The Ultimate Solution Summary Book Nov'23
The Ultimate Solution Summary Book Nov'23
Hope you are taking good care of yours and your family's health.
My name is Shubham Singhal and I am the author of this book. I had cleared my CA Final in
Nov 2018 attempt with an All-India Rank 4. I have done my Articleship with Deloitte,
Mumbai in the Statutory Audit department. I am a CA by profession and teacher by passion.
This book is a result of a year's dedicated efforts to bring to you the crispest and quality
content for Law. I truly believe that the content of this book is what I would have personally
used for my preparation. This book consists of everything that you would basically need on
your last day and the content great enough for getting exemption.
Hope you utilize this to the fullest and clear your exams with Flying colors!
I dedicate this book to my MoM. But for her blessings, this book would have been impossible.
Warm regards,
CA Shubham Singhal
In case if you find any errors, typo or otherwise, in this note - Feel free to highlight via
email at - [email protected]
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Index and Last Day Revision Plan
SN Appendix SN Appendix
1 Matters requiring Ordinary Resolution 6 Important Limits of Companies Act
2 Matters requiring Special Resolution 7 Exemptions to Private Companies
3 Matters requiring Unanimous Resolution 8 Exemptions to Govt and Sec 8 Companies
4 Matters for Postal Ballot 9 Exemptions to Nidhi Cos.
5 Chapter-wise trend analysis 10 Exemptions to OPC and Small Cos
Enactment:
Received the assent of the Hon’ble President of India on 29th August 2013
Notified in Official Gazette on 30th Aug 2013 (different dates may be appointed for enforcement)
Flow:
29 Chapters (+ Generally, 1 rule per chapter)
470 Sections (Sec 1 to 148 covered in Intermediate)
7 Schedules
Company: An incorporated association which is an artificial person, having a separate legal entity, with a
perpetual succession, a common seal (optional).
Chapter 1 – Preliminary
Learn Law - The Ranker’s Way By CA Shubham Singhal 2
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: Central Government to Prescribe Accounting Standards
As per Sec 133, CG may prescribe the AS or any addendum thereto, as recommended by ICAI,
constituted u/s 3 of the CA Act, 1949, in consultation with and after examination of
recommendations made by National Financial Reporting Authority (NFRA)
Further, in exercise of powers conferred u/s 133, the CG in consultation with the National
Advisory Committee on AS prescribed that Companies (AS) Rules, 2006 and Companies (Ind AS)
Rules, 2015 may be followed.
3 Alter or Alteration
Includes the making of additions, omissions and substitutions;
5 Articles
Means the articles of association of a company:
as originally framed, or
as altered from time to time, or
applied in pursuance of any previous company law or this Act;
6 Associate Company
In relation to another co., means a company in which that other co. has a significant influence,
but which is not a subsidiary company of the company having such influence and includes a joint
venture company.
Clarification: Shares held by a company in another company in a fiduciary capacity shall not be
counted for the purpose of determining the relationship of associate company
A fiduciary is a person who holds a legal or ethical relationship of trust with one of more
parties (persons or group of persons). Typically, a fiduciary prudently takes care of money or
other assets for another person.
Chapter 1 – Preliminary
Learn Law - The Ranker’s Way By CA Shubham Singhal 3
7 Auditing standards
means the standards of auditing or any addendum thereto for companies or class of companies
referred to u/s 143(10)
Section 143(10) - CG may prescribe the standards of auditing or any addendum thereto, as
recommended by ICAI, constituted u/s 3 of the CA Act, 1949, in consultation with and after
examination of recommendations made by NFRA.
Provided that until any auditing standards are notified, any standard or standards of auditing
specified by the ICAI shall be deemed to be the auditing standards.
14 Branch office, in relation to a company, means any establishment described as such by the co.;
15 Called-up capital means such part of the capital, which has been called for payment;
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;
17 Chartered accountant means a CA as defined in section 2(1)(b) of the Chartered Accountants
Act, 1949 who holds a valid certificate of practice u/ss 6(1) of that Act;
18 Chief Executive Officer means an officer of a company, who has been designated as such by it;
19 Chief Financial Officer means a person appointed as the Chief Financial Officer of a company;
20 Company means a company incorporated under this Act or under any previous company law;
Example: RIL (1973), Tata Steel (1907), Infosys (1981).
Chapter 1 – Preliminary
Learn Law - The Ranker’s Way By CA Shubham Singhal 4
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;
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;
Example: A shareholder who has paid Rs. 75 on a share of face value Rs. 100 can be called upon
to pay the balance of Rs. 25 only.
26 Contributory means a person liable to contribute towards the assets of the company in the
event of its being wound up.
Explanation: For the purposes of this clause, it is hereby clarified that a person holding fully
paid-up shares in a company shall be considered as a contributory but shall have no liabilities of
a contributory under the Act whilst retaining rights of such a contributory;
30 Debenture includes debenture stock, bonds or any other instrument of a company evidencing a
debt, whether constituting a charge on the assets of the company or not.
Provided that, following instrument shall not be shall not be treated as debenture:
a. instruments referred to in Chapter III-D of the RBI Act, 1934; and
b. such other instrument, as may be prescribed by CG in consultation with RBI, issued by a
company,
Chapter 1 – Preliminary
Learn Law - The Ranker’s Way By CA Shubham Singhal 5
41 Financial Year, in relation to any company or BC, means period ending on 31st day of March
every year, and where it has been incorporated on or after the 1st day of January of a year,
the period ending on the 31st day of March of the following year, in respect whereof FS of the
company or BC is made up.
Provided that where a company or BC, which is a holding company or a subsidiary or associate
company of a company incorporated outside India and is required to follow a different FY for
consolidation of its accounts outside India, the CG may, on an application made by that company
or BC in such form and manner as may be prescribed, allow any period as its FY, whether or not
that period is a year.
43 Free reserves means such reserves which, as per the latest audited balance sheet of a company,
are available for distribution as dividend.
50 Issued Capital means such capital as the company issues from time to time for subscription;
51 Key Managerial Personnel, in relation to a company, means:
i. the CEO or the managing director or the manager;
ii. the company secretary;
iii. the whole-time director;
iv. the Chief Financial Officer
v. such other officer, not more than one level below the directors who is in whole-time
employment, designated as key managerial personnel by the Board; and
vi. such other officer as may be prescribed;
Chapter 1 – Preliminary
Learn Law - The Ranker’s Way By CA Shubham Singhal 6
52 Listed company means a company which has any of its securities listed on any recognised stock
exchange (“RSE”);
Provided that such class of companies, which have listed or intend to list such class of
securities, as may be prescribed in consultation with the SEBI, shall not be considered as listed
companies.
According to Rule 2A of the Companies (Specification of definitions details) Rules, 2014, the
following classes of companies shall not be considered as listed companies, namely:
a. Public companies which have not listed their equity shares on a RSE but have listed their:
i. non-convertible debt securities issued on private placement basis in terms of SEBI
(Issue and Listing of Debt Securities) Regulations, 2008; or
ii. non-convertible redeemable preference shares issued on private placement basis in terms
of SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares)
Regulations, 2013;
iii. both categories of (i) and (ii) above.
b. Private companies which have listed their non-convertible debt securities on private
placement basis on a RSE in terms of SEBI (Issue and Listing of Debt Securities)
Regulations, 2008;
c. Public companies which have not listed their equity shares on a RSE but whose equity shares
are listed on a stock exchange in a jurisdiction as specified in section 23(3) of the Act.
Explanation: For the purposes of this clause, the power to do administrative acts of a routine
nature when so authorised by the Board shall not be deemed to be included within the
substantial powers of management;
Power to do administrative act:
power to affix draw and endorse draw and endorse sign any direct registration
the common seal any cheque in any any negotiable certificate of of transfer of any
to any document bank instrument share share
Chapter 1 – Preliminary
Learn Law - The Ranker’s Way By CA Shubham Singhal 7
56 Memorandum means the MoA of a company as originally framed or as altered from time to time
in pursuance of any previous company law or of this Act;
Chapter 1 – Preliminary
Learn Law - The Ranker’s Way By CA Shubham Singhal 8
62 One Person Company (OPC) means a company which has only one person as a member;
68 Private Company means a company having a minimum paid-up share capital as may be prescribed,
and which by its articles:
i. restricts the right to transfer its shares;
ii. except in case of OPC, limits the number of its members to 200:
iii. prohibits any invitation to the public to subscribe for any securities of the company;
The requirement of having a minimum PUSC shall not apply to a Section 8 provided it has not
committed a default in filing its financial statements u/s 137 or annual return u/s 92 with RoC.
70 Prospectus means any document described or issued as a prospectus and includes a red herring
prospectus or shelf prospectus or any notice, circular, advertisement or other document inviting
offers from the public for the subscription or purchase of any securities of a body corporate;
Provided that subsidiary of a public co. shall be deemed to be public co. for the purposes of this
Act even where such subsidiary company continues to be a private company in its articles;
Chapter 1 – Preliminary
Learn Law - The Ranker’s Way By CA Shubham Singhal 9
74 Register of companies means the register of companies maintained by the Registrar on paper or
in any electronic mode under this Act;
75 Registrar means a Registrar, an Additional Registrar, a Joint Registrar, a Deputy Registrar or
an Assistant Registrar, having the duty of registering companies and discharging various
functions under this Act
76 Related Party:
Person Firm Private Company Public Company
77 Relative:
Anyone who is related to another and covers the following:
a) they are members of a HUF (Hindu Undivided Family);
b) they are husband and wife; or
c) one person is related to the other in the prescribed manner as under:
Father (including Mother (including Son (including step-
Son’s wife;
step-father); step-mother); son);
78 Remuneration means any money, or its equivalent given or passed to any person for services
rendered by him and includes perquisites as defined under the Income Tax Act, 1961
84 Share means a share in the share capital of a company and includes stock;
85 Small company means a company, other than a public company:
i. PUSC of which does not exceed Rs. 50 lakh or such higher amount as may be prescribed
which shall not be > Rs. 10 crores; and
ii. turnover of which as per P&L account for the immediately preceding FY does not exceed Rs.
2 crores or such higher amount as may be prescribed which shall not be > Rs. 100 crores
Chapter 1 – Preliminary
Learn Law - The Ranker’s Way By CA Shubham Singhal 10
As per the Companies (Specification of Definitions Details) Rules, 2014, for section 2(85),
PUSC and T/O of small company shall not exceed Rs. 4 crores and Rs. 40 crores respectively.
[Amendment]
86 Subscribed capital means such part of the capital which is for the time being subscribed by the
members of a company;
87 Subsidiary company or Subsidiary, in relation to any other co., means a company in which the
holding company:
i. controls the composition of the Board of Directors; or
ii. exercises or controls more than ½ of the total voting power either at its own or together
with one or more of its subsidiary companies.
Provided that such class or classes of holding companies as may be prescribed shall not have
layers of subsidiaries beyond such numbers as may be prescribed.
88 Sweat equity shares means such equity shares as are issued by a company to its directors or
employees at a discount or for consideration, other than cash, for providing their know-how or
making available rights in the nature of intellectual property rights or value additions.
89 Total voting power, in relation to any matter, means the total number of votes which may be
cast in regard to that matter on a poll at a meeting of a company if all the members thereof or
their proxies having a right to vote on that matter are present at the meeting and cast their
votes;
91 Turnover means the gross amount of revenue recognised in the P&L account from the sale,
supply, or distribution of goods or on account of services rendered, or both, by a company
during a FY;
92 Unlimited company means a company not having any limit on the liability of its members;
93 Voting Right means the right of a member of a company to vote in any meeting of the company
or by means of postal ballot;
Chapter 1 – Preliminary
Introduction to the Chapter:
A person who initiates promotion of a company is called as Promoter [as defined u/s 2(69)]
In this chapter we are going to read about – Incorporation of company, constitutional documents
(MoA and AoA) and various other key provisions.
Types of company on the basis of Liability:
o Limited by Shares
o Limited by Guarantee with Share Capital
o Limited by Guarantee without Share Capital
o Unlimited company with Share Capital
o Unlimited company without Share Capital
The written consent so obtained shall also be filed with the Registrar at the time of incorporation
of the OPC along with its MoA and AoA
Chapter 2 – Incorporation
If at any time, the no. of members is Company carries on business for > 6
reduced below prescribed limit i.e., 7 months while no. of members is so
(public) or 2 (private) reduced
Every person who is a member during the time that it so carries on business after those 6m and is cognizant
of the fact that it is carrying on business with < 7 or 2 members, as the case may be,
shall be severally liable for payment of whole debts contracted during that time, and may be severally sued
therefor
Legal provision:
1. The MoA of a company shall state: [NR SOLO]
the Name of co. with last word Objects for which the company
the state in which the
"Limited" (public) or "Private is proposed to be incorporated
Registered office of the
Limited" (Pvt co.); and any matter incidental
company is to be situated
(Not applicable to Sec 8 Co.) thereto
** Liability clause: Also, state that liability is limited to unpaid amt of shares (in case of co. limited
by shares) or amt upto which member undertake to contribute in event of winding up (in case of ltd.
by Guarantee)
3. Without prejudice to provision u/ss (2), a co. shall not be registered with a name which contains:
Chapter 2 – Incorporation
a. any word or expression which is likely to give the impression that the company is in any way
connected with, or having the patronage of, the CG, any SG, or any local authority, corporation
or body constituted by the CG/SG under any law for the time being in force; or
b. such word or expression, as may be prescribed,
unless the previous approval of CG has been obtained for the use of any such word or expression.
Bonus Points:
a. In case of Govt co., the suffix – “Pvt Ltd” or “Ltd” is not required provided 92 + 137
b. In case of OPC, add the suffix – (OPC) Private Limited
4. A person may make an application (SPICe+/RUN form) to Registrar for reservation of a name as:
(a) the name of the proposed company; or
(b) the name to which the company proposes to change its name.
5. Reservation of Name:
i. Upon receipt of appln u/ss (4), the Registrar may, on the basis of info. and docs furnished with
application, reserve the name:
for 20 days from the date of approval or such other period as may be prescribed in case of
new co.
for 60 days from the date of approval in case of an application by an existing company
ii. Where after reservation, it is found that name was applied by furnishing wrong or incorrect
info, then:
a. if co. is not yet incorporated Cancel reserved name + Applicant liable for penalty upto Rs. 1
lakh;
b. if company is incorporated Registrar may, after giving the company an OOBH:
Chapter 2 – Incorporation
i. either direct the company to change its name within 3 months, after passing an OR;
ii. take action for striking off the name of the company from the register of companies; or
iii. make a petition for winding up of the company.
7. In case of co. limited by guarantee and not having a share capital - Any provision in MoA/AoA
purporting to give any person a right to participate in the divisible profits of co. otherwise than as a
member, shall be void.
Doctrine of Ultra Vires
In case of a company, whatever is not stated in the memorandum as the objects or powers is
prohibited by the doctrine of ultra vires.
An act which is ultra vires is void, and does not bind the company.
Neither the company nor the contracting party can sue on it.
The company cannot make it valid, even if every member assents to it (i.e., ultra vires act cannot be
ratified)
House of Lords in - Ashbury Railway Carriage and Iron Co. Ltd. v. Riche
Facts of the case:
MoA defined its objects as - “The objects for which the company is established are to make and
sell, or lend or hire, railway plants to carry on the business of mechanical engineers and general
contractors…….”.
The company entered into a contract with M/s. Riche, a firm of railway contractors to finance the
construction of a railway line in Belgium.
On subsequent repudiation of this contract by the company on the ground of its being ultra vires,
Riche brought a case for damages on the ground of breach of contract, as according to him the
words “general contractors” in the objects clause gave power to the company to enter into such a
finance contract and, therefore, it was within the powers of the company.
More so because the contract was ratified by a majority of shareholders, it is a valid contract.
Chapter 2 – Incorporation
The shareholders cannot ratify such a contract, as the contract was ultra vires the objects
clause, which by Act of Parliament, they were prohibited from doing.
Author’s Note - The purpose of doctrine of ultra vires has been defeated as now the object clause can
be easily altered, by passing just a special resolution by the shareholders
Entrenchment Provision:
3. AoA may contain provisions for entrenchment
Effect of such provision - AoA may be altered only if conditions or procedures as that are more
restrictive than those applicable in case of special resolution, are met or complied with.
5. Where AoA contain prov. for entrenchment Co. shall give notice to Registrar of such prov. (in
presc. form)
7. A co. may adopt all or any of the regulations contained in the model articles applicable to such co.
8. In case of any company, which is registered after the commencement of this Act, in so far as the
registered articles of such company do not exclude or modify the regulations contained in the model
articles applicable to such company, those regulations (in the model) shall, so far as applicable, be
the regulations of that company in the same manner as if they were contained in the duly registered
articles of the company.
Chapter 2 – Incorporation
The DIM evolved around 150 years ago in the context of the DCN. The role of DIM is opposed to the
role of DCN. Whereas the DCN protects a company against outsiders, the DIM protects outsiders
against the actions of a company. This doctrine also is a possible safeguard against the possibility of
abusing the DCN
Negligence: If with a minimum of effort, the irregularities within a company could be discovered, the
benefit of the DIM would not apply. The protection of the rule is also not available where the
circumstances surrounding the contract are so suspicious as to invite inquiry, and the outsider dealing
with the company does not make proper inquiry.
Forgery: The rule does not apply where a person relies upon a document that turns out to be forged
since nothing can validate forgery. A company can never be held bound for forgeries committed by its
officers.
b. any provision contained in the memorandum, articles, agreement or resolution shall, to the extent to
which it is repugnant to the provisions of this Act, become or be void, as the case may be.
Self-Notes!
Chapter 2 – Incorporation
Declaration, that req. of Act/Rules w.r.t.,
incorporation is complied with, by:
MoA and AoA - Address for
1. Advocate, CA, Cost Accountant, CS in
duly signed by correspondence till
practice engaged in formation of co., AND
Subscribers RO is estb.
2. Person named in AoA (director, manager or
secretary of co. )
Related to first
Particulars (name, residential Particulars of first directors
directors - Interest in
address, nationality and others) - Names, DIN, residential
other firms/BC +
of every subscriber + Proof of address, nationality and other
Consent to act as
identity particulars + Proof of identity
directors
Add on – In case of OPC, file the written consent of nominee in addition to above documents!
2. Issue of Certificate of incorporation (“COI”) - RoC shall, on basis of above doc and info, register
and issue a COI in the prescribed form to the effect that the proposed company is incorporated
under this Act
3. Allotment of Corporate Identity Number (CIN) - RoC shall allot to the co. a CIN, which shall be a
distinct identity for the company and which shall also be included in the COI
4. Company shall maintain & preserve at its RO copies of all docs & info. as originally filed u/ss (1) till
dissolution.
5. If person furnishes any false/incorrect particulars of info. or suppresses any material info., of
which he is aware in any of docs filed with RoC above Such person shall be liable u/s 447
Chapter 2 – Incorporation
Simplified Proforma for Incorporating Company Electronically (SPICe) – For ease of doing business,
MCA has now simplified the process of filing of forms for incorporation of company though SPICe.
Only a natural person who is an Indian citizen whether resident in India or otherwise:
o shall be eligible to incorporate OPC;
o shall be a nominee for the sole member of OPC.
"Resident in India" means a person who has stayed in India for > = 120 days during immediately
preceding FY.
A natural person shall not be member of > 1 OPC at any point of time and the said person shall not
be a nominee of > 1 OPC.
Where a natural person being member in OPC becomes member in another such company by virtue
of his being a nominee in that OPC, such person shall meet eligibility criteria (as given in point
above) within 180 days.
No minor shall become member or nominee of the OPC or can hold share with beneficial interest.
Such Company cannot be incorporated or converted into a section 8 company. OPC may be converted
to private/public companies in certain cases. The procedure of conversion is given in the Rules 6 & 7
of Chapter II of the Companies Act, 2013.
OPC cannot carry out Non-Banking Financial Investment activities including investment in securities
of any BC.
Self-Notes!
Chapter 2 – Incorporation
Commerce Art Science Sports Education Research Social Welfare
b. intends to apply its profits, if any, or other income in promoting its objects; and
c. intends to prohibit the payment of any dividend to its members,
CG may issue a license and thereupon the RoC shall register such company as Limited Company.
[Without addition of the word “Limited” or “Pvt. Ltd” as the case may be]
8. If on winding up/dissolution, there remains, after satisfaction of its liabilities, any asset, it may be:
a. transfer to another sec 8 co. having similar objects subject to T&C imposed by Tribunal, or
b. sold and proceeds thereof credited to Insolvency and Bankruptcy Fund formed u/s 224 of IBC
9. Section 8 co. shall amalgamate only with another Sec 8 co. having similar objectives
Provided that when it is proved that affairs of co. were conducted fraudulently, every OID liable
u/s 447.
Company Directors and OID
Chapter 2 – Incorporation
Minimum fine Rs. 10 lakhs Rs. 25,000
Maximum fine Rs. 1 crore Rs. 25 lakhs
Affairs of co. – fraudulent - Sec 447
2. All monies payable by any member to the co. under MoA/AoA shall be a debt due from him to co.
(i.e., co. can recover calls in arears from members as if it a loan recovery)
Note – Company is liable to members and vice-versa. But members are not liable to each other.
Section 10A: Commencement of business etc.
1. A company having a share capital shall not commence any business or exercise any borrowing powers
unless:
Chapter 2 – Incorporation
declaration by a director, within 180 days of incorp.
The co. has filed with RoC a
(in prescribed form and manner) is filed with RoC
verification of RO provided
that - As on date of declaration, every subscriber
u/s 12(2)
has paid the value of shares agreed to be taken
2. If any default under this section Co. – Rs. 50,000 and every OID – Rs. 1,000/day upto Rs. 1 lakh
3. If no declaration within 180 days + RoC has RGTB that co. is not carrying on any business or
operations RoC may initiate action for the removal of the name of the company from register of
companies
Provided that, in case name change during the last 2 years, print or affix the former name as well.
In case of OPC – The words “One Person Company” to be mentioned in bracket below such name.
Change in RO:
4. Notice of change in situation of RO, verified in manner prescribed Send to RoC within 30 days of
change.
Provided that no company shall change RO from jurisdiction of one RoC to another RoC within the
same State unless confirmed by Regional Director (RD) on appln made in this behalf by co. in
prescribed manner.
Chapter 2 – Incorporation
6. On application u/ss 5, RD to communicate confirmation within 30 days from date of receipt of
application
On such confirmation, co. to file the same with RoC within 60 days of date of confirmation
RoC shall register the same and certify the registration within 30 days from date of filing such
confirmation.
7. The certificate referred u/ss (6) shall be conclusive evidence that all the requirements of this Act
w.r.t, change of RO have been complied with and the change shall take effect from the date of the
certificate.
8. If any default is made in complying with this section Company and every OID shall be liable to
penalty of Rs. 1,000/day during which the default continues but not > Rs. 1 lakhs.
9. If RoC has RGTB that co. is not carrying on any business or operations, he may cause a physical
verification of the RO in prescribed manner and if any default is found to be made in complying with
requirements of sub-section (1) Initiate action for the removal of the name of the company from
register of companies.
Chapter 2 – Incorporation
3. On change of name – RoC shall enter the new name in register of cos. and issue new COI. Name
change effective from issue of CoI
4. Alteration of registered office from one state to another – Effective only on approval of CG
(delegated to RD) on application in prescribed form:
Certified copy of the order of CG approving such change to be filed with RoC of each of the
States.
Such RoCs shall register the same, and
Registrar of the State where the RO is being shifted to, shall issue a fresh CoI
b. the dissenting shareholders shall be given an opportunity to exit by the promoters and
shareholders having control in accordance with regulations to be specified by the SEBI.
8. No alteration made under this section shall have any effect until it has been registered as per this
section.
9. Any alteration of the MoA of a company limited by guarantee and not having a share capital,
purporting to give any person a right to participate in divisible profits of the company otherwise
than as a member, shall be void.
Chapter 2 – Incorporation
16 N.A. where only word “Pvt” is added/deleted on
conversion
Approval of CG CG shall dispose appln within 60 days and before
(RD) approving, may satisfy itself that consent of crs, DH,
Domicile
SR (only when RO is etc. or that sufficient provision is made for due
(State)
changed from one discharge or that adequate security is provided for
state to another) discharge of debts.
Co., which has raised money from public through
prospectus + still has any unutilised amount, shall not
change its objects for which it raised such money unless
a SR is passed and:
i. the details of SR - published in newspapers + Placed
Objects SR -
on website of co. indicating justification for such
change;
ii. the dissenting SH shall be given an opportunity to
exit by the promoters and SH having control as per
SEBI regulatn
Provided that – Where a private co. alters its article such that it does not include restriction/
limitation which a Pvt. co. is required to include in AoA as per Act, such Pvt. co. shall cease to be
private from date of alteration.
2. Following shall be filed in prescribed manner with RoC, within 15 days of alteration of AoA, for
registration:
Every Alteration of AoA
Approval of CG for such alteration
Printed copy of the altered articles,
3. Any alteration of AoA registered u/ss (2) shall be valid as if it were originally in the articles.
Andrews vs Gas Meter Co. – The power to alter articles vests with the Company by virtue of Companies
Act, 2013. A company cannot divest itself of these power.
Section 15: Alteration of MoA/AoA to be noted in every copy.
(1) Every alteration in MoA/AoA shall be noted in every copy of the MoA/AoA, as the case may be.
