-law, rule, regulation, notification and the
like.
Shortly ‘statutes’ written law in contradiction to written law.
3. Deed:-
Deeds are the instrument through all instrument man not be deeds.
In India no distinction seems to be made between instrument and deeds.
In legal language ‘deeds’ as an writing purporting to effect some legal disposition.
SHORT QUESTION
Q-1 What is Interpretation?
Answer:-
It is the process of ascertaining the true meaning of the words used in the statutes. It is the process by
which the real meaning of the Act (or document) and the intention of the legislature in enacting it is
ascertained. It is the process of understanding of any legislation which commences with ascertaining
the background of the statutes, the circumstances in which enacted becomes necessary and finally
reading the law wer-batting(as it is).
Q-2 What is Interpretation? What are the classification of interpretation?
Answer:-
Interpretation means the process by which the court seek to ascertain the meaning of the legislation
through the medium of the authoritative from in which it is expressed.
Classification of interpretation
A) Legal interpretation
B) Doctrinal
Legal Doctrinal
Authentic Grammatical
Usual Logical
LONG QUESTIONS
Q-1 What is meant by interpretation?
Answer:-
 It is the process of ascertaining the true meaning of the words in the statutes.
 It is the process of understanding of any legislation which commences with ascertaining the
background of the statutes, the circumstances in which enactments becomes necessary, and finally
reading the law verbatin(mutatis mutandis-as it is).
 There are, however times when the said process leaves in respect of the meaning of certain words,
expressions and provisions of the laws.
 These doubts can be resolved by taking assistance of certain rules of construction, principles of
interpretation and other aids.
 Supreme court observed that principles of interpretation can be applied only if there is an
ambiguity(confusion) in a provision.
Navkar Institute | CA Intermediate | Paper 2 : Corporate and Other Laws 309
Q-2 What is the rule of literal interpretation?
Answer:-
1. Basic:-
• It is a primary rule of interpretation of statutes.
• It is the cardinal rule of construction that words, sentences and phrases of a statutes should be read in
their ordinary, nature and grammatical meaning so that they nay have effect in their widest amplitude.
2. Maxim:-
‘absoluta sentential expositore non indiget’
• Which means a simple preparation needs no expositor i.e. when you have plain words capable of only
interpretation, no explanation to them is required.
• When the matter of which should have been, but has not been, provided for in a statutes cannot be
supplied by courts as to do so would amount to legislation and would not be construction.
3. Essence:-
• It is based on ‘litera legis’.
• Chart:-
Litera Legis
Literal
Ligal Analysis
Understanding
It is the cardinal rule of construction that words, sentences and phrases of a statutes should be read in
their ordinary, natural and grammatical meaning so that they may have effect in their widest
amplitude(scope).
4. Need:-
• When the language of the statutes is plain and unambiguous and admits of only one meaning, no
question of construction of a statutes arises, for the Act speaks for itself.
• The meaning must be collected from the expressed intention of legislature.
• A word which has a definite and clear meaning should be interrupted with that meaning only,
irrespective of its consequences.
• Sometimes, occasion may arise when a choice has to be made between two interpretations, One
narrower and the other wider or bolder. In such a situation, If the narrower interpretation would
fail to achieve the manifest(to understand the meaning of ) purpose of the legislation, one should
rather adopt the wider one.
5. Understanding:-
This rule of literal interpretation can be read and understood under the following headings:-
“Reasonable corrections are not to over-ride plain terms of a statutes”.
1. Basic:-
• It is a primary rule of interpretation of statutes.
• The rule follows a very premises that statutes has a purpose and inters as per law and should be
read as a whole. The interpretation consistent of all the provision of the statutes should be
adopted. The rule of harmonious construction is the thumb rule to interpretation of any statutes.
Navkar Institute | CA Intermediate | Paper 2 : Corporate and Other Laws 311
2. Maxim/Doctrine:-
“ut res magis valeat quam pereat”
• Meaning thereby that words of statutes must be construed so as to lead to sensible meaning.
3. Essence:-
Chart:-
Ratio legis
Reasonable /
Legal analysis
logical understanding
• Two meaning are possible, one making the statutes absolutely vague and meaningless and
other leading to certainty and a meaningful interpretation, in such case the later interpretation
should be followed.
4. Need:-
• Ordinary meaning is absurd (confusing).
• Literal interpretation fails to achieve purpose of Act.
