Corporate Laws - CA

8/6/2019 Corporate Laws - CA

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Corporate & Allied Laws

Directors Meaning of the Term Director: Sec. 2(13)

Includes person occupying the position of a director bywhatever name called

The definition Is based on function, whether or not he islawfully appointed

The main criteria for a person to be a director is based onhis office, functions performed and duties discharged

Shadow Director Person in whose directions or instructions the board is

accustomed to Act Board is not exercising its own discretion but blindly acts

on instructions or directions ~ on a regular & repetitivebasis

Sec. 7 ~ if directions are on professional capacity ~ its nottreated to be a director

Only Individuals as directors No Body Corporate, APO can be appointed as directors

(Sec. 253)

Position of Director They are appointed by Shareholders, only they can

remove the directors Have overall control & supervision BOD will exercise all powers other than those exercised

in GM Powers of directors can be restricted by articles Directors should exercise reasonable care, skill &

diligence in performance of duties

Position of Shareholders They cannot interfere in Day-2-Day management They can remove directors, appoint new ones or alter

articles to restrict the directors power for futuretransactions


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Powers of directors ~ are exercise collectively by BOD By passing a resolution in board meeting No Director can act on behalf of the company unless

powers are delegated to him

Prohibition on Assignment of Office ~ Sec.312 Assignment is Void ~ No director can assign his office

Directors Identification # ~ Sec.253 & Sec. 266A 266G.

It is mandatory to have DIN ~ Sec. 253 Application for DIN by whom ~ Sec.266A

Individuals who want to become directors Application to be made to the CG Directorship can be done pending allotment of DIN

Allotment of DIN ~ Sec.266B Within 1M of Application

Prohibition to obtain >1DIN Intimate the DIN by director w/n 1M of receipt ~ to company.

Sec.266D

Intimation of DIN by Co. to Registrar w/n 1 week of receipt ofintimation from directors Penalty ~ fine upto Rs.5000 + Rs.500 per day. Sec 266G Obligations ~ quote it in return, information or particulars. Sec

266F

Legal Position of Directors

Directors as Agents Cases of Personal liability of Directors

Acts in his own name Contracts on behalf of Co w/o using Limited or

Private Limited as part of name of company Enters in an agreement by signing in personal

capacity


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Important points He should exercise reasonable skill, care &

diligence Even if director exceeds his authority, the contract

will be binding on Co. ~ Co. will claim damages forbreach of implied warranty

Directors as Trustees Directors have fiduciary position towards Co.

Directors as Officers Officer in default ~ WTD / MD

Directors as employees If directors are in service of Company

Qualification Shares ~ Sec. 270 read with Sec. 272, 273 & 283

There is no statutory requirement It will be held only if required by articles Act will not impose a burden to hold Q shs

Time limit ~ w/n 2 m of appointment T/L of 2 months is absolute

Articles cannot require a person to hold Q shs eitherbefore appointment (or) period < 2m (void) Director should become registered holder w/n 2m

Maximum share qualification ~ Rs. 5000 or nominal value of 1share > Rs.5K

Table A Reg 66 ~ holding of 1 sh. Who will hold Q shs. ~ Every Director

Exceptions Nominee director appointed by CG u/s 408 Nominee director by Financial institution SSD Director specifically exempted by articles

On Date of Raising of Q shares Already qualified ~ need not obtain addl. shs.

Other Provisions Holding in Joint names is permitted Mortgaging is permitted


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Beneficial ownership is not required Any kind of shares (Equity/Preference) Bearer of share warrant ~ is not deemed to be holder of Q

shares. Non Applicability of Sec.270

Sec. 270 is not applicable to private companies. Can a director continue without holding qualification shares

Yes, he can continue for 2 months for a public company ifarticles require holding Q shares.

In a private Company Immediately he should obtainQ.Shs.

Mode of acquiring Q shares Original Allotment Transfer of shares by existing members Purchase in open market

Disqualification of Directors Sec.274 Grounds applicable to every Company

Person found to be unsound mind by court of competentjurisdiction

Undischarged insolvent Applied to be adjudicated as insolvent Convicted by Court : Conditions

Offence involving moral turpitude Sentenced to imprisonment for 6M or more 5 yrs is not elapsed from expiry of sentenced (Moral

Turpitude: Contrary to justice, honesty & goodmorals ~ imply wickedness of character.)