(2) If default u/s 15(1) Co. + Every OID - Liable to penalty of Rs. 1,000 for every copy issued w/o
alteration.
Chapter 2 – Incorporation
direct the co. to change its name and
the co. shall change its name within 3m from such direction, after adopting an OR;
b. on an application:
by a registered proprietor of a trade mark
made to CG within 3 years of incorporation or registration or change of name of the co.
that the name is identical with or too nearly resembles to a registered trade mark of such
proprietor under the Trade Marks Act, 1999,
in the opinion of CG, is identical with or too nearly resembles to an existing trade mark,
CG may:
direct the co. to change its name and
the co. shall change its name within 3m from such direction, after adopting an OR;
2. Where a co. changes its name or obtains a new name u/ss (1), it shall, within 15 days from date of
such change, give notice of the change to Registrar along with the order of CG, who shall carry out
necessary changes in the CoI and memorandum.
3. If a co. is in default in complying with any direction given u/ss (1), the CG shall allot a new name to
the co. in prescribed manner and Registrar shall enter the new name in register of companies in
place of the old name and issue a fresh CoI with the new name, which the company shall use
thereafter [Amendment]
Provided that nothing here shall prevent a company from subsequently changing its name as per Sec 13
2. If default u/s 17 Co. + Every OID - Liable for each default - Rs. 1,000/day or Rs. 1 lakh WEL
1. A co. of any class registered under this Act may convert itself as a company of other class under
this Act by alteration of MoA and AoA of the co. as per the provisions of this Chapter.
3. The registration of a co. under this section shall not affect any debts, liabilities, obligations or
contracts incurred or entered into, by or on behalf of the company before conversion and such
debts, liabilities, obligations and contracts may be enforced in the manner as if such registration
had not been done.
Chapter 2 – Incorporation
Section 19: Subsidiary Company not to hold Shares in its Holding Company
1. Restriction:
No co. shall (itself/nominees) hold any shares in its holding co., and
No holding co. shall allot/trf its shares to any of its subsy co. and
any such allot/trf of shares of a co. to its subsy. shall be void
2. The reference in this section to shares of a holding co. which is a co. not having share cap (ltd. by
guarantee or unlimited), shall be construed as reference to interest of its members, whatever be
the form of interest.
Question 2 – Can B Ltd. issue bonus shares to A Ltd (say, in the ratio 1:1)
Answer – Yes, as this transaction is under purview of exemption, such bonus shares can be issued.
Author’s Note – Law only provides for an option to pay extra fees and decide an alternate mode for
receiving notice. However, the notice will still be sent at the registered address of the member only.
Company is not responsible for sending the notice to any other address (even if extra fees is paid)
Chapter 2 – Incorporation
Exception to Nidhi Co.
In case of Nidhi Company, u/s 20 (2), docs may be served only on members who hold shares more
than:
Rs. 1,000 in face value or
1% of the total PUSC
whichever is less.
For other SHs, docs may be served by a public notice in newspaper circulated in the district
where the RO of Nidhi is situated; and publication of the same on the notice board of the Nidhi.
In case of delivery by post, such service shall be deemed to have been effected:
(i) in case of notice of a meeting, at expiration of 48 hours after letter containing the same is
posted; and
(ii) in any other case, at time at which the letter would be delivered in the ordinary course of post
2. Company having seal: A company may, by writing under its common seal, if any, authorise any person
as its attorney to execute other deeds on its behalf in any place (India/outside India)
Company not having seal: Provided that in case if no common seal, the authorisation under this
subsection shall be made by 2 directors or by director + CS, wherever the company has appointed a
CS.
3. A deed signed by such an attorney on behalf of the company and under his seal shall bind the co.
Self-Notes!
Chapter 2 – Incorporation
Chapter 2 – Incorporation
Form Section No Purpose
Advt. providing details of notice of SR for varying terms of contracts
PAS - 1 27
referred to in Prospectus or Objects for which Prospectus was issued
PAS - 2 31 Information Memorandum
PAS - 3 39 & 42 Return of allotment of securities
PAS - 4 42 Private placements offer cum application letter
PAS - 5 42 Record of Private placement offers
PAS - 6 29 Unlisted Public company to file with RoC within 60 days of each half year
Overview
This Chapter is divided in two parts:
Part I – Provisions relating to issue of securities through Public Offer (Sec 23 – 41)
Part II – Provisions relating to issue of securities through Private Placement (Sec 42)
Chapter 3 – Prospectus
1. Public co. may issue securities:
through prospectus Private Right issue and Bonus issue as per this Act (and SEBI
to public (PO) Placement in case of listed co./co. intending to get listed)
Document =
Company Issue House Public at large
Deemed Prospectus
Meaning - Where a company (A) allots or agrees to allot any securities of the co. (A) with a view that
those securities shall be offered for sale to public, any document by which the offer for sale to the
public is made shall, for all purposes, be deemed to be a prospectus.
Presumptions: Unless the contrary is proved, it shall be evidence that an allotment of securities was
made with a view to the securities being offered for sale to the public if it is shown:
a. that offer for sale to the public was made within 6m after the allotment or agreement to allot; or
b. that at the date when the offer was made, the whole consideration had not been received by the co.
In addition to matter stated u/s 26, following additional matter is to be included in the document:
a. Net amt. of consideration received/to be received by the co.
b. time and place at which contract for allotment of said securities may be inspected
Signature of document:
In case of co. – 2 directors; In case of Partners – At least ½ of Partners
Chapter 3 – Prospectus
Section 26 - Matters to be Stated in Prospectus
Dated and Copy to RoC for Signed by RoC not to register unless consent in
Signed Registration dir./proposed dir. writing of all person named received
1. Every prospectus issued by/on behalf of public co. shall be dated and signed.
Prospectus shall state information and set out such reports on financial information as specified by
SEBI + CG. Unless specified by SEBI, the regulations already made by SEBI shall apply.
Prospectus to include:
a. declaration about compliance with this Act, and
b. statement that nothing in prospectus is contrary to this Act, SEBI and SCRA.
2. Nothing u/ss (1) shall apply to the issue of prospectus/form of application for:
a. Issue of shares/debentures to existing members or DH, whether or not there is right to
renounce u/s 62(1)
b. Issue of shares/debentures which are, in all respects, uniform with shares/debentures
previously issued and are currently quoted on RSE.
3. Provision of 26(1) shall apply to prospectus or form of application issued on formation of co. or
subsequently.
Explanation – Date indicated in prospectus shall be deemed to be the date of publication.
4. File prospectus with RoC: No prospectus shall be issued unless, on or before its publication, a copy
thereof has been delivered to RoC for filing, signed by:
every person who is named therein as a director or proposed director of the co. or
by his duly authorised attorney.
8. Prospectus not valid if issued more than 90 days after date of delivery of copy thereof to RoC
9. Issue of prospectus in contravention of this section – Co. and every person who is knowingly a party
– - Rs. 50,000 to Rs. 3 lakhs
Chapter 3 – Prospectus
General Rule – Company shall not vary terms of contract referred to in prospectus/objects
Co. shall not vary the terms of a contract referred to in the prospectus or objects for which the
prospectus was issued, except with:
a. Prior approval by way of special resolution in GM and:
b. prescribed details of such resolution shall be:
published in newspapers (English + vernacular which is in circulation at place where RO is
situated) and
placed on the website of the company, if any,
indicating the justification for such change;
c. Amount so raised cannot be used for buying, trading or otherwise dealing in Eq. shares of listed cos.
d. the dissenting shareholders shall be given an exit offer by the promoters and controlling
shareholders in accordance with regulations to be specified by the SEBI.
2. Advertisement of the notice – Form PAS-1 (published simultaneously with dispatch of notice)
3. Place notice on website of co.
4. The dissenting shareholders shall be given an exit offer by the promoters and controlling
shareholders in accordance with regulations to be specified by the SEBI. (repeated in rule)
Section 28 – Offer of Sale of Shares by Certain Members of Company [Vijay selling stakes in Paytm]
1. Authorise the co.
Where certain members (indv./BC) of a co. propose in consultation with BoD
To offer whole/part of their holding to public
the members shall then collectively authorize the co. to take necessary action for OFS and
then they shall reimburse the company of all expense incurred.
2. Document by which such OFS is made to public shall be deemed to be a prospectus issued by the
company and all provisions related to content and mis-statement shall apply.
Chapter 3 – Prospectus
Note: Prospectus to disclose name of the person(s)/entity bearing cost of making the OFS + reasons.
Provided that the entire holding of convertible securities of the co. by promoters held in physical
form (up to the date of IPO) shall be converted into demat form before such offer is made.
Example - Vijay Shekhar sharma OFS in Paytm – Has to be in demat form first
2. In case of prescribed class of unlisted companies, the securities shall be held or transferred only in
Demat form in the manner laid down in the Depositories Act, 1996 and regulations made thereunder.
Chapter 3 – Prospectus
b. It maintains security deposit of >=2 years of fees with DRS as per agreement
c. Complies with regulations of SEBI or Depository w.r.t, dematerialisation of shares
6. No UPC which has defaulted in above payment, shall make offer of issue of any securities or
buyback or bonus/right issue till payment to DRS has been made.
7. Provision of Depositories Act, SEBI (Depositories and Participants) Regulations, 2018 and
SEBI (RTI and STA) Regulations, 1993 – Apply Mutatis Mutandis
8. Every UPC shall submit Form PAS-6 + Fees with ROC within 60 days of conclusion of each half
year (FY). Such form shall be certified by a CA/CS/CMA in practice)
8A. Any diff. b/w issued capital and capital in demat form – Co to bring to notice of Depository
9. Grievances of securities holders of UPC – File with IEPF Authority. IEPF authority shall
initiate action against DRS after consultation with SEBI
10. This rule shall N.A. to an UPC which is – Nidhi, Govt. company or a WOS
3. Any co., other than above, may convert its securities into demat form or issue its securities in
physical form in accordance with the provisions of this Act or the Depositories Act, 1996 and the
regulations made thereunder.
Chapter 3 – Prospectus
New charges Changes in financial position of co. between
Other changes as prescribed
created previous offer and subsequent offer
Intimation of Changes:
Where a co. has received applications for the allotment of securities along with advance payments
of subscription before making of any such change,
Co. to intimate such changes to applicant.
If they desire to withdraw application – Refund payment within 15 days of subscription
1. Co. proposing to make an offer of securities may issue a RHP prior to prospectus
2. RHP to be filed with RoC at least 3 days prior to opening of subscription list and the offer
3. RHP to have same obligation as prospectus.
Variation b/w RHP and prospectus to be highlighted as variation in prospectus
4. Upon closing of offer – Prospectus (not RHP) stating therein the total capital raised and closing
price and any other details as are not included in RHP shall be filed with the RoC and the SEBI.
This sub-section shall N.A. if it is shown that the form of application was issued in connection with:
a. a bona fide invitation to a person to enter into an underwriting agreement w.r.t. such sec.; or
b. in relation to securities which were not offered to the public (Example – Private placement)
2. Copy of the prospectus shall, on a request being made by any person before the closing of the
subscription list and the offer, be furnished to him.
3. Default in this section – Co. liable for Rs. 50,000 for each default
Self-Notes!
Chapter 3 – Prospectus
Section 34 and Section 35 – Liability for Misstatement
Section 34 – Criminal Liability Section 35 – Civil Liability
If prospectus includes any Applicability:
statement - untrue or misleading, Where a person has subscribed for securities of a co +
every person who authorizes the Acting on any statement included/omitted in prospectus
issue of such prospectus shall be which is misleading, and
liable under section 447. has sustained loss or damage as a consequence thereof
Section N.A. if a person proves Person Liable: Company and every person who is:
that: 1. Director at the time of issue of prospectus or authorized
a. such statement/omission was himself to be named as director
immaterial or 2. Agreed to become director in future
b. that he had RGTB that 3. Promotor of co.
statement was true or the 4. Authorized the issue of prospectus
inclusion or omission was 5. Expert u/s 26(5)
necessary.
Above person shall be liable to pay compensation to every
person who has sustained such loss or damage.
Peek Vs. Gurney (not covered in ICAI material but was included in past paper question)
The remedy u/s 35 by way of damage will not be available to a person if he has not purchased the
shares on the basis of prospectus. (for example, a person bought shares from open market, in such
case, it can’t be said that he relied on the information of prospectus and hence, no remedy available)
Self-Notes!
Chapter 3 – Prospectus
Sec 447: Punishment for Fraud
Without prejudice to any liability including repayment of any debt under this Act or any other law in
force, any person guilty of fraud shall be liable as follows:
Amount involved in the At least Lower of: Less than Lower of:
fraud a. Rs. 10 lakhs a. Rs. 10 lakhs
b. 1% of T/O b. 1% of T/O
Whether public No Yes No
interest involved?
Jail 6m – 10 years 3 years – 10 years Upto 5 years
And/or AND AND OR
Fine Up to 3x amt involved Up to 3x amt involved Upto Rs. 50 lakhs or both
Note – If Mr. M had purchased the shares based on statement in the prospectus, only Mr. M can
initiate a suit against the co. and not Mr. X (to whom shares are transferred post allotment)
Chapter 3 – Prospectus
1. Co. can allot share to public only when:
a. amount stated in prospectus as min. amount has been subscribed and
b. sums payable on application have been paid to and received by co. by cheque/other instrument.
2. Application money shall not be <5% of nominal amt. of securities (or other amt. specified by SEBI)
3. If stated min. amount has not been subscribed and application money is not received within 30 days
/other period by SEBI from date of issue of prospectus – Return amount in pres. time & manner
Rule 11 of Cos (Prospectus and Allotment of Securities) Rules, 2014 – Refund of Appln Money:
1. If min. amt not subscribed + Application money not received within prescribed time –
Application money to be repaid within 15 days from close of issue.
If not repaid – Directors who are OID – Jointly & severally liable to repay with intt. @15% p.a.
2. Refund shall be credited only to the bank account from which the subscription was remitted.
4. When a co. having SC makes any allotment of sec.- File with RoC - Return of allotment (Form PAS-3)
5. Default u/ss (3) and (4) - Co. and its OID - Liable – Rs. 1,000/day or Rs. 1 lakh WEL for each default
2. Where prospectus states application u/ss (1) has been made – Also state the name(s) of RSE in
which the securities shall be dealt with.
3. Application money shall be kept in a separate bank account in a scheduled bank + Not to be utilised
for any purpose other than:
a. Adjustment against allotment – If sec. have been permitted to be dealt with on RSE
b. Repayment within the time specified by SEBI – If co. is unable to allot securities
4. Any condition purporting to require or bind any applicant for securities to waive compliance with any
of the requirements of this section shall be void.
Chapter 3 – Prospectus
5. Default in complying with this section:
Company OID
Minimum Rs. 5 lakhs Rs. 50,000
Maximum Rs. 50 lakhs Rs. 3 lakhs
6. Co. may pay commission to any person w.r.t, subscription to its sec. subject to conditions prescribed.
Rule 13 of Companies (Prospectus and Allotment of Sec) Rules, 2014 – Payment of Commission:
Commission can be paid subject to following conditions:
a. Such payments to be authorized by AOA
b. Comm. may be paid out of (a) Proceeds of issue, or (b) Profit of co., or both
c. Rate of comm.
In case of sec. issue being: Commission shall NOT exceed
Shares Lower of:
a. 5% of price of share issue or
b. Rate auth by AOA
Debentures Lower of:
a. 2.5% of price at which debenture issued or
b. Rate auth. by AoA
d. Prospectus to disclose:
name of rate and amount of no. of sec. underwritten or
underwriters commission payable to u/w subsc. by u/w
e. No commission to be paid if securities are not issued to public.
f. Copy of contract for payment of comm. – File with RoC along with prospectus for registration
Section 42: Offer or Invitation for Subscription of Securities on Private Placement (PP)
Definition:
“Private placement" means any offer or invitation to subscribe
to a select group of persons by a company (other than by way of public offer)
through private placement offer-cum-application (“PPOCA”), which
satisfies the conditions specified in this section.
Provision:
1. Subject to this section, a company may make private placement (PP) of securities
2. Private placement:
PP to be made only to select group of person identified by BoD (“Identified Persons” (IPs)).
No. of IPs shall not exceed 50 or higher no. prescribed (200 members in aggregate in FY)
Above limit of 200 not to include – QIBs and employees being offered securities under ESOP
u/s 62 [N.A. – NBFC and HFC if Regulation by RBI/NHB complied with)
Chapter 3 – Prospectus
Explanation- It is hereby clarified that restrictions of 200 members would be reckoned individually
for each kind of security that is equity share, preference share or debenture.
Provided that this sub-rule shall not apply (i.e., SR not required) in case of offer for NCD if
amount raised <= Limit u/s 180(1)(C) and in such case, BoD resoln is adequate.
Provided also that, if amount raised exceed limit u/s 180(1)(c) – It shall be sufficient if co. passes
a previous SR only once in a year for all such offers during the year.
Provided also that: In case of offer to QIBs, if co. passes previous SR only in a year for all such
allotments during the year
Provided also that no offer or invitation of any securities under this rule shall be made to a body
corporate incorporated in, or a national of, a country which shares a land border with India,
unless such body corporate have obtained Government approval under FEM (Non-debt
Instruments) Rules, 2019 & such approval is attached with PPOCA.”. [Amendment]
3. Co. making PP shall issue PPOCA in Form PAS-4 to IPs whose names and addresses are recorded by
co. in prescribed manner.
Note - PPOs shall NOT carry right of renunciation.
Application money not to be utilized unless allotment made and return of allotment filed with RoC.
Chapter 3 – Prospectus
a. allotments w.r.t, any offer or invitation made earlier have been completed or
b. that offer or invitation has been withdrawn or abandoned by the co.
6. Allotment:
Co. shall allot its securities within 60 days from receipt of application money
If co. fails to allot securities in 60 days - Repay same within 15 days from expiry of 60 days
If co. fails to repay – It shall be liable to repay that money + Intt. @ 12% p.a. from expiry of
60th day (read again, from which day?)
Application money shall be kept in a separate bank account in a scheduled bank + Not to be utilized
for any purpose other than:
a. Adjustment against allotment
b. Repayment – If co. unable to allot sec.
7. Co. making PP shall NOT release any public advertisements or utilise any media, marketing or
distribution channels or agents to inform the public at large about such an issue.
8. Return of Allotment to be filed with RoC within 15 days from allotment date
Co. making PP to file with RoC a “Return of Allotment” in Form PAS-3 within 15 days from the date
of the allotment. (Incl. a complete list of all allottees, with their full names, addresses, no. of sec.
allotted , etc.)
Rule 14: Private Placement (Continued)
Return of allotment in Form PAS – 3 shall include the following details:
the full name, address, permanent Account Number and E-mail ID of such security holder;
the class of security held;
the date of allotment of security ;
no. of securities held, nominal value and amount paid on such securities; and particulars of
consideration received if tire securities were issued for consideration other than cash.
9. Default in filing Return of allotment u/ss (8) – Co., its promoters and directors – Fine Rs. 1,000/day
for each default upto Rs. 25 lakhs
10. If co. makes PP in contravention of this section - Company, its promoters and directors – Fine which
may extend to amount raised through the PP or Rs. 2 crores, whichever is lower, and the company
shall also refund all monies with interest (12%) within 30 days of order imposing the penalty.
"Qualified Institutional Buyer" means the QIB as defined in SEBI (ICDR) Regulations, 2009.
Chapter 3 – Prospectus
Co. shall issue PP offer only after relevant SR/BR filed with RoC
Note – Any offer or invitation which is not in compliance with the provision of Sec 42 shall be treated
as public offer and relevant provisions shall apply accordingly.
Self-Notes!
Chapter 3 – Prospectus
Form Sec Purpose
SH-3 54 Issue of Sweat Equity Shares
SH-4 56 Form for transfer of security held in physical form
SH-5 56 Notice by the co. to the transferor and transferee in case of partly paid-up shares
SH-7 64 Notice to Registrar for the alteration of share capital
SH-9 68 Solvency declaration – File with RoC (+ SEBI in case of listed cos) in case of Buyback
SH-10 68 Register of shares or other securities bought back
SH-11 68 Return on completion of the buyback of shares or other securities
Section 43 – Kinds of Share Capital [N.A. to pvt. Co. if mentioned so in MoA/AoA, subject to 92/137]
with voting rights
Equity Share
Capital with differential rights as to
Kinds of Share dividend, voting or otherwise
Capital
carries preference w.r.t payment of
Preference
dividend and repayment of capital at
Share Capital
time of winding up
Explanations:
1. “Equity share capital" - w.r.t., any co. limited by shares, means all share capital which is not
preference share capital;
2. "Preference share capital", w.r.t, any co. limited by shares, means that part of the issued share
capital of company which carries or would carry a preferential right w.r.t,:
(a) payment of dividend (fixed amt or amt calculated at fixed rate)- free or subject to tax
(b) repayment, in the case of a winding up, of amount of PUSC.
Rule 4 of Cos (Share Capital and Debentures) Rules, 2014 - Equity Shares With Differential Rights:-
Conditions to issue equity shares with Differential Rights (DR): [A2 VP FD2]
1. AoA authorizes the issue of such shares;
2. Such issue is authorized by an ordinary resolution passed at GM.
If eq. shares are listed on RSE – Seek approval through postal ballot (still OR).
3. Voting Power (VP) of shares with DR shall not be > 74% of total VP (incl. VP on shares with DR)
4. Omitted
5. Co. has not defaulted in filing FS and AR for 3 immediately preceding FY
6. Co. has no subsisting default in:
payment of repayment of matured Redemption of Redemption of
declared dividend deposit + Intt. pref. shares debenture + Intt
7. Co. has not defaulted in:
payment of repayment of term loan + Default in
Stat. dues w.r.t.,
dividend on pref. Intt. - PFI/State FI / Sch. crediting amt. in
Employee
shares Bank. IEPF to CG
Provided that co. may issue DVR on expiry of 5 years from end of FY in which default made good.
8. the co. has not been penalized by Court/Tribunal during last 3 years of offence under the RBI
Act, 1934 , the SEBI Act, 1992, the SCRA , 1956, the FEMA, 1999 or any other special Act
Additional Points:
1. ES to notice for GM or Postal Ballot to contain prescribed details about the issue (size of issue)
2. Co. shall NOT convert existing ESC with Voting Rights into ESC carrying DVR and vice versa
3. Details of such issue to be disclosed in BOD Report
4. Holders of Eq. shares with DR shall enjoy all other rights such as bonus shares, rights shares
etc., which holders of eq. shares are entitled to, subj to DR with which such shares are issued.
5. Register of Members u/s 88 to contain relevant particulars of such shares with details of SHs.
4. Where share is held in depository form - Record of depository is prima facie evidence of interest of
beneficial owner.
Section 47 – Voting Rights [N.A. to Private Co. if mentioned so in MoA/AoA, subject to 92 + 137]
1. Subject to certain provisions of this Act:
a. every member holding ESC, shall have right to vote on every resolution placed before co.; and
b. his voting right on a poll shall be in proportion to his share in the paid-up ESC of the co.
2. Every member holding PSC shall, in respect of such capital, have a right to vote only:
a. on resolutions which directly affect the rights attached to his preference shares and,
b. any resolution for the winding up of the company or
c. for the repayment or reduction of its EQUITY or PSC and
his voting right on a poll shall be in proportion to his share in the paid-up PSC of the co.
Provided that proportion of voting rights of ESH to voting rights of PSH shall be in the same
proportion as the ESC bears to PSC.
Provided further that where dividend in respect of a class of pref. shares has not been paid for 2
years or more, such class of PSH shall have a right to vote on ALL resolutions placed before the co.
If variation by one class of SH affects rights of any other class, consent of 3/4th of such other
class of SH shall also be obtained and the provisions of this section shall apply to such variation.
Provided that – Such application to be made within 21 days after date of consent/resolution
3. The decision of the Tribunal on any application u/ss (2) shall be binding on the shareholders.
4. Co. shall, within 30 days of the date of order of Tribunal - File a copy thereof with the Registrar.
Section 50 - Company to accept unpaid share capital, although not called up (call in advance)
1. Co. may, if so authorized by its articles, accept from any member, the whole or a part of the amount
remaining unpaid on any shares held by him, even if no part of that amount has been called up.
2. A member shall NOT be entitled to any voting rights w.r.t., amt. paid u/ss (1) until it is called up.
Can a company pay dividend on the advance payment received u/s 50 – No!
Except as provided in this section, provisions relating to reduction of share capital shall apply as if
the SPA were the PUSC of the company.
3. Notwithstanding above (1) and (2), in case of such class of cos. as may be prescribed + whose FS
comply with prescribed AS u/s 133, the SPA shall be utilised for:
a. towards issue of unissued shares of co. to members as fully paid bonus shares
b. write off Preliminary expenses of the co.
c. write off – Expenses/Commission paid/Discount allowed on issue of shares/debentures of co.
d. providing for premium payable on Redemption of any redeemable pref. shares/ any debentures
e. purchase of its own shares u/s 68 (Buyback)
Provisions:
1. Notwithstanding anything contained in sec 53, co. may issue sweat equity shares (SES) (of class of
shares already issued), provided that:
a. the issue is authorized by a SR
b. Resolution specifies:
No. of shares Current Mkt. Price Consideration, if any Issued to whom
c. If eq. shares are listed, such issue is as per SEBI Regulations. If not listed, as per Rules.
2. Rights, limitations and provisions of equity shares shall be applicable to sweat equity shares too and
it shall rank pari passu with other Equity shares.
