Company Law Textbook PDF

STUDY MATERIAL EXECUTIVE PROGRAMME COMPANY LAW MODULE 1 PAPER 2 i  © THE INSTITUTE OF COMPANY SECRETARIES OF INDIA TIMING OF HEADQUARTERS Monday to Friday ˆϐ‹ ‡‹‹‰•Ȃ...

STUDY MATERIAL EXECUTIVE PROGRAMME COMPANY LAW MODULE 1 PAPER 2 i  © THE INSTITUTE OF COMPANY SECRETARIES OF INDIA TIMING OF HEADQUARTERS Monday to Friday ˆϐ‹ ‡‹‹‰•ȂͻǤͲͲǤǤ–‘ͷǤ͵ͲǤǤ Public Dealing Timings ‹–Š‘—–ϐ‹ƒ ‹ƒŽ–”ƒ•ƒ –‹‘•ȂͻǤ͵ͲǤǤ–‘ͷǤͲͲǤǤ ‹–Šϐ‹ƒ ‹ƒŽ–”ƒ•ƒ –‹‘•ȂͻǤ͵ͲǤǤ–‘ͶǤͲͲǤǤ Phones ͲͳͳǦͶͳͷͲͶͶͶͶǡͶͷ͵ͶͳͲͲͲ Fax ͲͳͳǦʹͶ͸ʹ͸͹ʹ͹ Website ™™™Ǥ‹ •‹Ǥ‡†— E-mail ‹ˆ‘̷‹ •‹Ǥ‡†— Laser Typesetting by MP Printers, Phase-II, Noida 201305, and Printed at MP Printers/1731/2021-22 ii  EXECUTIVE PROGRAMME COMPANY LAW In view of increasing emphasis on adherence to norms of good corporate governance, Company Law assumes an added importance in the corporate legislative milieu, as it deals with structure, management, administration and conduct of affairs of Companies. Paper on Company Law is divided into three parts:- Part I deals with Company Law, Principles & Concepts, Part II deals with Company Administration and Meetings – Law and Practices and Part III deals with Company Secretary as a Profession. Part I emphasises on principles and legal fundamentals with respect to the raising of capital through various sources, allotment of securities, maintaining of records, disclosure and transparency, members and their shareholding, concerns of stakeholders. This also guides on the secretarial and strategic work involved in above stated matters. Part II relates to the fundamental role that a board of directors play in supporting, guiding the management team in generating long term added value for the shareholders and society at large and to account to the shareholders for companies long term performance. Right decision making is important for company’s growth, board meetings leads to greater strategic decision making whereas the shareholder meetings leads to greater transparency and accountability. Company secretary plays a vital role in preparation, convene and conduct of the meetings. A key expectation of members of self-governing professions is that they accept legal and ethical responsibility for their work and hold the interest of the public and society as paramount. One of the essential traits of a profession is to be subject to strict codes of conduct enshrining rigorous ethical and moral obligations. In a self regulated regime, Company Secretary subjected to a strict code of conduct is looked upon by the regulators, as ethical and trustworthy professional whose professional judgment and competence has made a mark in the corporate sector. It is a moral duty of all of us as Company Secretaries to strictly abide by the Code of Conduct laid down by the Council of the Institute. Part III relates to conduct of company secretaries, discusses brief ƒ„‘—–‡ ”‡–ƒ”‹ƒŽ–ƒ†ƒ”†•‘ƒ”†ƒ† ˆ—–—”‡‘ˆ’”‘ˆ‡••‹‘ƒŽ’”ƒ –‹ ‡‹Ǥ‡Ǥ‡‰ƒϐ‹”•Ǥ This study material is published to aid the students in preparing the paper on Company Law for Executive Programme. It is part of the educational kit and takes the students step by step through each phase of preparation emphasizing key concepts, principles, pointers and procedures. Company Secretaryship being a professional course, the examination standards are set very high, with focus on knowledge of concepts, their application, procedures and case laws, for which sole reliance on the contents of this study material may not be enough. This study material may, therefore, be regarded as the basic material and must be read along with the Bare Acts, Rules, Regulations, Case Law. The legislative changes made upto —Ž›ǡʹͲʹͳ have been incorporated in the study material. The students to be conversant with the amendments to the laws made upto six months preceding the date of examination. It may happen that some developments might have taken place during the printing of the study material and its supply to the students. The students are therefore advised to refer to the updations at the Regulator’s website, Supplement relevant for the subject issued by ICSI and ICSI Journal Chartered Secretary and other publications for updation of study material. In the event of any doubt, students may contact the Directorate of Academics at [email protected]. Although due care has been taken in publishing this study material, the possibility of errors, omissions and/or discrepancies cannot be ruled out. This publication is released with an understanding that the Institute shall not be responsible for any errors, omissions and/or discrepancies or any action taken in that behalf. Should there be any discrepancy, error or omission noted in the study material, the Institute shall be obliged if the same is brought to its notice for issue of corrigendum in the e-bulletin ‘Student Company Secretary’. iii    Ȃ This study material is divided into three parts with following weightage of marks: Part I - Company Law, Principles & Concepts (50 Marks) Part II - Company Administration and Meetings – Law and Practices (40 Marks) Part III- Company Secretary as a Profession (10 Marks)  ǧǡ  Ƭ Company Law is the collection of various legal aspects that govern the formation, running and winding up of a Company. The Companies Act 2013 is about improving corporate governance which revolves around the Board of Directors, Senior Management of the Company, their roles, responsibility and accountability, Rights and equitable treatment of stakeholders, prompt disclosures, transparency, the legal and regulatory compliances and appropriate risk management measures to protect and enhance interest of all stakeholders. This part of the study deals with the evolution of company law whether indian or international, sources of funding the company, shareholders, shareholding, responsibility & accountability of the company with respect to transparency and disclosures, secretarial and strategic work involved. Company Secretaries, over a period of time, have developed themselves as professionals having core competence in compliances and corporate governance, moving from their traditional role of Company Secretary of the Company. Company law is the core area of practice for the company secretary professionals whether in practice or employment. This part imparts