Person who has not paid calls on Shares Default continues for 6 months

Disqualified by court order u/s 203 Due to fraud or misfeasance in relation to Co. Disqualification will remain for max. 5 yrs

Grounds Applicable to Public Co ~ 274(1g) Director in a public co. will be disqualified for 5 yrs ~ if the

public Co. Does not file Annual Return / Accts. ~ for

continuous 3 F.Y commencing from 1.4.1999


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Fails to repay deposits/pay interest/redeemdebentures /pay dividends for 1 yr or more

Disqualification u/s 274 (1g) ~ Conditions Both defaulting Co. & proposed appointment should

be public companies Effect: The director cannot be

Appointed in any public Company Reappointed in defaulting Company Reappointed in other public Co ~ in which he is

already a director Default on A/c of Non-payment

From due date till expiry of 1 yr Default on A/c of non-filing

Directors on the last due date of filing AA/AR Period of Disqualification

Disqualification continues for 5 yrs He will be disqualified even if default is made good

No Vacation of Office Either in defaulting Company or any other Co.

Escape from Disqualification To Escape ~ the director should resign before

disqualification is effective Additional grounds can be provided for disqualification of

director in private Co.

Number of Directors Sec.252 Minimum No. of directors

Public Co ~ 3 :: Private Co ~ 2 Maximum No. is determined as per articles OR is required to Inc/Dec in # of directors

This increase should be w/n limits of articles Inc. in # of directors : approval by CG

Approval is not req. if inc. does not exceed the # fixed by

Articles first registered (or) # of directors as increased does not exceed 12. N.A for Govt. Co, Licensed u/s 25, Pvt Co.


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Appointment of First Directors S.254 If directors are named in articles If directors are not named in articles

Case A: Articles prescribe manner of appointmentof directors

Case B: Articles does not prescribe the manner ofappointment ~ All Subscriber to memorandum whois individuals shall be deemed as directors ~ untilthey are duly appointed @ GM u/s 255.

Appointment of directors voted Individually General Rule S.263

Separate resolutions are required for each appointment /reappointment of directors

Exception : Single resolution can be used If before passing such resolution, another resolution is

passed w/o any vote cast against it Consequences of Default

Appointments are void, directors act is valid till the defectis shown to the company

S.263 is Not applicable to: Private Company Company licensed u/s 25

Appointments made by Co. other than in GM.

Appointment of Nominee Directors

Provisions for Appointment by CG u/s 408 (or) Financialinstitution

Not required to retire by rotation Not counted in Total # of directors Not be considered to account for 2/3rd

Even if there are no provision in the articles ~ they

may be appointed Their appointment may result in increase in strength

of board beyond max. # of directors They need not hold qualification shares They can be removed only by authority appointing

them


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Provisions for other nominee directors All provisions of co. act 1956 is applicable Articles should provide that nominee directors be

appointed Appointment should not result in contravention of Sec.

255.

Vacation of Office S.283 Grounds applicable to every company

Unsound mind of court of competent Jurisdiction Adjudged as insolvent Applied to be adjudicated as insolvent Convicted by Court

Offence involving moral turpitude Sentenced to imprisonment for 6m or more

Fails to pay calls on shares > 6m Disqualified by court order U/S 203

Fraud / Misfeasance in relation to Company In contravention to S.295

Acceptance by a director ~ a loan, guarantee,security for loan, from a public company

In Contravention to S.299 If director fails to disclose his concern or interest in

any contract or arrangement Removed from office S.284 Fails to obtain share qualification u/s 270 Person appointed as director by virtue of his holding any

office/employment ~ ceases to hold. Person absents w/o obtaining leave of absent

W.E.Longer From 3 consecutive BMs Or from all BMs for continuous period of 3m

Additional grounds Private company may have additionalgrounds

Vacation is automatic No opportunity of being heard Board need not pass a resolution Board has no power to waiver any ground


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Restriction of # of Directorship Sections S.275, 277 & 278 Maximum Directorship S.275

Max : 15 Companies Director already holding 15 directorship acquires new

directorship S.277(1) New appointment will not take effect unless within 15

days of such appointment director should vacate earlierdirectorship, if not vacated ~ the new appointmentbecomes void

New appointments increasing directorship to more than 15 S.277(2)

If a person is holding 14 or less directorship and due tonew appointment, the total directorship is > 15

Within 15 days of new appointment, he shouldchoose the directorships he wishes to retain,otherwise all new appointments will become void

Directorship excluded u/s 275 & 277 Private company, unlimited Co, licensed u/s 25 Co.,

alternate director ( S.278)

Rotational & Non-Rotational Directors Applicable section 255

Directors liable to retire by rotation Period of office is liable to be determined by retirement byrotation

2/3 rd of Total # of directors will be rotational directors fraction (rounded)

Articles can provide that all directors will be rotationaldirectors & retire at every AGM

Rotational directors will be appointed in GM Directors not liable to retire by rotation

They are called non-rotational directors They are appointed in GM (articles can provide otherwise) Term of office is determined in GM

Total # of directors It means the total # for the time being appointed as

directors & not the # of directors fixed by articles Non-applicability : Private Companies


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Position of WTD / MD Any director (rotational / non) can be appointed as WTD /

MD IF rotational director is appointed as MD / WTD & Terms of

office is fixed, he shall retire as per provisions S.255 &256even if the terms are not expired ~ He will continue as aWTD / MD if he is reappointed after retirement.