“Value additions” means actual or anticipated economic benefits derived/to be derived by co. from an
expert or a professional for providing know-how or making available rights in the nature of IPRs, by
such person to whom sweat equity is being issued for which the consideration is not paid or included
in the normal remuneration payable under the contract of employment, in the case of an employee.
Additional Points:
Validity of SR Allotment of sweat eq. shares to be made within 12 months of passing SR
Maximum issue size In a FY, a co. shall NOT issue SES > 15% of existing PUESC or issue value of
per year: Rs. 5 crores, WEH
Prov. further that – In case of Startup – Issue not > 50% (instead of 25%) of
its Paid up equity share capital upto 10 years from incorp.
Lock in 3 years from date of allotment [Mention lock-in in share certificate]
Issue price To be determined by Registered Valuer with proper justification
Valuation Valuation of IPR/Know how/Value Add – By RV with a proper report to BoD.
Treatment of non- a. Where non-cash consideration is a depreciable/amortizable asset – Carry
cash consideration to BS as per AS
in books: b. Where clause (a) N.A. – Expense as per AS
BoD report Co. to disclose specific details of such issue in BoD report
Register Co. to maintain register of SES in Form SH-3 at RO or such other place
decided by Board
Provided that – Co. engaged in setting up and dealing with infrastructural projects may issue pref.
shares of period exceeding 20 years but not exceeding 30 years provided that – Min. 10% of such
pref. share is redeemed each year from 21st year at the option of PSH
Creation of CRR:
o Where such shares are proposed to be redeemed out of profits, transfer a sum = Nominal
value of shares to “Capital Redemption Reserve” A/C
o Provision relating to reduction of SC shall apply as if CRR were PUSC of the company.
o CRR may be applied for – paying up unissued shares to be issued as fully paid bonus shares.
Premium on redemption of PS:
o Such premiums shall be provided for out of profits or SPA.
However, in case of prescribed class of co. whose FS comply with AS u/s 133, such premium
shall be provided for out of profits (and not SPA as u/s 52)
o Such premium shall be provided for before such redemption
5. Where a company is not in position to redeem/pay divided on any pref. shares, it may:
with consent of 3/4th in value of PSH and
approval of Tribunal on petition made by it
issue further redeemable preference shares = amount of unredeemed pref. shares + dividend.
On such issue – Unredeemed pref. shares shall be deemed to have been redeemed.
Provided that Tribunal shall, while giving approval, order redemption forthwith of pref. shares held
by such persons who have not consented to issue of further redeemable preference shares.
Above provision shall not apply in case of transfer between persons both of whose names are
entered as beneficial owners in records of depository.
If instrument of transfer is lost/has not been delivered to co. within prescribed time, co. may
register on such terms as to indemnity as Board may think fit.
In case of Govt co., instrument of transfer shall not be required w.r.t. transfer of bonds issued
by a Govt. co provided that an intimation by TEE specifying name, address and occupation + Bond
certificate or Letter of Allotment is delivered to the co.
2. A co. can register TRANSMISSION of any right to securities by operation of law on receipt of
intimation for the same from any person to whom such right is transmitted (transferee) (i.e.,
transfer instrument not required in case of transmission. Instead, it requires intimation of
transmission)
Cases of Transmission:
Death (to Insolvency (to Lunacy (to administrator
Legal Rep) resolution professional) appointed by Court)
4. Unless prohibited otherwise, co. to deliver certificates of all securities allotted, trfd/transmitted:
In case of: Within a period of:
Subscribers to MoA within 2m of incorporation
Any Allotment of its shares within 2m of allotment
Transfer or transmission within 1m from date of receipt of transfer instrument or
Intimation of Transmission (IOT)
Allotment of debentures within 6m from date of allotment
Note - where sec are dealt with in a depository, co. to intimate details of allotment to depository
immediately on allotment.
5. Transfer of any security of a deceased person made by his LR shall, even if the LR is not a holder
thereof, be valid as if he had been holder at the time of execution of instrument of transfer.
6. Default in compliance of above provisions – Fine – Co. and OID – Rs. 50,000 [Amendment]
7. Without prejudice to any liability under the Depositories Act, 1996, where any depository or DP,
with an intention to defraud a person, has transferred shares, it shall be liable u/s 447.
Note – Forged Transfer is a Nullity and is not legally binding. A company can be forced to delete name
of TEE in case of Forgery.
Case:
Mr. A is shareholder of RIL. Mr. Chor forged signature of Mr. A and transferred his shares to Mr. B.
Mr. B then further transferred the shares to Mr. C & RIL registered such trf. Discuss consequences.
Answer:
Co. to restore ownership to Mr. A. Co. shall not be liable to Mr. B or Mr. C
Genuine buyer (Mr. C) shall be indemnified by Mr. B.
Mr. B, who indemnified Mr. C, shall, in turn, chase Mr. Chor.
Exam question:
What if a share certificate is transferred via forgery (Q2 of QB):
A forged transfer is a nullity.
It does not give the transferee any title to the shares. Similarly any transfer made via such forgery
will also not give a good title to shares as the title of buyer is only as good as that of seller.
If a co. acts on a forged transfer & removes name of real owner, then co. is bound to restore such
name and pay him any dividends which he ought to have received
(Barton v. North Staffordshire Railway Co.)
Order by Tribunal:
After hearing the parties, Tribunal may either dismiss the appeal or by order:
a. Direct co. to register trf/transmission & co. shall comply within 10 days of receipt of such order, or
b. Direct rectification of the register and also direct the co. to pay damages to party aggrieved.
Contravention of order of Tribunal - Imprisonment – 1 year to 3 years AND Fine Rs. 1 lakh to Rs. 5 lakh
Aggrieved person or Any Member may make an application for rectification of RoM to:
a. Tribunal, or
b. Competent court o/s India specified by CG – In case of foreign members or DHs o/s India
4. Where a trf. is made in contravention of any Law, Tribunal may, on application to it, direct the
company or depository to set right the contravention and rectify registers.
2. The cancellation of shares u/ss (1) shall not be deemed to be a reduction of share capital.
Note - The capital clause of memorandum, if authorised by the articles, shall be altered by passing an
ordinary resolution (and not SR) as per Section 61 (1) of the Companies Act, 2013.
Note – In Pvt. co (92 + 137) – If 90% of member give consent, then less than 15 days allowed
ii. Right to Renounce – Unless AOA provides otherwise, above offer shall be deemed to include
right to renounce shares offered. A statement to this effect is to be included in the offer .
iii. After expiry of time limit/receipt of intimation declining offer – BoD to dispose such shares
in manner not dis-advantageous to SH and the company
Provided that where terms of such conversion are not acceptable to co., it may, within 60 days from
date of communication of such order, appeal to Tribunal for order as NCLT may deem fit.
6. Effect of Govt passing such order + No appeal or where appeal is made has been dismissed, if the
order has effect of increasing the ASC:
a. the MoA stands altered
b. ASC stands increased by amt equal to value of shares to which such debt/loan is converted into.
To issue ESOP:
Listed company – Comply with SEBI Regulations.
Other than listed co, comply with following conditions:
No right to vote/receive
Min. period of 1 year
Co. has freedom to specify dividend unless shares
between grant and vesting
lock in period. issues on exercise of
of options*
option.
In case of permanent
In case of death – options In case of resignation/
incapacity – Option granted
granted to him shall vest termination – option to
to vest on such employees
with legal heirs or nominees expire.
on that day
* In case of amalgamation – Adjust the period for which options were held in prior co. with min.
vesting period. (If you didn’t understand this, read the detailed text below or else, skip.)
Provided that in a case where options are granted by ABC Ltd. under its ESOP in lieu of options held by the same person
under an ESOP in XYZ Ltd, which has merged or amalgamated with ABC Ltd., the period during which the options granted by
ABC Ltd. were held by him shall be adjusted against the minimum vesting period required under this clause;
Provided that no issue of bonus to be made by capitalizing reserves created by revaluation of assets.
Co. shall file a notice (Form SH – 7) along with Altered MoA to RoC within 30 days of such action.
2. Contravention – Co. & OID – Fine of Rs. 500 / day subject to max. Rs. 5 lakhs (Co) or Rs.1 lakh (OID)
Provided that no such reduction shall be made if the company is in arrears in the repayment of any
deposits accepted by it, or the interest payable thereon.
2. On receipt of application u/ss (1), the Tribunal shall give a notice thereof to:
CG RoC Creditors of co. SEBI (in case of Listed Co.)
and shall take into consideration the representation, if any, made within 3 months of such notice.
If no representation – Presume no objection.
3. Tribunal to order confirming reduction of SC on T&C as it may deem fit – Only when it is satisfied
that debt/claim of every creditors has been discharged or his consent is obtained.
Provided that Tribunal shall not sanction unless: A/C treatment, proposed by co. for such reduction
is in conformity with AS u/s 133 + Certificate by company's auditor has been filed with Tribunal.
5. Co. to deliver copy of order of Tribunal and of a minute approved by Tribunal showing the following
with ROC within 30 days of receipt. RoC shall register and issue a certificate thereof.
7. A member, past or present, shall not be liable to any call/contribution w.r.t, any share held by him
exceeding [Amount paid up on the share - Amount of share as fixed by the order of reduction].
8. Where the name of a creditor is not entered in the list of creditors by reason of his own ignorance
of proceeding for reduction or otherwise AND after such reduction, the co. commits a default (Sec
6 of IBC) of his debt,:
a. Every member of co. on the date of registration by RoC of order for reduction shall be liable to
contribute to payment of that debt an amt not > amt he would be liable in case of WUP, AND
b. If co. is wound up, the Tribunal may, on application of such cr. + proof of his ignorance – Settle a
list of person so liable to contribute and enforce such calls on contributories as if they were
ordinary contributories.
Section 67: Restrictions on Purchase by Company or Giving of Loans by it for Purchase of its Shares
1. No company having SC shall have power to buy its own shares without consequent reduction in SC.
2. No public company shall give any loans, guarantee or provide security or any financial assistance for
purchase/ subscription of shares of the company or its holding co.
Provided that disclosures in respect of voting rights not exercised directly by employees in
respect of shares to which scheme relates shall be made in BOD report in prescribed manner.
4. Nothing in this section shall affect the right of a co. to redeem any preference shares issued by it.
5. Contravention:
Co. - Rs. 1 lakh to Rs. 25 lakh and OID – Jail upto 3 years and fine Rs. 1 lakh to 25 lakhs.
Proviso – BB shall NOT be made within 1 year reckoned from date of closure of preceding BB
3. The ES of the notice of meeting at which SR is proposed to be passed shall state: [FAST N]
full disclosure of Necessity for securities intended to Amount to be Time-limit for
material Facts; the buy-back; be purchased; invested; and completion
4. Time limit for completion – Within 1 year from date of passing SR/BR as the case may be
6. Declaration of Solvency:
Before making buy-back, co. to file with RoC and SEBI (only if listed),
a “Declaration of solvency” in Form SH-9
signed by at least 2 directors (1 MD compulsory).
verified by an affidavit stating BoD has made full inquiry into affairs of co. and are of opinion
that it is capable of meeting liabilities + will not be rendered insolvent within 1 year from date of
declaration adopted by BoD.
7. Post buy-back – Co. to extinguish and physically destroy the share so bought back within 7 days of
last date of completion of BB
8. Where a company complete a buy-back – Co. shall NOT make further issue of shares/sec. of SAME
kind including allotment u/s 62(1)(a) within 6m (except for bonus shares or shares to discharge
After completion of buy-back – File return with RoC + SEBI (if listed) within 30 days in Form SH-11
Default under this section Company and OID – Rs. 1 lakh to Rs. 3 lakhs
Provided that the buy-back is not prohibited, if the default is remedied and 3 years has lapsed
after such default ceased to subsist.
2. No company shall, directly or indirectly, purchase its own shares or other specified securities in
case such company has not complied with the provisions of sections 92, 123, 127 and section 129.
Section 71:
1. A co. may issue debentures with an option to convert such debentures into shares, either wholly or
partly at time of redemption.
3. Secured debentures may be issued by a company subject to such T&C as may be prescribed.
Rule 18 – Issue of Secured Debenture:
1. Redemption period
In case of secured debenture, the date of redemption shall not > 10 years from date of issue.
Provided that, in following class of cos, it may exceed 10 years but not exceeding 30 years:
Companies engaged in Infra finance Infra debt Co. as may be permitted by
setting up infra projects companies fund NBFC CG/RBI/NHB for > 10 years
Rule 18: Creation of DRR and investment of sums for redemption of Debentures:
DRR:
All India Financial Institutions and Banking companies are generally not required to create DRR.
For unlisted co. other than NBFCs – Adequate DRR is 10% of outstanding debentures in that FY.
Deposit/Investment:
Co. which has raised debentures shall:
on or before 30th April in each year,
in respect of debentures issued by such co., invest or deposit,
a sum not less than 15% of amount of debentures maturing on 31st March of next year
in any one or more methods of investments or deposits as follows:
unencumbered unencumbered unencumbered bonds of any
deposit with
secuities of secuities as per other cos. notified under
scheduled bank
CG/SG Indian Trust Act Indian Trust Act
6. A debenture trustee shall take steps to protect the interests of the debenture-holders and redress
their grievances in accordance with such rules as may be prescribed.
Rule 18: Meeting of DHs:
Meeting of all the DHs shall be convened by the DT on:
(a) requisition in writing signed by DHs holding >= 1/10th in value of outstanding debentures;
(b) happening of any event, which constitutes breach, default or which in the opinion of DT affects
interest of DHs.
7. Any provision in trust deed which has the effect of exempting DT from liability for breach of trust
or indemnifying him where he fails to due care and diligence – Shall be void.
Provided that – Liability of DT shall be subject to exemption as agreed by - Majority of DHs holding >
3/4th in value of total debentures.
8. Co. shall pay interest and redeem debentures as per the terms and conditions of their issue.
9. Where at any time, DT comes to conclusion that assets of co. are insufficient/likely to become
insufficient to discharge principal amount when it become due, DT may file petition before Tribunal.
Tribunal may, after hearing, impose restriction on further liability of co. (in interest of DH)
10. If co. fails to redeem debentures on date of maturity or fails to pay interest when due, Tribunal
may, on application of DHs or DT, order co. to redeem it forthwith with payment of principal and
interest thereon.
11. A contract with co. to take up and pay for any debentures of co. may be enforced by a decree for
specific performance.
Note:
1. Repayment of ‘deposit’ is time-bound.
2. It can be secured (by creating charge on tangible asset) or unsecured (no security).
3. Private co. can accept deposits from its members only.
4. Public co. can accept deposits from members and public subject to certain parameters
Any adjustment, other than what is allowed of such application money, will
NOT be considered as refund.
7 Director Amount received from person – who at the time of such receipt, was:
a. Director of the co. (public or private), or
b. Relative of the director of the co. (only in case of private co.)
Provided that if amount received under (a), (b) and (d) above becomes
refundable (with or w/o interest) due to reasons that the co. does not have
necessary permission to deal in goods or properties or services for which
advance is received On expiry of 15 days from date they become due for
refund, it shall be deemed to be a deposit.
“Depositor’’ means:
i. any member of company (public or private) who has made a deposit as per Sec 73(2), or
ii. any person who has made a deposit with a public company as per Sec 76;
2. A company may, subject to passing a resolution (ordinary) in GM, accept deposit from its members
after complying with the following conditions:
a. Issuance of a circular to members (Form DPT -1) authorized by BoD including statement
showing:
Credit Rating Total no. of Amt. due towards previously Other
Fin. position
Obtained depositors accepted deposit particulars
b. Filing copy of circular + Such Statement with RoC within 30 days before issue of the circular;
d. Co. to certify that no default in repayment of deposits + Interest and where default had
occurred, it was made good, and 5 years have lapsed since date of making the default good.
e. Providing security, if any, for the due repayment of the amount of deposit or the interest
thereon including the creation of such charge on the property or assets of the company.
Provided that in case where a co. does not secure the deposits or secures partially, then, the
deposits shall be termed as "unsecured deposits" and shall be so quoted in every circular, form,
advertisement or in any doc. related to invitation or acceptance of deposits.
Note:
3. Every deposit accepted by a co. u/ss (2) shall be repaid with interest as per the T&C of agreement.
4. Where co. fails to repay the deposit or part thereof or any interest thereon - Depositor concerned
may apply to the Tribunal for an order directing the company to pay the sum due or for any loss or
damage incurred by him as a result of such non-payment and for such other orders as the Tribunal
may deem fit.
Exception – Specified IFSC Public Co. or Private Companies – 100% of (PUSC + FR + SPA)
The above maximum limit will not apply to a Private co. which is:
a. is a Start-up For 10 years from the date of its incorporation; or
b. Fulfils ALL the following conditions:
Not an associate or subsidiary of any other co.
Borrowings from banks/FI or BC is < Lower of - 2x PUSC or Rs. 50 crores, AND
Co. has no subsisting default in repayment of borrowing at time of accepting deposit
However, the above cos. will have to file details of deposit accepted with RoC (Form DPT-3).
*Eligible co. accepting deposits within limits u/s 180 (1) (c), may accept it by means of an OR (not SR)
Eligible companies may accept deposits from persons other than its members subject to:
Passing SR (or ordinary resolution) and filing the same with RoC
Compliance with requirements u/s 73(2) and
Rules as CG + RBI may prescribe.
Provided that such eligible companies shall obtain credit rating from recognised credit rating agency (as
approved for NBFCs) and inform such rating to public.
b. Issuance of a circular (in Form DPT -1) in the name of BoD of co. to the members including:
Effective Date Date of issue of advertisement =Date on which advt. appeared in newspaper
Date of issue of circular = Date on which the circular was dispatched.
Common Points of Deposits u/s 73 and 76 [Companies (Acceptance of Deposit) Rules 2014]:
1. Deposit Repayment Reserve A/C:
Co. to deposit, on or before 30th April each year, sum >= 20% of amt. of deposit maturing during
following FY & keep in a scheduled bank in separated bank a/c called – DRR A/C
Purpose - The amt. so deposited shall not be utilised for purpose other than repayment of deposit.
5. Register of Deposits: Co. accepting deposits shall maintain one/more separate registers for deposits
accepted or renewed at its RO. Following particulars shall be entered in the case of each depositor:
Entries in Register to be made within 7 days from issuance of receipt + Authenticated by dir./CS.
Preserve in good order for >= 8 years from FY in which the latest entry is made in the register.
Note – Where deposit had run contains any part of a year, then, if such part is <6m – Exclude.
If such part is >=6m, it shall be reckoned as 1 year.
Reduction of rate of interest (i.e., 1%) is not applicable in the following cases: Where the deposit is
prematurely repaid in order to:
Comply with Rule 3 i.e., tenure of deposit under this new act; or
provide for war risk or other related benefits to the personnel of naval, military or air forces or
to their families during emergency declared under Article 352 of the constitution.
8. Ceiling on Rate of Interest and Brokerage Payable on Deposits – Maximum – As prescribed by RBI in
case of NBFC for acceptance of deposit.
Brokerage payable on to those who are auth. by co. to solicit deposit and actually procure deposit.
12. Deposit Receipt: Within 21 days from date of receipt of money/realization of cheque/date of
renewal Co. to furnish receipt to depositor/agent – Deposit Receipt - Signed by duly authorized
officer and state date, name & address, amount, rate of interest & maturity date.
13. Filing of Return of Deposit with RoC – A duly audited return in Form DPT-3 containing info upto 31st
March of that year to be filed on or before 30th June
Note - DPT-3 shall include particulars of deposits or transactions not considered as deposits or
both
14. No right to alter T&C - After circular is issued and deposits are accepted, Co. has no right to alter
any T&C of deposit, deposit trust deed & deposit insurance which may prove detrimental to interest
of depositors
16. Penal Rate of Interest: In case co. fails to repay deposits (both secured and unsecured) on maturity,
after they are claimed, it shall pay penal rate of interest of 18% per annum for the overdue period.
17. Punishment for Contravention: If co. inviting deposits or any other person contravenes any of the
‘deposit rules’ for which no punishment is provided in Act, the co. and OID shall be liable as under:
With fine extendable to Rs. 5,000; and
Continuing one - Further fine up to Rs. 500 /day during which the contravention continues.
Penalty:
a. Co. shall, in addition to the payment of the amount of deposit or part thereof and the interest due,
be punishable with fine – From (Rs. 1 crore or 2x Amt. of deposit whichever is lower) to Rs. 10
crores; and
b. OID – Jail upto 7 years AND with fine – Rs. 25 lakhs to Rs. 2 crores.
Provided that if it is proved that the officer of the company who is in default, has contravened such
provisions knowingly or willfully with the intention to deceive the company or its shareholders or
depositors or creditors or tax authorities, he shall be liable for action u/s 447.
Section 74: Repayment of Deposits, etc., Accepted Before Commencement of this Act
1. Filing of Statement of Deposits with RoC and Repayment thereafter:
Where deposit was accepted before commencement of this Act (i.e., before 1.4.2014), and remains
unpaid as on 1.4.2014 or becomes due at any time thereafter, the company shall take the following
steps:
Note – If co. has been repaying such deposits and interest thereon without any default on due dates
for the remaining period of such deposit as per the T&C, point (b) above shall be deemed to have
been complied with.
Self-Notes!
Introduction:
Section 2(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 (for repayment of loan) and
includes a mortgage;
Conceptual check – Is charge passed on to the buyer in case of sale of goods which is under floating
charge? – No!
Nothing contained in this rule shall apply to charge required to be created/modified by banking
co. u/s 77 in favour of RBI when any loan/advance has been made to it under RBI Act, 1934
[Amendment]
nd
Extension of Time Limit: (Effective From 2 November 2018)
On application by the Company (showing sufficient cause),
RoC may allow such registration of charge to be made
Within 60 days of such creation (i.e., extension of 30 days only) – On payment of Additional Fee
Further Extension:
Where co. fails to register charge within 60 days,
ROC is empowered to allow such registration within further 60 days – Pay ad valorem fees
Application for extension - Make in Form CHG -1 or 9 as the case may be + Declaration by company
CS or director that belated filings shall not affect right of any creditors.
CoR = Conclusive evidence that requirements of this Act w.r.t, charge have been complied with.
Recovery of Fees - Entitled to recover from company the amount of any fees or additional fees paid by
him to the Registrar for the purpose of registration of charge.
Modification includes change in T&C of the underlying borrowing (including change in rate of interest)
Rule 6 – Where the particulars of modification of charge is registered under Section 79, the Registrar
shall issue Certificate of Modification in Form CHG 3
Provided that – On application by the company or charge holder, RoC may allow such intimation
within 300 days of payment/satisfaction with additional fees.
b. Notice to Charge Holder:
On receipt of intimation u/ss (1), Registrar shall cause a notice to be sent to charge holder calling
upon him to show cause within time specified in notice (not > 14 days), as to why payment or
satisfaction in full should NOT be recorded.
If no cause is shown – RoC shall order that a memorandum of satisfaction shall be entered in
register maintained u/s 81 and shall inform the co. (in Form CHG -5)
If cause is shown – RoC shall record a note to that effect in the register of charges and shall
inform the co.
Section 83: Power of Registrar to Make Entries of Satisfaction & Release in Absence of Intimation
from Co.:
Suo motu change in Register of Charges by RoC:
RoC may, on evidence being given to his satisfaction w.r.t. any registered charge that:
a. the debt for which the charge was given has been paid or satisfied; or
b. part of property or undertaking charged has been released or ceased to form part thereof,
it may enter in register of charges:
memorandum of satisfaction in whole or in part, or
fact that part of the prop/undertaking has been released or ceased to form part,
notwithstanding the fact that no intimation has been received by him from the company.
The Registrar shall inform the affected parties within 30 days of making such entry. (and issue
Certificate of Registration of satisfaction of charge in Form CHG-5)
Any person appointed above shall, on ceasing to hold such appointment, give to the company and the
Registrar a notice to that effect and the Registrar shall register such notice. (Form CHG – 6)
If willfully furnishes any false or incorrect info. - Liable for action u/s 447
Section 87: Rectification by CG in Register of Charge (or Extension of Time Limit)
The CG on being satisfied that:
Omission to give intimation to Omission or misstatement of any particular in
RoC of satisfaction of charge any filing made with RoC w.r.t. creation,
within required time modification of satisfaction of charge
it may, on the application of the company (in Form CHG – 8) or any person interested and on such T&C
as it deems just, direct that the time for the giving of intimation of payment/satisfaction shall be
extended or, as the case may require, that omission or misst. shall be rectified.
Introduction:
(2) Every register maintained u/ss (1) shall include an index of the names included therein.
Note - Maintenance of index is not necessary in case the number of members < 50.
(3) Register + Index of beneficial owners (BO) maintained by depository = Deemed compliance of Act
Note:
1. Can a minor’s name be entered in RoM? – No. Only legal guardian’s name can be entered
2. Joint SHs may request the co. to enter their names in RoM in a certain order, or execute transfers
to have their holding split, with the result that part of the holding is entered showing the name of
one holder and part showing the name of another. However, it is not possible that name of only one
of the joint SH is written in RoM. The reason for this is that the articles of most companies
provide that, in the case of exclusion of the other joint holders, and for this purpose, seniority
shall be determined by the order in which the names stand in the ROM.
Concept clarity:
Location of RO – Mumbai
Total Shareholders – 1,000 shares
Location No. of shares OR or SR? Can RoM be kept?
