Transcript Types of Auditors - Rajput Jain & Associates

Presented By
CA Swatantra Singh, B.Com , FCA, MBA
Email ID: [email protected]
New Delhi , 9811322785,
www.caindelhiindia.com,
www.carajput.com
1
Company Law
What is a company?
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A Company is a voluntary association of
persons formed for the purpose of doing
business, having a distinct name and
limited liability.
They can be incorporated under the
Companies Act (it may be any type of
company)
Corporations enacted under special
enactments ( Even those which are
incorporated outside India)
Corporate sole
Any other body corporate notified by the
central government
Features of a company
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A company is considered as a separate
legal entity from its members, which can
conduct business with all powers to
contract.
Independent corporate entity (Saloman
V. Saloman) It is independent of its
members and shareholders
Other features
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Limited Liability ( either by share or guarantee)
It can own property, separate from its members.
The property is vested with the company, as it is a
body corporate.
The income of the members are different from the
income of the company ( Income received by the
members as dividends cannot be same as that of
the company)
cont….
Features continued..
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Perpetual succession: Death of the members is not
the death of the company until it is wound up
As it is a legal entity or a juristic person or
artificial person it can sue and be sued
The company enjoys rights and liabilities which
are not as that of the members of the company
Lifting of Corporate Veil
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As the company is a separate legal entity , is has
been provided with a veil, compared to that of
individuals who are managing the company.
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But if the court feels that such veil has to been
used for any wrongful purpose, the court lifts the
corporate veil and makes the individual liable for
such acts which they should not have done or
doing in the name of the company
Circumstances to lift the
corporate veil…
The corporate veil can be lifted either
under the
 Statutory provisions or
 Judicial interpretations
The statutory provisions are
Provided under the Companies
Act, 1956
The other circumstances are decided
through Judicial interpretations, which
are based on facts of each case as per
the decisions of the court
Statutory circumstances for
lifting the corporate veil
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Reduction in membership- Less than
seven in public company and less than
two if it is a private company
Failure to refund application moneyAfter the issue of shares to the pubic, the
company has to pay back the initial
payment to the unsuccessful applicants
(SEBI Guidelines- 130 Days), if they fail
to do so, the corporate veil can be lifted.
Mis-description of companies nameWhile signing a contract if the
company’s name is not properly
described, then the corporate veil can be
lifted.
continued
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Misrepresentation in the prospectus- (Derry Vs
Peek) In case of misrepresentation, the
promoters, directors and every other person
responsible in this matter can be held liable.
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Fraudulent Conduct- In case the company is
carried on with an intent to defraud the
creditors, then the court may lift the corporate
veil.
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Holding and subsidiary companies- A
subsidiary has a distinct legal entity from the
holding company other than in a few
circumstances, so if otherwise shown, the court
may under the Act , lift the corporate veil of the
subsidiary company.
Circumstances to lift the corporate
veil through judicial interpretations
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When the court feels that there are no statutory
provisions which can pierce the corporate veil, and
the identity of the company is not the one which
has to exist, and the court has to interfere in order
to avoid the activities that are done in the name of
the company by persons managing them, it has
been empowered to do so……
The circumstances are…..
Judicial interpretations by the
court are as follows:
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Protection of Revenue- When ever a company uses its
name for the purpose of tax evasion or to circumvent tax
obligations
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Prevention of fraud or Improper conduct- The
incorporation has been used for fraudulent purpose, like
defrauding the creditors, defeating the purpose of law etc..
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Determination of the character of the company- Enemy
company or all the members being the citizens of the
enemy country. (Daimler Co. Ltd V. Continental Tyre &
Rubber Co. Ltd)
Other circumstances
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Where a company is used to avoid welfare
legislation- If a company is formed in order to
avoid the benefits to the workers like bonus, or
other statutory benefits..
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For determining the technical competence of the
company- To look into the competency of the
company or the shareholders or promoters
(New Horizon’s Ltd and Another V. Union of India
(1994)
Types of Companies
Limited Company ( Limited by share or by
guarantee)
 Unlimited company
 Government Company
 Foreign Company
 Private Company
 Public Company
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Limited Company
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Limited by Shares- In such companies, the
liability is only the amount which remains
unpaid on the shares.
Limited by Guarantee not having share capitalIn this type of companies the memorandum of
Association limits the members’ liability. It will
be based on the undertaking that has been given
in MOA for their contribution in case of a
winding up.
Limited by guarantee having share capital- In
such cases , the liability would be based on the
MOA towards the guaranteed amount and the
remaining would be from the unpaid sums of
the shares held by the person concerned.
Unlimited Company
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There is no limit on the liability of the members. The
liability in such cases would extend to the whole amount of
the company’s debts and liabilities.
Here the members cannot be directly sued by the creditors.
When the company is wound up, the official liquidator will
call upon the members to discharge the liability.
The details of the number of members with which the
company is registered and the amount of share capital has
to be stated in the Articles of Association (AOA).
Government Company
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When 51% of the paid up share capital is held by
the government.
The share can be held by the central government
or state government. Partly by central and partly
by two or more governments.
As the legal status of the company does not
change by being a government company, there are
no special privileges given to them.
Foreign Company
A company incorporated outside
India, but having a place of
business in India.
 If it does not have a place of
business in India but only has
agents in India it cannot be
considered to be foreign company.
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Private Company
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A company which has a minimum of two
persons. They have to subscribe to the
MOA and AOA
It should be have a minimum paid up
capital of 1 lakh or more as prescribed by
the article.
The maximum number of members to be
fifty ( it does not include members who are
employed in the company, persons who
were formerly employed)
The rights to transfer the shares are
restricted in the Private companies
continued….
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Prohibits any invitation to the public to
subscribe and therefore it cannot issue a
prospectus inviting the public to
subscribe for any shares in, or
debentures of the company
It prohibits acceptance of deposits from
persons other than its members, directors
or their relatives.
If two or more are holding one or more
shares in a company jointly, they shall
for the purpose of this definition, be
treated as a single member.
As there is no public accountability like
a public company, there is no rigorous
surveillance.
Exemption and Privileges of a
Private company
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It can have a minimum of two members.
It can commence business immediately after
obtaining certificate of incorporation.
It need not issue prospectus or statement in lieu of
prospectus.
It can have a minimum of 2 directors.
It need not hold statutory meeting or file statutory
report with the ROC.
Public Company
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A Public company means a company> Which is not a private company
> Which has a minimum paid-up capital
of Rs 5 lakh or such higher paid-up
capital, as may be prescribed
> Which is a private company and is a
not a subsidiary of a company, which is
private company.
>It includes- any company which is a
public company with a paid up capital of
less than 5 lakh, then it has to enhance
its paid up capital as per the statutory
requirement
Conversion of Company
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The Act provides for conversion of public
company into a private company and vice versa
A private company is converted into a public
company either by default or by choice in
compliance with the statutory requirements.
Once the action for conversion takes place then, a
petition can be filed with the central government
with the necessary documents for its decision on
the matter of conversion
Registration and Incorporation
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Association of persons or partnership or more than
20 members ( 10 in case of banking) can register to
form a company under the Companies Act, 1956
If they do not register they can be considered to be
illegal association. The contract entered into by this
illegal association is void and cannot be validated.
Its illegality will not affect its tax liability or its
chargeability
The certification of incorporation is the conclusive
evidence, that all the requirements for the
registration have been complied with the
Incorporation of a Company
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The persons who conceive an idea of a
company decide and do the necessary work for
formation of a company are called the
promoters of the Company.
The Promoters are the persons who decide on
the formation of the company.
The promoters of a company stand undoubtedly
in a fiduciary position though they are not the
agent or a trustee of a company. They are the
ones “who create and mould the company”.
They may have to enter into pre-incorporation
contracts , which can be validated after the
incorporation of the company for obtaining
certificate of incorporation.
Promoters
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They can be remunerated for their
services, but they have to enter into a
contract before the incorporation of the
company through a pre incorporation of
the company
They will usually act as nominees or as
the first directors of the company
They enter into contracts after the
incorporation and before the
commencement of business.
But they need not compulsorily
participate in the formation of the
company.
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Sometimes , a few persons may only act
as professionals who help the promoters
on behalf of the company.. like the
solicitor, chartered accountant etc.. and
get paid for their services.
The promoters in most of the cases
decide as to …What is the type of a
company to be formed?
In India promoters generally secure the
management of the company that is
formed and have a controlling interest in
the company’s management
Legal Position of the Promoters
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They cannot make profit at the expense
of the company, which they have
promoted without the knowledge and
consent of the company. In case they do
so , they may be compelled to account
for it.
They cannot sell their property to the
company at a profit unless all the
material facts are disclosed at the
independent board of directors or the
shareholders of the company.
If they do so, the company may
repudiate the contract of sale or confirm
the sale after recovering the profit made
by the promoter.
Promoters have the following liabilities under the
Companies Act, 1956
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They can be liable for non compliance of the provisions of
the Act
Severe penalty may be imposed
The court may suspend the promoter from taking part in
the management of the company
Liable for any untrue statement in the prospectus to the
person who has subscribed for any shares or debentures on
the faith of the prospectus
The liabilities are ….
a) to set aside the allotment of shares,
b) sued for damages,
c) sued for compensation
d) criminal proceedings
The requirements are as follows
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Application for availability of name
Preparation of MOA and AOA
Selection and finalization of MOA and AOA- Its
printing, stamping and signing
Preparation of other necessary documents
Filling of the required documents for Registration
to obtain certificate of incorporation and
Certificate of commencement of business
Memorandum of Association
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It is the charter of the company
It contains the fundamental conditions upon which
the company can be incorporated
It contains the objects of the company’s formation
The company has to act within objects specified in
the MOA
It defines as well as confines the powers of the
company
Any thing done beyond the objects specified in the
MOA will be ultra vires. Their transactions will be
null and void
The outsider have to transact looking into the
MOA
Conditions of the MOA
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It should be printed
Divided into paragraph and numbers
consecutively
Signed by at least seven persons or two
in case of public and private company
respectively.
The signature should be in the presence
of a witness, who will have to attest the
signature
Members have to take shares and write
the number of shares taken with full
address
The MOA of the Limited
Company
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The name of the company with ‘limited’ as the last
word
The name of the state where the registered office of
the company is to be situated
The objects of the company stating the ‘Main
objects’ and the ‘other objects’
The declaration about the liability of the members
is limited ( limited by shares or guarantee)
The amount of the authorized share capital, divided
into shares of fixed amounts.
The Compulsory Clauses
in MOA
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The Name Clause – it decides on the name of the company
based on the capital involved
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The Registered Office Clause- where it has registered its
head office and other branch office ( The registered office
can be changed with the permission of the ROC)
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The Object Clause- Main object, ancillary object and the
other objects of the company are clearly specified (
Ashbury Railway Carriage Co V. Riche). The applicable
doctrine here is the “ Doctrine of Ultra Vires” beyond the
powers of the company (opposed to Intra Vires)
The Liability Clause- What is the liability of its
members.. limited by shares or guarantee or
unlimited, there can be alteration in the liability
clause
 The Capital Clause - The amount of the
nominal capital of the company, number of
shares in which it is to be divided… alteration
of the capital clause etc
 The Association or Subscription clause- Where
the subscribers to the MOA declare that they
respectively agree to take the number of the
shares in the capital. It has to have the
following:
a) They have to sign in the presence of two
witnesses, who attest the signatures,
b) The subscriber to take at least one share.
c) After the name the subscriber has to write the
number of shares taken
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“Doctrine of Ultra Vires”
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The powers exercisable by the company are to be confined
to the objects specified in the MOA.
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So it is better to define and include the provisions regarding
the acquiring of business, sharing of profits, promoting
company and other financial, gifts , political party funds etc.
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If the company acts beyond the powers or the objects of the
company that is specified in the MOA, the acts are
considered to be of ultra vires. Even if it is ratified by the all
the members, the action is considered to be ineffective.
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Even the charitable contributions have to be based on the
object clause. ( A Lakshmanaswami Mudaliar V. LIC of
India)
The consequences of the ultra vires
transactions are as follows:
a)
b)
c)
d)
e)
Injunction
Directors’ personal liability.
If a property has been purchased and it is an ultra
vires act, the company can have a right over that
property.
The doctrine to be used exclusively for the
companies’ interest.
But the others cannot use this doctrine as a tool to
attack the company
Articles of Association
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It is the companies bye- laws or rules to govern
the management of the company for its internal
affairs and the conduct of its business.
AOA defines the powers of its officers and also
establishes a contract between the company and
the members and between the members inter se
It can be originally framed and altered by the
company under previous or existing provisions
of law.
AOA
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AOA plays a subsidiary part to the MOA
Any thing done beyond the AOA will be considered to be
irregular and may be ratified by the shareholders.
The content of the AOA may differ from company to company
as the Act has not specified any specific provisions
Flexibility is allowed to the persons who form the company to
adopt the AOA within the requirements of the company law
The AOA will have to be conversant with the MOA, as they
are contemporaneous documents to be read together.
Any ambiguity and uncertainty in one of them may be
removed by reference to the other.
Contents of the AOA may be as
follows:
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Share capital
Lien on shares
Calls on shares
Transfer and transmission of shares
Forfeiture of the shares
Surrender of the shares
General meetings
Alteration of the capital
Directors etc..
Dividends and reserves
Account and audit
Borrowing powers
Winding up
Adoption of the preliminary contracts etc….
DRAFTING OF ARTICLES &
MEMORANDUM OF
ASSOCIATION
MEANING &LEGAL EFFECT
INTERNAL REGULATIONS OF THE
CO.& CHARTER OF INCORPORATION
 BINDS THE COMPANY VIS-A-VIS
MEMBERS
 BINDS MEMBERS VIS-A-VIS
COMPANY
 BINDS MEMBERS INTER SE.
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Shareholders/Joint venture
Agreements
AGREEMENT AMONGST
SHAREHOLDERS
 PRIVATE DOCUMENT
 CONTACTUAL FREEDOM
 NO AUTOMATIC APPLICABLITY
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MEMORANDUM-BASIC
STRUCTURE
NAME CLAUSE
 OBJECT CLAUSE
 REGISTERED OFFICE CLAUSE
 CAPITAL CLAUSE
 LIABLITY CLAUSE
 SUBSCRIPTION CLAUSE
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ARTICLES -SCHEDULE-1
TABLE A-FOR A COMPANY LIMITED
BY SHARES
 TABLE C-COMPANYLIMITED BY
GUARANTEE & NOT HAVING A
SHARE CAPITAL
 TABLE D-COMPANY LIMITED BY
GUARANTEE & HAVING A SHARE
CAPITAL
 TABLE E- UNLIMITED COMPANY.
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TABLE A
INTERPRETATION
 SHARE CAPITAL
 GENERAL MEETINGS
 BOARD MEETINGS
 MANAGER/SECRETARY
 SEAL
 DIVIDEND/RESERVES
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TABLE A-CONTD.
ACCOUNTS
 CAPITALISATION OF PROFITS
 WINDING UP
 INDEMNITY
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IMPORTANT CLAUSES
SHAREHOLDING RATIO
 BOARD OF DIRECTORS
 SHAREHOLDERS MEETINGS
 SHARE TRANSFER RESTRICTIONS
 DEADLOCK RESOLUTION
 ARBITRATION
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BOARD CONTROL
STRENGTH OF THE BOARD
 QUORUM
 RIGHT TO NOMINATE DIRECTORS
 CHAIRMAN
 CASTING VOTE
 RESERVE MATTERS
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SHAREHOLDERS MEETING
QUORUM
 RESERVE MATTERS
 CHAIRMAN
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SHARE TRANSFER
RESTRICTIONS
 PRE EMPTIVE RIGHTS
 VALUATION
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DEADLOCK RESOLUTION
DEFINE DEADLOCK
 RESOLUTION MECHANISM
 CONSEQUENCES OF NON
RESOLUTION
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ARBITRATION
EVENT OF DISPUTE/DIFFERENCE
 WHO TO BE THE ARBITRATOR
 LAW APPLICABLE
 VENUE & LANGUAGE
 COSTS
 RIGHT TO CLAIM INTERIM RELIEF
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CERTAIN IMPORTANT
PROVISIONS
GUARANTEES
 BORROWINGS
 DIVIDENDS
 AUDIT
 TRADE NAMES/MARKS
 KEY APPOINTMENTS
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Doctrine of Constructive notice and Indoor
Management
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Persons dealing with the company have to satisfy
themselves. But need not know the internal irregularity.
Royal British Bank V. Turquand (Turquand Rule)
Directors issuing a bond.
The doctrine of Constructive notice can be invoked by the
company to operate against the persons dealing with the
company.
The outsider cannot embark, but only can acquaint upon
the MOA and AOA. (Official Liquidator, Manasube &Co
Pvt Lid V. Commissioner of Police)
Exceptions to the Doctrine of Where
the outsider cannot claim the relief on
the grounds of
“Indoor management”
Knowledge of irregularity
 No knowledge of articles
 Negligence
 Forgery
 Non- Existent authority of the
company
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Raising of Capital From Public
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The companies can raise money by offering
securities for sale to the public.
They can invite the public to buy shares, which is
known as public issue.
For this purpose the company may issue a
prospectus, which may include a notice circular,
advertisement or other documents which are
issued to invite public deposits.
Prospectus
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It is an invitation issued to the public to
purchase or subscribe shares or debentures of
the company.
Every prospectus must be dated. The date of
publication and the date of issue must be
specifically stated in the prospectus.
The golden rule of the prospectus is that every
detail has to be given in strict and scrupulous
accuracy. The material facts given in the
prospectus are presumed to be true.( New
Brunswick and Canada Railway. Land & Co.
Vs. Muggerridge).
Various forms in which the
prospectus can be issued.
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Shelf Prospectus: Prospectus is normally issued by
financial institution or bank for one or more issues of the
securities or class of securities mentioned in the
prospectus.
There can be deemed prospectus also if it is issued by the
issue house
‘Information Memorandum’: It means a process, which is
undertaken prior to the filing of prospectus.
Even an Advertisement , that the shares are available is
considered to be prospectus
Contents
of
the
prospectus
 General information
Capital structure
 Terms of present issue
 Management and projects
 Management and perception of risk
factor
It is compulsory to register the
prospectus with the Registrar
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Civil Liability for Misstatements
In case of any untrue statement in the
prospectus
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The liability will be on the director of the
company , whose name was written during the
time of issue
The persons who have authorized their names to
be theirs in the prospectus to be named as
directors
Promoter
Every person including the person who is an
expert and has authorized his name to be issued
with the prospectus
Remedies for misstatements in
the prospectus
Relying on the prospectus if any person buys
shares, the person may
 Rescind the contract ( only when there is
misrepresentation relating to the material facts.
The rescission has to be done within a reasonable
time
 Claim damages- it can be claimed from the
directors, promoters or other persons who has
authorized their name to be written during the
issue of the prospectus
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Share Capital
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Share: Share is defined as “an interest having a
money value and made up of diverse rights
specified under the articles of association”.
Share capital: Share capital means the capital
raised by the company by issue of shares.
A share is a share in the share capital of the
company including the stock.
Share gives a right to participate in the profits
of the company, or a share in the assets when
the company is going to be wound up.
Other features of a share
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A share is not a negotiable instrument, but it is a movable
property.
It is also considered to be goods under the Sale of Goods Act,
1930.
The company has to issue the share certificate.
It is subject to stamp duty.
The ‘Call’ on Shares is a demand made for payment of price of
the shares allotted to the members by the Board of Directors in
accordance with the Articles of Association.
The call may be for full amount or part of it.
Share Certificate and Share
Warrant
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Share Certificate: The Share Certificate is a document issued by the
company and is prima facie evidence to show that the person named
therein is the holder ( title) of the specified number of shares stated
therein.
Share certificate is issued by the company to the ( share holder)
allottee of shares.
The company has to issue within 3 months from the date of allotment.
In case of default the allottee may approach the central government
Share Warrant: The share warrant is a bearer document issued by the
company under its common seal. As share warrant is a negotiable
instrument, it is transferred by endorsement and by mere delivery like
any other negotiable instrument.
Kinds of shares
>Preference shares- It can be further
classified as
 Participating preferential shares.
 Cumulative preferential shares
 Non Cumulative preferential shares
>Redeemable Shares and
>Irredeemable Shares
>Equity or ordinary shares
>Shares at premium
>Shares at discount
>Bonus shares
>Right shares
Transfer and Transmission of
shares
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AOA provides for the procedure of transfer of shares. It is
a voluntary action of the shareholder.
It can be made even by a blank transfer –In such cases the
transferor only signs the transfer form without making any
other entries.
In case it is a forged transfer, the transferor’s signature is
forged on the share transfer instrument.
Transmission of shares is by operation of law, e.g. by
death, insolvency of the shareholder etc.
Buy-Back of Securities
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The company may purchase its securities back
and it is popularly known as buy back of shares
To do so , the company has to be authorized
under the AOA.
The company has to comply with the provisions
of the Company law to buy back its securities.
The listed company has to seek permission
from the SEBI (SERA 1998). Specifically for
the private company etc, the Buy Back
Securities Rules1999 will be applicable.
Dividends
The sharing of profits in the going concerns and
the distribution of the assets after the winding
up can be called as dividends
 It will be distributed among the shares holders
 The dividends can be declared and paid out of:
Current profits
Reserves
Monies provided by the government and the
depreciation as provided by the companies.
It can be paid after presenting the balance sheet
and profit and loss account in the AGM
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Dividend
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Other than the equity shareholders, even
the preferential shareholders can get the
dividends. Rather they are the first ones
to get the dividends.
Dividends are to be only in cash, if
otherwise specified in the AOA.
In exceptional cases, even the central
government may permit the payment of
interest to shareholders , even though
there is no profit.
Directors
The Legal Status of the director
The director occupies the position of a:
 As a Trustee- In relation to the company
 As Agents- When they act o n behalf of the
company
 As Managing Partner-As they are entrusted with the
responsibility of the company
Qualification Shares
In case there is requirement as per the AOA for the
director is bound to buy qualification shares
If acts are done by the director prior to he or she being
disqualified, the acts are considered to be valid.
Disqualifications
As per the company law, the following
persons are disqualified from been appointed
as a director:
 Unsound mind
 An undischarged insolvent
 A person who is convicted by the court
 Who has applied for being adjudged insolvent
 Not paid for the call on shares
 Persons who are already directors in maximum number of
companies as per the provisions of the Act or
 Any other person who has been disqualified by the court for
any other reason
Appointment of Directors