Ascertainment of Directors retiring by rotation S.256 Number of directors retiring @ AGM

At first & every AGM 1/3rd of rotational directors shallretire from office

Who shall retire Directors longest in office will retire first If 2/more directors are appointed on same day, they

will retire by agreement or by lots Vacancy in place of retiring director

Either filled by reappointing retiring director or appointingsomeone else (meet S.257)

Adjournment of AGM IF place of retiring director is not filled (or) meeting has

not resolved not to fill the vacancy Then meeting will be adjourned to same day, next week,

same time & place Automatic reappointment If in the adjourned meeting the retiring director is not

reappointed and meeting has not resolved not to fill thevacancy then retiring director is deemed as reappointed

No automatic reappointment Resolution for reappointment was put & lost Retiring director has given written notice of unwillingness

of being reappointed He is disqualified for appointment A Resolution is required for his reappointment A Resolution to contravention to S.263 is passed

AGM not held ~ Consequences Calling of AGM is duty of directors Directors cannot extend the tenure of office by not holding

AGM


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Therefore, they cannot continue in office after the last dayon which AGM should have been held

Non-Applicability ~ Private Companies

Appointment by different interest group First Directors - Table A Regulation 64 Appointment by Shareholders

Filling on Retirement, appointing person other thanretiring director, proportional representation, smallshareholder director

BOD - Additional director, Casual vacancy, Alternate Director CG empowered u/s 408 3rd Parties Nominee Directors

General Powers of the Board S.291 Powers of the Board are co-extensive with that of the Company

It is entitled to exercise all powers & acts that theCompany is entitled to do

It will not exercise any powers which is required to beexercised in GM

Powers exercised will be subject to provisions of Co. Act,memorandum & Art.

Restriction on Board Powers

Shareholders impose restrictions & conditions No restriction will invalidate the acts done by board,before the restriction was in place

Supremacy of Board Board is entrusted with management of Co. Shareholders cannot interfere in D2D mgmt Power of Mgmt is vested in BOD Exception : Shareholder will exercise when

Board is acting malafide Board is incompetent to act There is Deadlock in the Board

Mode of Exercising Powers of Board Passing resolution at BM Passing resolution by circulation Delegating powers to the director or committee, if

authorized by articles


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Appointment of Person other than Retiring Director S. 257 Object

Applies to any person to become director (condition: heshould not be a retiring dir.)

It empowers for fresh appointment of dir. Increase in the strength of BOD

Eligibility He should not be a retiring director Eligible to be appointed as director @ GM Condition of S.257 should be satisfied

Person eligible to give notice Give notice of own candidature Propose a candidature of another person

Conditions of Section 257 Notice to be given to the Company At least 14 Days before the GM To be given at the registered office of Co. Deposited with Rs.500 Refundable if candidate is

selected Procedure adopted by Company

Company informs members about the proposed director Mode of sending notice

Serving Individual Notice (or)

Advertising in 2 newspaper T/L for serving the notice 7 days before GM

Retiring Director A Director retiring by rotation

Non-Applicability - Private Company

Compensation for Loss of Office S.318 Compensation paid for

Loss of office Consideration for retirement from office In connection with loss / retirement

Compensation to ~ MD / WTD / Director Amount of Compensation

Lower of : unexpired tenure (or) 3 yrs Basis: Avg. remuneration, earned in 3 yrs immediately

preceeding to date of cessation Prohibition of Compensation


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Reconstruction / Amalgamation Director resigns, but is appointed as MD / Manager

in reconstructed Company Director resigns voluntarily Office of director is vacated u/s 203 / 283 Director has instigated / responsible for termination Company is wound up due to negligence of director Director is guilt of fraud or breach of trust or gross

negligence in conduct of affairs

Proportional Representation S.265 Express powers in articles

PR is not compulsory, no req. in the Act No. of Directors atleast 2/3rd Periodicity once in 3 yrs Casual Vacancy Filled u/s 262 Voting

Single transferable vote Cumulative voting

No removal u/s 284 Not applicable to Private Company

Removal of Director S. 284 Procedure for removal Member should give Special notice of removal, w/n 14D

of GM to Company Copy of Notice to be given by Co-Director Director has right to make representation Representation by director is sent to