Mumbai 50 members None Yes. Irrespective of
members, it’s RO
Delhi 101 members SR Yes.
Goa 98 members SR No.
(3) Where any change occurs in BI such shares, such person and BO shall – within 30 days from date
of such change, make a declaration to the company in prescribed form.
(4) Where declaration under this section is made to a company, the company shall:
make a note of such declaration in concerned register and shall
within 30 days of receipt of declaration – File a return in Form MGT – 6 with Registrar + Fees
(5) Where declaration required under this section is not made by BO - No rights in respect of such
shares shall be enforceable by him or by any person claiming through him.
(6) Notwithstanding this section, company to pay dividend to members (not BO)
(7) Penalty:
Failure to make declaration to company – Rs. 50,000 + 200/day – Max 5 lakhs
Failure of company to file MGT 6 – Co. + OID – Rs, 1,000/day – Max 5 lakhs (co) and 2 lakhs (OID)
Exemption
Trust created to set up Mutual fund, venture capital fund or other SEBI approved fund – Need not file
such declarations.
Note - If an individual does not hold any right indirectly under (i), (ii) or (iii) above - he shall not be
considered to be SBO. (i.e., Indirect holdings are mandatory for becoming SBO)
*Significant influence means power to participate, directly or indirectly, in financial and operating policy
decisions of the reporting company but is not control or joint control of those policies
Legal provision
(2) Every co. shall maintain a register of SBO and changes therein in Form BEN-3 which shall include the
name of individual, his date of birth, address, details of ownership and other prescribed details
(3) The register maintained u/ss (2) shall be open to inspection during business hours, at such reasonable
time of not < 2 hours, on every working day, by any member on payment of fee specified by company
(not > Rs. 50 for each inspection)
Note - Every co. shall take necessary steps to identify an individual who is a SBO in relation to the
company and require him to comply with the provisions of this section.
(5) A company shall give notice in Form BEN-4 to any person (whether or not a member) whom the
company knows or has RGTB:
(a) to be a SBO of the co.;
(b) to be having knowledge of identity of a SBO or another person likely to have such knowledge;
(c) to have been a SBO of the company at any time during 3 years immediately preceding the date
on which the notice is issued,
and who is not registered as a SBO with the company as required under this section.
(6) Info. required by notice u/ss (5) - Concerned person to give within 30 days of date of the notice.
(8) On application u/ss (7), Tribunal may, after giving OOBH to parties concerned, make such order
restricting the rights attached with the shares within 60 days of receipt of application.
(9) Co. or the person aggrieved by order of Tribunal may apply to Tribunal for relaxation or lifting of
the restrictions placed u/ss (8), within 1 year from the date of such order.
Provided that – If no appln. made within 1 year - such shares shall be transferred to IEPF Authority
Penalty u/s 90:
Sub -section (10) (11) (12)
Section 91: Power to Close Register of Members or Debenture-Holders or Other Security Holders.
(1) A company may close the RoM or register of DH or OSH for any period, subject to:
Such period shall not exceed in aggregate 45 days in each year and not exceed 30 days at any
one time
previous notice has to be given in prescribed manner of at least 7 days (or such lesser period
as specified by SEBI for listed cos. or companies which intend to get their securities listed)
Penalty on co.,
Promoter/Dir/KMP Meetings - GM, BOD,
Remuneration of director or officers
and changes since Committee and
director/KMP + Compounding +
PFY attendance details
Appeals
Place on website AR on website of company and web-link thereof – Disclose in BoD’s report
File with RoC Every co. shall file with the Registrar a copy of AR + Fees:
[Section 96(4)] within 60 days from date on which AGM is held or
where no AGM is held in any year, within 60 days from date on which AGM
should have been held + statement specifying reasons for not holding AGM
Penalty Co. fails to file AR within prescribed time, penalty of:
Co. – Rs. 10,000 + Rs. 100/day upto max Rs. 2 lakhs
OID – Rs. 10,000 + Rs. 100/day upto max Rs. 50,000
Provided that such registers or AR may also be kept at any other place in India in which > 1/10th of
the total no. of members (as per RoM) reside, if approved by SR passed at GM
(3 conditions – Such place is within India, more than 1/10th member reside and SR is passed)
The period for which such registers or AR shall be preserved is as shown below:
Note - Reasonable time of not less than 2 hours on every workday shall be considered by the co.
Note - The following particulars of register or index or return in respect of members shall not be
made available for any inspection u/ss (2) or for extracts or copies u/ss (3), namely:
address or registered address Unique Identification PAN
e-mail ID
(in case of a body corporate); Number Number
Provided that – First AGM to be held within 9m of closing of first FY. Thereafter, within 6m from
closing of each FY.
Provided further – If first AGM is held as aforesaid – No AGM necessary in year of incorporation.
RoC may, for any special reasons, extend the time within which AGM (other than first AGM) shall
be held by not > 3m.
2. AGM shall be called during business hours (9AM to 6PM) on any day other than national holiday (as
declared by CG).
Section 98: Power of Tribunal to call meeting of members, etc (applicable only for EGM. Not AGM)
1. Other than AGM, if for any reason, it is impracticable to call a meeting or hold or conduct a
meeting in manner prescribed by Act or AOA, Tribunal may, either:
i. either suomotu, or
ii. on application of director or member entitled to vote at the meeting
order a meeting of co. to be called, held and conducted in manner as Tribunal thinks fit, and give
such ancillary directions as may be expedient.
Provided that – Such directions may include that 1 member present in person or proxy shall be
deemed to constitute a meeting.
2. Any meeting held u/ss (1) – Deemed to be a meeting of company duly called, held and conducted
2. Board shall, at the requisition made by following, call an EGM of the company:
Co. having share capital – Members Co. not having SC – Members having
holding not less than 1/10th of total not less than 1/10th of total voting
PUSC that carries voting rights. power.
5. On failure of board to call such meeting – Requistonists may themselves call and hold such meeting
within 3m of date of requisition.
6. Meeting by requisitionists to be called, held & conducted in same manner as it is called, held by BoD
7. Reasonable expenses of such meeting shall be reimbursed to requistonists by co. and such sum shall
be deducted from remuneration u/s 197 of directors who were in default in calling the meeting.
To calculate 21 clear days: - Exclude – Date on which notice is served AND date of meeting
2. Notice to specify place, date, day and hour of meeting & contain business to be transacted thereon.
3. Notice to be given to [MAD]:
Every member of the co. (LR of deceased Auditors of the Every director of
member or assignee of insolvent member) company, and the company
4. Accidental omission to give notice to, or the non-receipt of such notice by, any member shall not
invalidate the proceedings of the meeting
Note – Where notice is sent by post, it shall be deemed to be served at expiration of 48 hours
after the letter containing the same is posted. (Refer Sec 20 of chapter 2)
Concept clarity check:
1. Can an individual director call for GM? – No. Individual director is not authorized. Only BoD can.
However, if individual director ends up calling, BoD can later, ratify the same.
2. Cos obligation to send notice shall be satisfied when it transmits the email. Co. cannot be held
responsible for transmission of email beyond control.
3. If an entitled members fails to provide email address to co., co. shall not be in default for not
delivering notice via email.
4. Companies Act does not provide anything specific regarding condonation of delay in giving notice.
2. Special business in AGM - In case of AGM, all business shall be deemed special, other than:
consideration of FS appointing of appointment of and
declaration of
and reports of BoD director in place of fixing remuneration
dividend
and auditors those retiring of auditors
Provided that:
Where any item of special business relates to or affects any other company (say, A Ltd),
the extent of shareholding interest in that other company (A Ltd) of:
o every promoter, director, manager, if any, and
o of every other KMP of the first mentioned company
shall be set out in the ES, if not less than 2% of PUSC of that company (A Ltd)
3. Where any item of business refers to any doc, which is to be considered at the meeting, the time
and place where such doc can be inspected shall be specified in ES.
Contravention – If default is made in complying with this section – Every promoter, director, manager,
KMP or their relatives who is in default – Liable to penalty which is higher of:
Rs. 50,000 or
5x the amount of benefits accrued to such promoter, director, manager, KMP or their relative
In case of adjourned meeting or change of day, time or place of meeting – the company shall give
not less than 3 days notice to members either individually or publish ad in newspaper (eng + vern)
3. If at adjourned meeting, quorum is not present within half an hour – Members present = Quorum
[Example – Jet Airways]
Section 104: Chairman of meetings (N.A. to Pvt. Co. (92+137) unless AoA of Pvt co. specifies otherwise)
1. Unless AOA provides otherwise, members personally present shall elect one of themselves to be
chairman thereof on a show of hands.
2. If poll is demanded on election of chairman:
Chairman elected u/ss (1) by show of hands shall continue to be chairman until some other
person is elected chairman by way of poll.
Such other person to be chairman for rest of the meeting.
Additional points:
Chairman is a person who manages meetings and ensures decorum is maintained.
Chairman has prima facie authority to decide all questions arising in the meeting.
Chairman has casting vote or second vote in BM and GM (only if empowered by AoA)
Provided that proxy shall have no right to speak at such meeting + entitled to vote only on a poll
Provided that a person holding > 10% of SC may appoint a single person as proxy and such
person shall not act as proxy for any other SH
3. Appointment of proxy shall be in Form MGT 11
2. Every notice calling for meeting, there shall appear with reasonable prominence a statement that –
a member entitled to attend & vote is entitled to appoint a proxy, or one or more proxies
(where allowed) and
that proxy need not be a member
6. An instrument appointing proxy in Form MGT – 11 shall not be questioned on the grounds that it
fails to comply with special requirements by the AOA
2. Except as specified above, a co. shall NOT prohibit member from voting right on any other ground
3. In case of poll – Member (or his proxy) entitled to more than one vote need not use all his votes or
cast in the same way all the votes he uses. (i.e., he can split his votes for and against same resoln)
Note - A company can restrict voting right in case of unpaid calls or lien only if authorized by AoA.
2. Companies providing facility of voting by e-means shall comply with following procedures:
Particulars Detail
Notice of To be sent to – All members, auditors, and directors.
meeting Mode – Registered post, speed post or e-means or by courier service
Place notice On website of – Company and Agency (NSDL/CDSL)
Publication in Co. shall cause a public notice by way of advertisement – Immediately on dispatch
newspaper of notices but at least 21 days before date of GM in the following newspaper:
at least once in vernacular newspaper in the language of district where RO is
situated and having wide circulation in that district,
at least once in English newspaper having country wide circulation
specifying the following:
1. statement that business may be transacted by e-voting.
2. date and time of commencement of remote e-voting
3. date and time of end of remote e-voting
4. cut-off date (a date not earlier than 7 days before date of GM for
determining eligibility to vote)
5. manner in which person who became members after dispatch of notice may
obtain login ID and password.
6. the statement that:
a. remote voting shall not be allowed beyond said date and time.
b. manner in which co. shall provide for voting at the meeting.
c. member may participate in GM even after remote voting but not allowed
to vote again.
d. person named in RoM as on cut off date only – entitled to vote
e. website of the co. and agency
f. name, designation, etc. of person responsible for grievances addressal
Remote voting Remain open for >= 3 days. Shall close at 5PM on date preceding date of GM.
During such period – members holding shares in physical or demat form, as on
cut-off date, may vote
Vote once cast – cannot be subsequently changed.
At the end – facility to be forthwith blocked.
Provided that – If a co. decides to use the same EVS as used in remote e-
voting for voting during the GM, the said facility – The said facility shall be
operational till all resolutions are voted upon in the meeting.
Prevent dual To ensure that members who voted via e-voting do not vote again in GM –
votes Scrutinizer to have access to details of shareholders who voted but not the
manner in which they have cast their votes.
Register of Scrutiniser to maintain a register (manually or electronically) to record assent
assent/dissent or dissent received, mentioning particulars of name, address, folio number or
received client ID of members, number of shares held by them, nominal value and
whether the shares have DVR;
Such register to remain in safe custody of scrutinizer till approval of minutes
by chairman. Thereafter, hand over to company
Result of resolution – Place on website – Co + Agency + RSE (if listed)
Deemed date Date of GM
of resolution
Withdrawn Resolution proposed to be considered through voting by e-means shall not be
withdrawn
3. A poll demanded for adjournment of meeting or appt. of Chairman of meeting to be taken forthwith.
4. A poll demanded on any question other than adjournment/ appt. of chairman shall be taken at such
time (within 48 hours from time it was demanded), as Chairman of the meeting may direct.
5. Where poll is to be taken, the Chairman shall appoint such number of persons, as he deems necessary,
to scrutinise the poll process and votes given on poll and to report to him in manner prescribed.
Rule 21: Manner in which chairman shall get the poll process scrutinized:
Chairman of the meeting shall ensure the following:
a. Scrutizers are provided with:
RoM, specimen signs of members, attendance and proxy register
All documents pursuant to sec 105, 112 and 113
b. Scrutinizers to arrange Polling papers (Form MGT-12) & distribute it to members & proxies present
In case of joint SH – Give polling paper to first named holder (in his absence – joint holder)
c. Scrutinizers to keep record of the polling papers received in response to poll, by initialing it.
d. Scrutinizers shall lock and seal an empty polling box in presence of members and proxies.
Such box shall be opened in presence of at least 2 witness.
f. Ensure that if member (who has appointed proxy) has voted in person, proxy’s vote disregarded.
g. Scrutinizers shall count votes cast on poll and prepare a report addressed to the Chairman. The
report shall be in Form MGT – 13. Such report shall be sign and submitted within 7 days from date
of poll. Chairman to counter-sign the same.
h. Where voting is conducted by e-means u/s 108 and rules made thereunder, co. shall provide all the
necessary support, technical and otherwise, to Scrutinizers in orderly conduct of voting and
counting the result thereof.
i. Scrutinizers’ report shall state total votes cast, valid votes, votes in favour and against the
resolution including the details of invalid polling papers and votes comprised therein.
j. Chairman shall declare the result of Voting on poll. The result may either be announced by him or
a person authorized by him in writing.
Provided that any item of business required to be transacted by means of postal ballot under
clause (a), may be transacted at a GM by a company which is required to provide the facility to
members to vote by e-means u/s 108, in the manner provided in that section.
(2) If a resolution is assented to by the requisite majority of SHs by means of postal ballot, it shall be
deemed to have been duly passed at a GM convened in that behalf.
Scrutiny BoD to appoint one/more scrutinizers who is not in employment to scrutinize the
postal ballot process in fair and transparent manner
Scrutiniser shall be willing to be appointed and be available for ascertaining
requisite majority
Rule 20 to Provisions of rule 20 regarding voting by e-means shall apply, as far as applicable,
apply mutatis mutandis to this rule in respect of voting by e-means.
Postal Ballot Following items of business shall be transacted only by means of voting through a
ONLY postal ballot:
Section Business
13 Alteration of object clause of MoA
NA Alteration of AoA to insert or remove provisions which, u/s
2(68) are required to be included in AoA of private co.
12 Change in place of RO outside local limits of city/town/village
13/27 Change in object for which money raised from public
43 Issue of shares with differential rights
48 Variation in rights attached to class of shares
68 Buy-back
151 Election of a director
180 Sale of undertaking of co.
186 Giving loans, guarantees in excess of limit
Non- Provided further – OPC and Cos. having members up to 200 are NOT required to
applicability transact any business through postal ballot
Provided that – If after the requisition requiring notice is deposited at the RO + AGM is called on a
date within 6 weeks after deposit thereof – It shall be deemed to have been properly deposited.
(2) A person appointed u/ss (1) shall, be deemed to be a member and shall be entitled to exercise the
same rights and powers, including the right to vote by proxy and postal ballot, as the President or,
he Governor could exercise as a member of the company
(2) A person appointed u/ss (1) shall, be deemed to be a member and shall be entitled to exercise the
same rights and powers, including the right to vote by proxy and postal ballot, on behalf of BC
which he represents as that body could exercise if it were an individual member, creditor or DH.
(2) Time period of sending notice – Notice to be sent to co. not earlier than 3 months but at least 14
days before date of meeting, exclusive of day on which the notice is given and day of meeting.
3m 14 days
Date of meeting
(3) Immediately on receipt of notice – Co. to give notice to its members of the resolution – At least
7 days before meeting (exclusive of date of dispatch and day of meeting)
(4) Where it is not practicable to give notice u/ss (3) in same manner as notice of GM – Publish
notice in newspaper (english/vernacular) and post it on the website of company.
(5) The notice shall be published at least 7 days before the meeting, exclusive of the day of
publication of the notice and day of the meeting.
Example: EGM dated – 23rd Sept. Quorum absent. Adjourned - 1st October. Two resolutions passed in
adjourned meeting. Effective date of resolution = 1st October (and not 23rd sept)
**Provided that – Any person shall NOT be entitled u/s 399 to inspect copies of such resolution
Provided further that – This clause is N.A. to resolution passed to grant loans, etc. u/s 179(3)(f) in
ordinary course of business (OCOB) by a banking company, NBFC or housing finance companies.
2. A copy of every resolution or agreement mentioned above along with ES u/s 102 (if any) – File with
RoC in Form MGT 14 within 30 days of passing such resolution or making such agreement.
Where such resolution or agreement has effect of altering AoA – Annex such resolution to every
copy of AoA issued after passing such resolution/making agreement
Section 118: Minutes of proceedings of GM, Board Meeting and Resolutions passed by Postal ballot
(1) The co. shall cause the minutes of the proceedings of the following to be prepared, signed and kept
in the minute books (with pages consecutively numbered) within 30 days of the conclusion thereof:
GM of any class of SH or creditors
board meetings or meetings of any committee thereof
resolutions passed by postal ballot.
(5) The following matters shall not be included in the minutes which, in opinion of Chairman, is:
reasonably be regarded as irrelevant or immaterial detrimental to
defamatory of any person to proceedings interest of co.
(6) Chairman shall exercise absolution discretion w.r.t. inclusion or exclusion of any matter u/ss (5)
(7) Minutes = Evidence of the proceedings recording therein.
(8) Where minutes are kept as u/ss (1), until the contrary is proved, it shall be deemed that:
Meeting have been duly called and held.
Proceedings have duly taken place and resolutions duly passed.
All appointments of director, KMP, etc. is valid.
(11) Default under this section – Co. – Rs. 25,000 and OID – Rs. 5,000
(12) Person found guilty of tampering with minutes – Jail upto 2 years AND Fine – Rs. 25k to Rs. 1 lakh
Rule 25 – Minutes:
1. Distinct minute books shall be maintained for each type of meeting - GM of member, crs, BM, etc.
Note – Resolution by postal ballot shall be recorded in minute of GM in which deemed to be passed
2. Minute of proceeding to be entered into such book within 30 days of conclusion of meeting.
3. In case of resolution by postal ballot, include the following in the minutes books within 30 days:
resolution proposed result of voting summary of scrutinizer's report
Note - In case of section 8 co. - the section shall not apply as a whole except that minutes may be
recorded within 30 days of conclusion of every meeting (in case of co. where AoA provide for
confirmation of minutes by circulation)
(2) On request to the co. + payment of fees as specified in AoA – Copy of minutes to be furnished to
member within 7 working days.
As per Rules:
A member who has requested for soft copy of minutes of any previous GM held during immediately
preceding 3 FY shall be entitled to be furnished, with the same free of cost.
(4) In case of such refusal or default, Tribunal may, without prejudice to action u/ss (3), by order:
direct an immediate inspection of the minute-books or
direct that the copy required shall forthwith be sent to person requiring it.
Rule 27:
Every listed company or a company having >= 1000 SH, DH and other security holders, shall may
maintain its records, as required to be maintained under the Act or rules, in electronic form.
Rule 28: MD, CS or any other director or officer as BoD may decide – shall be responsible for
maintenance of e-records
Rule 29: Records in e-form shall be available for inspection in e-form (on payment not > Rs. 10/page)
Rule 31:
a. Report u/s 121 shall be in addition to minutes of GM
b. Report shall be signed & dated by CM and CS.
In case of his inability of CM – Sign by 2 directors (1MD, if any) and CS
c. Report shall contain following details: [A BOLD MCQ]
day, date, hour and venue confirmation w.r.t. appt. of no. of Members
of AGM (Details) Chairman of AGM attending AGM;
Business at AGM or EGM in case of OPC Business at BoD meeting in case of OPC
For sec 114, any business which is required to be Where there is only 1 director in BoD of OPC – any
transacted at AGM or other GM by OR/SR - it business which is to be transacted at BoD
shall be sufficient if, in case of such OPC: meeting, it shall be sufficient if, in case of OPC:
resolution is communicated by member to co., the resolution by such director is entered in
entered in minutes-book maintained u/s 118, minutes book maintained u/s 118 and
signed and dated by member and signed and dated by such director and
such date shall be deemed to be the date of such date = deemed to be the date of BoD
meeting for all the purposes under this Act meeting for all the purposes under this Act
Definition:
Section 2(35) “dividend” includes any interim dividend.
Types of dividend:
Classification based on time
Particulars Interim Dividend Final Dividend
Announcement Announced and declared by SH BOD at any Recommended by BoD and
time during the FY or from closure of FY till declared by shareholders at the
the AGM. AGM of the co.
Provision in Declared only when the AOA permits the Does not require any specific
AOA declaration. provision in the articles
Source Out of profits before final adoption of --
accounts.
Sources for interim dividend = Surplus in PL or
CY profit or Prior Profits
Ratification Shall be ratified at the AGM by the members Not applicable
Chapter 8 – Dividend
Rate of If the company has incurred loss during the CY The rate recommended by the
Dividend upto preceding quarter, then dividend not to be Board cannot be increased by the
declared at a rate higher than Avg rate of members.
dividend declared by co. during immediately
preceding 3 FYs.
Revocation Can be revoked with consent of ALL Once declared - cannot be
shareholders. revoked.
Dividend shall be deposited in separate A/c of a scheduled bank within 5 days from date of declaration
Transfer to Reserves – A company MAY, before declaration of dividend in any FY, transfer such %
of its profits for that FY as it may consider appropriate to reserves of the company.
(2) For the purposes of Sec 123(1)(a), depreciation shall be provided in accordance with Sch II
Chapter 8 – Dividend
Board may declare interim dividend during any FY or at any time from closure of FY till holding of
AGM out of:
Surplus in the P&L account or
Profits of the FY for which such interim dividend is sought to be declared (past FY), or
Profits generated in the FY till the quarter preceding date of declaration of interim dividend
* This sub-rule (1) shall not apply if a co. has not declared any dividend in each of 3 preceding FY.
(4) Dividend (incl. interim) – Deposit in separate a/c with scheduled bank within 5 days from
declaration
Provided that nothing in this sub-section shall be deemed to prohibit the capitalisation of profits or
reserves of a company for the purpose of issuing fully paid-up bonus shares or paying up any amount
for the time being unpaid on any shares held by the members of the company.
Chapter 8 – Dividend
(6) A company which fails to comply with the provisions of sections 73 and 74 shall not, so long as such
failure continues, declare any dividend on its equity shares.
Note: Section 8 companies are prohibited from paying any dividend to its members. Its profits are
intended to be applied only in promoting the objects for which it is formed. [Sec 8]
Bonus Point
What is record date? - Record date is the date announced by the company for determining members
who are entitled to dividend. All person whose name is included in the register of members on the
record date shall be entitled to dividend.
Section 124: Unpaid Dividend Account (Refer timeline at the end of this chapter)
(1) Where a dividend is declared but not paid or claimed within 30 days from the date of declaration,
the company shall, within 7 days from the expiry of the said 30 days,
transfer the total unpaid/unclaimed amount of dividend to a special account (with scheduled
bank) called the Unpaid Dividend Account (UDA)
and place it on website and on any other website approved by CG for this purpose.
(4) Claimant shall apply to co. concerned for payment of unpaid amount (prior to trf. thereof to IEPF)
(5) Transfer of Unclaimed or unpaid amount to Investor Education and Protection Fund (IEPF)
If remains unpaid or unclaimed for 7 years from the date of such transfer
It shall be transferred by the company along with interest to the IEPF, and
A prescribed statement containing details of such transfer shall be sent to IEPF Authority &
Authority to issue receipt as an evidence of such transfer.
Author’s Note – Note that this section is talking about transfer of the “shares” itself and not the
unpaid amount of dividend. The trf. of unpaid amount is already discussed u/ss (5)
Provided that any claimant of shares trfd. above shall be entitled to claim the transfer of shares
from IEPF with such procedure and on submission of such documents as may be prescribed.
Chapter 8 – Dividend
Explanation:
In case any dividend is paid or claimed for any year during the said period of 7 consecutive years,
the share shall not be transferred to Investor Education and Protection Fund.
(1) The CG shall establish a Fund to be called the Investor Education and Protection Fund (IEPF)
Provided that no such amount referred to in clauses (h) to (j) shall form part of the Fund unless
such amount has remained unclaimed and unpaid for 7 years from date it became due for payment.
Summary da summary!
Chapter 8 – Dividend
Other income
Donation by Amt. of UDA General IEPF in Co. Act
CG grants from
CG/SG/Cos. u/s 124 Revenue A/C 1956
investment
Provided that, where, as per provision of Sec 205C of Co. Act, 1956, amount is transferred to IEPF,
after the expiry of 7 yrs, such person shall be entitled to get refund out of IEPF (constituted
under Co. Act 2013)
(4) Any person claiming to be entitled to amt referred u/ss (2) may apply to IEPFA for payment
thereof.
(6) Manner of administration, appt. of members, holding of IEPFA meetings– As per prescribed rules
(7) Resources - CG may provide to IEPFA such offices, officers, employees, etc. - as prescribed.