expert knowledge of the various provisions of the Companies Act, its • Š‡†—Ž‡•ǡ”—Ž‡•ǡ‘–‹ϐ‹ ƒ–‹‘•ǡ ‹” —Žƒ”•‹ Ž—†‹‰•‡ ”‡–ƒ”‹ƒŽ’”ƒ –‹ ‡Ƭ ƒ•‡Žƒ™•Ǥ  ǧ     ȃ  Company directors are responsible for the management of their companies. They must act in a way most likely –‘’”‘‘–‡–Š‡•— ‡••‘ˆ–Š‡„—•‹‡••ƒ†„‡‡ϐ‹–‹–••Šƒ”‡Š‘Ž†‡”•ǤŠ‡„‘ƒ”†‘ˆ†‹”‡ –‘”•Šƒ•ƒ‡••‡–‹ƒŽ”‘Ž‡ in company governance and setting the strategic direction of the business. The right board of directors brings ›‘—” ‘’ƒ› •’‡ ‹ƒŽ‹•– ‘™Ž‡†‰‡ ƒ† ‡š’‡”–‹•‡ ‹ ‡› „—•‹‡•• ƒ”‡ƒ•ǡ •— Š ƒ• ƒƒ‰‡‡–ǡ ϐ‹ƒ ‡ ‘” technology. They also have responsibilities to the company’s employees, its trading partners, and the state. Companies use board meetings to create and improve key business strategies. Hence from company secretary point of view meeting preparation is vital: from setting up right papers, circulating meeting papers in advance to providing all kinds of supplementary support to the meeting. A collection of resources on company ƒ†‹‹•–”ƒ–‹‘ ‹ Ž—†‹‰ ‘’ƒ› ϐ‹Ž‹‰ǡ ‘’ƒ› ”‡ ‘”†•ǡ ‘’ƒ company secretaries. Ȉ Š‡ ‘’ƒ› •‡ ”‡–ƒ”› ƒ –• ƒ• –Š‡ Š‹‡ˆ ‰‘˜‡”ƒ ‡ ‘ˆϐ‹ ‡” ‘ˆ –Š‡ ‘’ƒ›ǡ ƒ† •Šƒ”‡• ˜ƒ”‹‘—• responsibilities with the directors under the Companies Act. Ȉ According to Section 205 of the Companies Act, 2013 the Company Secretary shall discharge following ˆ— –‹‘•ƒ††—–‹‡•ǡ–Š‹•‹•–Š‡ϐ‹”•––‹‡–Šƒ––Š‡†—–‹‡•‘ˆ–Š‡ ‘’ƒ›•‡ ”‡–ƒ”›Šƒ˜‡„‡‡•’‡ ‹ϐ‹‡†‹ the company law: » To report to the Board about the compliance with the provisions of this Act. » To ensure that the company complies with the applicable secretarial standards. » To provide to the directors of the company the guidance they require in discharging their duties, responsibilities and powers. » To facilitate the convening of meetings and attend Board, committee and general meetings and maintain the minutes of these meetings. iv  » To obtain approvals from the Board, general meeting, the government and such other authorities as required under the provisions of the Act. » To assist the Board in the conduct of the affairs of the company. » To assist and advise the Board in ensuring good corporate governance and in complying with the corporate governance requirements and best practices.  ǧ   A Professional is a person who has completed formal education and training in a profession. A Professional is subject to strict codes of conduct enshrining rigorous ethical and moral obligations. A Professional is an interface between business and society. Professionals are expected to conduct themselves in such a manner so as to uphold the grace, dignity and professional standing of their respective institutes. Any commitment to complete a particular assignment as agreed by the person himself should be completed in a professional manner. This section gives an overview of the code of conduct that applies on the professional conduct of company secretaries, discusses brief about Secretarial Standards Board and future of professional practice i.e. ‡‰ƒϐ‹”•Ǥ v  EXECUTIVE PROGRAMME MODULE 1 PAPER 2 ȋͳͲͲȌ ›ŽŽƒ„—• „Œ‡ –‹˜‡ǣ ‘‹’ƒ”–‡š’‡”–‘™Ž‡†‰‡‘ˆ–Š‡˜ƒ”‹‘—•’”‘˜‹•‹‘•‘ˆ–Š‡‘’ƒ‹‡• –ǡ‹–•• Š‡†—Ž‡•ǡ”—Ž‡•ǡ‘–‹ϐ‹ ƒ–‹‘•ǡ circulars including secretarial practice, case laws and Secretarial Standards. ‡–ƒ‹Ž‡†‘–‡–• ƒ”– ǣ‘’ƒ›ƒ™ǡ”‹ ‹’Ž‡•Ƭ‘ ‡’–•ȋͷͲƒ”•Ȍ ͳǤ –”‘†— –‹‘–‘‘’ƒ›ƒ™ǣ Jurisprudence of Company Law; Meaning, Nature, Features of a company; Judicial acceptance of the company as a separate legal entity; Concept of Corporate Veil, Applicability of ‘’ƒ‹‡• –Ǣ‡ϐ‹‹–‹‘•ƒ†‡›‘ ‡’–•Ǥ ʹǤ Šƒ”‡ƒ†Šƒ”‡ƒ’‹–ƒŽǣMeaning and types of Capital; Concept of issue and allotment; Issue of Share ‡”–‹ϐ‹ ƒ–‡•Ǣ —”–Š‡” ••—‡‘ˆŠƒ”‡ƒ’‹–ƒŽǢ ••—‡‘ˆ•Šƒ”‡•‘”‹˜ƒ–‡ƒ†”‡ˆ‡”‡–‹ƒŽ„ƒ•‹•Ǣ‹‰Š–•‹••—‡ and Bonus Shares; Sweat Equity Shares and ESOPs; Issue and Redemption of preference shares; Transfer and Transmission of securities; Buyback of securities; dematerialization and rematerialization of shares; Reduction of Share Capital. ͵Ǥ ‡„‡”•ƒ†Šƒ”‡Š‘Ž†‡”•ǣ ‘™–‘„‡ ‘‡ƒ‡„‡”Ǣ‡‰‹•–‡”‘ˆ‡„‡”•Ǣ‡ Žƒ”ƒ–‹‘‘ˆ‡‡ϐ‹ ‹ƒŽ –‡”‡•–Ǣ ‡ –‹ϐ‹ ƒ–‹‘ ‘ˆ ‡‰‹•–‡” ‘ˆ ‡„‡”•Ǣ ‹‰Š–• ‘ˆ ‡„‡”•Ǣ ƒ”‹ƒ–‹‘ ‘ˆ Šƒ”‡Š‘Ž†‡”•ǯ ”‹‰Š–•Ǣ Shareholders Democracy; Shareholder agreement, Subscription Agreements, Veto powers. ͶǤ ‡„– ƒ’‹–ƒŽ ƒ† ‡’‘•‹–•ǣ Issue and redemption of Debentures and Bonds; creation of security; Debenture redemption reserve; debenture trust deed; conversion of debentures into shares; Overview of Company Deposits. ͷǤ Šƒ”‰‡•ǣ”‡ƒ–‹‘‘ˆŠƒ”‰‡•Ǣ‡‰‹•–”ƒ–‹‘ǡ‘†‹ϐ‹ ƒ–‹‘ƒ†ƒ–‹•ˆƒ –‹‘‘ˆŠƒ”‰‡•Ǣ‡‰‹•–‡”‘ˆŠƒ”‰‡•Ǣ •’‡ –‹‘‘ˆ Šƒ”‰‡•Ǣ—‹•Š‡–ˆ‘” ‘–”ƒ˜‡–‹‘Ǣ‡ –‹ϐ‹ ƒ–‹‘„›‡–”ƒŽ ‘˜‡”‡–‹‡‰‹•–‡”‘ˆ charges. ͸Ǥ ‹•–”‹„—–‹‘ ‘ˆ ”‘ϐ‹–• Ȃ ‹˜‹†‡†ǣ ”‘ϐ‹– ƒ† • ‡”–ƒ‹‡– ‘ˆ ‹˜‹•‹„Ž‡ ”‘ϐ‹–•Ǣ ‡ Žƒ”ƒ–‹‘ ƒ† Payment of Dividend; Unpaid Dividend Account; Investor Education and Protection Fund; Right to dividend; rights shares and bonus shares to be held in abeyance. ͹Ǥ ‘”’‘”ƒ–‡ ‘ ‹ƒŽ ‡•’‘•‹„‹Ž‹–›ǣ Applicability of CSR; Types of CSR Activities; CSR Committee and š’‡†‹–—”‡Ǣ‡–”‘ϐ‹–ˆ‘”Ǣ‡’‘”–‹‰”‡“—‹”‡‡–•Ǥ ͺǤ  ‘—–•ǡ—†‹–ƒ†—†‹–‘”•ǣ Books of Accounts; Financial Statements; National Financial Reporting —–Š‘”‹–›Ǣ —†‹–‘”•Ǧ’’‘‹–‡–ǡ ‡•‹‰ƒ–‹‘ ƒ† ”‘ ‡†—”‡ ”‡Žƒ–‹‰ –‘ ‡‘˜ƒŽǡ —ƒŽ‹ϐ‹ ƒ–‹‘ ƒ† ‹•“—ƒŽ‹ϐ‹ ƒ–‹‘Ǣ‹‰Š–•ǡ—–‹‡•ƒ†‹ƒ„‹Ž‹–‹‡•Ǣ—†‹–ƒ†—†‹–‘”ǯ•‡’‘”–Ǣ‘•–—†‹–Ǣ‡ ”‡–ƒ”‹ƒŽ—†‹–Ǣ Internal Audit; Change in Financial Year. ͻǤ ”ƒ•’ƒ”‡ › ƒ† ‹• Ž‘•—”‡•ǣ Board’s Report; Annual Return; Annual Report; Website disclosures; Policies; Active; Disclosure in Financial Statement. ͳͲǤ  ‘˜‡”˜‹‡™ ‘ˆ –‡”Ǧ‘”’‘”ƒ–‡ ‘ƒ•ǡ ˜‡•–‡–•ǡ —ƒ”ƒ–‡‡• ƒ† ‡ —”‹–›ǡ ‡Žƒ–‡† ƒ”–› ”ƒ•ƒ –‹‘•Ǥ vi ͳͳǤ ‡‰‹•–‡”•ƒ†‡ ‘”†•ǣ Maintenance and Disposal. ͳʹǤ  ˜‡”˜‹‡™ ‘ˆ ‘”’‘”ƒ–‡ ‡‘”‰ƒ‹œƒ–‹‘ǣ Introduction of Compromises, Arrangement and amalgamation, Oppression and Mismanagement, Liquidation and winding-up; Overview of Registered ƒŽ—‡”•Ǣ‡‰‹•–”ƒ–‹‘ˆϐ‹ ‡•ƒ† ‡‡•Ǣ‘’ƒ‹‡•–‘ˆ—”‹•Š‹ˆ‘”ƒ–‹‘ƒ†•–ƒ–‹•–‹ •Ǥ ͳ͵Ǥ  –”‘†— –‹‘–‘ʹͳƒ† ‹Ž‹‰‹Ǥ ͳͶǤ Ž‘„ƒŽ‡˜‡Ž‘’‡–•ǣ Ž‘„ƒŽ”‡†•ƒ†‡˜‡Ž‘’‡–•‹‘’ƒ›ƒ™Ǥƒ•‡ƒ™•ǡƒ•‡–—†‹‡•ƒ† Practical Aspects.  