Every member 7 days before GM If not sent it should be read at the GM

GM is held, Director has a right to representation in the

meeting. OR should be passed for his removal Another person can be appointed only if special notice of

appointing him was given Following directors cannot be removed

Appointed u/s 408 / 265, Nominee Director Private Co. Director holding office for life


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Other points Member cannot be compelled to disclose reason for

proposing resolution for removal Articles cannot prohibit removal Special notice need not comply with S.188

Even a single member with 1 sh. Is eligible to givespecial notice u/s 284

Resignation by Directors Immediate Effect w/o acceptance

If articles do not have a provision for acceptance Articles allow director to resign at anytime

On Acceptance IF articles require acceptance Resignation states that it will take effect on

acceptance Director tendered resignation is MD/WTD/Manager

Withdrawal of Resignation Once done it cannot be withdrawn except

To be effective it requires acceptance Withdrawal is made before acceptance Withdrawal is made with consent of Board / Share

holders / articles of Company

WTD /MD/Manager cannot resign on their own will, theywill have to be accepted by company Verbal resignation

Sufficient provided intension to resign is clear Not effective if articles require written resignation

Verbal resignation: Exception It is effective if made in GM and accepted in GM,

even if articles require resignation in writing Resignation to be submitted to board or shareholders No copies need to be submitted to registrar.

Executive Director / Non-Executive ED are in employment of the company E.g.. WTD / MD


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Appointment by Board Additional Directors - S. 260

No Precondition ~ Board at its discretion will appoint addl.Directors

Power to appoint should be authorized by articles Term of office ~ hold office till next AGM Method of Appointment Pass a Resolution Table A reg. 72 will authorize Board No CG approval is required

Filling of Casual Vacancy S.262 Applicable to only public Co. When office of director ends, other than the normal

course, board will fill thro CV No express powers in articles is required CV director will hold office till unexpired term of director in

whose place he is appointed Filled by passing resolution in BM There are no provisions in Table A No CG approval is required S.259

Alternate Director S. 313 Applicable to All Companies During the absence of original director for a period of 3m

or more from State in which BMs are held ~ an alternate

director will be appointed Board should be authorised by articles and resolution @GM

He will hold office until original director returns No provisions in Table A ~ S.259 N.A

Other Provisions S. 260, 262 & 313 They will be non-rotational directors If they have to be appointed as regular director provision

of S.257 to be fulfilled If articles require holding Qshs ~ they should obtain them.

Other Points Additional Director

Limit on # of additional directors not to exceed max.strength fixed by articles

They are not included in Total # of directors S.255


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Casual Vacancy If a person appointed as a director ~ does not

assume office, no casual vacancy arises No casual vacancy for the efflux of time

Alternate Director Automatic reappointment of original director if terms

expire before he returns Appointment of AD vests with Board He is not a representative or proxy of original dir. He has same rights, duties & liabilities, all

provisions of companies act are applicable His interest is independent to interest of original

director for provisions of S.297, 299 & 300

Powers Exercisable only at BM S.292 Resolution at the BM S.292(1)

Calls on shares Authorizing buy-back u/s 77A(2)(b)

Pass resolution @ BM Buy-back shall not exceed 10%(paid up equity

capital + Free reserves) No further buy-back for next 365 days

Issue debentures

Borrowing money other than debentures Investing funds & making loans Delegation of Powers ~ Condition

Resolution to delegate to be passed in BM Powers are delegated to committee, MD, Manager,

principal officer Particulars to be specified

Borrowing money ~ specify the total amt to beborrowed

Invest funds ~ Total amount to be invested & nature

of investments Power to make loans ~ Total amount, purpose,

max. amount of loan for each purpose Note: Power to make intercorporate loans & investments

u/s 372A cannot be delegated


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Appointment of SSD Proviso to Sec. 252(1) read with Companies (Amendment of

SSD) Rules, 2001 Applicability

Public Company ~ Rs.5 Cr. ~ 1000 or more small shareholders (Shareholder holding shares of Rs. 20,000 orless)

Appointment Suo-motu by company Notice of Small Share holders

1/10th or more small shareholders Notice to be given 14 days before the meeting &

should specifiy names, address & number of sharesheld and folio numbers

Requirements and Conditions He should be a small shareholder for max 2 Co. He cannot be appointed as WTD/MD Tenure ~ Max of 3 yrs He can be reelected, he will be non-rotational dir. Disqualification ~ S.274, S.274(1g) is N.A Vacation u/s 284 Removal with OR u/s 283

Loans to Directors S.295 Scope Loan given to specified person or guarantee or security to

specified person who gives loan to any other person Specified person

Director, relative, partner, firm in which such director is apartner, private company, body corporate where 25%voting power is held by such director (or) body corporatewhere the board is accustomed to act.