(8) The authority shall administer the Fund and maintain separate accounts and other relevant records
in relation to the Fund in such form as may be prescribed after consultation with C&AG of India.
(9) It shall be competent for IEPFA to spend money out of Fund for carrying out the objects of IEPF.
(10) Accounts of the Fund shall be audited by the C&AG of India (at specified intervals). Audited
accounts + audit report to be forwarded annually by IEPFA to the CG.
(11)Annual Report:
IEPFA to prepare its annual report (prescribed form and time for each FY)
Giving full account of its activities during the FY and
Forward a copy thereof to the CG and
CG shall cause annual report + audit report to be laid before each House of Parliament
126. Right to dividend, rights shares and bonus shares to be held in abeyance pending registration of
transfer of shares
Chapter 8 – Dividend
Notwithstanding anything contained in any other provision of this Act,
Where any instrument of transfer of shares has been delivered to any co. for registration and
Such transfer has not been registered by the co.,
Such company shall:
Transfer the dividend w.r.t. such shares to UDA account Keep in abeyance - Any offer
(unless the co. is authorised, in writing, by registered of right shares u/s 62(1)(a) or
holder to pay such dividend to transferee specified in issue of fully paid up bonus
transfer instrument) shares
Provided that no offence under this section shall be deemed to have been committed where [LADDO]:
(a) the dividend could not be paid by reason of the operation of any law.
(b) SH has given directions to co. regarding payment of dividend and those directions cannot be
complied with and the same has been communicated to him
(3 conditions – Given directions + cannot comply + communicate)
(c) there is a dispute regarding right to receive the dividend;
(d) the dividend has been lawfully adjusted by the company against any sum due from shareholder;
(for example – adjustment of calls in arrears), or
(e) for any other reason, the failure to pay the dividend or to post the warrant within the period
under this section was not due to default on part of company.
Dividend Timeline:
Chapter 8 – Dividend
Chapter 8 – Dividend
[Section 128 to Section 138]
Form Purpose
AOC 1 Statement containing salient features of FS of subsidiaries/ associates/JVs
AOC 2 Details containing contracts or arrangements entered into with related parties
AOC 3 Statement containing salient features of the audited FS
AOC 3A Detailed statement on FS to be filed by co. complying with Cos (Ind AS) Rules
AOC 4 Form to file a FS and other documents of the company with the Registrar
AOC 4 (XBRL) XBRL doc. in respect of FS and other documents to be filed with the Registrar
AOC 4 (CFS) Form to file CFS s and other documents with the Registrar
AOC 4 (NBFC) Form for NBFCs to file financial statement and other documents with the Registrar
AOC 5 Notice to declare the address of the location in which the BoAs are maintained
Important Definitions
“Books of account” includes records maintained in respect of:
sums of money received sales and assets and items of cost
and expended purchase liabilities u/s 148
Chapter 9 – Accounts
Section 128: Books of account, etc., to be kept by company:
For the purpose of this section, books of accounts (BOA) means - Books of account and other relevant
books and papers and financial statement (FS)
(1) Co. to prepare BoA:
Every co. shall prepare and keep BOA and FS at its RO every FY
Giving a true and fair view of state of the affairs
of - the company, including that of its branch office(s), and
explaining all such transactions and
Such books shall be kept on accrual basis and as per the double entry system of accounting
Note – Such BOA may be kept at such other place in India as BoD may decide. Inform RoC within 7
days of such decision – by filing a notice in writing (Form AOC -5) giving full address of such place.
Rule 3 – Manner of maintaining BoA & FS in e-form - Companies (Accounts) Rules, 2014:
Such BOA in e-mode shall remain accessible in India at all times so as to be usable for
subsequent reference.
Features of accounting software:
For FY commencing after 1/4/2023 – Every co. using accounting software for maintaining
BOA shall use only such software which has the following feature:
BoA shall be retained completely in original format info. shall remain complete & unaltered.
Info. received from branch office - not be altered + keep in manner depicting what was
originally received from the branches.
Info. of such e-record should be capable of being displayed in legible form.
There shall be proper system for storage, retrieval, display or printout of the e-records
Such e-records shall not be disposed of or rendered unusable, unless permitted by law.
Backup of such e-records shall be kept in servers physically located in India on daily basis.
Co. shall intimate the following to RoC on an annual basis at time of filing FS: (No LIC)
Name of the internet protocol location of where BOA are maintained on
service (IP) address of the service cloud, such address as
provider service provider provider* provided by service provider
*Where service provider is located o/s India, name & address of person in control of BoA in
India
(2) Where a co. has branch office (India or o/s India), it shall be deemed to have complied with
provisions of BoA, if:
proper BOA relating to transactions effected at branch office are kept at that office and
proper summarized returns periodically are sent to company at its RO or other place as u/ss (1)
Chapter 9 – Accounts
BOA maintained within open for inspection at RO or other place in India
India by any members director
during business hours
BOA maintained outside Director shall furnish a request to co. setting out the full details
India of the financial info. sought and the period for which it is sought.
Co. shall produce such info. to director within 15 days of date of
receipt of the written request.
Such info shall be sought for by the director himself and not by or
through his power of attorney holder or agent or representative.
Note - Inspection of BoA of any subsy co. shall be done by person authorised by a Board resolution.
(4) Where inspection is made u/ss (3), officers and other employees of co. to give all assistance to the
person making such inspection.
Note – If investigation ordered – CG may direct that BoA may be kept for longer period.
Note – This section majorly talks about books of accounts and books and paper. Although, FS is
mentioned in the first subsection, but details of FS is discussed in Sec 129 below.
Provided further that nothing contained in this sub-section shall apply to:
insurance or other class of co. for which form of FS
electicity co.
banking co. specified in other Act
Provided also that FS shall not be treated as not disclosing a true and fair view of the state of
affairs of the company, merely by reason of the fact that they do not disclose:
Chapter 9 – Accounts
(3) Consolidated FS (CFS):
Where a co. has one or more subsy – Prepare CFS of the co. and all subsidiaries (in addition to FS)
in manner prescribed. Such CFS – Lay before AGM along with FS u/ss (2)
Provided that co. shall also attach along with its FS - a separate statement containing the salient
features of FS of its subsidiary, associates or JV in Form AOC - 1
Provided that - If a co. is not required to prepare CFS under the AS, it shall be sufficient if it
complies with provisions of CFS in Schedule III of the Act.
Provided further that - nothing in this rule shall apply w.r.t. prep of CFS if it meets ALL the
following:
i. it is wholly/partially owned subsidiary of another company and
all its other members, including those not otherwise entitled to vote,
having been intimated in writing and
do not object to the company not presenting CFS
ii. securities are not listed or are not in the process of listing (in or outside India), and
iii. ultimate or any intermediate holding co. files CFS with the RoC in compliance with Ind AS
(4) Provisions applicable to preparation, adoption and audit of FS of holding company shall, mutatis
mutandis, apply to the CFS referred u/ss (3).
(5) Without prejudice to ss (1), where FS do not comply with AS, co. shall disclose in its FS:
deviation from AS reasons for deviation financial effects, if any, of such deviation
(6) CG may, on its own or on application by cos, exempt any class of companies from complying with this
section, if it is considered necessary in public interest.
Punishable with - Jail up to 1 year or fine Rs. 50,000 to Rs. 5 lakhs or BOTH
Chapter 9 – Accounts
Section 129A. Periodical financial results
CG may, require such class or classes of unlisted companies, as may be prescribed:
prepare financial to obtain approval of file copy with RoC
results of the co. on BoD & complete within 30 days of
such periodical basis audit/limited review of completions of
and in prescribed such results in manner relevant period with
form; as prescribed; prescribed fees.
Provided that the court or Tribunal shall give notice to – CG, ITA, SEBI, etc. and consider their
representation, if any, before passing orders.
(2) Without prejudice to the provisions contained in this Act the accounts so revised or re-cast under
sub-section (1) shall be final.
(3) No order shall be made u/ss (1) for re-opening of BOA relating to a period earlier than 8 FY
immediately preceding current FY.
Provided that, on investigation, where CG has directed for keeping BOA for period > 8 years, the
BOA may be ordered to be re-opened within such longer period.
Provided that Tribunal shall give notice to CG and ITA and shall consider their representation, if
any, made by that Government or the authorities before passing any order under this section.
Provided further that such revised FS or report shall not be prepared/filed more than once in a FY
Chapter 9 – Accounts
Provided also that detailed reasons for revision of such FS or report shall also be disclosed in the
Board's report in the relevant FY in which such revision is being made.
Note – Here, application will be made to Tribunal only. Courts (e.g., district court) cannot be involved.
Each division of the NFRA shall be presided over by Chairperson or full-time Member authorised
by Chairperson. [Section 3A]
Section 3B - There shall be an executive body of the NFRA consisting of Chairperson and full-time
Members of such Authority for efficient discharge of its functions.
Chapter 9 – Accounts
(a) have power to investigate, either suo motu or on reference by CG into matters of professional
or other misconducts under CA Act, 1949
Provided that – where NFRA has initiated such investigation, no other institute shall initiate or
continue any proceedings in such matter.
(b) have same power as vested in civil court: [A IPC]
Discovery and production of BoA and other docs at specified place & time;
summoning and enforcing the attendance of persons and examining them on oath; and
inspection of any books, registers and other docs. of co. at any place.
issuing commissions for examination of witnesses or documents;
(c) where professional or other misconduct is proved, have the power to make order for:
(5) Any person aggrieved by order of NFRA u/ss (4) – may prefer an appeal before Appellate Tribunal.
Every BC, (other than co. as defined in section 2(20)), formed in India, and governed under this rule
shall, within 15 days of appointment of an auditor u/s 139, inform NFRA in Form NFRA-1, the
particulars of the auditor so appointed.
Where PUSC or T/O or o/s loans fall below limit for 3 consecutive years – NFRA stops governing.
Chapter 9 – Accounts
Section 133: CG to prescribe Accounting Standards (AS):
CG may prescribe AS or any addendum thereto, as recommended by ICAI, constituted u/s 3 of CA Act,
1949, in consultation with and after examination of recommendations made by NFRA
Provided that:
Until NFRA is constituted u/s 132,
the CG may prescribe the AS or any addendum thereto,
as recommended by ICAI, in consultation with and after examination of recommendations by
National Advisory Committee on Accounting Standard (NACAS) constituted u/s 210A of
Companies Act, 1956 (previous law)
Section 134: Financial Statement, Board’s Report, etc.
(1) The FS, including CFS, shall be approved by the BoD before it is signed on behalf of BoD by:
Chairperson of the co., if so authorized by BoD or else - 2 directors (1MD), AND
CEO, CFO and CS
before it is submitted to auditor for his report thereon.
(3) In the FS laid before company in GM, a BoD’s report shall be attached, which includes [FC WARM
Dividend Reserve 3 Policy]:
Web address where Directors's Details of fraud reported by
No. of board
AR u/s 92 has been responsibility auditors u/s 143(12) other
meetings
placed statement (DRS) than those reportable to CG
contracts and
particulars of loan, material change and commitments –
arrangements with
guarantee affecting fin. position of co. between
related parties u/s 188
investments u/s 186 end of FY and date of report
(Form AOC -2)
Policies on director’s
statement indicating development details of policy developed and
appointment and
& implementation of risk mgt. implemented on CSR initiatives
rem. (if covered u/s
policy and risks identified therein taken during the year
178)
in case of listed company and every other public company having such PUSC >= Rs.
Other matters as
25 crores - statement indicating the manner in which formal annual evaluation of
may be prescribed
performance of Board, its Committees and of individual Directors has been made
Provided that – where above disclosures are made in FS already, such disclosures shall be referred
to instead of repeating it in BoD’s report
Chapter 9 – Accounts
Provided further that where policies are made available on company's website, if any, it shall be
sufficient compliance of the requirements under such clauses if the salient features of the policy
and any change therein are specified in brief in the Board's report and the web-address is
indicated therein at which the complete policy is available
Note – In case of OPC or Small co, CG may prescribe an abridged Board's report.
(4) BoD report shall, in case of a OPC, mean a report containing explanations or comments by the Board
on every qualification, reservation or adverse remark or disclaimer made by auditor in his report.
(5) Director’s responsibility statement shall state that: [AS AP Care GC Control Law]
a. in preparation of the annual accounts, the applicable AS had been followed along with proper
explanation relating to material departures;
b. Directors had selected such accounting policies and applied them consistently and made
judgments and estimates that are reasonable and prudent so as to give a true and fair view of
the state of affairs of the company at the end of FY and of the P&L for that period;
d. the Directors had prepared the annual accounts on a going concern basis; and
e. the Directors, in the case of a listed company, had laid down internal financial controls (IFC) to
be followed by the company and that such IFC are adequate and were operating effectively.
Explanation: For the purposes of this clause, the term “IFC” means:
the policies and procedures adopted by the company
for ensuring the orderly and efficient conduct of its business,
including adherence to company’s policies, the safeguarding of its assets, the prevention and
detection of frauds and errors, the accuracy and completeness of the accounting records,
and the timely preparation of reliable financial information;
f. the Directors had devised proper systems to ensure compliance with the provisions of all
applicable laws and that such systems were adequate and operating effectively.
(7) A signed copy of every FS, including CFS, if any, shall be issued, circulated or published along with:
any notes annexed to or forming part of such FS auditor’s report Board's report
Chapter 9 – Accounts
1. BoD’s report shall be prepared based on standalone FS of the co. and shall report on highlights
of performance of subsy, associates and JVs and their contribution to overall performance of co.
(vi) the details of deposits which are not in compliance with requirements of Chapter V;
(vii) details of significant and material orders passed by regulators/courts/tribunals impacting
the going concern status and company's operations in future;
(viii) details in respect of adequacy of internal financial controls w.r.t. FS
(ix) a disclosure, as to whether maintenance of cost records as specified by the CG u/s 148, is
required and accordingly such accounts and records are made and maintained,
(x) a statement that the co. has complied with provisions relating to the constitution of
Internal Complaints Committee under the Sexual Harassment related Act
(xi) details of application made or any proceeding pending under IBC during the year along with
their status as at the end of the financial year.
(xii) the details of difference between amount of valuation done at time of one time settlement
and the valuation done while taking loan from the Banks or FI along with reasons thereof.
Note:
1. Where co. is not required to appoint ID u/s 149(4), CSR committee shall have 2 or more dir.
2. Pvt. co. having only 2 directors shall constitute its CSR Committee with 2 such directors
3. If any of the limits not met for 3 consecutive FYs – not required to comply with Sec 135.
4. Net profit to be consider as per Sec 198 i.e., Profit Before Tax.
Exemption – Where the amount to be spent by co. u/ss (5) <= Rs. 50 lakhs, CSR committee shall not
be applicable. In such case, function of CSR committee to be discharged by BoD.
Chapter 9 – Accounts
(2) Board report u/s 134 to disclose the composition of CSR committee
(5) The Board shall ensure that the company spends, in every FY,
at least 2% of average net profits
made during the 3 immediately preceding FY or
in pursuance of its CSR Policy
Note - Where co. has not completed 3 FY since incorp. – Take average of such immediately
preceding FYs (i.e., Jitne saal tha, unka average lo)
Provided that the co. shall give preference to the local area and areas around it where it operates,
for spending the amount earmarked for CSR activities:
Provided that if co. spends excess amounts, such company may set off such excess amount against
the requirement to spend for such number of succeeding FY and in such manner as prescribed.
As per Rules
Where co. spends an amount in excess of requirement, such excess amount may be set off
against requirement to spend u/ss (5) up to immediate succeeding 3 FY provided that:
(i) such excess amt. shall not include the surplus arising out of such CSR activities
(ii) the Board of the company shall pass a resolution to that effect.
Chapter 9 – Accounts
Co. shall be liable to penalty – Lower of: OID shall be liable to penalty – Lower of:
2x of (amt. required to be transferred to 1/10th of (amt required to be transferred
the Fund or unspent CSR account) or to the Fund or unspent CSR account) or
Rs. 1 crore Rs. 2 lakhs
Rule 2: Definitions
“CSR” means the activities undertaken by a Company in pursuance of its statutory obligation u/s 135
as per provisions contained in these rules, but shall not include the following, namely: (SPEL FB)
Sponsorship Political Employee Law Foreign Business
(i) activities undertaken in normal course of business of the company.
Provided that any company engaged in research and development (R&D) activity of new vaccine,
drugs and medical devices in their normal course of business may undertake R&D activity of
new vaccine, drugs and medical devices related to COVID-19 for FY 2020-21 to 2022-23
subject to the conditions that:
(a) such R&D activities is carried out in collaboration with institutes mentioned in Sch VII;
(b) details of such activity to be disclosed separately in Annual report on CSR (in BoD report);
(ii) any activity undertaken by co. outside India except for training of Indian sports personnel
representing any State or UT at national level or India at international level;
(iii) contribution of any amount directly or indirectly to any political party u/s 182 of the Act;
(iv) activities benefitting employees of the company;
(v) activities supported by cos. on sponsorship basis for marketing benefits for its products;
(vi) activities carried out for fulfilment of any other statutory obligations under any other law
“Net profit" means net profit of a company as per its FS, but shall not include the following, namely:
(i) profit arising from overseas branch(es) of co., whether operated as separate co. or not; and
(ii) any dividend received from other companies in India, which are covered under and complying with
prov. of sec 135 of the Act.
“Ongoing Project” means a multi-year project undertaken in fulfilment of its CSR obligation having
timelines <= 3 years excluding FY in which it was commenced, and shall include such project that was
initially not approved as a multi-year project but whose duration has been extended beyond one year
by the board based on reasonable justification.
Rule 3: Applicability:
Every co. including its holding, or subsidiary and a foreign company u/s 2(42) having branch office or
project office in India which fulfils criteria u/s 135(1) shall comply with section 135.
Provided that net worth, turnover and net profit of a foreign co. shall be computed as per Balance
sheet and P&L prepared as per Section 381 and 198 of the Act
Chapter 9 – Accounts
Provided further that a co. having any amount in its unspent CSR account u/s 135(6) shall constitute
CSR committee and comply with CSR Provisions [Amendment]
(2) Every entity, covered above, who intends to undertake any CSR activity, shall register itself with
the CG by filing form CSR-1 with Registrar.
Form CSR-1 shall be signed and submitted electronically and shall be verified digitally by CA, CS
or CMA in practice.
(3) A company may engage international organisations for designing, etc. of the CSR projects or
programmes as per its CSR policy as well as for capacity building of their own personnel for CSR.
(4) A company may also collaborate with other companies for undertaking projects in such a manner
that CSR committees of respective cos. are in a position to report separately on such project.
(5) Board shall satisfy itself that funds so disbursed have been utilised for purposes as approved
and CFO (or person responsible for fin. mgt.) shall certify to the effect.
(6) In case of ongoing project, Board shall monitor the implementation of the project w.r.t. the
approved timelines and year wise allocation and shall be competent to make modifications, if any,
for smooth implementation of the project within the overall permissible time period.
Chapter 9 – Accounts
trf. to Unspent CSR Account and spent as per CSR policy and annual action plan or
trf. to a Fund specified in Sch VII, within 6 months of expiry of the FY.
Provided that any capital asset created prior to commencement of this Rule, shall within 180 days
(may seek further 90 days) comply with this provision.
(2) In case of a foreign co., the Balance Sheet u/s 381 of the Act, shall contain annual report on CSR
(b) Impact assessment reports - Place before BoD & annexed to the annual report on CSR.
(c) Co. undertaking impact assessment may book expense towards CSR for that FY, not
exceeding higher of [Amendment]:
2% of total CSR exp. for that FY or
Rs. 50 lakhs
Provided that for the preceding FY (2020-21), Form CSR-2 shall be filed separately on or before
31dt March June 2022, after filing Form AOC-4, etc.
Chapter 9 – Accounts
COVID related clarifications:
1. Following spendings are eligible CSR activity:
COVID-19 related activities
Creating health infrastructure for COVID Care
Establishment of medical oxygen generation and storage plants
Manufacturing and supply of Oxygen concentrators, ventilators, cylinders and other medical
equipment for countering COVID-19
COVID- 19 vaccination for persons other than the employees and their families
Carrying out awareness campaigns or public outreach campaigns on COVID vaccination program.
Setting up makeshift hospitals and temporary COVID Care facilities
For the activities related to “Harr Ghar Tiranga” campaign, such as mass scale production and
supply of the National Flag, outreach and amplification efforts and other related activities
2. Companies including Government co. may undertake the activities or projects or programmes using
CSR funds, directly by themselves or in collaboration as shared responsibility with other cos.
Provided that if copies of docs are sent less than 21 days before date of meeting, it shall be
deemed to have been duly sent if it is so agreed by members:
If company has share capital: If company has no SC:
Majority in numbers + 95% of PUSC 95% of total VP
Provided further that, in case of listed co., this sub-section shall be deemed to be complied with if:
copies of docs. are made available for inspection at RO during working hours for 21 days before
date of meeting.
a statement containing salient features of such docs or copies thereof is sent to member, DT
of DH in Form AOC-3 not less than 21 days before date of meeting unless SH ask for full FS.
Note – Cos. which are reqd to comply with Cos (Ind AS) Rules, 2015 shall send in Form AOC – 3A
Chapter 9 – Accounts
Provided - Listed co. shall also place its FS including CFS, and other docs on its website
Provided also that every listed company having subsidiary(ies) shall place separate audited accounts
w.r.t. each of subsidiary on its website, if any.
Provided also that a listed company which has a subsidiary incorporated outside India (herein
referred to as “foreign subsidiary (F-sub)”):
where such F-sub is statutorily required to where F-sub is not required to get FS
prepared CFS under law of the country of audited and hence does not get FS
incorporation - this proviso is complied with if audited - holding Indian listed co. may
such CFS is placed on website of listed co. place unaudited FS on website**
**Where FS is in language other than English, place a translated copy in English on the website.
(2) Co. shall allow members/DT to inspect the documents stated u/ss (1) at its RO during biz. hours.
Provided that every co. having subsy shall provide a copy of separate audited or unaudited FS, as
prepared in respect of each of its subsidiary to any member of the company who asks for it.
Chapter 9 – Accounts
Section 137: Copy of FS to be filed with RoC:
FS + CFS + All documents to be attached to FS
Note – Along with such FS, co. shall attach accounts of its subsy which have been incorporated
outside India and which have not established their place of business in India.
Where FS gets adopted in adjourned AGM – File with RoC within 30 days of such adjourned AGM
In case of OPC:
File copy of FS duly adopted by its member within 180 days from closure of FY
(2) Where AGM is not held, FS + Documents duly signed shall be filed with RoC within 30 days of last
date before which AGM should have been held.
Chapter 9 – Accounts
Person responsible –
MD and CFO, or
in absence of MD and CFO - any other director charged with such responsibility
in absence of any such director – all directors.
Additional Points:
1. Following class of companies shall file FS and other documents in e-form AOC-4 XBRL:
co. listed in India and Co. having Co. having Cos. required to prepare
their Indian subsy PUSC >= 5 cr. turnover >= 100 cr. FS as per Ind AS
Note – Once you come in purview of above limit, continue to file AOC-4 XBRL.
2. NBFCs, Housing finance cos. engaged in business of banking or insurance sector – exempted from
filing FS.
Who shall become an internal auditor – Either individual or partnership firm or body corporate - CA or
cost accountant, or CS or such professional as may be decided by the Board to conduct internal audit
What is his role? - To conduct internal audit of the functions and activities of the company
Chapter 9 – Accounts
[Section 139 to 148]
(2) AC/Board may call for such other info. form proposed auditor as it may deem fit.
(4) If Board agrees with AC recommendation – further recommend to member in AGM for appt.
(5) If Board disagrees – Refer back to AC for reconsideration citing reasons for disagreement
Before such appointment, the following shall be obtained from the auditor:
list of Proceedings against auditor/audit firm or any partner thereof pending w.r.t.
professional matters of conduct, as disclosed in the certificate, is true and correct
Note – Certificate shall also indicate whether auditor satisfied criteria u/s 141
NFRA Rules :
Every BC [other than co. u/s 2(20)] formed in India + governed by NFRA shall inform NFRA
(Form NFRA–1) w.r.t., the particulars of auditor appt. u/s 139 (1) within 15 days of such appt.
Cooling period:
individual auditor who has completed Audit firm which has completed it
his term under clause (a) term under clause (b)
shall not be eligible for re-appointment as auditor in the same company for 5
years from the completion of his term
Incoming auditors should not have common partner with retiring auditors:
As on date of appt., no audit firm having common partner(s) to other audit firm, whose tenure has
expired immediately preceding the FY, shall be appt. as auditor of same company for 5 years:
Note - Nothing contained in this sub-section shall prejudice right of the company to remove an
auditor or the right of the auditor to resign from such office of the company.
Note – “Same network” includes firms operating under same Brand name or Trade name or
common Control (BTC)
4. Where co. has appointed 2 or more indv/firms or a combination thereof as joint auditors,
co. may follow rotation of auditors in such a manner that both or all of the joint auditors, as
the case may be, do not complete their term in the same year.
Refer Illustration in ICAI Module Pg. 10.10 and 10.11 (not imp. as it was transition provision)
(4) CG may, by rules, prescribe manner in which cos. shall rotate their auditors – Mentioned above
(10) Where at any AGM, no auditor is appointed or re-appointed, the existing auditor shall continue to
be the auditor of the company.