The appointment can sometimes be by based on
the proportional representation like minority
shareholders.
There can be alternate directors, additional
directors, casual directors.
The third parties can appoint the directors
Other than the shareholders and the first
directors ,the central government and
NCLT may also appoint directors.
Duties and Liabilities of
the Directors
Fiduciary Duties
 To act honestly and with good faith
 Not to use confidential information of the
company for their own purpose
 Duty of Care and to act reasonably while acting
for the company
Statutory Duties
 Not to contract with company, where he/she or
his relative has an interest in the contract
 where he/she has a interest, they need to inform
the board or seek prior approval while entering
into contract, otherwise the contract is voidable
 Duty to attend and convene meetings
 Duty not to delegate
The directors liabilities
The liability of the directors can be either civil or
criminal.
 If provided in the MOA, the liability may be unlimited, for
a limited company, otherwise it may be altered.
 Liability may be for breach of fiduciary duties
 The directors are personally liable for the following:
a) Ultra vires acts
b) malafide acts
c) negligent acts
d) liability for the acts of third parties

Criminal Liability







Liability of the director for any untrue statement in the
prospectus
Inviting any deposits in contravention of the law
Liability for false advertisement
Failure to repay the application money, which was
excess
Concealing the names of the creditors
Failure to lay the balance sheet.
Failure to provide information to the auditor etc
Company Meetings




A meeting may be convened by the
director, requisitionist, or the NCLT
Notice to be given by the secretary after
the time and place have been fixed by
the directors
Even the shareholders can call a meeting
as an extraordinary general meeting
(EGM)
The NCLT can call an Annual General
Meeting (AGM)
Classification of Meetings

Shareholders meetings
a) Statutory meetings ( which happens only once in
the lifetime of the company)
b) EGM- Convened to transact some special or
important decision to be taken
c) Class meetings- This is the meeting of the
shareholders- which is convened by the class of
shareholders based on the kind of shares they hold.
continued…..
Other meetings


AGM-it can be conducted based on the provisions
given in the Articles or by passing a resolution in
one AGM for the subsequent AGM’s
Board Meetings- This is conducted for the smooth
running of the company and for collectively
taking the decisions. The meetings may be
conducted to call on shares, issue debentures,
borrow money, to make loans, To invest the funds
etc
How to conduct meeting?
Written notice to be given
 Notice to be issued under the
authority of the company
 In case of failure to give a notice,
the persons concerned may be
punished with fine and the
proceedings of the meeting will be
rendered invalid.

Resolution



A motion when passed is called a resolution.
The resolution in the General body meetings
can be an ordinary resolution
( Simple majority) and special resolution.
Special resolution- ( notice of 21 days to be
given) the notice has to specify the purpose. The
number of votes to be cast in favour of the
resolution is to be three times the number vote
cast against.
Quorum and proxy





The minimum members to be present must be according to
the provisions of the law.
Public company ( minimum Five) and private company
(minimum of 2)
The quorum must be those members who are eligible to vote
in respect of the agenda of the meeting.
If the quorum is not present within half an hour from the
appointed time, either the meeting stands dissolved or may
be adjourned in the same day next week or any other as may
be determined by the directors
A person in case of being incapable to attend a meeting and
who is eligible to vote may appoint a proxy in writing to
attend the meeting of the member and vote on his or her
behalf. The proxy can only vote and cannot participate in the
discussions.
Compromise, Reconstruction and
Arrangement




Reconstruction includes reorganization,
arrangement and amalgamation.
Arrangement includes all forms of
reconstructing.
It has been broadly defined as all forms of
capital reorganizations either by consolidation
of shares or division of shares or both
Reorganization and arrangement are done when
there is only one company is involved
continued….