CG approval is required N.A ~ Private Company, Loan by holding to subsidiary S.295 will be applicable to all book debts Loan ~ is Advance of Money i.e. financial assistance Selling flat to director ~ only a credit sales and not a loan Salary advance to wife of MD ~ if it is bonafide it is allowable No Retrospective effect


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If private co makes a loan to specified person, thenconverts into a public company ~ Sec. 295 is not attracted

No restriction on business advance Security deposit is not considered u/s 295

Board Sanction for Certain Contracts S.297 Applicability ~ all companies Conditions to be fulfilled

Contract is between Co. & specified person Contract is a specified contract

Specified Contracts Contract for sale, purchase or supply of goods, material

or service Contract for underwriting the subscription of shares or

debentures Legal requirement

Paid up capital < 1 Cr. Board Consent by passing Resolution @ BM

If the Paid up capital > 1Cr. Board Consent & CG consent to be obtained

Exemptions u/s 297 If contract is for purchase / sale of goods in cash @

prevailing market price

Contract is for pur / sale of goods, services, material ~there is regular trade of business and contract value < Rs.5,000 in aggregate

Banking or Insurance company Non Applicability S. 297

Purchase / Sale of immovable property Employment contracts Contract to render professional services

There is no retrospective effect Contravention

IF paid up share capital < 1Cr. Contract is voidable at option of Board (i.e board

should take action to resind the contract) IF paid up share capital > 1Cr.

Contract is void ab-initio


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Disclosure of Interest by Directors S. 299 Meaning

If a director is concerned or interested in a contract orarrangement, shall disclose his interest.

He should disclose the nature of his interest Even if he does not disclose the nature it will not result in

vacation ~ DCA Circular Mode of Disclosure

When question of entering into a contract is firstconsidered by board ~ Disclosure @ BM

When a question of entering into a contract is firstconsidered by board Director is not interested,Disclosure to be made, when the director becomes

subsequently so interested A general notice should be given by the director @ the

BM Expiry of notice ~ at end of FY in which it is given

Exemption Disclosure is not required if the interest is < 2% of

paid up share capital of the other company Disclosure is not required if interest is already

known

Int. dir. ~ person who can influence the judgment Consequences ~ vacate office u/s 283

Interested Director not to participate or vote S.300 Prohibitions on interested director

He cannot be counted for purpose of Quorum, cannotparticipate in discussion & vote

His vote is considered to be void Validity of contracts

Contract will not become void ~ Transaction will be

voidable at the option of the board, but not at the option ofthe other party

Voting by interested director may make resolution ofboard void if

Excluding him from the quorum would result in noquorum (or) failure of resolution

Non-Applicability


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Private Co, Public Co exempted by CG Contract to indemnify against loss suffered by director,

Nominee Director Contract entered where director share < 2% of paid up

share capital Appointment of relative as alternate dir.

Appointment of MD/WTD/Manager S. 269 Compulsory Appointment

Managerial person should be appointed, if its a public cowith paid up capital of > 5Cr.

Requirements CG approval is required (or) it should be in

accordance with provisions of Sch. XIII

Managerial Remuneration S. 198, 309, 387 and Sch. XIII Remuneration to directors who are not WTD / MD

CG approval is required SR is required to approve commissions Quantum of remuneration

If co has MD, WTD ~ Max: 1% of Net profits,otherwise Max: 3% of Net profits.

There is no minimum remuneration No rem. during loss, other than by approval fromCG

Sitting Fees S. 309 Payable only to ordinary directors, if it is paid to WTD/MD

~ treated as Managerial remuneration It is paid only once for a BM & not at the adjourned

meeting It can be paid for committee meetings and even if there is

a loss incurred Max: 20K ~ if aggregate of paid up share capital + free

res. > 10Cr (or) T.O > 50Cr Other cases it is 10K

Remuneration as per S.198, 309 & 387 Overall managerial remuneration should not exceed 11%

of net profits


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Depreciation should be charged to arrive at net profits Quantum : 5% of net profits if there is a WTD/MD ~

otherwise it is 10% Other points

Remuneration in professional capacity Guarantee commission Remuneration exceeding Ceiling limit

Director not to hold OPP S. 314 Meaning

Office held by director, is a OPP if he obtains fromcompany anything by way of remuneration ~ over &above which he is entitled to

Non Applicability Relative of a director or firm Appointment by CG u/s 408 Appointment as director ~ WTD/MD/non-executive

directors Rendering Professional Services

MD, WTD, Manager Managing Director S.2(26)