(11) Where a co. is required to constitute AC u/s 177, all appointments, including the filling of a casual
vacancy of auditor shall be made after taking into account recommendations of such committee.
Provided that – Before any such action, auditor shall be given ROBH
(3) Contravention: Auditor fails to comply with provision u/ss (2) – Liable to:
Penalty of – Lower of Rs. 50,000 or an amount equal to remuneration of auditor
In case of continuing failure - Further penalty of Rs. 500/day after the first – Max Rs. 2 lakhs
(4) Special notice for removal of auditor and representation thereon by auditor
(i) Special notice (u/s 115) shall be required for resolution at AGM for:
a. appointing a person other than a retiring auditor, or
b. providing expressly that retiring auditor shall not be re-appointed,
except where retiring auditor has completed consecutive tenure of 5/10 years.
(ii) On receipt thereof - Company shall forthwith send a copy thereof to the retiring auditor.
(iii) Where notice is given + retiring auditor makes representation in writing (not exceeding a
reasonable length) and requests its notification to members, the company shall, unless the
representation is received by it too late for it to do so:
(a) in notice given to members, state the fact that representation is made; and
(b) send copy of representation to every member,
(c) if copy thereof couldn’t be sent (cause it was received too late or due to cos. default):
auditor may require the representation to be read out at the meeting (without
prejudice to his right to oral representation)*
a copy of such representation shall be filed with the Registrar:
Debarring the auditor: An auditor (indv/firm) against whom final order has been passed under this
section shall:
not be eligible to be appt. as an auditor of any co. for 5 years from passing of such order and
the auditor shall also be liable for action u/s 447.
Note – In case of a firm, the liability shall be of the firm and that of every partner (s) who acted in a
fraudulent manner or abetted or colluded in any fraud by, or in relation to, the co., dir. or officers.
2. Who will sign on behalf of firm: Where a firm including LLP is appointed as an auditor - only the
partners who are CAs shall be authorised to act and sign on behalf of the firm.
3. Disqualification: Following persons shall not be eligible for appt. as auditor of a company, namely:
(a) Body Corporate (other than LLP)
(b) an officer or employee of the company;
(c) a person who is a partner or employee of an officer or employee of the company;
(d) a person who, or his relative or partner:
(i) is holding any security of CASH OR SOH.
Except - Relative may hold security in company or ASH of face value not > Rs. 1 lakh;
Note – If relative acquires security above Rs. 1 lakh, corrective action to maintain limits if
Rs. 1 lakh shall be taken by the auditor within 60 days of such acquisition or interest
(h) a person who has been convicted by a court of an offence involving fraud and a 10 years has not
elapsed from the date of such conviction;
(i) a person who, directly or indirectly, renders any service referred to in section 144 to the
company or its holding company or its subsidiary company or its associate.
4. Where person appt. as an auditor incurs any disqualifications mentioned u/ss (3) after appt., he
shall vacate his office and it shall be deemed to be a casual vacancy in the office of the auditor.
Inquiry by auditor: Amongst other matters, auditor to inquire into following matters:
(a) whether loans & advances on the basis of security have been properly secured and whether
term thereof is prejudicial to interest of co/members.
(b) whether transactions which are represented merely by book entries are prejudicial to interest
of co.
(c) whether asset of co. as consist of shares, debentures or other securities have been sold at
price < purchase price (except in case of investment co. or banking co.)
(d) whether loans & advances have been shown as deposits.
(2) Auditor Report: Auditor shall make a report to members of the co.:
(d) whether BS and P&L dealt with in report are in agreement with BOA and returns;
(e) whether FS comply with the AS;
(f) observations or comments of auditors on financial transactions or matters which have any
adverse effect on the functioning of the company;
(h) any qualification, reservation or adverse remark relating to maintenance of accounts and other
matters connected therewith;
(i) whether co. has adequate IFC w.r.t FS in place and operating effectiveness of such controls
(ii) whether co. has made provision (as per law or AS) for material foreseeable losses, if
any, on long term contracts including derivative contracts;
(iii) whether there is any delay in transferring amt. to IEPF by the company.
(iv) Omitted
(v) Ultimate Beneficiaries:
i. Whether mgt. has represented that – no funds has been advances or lent to any
person (intermediary) with an understanding that such intermediary shall lend such
funds on behalf of co. to ultimate beneficiary or provided any guarantee or security on
behalf of such ultimate beneficiary.
ii. Whether mgt. has represented that – no funds has been received by the company from
any person (“Funding parties”) with an understanding that the co. shall lend such funds
to ultimate beneficiary or provided any guarantee or security on behalf of such
ultimate beneficiary.
iii. Nothing has come to the notice of auditor that caused him to believe that above
representations contain any material misstatement.
(vi) whether the dividend declared or paid during the year is in compliance with sec 123.
(vii) W.r.t. FY commencing on or after 1/4/22, whether company has used accounting
software for maintaining BoA which:
has a feature of recording audit trail facility and
same has been operated throughout the year for all transactions recorded therein &
audit trail feature has not been tampered with and
audit trail has been preserved as per statutory requirements for record retention.
(4) Where any matter included in audit report is answered in negative or with a qualification, the
report shall state the reasons therefor.
Note:
Duties and power of company’s auditor w.r.t. branch audit shall be as per Sec 143(1) to (4)
Branch auditor to prepare report on BoA of branch examined by him and send it to Co’s auditor
Co’s auditor shall deal with such report in his report in manner as he considers necessary.
(9) Every auditor shall comply with the auditing standards (SAs).
(10) CG may prescribe SAs or any addendum thereto, as recommended by ICAI, constituted u/s 3 of
CA Act, 1949, in consultation with and after examination of recommendations made by NFRA
Provided that – Until such SAs are notified, SAs notified by ICAI shall be deemed SAs
(11) CG may, in consultation with NFRA direct that auditor’s report may include such other matters as
may be specified.
Report to CG as under:
Inform Auditor to report matter to AC or BoD immediately (not > 2 days) of his knowledge
AC/BoD seeking reply within 45 days
Forward On receipt of reply - Auditor to forward his report + AC/BoD reply + his comments
to CG thereon to CG within 15 days of reply.
In case of no reply – Forward his report + note that details were forwarded to
AC/BoD for which no reply received (within 15 days)
Fraud < Auditor shall report the matter to AC u/s 177 or BoD immediately (not > 2 days) of
Rs. 1 cr. his knowledge and report the following matter [NAP]:
Nature of fraud with description Approx. amount involved Parties involved
Of each fraud reported above, following details shall be disclosed in BOD report:
Nature of fraud with description Approx. amount involved
Above provision to apply mutatis mutandis to cost auditor & secretarial auditor.
(13) Report fraud can never lead to contravention of duty (E.g., - confidentiality):
No duty of an auditor shall be regarded as having been contravened by reason of his reporting the
matter u/ss (12) if it is done in good faith.
Penalty:
If any auditor, cost accountant or CS in practice do not comply with provisions of fraud u/s (12):
(a) in case of a listed company, be liable to a penalty of Rs. 5 lakh; and
(b) in case of any other company, be liable to a penalty of Rs. 1 lakh
Explanation: For this section, “directly or indirectly” shall include rendering of services by auditor:
(4) CG shall, by notification, specify any statutory body or officer for ensuring prompt payment of
damages u/ss (3) and such person specified shall, on payment file report with CG
Provided that, prior to passing such order for companies regulated under special act, CG shall
consult the concerned regulatory body.
Such cost audit shall comply with cost auditing standards as issued by ICAI (Cost) + CG
(5) Qualifications, disqualifications, rights, duties and obligations applicable to auditors under this
Chapter shall, so far as may be applicable, apply to a cost auditor
Report on the audit of cost records shall be submitted by Cost Accountant to BoD of the company.
(7) On receipt of report + info. u/ss (6), if CG is of opinion that further I&E is necessary - it may call
for such further I&E and co. shall furnish the same within time specified by CG
Example
When A requests B to lend Rs. 10,000 to C and guarantees that C will repay the amount within the
agreed time and that on C falling to do so, he (A) will himself pay to B, there is a COG. Here, B is the
creditor, C the principal debtor and A the surety.
1. Principal debt - Purpose of a guarantee being to secure the payment of a debt, the existence of
recoverable debt is necessary. If there is no principal debt, there can be no valid guarantee.
2. Consideration:
Like every other contract, a COG should also be supported by some consideration.
Example: A engages B as clerk to collect money on his behalf. B fails to account for some of his
receipts, and A, then calls upon him to furnish security for his duly accounting. C gives his guarantee
for B’s duly accounting. A does not acquaint C with B’s previous conduct. B afterwards make default.
The guarantee is invalid.
5. Writing not necessary: Sec 126 expressly declares that a guarantee may be either oral or written
Types of Guarantee:
Example - A and B make a joint and several promissory note to C. A makes it, in fact, as surety for B,
and C knows this at the time when the note is made. The fact that A, to the knowledge of C, made the
note as surety for B, is no answer to a suit by C against A upon the note.
Discharge of surety:
By revocation of continuing COG By conduct of the creditor By invalidation of COG
Note - A specific guarantee can be revoked only if liability to debtor has not accrued.
Example – A guarantees to B, to the extent of Rs. 100,000, that C shall pay all the bills
that B shall draw upon him. B draws the bill upon C. C accepts the bill. A gives notice of
revocation after the bill is drawn and accepted. C dishonors the bill at maturity. A is liable
upon his guarantee.
By The surety under original contract is discharged if a fresh contract is entered into either
Novation between the same parties or between the other parties, the consideration being the
(Sec 62) mutual discharge of the old contract
Example - A becomes surety to C for B’s conduct as a manager in C’s bank. Afterwards, B and C
contract, without A’s consent, that B’s salary shall be raised, and B will also be liable for losses on
overdrafts. B allows a customer to overdraw, and bank loses money. A is discharged from his
suretyship by variance made without his consent and is not liable to make good this loss.
Note -
Variation which is not substantial/material or beneficial to surety will not discharge him:
In M.S Anirudhan v Thomco’s Bank Ltd, the surety guaranteed repayment of loan provided by bank
to PD of only upto Rs. 25,000. Subsequently, since bank was willing to provide loan only upto Rs.
20,000, PD reduced amount to Rs. 20,000 in guarantee form and, without intimation to surety, gave
it to the bank which was then accepted. On default by the PD, the court held that the surety’s
liability was not discharged as the alteration was beneficial to him and not substantial.
(b) By release or discharge of PD (Sec 134): The surety is discharged if the creditor:
enters into a fresh/ new contract with PD by which the PD is released, or
does any act or omission, the legal consequence of which is the discharge of PD.
Example - A contracts with B for a fixed price to build a house for B within a stipulated time, B
supplying necessary timber. C guarantees A’s performance of the contract. B omits to supply the
timber. C is discharged from his suretyship
(c) when creditor compounds with, gives time to, or agrees not to sue, PD [Sec 135]:
A contract between creditor and PD, by which the creditor makes a composition with, or promises to
give time to, or to not sue, PD - Discharges the surety, unless surety assents to such contract
(d) Discharge of surety by creditor’s act or omission impairing surety’s eventual remedy [Section 139]:
If creditor does any act which is inconsistent with rights of the surety, or
omits to do any act which his duty to the surety requires him to do, and
eventual remedy of the surety himself against PD is thereby impaired,
the surety is discharged.
In a case before the Supreme Court of India, “A bank granted a loan on the security of the stock in
the godown. The loan was also guaranteed by the surety. The goods were lost from godown on
Example - A puts M as apprentice to B and gives a guarantee to B for M’s fidelity. B promises on his
part that he will, at least once a month, see that M make up the cash. B omits to see this done as
promised, and M embezzles. A is not liable to B on his guarantee.
By invalidation of COG:
a) Guarantee obtained by misrepresentation invalid [Section 142]:
Any guarantee which has been obtained by means of misrepresentation made by creditor, or with his
knowledge and assent, concerning a material part of the transaction, is invalid.
c) Guarantee on contract that creditor shall not act on it until co-surety joins (Section 144):
Where a person gives a guarantee upon a contract that creditor shall not act upon it until another
person has joined in it as co- surety, the guarantee is not valid if that other person does not join.
Rights of surety:
Right of subrogation
Against PD
Right to indemnity
Right to security
Rights of Surety
Against creditor Right to set off
Example - B is indebted to C, and A is surety for the debt. C demands payment from A, and on
his refusal sues him for the amount. A defends the suit, having reasonable grounds for doing so,
but is compelled to pay the amount of the debt with costs. He can recover from B the amount
Example - C advances to B, his tenant, Rs. 2 lakh on guarantee of A. C has also a further security
for the Rs. 2 lakh by a mortgage of B’s furniture. C cancels the mortgage. B becomes insolvent,
and C sues A on his guarantee. A is discharged from liability to amt. of value of furniture.
Example:
A, B and C, as sureties for D, enter into three several bonds, each in a different penalty, namely, A in
the penalty of 1,00,000 rupees, B in that of 2,00,000 rupees, C in that of 4,00,000 rupees, conditioned
for D’s duly accounting to E.
Case 1 - D makes default of Rs. 3,00,000. A, B and C are each liable to pay 1,00,000 rupees.
Case 2 - D makes default of Rs. 4,00,000; A is liable to pay Rs. 1,00,000, and B and C Rs. 1,50,000 each.
Case 3 - D makes default of Rs. 7,00,000. A, B and C have to pay each the full penalty of his bond
UNIT 2 – BAILEMENT AND PLEDGE
Parties to bailment:
Bailor – Person delivering the goods Bailee – Person to whom goods are delivered
Examples of Bailment:
Delivery of car for repair Giving cloth to tailor for stiching
Goods given to a friend for his own use for free Goods given to courier co. for carriage
(a) Contract:
Contract may be expressed or implied
No consideration is necessary to create a valid contract of bailment
(c) Purpose - Goods are delivered for some purpose. The purpose may be express or implied.
(d) Possession:
In bailment, possession of the goods changes (by actual or constructive delivery)
Ownership of the goods remains unchanged.
Where a person is in custody without possession, he does not become a bailee.
(E.g., servant having possession of master’s good does not become bailee)
Types of Bailments:
Gratuitous bailment: (free of charge)
o One when provider of service does it gratuitously i.e. free of charge.
o Such bailment would be either for exclusive benefits of either bailor or bailee (not both)
Non-gratuitous bailment:
o where both the parties get some benefit i.e. bailment for the benefit of both bailor & bailee
Duties of bailor:
Disclose known bear necessary bound to accept the
Indemnify bailee
facts expenses goods (when returned)
Pay Necessary and/or Where, the goods are kept or are to be worked Bailor is liable to pay the
Extra Ordinary upon by bailee free of cost - Bailor shall repay necessary extraordinary
expenses to bailee – Necessary expense (petrol) and expenses ONLY incurred
extra ordinary exp. (engine repair) by the bailee (E.g. Toll)
Indemnify bailee for Bailor must compensate bailee for loss or Will depend on the term of
premature damage suffered by bailee that is in excess of bailment between bailor
termination the benefit received, (in case of gratuitous and bailee
bailment is terminated before expiry)
Indemnify any loss Bailor to indemnity any loss that bailee may sustain by reason that bailor
was not entitled to make the bailment, or to receive back the goods
Bound to receive It is the duty of bailor to receive back the goods when bailee returns
goods them after expiry of time or purpose of bailment is accomplished.
If bailor refuses - when offered at the proper time - the bailee can
claim compensation for all necessary expenses incurred for safe custody
Duties Details
Take Bailee is bound to take as much care of such goods as a man of ordinary prudence
reasonable would, under similar circumstances, take care of his own goods of the same bulk,
care of quality and value, as the goods bailed.
bailed goods
Note - The bailee, in the absence of any special contract, is not responsible for
loss, destruction or deterioration of the thing bailed, if he has taken reasonable
amount of care of it.
Example:
1. If X bails his ornaments to ‘Y’ and ‘Y’ keeps these ornaments in his own locker
at his house along with his own ornaments. If all ornaments are lost/stolen - ‘Y’
will not be responsible for loss to ‘X’.
2. If ‘X’ specifically instructs ‘Y’ to keep them in a bank, but ‘Y’ keeps them at his
residence, then ‘Y’ would be responsible for the loss
Not make If the bailee makes any use of the goods bailed, which is not according to the T&Cs
inconsistent of bailment, he is liable to compensate bailor for any loss or destruction of goods
or (E.g., Speed Limit of Car – 50km/hr)
unauthroised
use Note - Bailment contract is voidable at option of the bailor, if bailee does not use
the goods according to the T&Cs of bailment
No Adverse Bailee must not set up a title adverse to that of the bailor. He must hold the goods
Title on behalf of and for the bailor. He cannot deny the title of the bailor
Note - Whatever is obtained by way of relief or compensation in any such suit shall, as between bailor
and bailee, be dealt with according to their respective interests
Indemnity (in case of For any loss arising to him by reasons that bailor was not entitled to make
bailor’s defective title) bailment or to receive back goods or to give directions in respect to them
Claim compensation (for Bailee is entitled to receive compensation from bailor for loss caused
faulty goods) due to failure of bailor to disclose any faults in goods known to him.
Claim necessary expense In case of gratuitous bailment - bailor shall repay to bailee necessary and
extraordinary exp. incurred by him for purpose of bailment.
Apply to Court to Decide If goods bailed are claimed by person other than bailor, bailee may apply
the Title to the Goods to the court to stop its delivery and to decide the title to the goods.
(E.g., TV given on rent on summer vacation by dealer. Mr. X claimed that
the TV was his and he had given to dealer for repair. Bailee can apply)
Fulfilment of If goods were given for specific purpose, COB to terminate after fulfilment of
Purpose that purpose
By Notice Where bailee acts in a manner inconsistent with T&C of COB – Bailor can
terminate such COB by giving notice to bailee
Gratuitous bailment can be terminated anytime by giving notice to bailee (but,
compensate bailee to extent of loss in excess of benefit)
However, if owner cannot with reasonable diligence be found, or if he refuses, upon demand, to pay the
lawful charges of the finder, the finder may sell it:
when the thing is in danger of perishing or of losing the greater part of its value, or
when lawful charges of finder amount to 2/3rd of its value.
Particular Lien (Sec 170): (E.g., A gives cloth to B, a tailor, to make into a coat)
In case of bailment for a speicified purpose,
where the bailee has, as per the purpose of the bailment,
rendered any service involving exercise of labour or skill w.r.t. goods bailed,
he has a right to retain such goods until he receives due remuneration for such services.
Note –
1. In above case, the bailee has no right to sue as long as he has bailed goods. However, if bailee
returns goods w/o receiving remuneration – he has right to sue the bailor.
2. Right to particular lien is lost if - bailee does not complete the work within the time agreed.
3. Bailee has no rights to sell such goods
Example of General Lien - ‘A’ borrows Rs. 500/- from bank without security and subsequently again
borrows another Rs. 1000/- but with security of say certain jewellery. In this illustration, even where
‘A’ has returned Rs. 1000/- being second loan, banker can retain jewellery given as security to second
loan towards first loan which is yet to be repaid.
Under the right of general lien the goods cannot be sold but can only be retained for dues. The right of
lien can be waived through a contract.
Pledge:
Bailment of goods as security for payment of a debt or performance of a promise is called “pledge”.
Bailor in this case is called “pawnor or pledger”.
Bailee is called the “pawnee or pledgee”.
Example – Jewellery deposited as security against loan.
Essentials of a contract of pledge:
Rights of a Pawnee/Pledgee:
Right to: Details
Retain the goods May retain goods pledged, not only for payment or performance of promise,
pledged but for the interest (of debt) and all necessary expenses incurred by him
w.r.t. the possession or for the preservation of the goods pledged.
Retain goods for Pawnee can retain goods pledged for any debt/promise other than the debt
subsequent debts or promise for which they are pledged.
But he can exercise this right only when there is a contract to this effect.
Where pawnor Where pawnor makes default w.r.t. payment or performance, the pawnee has
defaults, pawnee the following rights:
can file suit or sell i. the pawnee may bring a suit against pawnor and retain the goods pledged
goods as a collateral security; or
ii. he may sell goods pledged on giving the pawnor reasonable notice of sale.
Note –
If Sales proceed < Amount due – Pawnor still liable to pay balance
If Sales proceed > Amount so due – pay over surplus to pawnor
Right of redemption:
Pledge by non-owners:
Usually, the owner of the goods pledges them to secure a loan. But, under certain circumstances, the
law permits a non-owner who is in the possession of the goods to pledge the goods.
Example - Srushti acquired valuable diamond at a very low price by a voidable contract. The voidable
contract was not rescinded. Srushti pledged the diamond with Mr. VK. This pledge is valid.
3. Limited Interest:
When the pawnor not being the owner of the goods and having limited interest pledges the goods,
the pledge is valid only to the extent of such limited interest.
Example: Mr. X finds a defective phone lying on road. He picks it up, gets it repaired for Rs. 5000.
He later pledges phone for Rs. 10,000. True owner can recover the phone only on paying Rs. 5000
4. Pledge by a Co-owner:
When a co-owner in possession of the goods with the assent of all the other co-owners pledges
them, it is a valid pledge.
Definition:
Agent: means a person employed to do any act for another or to represent another in dealing with the
third persons and
Principal: means a person for whom such act is done or who is so represented.
Test of Agency
(a) Whether the person has the capacity to bind the principal and make him answerable to 3rd party.
(b) Whether he can establish privity of contract between the principal and 3rd parties.
If answer to both the above question is yes, then it’s an agency relationship.
Rule of Agency is based on the maxim “Qui facit per alium, facit per se” i.e., he who acts through an agent
does the act himself.
Can minor become agent? – Yes! But he can’t be held responsible for his acts but the principal will be
bound by his acts.
Example - P appoints Q, a minor, to sell his car for not less than Rs. 2,50,000. Q sells it for Rs. 2,00,000.
P will be held bound by the transaction and further shall have no right against Q for claiming the
compensation for having not obeyed the instructions, since Q is a minor and a contract with a minor is
‘void-ab-initio’.
Note - No consideration is necessary to create an agency. The acceptance of the office of an agent is
regarded as a sufficient consideration for the appointment.
Creation of agency:
Words
Spoken
Written
1. Express authority - An authority is said to be express when it is given by words (spoken or written)
Examples –
Person realising rental on behalf of landlord
Manager of a shop ordering from fixed vendors on behalf of owner of the shop
3. Agency by estoppel:
Based on principle of estoppel i.e., “when a person by declaration, act or omission has intentionally
caused or permitted another person to believe a thing to be true, he shall not be allowed to deny his
previous statement”.
When agent has without authority done acts or incurred obligations on behalf of principal
the principal is bound by such acts or obligations if
he has by his words or conduct (express or implied)
induced such 3rd persons to believe that such acts were within scope of agent's authority
Example - if A gets to know that B is dealing on his behalf with C and does not take any steps to
clarify his position, A would be liable for the transaction performed by B on his behalf.
4. Necessity: An agency of necessity arises due to some emergent circumstances. Thus, here an agent
is authorised to do certain act, and while doing such an act, an emergency arises, he acquires an
extra-ordinary or special authority to prevent his principal from loss.
Example –
1. If the owner is away from home, and home catches fire, caretaker can incur expenses to stop
the fire and owner shall be responsible.
2. Agent having authority to sell goods may also repair it.
3. If perishable goods are consigned to be sent from one place to another. If they begin to perish,
consignee may sell it off.
5. Ratification
Example – Agent who was authorized to purchase only in cash purchased in credit. Now principal may
authorize such purchase.
6. Agency created by Legal assumption - In a case of cohabitation by a married woman (i.e., wife is
considered as an implied agent of her husband). If wife lives with her husband, there is a legal
presumption that a wife has authority to pledge her husband’s credit for necessaries.
If the wife lives apart for no fault on her part, wife has authority to pledge her husband’s credit
for necessaries. This legal presumption can be rebutted only in cases (iii) and (iv) above.
Whatever be the nature or extent of the agent’s authority, it will always include the authority to do:
1) every lawful thing necessary for the purpose of carrying it out,
2) every lawful thing justified or usually done in the course, of conducting such business.,
3) in an emergency, all such acts for the purpose of protecting the principal from loss as will be done by
a person of ordinary prudence in his own case under similar circumstances.
Example:
Sub-agents
Definition - Person employed by, and acting under the control of, the original agent in the business of the
agency.
Representation of principal by sub-agent properly appointed (i.e., with authority) [Section 192]:
Where a sub-agent is properly appointed,
1. Principal is bound and responsible to 3rd party for acts thereof as if he were agent originally appointed
2. Agent is responsible to the principal for acts of sub-agent
3. Sub-agent responsible for his acts to agent, but not to principal, except for fraud or willful wrong
Substituted agents
Definition - Person appointed by the agent to act for the principal, in the business of agency, with the
knowledge and consent of the principal.
Substituted agents are not sub agents. They are agents of the principal.
Example
Example
A instructs B, a merchant, to buy a ship for him. B employs a ship surveyor of good reputation to choose
a ship for A. The surveyor makes the choice negligently and the ship turns out to be unseaworthy and is
lost. B is not, but the surveyor is, responsible to A.
Note - Appt. of substituted agent can never be improper. It always has to be within authority.
avoid conflict not make any Remit maintain not not use confidential
of Interest secret Profit sums Accounts Delegate info. against principal
Example:
1. A, an agent is engaged for managing business of B, in which it is a custom to invest money at hand
for interest. If A omits to make such investment, he must indemnify B for the losses i.e., for the
interest B would have obtained for such investment.