Reconstruction can be effectively done through
a compromise or arrangement.
To do so the meeting or the members or the
separate class of the shareholders has to be
conducted or in case of winding up the meeting
to be called by the liquidator
Even a banking company (sick bank) may be
reconstructed or amalgamated by the central
government on the basis of the Reserve Bank’s
application for a fixed period of time.
The reconstruction or amalgamation can be
done with any other banking institution.
Scheme to be approved



Any kind of scheme to be accepted, it
has to get approval from the members or
the members may reject the scheme.
After the scheme is approved by voting,
the court has to sanction the scheme or
reject, if it is against the public interest
or if it feels that the scheme is not
beneficial.
The legal provisions vary based the
mode of scheme adopted by the
company.
Modes of Reconstruction
or Amalgamation

By sale of undertaking- it can be the whole or part of sale (
the court will decide)

By sale of shares ( Maximum number of companies adopt
this scheme- In such schemes the shares are sold and
registered in the name of the purchasing company or on its
behalf. The shareholders selling the shares are compensated
either by cash or with the shares of the acquiring company.

Amalgamation can take place even for the sake of Public
interest by the central government. In such cases, it will be
notified in the official gazette.
Mergers, Acquisitions and Take
over of companies



Merger connotes union of two or more
commercial interests, corporations, undertakings,
bodies or any other entities.
Fusion of two or more corporations by the transfer
of all property to a single corporation. It is used as
a synonym for amalgamation. Even the Act makes
no distinction between merger and amalgamation.
The changing of legal entity after
mergers and acquisitions

In a merger- one of the company loses its
corporate existence and the survivor company
acquires the assets as well as the liabilities of the
merger company.

In acquisition, it is acquiring the ownership in the
property is the purchase of a controlling interest in
the share capital of another existing company. It
is an act of acquiring asset and management of the
company.
Winding up

It is the process whereby the life of the company is ended and
its property is administered for the benefit of its creditors and
members.

During this process a liquidator is appointed to take control of
the company. The liquidator will be responsible for the assets,
debts and final distribution of the surplus to the members.

It is the process for discharge of liabilities and returning the
surplus to those who are entitled for it.

But even a company which is making profit can be wound up is
the special feature of winding up , which is different from that
of the process of insolvency.
How can be company be wound
up?





By passing a special resolution
If there is a default in holding the statutory
meeting
Failure to commence the business
If there is reduction in the membership of the
minimum number of members as per the statutory
requirement
If it not able to pay its debts
Modes of winding up



Compulsory winding up under the supervision
of the court
(Reasons as stated in the previous slide)
Compulsory winding up may happen for just
and equitable reasons also.
The just and equitable grounds can be like loss
of substratum , where there is dead lock in the
management, etc
Voluntary winding up ( Members voluntary
winding up and creditors voluntary winding up)
Voluntary winding up subject to the supervision
of the court.
Winding up procedure



A petition for winding up has to be filed by the
concerned person to the prescribed authority
Liquidator to be appointed to safeguard the
property of the company
Then the court will hear the matter and pass
necessary orders. It can dismiss the petition or
pass an order of winding up
Dissolution of the company

When the company ceases to exist as a corporate
entity for all practical purposes it is said to have been
dissolved.

Dissolution has to be declared by the court.

It will not be extinct and will be kept under
suspension for 2 Years.

The order has to be forwarded by the liquidator to the
Registrar of the Companies within 30 days from the
date of the order of dissolution.
Statutory Role & Responsibility of
Independent Directors and Familiarity with
Legal Aspects associated with discharging
their Duties
The genesis of SOX:
A Corporate Tsunami
Corporate America was rocked by scandal
after scandal in a very short span of time.
 Enron
 KMart
 Tyco
 WorldCom
 Global
Crossing
Andersen collapsed…
An Angered Response …
 Loss
of confidence in regulators
 Political nexus
 Investor confidence takes a dip
 401(k) retirement savings wiped
out
Sponsored by US Senator Paul Sarbanes and US Representative
Michael Oxley, the Act was passed to re-emphasize the
importance of ethical standards in the preparation of financial
information reported to investors, restore investor confidence
Types of Directors
 Nominee- Director whose function is passive in nature. Nominee
director are subject to directors responsibilities. Nominee director
appointed by an institution which has invested in or lent to the
company shall be deemed to be independent directors.
 Whole Time- is executive director who is in whole time employment
of the company.
 Independent- is a non executive director who has no material
pecuniary relationship or transactions with the company.
Responsibility of Directors
Meaning thereof
 Statutory Responsibility
 Fiduciary Responsibility
 Statutory Role and Responsibility
 Need for familiarisation with legal
aspects
 Relationship with duty discharge
obligations

Key Issues
Responsibility
 Duty
 Statutory

What is “Duty”
 Generally speaking, duty is what we expect of others
 Duty is a task we look forward to with distaste, perform with
reluctance, and brag about afterwards
 The trouble with the world is that so many people who stand up for
their rights fall down miserably on their duties
 The best way to get rid of your duties is to discharge them
 “Next to doing the right thing, the most important thing is to let people
know you are doing the right thing” – John D. Rockfeller
 “It is not enough to be ready to go where duty calls. A man should
stand around where he can hear the call” – Robert Louis Stevenson
Responsibility



Responsibility walks hand in hand with capacity and
power
Responsibility also is directly linked to one’s duties
It is easy to dodge our responsibilities, but we cannot
dodge the consequences of dodging our responsibilities
You cannot evade the responsibilities of tomorrow by evading it
today
- Abraham Lincoln
Responsibility
The price of greatness is responsibility
- Sir Winston Churchill
Drivers of Change
Democratisation of ownership
 Liberalisation
 Globalisation of markets
 Technology
 Corporate Governance
 ESOPs
 Other influences – lenders, regulators, tax
authorities

The environment in which we work in
Changing Economic Times
 Pressures to Perform

- Wall Street expectations
- Shareholder and Board of Director expectations

Complexity and sophistication of Business
Structures and Transactions
- Numerous risks and challenges of reporting transactions
in an easily understood manner

Complex and Voluminous Standards
The Role of a Director
A Director is part of a collective body of
Directors called the Board responsible for
the superintendence, control and direction
of the affairs of the Company
The Role of a Director
Is an individual Director as a member of
the Company Board equally responsible as
the Company Board ?
No, unless he, the individual director, is charged with a
specific responsibility
The Role of a Director
Is the Company Board responsible for
management of the Company or for the
supervisory oversight of the Company ?
This depends on whether the Company has a CEO to manage
the affairs of the Company on a day-to-day basis.
Director’s duties










Act in the best interests of the company
Safeguard the interests of the stakeholders
Attend Board Meetings and participate in decisions
Exercise due care and skill
Avoid conflict situations
Not seek personal gains
Maintain confidentiality
Fiduciary duty
Seek opinion of experts when necessary
Discharge duties required in specific committees of the
Board
Directors’ duties
● Directors are subject to various duties, both common law
●
●
and statutory. At a very fundamental level, these duties are
directed at four well-defined objectives :
to compel directors to act in accordance with the strict
terms of their mandate;
to compel them to exercise care and skill in carrying out
their various functions;
Directors’ duties
● to compel them to use their wide discretionary powers in
●
good faith and proper purpose
and finally, to compel them to act loyally in advancing the
interest of their company.”
Sarah Worthington, Corporate Governance - Remedying
and Ratifying Directors’ Breaches
Directors’ Duties
 What is a director’s duty of skill ?
 Directors
are not required
qualifications into their office.
to
bring
Major Law Reform required in this area
any
special
Directors’ Duties


What is the duty of care required for a Director ?
The Supreme Court of India has held in Official Liquidator v
P.A. Tendolkar (1973) 43 Comp Cases 382 as follows:
 A director may be shown to be so placed and to have been so
closely and so long associated personally with the management
of the Company that he will be deemed to be not merely
cognizant of but liable for fraud in the conduct of the business
of the Company even though no specific act of dishonesty is
proved against him personally. He cannot shut his eyes to what
must be obvious to every one who examines the affairs of the
Company even superficially
Directors’ Duties
 What is the non-executive director’s duty of skill and care ?
 The English Court after reviewing many cases in Dorchester Finance
Co. Ltd v Stebbing, 1989 BCLC498 (Ch D) held as follows:
 A Director is to exhibit in the performance of his duties such degree of
skill as may be reasonably expected from a person of his knowledge
and experience
 A Director is to exhibit in the performance of his duties such care as an
ordinary man might be expected to take on his own behalf
 A Director must act in good faith and in the best interests of the
Company
 These standards of duty of care and skill apply equally to nonexecutive Directors
Directors’ Duties


Acting in good faith a valid defense for the Directors
In Re The Walt Disney Company, the US Court in its
decision decided in August 2005 upheld the rule of acting
in good faith by saying that the concept of intentional
dereliction of duty, a conscious disregard for one’s
responsibilities, is an appropriate (although not the only),
standard for determining whether fiduciaries have acted in
good faith
Directors’ Responsibilities





Present directors
Past directors
Members of Audit Committee
Explicit and implicit
Responsibility for subsidiaries
Statutory Responsibilities
 Section 274 of the Companies Act list out disqualifications of directors.
Director should conduct himself in such a way that he does not incur such
disqualification
 Director should maintain absolute secrecy of confidential information
 Director should not derive undue personal advantage or benefit by virtue of his
position
 Director should ensure that company at all times complies with statutes, rules
and regulations in letter and spirit
 Director with other Directors of the Board is responsible that report and
recommendation of Audit Committee and Shareholders’ / Investors’ Grievance
Committee receive due consideration
 Director is accountable for the company practicing the highest standard of
corporate governance with a underlying view of increasing the shareholders’
value
Fiduciary Duty of Directors
Director should not enter into engagements
in which he can have a personal interest
conflicting with the interest of the company.
 Director must display the utmost good faith
towards the company in their dealings with
it or on its behalf.

Directors’ Responsibilities





Arthur Levitt’s views
Blue Ribbon Committee
Section 292A and Audit Committees
Section 217 (2AA)
Clause 49 of Listing Agreement
Recommendation of Blue Ribbon Committee
 Member of the Audit Committee to be independent of the
company (not employees)
 The Audit committee to be composed exclusively of non
executive directors
 The Audit Committee to consist of at least three member with
specialist expertise in the field of finance and accounting
 The Audit committee to have a written charter
 The charter to be published at least every three years in a proxy
statement
Recommendation of Blue Ribbon Committee





The external auditors to be accountable to the Board of
Directors and particularly to the audit committee.
The external auditors to report annually on their independence
from the company.
The audit committee to discuss the quality of accounting
principles with the external auditors.
The audit committee to produce a report on its activities.
Quarterly financial statements (form 10-Q) to undergo a critical
review by the external auditors
Section 217(2AA)
 Report by Board of Directors includes Directors responsibility
Statement indicating therein
 In preparation of annual accounts, applicable accounting standard has
been followed along with explanations to material departures.
 That accounting policies has been selected and applied consistently
and made judgment and estimates that are reasonable and prudent.
 Proper and sufficient care for the maintenance of accounting records in
accordance with the act for safeguarding the assets of company and for
detecting and preventing fraud
 Prepared annual accounts on a going concern basis
Section 274 clause (g)
● such person is already a director of a public company
(A) has not the annual accounts and annual returns for any continuous three
financial years commencing on and after the first day of April 1999; or
(B) has failed to repay its deposit or interest thereon on due date or redeem its
debentures on due date or pay dividend and such default continues for one year
or more:
Provided that such person shall not be eligible to be appointed as a director of any
other public company for a period of five years from the date on which such
public company, in which he is a director failed to file annual accounts and
annual return or has failed to repay its deposit or interest or redeem its debentures
on due date or pay dividend
Section 292A
 Audit committee shall consist of at least three directors other than
managing director or whole time director.
 Audit Committee shall have discussion with auditors about internal
control systems, the scope of audit and review half yearly and annual
financial statements.
 Audit committee has authority to investigate into any matter.
 The recommendations of the Audit committee is binding on the Board
 The chairman of the Audit Committee shall attend the annual general
meeting to provide clarification on matters relating to audit
Clause 49 of Listing Agreement
 The non executive director on the board should not be less than fifty percent of
the Board of Directors or in the case of non executive chairman at least should
comprise of independent directors
 The board meeting is to be held at least four times in a year.
 The difference between two Board meeting should not exceed four months
 The Annual Report of a company should comprise a separate section in
Corporate Governance. Non compliance of any mandatory requirement which
is a part of listing agreement to be specifically highlighted with a reason for
such non compliance.
 The compliance of conditions of corporate governance is to be certified by
auditors and the same is to be annexed with directors report and also sent to
the Stock Exchange with return
Clause 49
Kumarmangalam Birla committee on
corporate governance – SEBI – 1999
 Narayana Murthy committee on corporate
governace