ǣ‘’ƒ›†‹‹•–”ƒ–‹‘ƒ†‡‡–‹‰•Ȃƒ™ƒ†”ƒ –‹ ‡•ȋͶͲƒ”•Ȍ ͳͷǤ ‘ƒ”† ‘•–‹–—–‹‘ ƒ† ‹–• ‘™‡”•ǣ Board composition; Restriction and Powers of Board; Board Committees- Audit Committee, Nomination and Remuneration Committee, Stakeholder relationship Committee and other Committees. ͳ͸Ǥ ‹”‡ –‘”•ǣ   ”‡“—‹”‡‡–ǡ ›’‡• ‘ˆ ‹”‡ –‘”•Ǣ ’’‘‹–‡–Ȁ ‡ƒ’’‘‹–‡–ǡ ‹•“—ƒŽ‹ϐ‹ ƒ–‹‘•ǡ ƒ ƒ–‹‘ ‘ˆ ˆϐ‹ ‡ǡ ‡–‹”‡‡–ǡ ‡•‹‰ƒ–‹‘ ƒ† ‡‘˜ƒŽǡ ƒ† —–‹‡• ‘ˆ ‹”‡ –‘”•Ǣ ‹‰Š–• ‘ˆ ‹”‡ –‘”•Ǣ ‘ƒ•–‘‹”‡ –‘”•Ǣ‹• Ž‘•—”‡‘ˆ –‡”‡•–Ǣ‡ Žƒ”ƒ–‹‘„›–Š‡‹”‡ –‘”•Ǣ‹”‡ –‘”ǯ•Ǥ ͳ͹Ǥ ’’‘‹–‡– ƒ† ‡—‡”ƒ–‹‘ ‘ˆ ‡› ƒƒ‰‡”‹ƒŽ ‡”•‘‡Žǣ ’’‘‹–‡– ‘ˆ ‡› ƒƒ‰‡”‹ƒŽ ‡”•‘‡ŽǢ ƒƒ‰‹‰ ƒ† Š‘Ž‡Ǧ‹‡ ‹”‡ –‘”•ǡ ƒƒ‰‡”ǡ Š‹‡ˆ š‡ —–‹˜‡ ˆϐ‹ ‡” ƒ† Š‹‡ˆ ‹ƒ ‹ƒŽ ˆϐ‹ ‡”Ǣ ‘’ƒ› ‡ ”‡–ƒ”› Ȃ ’’‘‹–‡–ǡ ‘Ž‡ ƒ† ‡•’‘•‹„‹Ž‹–‹‡•ǡ ‘’ƒ› ‡ ”‡–ƒ”› ƒ• ƒ ‡› ƒƒ‰‡”‹ƒŽ ‡”•‘‡ŽǢ — –‹‘• ‘ˆ ‘’ƒ› ‡ ”‡–ƒ”›Ǣ ˆϐ‹ ‡” ™Š‘ ‹• ‹ †‡ˆƒ—Ž–Ǣ ‡—‡”ƒ–‹‘ ‘ˆ Managerial Personnel Declaration by the Directors. ͳͺǤ ‡‡–‹‰•‘ˆ‘ƒ”†ƒ†‹–•‘‹––‡‡•ǣ Frequency, Convening and Proceedings of Board and Committee meetings; Agenda Management; Meeting Management; Resolution by Circulation; Types of Resolutions; Secretarial Standard – 1; Duties of Company Secretaries before, during and after Board/Committee Meeting. ͳͻǤ ‡‡”ƒŽ‡‡–‹‰•ǣ—ƒŽ ‡‡”ƒŽ‡‡–‹‰Ǣš–”ƒ‘”†‹ƒ”›‰‡‡”ƒŽ‡‡–‹‰•Ǣ–Š‡” ‡‡”ƒŽ‡‡–‹‰•Ǣ Types of Resolutions; Notice, Quorum, Poll, Chairman, Proxy; Meeting and Agenda; Process of conducting meeting; Voting and its types-vote on show of hands, Poll, E-Voting, Postal ballot; Circulation of Members’ Resolutions etc.; Signing and Inspection of Minutes; Secretarial Standard-2; Duties of Company Secretaries „‡ˆ‘”‡ǡ†—”‹‰ƒ†ƒˆ–‡” ‡‡”ƒŽ‡‡–‹‰Ǥ ʹͲǤ ‹”–—ƒŽ‡‡–‹‰•ǣ‡ Š‘Ž‘‰‹ ƒŽ†˜ƒ ‡‡–‹ ‘†— –‘ˆ‘ƒ”†ǡ‘‹––‡‡Ƭ ‡‡”ƒŽ‡‡–‹‰•Ǥ ƒ”– ǣ‘’ƒ›‡ ”‡–ƒ”›ƒ•ƒ”‘ˆ‡••‹‘ȋͳͲƒ”•Ȍ ʹͳǤ ‡‰ƒŽ ”ƒ‡™‘” ‘˜‡”‹‰ ‘’ƒ› ‡ ”‡–ƒ”‹‡•ǣ The Company Secretaries Act, 1980 along with Rules and Regulations; Disciplinary Mechanism and Penalties for Professional Misconduct; Ethics in Profession, Professional Liabilities. ʹʹǤ ‡ ”‡–ƒ”‹ƒŽ –ƒ†ƒ”†• ‘ƒ”†ǣ Secretarial Standards Board of ICSI; Process of making Secretarial Standards; Need and Scope of Secretarial Standards. ʹ͵Ǥ ‡‰ƒ ‹”•ǣ‘ ‡’–‘ˆ‡‰ƒϐ‹”•Ǣ‡‡ϐ‹–•‘ˆ‡‰ƒϐ‹”•ǡŽ‹‰‹„‹Ž‹–› ”‹–‡”‹ƒˆ‘”’ƒ”–‡”ǡ‰”‡‡‡– between partners; management of Firm; Collective multidisciplinary expertise; Public Relation and Brand Building. vii  LESSON WISE SUMMARY COMPANY LAW ‡••‘ͳǣ –”‘†— –‹‘–‘‘’ƒ›ƒ™ A Company is a legal entity, allowed by legislation, which permits a group of people, as shareholders, to apply to the regulators for an independent organization to be created, which can then focus on pursuing set objectives, and empowered with legal rights which are usually only reserved for individuals, such as to sue and be sued, own property, hire employees or loan and borrow money. These distinct fundamental legal features and characteristics of a company makes it more advantageous over other forms of business like sole proprietorship, Hindu undivided family, partnership, Limited Liablility Partnership, etc. The Lesson gives an insight of the distinct features of the company and advantages otherwise. A company is regarded as a distinct legal entity and is said to cast a veil between the company and its human constituents, ‘the corporate veil’. This veil can be pierced for the purpose of imposing some form of liability on a company’s shareholders and / or directors. There are many court cases and exceptions to this which have been discussed in detail in this Lesson. To understand a piece of legislation it is important to understand what was the need of this legislation?, what practices were being followed?, what were the expectation of the stakeholders?, what led to creation of legislation? Company Legislation in India owes its origin to the English Company Law. The Companies Acts passed from –‹‡ –‘ –‹‡ ‹ †‹ƒ Šƒ˜‡ „‡‡ ˆ‘ŽŽ‘™‹‰ –Š‡ ‰Ž‹•Š ‘’ƒ‹‡•  –•ǡ ™‹–Š ‡”–ƒ‹ ‘†‹ϐ‹ ƒ–‹‘•Ǥ ˜‡ –Š‡ ‘’ƒ‹‡• –ǡͳͻͷ͸ǡ™ƒ•„ƒ•‡†‘–Š‡ǤǤ‘’ƒ‹‡• –ǡͳͻͶͺǤ Š‡ϐ‹”•–Ž‡‰‹•Žƒ–‹˜‡‡ƒ –‡–ˆ‘””‡‰‹•–”ƒ–‹‘‘ˆ ‘‹––‘ ‘’ƒ‹‡• †‹ƒ™ƒ•’ƒ••‡†‹–Š‡›‡ƒ”ͳͺͷͲ which was based on the English Companies Act, 1844. This Act recognised companies as distinct legal entities but did not introduce the concept of limited liability. The concept of limited liability, in India, was recognised for –Š‡ϐ‹”•––‹‡„›–Š‡‘’ƒ‹‡• –ǡͳͺͷ͹ Ž‘•‡Ž›ˆ‘ŽŽ‘™‹‰–Š‡‰Ž‹•Š‘’ƒ‹‡• –ǡͳͺͷ͸‹–Š‹•”‡‰ƒ”†Ǥ‹ŽŽ 1956, the business companies in India were regulated by this Act of 1913. Based on Bhabha committee report Companies Act 1956 was introduced. As the business evolved need was felt to introduce the Company Law in a fresh manner considering the changes in the systems and procedures worldwide. Companies Act, 2013 was passed after decade long deliberations with stakeholders. This Lesson gives an overview of the developments of company law and discusses the features of a company form of business. ‡••‘ʹǣŠƒ”‡ƒ†Šƒ”‡ƒ’‹–ƒŽ Importantly share capital refers to the funds that a company raises in exchange for issuing an ownership interest in the company in the form of shares. “Share capital” may also describe the number and types of shares that compose a company’s share structure. There are two general types of share capital, which are equity and preference shares. For running a company it is important to understand the options available to fund the projects of the company. The Company Law permits various options which can be availed to generate funds. There are various ways to raise capital which include preferential allotment, employee stock option, issue of rights shares and issue of •Šƒ”‡•™‹–Š†‹ˆˆ‡”‡–‹ƒŽ˜‘–‹‰”‹‰Š–•Ǥ –‹˜‘Ž˜‡•˜ƒ”‹‘—•ƒ’’”‘˜ƒŽ•ǡ†‹• Ž‘•—”‡•ǡϐ‹Ž‹‰•ǡƒ‹–‡ƒ ‡‘ˆ”‡ ‘”†•ǡ etc. which are prescribed under Chapter IV of the Companies Act, 2013 read with Companies (Share Capital and Debentures) Rules, 2014. There are several compliances that need be done pre and post the securities are issued such as issue of share ‡”–‹ϐ‹ ƒ–‡•ǡ†‡ƒ–‡”‹ƒŽ‹œƒ–‹‘ǡ”‡‰‹•–‡”‘ˆ‡„‡”•ǡƒŽŽ‘–‡–‘ˆ•‡ —”‹–‹‡•ǤŠ‡‡••‘ƒŽ•‘‹–”‘†— ‡•–‘–Š‡ basic modalities of issue of securities and allotment thereunder. viii The shares of a company are freely transferable. The shareholding can either be maintained in physical form or demat form. The law is very clear with the procedure to be followed to transfer the shares, still there remain ƒ› ’”ƒ –‹ ƒŽ ‹••—‡• ‹ –”ƒ•ˆ‡” ‘ˆ •Šƒ”‡•Ǥ Š‡ Žƒ™ ƒŽ•‘ ƒ‡• ƒ ’”‘˜‹•‹‘ ˆ‘” ”‡ –‹ϐ‹ ƒ–‹‘ ‘ˆ ”‡‰‹•–‡” ‘ˆ members. This Lesson gives an insight on this. Buy back of shares is not reduction of capital. Buy-Back is a corporate action in which a company buys back its shares from the existing shareholders usually at a price higher than market price. Reduction of capital by a ‘’ƒ›‹•ƒŽ™ƒ›••—„Œ‡ ––‘ ‘ϐ‹”ƒ–‹‘„›–Š‡”‹„—ƒŽ‘ƒƒ’’Ž‹ ƒ–‹‘ƒ†‡„›–Š‡ ‘’ƒ›Ǥ As a prospected company secretary understanding of processes involved in raising of capital, issuance of securities, reduction of share capital, buy-back is of utmost importance. This Lesson provides an overview on the subject covering both theory and practical aspects. ‡••‘͵ǣ‡„‡”•ƒ†Šƒ”‡Š‘Ž†‡”• Members may come and members may go but the company goes on for ever. A person whose name is entered in the register of members of a company becomes a member of that company. The register includes every single detail about the member like name, address, occupation, date of becoming a member, etc. It also includes every person who holds company’s shares and whose name is entered as the „‡‡ϐ‹ ‹ƒŽ‘™‡”•‹†‡’‘•‹–‘”›”‡ ‘”†•Ǥ‹†‹˜‹†—ƒŽ™Š‘‘™•–Š‡•Šƒ”‡‘ˆƒ’—„Ž‹ ‘”ƒ’”‹˜ƒ–‡ ‘’ƒ›‹• known as a ‘Shareholder.’ The terms shareholders and members are commonly used as synonyms, as one can become a member of the company, except by way of holding shares. In this way, a member is a shareholder and a shareholder is a member. The statement is true but not completely, as it is subject to certain exceptions, i.e. a person can become the holder of shares through transfer, but is not a member, until the transfer is entered in the register of members. This Lesson gives an insight on secretarial practices expected to be known by the prospected company secretaries on maintaining register of members, shareholder agreement etc. ‡••‘Ͷǣ‡„–ƒ’‹–ƒŽƒ†‡’‘•‹–• An issue of debenture plays a great role in long-term planning and decision-making. In modern competitive „—•‹‡••‡”ƒǡ‡˜‡”› ‘’ƒ›‡‡†•ˆ—†ˆ‘”ƒ›„—•‹‡••‘’’‘”–—‹–›ǤŠ‹•ϐ‹ƒ ‹‰ ƒ„‡ˆ—Žϐ‹ŽŽ‡†‘Ž›„› issuing owner’s capital and debt capital. The issue of debenture, in one side creates the obligation for the ’ƒ›‡– ‘ˆ ‹–‡”‡•– ƒ– ƒ ϐ‹š‡† ”ƒ–‡ ƒ† ‹ ƒ‘–Š‡” •‹†‡ǡ ‹– ƒ—•‡• ƒ ‹ ”‡ƒ•‡ ‹ Ǯ ‡ƒ”‹‰ ’‡” •Šƒ”‡ǯ †—‡ –‘ comparatively less number of shares issued. Companies need to follow certain procedures for issue of debentures to raise money. These have been elaborated under Companies Act, 2013 and have been discussed in this Lesson. ‡’‘•‹–•Šƒ˜‡„‡‡†‡ϐ‹‡†—†‡”–Š‡‘’ƒ‹‡• –ǡʹͲͳ͵ȋDzʹͲͳ͵ –dzȌ–‘‹ Ž—†‡ƒ›”‡ ‡‹’–‘ˆ‘‡›„›™ƒ›‘ˆ deposit or loan or in any other form by a company. However what shall not constitute deposits has been prescribed under law in consultation with the Reserve Bank of India. The Lesson provides an overview of the same. ‡••‘ͷǣŠƒ”‰‡• A charge is a right created by any person including a company referred to as “the borrower” on its assets and ’”‘’‡”–‹‡•ǡ’”‡•‡–ƒ†ˆ—–—”‡ǡ‹ˆƒ˜‘—”‘ˆƒϐ‹ƒ ‹ƒŽ‹•–‹–—–‹‘‘”ƒ„ƒǡ”‡ˆ‡””‡†–‘ƒ•Dz–Š‡Ž‡†‡”dzǡ™Š‹ Š Šƒ•ƒ‰”‡‡†–‘‡š–‡†ϐ‹ƒ ‹ƒŽƒ••‹•–ƒ ‡Ǥ ‡ –‹‘ ʹȋͳ͸Ȍ ‘ˆ –Š‡ ‘’ƒ‹‡•  –ǡ ʹͲͳ͵ †‡ϐ‹‡• Šƒ”‰‡• •‘ ƒ• –‘ ‡ƒ ƒ ‹–‡”‡•– ‘” Ž‹‡ ”‡ƒ–‡† ‘ –Š‡ property or assets of a company or any of its undertakings or both as security and includes a mortgage The following are the essential features of the charge which are as under: 1. There should be two parties to the transaction, the creator of the charge and the charge holder. 2. The subject-matter of charge, which may be current or future assets and other properties of the borrower. ͵Ǥ Š‡ ‹–‡–‹‘ ‘ˆ –Š‡ „‘””‘™‡” –‘ ‘ˆˆ‡” ‘‡ ‘” ‘”‡ ‘ˆ ‹–• •’‡ ‹ϐ‹  ƒ••‡–• ‘” ’”‘’‡”–‹‡• ƒ• •‡ —”‹–› ˆ‘” repayment of the borrowed money together with payment of interest at the agreed rate should be manifested by an agreement entered into by him in favour of the lender, written or otherwise. ix ‘’ƒ‹‡•  –ǡ ʹͲͳ͵ †‡–ƒ‹Ž• –Š‡ ’”‘ ‡†—”‡ ˆ‘” ”‡ƒ–‹‘ǡ ‘†‹ϐ‹ ƒ–‹‘ ƒ† •ƒ–‹•ˆƒ –‹‘ ‘ˆ ƒ Šƒ”‰‡Ǥ • ƒ prospected company secretary you are expected to advise the management on the subject and ensure compliance to the same. ‡••‘͸ǣ‹•–”‹„—–‹‘‘ˆ”‘ϐ‹–•Ȃ‹˜‹†‡† ”‘ϐ‹–‘”ƒ’‘”–‹‘‘ˆ’”‘ϐ‹––Šƒ– ƒ„‡Ž‡‰ƒŽŽ›†‹•–”‹„—–‡†ƒ•ƒ†‹˜‹†‡†–‘–Š‡•Šƒ”‡Š‘Ž†‡”•‹•‘™ƒ•‹˜‹•‹„Ž‡ ”‘ϐ‹–Ǥ‘•‹†‡”‹‰–Š‡•ƒŽŽ•Šƒ”‡Š‘Ž†‡”•ƒ†–Š‡‹” ‘ ‡”•™‹–Š”‡‰ƒ”†–‘ˆƒ‹Ž—”‡–‘–”ƒ•ˆ‡”–Š‡†‹˜‹†‡†–‘ the shareholders the Companies Act, 2013 provides for elaborate mechanism where the shareholders can claim the shares through an authority constituted for the purpose i.e. Investor Education and Protection Fund (IEPF). The Act clearly enunciates the procedure for transfer of unpaid dividend to separate account and thereafter after particular time period to the authority. The company has to mandatorily comply with the legal requirement, ˆƒ‹Ž—”‡ƒ›ƒ––”ƒ –’‡ƒŽ’”‘˜‹•‹‘•ǡƒ•™‡ŽŽƒ•–Š‹•ƒ›ƒŽ•‘„‡”‡ϐŽ‡ –‡†‹–Š‡‘ƒ”†ǯ•”‡’‘”–Ǥ  ‘’ƒ› •‡ ”‡–ƒ”› ‹• ƒŽ•‘ ƒ ‹˜‡•–‘” ”‡Žƒ–‹‘ ‘ˆϐ‹ ‡” ‘ˆ –Š‡ ‘’ƒ›ǡ Š‡ ƒ –• ƒ• ƒ „”‹†‰‡ „‡–™‡‡ –Š‡ shareholder and company management. This Lesson shall enable the readers to understand the procedures and implement the same while practically operating. ‡••‘͹ǣ‘”’‘”ƒ–‡‘ ‹ƒŽ‡•’‘•‹„‹Ž‹–› Š‡ ‘ ‡’–‘ˆ‘”’‘”ƒ–‡‘ ‹ƒŽ”‡•’‘•‹„‹Ž‹–›ȋȌŠƒ•„‡‡‹–”‘†— ‡†ˆ‘”–Š‡ϐ‹”•––‹‡‹ †‹ƒ–Š”‘—‰Š Companies Act, 2013. With the enactment of the Companies Act, 2013, India has become the forerunner to mandate spend on Corporate Social Responsibility (CSR) activities through a statutory provision. India has a tradition of corporate philanthropy, while many corporate houses like TATA, Birlas have been traditionally engaged in doing CSR activities voluntarily, the new CSR provisions has put a greater responsibility on companies in India to set out clear CSR framework. Š‡  – ƒ†ƒ–‡• –Š‡ •’‡†‹‰ ‘ˆ ƒ–Ž‡ƒ•– ʹ Ψ ‘ˆ –Š‡ ‡– ’”‘ϐ‹–• –‘™ƒ”†•  ƒ –‹˜‹–‹‡• ™‹–Š‹ –Š‡ †‡ϐ‹‡† parameters. The Board has been held responsible to ensure compliance with the provision. Non-compliance of –Š‡’”‘˜‹•‹‘Šƒ•–‘„‡”‡ϐŽ‡ –‡†‹–Š‡‘ƒ”†ǯ•”‡’‘”–ƒ†ƒ›‘–„‡–ƒ‡™‡ŽŽ„›–Š‡‹˜‡•–‘”•Ǥ This Lesson details the framework that the company has to comply with right from the constitution of the committee, to its role and manner in which a company can carry out its CSR activities, and CSR reporting. As a company secretary you have to guide the Board on the subject. ‡••‘ͺǣ ‘—–•ǡ—†‹–ƒ†—†‹–‘”• Maintaining of company Book of Accounts is mandatory for all types of companies under the Companies Act, 2013. Private Limited Company, One Person Company and Limited Company including Small Companies are required to maintain proper book of accounts. Further, the Books of Accounts of a Company is the basis on ™Š‹ Šϐ‹ƒ ‹ƒŽ•–ƒ–‡‡–•‘ˆƒ‘’ƒ›ƒ”‡’”‡’ƒ”‡†ˆ‘” ‘’ƒ›ƒ—ƒŽ”‡–—”ϐ‹Ž‹‰ǤŠ‡”‡ˆ‘”‡ǡƒ‹–‡ƒ ‡ of proper company account is both mandatory and necessary. According to the Companies Act, 2013, a Company’s Book of Accounts is considered to be maintained properly ‹ˆ‹–•ƒ–‹•ϐ‹‡•–Š‡ˆ‘ŽŽ‘™‹‰–™‘ ‘†‹–‹‘•ǣ Ȉ Books which are necessary to give a true and fair view of the state of affairs of the company is kept along with the documents required to explain