Only directors can become MD of company

MD is a director entrusted with substantial powers ofmgmt. which are not otherwise exercisable by director Powers of adminstrative acts are not deemed to be

substantial powers He will exercise the powers subject to superintendence,

control and board direction

MD can be appointed / reappointed for maximum periodof 5 yrs

Additional directors can be appointed as MD Manager S. 2(24)

Manager need not be a director, but director can beappointed as manager

He manages substantially the whole of affairs of thecompany

All conditions of MD are applicable here


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Note: MD can be in max: 2 companies, CG approval is requiredif this should exceed condition is that company shouldfunction as single unit & common manger

Restriction on Board Powers S 293 Sale of undertaking

Sale, dispose or lease whole / substantially whole ofundertaking

GM resolution ~ a listed company can also usepostal ballot

Time to repay debt due by a director Investment of compensation

Compulsory acquisition of undertaking No consent of shareholder is required if the

compensation is invested in trust securities u/s 20 Borrowing of Money

Temporary loans from banks are not considered asborrowings

Money borrowed should be greater than aggregate of(Paid-up capital + Free Res.)

GM resolution should specify the max. amount ofthe borrowings

Charitable Contribution

Amount on welfare of employees is not charitycontributions Upto 50k in a FY no approval of shareholders / 5%

of Average NP ~ 3 Preceeding FYs.


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The Competition Act, 2002

Definitions Section 2 Acquisition

Acquiring shares or voting rights of enterprise (or) Control over mgmt or assets of enterprise

Agreement Arrangement or understanding or action in concert

~ whether or not it is formal, writing or intended tobe enforceable by legal proceeding

Cartel Association of producers, sellers, distributors,

traders ~ who by agreement will limit, control orattempt to control ~ production, distribution, sale ofgoods or services

Relevant geographic market A market comprising area where the conditions of

competition for demand or supply of goods &services ~ are distinctly homogenous &distinguished from conditions in neighboring areas

Relevant product market A Market comprising those products and services

that are regarded as interchangeable orsubstitutable by consumer

By reasons of price, intended use or characteristics Consumer Any person who buys for consideration ~ which is

paid or promised to pay or partly paid or partlypromised or under a system of deferred payment

It includes user of such goods other than theperson who buys the goods for considerationwho uses the goods with the approval of suchperson

Whether the purchase is for resale /

commercial purpose / personal use. Any person who hires or avails services for

consideration ~ that is paid or promise to pay orpartly paid or partly promised or under a system ofdeferred payment

It includes any beneficiary of the service, otherthan the person who hires the service


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provided the services are availed withapproval of first-mentioned person

Whether hiring or availing service is forcommercial purpose / personal use.

Enterprise It is a person or dept. of Govt. engaged in any

activity of Production, storage, supply, distribution, of

goods or providing service Business of acquiring, holding, underwriting,

dealing in shares, debentures or securities ofa body corporate

Either directly or through one or more of itsunits or divisions or subsidiaries either located

at the same place or different place Enterprise does not include any Govt. activity

related to sovereign functions of the govt.like activities of atomic energy, currency,defense & space.

Competition Commission of India It will be established by the CG Head office & other office will be decided by CG time to

time Characteristics Body Corporate having perpetual succession and

common seal Power to contract, sue in its own name, acquire,

hold & dispose property Vacancy not to invalidate the proceedings of commission

S.15 No Act or proceeding of commission shall invalidate

merely by Reasons of vacancy in the commission Defect in constitution or appointment of

chairperson Any irregularity in the procedure of the

commission


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Meetings of the Commission S. 22 The commission shall meet at such times and places and

observe such rules of procedures as provided by itsregulations

In the absence of the chairperson, the senior mostmember present at the meeting shall preside at themeeting

Decisions in the meeting are generally taken by majorityof members present and voting

In the event of equality of votes, the chairperson or in hisabsence the member presiding shall have a casting(second) vote

Quorum : 3 members

Competition Advocacy S. 49 Formulating of Competition policy

The CG / SG to formulate the competition policy orany other matter, will make reference to thecommission for its opinion on possible effect of suchpolicy on competition

The commission w/n 60 days of such referenceshould give its opinion CG / SG will take furtheractions as it may deem fit

The opinion of commission is not binding on CG /SG Duties of the Commission

Promote Competition Advocacy Creating awareness about competition issues Imparting training about competition issues

Accounts and Audit S.52 Accounts & records must be proper

Annual Accounts will be prescribed by CG inconsultation with CAG

Audit will be done by CAG, T/L will be specified by CAG,Expenses of audit will be paid by commission, CAG hassame rights, privileges & authority as audit of Govtaccounts


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The orders of the commission that are beingappealable to the Appellate Tribunal or SupremeCourt, shall not be subject to audit.