Definition
Excludes any relatives of promoters, senior
management
 Cooling-off Period - for any member of any
advisory firm (not just statutory auditors,
but also lawyers, consultants and internal
auditors)

Increased responsibilities



Enhances the responsibilities of the board
Company’s compliance with all applicable laws to be
disclosed
Enhanced oversight over its subsidiaries



Board members also have to review all significant transactions
entered into by any subsidiary
Review minutes of all the subsidiaries’ board meetings
Sign-off on compliance with the company’s code of conduct
Improving quality of disclosure






Disclosure of directors’ shareholding in the company
Disclosure of compensation paid to non-executive
directors
Disclosure of all related-party transactions
Use of funds raised through public issues (in case of any
use of funds for purposes other than that originally stated
in the offer prospectus),
An audited statement on the deviation to be included in the
annual report,
Any changes in accounting policies and practices.
Liability






For company debts
Ultra-vires acts
Criminal liability under Negotiable Instruments Act
Damages for breach of contract
Director’s responsibility statements
Liability of directors under other laws (labour, food
adulteration, essential commodities, etc.)
Some Company Law Provisions
Non compliance of various provisions of
the Act
 Avoidance of provisions relieving liability
of officers – void
 Unlimited liability (Section 323) –
permissible
 Statutory Protection to Directors (Section
633)
 Directors’ Responsibility Statement

CEO / CFO responsibilities
The CEO, i.e. the Managing Director or Manager appointed in terms of
the Companies Act, 1956 and the CFO i.e. the whole-time Finance
Director or any other person heading the finance function discharging
that function shall certify to the Board that:
(a) They have reviewed financial statements and the cash flow statement
for the year and that to the best of their knowledge and belief :
(i) these statements do not contain any materially untrue statement or omit
any material fact or contain statements that might be misleading;
(ii) these statements together present a true and fair view of the company’s
affairs and are in compliance with existing accounting standards,
applicable laws and regulations.
Management certification
 Management has to certify the key financial assertions like
completeness, validity, valuation etc. underlying in the preparation of
the financial statements.
 Opinion of the statutory auditors is not the only criterion on which the
financial statements will be evaluated.
 Responsibility on the management to ensure compliance with
applicable standards, laws etc. and to ensure that the financial
statements give true and fair view of the affairs of the Company.
Management certification
They accept responsibility for establishing and maintaining
internal controls and that they have evaluated the
effectiveness of the internal control systems of the company
and they have disclosed to the auditors and the Audit
Committee, deficiencies in the design or operation of
internal controls, if any, of which they are aware and the steps
they have taken or propose to take to rectify these
deficiencies.
Guidance for Independent Directors-The
Taste and Smell Tests
Reputation of company
 Capability to meet the requirements and
expectations
 Demonstrate independence
 Whether the company has adequate controls
and whether they can be relied upon
 Ability to resist pressure

Guidance for Independent Directors-The
Taste and Smell Tests
Knowledge on current developments
 Aware and abide by corporate code of
conduct
 Seek expert help
 Prepare in advance for board meetings
 Maintain confidentiality

Way Ahead
Independent directors here to stay
 Board and audit committee procedures will
need to be revamped
 Need to be more proactive at watching over
compliance
 Identify and manage risks
 Have processes to test and evaluate controls

PUBLIC DEPOSIT
58A-PUBLIC DEPOSIT NOT TO BE INVITED WITHOUT
ISSUING AN ADVERTISEMENT
Provision:
1[58A. Deposits#02 not to be invited without issuing an advertisement]
(1) The Central Government may, in consultation with the Reserve
Bank of India, prescribe the limits up to which, the manner in which
and the conditions subject to which deposits may be invited or
accepted by a company either from the public or from its members.
(2)
No company shall invite, or allow any other person to invite or
cause to be invited on its behalf, any deposit unless(a) such deposit is invited or is caused to be invited in accordance
with the rules made under sub-section (1), #03[* * *]
(b) an advertisement, including
therein a statement showing the financial position of the company,
has been issued by the company in such form and in such manner as
may be prescribed #05[, and]
#06[(c)
the company is not in default in the repayment of any
deposit or part thereof and any interest thereupon in accordance with
the terms and conditions of such deposit.]
Provision:
b)
No deposit referred to in clause(a) shall be renewed by the
company after the expiry of the term thereof unless the deposit is
such that it could have been accepted if the rules made under subsection (1) were in force at the time when the deposit was initially
accepted by the company.
(3)(a)
Every deposit accepted by a company at any time
before the commencement of the Companies (Amendment) Act,
1974 (14 of 1974) in accordance with the directions made by the
Reserve Bank of India under Chapter IIIB of the Reserve Bank of
India Act, 1934 (2 of 1934), shall, unless renewed in accordance
with clause (b), be repaid in accordance with the #07[terms and
conditions of such deposit]
08[(3A) Every deposit accepted by a company after the
commencement of the Companies (Amendment) Act, 1988, shall,
unless renewed in accordance with the rules made under subsection (1), be repaid in accordance with the terms and conditions
of such deposit.]
Provision:
Where any deposit is accepted by a company after the commencement of the Companies
(Amendment) Act, 1974 (41 of 1974), in contravention of the rules made under subsection (1), repayment of such deposit shall be made by the company within thirty days
from the date of acceptance of such deposit or within such further time, not exceeding
thirty days, as the Central Government may, on sufficient cause being shown by the
company, allow.
5. Where a company omits or fails to make repayment of a deposit in accordance with
the provisions of clause (c) of sub-section (3), or in the case of a deposit referred to in
sub-section (4), within the time specified in that sub-section,(a)
the company shall be punishable with fine which shall not be less than
twice the amount in relation to which the repayment of the deposit has not been made, and
out of the fine, if realised, an amount equal to the amount in relation to which the
repayment of deposit has not been made, shall be paid by the Court, trying the offence, to
the person to whom repayment of the deposit was to be made, and on such payment, the
liability of the company to make repayment of the deposit shall, to the extent of the
amount paid by the Court, stand discharged;
Provision:
b)Every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to five years and shall also be liable
to fine.
#09(6) Where a company accepts or invites, or allows or causes any other person
to accept or invite on its behalf, any deposit in excess of the limits prescribed
under sub-section (1) or in contravention of the manner of condition prescribed
under that sub-section or in contravention of the provisions of sub-section (2), as
the case may be:
7)(a) Nothing contained in this section shall apply to,(i) a banking company, or
(ii) such other company as the Central Government may, after consultation
with the Reserve Bank of India, specify in this behalf.
(b)
Except the provisions relating to advertisement contained in clause (b)
of sub-section (2),#12 nothing in this section shall apply to such classes of
financial companies as the Central Government may, after consultation with the
Reserve Bank of India, specify in this behalf.
Provision:
[(8)
The Central Government may, if it considers it necessary for avoiding any
hardship or for any other just and sufficient reason, by order, issued either prospectively
or retrospectively from a date not earlier than the commencement of the Companies
(Amendment) Act, 1974 (41 of 1974), grant extension of time to a company or class of
companies to comply with, or exempt any company or class of companies from, all or
any of the provisions of this section#14 either generally or for any specified period
subject to such conditions as may be specified in the order:
Provided that no order under this sub-section shall be issued in relation to a class of
companies except after consultation with the Reserve Bank of India.]
[(9) Where a company has failed to repay any deposit or part thereof in accordance with
the terms and conditions of such deposit, the #16[Tribunal] may, if it is satisfied, either
on its own motion or on the application of the depositor,#17 that it is necessary so to do
to safeguard the interests of the company, the depositors or in the public interest, direct,
by order, the company to make repayment of such deposit#18 or part thereof forthwith
or within such time and subject to such conditions as may be specified in the order:
Provided that the #19[Tribunal] may, before making any order under this sub-section,
give a reasonable opportunity of being heard to the company and the other persons
interested in the matter.
Provision:
10) Whoever fails to comply with any order made by the #20[Tribunal]
under sub-section (9) shall be punishable with imprisonment which
may extend to three years and shall also be liable to a fine of #21[not
less than rupees five hundred] for every day during which such noncompliance continues.]
(11) A depositor may, at any time, make a nomination#23 and the
provisions of sections 109A and 109B shall, as far as may be, apply to
the nomination made under this sub-section.]
Explanation.-For the purposes of this section, "deposit" means any
deposit of money with, and includes any amount borrowed by, a
company but shall not include such categories of amount as may be
prescribed in consultation with the Reserve Bank of India.
Provision:
#01
Inserted by Act 41 of 1974, section 7, w.e.f. 1-2-1975.
#02
See Companies (Acceptance of Deposits) Rules, 1975.
#03
The word "and" omitted by the Companies (Amendment) Act, 1996, w.e.f.
1-3-1997.
#04
See The Non-Banking Financial Companies and Miscellaneous NonBanking Companies (Advertisement) Rules, 1977.
#05
Inserted by the Companies (Amendment) Act, 1996, w.e.f. 1-3-1997.
#06
Ibid.
#07
Substituted by the Companies (Amendment) Act, 1988, section 9, w.e.f. 1-91989 for the words "terms of such deposit".
#08
Inserted by the Companies (Amendment) Act, 1988, section 9, w.e.f. 1-91989.
#09
Powers delegated to Chief Officer, Deputy Chief Officer and Assistant Chief
Officers attached to the Department of Non-Banking Companies, RBI vide
Notification No. GSR 473(E), dated 26-9-1978.
Provision:
#10
Substituted for "one lakh rupees" by the Companies (Amendment) Act,
2000, w.e.f. 13-12-2000.
#11
Substituted for "five thousand rupees" by the Companies (Amendment) Act,
2000, w.e.f. 13-12-2000.
#12
See The Non-Banking Financial Companies and Miscellaneous NonBanking Companies (Advertisement) Rules, 1977.
#13
Inserted by Act 46 of 1977, section 3, w.e.f. 24-12-1977.
#14
See Companies (Application for Extension of time or Exemption under subsection (8) of section 58A) Rules, 1979.
#15
Inserted by the Companies (Amendment) Act, 1988, section 9, w.e.f. 1-91989.
#16
Substituted for "Company Law Board" by the Companies (Second
Amendment) Act, 2002.
#17
Application to be made in Form 4 of the Company Law Board Regulations,
1991.
#18
Fees prescribed is Rs. 50. On notification of the commencement of the
amendment, power will be transferred to the National Company Law Tribunal.
Provision:
#19
Substituted for "Company Law Board" by the Companies (Second
Amendment) Act, 2002.
#20
Ibid.
#21
Substituted for "not less than rupees fifty" by the Companies (Amendment)
Act, 2000, w.e.f. 13-12-2000.
#22
Inserted by the Companies (Amendment) Act, 1999, w.r.e.f. 31-10-1998.
#23
See Form 2B, Companies (Central Government's) General Rules & Forms,
1999, w.e.f. 12-1-1999.
Procedure for Inviting and Accepting Public Deposits under
Section 58A
In view of the provisions of the companies act, 1956 and the companies
(Acceptance of Deposits ) Rules, 1975, a company, which proposes to invite
and accept deposit from public should comply with the procedural
requirements:
1.Authority in Memorandum to borrow funds:
Check if the Memorandum of Association of the company contains
provision empowering the company to borrow the funds. Trading companies
have implied power of borrowing. If the Memorandum of Association does
not give such power to the company, then the Memorandum is required to be
altered by incorporating an appropriating object clause therein, for which the
general meeting (GM) of the company shall have to be convened and held for
passing the special resolution in accordance with the provision of section 17
of the companies Act,1956, before attempting to invite and accept deposit
from public.
Cont…
2.Powers of the board:
Section 291 of the Companies Act, 1956 provides that subject to the provisions
of the Act, the Board of directors of a company shall be entitled to exercise all such
powers, and to do all such acts and things, as the company is authorized to exercise
and do.
However the Board shall not exercise any power or do any act or things, which is
directed or required, whether by the companies Act, or any other Act or by the
Memorandum or Article of the company or otherwise, to be exercised or done by the
company in general meeting.
Section 292 confers on the Board of Directors of a company power to borrow
moneys Otherwise than on Debenture but such powers must exercised by means of
resolutions passed at meetings of the Board.
According to Section 293(1)(d) of the Act, in order to enable the Board of
directors of a company to borrow funds in excess of the paid up share capital and free
reserves of the company, consent of the company in general meeting has to be
obtained.
In view of the provisions of sections 291, 292, 293, the company must ensure
that, before passing Board resolution for inviting and accepting public deposit under
section 292 of the Act, the amount of the proposed deposit together with the amount
of existing borrowings, does not exceed the company’s paid up share capital and free
reserves and if it does, it must convene the general meeting of the shareholders of the
company to pass a resolution under section 293(1)(d) of the Act, fixing the limit on
the total amount of borrowing.
Cont…..
3.Holding of Board meeting:
Board meeting required to convene to approve the scheme of acceptance of
deposits, Amount of deposit, terms and conditions of acceptance, repayment approve
the text of advertisement.
4. Filing of advertisement with the ROC:
A copy of the advertisement duly signed by the majority of directors of the
company and same required to be filed to the Registrar of Companies for approval of
Registration..
5.Publication of advertisement:
company must publish the advertisement in a leading English newspaper and one
in a vernacular( homely language) circulating in the state in which the Registered
office of the company is situated.
6.Issue of Application Forms:
An application inviting deposit being attached with the text of advertisement
distributed to the public through brokers and intermediaries, the same which must
have been prepared strictly in accordance with the provision of rule 5 of the
companies ( Acceptance of Deposits ) Rules, 1975
7.Statement in lieu of Advertisement :
If a company intends to accept deposit without inviting, it can do so by filing the
Statement in lieu of Advertisement With ROC, duly signed by the Directors and
containing all the particulars required in the Advertisement
Cont…..
8.Acceptance of deposit during validity of advertisement:
A company can accept deposit / renew during the validity of the advertisement i.e
for a period of six months from the date of closure of financial years in which it is
issued or until the date on which balance sheet of the company laid before the
company in AGM whichever is earlier.
9.Issue of deposit Receipt to each Depositor:
The company must issue a Receipt of Deposit(signed by the Authorized officer)
to all the depositors within 8 weeks from the date of receipt of money or cheques
from the depositors. Receipt should contain all the details like names and address of
the depositors, date of deposit, Amount received and the interest payable thereon.
SPECIMEN DEPOSIT RECEIPT (NOT TRANSFERABLE)
NAME OF THE COMPANY
Regd Office: _____________________________
Fixed Deposit Receipt No________________ for Rs_______________________
Repayable on ______________________
Received from _____________________________________________________
Name and Address(es) of depositors(s)]
____________________________________________________________________
____ the sum of rupees ________________ on __________________ as a deposit
for _________________ years from the ______________ day of
_________________ 20_ _ bearing interest at _________________ percent per
annum payable half yearly on __________ and _________________ each year.
Date:
For ABC Company
Ltd
Company secretary
Authorised
Signatory
NOTE: This receipt is subject to the terms and conditions of the fixed deposit scheme
of the company.
REVERSE OF THE RECEIPT
Received from ….. co Ltd ______________________________________
this _________________ day of ____________________ 20_ _
Princcipal Rs_________________________________________________
Interest Rs___________________________________________________
Total Rs ____________________________________________________
Signature(S) of Depositor(S)
____________________________________
Revenue
Stamp
Name and Address
Cont…..
10.Entry in the Register(s) of Deposit:
Details of the depositors are entered in the Register:
Name and Adress of the depositors
Date and Amount of deposit
Duration of the deposit and the date of maturity
Rate of interest and date of payment
Any other information.
1.Filing of Return of deposit:
Return of deposit must be filed witgh the registrar on or before 30th june of each
year, in the manner prescribed in the companies deposit Rules, 1975 and furnish the
same as on 31st of March duly certified by the Auditors.
12. Copy to RBI
copy of Return of Deposit also be filed with the RBI ( Reserve bank of India )
13.Payment of Interest on Deposit and Repayment of Deposit:
Repayment of deposit and interest thereon must be paid in accordance with the
terms and condition on which deposit have been accepted.
Cont…..
14. Premature Repayment of deposit:
company must make premature repayment of deposit , if and when a depositor approaches
the company, strictly according to the provisions of rule 8(1) of the said rules which provides
that barring the exception contained in the proviso to the sub rule, where the company makes
repayment of a deposit after the expiry of six months from the date of such deposit but before
the expiry of such deposit was accepted by the company, the rate of interest payable by the
company on such deposit, shall be reduced by one percent from the rate which the company
would have paid had the deposit been accepted for a period for which such deposit had run
and the company shall not pay interest at any rate higher than the rate so desired.
15. Maintenance of liquid Assets:
At least 15% of the Amount deposited maturing during the year ending shall be deposited
or invest in any of the following:
In a current or other deposit account with any scheduled bank, free from charge or lien.
In a encumbered securities of the Central Government or the state Government
In a encumbered securities mentioned in clauses (a) to (d) and (ee) of section 20 of the
Indian Trust Act, 1882;
In a encumbered bonds issued by the Housing Development Finance Corporation Limited.
The amount so deposited shall not be utilized for any purpose other than the repayment of
deposit maturing during the year, provided that the sum remaining deposited or invested as the
case may be, shall not, at any time, fall ten percent of the amount deposits maturing that year.
Cont…..
16. Refund of Excess Deposit:
Ceiling limit as required under rule 3(2) provides that any excess received by the company
shall be refund within 30 days or such other extended time not exceeding 30 days as may be
allowed by the central Government.
17.Brokerage payable:
The Brokerage payable by the company shall not exceed the limit prescribed under Rule
3(1) (d) i.e no company shall pay brokerage exceeding one percent of the deposit for a period
upto one year, one and half percent of the deposit for a period of more than one year but upto
two years and two percent of deposit for a period exceeding two years collected by and
through such broker and such payment shall be on one time basis.
18. Rate of Interest:
Rate of interest offered by the company on Deposit does not exceed the maximum rate of
interest prescribed by the Reserve Bank of India that the non Banking Financial Companies
can pay on their public Deposit.
Only after complying with the above provision and procedure a company can accept deposit
under section 58A of the companies Act, 1956.
CERTIFICATION
OF
E-FORMS
UNDER COMPANIES ACT, 1956
CATEGORIZATION OF E - FORMS
Annual Compliance E-Form
Casual E-Forms
E-form
Purpose
E-form
Purpose
23 AC
Balance Sheet and
Other Documents
18
Change of Registered
Office
23 ACA
Profit
&
Loss
Accounts
and
Other Documents
32
Appointment
Resignation
Director/Secretary
Annual Return
5
Increase / Change in
Share Capital
2
Return of Allotment
23
Filing
of
Resolution
Agreements
20B
&
of
Special
/
• CATEGORIZATION OF E - FORMS
Annual Compliance E-Form
E-form
Purpose
Casual E-Forms
E-form
Purpose
17
Satisfaction of Charge
25C
Appointment
of
Managing
Director/Whole
Time
Director/Manager
21
Filing of Court / CLB
Order
-
FILLING BALANCE SHEET AND
OTHER
DOCUMENTS
WITH
REGISTRAR
 FORM -23ACA -
FILLING PROFIT AND LOSS AND
OTHER
DOCUMENTS
WITH
REGISTRAR
 FORM -20B
FOR FILLING ANNUAL RETURN BY A
COMPANY HAVING SHARE CAPITAL
WITH THE REGISTRAR
 FORM -23AC
-
CERTIFICATION
Form 23AC
Date of
board
meeting
Due date
of AGM?
SRN of
Form
23B?
Category
in which
share
capital
raised ?
Auditors
remark
and
explanati
on of
BOD
Various
attachmen
ts
Resolution
No. and
date of BM
Form 23ACA
EPS ?
RentRecd or
Paid?
Attachments
Form 20B
Extension
for F.Y. or
A.G.M.
Issued
Capital?
Subscribe
d Capital?
Indebtnes
s
Breakup
of Equity
Capital
Attachme
nts
FORM -18
Change of Registered Office
FORM -32
Appointment / Resignation of
Director / Secretary
FORM -5
Increase / Change in Share Capital
FORM – 2
Return of Allotment
FORM - 23
Filing of Special Resolution /
Agreement
Form – 17
Satisfaction of Charge
FORM - 25C
Appointment of Managing Director
/ Whole Time Director / Manager
FORM - 21
Filing of Order of Court / CLB
Form 18
Provisions in
respect of
various type of
changes
Name and
Address of
Police Station
SRN of form
23, 1AD, 21
Form 32
Designation,
Category,
Chairman, ED ,
etc.
Manager or
Secretary
Form 5
Various
purposes
Ordinary or
Special
Bifurcation of
additional
capital
And
conditions
Other
purposes
for change
in capital
Revised
Capital
Structure
Change of
AOA
Payment of
Stamp duty
Attachments
Form 2
Number of
Allotment
Details of
terms, V.R.,
No. of Shares
and Premium
Allotment for
consideration
other than
cash
Allotment of
Bonus Shares
Post Allotment
Capital
Structure
Special
Resolution u/s.
81(1A)
Attachments
Form 23
Date of dispatch
of Notice
Different type
of Resolutions
Change of
objects
SRN of form
21 ?
Attachments
Form 17
Date of
Satisfaction of
charge in full
NDC from
charge holder
Form 25C
Date of B.R,
Effective
D.O.A. and
Remuneration
Structure
CERTIFICATION
Form 21
Ordered
passed by
Details in case
of
Amalgamation
order
SRN of
relevant form
and payment
of penalty
PRACTICAL ASPECTS IN
APPOINTMENT & REMOVAL
OF AUDITORS
Subsequent
Auditor
Special
Auditor
First
Auditor
Branch
Auditor
AUDITOR
Auditor
appointed by
Central Govt.
Cost
Auditor
Auditor of
Government
Companies
Appointment & Removal of First
Auditor