the transactions. Ȉ Books are kept on accrual basis and according to the double entry system of accounting. Having an effective audit system is important for a company because it enables it to pursue and attain its various corporate objectives. Business processes need various forms of internal control to facilitate supervision and monitoring, prevent and detect irregular transactions, measure ongoing performance, maintain adequate business records and to promote operational productivity. Auditing is a means of evaluating the effectiveness of a company’s internal controls. Maintaining an effective •›•–‡‘ˆ‹–‡”ƒŽ ‘–”‘Ž•‹•˜‹–ƒŽˆ‘”ƒ Š‹‡˜‹‰ƒ ‘’ƒ›ǯ•„—•‹‡••‘„Œ‡ –‹˜‡•ǡ‘„–ƒ‹‹‰”‡Ž‹ƒ„Ž‡ϐ‹ƒ ‹ƒŽ reporting on its operations, preventing fraud and misappropriation of its assets, and minimizing its cost of capital. Both internal and independent auditors contribute to a company’s audit system in different but important ways. x The Lesson details the maintenance of accounts in the company and how the auditors have to be appointed, role of auditors and legal provisions relating to the same. A company has to undertake secretarial audit, cost audit, statutory audit as per the threshold requirement under law. As a company secretary this is an important area and must be well understood by the readers. ‡••‘ͻǣ”ƒ•’ƒ”‡ ›ƒ†‹• Ž‘•—”‡• Transparency and disclosure are fundamental to the way businesses are conducted. Transparency and disclosure are essential elements of a robust corporate governance framework as they provide the base for informed decision making by shareholders, stakeholders and potential investors in relation to capital allocation, ‘”’‘”ƒ–‡–”ƒ•ƒ –‹‘•ƒ†ϐ‹ƒ ‹ƒŽ’‡”ˆ‘”ƒ ‡‘‹–‘”‹‰ǤŠ‡‡™ ‘ ‡’–‘ˆ–”ƒ•’ƒ”‡ ›Šƒ•’—–‘”‡ responsibilities on the corporation by imposing to disclose true and fair picture to every stakeholder and different stakeholder groups. A company has to make disclosures in Board ‘s Report under various enactments. Companies Act, 2013, SEBI (Listing obligations and Disclosure Requirement) Regulations, 2015 and, Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 have mandated disclosures at many places. The Lesson also discusses the disclosures to be made by the company on the website, through its Annual report and Annual return. SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2015 requires listed entities to maintain various policies. This Lesson gives an overview of the same. As an important part of secretarial practice this Lesson shall enable prospected company secretaries to understand the various disclosures required and would help them to guide the Board and management not only ‘–Š‡Ž‡‰ƒŽ’ƒ”ƒ‡–‡”•„—–ƒŽ•‘‹–‡”•‘ˆϐ‹ƒ ‹ƒŽƒ†‘Ǧϐ‹ƒ ‹ƒŽ„‡‡ϐ‹–•†‡”‹˜‡†ƒŽŽ‹†•‘ˆ–”—‡ƒ†ˆƒ‹” disclosures. ‡••‘ ͳͲǣ  ‘˜‡”˜‹‡™ ‘ˆ –‡” ‘”’‘”ƒ–‡ ‘ƒ•ǡ ˜‡•–‡–•ǡ —ƒ”ƒ–‡‡• ƒ† ‡ —”‹–›ǡ ‡Žƒ–‡† ƒ”–›”ƒ•ƒ –‹‘• –‡” ‘”’‘”ƒ–‡Ž‘ƒ•ƒ†‹˜‡•–‡–•’Žƒ›ƒ˜‹–ƒŽ”‘Ž‡‹–Š‡‰”‘™–Š‘ˆ †—•–”‹‡••‹ ‡–Š‡›”‡•—Ž–‹ϐŽ‘™‘ˆ funds to group companies or other companies in need of funds. The Companies Act, 2013 (Act) has come up with a change in the concept of ‘Loan and Investment by Company. The new Act provides that inter-corporate investments not to be made through more than two layers of investment companies. Transactions with related parties are a basic human instinct. This applies both for personal & commercial –”ƒ•ƒ –‹‘•Ǥ— Š–”ƒ•ƒ –‹‘•ƒ”‡•‘‡–‹‡•‹ϐŽ—‡ ‡†„› ‘•‹†‡”ƒ–‹‘‘–Š‡”–Šƒ ‘‡” ‹ƒŽǤŠ‡”‡‹•ƒ possibility that such transactions might have not occurred on ‘arm’s length’ consideration. Related party transactions adopted by the companies could be a possible tool for corporate abuse. Transfer of economic resources to the related party at less than arm’s length price is necessitated for host of reasons ranging from evasion/avoidance of tax liability to siphon-off the resources. That’s why various laws and regulations stipulate the deeper scrutiny and the greater disclosures of such transactions. The Companies Act, 2013 does provide for ƒˆ”ƒ‡™‘”ˆ‘”–”ƒ•ƒ –‹‘•‹™Š‹ Š†‹”‡ –‘”•ǡ‡– Ǥǡƒ”‡‹–‡”‡•–‡†™‹–Šƒ˜‹‡™–‘ƒ˜‘‹†•‹–—ƒ–‹‘‘ˆ ‘ϐŽ‹ –‘ˆ interest The lesson examines the legal provisions with respect to related party transaction; inter corporate loans, investments, guarantees and security. This Lesson enables the students to understand the legal framework and guide the board members and shareholders in future. ‡••‘ͳͳǣ‡‰‹•–‡”•ƒ†‡ ‘”†• The Companies Act, 2013 and the rules made there under lays down that every company incorporated under the Act has to maintain Statutory Registers. Š‡‡‰‹•–‡”•‡‡†–‘ƒ‹–ƒ‹‡†ƒ†—’†ƒ–‡†‡˜‡–—ƒŽŽ›ƒ†•Š‘—Ž†„‡‡’–ƒ––Š‡”‡‰‹•–‡”‡†‘ˆϐ‹ ‡‘ˆ–Š‡ company. Some of the Registers are required to be kept open for inspection by directors, members, creditors and by other persons. A company is required to provide the extracts from the registers, if demanded by directors, ‡„‡”•ǡ ”‡†‹–‘”•ƒ†„›‘–Š‡”’‡”•‘•‘’ƒ›‡–‘ˆ•’‡ ‹ϐ‹‡†ˆ‡‡•Ǥ The registers and records are to be preserved for certain period for some or the other reason. This is of absolute xi importance for the secretarial practice whether by company secretary in employment or in practice. This Lesson covers all the registers to be maintained by the company under the Act and shall enable the understanding of the same. ‡••‘ͳʹǣ˜‡”˜‹‡™‘ˆ‘”’‘”ƒ–‡‡‘”‰ƒ‹œƒ–‹‘ Corporate reorganization requires compliances of Companies Act, 2013, SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, Indian Stamp Act 1899, income Tax Act, 1961 etc. Apart from complying with the rules and regulations of an organisation, the company secretary also plays a pivotal role in corporate restructuring exercises. This Lesson gives an overview of the legal and procedural requirement to be complied by the company. As a prospected company secretary you are expected to guide the Board and management on the proper restructuring model, legal and procedural technicalities etc. this Lesson would enable you to gain knowledge of the subject. ‡••‘ͳ͵ǣ –”‘†— –‹‘–‘ʹͳƒ† ‹Ž‹‰‹ A very important area of work of company secretaries relate to secretarial practice. MCA 21 is a portal which ˆƒ ‹Ž‹–ƒ–‡•–Š‡‡Ž‡ –”‘‹ ϐ‹Ž‹‰—†‡”‘’ƒ‹‡• –ǡʹͲͳ͵ǤŠ‹•‡••‘Š‹‰ŠŽ‹‰Š–•–Š‡„ƒ•‹ –‡ Š‹ ƒŽ‹–‹‡•‘ˆ–Š‡ portal and discusses certain details of various forms to be submitted to MCA. ‡••‘ͳͶǣ Ž‘„ƒŽ‡˜‡Ž‘’‡–• Indian Company Law is based on various best practices from around the world. This is a theory based