2. B, a broker, in whose business it is not the custom to sell on credit, sells goods of A on credit to
C. C, before payment, becomes insolvent. B will have to indemnify A for the losses.
The agent is always bound to act with reasonable diligence, and to use such skill as he possesses;
Agent to compensate his principal for direct consequences of his own neglect, want of skill or
misconduct, but not in respect of loss of damage which are indirectly or remotely caused by such
neglect, want of skill or misconduct.
Example:
1. A (a merchant in Kolkata) has an agent, B (in London) to whom a sum of money is paid on A’s account,
with orders to remit. B retains money for a considerable time. A, in consequence thereof, becomes
insolvent. B is liable for interest from the day on which it ought to have been paid, as per usual
rate, and for any further direct loss- e.g., by variation of exchange rate -but not further.
2. A, an agent for the sale of goods, having authority to sell on credit, sells to B on credit, without
making the proper and usual enquiries as to the solvency of B. B, at the time of such sale is
insolvent. A must compensate his principal for the loss sustained by him.
5. Duty to avoid conflict of interest (Duty not to deal on his own account): [Sec 215]
If an agent deals on his own account in business of agency,
without first obtaining consent of principal and acquainting him with all material circumstances
which have come to his own knowledge on the subject,
principal may repudiate the transaction, if:
o any material fact has been dishonestly concealed from him by the agent, or
o the dealings of the agent have been disadvantageous to him.
Examples:
2. A directs B to sell A’s estate. B, on looking over the estate before selling it, finds a mine on the
estate which is unknown to A. B informs A that he wishes to buy the estate for himself, but
conceals the discovery of the mine. A allow B to buy. A, on discovering that B knew of the mine at
the time he bought the estate, may either repudiate or accept the sale at his option.
Principals right to benefit gained by agent dealing on his account [Sec 216]:
If an agent, without knowledge of his principal deals on his own account
principal is entitled to claim from agent any benefit which may have resulted from such transaction
Example:
A directs B, his agent, to buy a certain house for him. B tells A it cannot be bought and buys the house
for himself. A may, on discovering that B has bought the house, compel him to sell it to A at the price
he gave for it.
Secret Profit means any advantage obtained by the agent over and above his agreed remuneration
and which he would not have been able to make but for his position as agent.
10. Duty not to use any confidential information received in the course of agency against the principal.
Rights of an Agent:
Retain sums - Retain or lien Indemnity for Compensation for
Right to
Advances, Expenses, principal's lawful acts or injury by Principal's
remuneration
Remuneration property good faith neglect
Examples
1. A employs B to recover Rs. 1,00,000 from C, and invest it in securities that give good returns. B
recovers the amount and lays out Rs. 90,000 on good securities, but lays out Rs. 10,000 on
securities which he ought to provide poor returns, whereby A loses Rs. 2,000. B is entitled to
remuneration for recovering the Rs. 1,00,000 and for investing the Rs. 90,000. He is not entitled
to any remuneration for investing the Rs. 10,000, and he must indemnify A for Rs. 2000.
2. A employs B to recover Rs. 1,00,000 from C. Because of B’s misconduct the money is not recovered.
B is entitled to no remuneration for his services, and must make good the loss.
The agent’s right to lien is lost in the following cases: [PWC Loses]
(a) When the possession of the property is lost.
(b) When the agent waives his right. Waiver may arise out of agreement express or implied.
(c) The agent’s lien is subject to a contract to the contrary.
4. Right to indemnity:
a. Right of indemnification for lawful acts [Section 222]:
The principal is bound to indemnify the agent against all consequences of lawful acts done in
exercise of his authority.
Example: ‘A’ residing in Delhi appoints ‘B’ from Mumbai as an agent to sell his merchandise. As a
result ‘B’ contracts to deliver the merchandise to various parties. But A fails to send the
merchandise to B and B faces litigations for non- performance. Here, A is bound to protect B
against the litigations and all costs, expenses arising of that.
Example: Where P appoints A as his agent and directs him to sell certain goods which in fact
turned out to be not those belonging to P and if third parties sue A for this act, A is entitled for
reimbursement and indemnification for such act done in good faith.
Example:
A employs B to beat C, and agrees to indemnify him against all consequences thereof. B thereupon
beats C, and has to pay damages to C for so doing. A is not liable to indemnify B for those damages.
B, the proprietor of a newspaper, publishes, at A’s request, a false statement about C in the paper,
and A agrees to indemnify B against the consequences of the publication, and all costs and damages
of any action in respect thereof. B is sued by C and has to pay damages, and also incurs expenses.
A is not liable to indemnify B.
Example: A employs B as a brick layer in building a house, and puts up the scaffolding himself. The
scaffolding is unskilfully put up, and B is in consequence hurt. A must compensate B.
Example: C buys goods from A, knowing that he is an agent for their sale, but not knowing who the
principal is. A’s principal is the person entitled to claim from C the price of the goods, and C cannot,
in a suit by the principal, set off against that claim a debt due to himself from A.
(simultaneous read point 2 of Rights of Third Party)
Example: A, being B’s agent with authority to receive money on his behalf, receives from C, a sum of
money due to B. C is discharged of his· obligation to pay the sum in question to B. (i.e., payment to
authorised agent tantamount to payment to the principal)
Example: A, being owner of a ship and cargo, authorizes B to procure an insurance for Rs. 4,00,000
on the ship. B procures a policy for Rs. 4,00,000 on the ship, and another for the like sum on the
cargo. A is bound to pay the premium for the policy on the ship, but not the premium for the policy
on the cargo.
Principal not bound when excess of agent’s authority is not separable [Sec 228]:
Where an agent does more than he is authorized to do, and what he does beyond the scope of his
authority cannot be separated, principal is not bound to recognize the transaction.
Example: A authorizes B to buy 500 sheep for him. B buys 500 sheep and 200 lambs for one sum of
Rs. 6,00,000. A may repudiate the whole transaction.
Example: A authorizes B to draw bills to the extent Rs. 200 each. B draws bills in the name of A for
Rs. 1,000 each. A may repudiate the whole transaction.
Exception:
Liability of principal inducing belief that agent’s unauthorized acts were authorized [Sec 237]:
When an agent has, without authority, done acts or incurred obligations to third persons on behalf of
his principal, the principal is bound by such acts or obligations, if he has by his words or conduct
induced such third persons to believe that such acts and obligations were within the scope of the
agent’s authority. (Because of the concept of agency by estoppel)
Example: A consigns goods to B for sale, and gives him instructions not to sell under a fixed price. C,
being ignorant of A’s instructions, enters into a contract with B to buy the goods at a price lower than
the reserved price. A is bound by the contract.
Example: A entrusts B with an instrument endorsed in blank. B sells them to C in violation of private
orders from A. The sale is good.
Example:
A is employed by P to buy certain goods from X (of which X is apparent owner). A buys them
accordingly. In course of such purchase, A learns that goods really belonged to M, but P is ignorant
of that fact. P is not entitled to set off any money receivable from X against the price of the goods.
Thus, the knowledge of the agent is treated as the knowledge of the principal.
4. Principal’s liability for the agent’s fraud, misrepresentation or torts [Sec 238]:
Example:
1. A, being B’s agent for sale of goods, induces C to buy them by a misrepresentation, which he was
not authorized by B to make. The contract is voidable, as between B and C, at the option of C.
2. A, the captain of B’s ship, signs bills of lading without having received on board the goods
mentioned therein. The bills of lading are void as between B and the pretended consignor.
Exceptions: In following cases, agent is presumed to have agreed to be personally bound: [UF! CAP]
Unnamed inCompetent Agent exceeds
Foreign Principal Pretended agent
Principal principal authority
1. Where contract is for sale or purchase of goods for a merchant resident abroad/foreign principal:
Here, presumption is that agent undertakes to be personally liable for performances of such contract
2. Where agent does not disclose the name of his principal or undisclosed principal (Principal unnamed):
Here, a presumption arises that he himself undertakes to be personally liable.
Note - When the principal is undisclosed, the liability is of the agent only, and the principal cannot be
sued in such a case.
3. Non-existent or incompetent principal: Where the principal, though disclosed, cannot be sued, the
agent is presumed to be personally liable.
Example: An agent who contracts for a minor, the minor being not liable, the agent becomes personally
liable. This result, may not, however, follow where other party already knows that principal is a minor.
(Note – This is just example. However, P cannot be minor)
4. Pretended agent – If the agent pretends but is not an actual agent, and the principal does not ratify
the act but disowns it, the pretended agent will be himself liable (Sec 235).
5. When agent exceeds authority- When the agent exceeds his authority, misleads the third person in
believing that the agent he has the requisite authority in doing the act, then the agent can be made
liable personally for the breach of warranty of authority.
If the principal discloses himself before the contract is completed, the other contracting party may
refuse to fulfil the contract, if he can show that, if he had known who was the principal in the
contract, or if he had known that the agent was not a principal, he would not have entered into the
contract.
Example: SK bought for himself a ticket of IPL match at Wankhede Stadium through AB because on
personal grounds Stadium management would not have issued the ticket to SK. Stadium management
may repudiate the contract and refuse SK to enter the stadium.
Example: A, who owes 50,000 rupees to B, sells 1,00,000 rupees worth of rice to B. A is acting as
agent for C in the transaction, but B has no knowledge nor reasonable ground of suspicion that such
is the case. C cannot compel B to take the rice without allowing him to set off A’s debt.
Example: A enters into a contract with B to sell him 100 bales of cotton, and afterwards discovers
that B was acting as agent for C. A may sue either B or C, or both, for the price of the cotton.
b. Consequence of inducing agent or principal to act on belief that principal or agent will be held
exclusively liable [Section 234]: When a person who has made a contract with an agent induces
the agent to act upon the belief that the principal only will be held liable or induces the principal
to act upon the belief that the agent only will be held liable, he cannot afterwards hold liable the
agent or principal respectively.
a. Revocation:
Example: A authorizes B to buy 1,000 bales of cotton on account of A, and to pay for it out of A’s
money remaining in B’s hands.
1. B buys it in his own name, so as to make himself personally liable for the price – In this case, A
cannot revoke B’s authority so far as regards payment for the cotton.
2. B buys 1,000 bales of cotton in A’s name, and so as not to render himself personally liable for the
price. A can revoke B’s authority to pay for the cotton.
(Trick – P has to be NICE when revoking agency. Notice, Implied, Compensate or Express)
b. Renunciation by agent [Section 206]:
An agent may renounce the business of agency in the same manner in which the principal has the
right to revoke.
If the agency is for a fixed period, the agent would have to compensate the principal for any
premature renunciation without sufficient cause. [Sec 205]
A reasonable notice of renunciation is necessary. Length of notice is to be determined by the same
principles which apply to revocation by the principal. If the agent renounces without proper notice,
he shall have to make good any damage thereby resulting to the principal.
c. Completion of business: An agency is automatically and by operation of law terminated when its
business is completed. Thus, for example, the authority of an agent appointed to sell goods ceases to
be exercisable when the sale is completed.
d. Death or insanity: An agency is terminated automatically on the death or insanity of the principal or
the agent. Winding up of a company or dissolution of partnership has the same effect. Act done by
agent before death would remain binding.
Example:
1. P gives authority to A to sell P’s land, and to pay himself, out of the proceeds, the debts due to him
from P. P cannot revoke this authority, nor can it be terminated by his insanity or death.
2. A consigns 1000 bales of cotton to B, who has made advances to him on such cotton, and desires B to
sell the cotton, and to repay himself, out of the price, the amount of his own advances. A cannot
revoke this authority, nor it is terminated by his insanity or death.
Example:
1. A directs B to sell goods for him, and agrees to give B 5% commission on the price fetched by the
goods. A afterwards, by letter, revokes B’s authority. B, after the letter is sent, but before he
receives it sells goods of Rs. 1 lakh. Sale is binding on A and B is entitled to Rs. 5000 as his commission.
2. A, at Chennai, by letter directs B to sell for him some cotton lying in a warehouse in Mumbai, and
afterwards, by letter, revokes his authority to sell, and directs B to send the cotton to Chennai. B,
after receiving the second letter, enters into a contract with C, who knows of the first letter, but
not of the second, for the sale to him of the cotton. C pays B the money, with which B absconds. C’s
payment is good as against A.
3. A directs B, his agent, to pay certain money to C. A dies, and D takes out probate to his will. B, after
A’s death, but before hearing of it, pays the money to C. The payment is good as against D.
The End
Explanation:
NI is payable to order when: A NI is payable to bearer when:
a) It is expressed to be so payable. a) it is expressed to be so payable e.g., pay bearer.
b) When it is expressed to be payable to b) the only or last indorsement on the instrument
a specified person and does not is an indorsement in blank.
contain words prohibiting its transfer.
Note –The property in such a NI passes to a bonafide transferee for value (i.e., notwithstanding any
defect in title of any prior party)
must be an express The maker and payee must be properly stamped and
Promise to
promise to pay. Mere must be certain, such stamp must be duly
pay a certain
acknowledgment of definite and cancelled by maker's
sum
debt is insufficient different persons signatures or initials
The maker of The person directed by the drawer to pay is The person named in
a BOE called the 'drawee’. On acceptance of the bill, he the BOE, to whom or to
is called an acceptor and is liable for payment of whose order the money
bill. His liability is primary and unconditional is, directed to be paid
Note – The payee can be the drawer himself (i.e., self-cheque or payee making BOE) or a third party.
Payable on demand means- It should be payable whenever the holder chooses to present it to the
drawee (banker). Cheques are mandatorily payable on demand.
Explanations:
Cheque in the electronic form means a a truncated cheque means cheque which is
cheque drawn in e-form by using any computer truncated during a clearing cycle, either by
resource, and signed in a secure system with a clearing house or bank whether paying or
digital signature (with/without biometric receiving payment, immediately on
signature) and asymmetric crypto system or generation of an e-image for transmission,
electronic signature, as the case may be substituting further physical movement
Parties to Cheque
Drawer Drawee: Payee:
The maker of a the the specific bank the person named in the cheque,
cheque. Liability is on whom cheque is to whom or to whose order the
primary and conditional drawn. money is, directed to be paid
Note – The payee can be the drawer himself (i.e., self-cheque) or a third party.
Crossing of cheques:
There are two types of cheques:
Open cheques – A cheque that can be paid in cash at the counter.
Crossed cheques – Parallel transverse lines which is an instruction to the paying bank that the
payment is not to be made at the counter but through a bank.
Objects of crossing:
Crossing affects the mode of payment of the cheque.
It does not affect the negotiability or transferability of the cheques
Types of crossing:
Section 127 –
Where a cheque is crossed specially to >1 banker, the banker on whom it is drawn shall refuse
payment thereof except where the banker to whom it is crossed may cross it specially to another
banker, his agent for collection
Protection of liability of the paying banker [Section 85, 128 and 129]
(a) Cheque payable to order
Where a cheque payable to order purports to be indorsed by or on behalf of the payee, the
banker is discharged by payment in due course.
The banker can debit his customers account even though the indorsement by the payee might
turn out to be forgery or the indorsement might have been placed by payee’s agent without his
authority.
Exception in case of forgery: Payment of a cheque on which drawer signatures were forged:
If any drawee banks made the payment on which drawer’s signature were forged, then such bank shall
be liable to the true owner (i.e., paying banker shall be liable if it makes payment of cheque on which
drawers’ signatures were forged)
“Payment in due course” [Sec 10] means payment in accordance with the apparent tenor of the
instrument in good faith and without negligence to any person in possession thereof under
circumstances which do not afford a RGTB that he is not entitled to receive payment of the amount
therein mentioned.
Thus, an acceptor is the drawee who has signed his assent upon the bill and delivered it to the holder.
made by a person who is not already liable on Acceptance must be for the honor of any
the bill* party already liable on the bill
It must be made by writing on the bill must be for whole amount due on the bill
Acceptance for honor must Stranger paying for honor must, before payment, declare
be made before bill is before a notary public the party for whose honor he pays
overdue and Notary Public to record the same
*Drawee of the bill when he refuses to accept the bill becomes a stranger. He may, therefore, accept
the bill for honour of any party thereto.
Rights and liabilities of an acceptor for honour [Sections 111 & 112]
a. Acceptor for honor binds himself to all the subsequent parties to pay the amount of the bill if the
drawee does not pay (like a guarantor)
b. The party for whose honor he accepts to pay the amount and all prior parties are liable to
compensate the acceptor for honor for all loss or damage sustained by him in consequence of such
acceptance. The liability of an acceptor for honor is conditional and he is liable only if the drawee
fails to pay the bill.
“Holder” [Section 8]
Holder of a NI means any person entitled in his own name to:
1. the possession thereof, and
2. receive or recover the amount due thereon from the parties thereto
Example: A BOE is drawn by A in Berkley where rate of interest is 15% and accepted by B payable
in Washington where the rate of interest is 6%. The bill is endorsed in India and is dishonoured.
An action is brought against B in India. He is liable to pay interest at 6% only. But if A is charged
as drawer, he is liable to pay interest at 15%.
c. Inchoate instrument:
It means an instrument that is incomplete in certain respects.
The maker/drawer/acceptor or indorser of NI may signs AND DELIVERS it to another person
leaving the instrument wholly blank or having written the word incomplete
Such instrument is called inchoate instrument, and this give power to its holder to make it
complete by writing any amount:
o either within limits specified therein or
o within limits specified by the stamps affixed on it.
The person signing and delivering such instrument is liable to both - Holder and HDC.
Holder cannot recover amount in excess of the amount intended to be paid to signor.
HDC can recover any amount on such NI provided it is covered by the stamp affixed thereon.
e. In case of difference in amount stated in figures & words – Amt. stated in words shall be correct.
NOTE:
In a PN or BOE, the expressions “at sight” and “on presentment” means on demand.
Days of grace
A note or bill (not being a demand instrument) is at maturity on 3rd day after the day on which it
is expressed to be payable. (i.e., 3 days grace period is given in case of time instrument)
Calculation of maturity
In calculating maturity of PN/BOE, payable at stated no. of months after date/sight or event
the stated period shall terminate on the day of the month, which corresponds with the day on
which the instrument is dated/ presented for acceptance/ sight
[E.g., If a time instrument dated 24th July, 2022 is payable 3 months after date, the maturity shall be
24th October (instead of 23rd October) and then, add 3 days of grace period, so – 27th October],
where the instrument is a BOE made payable at stated number of months after sight and has
been accepted for honor, with the day on which it was so accepted.
Calculating maturity of bill or note payable so many days after date or sight
In calculating date at which a note or bill made payable at certain number of days after
date/sight/event, the day of the date, or of presentment for acceptance or sight, or of protest
for non-acceptance, or on which the event happens, shall be excluded.
[E.g., If a time instrument dated 1st Jan 2022 is payable 5 days after date, the maturity shall be 6th Jan
2022 (instead of 5th) and then, add 3 days of grace period, so – 9th March],
When the day of maturity is a holiday [Section 25] - When the day on which a PN or BOE is at
maturity is a public holiday, the NI shall be deemed to be due on next preceding business day.
Negotiation of NI:
a. When a NI is transferred to any person with a view to constitute the person holder thereof, the
instrument is deemed to have been negotiated.
b. Modes of Negotiation
A NI delivered on condition that it is not to take effect except in a certain event is not negotiable
(except in hands of a holder for value without notice of the condition) unless such event happens.
d. Negotiation by indorsement [Section 48]
Subject to sec 58, a NI payable to order, is negotiable by holder by indorsement + delivery.
Conditional indorsement
Sans recourse, Liab. dependent on contingency, facultative, Sans frais
Restrictive Indorsement
An indorsement is restrictive when indorser while making indorsement:
restricts or excludes right of indorsee to further transfer such NI or
constitutes the indorsee as an agent to indorse the instrument or to receive its content for the
indorser or for some other specified person.
Note - Restrictive indorsement prohibits or restricts further negotiability of the instrument. It
merely entitles the holder to receive the amount for a specific purpose. It is a valid instrument.
Examples – Pay the contents to G only, Pay G for my use, etc.
Conditional Indorsement
Where the indorser includes a stipulation negating (excluding) or limiting his own liability to the
holder by making such liability or right of indorsee to receive amount due thereon upon happening of
a specified event although such event may never happen (certain/uncertain event)
Facultative indorsement
An indorser by express words abandons some right or increases his liability under an NI.
Example - Notice of dishonor waived’ is a facultative indorsement.
If a NI, after having been indorsed in blank, is indorsed in full, the amount of it cannot be claimed
from the indorser in full, except by the person to whom it has been indorsed in full, or by one who
derives title through such person.
Accommodation notes or bill: Provided that any person who, in good faith and for consideration,
becomes holder, after maturity, of a PN or BOE made, drawn or accepted without consideration, for
enabling some party thereto to raise money thereon, may recover such amount from any prior party
(i.e., banks can recover from prior parties)
By the holder allowing the drawee of a bill more than 48 hours to accept [Section 83]
By the Holder agreeing to a qualified or limited acceptance of bill of exchange [Section 86]
If holder of a BOE agrees to a qualified acceptance, all prior parties whose consent is not obtained
to such an acceptance are discharged from liability.
Examples of qualified acceptance – Altering the sum ordered to be paid or accepting to pay at
specified place only and not elsewhere. [Refer QB 20]
By the Drawer not duly presenting a cheque for payment [Section 84] [Refer QB 18]
If holder does not present a cheque within reasonable time after its issue, and
the bank fails to make the payment
causing damage to the drawer,
the drawer is discharged as against the holder to extent of actual damage suffered by him.
Note
1. In determining what is a reasonable time, regard shall be had to
(a) the nature of the instrument
(b) the usage of trade and of bankers, and
(c) facts of the particular case.
2. The drawer will get discharge, but the holder of the cheque will be treated as creditor of the
bank, in place of drawer. He will be entitled to recover the amount from Bank
Example - A draws a cheque for Rs. 1,000, and, when cheque ought to be presented, has funds at
the bank to meet it. The bank fails before the cheque is presented. The drawer is discharged, but
the holder can prove against the bank for the amount of the cheque
By the bill coming to the acceptor’s hands after maturity (Section 90)
If a negotiated BOE, at or after maturity, held by the acceptor in his own right, all rights of action
thereon are extinguished. (i.e., rights and liabilities of the same person cancel each other)
Consider reading examples of material alteration - g. 2.39 of ICAI Mat (Not before exam)
Non-acceptance Non-payment
Dishonour by non-acceptance
When is bill said to be dishonoured by non-acceptance?
A BOE is said to be dishonoured by non-acceptance in any one of the following ways (Sec 91):
[48 Excuses why Qualified Acceptance IS Fictitious]
a) when BOE is duly presented for acceptance, and drawee, does not accept or refuse acceptance
within 48 hrs from the time of presentment
b) where presentment is excused, and the bill is not accepted.
c) where the drawee is incompetent to contract (e.g., minor)
d) where the drawee is a fictitious person.
e) where the drawee could not be found even after reasonable search
f) when a drawee gives a qualified acceptance
Effect of non-acceptance - Holder can start an action against the drawer and indorsers and need not
wait for maturity of the bill.
Dishonour by non-payment
A note, bill and cheque is said to be dishonoured by non-payment when:
the maker, acceptor or drawee of the cheque makes default in payment.
upon being duly required to pay the same (Sec. 92).
Moreover, a NI is dishonoured by non-payment when presentment for payment is excused and the
instrument when overdue remains unpaid (Sec. 76).
Case Law - Where a promissory note was sent by registered post and the party liable refused to receive
the post, the bill was held to be dishonoured [K. Venkatasubbayya v. P.R. Rao Tobacco Co.]
Object of The object of NOD is to inform (or warn) the party or person liable on
NOD instrument about dishonour of the instrument.
NOD is necessary in order to make drawer liable, on the dishonour by the drawee
or the acceptor
By and to
By Whom? NOD must be given by holder, or by a person liable thereon.
whom notice
NOD by stranger is of no effect.
should be
Even NOD by a party to the instrument is not valid, if, he is
given
not liable thereon. (Ex. Sans recourse party)
Modes of NOD may be given to duly authorized agent of person to whom it is required to
giving Notice be given, or, if dead, to his LR or, if insolvent, to his assignee;
(Section 94). It may be oral or written (if written, sent by post); and
NOD must inform the party, either in express term or by reasonable in
intendment, that NI has been dishonoured, and in what way, and that he will be
held liable thereon
Within reasonable time after dishonour,
At place of business or in case such party has no place of business, at the
residence of the party for whom it is intended.
If the notice is duly directed and sent by post and miscarries, such miscarriage
does not render the notice invalid
Party Any party receiving NOD must, in order to render any prior party liable to
receiving himself, give NOD to such party within reasonable time, unless such party
must otherwise receives NOD directly from holder u/s 93
transmit Thus, a person receiving notice must transmit it to prior parties whom he wishes
NOD to make liable to himself because holder may have omitted giving NOD to some
(Sec 95) prior parties.
Note – A cheque dishonoured on account of stop payment request by drawer due to unavailability of
funds shall also be considered as dishonor of cheque and shall attract penalty on drawer. Refer Q 25
Section 140: Defence which may not be allowed in any prosecution u/s 138
It shall not be a defence in a prosecution of an offence u/s 138 that drawer had no RGTB when he
issued cheque that cheque may be dishonoured on presentment for reasons stated in that section.
Person shall not be liable to punishment if he proves that contravention took place:
without his knowledge or
that he exercised all due diligence to prevent such contravention.