Appointed by BOD within 1 month of registration of the
company.
`
Sec 224(5)

If BOD fails to appoint,the company may appoint at a
General Meeting.

Holds office until the conclusion of first AGM.

Members at any GM may remove such auditor and appoint
another one in his place,of whose nomination special
notice has been given.
Proviso to section 224(5)

Appointment of first auditors through the MOA &AOA not a valid appointment.
Appointment of Subsequent Auditors

Appointed at each AGM to hold office until the conclusion
of next AGM.
Sec 224(1)

Intimation to the auditor within 7 days.

Auditor to file form 23B to ROC within 30 days.
Sec 224(1A)

Appointment of auditor is mandatory in the AGM for the
ensuing year.
ICAI v.J Saikia.
Tenure of Auditor
 Tenure
of Auditor is not for a particular
year or financial year.
 Tenure-From
 If
one AGM to another AGM.
AGM not held- will continue up to the
factual conclusion of the AGM.
Appointment of Auditor

Obligatory on every company to appoint an
Auditor i.e. STATUTORY AUDITOR

The Auditor, if Individual, should be a Chartered
Accountant.

In case of Firm of Auditors,every Partner should
be qualified for appointment as an Auditor in the
Firm’s name.

Statutory auditor can not be internal auditor.
DCA-Circular No.5/77[1/1/76-CL-V]dated 8-4-1977
Who can not be appointed as Auditor?
Section 226(3)

A Body Corporate

An Officer or Employee of the Company

A Person who is a Partner,or in the employment,of an
Officer or Employee of the Company.

A Person who is indebted to the Company for an
amount exceeding Rs.1000.

A Person holding any security of that Company after a
period of one year from the date of commencement of
the Companies Amendment Act 2000.
Restrictions

Should not be in ‘FULL TIME EMPLOYMENT’

Auditor of max 20 Companies – only 10 can be Big
Companies

Big Companies - paid up capital of or exceeding 25
lacs

In a Firm of Auditors, the limit of 20 Companies is
per Partner.

As per Companies(Amendment)Act,2000, Private
Companies will not be taken into account for
counting the limit of 20 Companies.

Joint audit assignments - to be counted as one
company.

Branch Audits – not included
DCA-Circular No.21 of 75 dated 24-9-1975

Guarantee companies having no share capital – also
excluded
DCA-Letter No.8/12/(224)/74-CL-V dated28-9-1974

Foreign companies audit - not included
DCA-Circular No.21 of 75 dated 24-9-1975
Re-appointment of Retiring
Auditors- Sec 224(2)

Normally, retiring Auditor is appointed for the next year.

He shall be re-appointed unless:

he is not qualified for re-appointment.

he has given the Company notice of his unwillingness to
be re-appointed.

a resolution has been passed at that meeting appointing
somebody instead of him or expressly providing that he
shall not be re-appointed.

notice has been given of an intended resolution to appoint
some other person but the resolution can not be proceeded
with.

‘A retiring Auditor shall re-appointed except in
four types of cases referred in 224(2)’. But the
passing of resolution is essential for the reappointment of the retiring Auditor.
Circular No.5/72,dated 21-2-1972
Removal of Auditor

Special notice required - Section 225(1)

Auditor can be removed before expiry of his term
by Company in GM after previous approval of
Central Govt (powers delegated to Regional
Director).
Section 224(5)

Approval of Central Govt. not required for
removal of First Auditor.

Prior approval of Central govt. require before
actually removing an Auditor. Though resolution
for removal can be passed before.
CODE OF ETHICS
Cases & Issues of Unjustified
Removal of Auditors:

Independence of Auditors
Unjustified Removal of Auditors




Section 224 – Appointment & Remuneration of
Auditor
Section 224A – Auditor not to appointed except
with the approval of the company by special
resolution in certain cases.
Section 225 – Provisions as to resolutions for
appointing or removing auditors
Clause (8)&(9) Part I of Schedule I of CA
Act,1949
Relationship with Other
Members in Practice
Communication with outgoing Auditor in
case of change of auditor
 Compliance with the requirement of section
224, 224A & 225 of the Companies Act,
1956

Communication with outgoing Auditor
in case of change of auditor
Non-compliance of the Provisions of
Section 224, 224A & 225 of the Companies
act, 1956
 Undercutting of Fees
 Non-payment of undisputed audit fees
 Issuance of a qualified report

Compliance with the requirement of
Sec. 224, 224A & 225 of the
Companies Act
To ensure that the outgoing is properly
removed
 That the guidelines prescribed by the
Institute have been complied with
 To ensure that the incoming auditor is
properly appointed.