The Audited accounts should be forwarded annually tothe CG and

Laid before each house of parliament

Composition of the Commission S. 8,9 & 10 One Chairperson

Vacancy / Inability to function : The Senior mostmember shall act as chairperson until newchairperson assumes office S.10

Member Min 2 :: Max 6

Common provisions for chairperson & members They will be appointed by CG, recommended by

Selection Committee, who will consists of Chair as Chief justice of india Members: Secretary of ministry of corporate

affairs, law & justice 2 Experts: having special knowledge in trade,

economics, business Members are Whole time members

Tenure 5 yrs, Reappointment is possible Maximum Age 65 yrs Oath of Secrecy will be administered Qualification : shall be person of ability, integrity &

standing with special knowledge & professionalexperience of not less than 15 yrs in internationaltrade, commerce, business, economics, law,competition law & policy, which in opinion of CGmay be useful for commission

Competition Fund S. 51 It is administered by the Commission Credits to the fund

Government Grants, Fees Received & interestaccrued on them

Utilization of Fund


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Payment of salaries, allowance, admn. exp formembers & CP

Payment for expenses to discharge functions andfor carrying out objects for which fund is constituted

Power to Exempt S. 54 CG will issue notification in OG to exempt enterprises

From application of the act or from any provisions ofthe act

Period of exemption is specified in the notification Exemption is given to:

Classes of enterprises in public interest and interestof security of state

Any practice or arrangement arising out of anobligation assumed by india ~ under a treaty,agreement or convention

Any enterprise that performs sovereign functions onbehalf of CG

Issuing Directions S.55 CG can issue directions on questions of policy only

They are binding on the commission and should be

complied by them

Appellate Tribunal S. 2(ba) and 53A It means the Competition Appellate Tribunal established

u/s 53A(1) Establishment

CG by notification will Establish CAT AT shall hear & dispose of appeals against any

directions issued by commission under this act They shall adjudicate claim for compensation that

may arise from findings of Commission and passorders for recovery of compensation

Headquarter of AT will be decided by CG bynotification


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Resignation, Removal & Suspension of Chair person Section11

Chairman by notice in writing addressed to CG mayresign his office

Effect: Unless he is permitted by CG to relinquish his office

sooner, he will continue to hold until expiry of 3months from the date of receipt of notice or aperson duly appointed as successor enters hisoffice or expiry of his terms W.E Earlier

Removal by CG on various grounds like If he is adjudged as insolvent If he is engaged in any paid employment elsewhere If he is convicted of an offence involving moral

turpitude He has abused his position prejudicial to public

interest

If he is physically or mentally incapable Note: Prior permission of supreme court is required

Appointment of Director General ~ S.16 DG ~ Appointment by CG by notification

Functions of DG Conducting inquiry into contravention of the Act Performing any other functions as may be provided

Other Officers ~ appointed by CG Addl, Joint, Deputy or Assistant DG They will exercise their powers and discharge their

functions, subject to general control, supervisionand direction of DG

Salary is as per Rules of CG Qualification: Persons of integrity & outstanding

ability, experience in investigation, knowledge inaccts, business, law


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Power of the Commission to Regulate its own procedures S.36

In discharge of its functions ~ the commission will beguided by principles of natural justice

Powers of the Commission ~ powers of civil court Summoning & enforcing attendance of person &

examining his oath. Require discovery & production of documents Receiving evidence on affidavits Issuing commissions for examination of witness or

documents Requisitioning any public record or document

Power to issue directions To produce books, accounts, other documents Furnish any information relating to trade in

possession. Power to conduct an inquiry

Commission is of the opinion that Agreement is anti-competitive agreement ~

U/S 3 Enterprise is abusing its dominant position ~

U/S 4 Enterprise is entered into a combination in

contravention ~ U/S 6 AND such agreement / abuse / combinationhas caused an appreciable adverse effect oncompetition in relevant market

AND it is necessary to protect, without delay,the interest of consumers and other marketparticipants

Reasonable oral hearing shall be given to theparties


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Abuse of Dominant position If an enterprise or group

Directly or indirectly imposes unfair or discriminatorycondition in purchase or sale of goods

Limits or restricts productions of goods or provisionof services

Indulges of practices of denial of market access Make conclusions of contract subject to acceptance

of parties of supplementary obligations ~ who haveno connection on subject of contract

Uses dominant position in one relevant market toenter into another market

Dominant position means Position of Strength, enjoyed by one enterprise in

the relevant market that enables to operateindependently of competitive forces or affectscompetitors

Inquiry into certain agreements and dominant position ofenterprise S. 19

Commission will make an enquiry to determine whetherprovisions of S.3 / S.4 have been contravened