Lesson which gives you an idea of how the developments across various nations have impacted the country’s corporate law. This Lesson covers salient features of company law emerged/ emerging in the following countries: Ȉ ‹–‡†‹‰†‘ Ȉ The United States of America Ȉ Australia Ȉ Canada Ȉ ‘‰‘‰ Ȉ Singapore Ȉ Finland ‡••‘ͳͷǣ‘ƒ”†‘•–‹–—–‹‘ƒ†‹–•‘™‡”• The Board of director is the ultimate decision – making body and determines the delegation of powers throughout the company; it is considered to be the primary organ of the company. The role of the Board is summarized as: Ȉ Providing entrepreneurial leadership Ȉ Setting strategy Ȉ •—”‹‰–Š‡Š—ƒƒ†ϐ‹ƒ ‹ƒŽ”‡•‘—” ‡•ƒ”‡ƒ˜ƒ‹Žƒ„Ž‡–‘ƒ Š‹‡˜‡‘„Œ‡ –‹˜‡• Ȉ Reviewing management performance Ȉ Setting up company’s values and standards Ȉ •—”‹‰”‘„—•–‡••‘ˆϐ‹ƒ ‹ƒŽ ‘–”‘Ž•ƒ†”‹•ƒƒ‰‡‡– This Lesson guides on the constitution of the Board, its powers and restrictions. Board committees are constituted in accordance with Companies Act, 2013 and SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the Lesson discusses the same and the major role assigned to them under law. ‡••‘ͳ͸ǣ‹”‡ –‘”• The directors play a very important role in the day to day functioning of the company. It is the board, who is responsible for the company’s overall performance. Only individuals can be appointed as directors of a company. Š‡•—„• ”‹„‡”•–‘–Š‡‡‘”ƒ†—™Š‘ƒ”‡‹†‹˜‹†—ƒŽ•ƒ”‡†‡‡‡†–‘„‡–Š‡ϐ‹”•–†‹”‡ –‘”•‘ˆ–Š‡ ‘’ƒ›Ǥ xii Thereafter the shareholders or in many cases the board of directors appoint the directors. The Act has brought in many new provisions such as appointment of women director, resident director, independent director by certain class of companies. The Lesson discusses the procedure for appointing the various types of directors, the rights, duties of a director. As a company secretary you should be in know of the subject. ‡••‘ͳ͹ǣ’’‘‹–‡–ƒ†‡—‡”ƒ–‹‘‘ˆ‡›ƒƒ‰‡”‹ƒŽ‡”•‘‡Ž Š‡‘’ƒ‹‡• –ʹͲͳ͵Šƒ•‹–”‘†— ‡†ƒ‡™ ‘ ‡’–ˆ‘”ƒ’’‘‹–‡–‘ˆ–Š‡‡›ƒƒ‰‡”‹ƒŽ‡”•‘‡Žƒ––‘’ level of the organizational structure. In the new Act the position of company secretary has been enhanced multifold, from record keeper to key managerial personnel. A present day company secretary is expected to do statutory, administrative, managerial and strategic functions. Š‹•‡••‘‰—‹†‡•‘–Š‡ƒ’’‘‹–‡–ǡ’”‘ ‡†—”‡ˆ‘”ƒ’’‘‹–‡–ƒ†”‘Ž‡–‘„‡—†‡”–ƒ‡ƒ•Ǥ ‡••‘ͳͺǣ‡‡–‹‰•‘ˆ–Š‡‘ƒ”†ƒ†‹–•‘‹––‡‡• Under Companies Act, 2013 the Board has to meet atleast four times in a year and not more one hundred and twenty days shall intervene between two consecutive Board meetings. The committees have to meet in accordance with the terms of reference of the committee. As a company secretary you need to guide the members on the conduct of affairs of the company and facilitate the convening of meetings and attend Board and Committee meetings and maintain minutes of these meetings. This Lesson gives the basic idea of holding a meeting of the board or committee. ‡••‘ͳͻǣ ‡‡”ƒŽ‡‡–‹‰• A company may have many kinds of meetings; general meetings are one among them. In very simple terms, a ‡‡–‹‰‘ˆ‰‡‡”ƒŽ„‘†›ƒ›„‡ ƒŽŽ‡†‰‡‡”ƒŽ‡‡–‹‰Ǥ ‡‡”ƒŽ‡‡–‹‰ ‘’”‹•‡•‘ˆƒŽŽ‰‡‡”ƒŽ‡„‡”•‘ˆ an recognized on that is company in our case.  ‰‡‡”ƒŽ ‡‡–‹‰ ƒ› „‡ —ƒŽ ‡‡”ƒŽ ‡‡–‹‰ ȋ Ȍǡ š–”ƒ‘”†‹ƒ”› ‡‡”ƒŽ ‡‡–‹‰ ȋ Ȍ ƒ† Žƒ•• meetings. A company secretary plays a critical role in preparation, convening, holding and conducting a meeting. This Lesson gives an overall idea of not only legal framework but also secretarial work involved in conducting a meeting. ‡••‘ʹͲǣ‹”–—ƒŽ‡‡–‹‰• The new Act permits for meeting of Board of directors through video conferencing or audio conferencing. The Lesson discusses the broad parameters of holding such meetings and the restrictions thereat. Ǧ˜‘–‹‰ƒ–ƒ‰‡‡”ƒŽ‡‡–‹‰Šƒ•‘™„‡‡’”ƒ –‹ ‡†ƒ†™‡ŽŽ”‡ ‘‰‹œ‡†„›–Š‡Žƒ™„—––Š‡ ‘ ‡’–Ǧ ‹• still not practiced in India. ‡••‘ʹͳǣ‡‰ƒŽ ”ƒ‡™‘” ‘˜‡”‹‰‘’ƒ›‡ ”‡–ƒ”‹‡• Professionals are expected to conduct themselves in such a manner so as to uphold the grace, dignity and professional standing of their respective Institutes. Any commitment to complete a particular assignment as agreed by the person himself should be completed in a professional manner. The purpose of this Lesson is to explain to the students, expectation as a member with respect to various ƒ•’‡ –•‘ˆ–Š‡‡–Š‹ ƒŽ ‘†— –ǤŠ‹•Ž‡••‘Šƒ•„‡‡†‡•‹‰‡†–‘ƒ••‹•–‹†‡ϐ‹‹‰ƒ’’”‘’”‹ƒ–‡’‡”•‘ƒŽƒ† ’”‘ˆ‡••‹‘ƒŽ ‘†— –ǡ–‘’”‘˜‹†‡‰—‹†ƒ ‡‹–Š‡‹†‡–‹ϐ‹ ƒ–‹‘ƒ†”‡•‘Ž—–‹‘‘ˆ‡–Š‹ ƒŽ‹••—‡•ǡƒ†–‘Š‡Ž’–Š‡ students (the future members) of the Institute to maintain the culture of honesty, integrity, transparency and accountability. ‡••‘ʹʹǣ‡ ”‡–ƒ”‹ƒŽ–ƒ†ƒ”†•‘ƒ”† A company needs to comply with the mandatory requirement of compliance with the Secretarial Standards. A company secretary in whole time employment is required to guide the Board of Directors of the company on the xiii compliances of the secretarial standards. On the other hand a practicing company secretary while conducting secretarial audit has to ensure the compliance. This Lesson shall give the readers a broader perspective of how the standards are formulated and developed. ‡••‘ʹ͵ǣ‡‰ƒ ‹”• In a rapidly changing economy, industrial environment and emergence of the need for corporate governance and ethical business practices of voluntary disclosures, role of a practicing company secretary has also changed swiftly. Company Secretary in Practice has become a crucial player. The stakeholders are becoming vigilant towards the compliances. It is the prime duty of a professional to meet the expectations of the stakeholders at any given point of time. Company Secretary in practice may face technical, time and knowledge constraint after certain point of time in ’”‘ˆ‡••‹‘ǤŠ‡”‡ ‘‡•–Š‡‡‡†‘ˆŠƒ˜‹‰ƒ’”ƒ –‹ ‹‰ϐ‹”ǡ‡‰ƒϐ‹”•Ǥ‡‡’‹‰‹˜‹‡™‘ˆ–Š‡’”‡•‡–‡‡†• of the corporate and multi dimensional growth of CS profession especially in the areas of practicing in the areas of Corporate Laws, Labour laws, RBI/ FEMA, acting as Secretarial Audit, Resolution Professional Insolvency ƒ”—’– ›‘†‡ǡ ”ƒ –‹–‹‘‡”–Š‡”‡‹•ƒ‡‡†–‘•–”— –—”‡ƒ†„—‹Ž†–Š‡‡‰ƒϐ‹”•Ǥ Š‹• Šƒ’–‡”‰‹˜‡•ƒ‘˜‡”˜‹‡™‘ˆ„‡‡ϐ‹–•ǡ ŠƒŽŽ‡‰‡•‘ˆ ‘•–‹–—–‹‰‡‰ƒϐ‹”•Ǥ xiv     COMPANY LAW     1. Dr. Avtar Singh : Company Law; Eastern Book Company, 34, Lalbagh, Lucknow – 226 001 2. C.R. Datta : Datta on the Company Law; Lexis Nexis, Butterworths Wadhwa, Nagpur ͵Ǥ Ǥƒƒ‹›ƒ ǣ —‹†‡–‘–Š‡‘’ƒ‹‡• –Ǣ‡š‹•‡š‹•ǡ—––‡”™‘”–Š•ƒ†Š™ƒǡƒ‰’—” ͶǤ ǤǤ ƒ”‰ǡǤǤŠƒ™Žƒǡ ǣ ‘’ƒ› ƒ™Ǣ ƒŽ›ƒ‹ —„Ž‹•Š‡”•ǡ ͳȀͳǡ ƒŒ‹†‡” ƒ‰ƒ”ǡ ‹˜‹Ž ‹‡•ǡ ‹Œƒ› —’–ƒ  —†Š‹ƒƒȂͳͶͳͲͲͳǤ ͷǤ ǤǤƒŒ—†ƒ”ǡ”Ǥ ǤǤ ǣ ‘’ƒ› ƒ™ ƒ† ”ƒ –‹ ‡Ǣ ƒšƒǡ ͷͻȀ͵ʹǡ ‡™ ‘Š–ƒ ‘ƒ†ǡ ƒ’‘‘”ǡƒŒƒ›Šƒ‹Œƒ  ‡™‡ŽŠ‹ǦͳͳͲͲͲͷǤ ͸Ǥ ǤǤ ƒ‹ ǣ ‘’ƒ› ƒ™ ‡ƒ†› ‡ ‘‡”Ǣ Šƒ”ƒ– ƒ™ ‘—•‡ ˜–Ǥ –†ǤǢ ǦͳȀͻͷǡ Mangolpuri Industrial Area, Delhi-110083. ͹Ǥ Ǥ—”›ƒƒ”ƒ›ƒƒ ǣ ‘’ƒ› ƒ™ ‡ƒ†› ‡ ‘‡”Ǣ ‘‡” ‹ƒŽ ƒ™ —„Ž‹•Š‡”•ǡ ͳͷͳǡ Rajinder Market, Opp. Tis Hazari Court, Delhi-110054. ͺǤ ǤǤǤ ‘™‡” ǣ ”‹ ‹’Ž‡•‘ˆ‘†‡”‘’ƒ›ƒ™Ǣ–‡˜‡•Ƭ‘•–†Ǥǡ‘†‘Ǥ ͻǤ ƒšƒǯ• ǣ ‹” —Žƒ”• Ƭ Žƒ”‹ϐ‹ ƒ–‹‘• ‘ ‘’ƒ› ƒ™Ǣ ƒšƒǡ ͷͻȀ͵ʹǡ ‡™ Rohtak Road, New Delhi-110 005. 