INDEPENDENCE
•
•
Independence of Mind
Independence in Appearance
Independence Should be Exhibited in
Objectivity
 Integrity
 Professional Services

Threats of Independence
Self - Interest Threat
 Advocacy Threat
 Familiarity Threat
 Intimidation Threat
 Self Review Threat

Safeguards
Safeguards Created by the Profession,
Legislation or Regulation
 Safeguards within the Assurance Client
 Safeguards within the Firm/s own Systems
& Procedures

Safeguards Created by the Profession,
Legislation or Regulation
Education, Training & Experience
 Continuing Education Requirements
 Professional Standards & Disciplinary
Processes.
 External Review of Firms Quality Control
System.
 Legislation Governing Independence

Safeguards within the Assurance
Client
Competent Employees to make Managerial
Decisions.
 Policies and Procedures for fair Financial
Reporting.
 Internal Procedures
 Corporate Governance Structure

Safeguards within the Firms own
Systems & Procedures
Firm Leadership
 Policies & Procedures for Quality Control
 Documented Independence regarding
Identification of threats and Application of
Safeguards.
 Disciplinary Mechanism

Objective & Structure
Identifying Threats to Independence
 Evaluating the Threats
 Applying appropriate Safeguards to
eliminate or reduce the threats.

Public Interest
Public Consists of




Clients
Credit Granters
Government
Employers




Employees
Investors
Business
Financial Community
Objectives
Credibility
 Professionalism
 Quality of Services
 Confidence

Fundamental Principles
Integrity
 Objectivity
 Professional Competence and Due Care
 Confidentiality
 Professional Behavior
 Technical Standards.

Filling up of Casual Vacancy

BOD may fill any casual vacancy. Sec 224(6)(a)

Vacancy caused by resignation - filled by the
company in GM.

Such Auditor holds office till conclusion of next
AGM.
Sec 224(6)(b)

A casual vacancy is not a vacancy created by a
deliberate omission on the part of the company to
appoint an auditor at its AGM.

ICAI Vs.J.Sakia
Where an auditor refuses to accept appointment or
re-appointment – not resignation.

If one of the two joint Auditors resigns before the
completion of the tenure - Casual Vacancy

If there is a complete change in the constitution of
the firm of Auditors i.e. all the earlier partners
retire and new partners joins - Casual Vacancy.
Appointment of Auditor by
Central Government

If no Auditor appointed at an AGM- Central Govt.
may appoint.
Sec 224(3)

Company to give notice to Central Govt within 7
days after AGM that no auditor has been
appointed.
Sec 224(4)

Delay in giving such notice does not affect the
jurisdiction of the Central Govt.

Powers of Central Govt. - Delegated to Regional
Director.
Appointment of Auditor by Special
Resolution -Sec 224A

Where not less than 25% of subscribed share capital is held
by
-Public Financial Institution/ Govt.Company/ Central
Govt./ State Govt.
-any institution established under State/ Provincial Act in
which State Govt.holds not less than 51% of subscribed
share capital.
-Nationalised bank/ Insurance company.
DCA has clarified that the above three clauses are not
mutually exclusive. It would apply to all cases of
shareholding in any combination.
DCA-Circular No.14 of 2001 dated 16-07-2001


Material date for 25% holding of subscribed share
capital - date of AGM at which Special Resolution is
to be passed and not the date of notice of meeting.
DCA-Circular No.2/76[1/1/76-CL-V] dated 5-6-1976

Irrespective of the circumstances in which a
nationalized bank is holding shares,if the name of the
bank is entered in the register of members of the
company,such holding of shares will have to be taken
into account for the purposes of sec 224A.
DCA-Circular No.18/74 dated 12-12-1974
Auditor of Government
Companies
(Sec 619)
Appointed or
re-appointed by the
C&AG
Submits a copy of
report to C&AG
Branch Auditor- Section 228

May be the Company’s Auditor or some other
person qualified to be appointed as Auditor.

Where Branch Auditor is different from
Company’s Auditor, he is appointed by the
Company in GM or BOD are authorised to appoint
him in consultation with Company’s Auditor.

Same powers as Company’s Auditor.

Forwards his report to the Central Govt.
Appointed by the BOD with previous
Approval of Central Government
COST
AUDITOR
(Sec 233B)
Same powers & duties as that of
Statutory Auditor
Submits report to Central Govt.
& the Company
Statutory Auditor can not be appointed
as Cost Auditor
Special Auditor
(Sec 233A)
Central Govt.may either
Appoint C.A. or
Company’s Auditor
Same powers as
Company’s Auditor
Makes his report to
Central Govt.
LIQUIDATION
PROCEEDINGS
SPECIFICALLY RELATAING TO NBFCs AND
OTHER COMPANIES
254
Changes in Schedule VI
TITLE
Liabilities and Assets were classified The Liabilities and Assets to be
classified under the heading of
under the heading of SOURCE
OF FUNDS &
APPLICATION OF
FUNDS
EQUITY AND LIBILITIES
& ASSETS
New Disclosures in Share Capital

A reconciliation of the number of shares
outstanding at the beginning and at the end
of the reporting period

Shares in in the company held by each
shareholder holding more than 5% share
specifying the number of share held
New Disclosures in Share Capital
Old Discloser
Authorised Capital:
New Discloser
1,00,000
Authorised Capital:
1,00,000
Issued & subscribed Capital: 1,00,000 Issued & subscribed Capital: 1,00,000
Share Application:
Pending for Allotment
No Restriction
10,00,000
Share Application:
Pending for Allotment
10,00,000
Now terms & conditions of share
application money needs to be
disclosed as if sufficient balance of
Authorised capital is not available.
RESERVES & SURPLUS
Old Schedule VI
Revised Schedule VI
P&L debit balance was shown under
the head Miscellaneous expenditure &
losses
Debit balance of Profit and Loss
Account to be shown as negative
figure under the head Surplus.
Therefore, reserve & surplus balance
can be negative.
Separate disclosure of Current Liability
Old Discloser
New Discloser
Earlier Current Liabilities and Provisions
are shown by deducting from Current
Assets under the Head of
APPLICATION OF FUNDS
Now it is to be shown separately as Non
Current Liabilities and Current Liabilities
under the Head EQUITY AND
LIBILITIES
Criteria for classifying Current
Liability
It is expected to be settled in the company’s
normal operating cycle.
 It is held primarily for the purpose of being traded.
 It is due to be settled within twelve months after
the reporting date; or
 The company does not have an unconditional right
to defer settlement of the liability for at least
twelve months after the reporting date.
Other than that all should be classified as Non
Current Liabilities

Borrowings
Old Schedule VI
Revised Schedule VI
Short term & long term borrowings are Long term borrowings to be shown
grouped together under the head Loan under non-current liabilities and short
funds sub-head Secured / Unsecured
term borrowings to be shown under
current liabilities. Borrowings shall
further be sub- classified as Secured
and Unsecured.
Period and amount of continuing
default as on the balance sheet date in
repayment of loans and interest to be
separately specified
Deferred Tax Assets / Liabilities
Old Schedule VI
Revised Schedule VI
Deferred Tax assets / liabilities were
not specified.
Deferred Tax assets / liabilities to be
disclosed under non-current assets /
liabilities as the case may be.
Sundry Creditors
Old Schedule VI
Revised Schedule VI
Creditors were broken up in to micro
& small suppliers and other creditors
Classified under Long Term Liabilities
as Trade Payables and under current
Liabilities.
LONG TERM DEBT –
CURRENT MATURITY
Old Schedule VI
Revised Schedule VI
No specific mention for separate
disclosure of Current maturities of long
term debt
Current maturities of long term debt to be
disclosed under other current liabilities
Fixed Assets
Old Schedule VI
Revised Schedule VI
There was no bifurcation required of
tangible & intangible assets on the face
of the Balance sheet.
Fixed assets to be shown under noncurrent assets and it has to be
bifurcated in to Tangible & intangible
assets on the face of the Balance Sheet.
Investments
Old Schedule VI
Revised Schedule VI
Both current & non-current
investments to be disclosed under the
head investments
Current and non-current investments
are to be discosed separately under
current assets & non-current assets
respectively
Criteria for classifying Current
Assets
It is expected to be realized in, or is intended for
sale or consumption in the company’s normal
operating cycle.
 It is held primarily for the purpose of being traded
 It is Expected to be realized within 12 months
after reporting date.
 It is cash or cash equivalent unless it is restricted
from being exchanged or used to settle a liability
foe at least twelve months after the report date.
Other than that all should be classified as Non
Current Assets.

Deposits
Old Schedule VI
Revised Schedule VI
Lease deposits are part of loans &
advances
Lease deposits to be disclosed as
long term loans & advances under
the head non-current assets
Cash & Bank Balances
Old Schedule VI
Revised Schedule VI
Bank balance to be bifurcated in
scheduled banks & others
Bank balances in relation to earmarked
balances, held as margin money
against borrowings, deposits with
more than 12 months maturity, each of
these to be shown separately.
Loans & Advances
Old Schedule VI
Revised Schedule VI
Loans & Advance are disclosed
alongwith current assets
Loans & Advances to be broken up in
long term & short term and to be
disclosed under non-current & current
assets respectively
And further bifurcation with capital
advances security deposits etc.
PROFIT & LOSS – EXPENSES
Old Schedule VI
Revised Schedule VI
Any item under which
expense exceeds one per cent of the
total revenue of the company or5,000
which ever is higher; was disclosed
separately
Any item of income / expense which
exceeds one per cent of the revenue
from operations or1,00,000, which
ever is higher; to be disclosed
separately
Finance Cost
Old Schedule VI
Revised Schedule VI
Finance cost to be classified in fixed
loans & other loans
Finance cost shall be classified as
interest expense, other borrowing costs
& Gain / Loss on foreign currency
transaction & translation
Rounding off of Figures appearing in
financial statement
Old Schedule VI
Revised Schedule VI
Turnover of less than 100 Crores R/off to the nearest Hundreds,
thousands or decimal thereof
Turnover of less than 100 Croress R/off to the nearest Hundreds,
thousands, lakhs or millions or
decimal thereof
Turnover of 100 Crores or more but
less than500 Crores - R/off to the
nearest Hundreds, thousands, lakhs
or millions or decimal thereof
Turnover of 100 Croress or more R/off to the nearest lakhs, millions or
crores, or decimal thereof
Turnover of 500 Crs or more - R/off to
the nearest Hundreds, thousands,
lakhs, millions or crores, or decimal
thereof
Purchases
Old Schedule VI
Revised Schedule VI
The purchase made and the opening &
closing stock, giving break up in
respect of each class of goods traded
in by the company and indicating the
quantities thereof.
Goods traded in by the company to
be disclosed in broad heads in
notes. Disclosure of quantitative
details of goods is diluted
THE PHOLOSOPHICAL FOUNDATIONS OF CORPORATE INSOLVENCY LAW
FROM THE ENGLISH LAW

Corporate Insolvency law has four overriding objectives:
1.
to restore the debtor company to profitable trading where this is
practicable;
2.
to maximize the return to creditors as a whole where the company itself
can not be saved;
to establish a fair and equitable system for the ranking of claims and the
distribution of assets among creditors, involving a limited redistribution
of rights; and
to provide a mechanism by which the causes of failure can be identified
and those guilty of mismanagement brought to book and, where
appropriate, deprived of the right to be involved in the management of
the other companies.
3.
4.
To facilitate achievement of these objectives the insolvency law provides a battery of
legal and administrative instruments and institutional structures.
276
VISION, OBJECT AND CONCLUSION
OF THE LIQUIDATION


VISION:
To maximize the collective returns to creditors what US
commentators say;
OBJECT:
For Just Distribution of the Net Assets on the principle of “pari
passu” rule, of course, distribution on “pro rata” method - [the pari
passu rule has a long history in insolvency law. It is to be found in a statute of Henry VIII
calling for the sale of a bankrupt’s assets ‘for the satisfaction and payment of (his) creditors:
that is to say, to every of the said creditors, a portion Rate and Rate like, according to the
quantity of their Debts’. Ref Case of the Bankrupts (1592) 2 Co Rep 25; 76 ER 441 applying
the same principle in a later statute.] AND

CONCLUSION:
To bring company in liquidation to a logical end : Termination of
Company’s existence - dissolution
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SCHME OF INSOLVENCY LAWS

Two Kinds of Insolvency Laws:
1. Personal Insolvency, which deals with individuals and
partnership firms governed by Provisional Insolvency
Act, 1920 and Presidency Towns Insolvency Act,
1908; (the
process is through the appointment of
“Receiver”) and