Offence u/s 138 shall be inquired into and tried only by court within whose local jurisdiction:
If cheque is delivered for collection through (bank) account – Branch of the bank where payee or
HDC maintains the account is situated
Otherwise, branch of the drawee bank where drawer maintains account is situated.
In case of summary trial: It shall be lawful for the Magistrate to pass a sentence of imprisonment for
a term not > 1 year and an amount of fine not > Rs. 5,000.
Summary trial not allowed: If it appears to Magistrate that the nature of the case is such that:
a sentence of imprisonment for a term > 1 year may have to be passed or
that it is, for any other reason, undesirable to try the case summarily,
the Magistrate shall after hearing the parties, record an order to that effect and thereafter recall
any witness who may have been examined and proceed to hear or rehear the case in the manner provided
by the said Code.
Speedy Trial: The trial of a case shall, so far as practicable, consistently with the interests of justice,
be continued from day to day until its conclusion, unless the Court finds the adjournment of the trial
beyond the following day to be necessary for reasons to be recorded in writing.
Speedy and efficient Disposal: Every trial shall be conducted as expeditiously as possible, and an
endeavour shall be made to conclude the trial within 6 months from date of filing of complaint.
Section 148: Power of Appellate court to order payment pending appeal against conviction
Notwithstanding CCrP, 1973, in an appeal by drawer against conviction u/s 138, Appellate Court may
order appellant to deposit such sum (min 20% of fine or compensation awarded by trial Court)
Provided that amount payable here shall be in addition to any interim compensation paid u/s 143A.
Above amount shall be deposited within 60 days from date of order (+ Upto 30 days if sufficient
cause shown by appellant)
Appellate Court may direct release of amount deposited by the appellant to the complainant at any
time during the pendency of the appeal.
Provided that if appellant is acquitted, Court shall direct complainant to repay to appellant the
amount so released, with interest at bank rate within 60 days from date of order (+ Upto 30 days
if sufficient cause shown by complainant)
The End
Article 367 of the Constitution of India authorises use of General Clauses Act for the interpretation
of constitution.
Note - The Preamble to an Act discloses the primary intention of the legislature but can only be
brought in as an aid to construction if the language of the statute is not clear. However, it cannot
override the provisions of the enactment.
Definitions - Words are defined in the respective Act. Sometimes, definitions are referred in other
statutes. If words are not defined in the respective Acts, such words are to be taken from General
Clauses Act.
Act 'Act', used with reference to an offence or a civil wrong, shall include a series of
acts, and words which refer to acts done extend also to illegal omissions;
Affidavit 'Affidavit' shall include affirmation and declaration in the case of persons by law
allowed to affirm or declare instead of swearing.
Note: The terms “Affidavit”, “Oath” & “Swear” have same definitions in the Act.
Central Govt In relation to anything done before the commencement of the Constitution,
mean the Governor General in Council
In relation to anything done or to be done after the commencement of the
Constitution, mean the President
Commencement The day on which the Act or Regulation comes into force;
Coming into force or entry into force refers to the process by which legislation;
regulations, etc. comes to have legal force and effect.
For example, book, file, painting, inscription and even computer files are all
documents. However, it does not include Indian currency notes.
Enactment Shall include a Regulation (as hereinafter defined) and any Regulation of Bengal,
Madras or Bombay Code, and shall also include any provision contained in any Act or
in any such Regulation as aforesaid;
It has been held that an “enactment” would include any Act (or a provision
contained therein) made by the Union Parliament or the State Legislature.
Financial year FY shall mean the year commencing on the first day of April.
Year Means - A year reckoned according to the British calendar (Jan to Dec)
Government shall include both the Central Government and State Government.
Immovable shall include:
Property Land,
Benefits to arise out of land, and
Things attached to the earth, or
Permanently fastened to anything attached to the earth.
Example:
1. In Shantabai v. State of Bombay, the Supreme Court pointed out that trees
must be regarded as immovable property (IP) because they are attached to or
rooted in the earth.
2. An agreement to convey forest produce like tendu leaves, timber, bamboos etc.,
the soil for making bricks, the right to build on and occupy the land for business
purposes and the right to grow new trees and to get leaves from trees that
grow in further are all included in the term IP.
3. Right of way to access from one place to another, may be considered as IP
4. Right to drain of water is NOT IP.
5. Any machinery fixed to the soil, standing crops can be held as IP
6. Insurance Policies covering immovable property – Not covered under IP
Example:
Imprisonment shall mean imprisonment of either description as defined in the Indian Penal Code;
i.e., Rigorous or Simple imprisonment
Example:
SEBI (ICDR) (5th Amendment) Regulations, 2015 was issued by SEBI vide Notification dated 14th
August 2015 w.e.f. 1 January 2016. Here, this regulation shall come into force on 1st January 2016
rather than the date of its notification in the gazette.
Notes:
1. Where an Act empowers the government to bring any of the provisions into operation on any day
which it deems fit, no Court can issue a mandamus with a view to compel the Government to bring
the same into operation on particular day.
2. If a sufficient time has elapsed since an Act or any of its provisions has been passed and it has not
been brought into force (operation) by the Government, the Court through a writ can direct the
Government to consider the question as to when the same should begin to operate.
3. Effective date of Rules:
Supreme Court held that effective date of Rules would be when the Rules are published vide
Gazette notification and not from date when the Rules were under preparation.
4. Law takes no cognizance of fraction of day. It comes into force from midnight.
Example – Law which comes into force on 1st Jan shall apply from midnight of 31st December.
5. All laws are applicable prospectively unless otherwise mentioned specifically.
Example:
The 3 farm laws were repealed after 1 year of protest by the farmers.
Example:
1. Companies Act 1956 was repealed and re-enacted as Companies Act, 2013. In such case, every
other Act which had reference to Companies Act 1956 will be construed as reference to 2013
unless different intention appears.
2. In section 115 JB of the Income Tax Act, 1961, for calculation of book profits, the Co. Act, 1956
are required to be referred. With the advent of Co. Act, 2013, the corresponding change has not
been made in section 115 JB of the Income Tax Act, 1961. On referring of Sec. 8 of the GCA, book
profits to be calculated u/s 115 JB of the Income Tax Act will be as per the Co. Act, 2013.
Example:
Note – Even if the offices or Court are closed because of some random holiday or Sunday or Saturday
or any reason, this provision will still apply.
Example:. Distance between two cities by roadways is 100 kms and by water ways 80 kms. For purpose
of any Central Act under GCA, distance shall be measured in a straight line on a horizontal plane.
Exception: Where word used conveys a specific gender, there is a presumption that provisions of GCA
do not apply. For example:
1. the word ‘bullocks’ could not be interpreted to include ‘cows’.
2. The word ‘male descendants’ cannot be interpreted to include females
Section 15:
Whereby any legislation or regulation,
a power to appoint any person to fill any office is conferred, then unless otherwise provided,
any such appointment, may be made either by name or by virtue of office.
Section 21:
Where any legislation or regular confers the power to issue notifications, etc.,
it shall be deemed to include power to add, to amend, vary or rescind such notifications, etc.
Section 22:
Where, by any Central Act or Regulation (which is not in force), on the passing thereof, a power is
conferred to make rules or bye-laws, or to issue orders thereunder,
then that power may be exercised at any time after passing of Act /Regulation (even before
commencement thereof);
but such rules, bye-laws or orders shall not take effect till commencement of Act or Regulation.
For example: If Companies Act, 2013 was passed on 29th Aug 2013. It authorised CG to make rules
related to NCLT. CG made rules related to NCLT in 2014. However, NCLT provisions were not
implemented till 2016. In such cases, the NCLT Rules will also apply only from 2016.
1. Publish a draft of the proposed rules or bye-laws for the information of persons likely to be
affected thereby (in manner prescribed)
Conclusive presumption - After the publication of the rules in the Official Gazette, it is to be inferred
that the procedure for making the rules has been followed. Any irregularities in the publication of the
draft cannot therefore be questioned.
Note - It is also open to the authority to make suitable changes in the draft before finally publishing
them. It is not necessary for that authority to re-publish in the amended form before their final issue
so long as the changes made are ancillary to the earlier draft and cannot be regarded as foreign to the
subject matter thereof.
Section 24: Continuation of orders etc., issued under enactments repealed and re- enacted
If a statute is repealed and re-enacted in the same or substantially the same terms, the re-
enactment neutralizes the previous repeal and the provisions of the repealed Act which are re-
enacted, continue in force without interruption.
If, however, the statute is repealed and re-enacted in somewhat different terms, the amendments
and modifications operate as a repeal of provisions of repealed Act which are changed by and are
repugnant to the repealing Act.
Example - The Mines Act of 1923 was repealed and replaced by the Mines Act of 1952. Rules made
under the repealed Act must be deemed to continue in force by virtue of this section until superseded.
Section 25: Recovery of fines (to be done as per IPC and CCrP):
Sec 63 to 70 of the Indian Penal Code (IPC) and
provisions of Code of Criminal Procedure w.r.t issue and execution of warrants for levy of fines
shall apply to all fines imposed under any Act, Regulation, etc.,
unless otherwise specified.
Note – As per Supreme Court, a plain reading of sec 26 shows that there is no bar to trial or conviction
of an offender under 2 enactments, but there is only a bar to punishment twice for the same offence.
Additional Points:
1. When there are 2 alternative charges in same trial, e.g., sec 409 of IPC and sec 5(2) of Prevention
of Corruption Act, the fact that accused is acquitted of one of the charges will not bar his
conviction on the other. [M.P. v. V.R. Agnihotri]
2. This provision apply only when 2 offences which form the subject of prosecution is the same, i.e.,
the ingredients which constitute the two offences are the same. If the offences under the two
enactments are distinct and not identical, none of these provisions will apply.
Jagdish Singh.v Held that - where notice is sent to landlord by registered post, and it is returned
Natthu Singh by tenant with an endorsement of refusal - presumed notice has been served.
Smt. Vandana Held that - where notice sent by registered post to person concerned at proper
Gulati v. address is deemed to be served upon him in due course unless contrary is proved.
Gurmeet Singh Endorsement ‘not claimed/not met’ is sufficient to prove deemed service thereof.
Chapter 13
Interpretation Of
Statutes
Chapter Map
Important Definitions
1. Statute
¾ To the common man the term ‘Statute’ generally means laws and regulations of various kinds
irrespective of the source from which they emanate.
¾ In India the constitution provides for the passing of a bill in Lok Sabha and Rajya Sabha
and finally after obtaining the assent of the President of India to it, it becomes an Act of
Parliament or Statute.
2. Document
¾ A document is a paper or other material thing giving information, proof or evidence of
anything.
¾ Section 3 of the Indian Evidence Act, 1872 states that ‘document’ means any matter
expressed or described upon any substance by means of letters, figures or marks or by
more than one of those means, intended to be used, or which may be used, for the purpose
of recording that matter.
¾ Section 3(18) of the General Clauses Act, 1897 states that the term ‘document’ shall include
any matter written, expressed or described upon any substance by means of letters, figures
or marks, or by more than one of those means which is intended to be used, or which may
be used, for the purpose of recording this matter.
Elements of documents
3. Elements
¾ Matter: This is the first element. Its usage with the word “any” shows that the definition
of document is comprehensive.
¾ Record: This second element must be certain mutual or mechanical device employed on the
substance. It must be by writing, expression or description.
¾ Substance: This is the third element on which a mental or intellectual element comes to find
a permanent form
¾ Means: This represents forth element by which such permanent form is acquired and those
can be letters, any figures, marks, symbols which can be used to communicate between two
persons.
4. Instrument:
¾ Formal legal document which creates or confirms a right or records a fact.
¾ Formal writing of any kind, such as an agreement, deed, charter or record, drawn up and
executed in a technical form or a formal legal document having legal effect, either as
creating a right or liability or as affording evidence of it.
¾ Section 2(14) of the Indian Stamp Act, 1899 states that ‘instrument’ includes every
document by which any right or liability is or purports to be created, transferred, extended,
extinguished or recorded.
5. Deed:
¾ An instrument in writing (or other legible representation or words on parchment or paper)
purporting to effect some legal disposition.
¾ All Deeds are instruments but all instruments may not be deeds.
Interpretation/Construction
Interpretation
¾ The process by which the Courts seeks to ascertain the meaning of the legislature through the
medium of the words in which it is expressed.
¾ The process by which the real meaning of an Act (or a document) and the intention of the
legislature in enacting it (or of the parties executing the document) is ascertained.
¾ Interpretation is resorted to in order to resolve any ambiguity in the statute.
Construction
¾ Is applied to a written statute or document
¾ It means to determine from its known elements its true meaning or the intention of its framers.
¾ Involves drawing conclusions beyond the actual expressions used in the text by referring to
other parts of the enactment and the context in which the law was made.
¾ Thus, when you construe a statute you are attempting to ascertain the intention of the
legislature.
Where the Court adheres to the plain meaning Where the court decides whether the wording
of the language used by the legislature was meant to cover the situation before the
court
Importance of Interpretation
¾ Interpretation is resorted to in order to resolve any ambiguity in the statute.
¾ It is the art of finding out the true sense of words that is to say the sense in which their author
intended to convey the subject matter.
¾ In relation to statute law, interpretation is of importance because of the inherent nature of
legislation as a source of law.
Legal Doctrinal
Note
¾ Authentic is when rule of interpretation is derived from the legislator himself.
¾ Usual is when rule of interpretation is derived from some other source such as custom or case
law.
¾ Grammatical is when the court applies only the ordinary rules of speech.
¾ Logical when the court goes beyond words and tries to discover intention of the statute in some
other way.
2. Rule of Reasonable Construction (Interpretatio fienda est ut res magis valeat quam pereat)
¾ the words of a statute must be construed ‘ut res magis valeat quam pereat’ meaning thereby
that words of statute must be construed so as to lead to a sensible meaning.
¾ When the words of an enactment are capable of two constructions that there is scope for
interpretation or construction. Then, that interpretation, which furthers the object, can be
preferred to that which is likely to defeat or impair the policy or object.
¾ When the grammatical interpretation leads to a manifest absurdity then the courts
shall interpret the statute so as to resolve the inconsistency and make the enactment a
consistent whole, it is permissible to depart therefrom and to interpret the provision of
statutes only to the extent it avoids such absurdity and no further. This is the Golden Rule
of Interpretation
b) Notwithstanding : Unlike the “subject to” clause, the notwithstanding clause has the
effect of making the provision prevail over others.
c) Without prejudice : When certain particular provisions follow general provisions and
when it is stated that the particular provisions are without prejudice to those general
provisions the particular provisions would not restrict or circumscribe the operation
and generality of the preceding general provisions.
And Or
A particle joining words and sentences and A disjunctive particle that marks an
expressing the relation of connection or addition. alternative, generally corresponding to
The word “and” is normally conjunctive that is used “either”, as “either this or that”.
to conjoin words, clauses or sentences, signifying
that something is to follow in addition to that,
which precedes.
But sometimes “and” is read as “or” and vice versa to give effect to the manifest intention
of the legislature as disclosed from the context.That would depend on the context and
meaning of other provisions in the same statute or document.
¾ “May”, “Must” and “Shall”
a) ‘May’ signifies permission and implies that the authority has been allowed discretion.
“May” though permissive sometimes has compulsory force and is to be read as shall.
Where the word ‘may’ has been used as implying a requisite condition to be fulfilled, the
court will and ought to exercise the powers which it should and in such a case the word
‘may’ will have a compulsory force.
b) ‘Must’ is doubtlessly a word of command.
c) “Shall” though mandatory is to be read as may. It is well – settled that the use of the
word ‘shall’ does not always mean that the enactment is obligatory or mandatory; it
depends upon the context in which the word ‘shall’ occurs and on the purpose for which
the requirement has been enacted, particularly in the context of the other provisions
of the Act and the general scheme thereof.
Secondary Rules
1. Doctrine of Noscitur a Sociis
¾ Noscitur a Sociis means that when two or more words that are susceptible of analogous
meaning, are coupled together they are understood to be used in their cognate sense. They
take, as it were, their colour from each other, that is the meaning of the more general word
being restricted to a sense analogous to that of the less general.
¾ Examples of the principal of Noscitur a Sociis are as follows:
a) Fresh orange juice is not a fruit juice. While dealing with a Purchase Tax Act, which
used the expression “manufactured beverages including fruit-juices and bottled waters
and syrups”. It was held that the description ‘fruit juices’ as occurring therein should
be construed in the context of the preceding words and that orange-juice unsweetened
and freshly pressed was not within the description. (Commissioners. v. Savoy Hotel,
(1966) 2 All. E.R. 299)
b) Private Dispensary of a doctor is not a commercial establishment. In dealing with
the definition of commercial establishment in Section 2 (4) of the Bombay Shops
and Establishments Act, 1948, which reads, “commercial establishment means an
establishment which carries on any business, trade or profession”, the word ‘profession’
was construed with the associated words ‘business’ and ‘trade’ and it was held that a
private dispensary of a doctor was not within the definition. (Dr. Devendra M. Surti v.
State of Gujrat, A.I.R. 1969 SC 63)
1. Long Title
¾ An enactment would have what is known as a ‘Short Title’ and also a ‘Long Title’.
¾ The ‘Short Title’ merely identifies the enactment and is chosen merely for convenience
¾ The ‘Long Title’ describes the enactment and does not merely identify it.
¾ The title may be referred to for the purpose of ascertaining its general scope and of
throwing light on its construction, although it cannot override the clear meaning of the
enactment.
2. Preamble
¾ The Preamble expresses the scope, object and purpose of the Act more comprehensively
than the Long Title.
¾ The Preamble may recite the ground and the cause of making a statute and the evil which is
sought to be remedied by it.
¾ Like the Long Tile, the Preamble of a Statute is a part of the enactment and can legitimately
be used for construing it.
¾ However, the Preamble does not over-ride the plain provision of the Act but if the wording
of the statute gives rise to doubts as to its proper construction, for example, where the
words or phrase have more than one meaning and a doubt arises as to which of the two
meanings is intended in the Act, the Preamble can and ought to be referred to in order to
arrive at the proper construction.
¾ Preamble to an Act discloses the primary intention of the legislature but can only be brought
in as an aid to construction if the language of the statute is not clear.
3. Heading
¾ In an Act, we would generally find that a number of its sections referring to a particular
subject are grouped together, sometimes in the form of chapters, prefixed by headings
and/or Titles.
¾ These Heading and Titles prefixed to sections or groups of sections can legitimately be
referred to for the purpose of construing the enactment or its parts.
¾ The headings of different portions of a Statute can be referred to determine the sense of
any doubtful expression in a section ranged under any particular heading.
¾ They cannot control the plain meaning of the words of the enactment though, they may, in
some cases be looked at in the light of preamble if there is any ambiguity in the meaning
of the sections on which they can throw light.
¾ It may be noted that headings may sometimes be referred to know the scope of a section
in the same way as the preamble.
¾ But a heading cannot control or override a section.
4. Marginal Notes
¾ Marginal notes are summaries and side notes often found at the side of a section or group
of sections in an Act, purporting to sum up the effect of that section or sections.
¾ They are not a part of the enactment, for they were not present when the Act was passed
in Parliament but inserted after the Act has been so passed.
¾ Hence, they are generally not an aid to construction however reference to marginal notes
may be permissible in exceptional cases for construing a section in a statute.
¾ Marginal notes appended to Articles of the Constitution have been held to be part of
the Constitution as passed by the Constituent Assembly and therefore have been used in
construing the Articles.
5. Definitional Sections
¾ The legislature has the power to embody in a statute itself the definitions of its language
and it is quite common to find in the Statutes ‘definitions’ of certain words and expressions
used in the body of the statute.
¾ When a word or phrase is defined as having a particular meaning in the enactment, it is that
meaning alone which must be given to it in interpreting a Section of the Act unless there be
anything repugnant in the context. This is called an exhaustive definition.
¾ The Court cannot ignore an exhaustive statutory definition and try and extract what it
considers to be the true meaning of the expression independently of it.
¾ The purpose of a definition clause is two-fold:
(i) to provide a key to the proper interpretation of the enactment, and
(ii) to shorten the language of the enacting part by avoiding repetition of the same words
contained in the definition part every time the legislature wants to refer to the
expressions contained in the definition.
¾ Construction of definitions may be understood under the following headings:
Restrictive Definitions
Ambiguous
and extensive subject to a
definitions
definitions contrary context
(i) Restrictive and extensive definitions:
The definition of a word or expression in the definition section may either be restricting
of its ordinary meaning or may be extensive of the same.
When word is What it denotes:
defined as:
‘means’ Restrictive and Exhaustive
We must restrict the meaning of the word to that given in the
definition
‘includes’ Extensive
Here the word defined is not restricted to the meaning assigned to it
but has extensive meaning which also includes the meaning assigned to
it in the definition section.
‘means and Exhaustive
includes’
‘to apply to Extensive
and include’ Where an expression is defined in an Act, it must be taken to have,
throughout the Act, the meaning assigned to it by the definition,
unless by doing so any repugnancy is created in the subject or context.
Example: Section 2(m) of the Consumer Protection Act, 1986 contains
an inclusive definition of ‘person’. It has been held to include a ‘company’
although it is not specifically named therein.
‘is deemed to Inclusive or Extensive
include’ Words are used to bring in by a legal fiction something within the
word defined which according to its ordinary meaning is not included
within it.
6. Illustrations
¾ Many, though not all, sections have illustrations appended to them.
¾ These illustrations follow the text of the Sections and, therefore, do not form a part of
Sections.
¾ However, illustrations do form a part of the statute and are considered to be of relevance
and value in construing the text of the sections.
¾ However, illustrations cannot have the effect of modifying the language of the section and
can neither curtail nor expand the ambit of the section.
7. Proviso
¾ The function of a proviso is to except something out of the enactment or to qualify something
stated in the enactment which would be within its purview if the proviso were not there.
¾ A proviso is embedded in the main body of the section and becomes an integral part of it.
¾ Provisos that are so included begin with the words, “provided that”.
¾ The effect of the proviso is to qualify the preceding enactment which is expressed in terms
which are too general.
¾ Ordinarily a proviso is not interpreted as stating a general rule.
¾ Exception clauses are intended to restrain the enacting clause to particular cases.
¾ Savings clause is used to preserve from destruction certain rights, remedies, or privileges
¾ It is a cardinal rule of interpretation that a proviso or exception to a particular provision of
a statute only embraces the field which is covered by the main provision.
¾ It carves out an exception to the main provision to which it has been enacted as a proviso
and to no other.
8. Explanation
¾ An Explanation is at times appended to a section to explain the meaning of certain words or
phrases used in the section or of the purport of the section.
¾ An Explanation may be added to include something within the section or to exclude something
from it.
¾ An Explanation should normally be so read as to harmonise with and clear up any ambiguity
in the main section.
9. Schedules
¾ The Schedules form part of an Act. Therefore, they must be read together with the Act
for all purposes of construction.
¾ However, the expressions in the Schedule cannot control or prevail over the expression in
the enactment.
¾ If there appears to be any inconsistency between the schedule and the enactment, the
enactment shall always prevail.
¾ They often contain details and forms for working out the policy underlying the sections of
the statute
1. Historical Setting
¾ The history of the external circumstances which led to the enactment in question is of
much significance in construing any enactment.
¾ We have to take help from all those external or historical facts which are necessary in the
understanding and comprehension of the subject matter and the scope and object of the
enactment.
¾ History in general and Parliamentary History in particular, ancient statutes, contemporary
or other authentic works and writings all are relevant in interpreting and construing an Act.
¾ We have also to consider whether the statute in question was intended to alter the law or
leave it where it stood before.
3. Usage
¾ Usage is also sometimes taken into consideration in construing an Act.
¾ The acts done under a statute provide quite often the key to the statute itself.
¾ It is well known that where the meaning of the language in a statute is doubtful, usage – how
that language has been interpreted and acted upon over a long period – may determine its
true meaning.
¾ It has been emphasized that when a legislative measure of doubtful meaning has, for
several years, received an interpretation which has generally been acted upon by the public,
the Courts should be very unwilling to change that interpretation, unless they see cogent
reasons for doing so.
b) If two Acts are to be read together then every part of each Act has to be construed
as if contained in one composite Act.
c) But if there is some clear discrepancy then such a discrepancy may render it necessary
to hold the later Act (in point of time) had modified the earlier one.
d) However, this does not mean that every word in the later Act is to be interpreted in the
same way as in the earlier Act.
Where the later of the two Acts Then an enactment in the later statute was held
provides that the earlier Act to be excluded from the earlier statute as well.
should, so far as consistent, be
construed as one with it
Where a single section of one It must be read in the sense which it bore in the
Act is incorporated into another original Act from which it is taken consequently,
statute it would be legitimate to refer to all the rest of
the Original Act to ascertain what that Section
means, though one Section alone is incorporated
in the new Act
5. Dictionary Definitions
¾ First we have to refer to the Act in question to find out if any particular word or expression
is defined in it.
¾ Where we find that a word is not defined in the Act itself, we may refer to dictionaries to
find out the general sense in which that word is commonly understood.
¾ However, in selecting one out of the several meanings of a word, we must always take into
consideration the context in which it is used in the Act.
¾ It is the fundamental rule that the meanings of words and expressions used in an Act must
take their colour from the context in which they appear.
¾ Further, judicial decisions laying down the meaning of words in construing Statutes in ‘pari
materia’ will have greater weight than the meaning furnished by dictionaries.
¾ However, for technical terms reference may be made to technical dictionaries.
Notes
13.14 Interpretation Of Statutes