10. Bare Act : Corporate Laws; Taxmann, 59/32, New Rohtak Road, New Delhi-110 005. 11. Video : Primer on Company Law by ICSI (https:/www.youtube.com/user icsicompaniesact2013) ǣ 1. Chartered Secretary : ICSI, New Delhi 2. Student Company : ICSI, New Delhi Secretary 3. Corporate Law Adviser : Corporate Law Advisers, 613, Metro View Apt., Sector 13, Pocket B,   ™ƒ”ƒǡ‡™‡ŽŠ‹ǦͳͳͲͲ͹ͷǤ 4. Company Law Journal : Company Law Journal (India) Pvt. Ltd., 53/15, Old Rajinder Nagar, Post Box No. 2844, New Delhi-110060. ‘–‡ǣThe latest edition of all the books referred to above should be read. xv  ARRANGEMENT OF STUDY LESSONS ‘†—Ž‡Ǧͳƒ’‡”Ǧʹ COMPANY LAW  ǣǡ  Ƭ ŽǤ‘Ǥ ‡••‘‹–Ž‡ 1 Introduction to Company Law 2 Share and Share Capital 3 Members and Shareholders 4 Debt Capital and Deposits 5 Charges ͸ ‹•–”‹„—–‹‘‘ˆ”‘ϐ‹–•Ȃ‹˜‹†‡† ͹ ‘”’‘”ƒ–‡‘ ‹ƒŽ‡•’‘•‹„‹Ž‹–› 8 Accounts, Audit and Auditors 9 Transparency and Disclosures 10 ˜‡”˜‹‡™‘ˆ –‡”Ǧ‘”’‘”ƒ–‡‘ƒ•ǡ ˜‡•–‡–•ǡ —ƒ”ƒ–‡‡•ƒ†‡ —”‹–›ǡ‡Žƒ–‡†ƒ”–›”ƒ•ƒ –‹‘• 11 Registers and Records 12 An Overview of Corporate Reorganization 13 An Introduction to MCA 21 and Filing in XBRL ͳͶ Ž‘„ƒŽ‡˜‡Ž‘’‡–•  ǣ     ȃ  15 Board Constitution and its Powers 16 Directors ͳ͹ ’’‘‹–‡–ƒ†‡—‡”ƒ–‹‘‘ˆ‡›ƒƒ‰‡”‹ƒŽ‡”•‘‡Ž 18 Meetings of Board and its Committees ͳͻ ‡‡”ƒŽ‡‡–‹‰• 20 Virtual Meetings  ǣ   ʹͳ ‡‰ƒŽ ”ƒ‡™‘” ‘˜‡”‹‰‘’ƒ›‡ ”‡–ƒ”› 22 Secretarial Standards Board 23 Mega Firms Test paper xvi  CONTENTS LESSON 1 INTRODUCTION TO COMPANY LAW Origin of company law 2 Introduction - Jurisprudence of Company Law 2 History and Development of the Concept of Company Law in India 2 The Companies Act, 1956-Based committee Recommendations 4 Concept Paper on Company Law, 2004 & J.J. Irani Report 6 The Companies Act, 2013 8 Reading, Methodology of the Companies Act, 2013 and its legal Aura 8 How to read and understand a Section? 9 Reforms Brought under the Companies Act, 2013 for Ease of Doing Business 11 Agencies under MCA-21 14 ‡ƒ‹‰ƒ†‡ϐ‹‹–‹‘‘ˆƒ‘’ƒ› ͳͷ Nature and Characteristics of a Company 16 Exceptions to the principle of limited liability 20 Company vis-a-vis other forms of Business 23 Distinction between Partnership frim and company 23 Distinction between a Hindu Undivided Family Business and a Company 24 Distinction between limited liability partnership (LLP) and a company 24 Doctrine of Lifting of or Piercing the Corporate Veil 24 Statutory Recognition of lifting of Corporate Veil 25 Lifting of corporate veil under judicial interpretation 25 Lifting the corporate veil of small scale Industry 28 Use of corporate veil for hiding criminal activities 28 ’’Ž‹ ƒ„‹Ž‹–›‘ˆ–Š‡‘’ƒ‹‡• –ǡʹͲͳ͵ƒ†‡›‘ ‡’–• ʹͺ –‡”’”‡–ƒ–‹‘‘ˆ†‡ϐ‹‹–‹‘•—†‡”–Š‡‘’ƒ‹‡• –ǡʹͲͳ͵ ʹͻ ‡› ‘ ‡’–•—†‡”–Š‡ ‘’ƒ‹‡• –ǡʹͲͳ͵ ͵Ͳ Role and Responsibility under the companies Act, 2013 32 Formation and Incorporation of Companies 33 LESSON ROUND-UP 34  ͵Ͷ TEST YOURSELF 34        35 OTHER REFERENCES 35 xvii  LESSON 2 SHARE AND SHARE CAPITAL ǣ      40 Meaning of the term ‘Capital’ 40 Žƒ••‹ϐ‹ ƒ–‹‘‘ˆŠƒ”‡ƒ’‹–ƒŽ ͶͲ Publication of Authorised, Subscribed and Paid-Up Capital 41 Share and Types of Share Capital 42 ǣ   44 Overview of Issue of Securities 45 Securities 46 ‘˜‡”‹‰ƒ™• Ͷ͹ ”‘•’‡ –—• Ͷ͹ – Shelf Prospectus 48 – Red Herring Prospectus 48 – Abridged Prospectus 49 – Offer for Sale -Deemed Prospectus 49 Issue of Securities at Premium 50 Prohibition to issue the shares at discount 51 Concept of Allotment of Securities 52 ‡‡”ƒŽ”‹ ‹’Ž‡•‡‰ƒ”†‹‰ŽŽ‘–‡– ͷ͵ Šƒ”‡‡”–‹ϐ‹ ƒ–‡ ͷͶ ǣ     59 Equity Shares with Differential Voting Rights 59 Issue and Redemption of Preference Shares 62 Further Issue of Share Capital 65 Conditions for Further Issue of Shares to Equity Holders Rights Issue [Section 62(1)(A)] 66 Employee Stock Option Scheme 68 ••—‡‘ˆŠƒ”‡•‘”‡ˆ‡”‡–‹ƒŽƒ•‹• ͹ʹ ”‹˜ƒ–‡Žƒ ‡‡–‘ˆŠƒ”‡• ͹ͷ ‘—•Šƒ”‡• ͹ͺ Sweat Equity Shares 80 ǣ    ǡǧ     83 Alteration of Share Capital (Section 61) 83 Buy Back of Securities (Section 68) 84 Reduction of Share Capital (Section 66) 89 Diminution of Share Capital is not a Reduction of Capital 91 xviii Reduction of Share Capital without Sanction of the Tribunal 93 ǣ   ȃ       ǡʹͲͳ͵ 94 Transfer or Transmission of Securities 94 Checklist for Company Secretary 98 Power of Board to Refuse Registration 100 ‡ –‹ϐ‹ ƒ–‹‘‘ˆ‡‰‹•–‡”‘ˆ‡„‡”•ȋ‡ –‹‘ͷͻȌ ͳͲͳ Lost Transfer Deeds 102 Delegation of Powers for Transfer 103 Transfer of Debentures 103 Transfer of Shares to a Minor 103 Transfer of Shares to Partnership Firm 103 Transfer of Securities to a Body Corporate 104 Transfer without the Authority of the Owner 104 Position of Transferor 104 Transfer in Violation of Articles 104 Transmission of Securities 104 Distinction between Transfer and Transmission 105 Forged Transfer 109 Death of a Joint Shareholder 110 Transposition of Name 110 Death of Transferor or Transferee before Registration of Transfer 110 Rights of Transferor 111 Effects of Transfer 112 Legal Framework for Depository Systems 113 Dematerialisation and Rematerialisation of Shares 114 ”‘ ‡†—”‡ˆ‘”‡ƒ–‡”‹ƒŽ‹•ƒ–‹‘‘ˆŠƒ”‡•„›–Š‡Šƒ”‡Š‘Ž†‡” ͳͳ͹ Procedure for Dematerialisation of Shares by the Company 118 Transfer of Dematerialised Shares 118 Pledge or Hypothecation of Dematerialised Shares 119 Rematerialisation of Securities 120 Annexure I 120 Annexure II 120 Annexure III 120 LESSON ROUND-UP 122  ͳʹ͵ TEST YOURSELF 124        125 OTHER REFERENCES 125 xix  ͵    Introduction - Who are Members? 129 ‡ϐ‹‹–‹‘‘ˆ‡„‡” ͳʹͻ Modes of Acquiring Membership 130 Who may Become a Member 131 Cessation of Membership 134 Register of Members Etc. 135 ‡ Žƒ”ƒ–‹‘„›‡”•‘•‘– ‘Ž†‹‰‡‡ϐ‹ ‹ƒŽ –‡”‡•–‹ƒ›Šƒ”‡ ͳͶͳ ‹‰‹ϐ‹ ƒ–„‡‡ϐ‹ ‹ƒŽ‘™‡”•‹ƒ ‘’ƒ›Ȃȏ‡ –‹‘ͻͲ”Ȁ™–Š‡‘’ƒ‹‡• ȋ‹‰‹ϐ‹ ƒ–‡‡ϐ‹ ‹ƒŽ™‡”•Ȍ—Ž‡•ǡʹͲͳͺȐ ͳͶ͵ Rights of Members 150 Liability of Members 154 Shareholders’ Democracy 155 Shareholder’s Agreement 156 ‡–‘‘™‡” ͳͷ͹ Assignment of Shares in a Company 158 Annexure I 159 Annexure II 162 LESSON ROUND-UP 163  ͳ͸͵ TEST YOURSELF 164        165 OTHER REFERENCES 165 Ͷ    ǧ      168 Borrowing 168 ›’‡•‘ˆ‘””‘™‹‰• ͳ͹ʹ •–”—‡–•ˆ‘”‘”’‘”ƒ–‡ —†‹‰Ǧ‡„–ƒ’‹–ƒŽ ͳ͹͵ ‡ϐ‹‹–‹‘‘ˆ‡„‡–—”‡ ͳ͹͵ ‹†•‘ˆ‡„‡–—”‡ ͳ͹͵ ”‡ƒ–‹‘‘ˆ‡ —”‹–›Ȃ‘Ž‡‘ˆ‡„‡–—”‡”—•–‡‡ ͳ͹͸ ǧ     184 What is Deposit? 