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2. Corporate Insolvency – It results in winding up of the
company under the Companies Act, 1956. if it is for revival of
the company, the Sick Industrial Companies (Special
Provisions) Act,1985 (SICA) deals with it. (the process of
insolvency triggers through the appointment of “Liquidator”).
278
MAIN REASONS FOR CORPORATE INSOLVENCY-I
Company’s entire capital is eroded due to heavy losses:
Lack of financial management; Inadequate capital investment;

Excess percentage of credit borrowing in disproportionate to
actual capital investment; too much reliance on external
marketing;

Unpreparedness with the changes in business scenario;
In competencies in facing with global competition
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279
MAIN REASONS FOR CORPORATE INSOLVENCY-II
Company’s entire capital is eroded due to heavy losses:•Lack of business skills (risk management); Lack of experience or
poor strategies in marketing and customer service;
•Lack of harmonious relations with stakeholders as well as among
the management;
•Failure to prevent frauds; Diversification of funds; to cherish self
driven goals at the cost of stakeholders interests;
•Circumstantial collapses ( Recession; Unfavorable court
verdicts; Cancellation of Product Licenses; Disturbance in
external relations); Anti trade polices;
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280
MODES OF WINDING UP

S. 425. Modes of winding up.- (1) The winding up of a
company may be either
(a) by the Court; or
(b) voluntary; or
(c) subject to the supervision of the Court.
(2) The provisions of this Act with respect to winding up
apply, unless the contrary appears, to the winding up of a
company in any of those modes.
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281
CORPORATE INSOLVENCY WITH REFERNECE TO THE
PROVISIONS OF COMPANIES ACT, 1956
The Act does not provide any precise definition for the word “Corporate Insolvency”
Section 433 (e) of the Act only to some extent answer the “Insolvency”- The company
unable to pay its debt- (i). Debt and (ii). Inability to pay:
Cash Flow Test
: Inability to Pay Test
Balance Sheet Test: Liability of the Debtor exceeds his assets

Debt is admitted if there is no bona fide dispute;( Seciton 434 is deeming
provision to decide inability to pay debts if it is due of Rs. 500 or more)

The court can hardly exercise any discretion where the company is so
hopelessly insolvent that there is absolutely no chance of resurrection. A bona
fide dispute implies existence of a substantial ground for the dispute raised.
The companies were unable to pay debts. They could not substantiate their
defence. Winding up was inevitable. Sicom Ltd. v. Shree Panduranga Poultries
P. Ltd., (1999) 2 Comp LJ 218: (2001) 103 Com Cases 318 (AP).
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282
S. 433. CIRCUMSTANCES IN WHICH COMPANY BE
WOUND MAY UP BY COURT
(a) if the company has, by special resolution, resolved that the
company may be wound up by the court;
(b) if default is made in delivering the statutory report to the Registrar
or in holding the statutory meeting;
(c) if the company does not commence its business within a year from
its incorporation, or suspends its business for a whole year;
(d) if the number of members is reduced, in the case of a public
company, below seven, and in the case of a private company, below
two;
(e) if the company is unable to pay its debts;
(f) if the court is of opinion that it is just and equitable that the
company should be wound up.
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283
STATUTORY DECLARATION – INSOLVENT-I

Company’s assets are not sufficient to pay its debts;

A company carrying on business with borrowed money and carrying
forward its losses, in the balance-sheet and a company whose assets
are so locked-up that they cannot be realised for payment of its debts,
these are indications of commercial insolvency. Ramesh Premchand
Shah v. Engineers Enterprises P. Ltd., (1977) 47 Com Cases 294
(Bom); Concord Finance P. Ltd v. Rawalpindi Theatres P. Ltd., (1970)
40 Com Cases 156 (Del).

Company becomes defunct and it has not been carrying business
operations for the last several years.
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284
WINDING UP ORDER AND ITS CONSEQUENCES-II


Section 454: Statement of Affairs to be made to OL;
Section 456- Custody of the company’s property


Ownership of company’s property vests with the liquidator though
the title stands in the name of the company. But the rights of the
company has been divested on the date of winding up order itself.
The Liquidator can take the assistance of the District Magistrate
and other revenue staff;
(Since the object of winding up proceedings is to put all unsecured creditors on
par and to pay them pari passu, an attachment effected by the revenue
authority on the immovable properties of the company in respect of dues to the
Employees' State Insurance Corporation, Wages Authority and Regional
Provident Fund Commissioner, was ineffective and the liquidator could take
the properties into his custody free from all attachments and realise their value
according to winding up procedures. Ananta Mills Ltd. (In Liquidation) v. City
Deputy Collector, Ahmedabad, (1972) 42 Com Cases 476 (Guj)).
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285
STATUTORY DECLARATION – INSOLVENT-III
The shares of a company were accepted by the stock
exchange for listing but subsequently the permission was
cancelled. The application money became refundable.
There was no prospect of the company doing any business
and there was a complete deadlock among the directors. It
was doubtful if the creditors were likely to be paid. It was
held to be a case of commercial insolvency. Deccan Farms
& Distilleries Ltd. v. Velabai Laxmidas Bhanji, (1979) 49
Com Cases 321 (Bom) (DB).
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286
S. 439. Provisions as to applications for winding up
(1)
(2)
An application to the Court for the winding up of a company shall be
by petition presented, subject to the provisions of this section,
-by the company; or
-by any creditor or creditors, including any contingent or prospective
creditor or creditors; or
- by any contributory or contributories; or
- by all or any of the parties specified in clauses (a), (b) and (c)
whether together or separately; or
-by the Registrar with the previous sanction of the Central Government
to the presentation of the petition
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287
S. 441. Commencement of
winding up by Court.






Voluntary Winding up- deemed to have commenced at
the date of passing of special resolution;
Compulsory winding up or winding up by the court –
deemed to have commenced at the date of presentation of
the petition for winding up.
S. 443. Powers of Court on hearing petition.- (1) On hearing a
winding-up petition, the Court may
(a) dismiss it, with or without costs; or
(b) adjourn the hearing conditionally or unconditionally; or
(c) make any interim order that it thinks fit; or
(d) make an order for winding-up the company with or without costs,
or any other order that it thinks fit etc.
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288
S. 445. Copy of winding up order to be filed with
Registrar



- On the making of a winding up order, it shall be the duty of the
petitioner in the winding up proceedings and of the company to file
with the Registrar a certified copy of the order, within 2[thirty days]
from the date of the making of the order. (Sub Section (1))
-Such order shall be deemed to be notice of discharge to the
officers and employees of the company, except when the business
of the company is continued (Sub Section (3))
S. 446. Suits stayed on winding up order.
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Effect of winding up order

S. 447. Effect of winding up order.- An order for winding up a
company shall operate in favour of all the creditors and of all the
contributories of the company as if it had been made on the joint
petition of a creditor and of a contributory.
The effect of an order of winding up is to put the company into the hands of
the Official Liquidator for completing the process. Till an order of the court
for distribution of the company's assets has been obtained and the assets have
been distributed, the properties continue to be those of the company. The
company under liquidation continues to exist as a juristic personality until an
order under S. 481 for dissolution is made. It is only thereafter that the
company can be said to become non-existent in the eye of the law. Official
Liquidator of Gannon Dunkerley v. Urban Land Tax, (1992) 73 Com Cases
168 (Mad).
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290
CERTAIN PROVISISONS – OFFICIAL LIQUIDATOR
















Appointment of Official Liquidator – Sec.448
Official Liquidator to be Liquidator – Sec.449
Appointment and powers of provisional liquidator – Sec.450
General Provisions as to Liquidators – Sec.451
Style, etc., of liquidator – Sec.452
Receiver not to be appointed of assets with Liquidator – Sec.453
Statement of Affairs to be made to Official Liquidator – Sec.454
Report by Official Liquidator – Sec.455
Custody of company’s property – Sec.456
Powers of Liquidator – Sec.457; Discretion of liquidator – Sec.458
Exclusion of certain time in computing periods of limitation – Sec.458A
Provision for legal assistance to liquidator – Sec.459
Exercise and control of liquidator’s powers – Sec.460
Books to be kept by liquidator – Sec.461
Audit of liquidator’s accounts – Sec.462
Control of Central Government over liquidators – Sec.463
S. 456. CUSTODY OF COMPANY’S
PROPERTY



-
take into his custody or under his control, all the property, effects
and actionable claims to which the company is or appears to be
entitled.
-by writing request the Chief Presidency Magistrate or the District
Magistrate within whose jurisdiction such property, effects or
actionable claims or any books of account or other documents of the
company may be found to take possession thereof, To securing
compliance with the provisions of subsection, they may take or cause
to be taken such steps and use or cause to be used such force as may
in his opinion be necessary.]
- All the property and effects of the company shall be deemed to be in
the Custody of the Court as from the date of the order for the winding
up of the company.
292
STEPS INVOLVED IN THE WINDING UP-1

To take into custody or under control, all the property,
effects and actionable claims to which the company is or
appears to be entitled.






To take steps to provide security guards to protect such properties;
To make inventory of such properties with reference to Statement of
Affairs;
To get properties valued
To put properties for sale
To call and adjudicate claims of all creditors
To distribute the amount so realized among the creditors on the
principle of pari passu and on pro rata basis with reference to their
respective priorities
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293
STEPS INVOLVED IN THE
WINDING UP-2
To get the accounts audited twice in the
year and submit to the court;
 To invest the realized amounts in
investments as per the court orders
 To file misfeasance application in case of
frauds;
 To file dissolution application

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294
BASIS FOR ON
IDENTIFICATION ASSETS
Audited financial statements
 Interim financial statements
 General Ledger
 Other specifically maintained asset registers
(e.g.. investments, receivables, fixed assets
or bank accounts)

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CONDUCTING OF THE INSOLVENCY








All correspondence should clearly indicate that the
company is insolvent.
Meeting and accounts
Realization of assets (power of sale)
Tracing of assets if necessary
Identifying creditors
Litigating if required
Suggest Court Order for any major decisions especially
sale or disposal of major assets.
Distribution to creditors (interim or final) dividends or
return of capital
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VOLUNTARY LIQUIDATIONS



Members’ resolution by passing a special
resolution at a general or special meeting.
Creditors liquidation through members’ resolution
Officers and Directors powers cease.
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MARSHALLING AND DISTRIBUTION OF
ASSETS




Cost & expenses including Insolvency Practitioner
remuneration.
Preferred creditors
Ordinary creditors
Members
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PROOF OF RANKING OF CLAIMS





Section 528 to 530
Sections 541 to 542 _Misfeasance Proceedings against delinquent;
Companies (Court) Rules 1956 Proof of debts: fixation of date by the
OL by advertisement; claimants to prove their debt; liquidator to
communicate acceptance or rejection of debt – Rules 147-163
Appeal by creditor against decision of OL – Rule 164
Proof and list of creditors to be filed in court – Rule 167

Application of the assets of the company Application of Insolvency
Rules – sec 528/529; Priority of Payments – sec 529/529A/ 530

Section 481- Dissolution of company.
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299
CROSS-BORDER INSOLVENCY IN INDIA

There is no mechanism under the Companies Act, 1956;

The question of choice of law arises in all cross-border
transactions due to (1) development of international trade in
which inter-country debtor-creditor relations across the border
develops; (2) development of transnational and multinational
institutions through building up trans border organizational
structure through permanent establishment, branches or
franchises; (3) development of organizational relations through
chain of organization structure of subsidiaries, and joint venture
and finally (4) development of complexities in modern business
relations.
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300
“UNCITRAL” MODEL INSOLVENCY LAW STILL UNDER
DISCUSSION


The UNCITRAL came out with a Model Law on Cross-Border Insolvency
negotiated among more than 40 countries representing a broad spectrum of
differing legal systems.
The law applies in the following situations where:
(1)
assistance is sought in a state by a foreign court or a foreign
representative in connection with a proceeding under the domestic law
of a state;
(2) assistance is sought in a foreign state in connection with a proceeding
under the domestic law of a state;
(3). a foreign proceeding and a proceeding under the domestic law of a state
in respect of the same debtor are taking place concurrently; or
(4) creditors or other interested persons in a foreign state have an
interest in requesting the commencement of, or participating in, a
proceeding under the domestic law of the state.
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301
CONSTITUION OF HIGH LEVEL EXPERT
COMMITTEES

In the year 1999, the Government of India set up a high level
committee headed by V.B. Balakrishna Eradi, J., for remodeling the
existing laws relating to insolvency and winding up of companies and
bringing them in time with the international practices in this field.