• When there is no perfect draftsman ship of law.
5. Understanding:-
• Generally the words or phases of a statutes are to be given their ordinary meaning a statutes must
be construed in such a manner so as to make it effective and operative.
6. Examples:-
• The rule provide that if the disciplinary committee(reports the respondent as guilty) the council
can order inquiry.
• In ICAI v/s price water house, the council referred a complaint to DC.
• If literal interpretation is applied then council can be inquiry only if DC reports the responded
quit but council is a body superior to DC.
• Applying reasonable interpretation council may initiate inquiry even if DC doesn’t reports the
respondent guilty.
7. Non applicability:-
i. When ordinary meaning is clear.
ii. Reasonable construction leads to absurdity.
Q-4 What is meant by harmonious construction?
Answer:-
1. Basic :-
312 Chapter 4 : Interpretation of Statutes, Deeds and Documents
• It is the primary rule of interpretation of statutes.
• When there is a conflict in provision than you follow most efficient and strict rule that provide
good effect.
2. Maxim :-
———————————————————————————————————
3. Essence :-
• Provisions needs to be reconciled and Act needs to be read as a whole in a manner that all
provisions are complied with.
4. Need :-
• Act is drafted to be interpreted as a whole but many a time for single matter more than one
provision exist.
• When there is conflict between two or more parts of the statutes then the rule of harmonious
construction needs to be adopted.
• The rule follow very simple premise that every statutes has a purpose and intent as per law and
should be read as a whole.
5. Understanding :-
• Where there are in an enactment two or more provisions which cannot be reconciled with each
other, they should be so interpreted, wherever possible as to give to all of them.
• This is what is known as the rule of harmonious construction. An effort should be made to interpret
a statute in such a way as harmonious with the object of the statutes.
• The rule of harmonious construction is applicable only when there is a real and not merely apparent
conflict between the provisions of an Act, and one of them has not been made subject to the
other.
• When after having construed their context the words are capable of only a single meaning, the
rule of harmonious construction disappears and is replaced by the of literal construction.
6. Example :-
• Write time limit of subsequent AGM(S) from Companies Act,2013 Section 96.
• Double payment or deposit for the same period is not envisaged, nor it can be, therefore, for
construing the meaning of entire amount due as occurring in sub-section (4) of Section 20 of the
Act, sub-section (6) of Section 30 will have to be read along with it and not in isolation. It would
also save sub-section (6) of Section 30 from becoming OTIOSE. The anomalies and differentiation
in the deposits made under sub-sections (1) and (2) of Section 30, though the effect is the same,
would also be saved. It would only harmonize the construction of the two provisions, namely,
sub-section (4) of Section 20 and sub-sections (2) and (6) of Section 30 of the Act. Provisions of one
Section of a statute can not be used to defeat those of another unless it is impossible to effect re-
conciliation between them. (See Raj Krushna v. Vinod Kanungo, AIR (1954) SC 202 and Sultana
Begum (Supra) as also Mohd Sher Khan v. Raja Seth, AIR (1922).
7. Non applicability :-
• When there is a notwithstanding provision then one provision has an overriding effect on other
due to non abstante clause.
OR
OR
Answer:-
1. Basic:-
• It is the primary rule of interpretation of statutes.
• It is an advantageous rule of interpretation for members of the society which preserves them
from any kind of hardship being created through the law on the subject-matter they are fighting
for.
2. Maxim:-
‘quo facit per alium facit per se’
He who acts through another is deemed to act in person.
3. Essence:-
• The rule which is also known as ‘purposive construction’ or mischief rule, enables construction of
four matters in construing an Act.
• Where the language used in a statutes is capable of more than one interpretation, the rule enables
consideration of four matters in constructing(understanding) an act.
I. What was the law before the meaning of the Act,
II. What was the mischief or defect for which the law did not provided,
III. What is the remedy that the Act has provided,
IV. What is the reason for the remedy(solution).
• The rule then direct that the court must adopt that construction which shall suppress(to stop/to
reduce) the mischief and advance(to give) the remedy.
4. Need:-
• Ambiguous(confusing) word.
• Literal interpretation defeats the intention of the Act.
• Extended meaning is required.
5. Understanding:-
• Even in a case where the usual meaning of language used falls short of the whole object of the
legislature a more extended meaning may be attributed(given) to the words, provided they are
fairly susceptible(liable to be used with it) of it.