184 xx Applicability 188 Acceptance of Deposits 189 The Companies (Acceptance of Deposits) Rules, 2014 192 Return of Deposits- Including Reports of 'What is not a Deposit' 199 Forms related to Deposits 201 Procedure of acceptance of Deposits-From Members and Public 201 Checklist of Secretarial Compliance for Acceptance of Deposits as per the Companies Act, 2013 205 Ǧ ʹͲ͹  ʹͲͺ TEST YOURSELF 209        210 OTHER REFERENCES 210 ͷ CHARGES Introduction 213 Pledge, Hypothecation & Mortgage 213 ‡ϐ‹‹–‹‘‘ˆŠƒ”‰‡ ʹͳͶ Meaning of Interest & Lien 214 Depature from the Company Act, 1956 214 Difference between Mortgage & Charge 214 Charge & Pledge Distinguished 215 Registrable Charges 215 Need for creating a Charge on Company’s Assets 216 ”‘–‡ –‹‘–‘–Š‡‡†‡” ʹͳ͹ ‹†•‘ˆŠƒ”‰‡• ʹͳ͹ ”›•–ƒŽŽ‹œƒ–‹‘‘ˆϐŽ‘ƒ–‹‰Šƒ”‰‡ ʹͳͺ ˆˆ‡ –‘ˆ”›•–ƒŽŽ‹œƒ–‹‘‘ˆϐŽ‘ƒ–‹‰Šƒ”‰‡ ʹͳͺ ‘•–’‘‡‡–‘ˆƒϐŽ‘ƒ–‹‰ Šƒ”‰‡ ʹͳͻ ‡•–”ƒ‹–‘–Š‡’‘™‡”–‘ ”‡ƒ–‡ Šƒ”‰‡•™‹–Š’”‹‘”‹–›–‘ƒϐŽ‘ƒ–‹‰ Šƒ”‰‡ ʹͳͻ ˜ƒŽ‹†‹–›‘ˆϐŽ‘ƒ–‹‰ Šƒ”‰‡ ʹͳͻ Registration of Charges under the Companies Act, 2013 220 ‡‰‹•–”ƒ–‹‘‘ˆŠƒ”‰‡•Ȃ‡ –‹‘͹͹ȋͳȌ ʹʹͲ Subsequent Registration shall not Prejudice any Right 222 Non-Applicability to certain charges as prescribed in Consultation 222 Application for registration of charge by the charge-holder (Financing Institution) 222 ‡”–‹ϐ‹ ƒ–‹‘‘ˆ‡‰‹•–”ƒ–‹‘‘ˆ Šƒ”‰‡Ƭ‡”–‹ϐ‹ ƒ–‡‘ˆ‘†‹ϐ‹ ƒ–‹‘‘ˆ Šƒ”‰‡ ʹʹʹ xxi Acquiring Property subject to a charge 222 ‡‰‹•–”ƒ–‹‘‘ˆ”‡ƒ–‹‘‘”‘†‹ϐ‹ ƒ–‹‘‘ˆŠƒ”‰‡  ʹʹ͵ ‡”‹ϐ‹ ƒ–‹‘‘ˆ •–”—‡–• ʹʹ͵ Satisfaction of charges 223 Power of registrar to make entries of satisfaction in absence of intimation from the company 224 ‡”–‹ϐ‹ ƒ–‡‘ˆ”‡‰‹•–”ƒ–‹‘‘ˆ•ƒ–‹•ˆƒ –‹‘‘ˆ Šƒ”‰‡̳‘–‹ ‡‘ˆ Šƒ”‰‡ ʹʹͶ ‡‰‹•–‡”‘ˆŠƒ”‰‡•ƒ‹–ƒ‹‡†‹ǯ•ˆϐ‹ ‡ ʹʹͶ Intimation of appointment of receiver or manager 225 Company’s Register of charges 225 Inspection of charges-Section 85(2) 226 ‹•–‘ˆˆ‘”•—†‡” Šƒ”‰‡ƒƒ‰‡‡– ʹʹ͸ Consequences of Non-Registration of Charge 226 —‹•Š‡–ˆ‘” ‘–”ƒ˜‡–‹‘ ʹʹ͹ ƒ”–‹ —Žƒ”•‘ˆŠƒ”‰‡•  ʹʹ͹ ‡ –‹ϐ‹ ƒ–‹‘„›‡–”ƒŽ ‘˜‡”‡–‹‡‰‹•–‡”‘ˆŠƒ”‰‡• ʹʹͺ ”‘ ‡†—”‡ˆ‘”‡‰‹•–”ƒ–‹‘‘ˆ”‡ƒ–‹‘Ȁ‘†‹ϐ‹ ƒ–‹‘ƒ–‹•ˆƒ –‹‘‘ˆŠƒ”‰‡ ʹʹͺ Registration of charges under the SARFAESI Act, 2002 by Banking Company 230 Specimen Resolutions 233 LESSON ROUND UP 236  ʹ͵͹   ʹ͵͹        238 OTHER REFERENCES 238 ͸      Ȃ   Introduction 240 ‡ƒ‹‰ƒ†‡ϐ‹‹–‹‘‘ˆ‹˜‹†‡† ʹͶͳ Interest vs. Dividend 241 Types of Dividend 242 Declaration of Dividend (Section 123) 243 ’ƒ‹†‹˜‹†‡† ‘—–ȋ‡ –‹‘ͳʹͶȌ ʹͶ͹ Investor Education and Protection Fund (Section 125) 248 Utilisation of Investor Education and Protection Fund 249 Right to Dividend, Rights Shares and Bonus Shares to be held in Abeyance Pending Registration of Transfer of Shares 258 Punishment for Failure to distribute Dividends 259 xxii Waiver of Right to receive Dividend 259 Revocation of Dividend 259 ‹˜‹†‡†‹ ƒ•‡‘ˆ‡‡ϐ‹ ‹ƒŽ™‡” ʹͷͻ ‹•–”‹„—–‹‘‘ˆ”‘ϐ‹–•‹‘–Š‡”–›’‡•‘ˆ‘’ƒ‹‡• ʹͷͻ Procedure for Declaration and Payment of Interim Dividend 260 Procedure for Declaration and Payment of Final Dividend 263 Procedure for Declaration of Dividend out of Reserves 266 Annexures 266 LESSON ROUND-UP 269  ʹ͸ͻ   ʹ͹Ͳ        ʹ͹Ͳ OTHER REFERENCES ʹ͹Ͳ ͹      –”‘†— –‹‘ ʹ͹ʹ ‘ ‡’–Ƭ˜‘Ž—–‹‘‘ˆ  ʹ͹͵ Š‡ †‹ƒ ‡ƒ”‹‘ ʹ͹Ͷ —†‡” †‹ƒ‡‰‹•Žƒ–‹‘  ʹ͹Ͷ —†‡”–Š‡‘’ƒ‹‡• –ǡʹͲͳ͵ ʹ͹͸ ‡••ƒ–‹‘ȏ—Ž‡͵‘ˆ–Š‡—Ž‡•ǡʹͲͳͶȐ ʹ͹͹ ’‘”–ƒ–‡ϐ‹‹–‹‘•—†‡”ȏ—Ž‡ʹ‘ˆ–Š‡—Ž‡•ǡʹͲͳͶȐ ʹ͹ͺ ‘‹––‡‡ ʹ͹ͻ The functions of CSR Committee 280 Meeting of CSR Committee 281 Functions and Responsibilities of the Board 281 CSR Implementation [Rule 4 of the CSR Rules, 2014] 281 List of CSR Activities [Schedule VII of the Companies Act, 2013] 283 Žƒ”‹ϐ‹ ƒ–‹‘• ʹͺͶ ‘’—–ƒ–‹‘‘ˆ‡–’”‘ϐ‹– ʹͺͷ š’‡†‹–—”‡Ǧȏ—Ž‡͹‘ˆ–Š‡—Ž‡•ǡʹͲͳͶȐ 286 Spending mandate and consequences of not spending (Change in CSR regime from Voluntary to Mandatory) 288 Penalty 291 ƒš‡‡ϐ‹–•—†‡” ʹͻ͵ Non Applicabilty of CSR”‘˜‹•‹‘•‘’‡ ‹ϐ‹‡†‘’ƒ‹‡• ʹͻ͵ CSR Portal 293 xxiii The National CSR Awards 293 What are the Various other aspects that may be kept in mind while undertaking CSR? 293 ANNEXURES 295 LESSON ROUND-UP 303  ͵ͲͶ TEST YOURSELF 305        ͵Ͳͷ OTHER REFERENCES 305 LESSON 8 ǡ   Introduction 310 Important Terminologies w.r.t. Accounts of Companies 310 ‡“—‹”‡‡–‘ˆ‡‡’‹‰‘‘•‘ˆ ‘—–– Ǥȋ‡ –‹‘ͳʹͺȌ ͵ͳͳ Financial Statement (Section 129) 313 Form of Financial Statements (Schedule III) 314 Consolidated Financial Statements 314 Manner of Consolidation of Accounts 314 Periodical Financial Results 315 Re-Opening of Accounts on Court’s or Tribunal’s Orders (Section 130) 315 Voluntary Revision of Financial Statements or Board’s Report (Section 131) 316 Signature of Financial Statement (Section 134) 316 ‹‰Š–‘ˆ‡„‡”–‘‘’‹‡•‘ˆ—†‹–‡† ‹ƒ ‹ƒŽ–ƒ–‡‡–ȋ‡ –‹‘ͳ͵͸Ȍ ͵ͳ͹ ‘’›‘ˆ ‹ƒ ‹ƒŽ–ƒ–‡‡––‘„‡ ‹Ž‡†™‹–Š‡‰‹•–”ƒ”Ǧȋ‡ –‹‘ͳ͵͹Ȍ ͵ͳͻ National Financial Reporting Authority (NFRA) 320 ‡–”ƒŽ ‘˜‡”‡––‘”‡• ”‹„‡ ‘—–‹‰–ƒ†ƒ”†•Ǧȋ‡ –‹‘ͳ͵͵Ȍ ͵ʹʹ Audit and Auditors 325 Ž‹‰‹„‹Ž‹–›Ƭ—ƒŽ‹ϐ‹ ƒ–‹‘•‘ˆ—†‹–‘” ͵ʹͷ ‹•“—ƒŽ‹ϐ‹ ƒ–‹‘•‘ˆ—†‹–‘” ͵ʹͷ Appointment of Auditors (Section 139) 326 ’’‘‹–‡–‘ˆ—†‹–‘”‹ ‘˜‡”‡–‘’ƒ› ͵ʹ͹ Mandatory Rotation of Auditors 328 Rotation of Auditors [Section 139(3)] 328 Rotation of Auditors on Expiry of their Term 328 Re-Appointment of Retiring Auditor [Section 139 (9)] 329 ƒ•—ƒŽƒ ƒ ›‹–Š‡‘ˆϐ‹ ‡‘ˆ—†‹–‘”ȏ‡ –‹‘ͳ͵ͻȋͺȌȐ ͵ʹͻ Appointment of Auditor other than Retiring Auditor by Special Notice 330 xxiv Powers of Tribunal [Section 140(5)] 331 Removal of Auditor 331 Resignation of Auditor 331 Remuneration of Auditor (Section 142) 332 Auditor Not to Render Certain Services (Prohibited Services) [Section 144] 332 —†‹–‘”ǯ•‹‰Š–‘––‡† ‡‡”ƒŽ‡‡–‹‰ ͵͵ʹ Powers and Duties of Auditors 332 ‘™‡”•‘ˆ‘’–”‘ŽŽ‡”ƒ†—†‹–‘”Ȃ ‡‡”ƒŽ‘ˆ †‹ƒ‹ƒ•‡‘ˆ ‘˜‡”‡–‘’ƒ› ȏ‡ –‹‘ͳͶ͵ȋͷȌƬͳͶ͵ȋ͹ȌȐ ͵͵͵ Audit Report 334 Branch Audit 336 Auditing Standards [Section 143(9) & (10)] 336 Reporting of Frauds by Auditor 336 ƒ‹–‡ƒ ‡‘ˆ‘•–‹‰Ƭ–‘ ‡ ‘”†• ͵͵͹ ‘•–‡ ‘”†•Ƭ—†‹–ȋ‡ –‹‘ͳͶͺȌ ͵͵͹ Cost Audit 339 Secretarial Audit 341 Role of Company Secretary 343 Need For Secretarial Audit 345 Internal Audit (Section 138) 346 Ǧ ͵Ͷ͹  ͵Ͷͺ TEST YOURSELF 349        349 OTHER REFERENCES 349 ͻ TRANSPARENCY AND DISCLOSURES Introduction