In 2001, the Report of the Advisory Group on Bankruptcy Laws,
called the N L Mitra committee, made several recommendations on
bankruptcy law reforms, the first among which was consolidation of
bankruptcy laws into a separate code. However, no legislative steps
have still been taken in this regard.
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Non Banking Financial Companies
(NBFCs)-1


Non Banking Financial Companies- ACTIVITIES
COVERED UNDER NBFC SECTOR:
1. MERCHANT BANKING 2.
UNDER WRITING
3. PORTFOLIO MANAGEMENT SERVICES
4. INVESTMENT ADVISORY SERVICES 5.
FINANCIAL
CONSULTANCY 6. STOCK-BROKING 7. ASSET
MANAGEMENT 8. VENTURE CAPITAL 9. CUSTODIAL
SERVICES 10. FACTORING CREDIT REFERENCE
AGENCIES 12. CREDIT RATING AGENCIES 13. LEASING
& FINANCE 14 HOUSING FINANCE 15. FOREX-BROKING
16. CREDIT CARD BUSINESS 17. MONEY-CHANGING
BUSINESS 18. MICRO-CREDIT 19. RURAL CREDIT
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Non Banking Financial Companies
(NBFCs)-2



Chit Fund Companies;
Collective Investment Scheme (CISs) Companies (Eg. Plantation
companies etc)
Others doing business at the cost of investors investments
Note:- In certain matters, the above category companies have
proved to be detrimental to the interest of investors. The NBFCs
fall under the jurisdiction of RBI. The Collective Investment
Schemes (CISs) Companies fall under the jurisdiction of the
Stock and Exchange Board of India. The Chit Fund business
comes under the purview of the A.P. Chit Fund Act. The Listed
Companies (Public Issue Companies) comes under the
jurisdiction of SEBI mostly and in certain issues which come
under the purview of the Registrar of Companies.
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NBFCs – Chit Fund or Deposit Accepted Companies in
Liquidation-1

In respect of some chit fund companies, which are under
liquidation proceedings, the ex-directors floated
partnership/proprietary firms for doing finance business.
The claim of chit holders / deposit holders is that

The successful bidders kept their bid amount as deposit
in the firm.
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NBFCs – Chit Fund or Deposit Accepted Companies in
Liquidation-2

The firm promised that the interest earned on the said
FD will be adjusted towards chit installments. Hence
the chit holders are contending that they are not liable
to pay balance subscription.

The FD holders of finance firm are lodging claims
against the chit fund company under liquidation on the
ground that both the firm and the Company in liqn. are
under the same management.
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During adjudication of claims,
i. Whether to consider the payments made through
temporary / manual vouchers & details not entered in
concerned ledgers?
ii.
Whether to consider the large cash payments
made
towards future installments in respect of which the
company has not conducted the chit auctions ?
iii.
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Whether to consider dividends already earned ?
307
Services of CAs is vital – investigation of claims in respect of Chit Fund
Companies
During adjudication of claims:
i. Whether to consider the payments made through temporary / manual
vouchers & details not entered in concerned ledgers?
ii.
Whether to consider the large cash payments made towards future
installments in respect of which the company has not conducted the
chit auctions ?
- Claims Investigation in complicated transactions – Chartered accountant
service is vital; valuation of properties of companies; preparation of
Balance sheet for the gap periods
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STATEMENT OF AFFAIRS

DETAILS TO BE FURNISHED IN THE
STATEMENT OF AFFAIRS

Statement of Affairs to be filed as on the
date of order for winding up in Form No.57
and is required to be seconded with the
Affidavit of concurrence of other directors
as per Form No.58.
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Assets not specifically pledged : List-A:

Assets not specifically pledged : List-A:

Balance at Bank: To be furnished along with full address of the Banks, Account Nos.,
amounts lying therein supported by the statement of account for the last one year.
Marketable securities: Full details of the securities such as shares etc along with
certificates, their realizable value as on date etc.
Trade debtors: Names, address, L.F.No., date of transaction, last date of payment, Book
value, realizable value, details of security if any and other relevant information.
Loans & Advances: Names, address, date of security if any and other relevant
information.
Freehold properties: Detailed description of the properties, estimated value, title
documents etc.




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Assets not specifically pledged : List-A: (In continuation)



Leasehold properties: Details of lease, lease documents,
unexpired period of lease, transferability of lease, its value
etc.
Details of Plant & Machinery, furniture fittings etc,
vehicles, investments other than marketable securities such
as deposits etc : location of the assets,
inventory/description, maturity value (deposits), realizable
value of other assets etc.
Debts from contributories: Name of the shareholder,
address, S.No. in share register, nature of debt, amount
due, security held etc.
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Assets specifically pledged and creditors fully or partly
secured:
Assets specifically pledged and creditors fully or partly
secured:
Complete description of the assets charged, list of plant
and machinery, current assets, date of mortgage,
estimated value of security, details of each creditor,
date of contract, consideration etc., to be given
separately.
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List ‘C’ Preferential creditors under Sec.530 including
workmen:

Details such as, name and address, nature of claim, period
of accrual of the claim, due date, amount of claim, amount
payable, details of workmen such as E.No., basic,
allowances, Gratuity dues, last date of payment etc.
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


List ‘D’ Debenture holders: Name of the holder, address,
amount, assets secured.
List ‘E’ Unsecured Creditors: Name and address of the
creditor, amount of debt, date of contract, LF No.,
Consideration.
Details of Preference and equity share holders such as
Register No., Name, address, number of shares held,
nominal amount of share, amount called up per share, total
called up amount.
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Difficulties in Liquidation
Proceedings

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
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The ex-Directors are not traceable.
Statement of Affairs is not filed or is defective.
Books of Accounts are not delivered.
Registered office is not traceable.
Books seized are irrelevant/in dilapidated condition.
Diversion and misappropriation of funds.
Ledgers are not updated. Debts become time-barred.
Manipulation of Records & receipts is found.
Monies/properties are attached/sold by courts/consumer forums on complaints
by the depositors.
Ex-Directors fail to respond to the queries of Official Liquidator.
Details of assets secured to the Bond holders is not furnished or no charge is
created with the Registrar of Companies with regard to such bonds.
HOW BEST THE SERVICES OF CAs BE AVAILED IN
INSOLVENCY PROCEEDINGS:
I
The classical investigative auditing goals in insolvency
cases fall mainly into three fields:

Irregular activities of the managers or employees of the company in
the pre insolvency era – dilution of funds or assets of the company;

Possible frauds committed by clients or suppliers in respect of the
company in pre insolvency era; and

Tracing assets belonged to the company and disappeared in the final
stages of the company closure before insolvency or even beforehand.
-(creditcontrol.co.uk)
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316
II
- Latest available balance sheet with the ROC is ordinarily 3
to 5 years older to the winding up order;
- Difficulties in identifying the properties’
- Difficulties in estimating the actual/realisable values
– resolution – to get a balance sheet prepared with
the help of CA for the gap period;
- Money
laundering, diversification of funds,
manipulation of accounts, destruction of records;
- Collusion with the borrowers and allowing the debts
time barred
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Services of CAs is vital – investigation of records of Chit
Fund Companies

In respect of some chit fund companies, which are under liquidation proceedings, the
ex-directors floated partnership/proprietory firms for doing finance business. The claim
of chit holders / deposit holders is that

The successful bidders kept their bid amount as deposit in the firm.

The firm promised that the interest earned on the said FD will be adjusted towards
chit installments. Hence the chit holders are contending that they are not liable to
pay balance subscription.

The FD holders of finance firm are lodging claims against the chit fund company
under liquidation on the ground that both the firm and the Company in liqn. are
under the same management.
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Services of CAs – E-form based
-
-
Tracking and analyzing e-from based accounts;
Dubious transactions – diversification of - funds
for personal gain;
-Ascertaining loss- Misfeasance
-Amalgamation – voluntary liquidation matters;
- Office purpose- auditing specific
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Company Law Settlement Scheme,
2010
All India level more than 370000
companies have not filed documents
 In the state of Karnataka, more than 13000
companies have not filed documents

Issued under
Sec.611 (2) and 637B (b) of the Companies
Act, 1956
 Not applicable to Sec.637B (a) of the
Companies Act, 1956

Who can avail
Defunt company
- a company registered under the
Companies Act, 1956 which is not
carrying over any business activity or
operation on or after 01/04/2008 and
includes a company which has not
raised its paid up capital to threshold limit
. In case the defunct company is govt. company No objection from the
concerned Ministry or department or state govt. shall be attached
. It should be an active company on the MCA
portal

Who cannot avail the scheme
Listed companies
 Sec.25 Companies
 Vanishing Companies
 Where inspection or investigation is ordered
and being carried out or yet to be taken up
or where completed prosecutions arising out
of such inspection of investigation are
pending in the court
contd….

Who cannot avail the scheme



Where order Sec.234 of the CA 1956 has been
issued and reply thereto is pending or where
prosecution, if any, is pending in the court
Prosecution for non compoundable offence is
pending before a court
Public deposits which are either outstanding or the
company is in default in repayment of the same
contd…
Who cannot avail the scheme




Having secured loan
Having management dispute
Where the filing of the documents have been
stayed by Court or Company Law Board or central
government or any other competent authority
Having dues towards income tax or sales tax or
central excise or banks and financial institutions or
any other central government or state government
departments or authorities or any local authorities
How to make application
Form EES 2010
 No fee is payable
 To be digitally signed by Managing
Director or Director or Manager or
Secretary
 Shall be authorised by board resolution
 Resolution shall be attached
contd….

How to make application
In case form is not digitally signed by any
of the Director or Manager or Secretary, a
physical copy of the form duly filled in
manually by a director authorised shall be
attached with the form
 Shall be certified by chartered accountant
in whole time practice or company secretary
in whole time practice or cost accountant in
whole time practice

Attachments



Affidavit as per Annexure A by each of the
existing director sworn to before a first class
judicial magistrate or executive magistrate or oath
commissioner or the notary shall be attached
Indemnity Bond executed by each of director as
per Annexure B shall be attached
Statement of Account as per Annexure C prepared
on a date not prior to one month of preceding the
date of filing and duly certified by a stautory
auditor or chartered accountant in whole time
practice
AFFIDAVIT


Proof of Directorship – in case no DIN is allotted
– to be certified by Chartered Accountant/
Company Secretary/ Cost Accountant in practice
or a Company Secretary in full time employment
Address Proof – permanent and present address to
be attested by Chartered Accountant/ Company
Secretary/ Cost Accountant in practice or a
Company Secretary in full time employment
alternatively an affidavit sworn before a
Magistrate to be attached.
Some teething problems
Where there is only one director – what to
do
 Company has huge unsecured loans not
coming under the definition of public
deposit
 Whether earlier year balance sheets shall be
filed especially when the company has
huge assets and liablities – discretion of the
ROC

What ROC shall do
Registrar shall give notice, if found in order,
to the company under Sec.560 (3) by e mail
to the email address giving 30 days time
 Shall put the name of the company and date
of making application on daily basis in
MCA portal inviting objections within 30
days from the stakeholders
contd….

What ROC shall do



ROC shall at the end of every week shall send
intimation to other regulators such as RBI and
SEBI in respect of NBFCs and Collective
Investment Management Company inviting
objections giving 30 days time
ROC shall at the end of every week to Income Tax
Department in respect of every company giving
30 days time
Strike off the company and send notice under
Sec.560(5) for Gazette Publication
Immunity Certificate
Necessity
 By filing documents belatedly only an end
to offence is made; does not mean that the
offence has not taken place
 Sec.611 (2) – without preudice to any other
liability

Immunity Certificate
Hanuman Mills pvt. Ltd. And others Vs.
State AIR 1968 All 604
 Pylo Luka Muricken Vs. ROC , Kerala
(1977) 47 Com Cas 291 (Ker)

Duration of the scheme and the
quantum of additional fee
30/05/2010 to 31/08/2010
 Basic statutory filing fee and additional fee
of 25 percent of the actual additional fee
standardised under Sec.611 (2) are to be
paid

Who can avail




Any defaulting company
In case the defaulting company has no adequate
paid up capital it must be raised first
Company means a company registered under the
Companies Act, 1956 and a foreign company
falling under Sec.591 of the Act
Companies against which action Sec.560 (5) is
initiated cannot avail
Whether the scheme can be used for
all documents

Not to apply to
(a) incorporation documents;
(b) documents for establishment of place of
business in India;
(d) where specific order for condonation of
delay or prior approval under the
provisions of the companies Act , 1956 is to
be obtained from the CLB or CG or Court or
any other Competent Authority
What about appeals filed by the
company
It shall have to withdraw the appeal petition
before filing application for grant of
immunity certificate
 In case petition under Sec.633 for relief is
filed it should also be withdrawn
 Proof of withdrawal shall be filed along
with application for grant of immunity
certificate

Application for immunity certificate
Shall be made in the form annexed
 No fee is payable;
 Shall be made after the closure of the
scheme and the documents are taken on file,
on record or approved
 Shall be made before the expiry of six
months from the date of closure of the
scheme

When immunity certificate will be
issued

Designated authority (ROC) shall consider
the application and upon being satisfied
shall grant immunity certificate in respect of
documents filed in the scheme
Presented By
341
CA Swatantra Singh, B.Com , FCA, MBA
Email ID: [email protected]
New Delhi , 9811322785,
www.caindelhiindia.com,
www.carajput.com