It will make an enquiry on

Own motion Receipt of information by person, consumer orconsumer association or trade association

Reference by CG / SG The Commission when determining an appreciable

adverse effect on competition u/s 3 Creating barriers to new entrants Driving existing competition out of market Accrual of benefits to consumers

Conditions that will determine if an enterprise has adominant position

Market share, size & resource of an enterprise Economic power, vertical integration, dependence

on consumers Monopoly acquired by result of statute or virtue of

being a government company


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Countervailing buyer power Determining the relevant market

Relevant Geographical market ~ regulate tradebarriers, local specification requirements, transportcost, consumer preference

Relevant Product market ~ physical characteristicsor end-use of goods, consumer preference, price ofgoods, existence of specialized producers

Orders passed by Commission after inquiry into agreements orabuse of dominant position S.27

Direct any enterprise to discontinue Direct enterprise to reenter such agreement It will impose penalty It may direct that the agreements shall stand modified It may direct the enterprise to abide with such orders It will order payment of cost Penalty:

Not to exceed ~ 10% of Avg. TO for last 3preceding FY.

If any anti-competitive agreement is entered bycartel, it will impose penalty on the producer, seller,

distributor 3% of profits or 10% of its TO w.e.higher

Combination Sec.5 Any acquisition of control, shares, voting rights or assets

of one or more enterprise by one or more person Where the parties jointly hold value of > 1000 cr. Or

TO > 3K cr. In india or outside ~ value of property of 500M $

(including 500Cr. In rupees) or TO > 1500M$ (incl.

500Cr of rupees) After acquisition the value is > 4000 Cr. Or TO >

12000Cr In india / outside value > 2billion $ or TO > 6billion $

Any acquisition of control will become a combination if theperson directly or indirectly controls over another


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enterprise engaged in production, distribution of identicalor substitutable goods

Mergers & Amalgamation will be a combination if theenterprise after merger has the set criteria

The Foreign Exchange Management Act, 1999

Definitions Sec. 2 Foreign Currency (S.2m)

Any currency other than indian currency Foreign Exchange (S.2n)

Foreign Exchange means foreign currency Includes

Deposits, credits & balances payable inforeign currency

Draft, Travelers' cheque, LOC, BOE Expressed & drawn in indian currency ~

payable in Foreign currency Drawn outside india, but payable in

indian currency

Transfer (S. 2ze)

It includes sale, purchase, exchange, mortgage,pledge, gift, loan or any other form of transfer ofright, title, possession or lien

Foreign security (S. 2o) Any security denominated or expressed in foreign

currency Includes securities expressed in foreign currency

even if : They are redeemed in indian currency Any form of return is payable in indian

currency

PRI (S. 2v) ~ Person resident in India PRI for more than 182 days during preceeding FY ~

does not include Person gone out of india or who stays outside


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to take up employment outside india carrying business or vocation outside

india any other purpose which indicate his

intention to stay outside india foruncertain period

A person who comes to india or who stays inindia otherwise than

To take up employment in india Carry on a business or vocation in india For other purposes, that would indicate

his intention to stay in india for anuncertain period

Any person or Body corporate ~ registered or

incorporated in india Office, Branch / Agency in india owned / controlled

by PROI Office, Branch / Agency o/s india owned / controlled

by PRI Meaning of Terms:

Reside in india ~ does not mean compulsivestay, it implies some kind of permanency

Intention to stay outside india for uncertain

period ~ if the period of stay is not certain, itcannot mean that his intention to stay is for auncertain period

Citizenship is not relevant to determineresidential status

Authorised Person S. 10 to 12 Definition Section 2

Authorised person means authorised dealer, moneychanger, off-shore banking unit, any other person

authorized u/s 10 to deal in foreign exchange orforeign securities

Procedure Sec. 10 Authorised person should make application to RBI Based on the application RBI may authorize such

person On authorization he will become AP


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Authorization should be in writing & subject toconditions

Revocation of Authorization S.10 Revocation in public interest Revocation on grounds of contravention of act

RBI is satisfied that AP did not comply withrules, act, regulation, notification, direction oforder ~ Reasonable opportunity will be given

Duties of AP S. 10 To comply with general / special directions from RBI He should not enter into unlawful transactions

He should obtain prior permission of RBI toenter into transaction that is not in conformity

with the terms To ensure compliance with Act

AP should require every person to make adeclaration & give required info.

This declaration AP should be satisfied thatthey do not contravene the provisions of theact.

AP should refuse in writing to undertake thetransaction if

Person refuses to make the declaration He makes unsatisfactory compliance AP should report to RBI if contravention

is contemplated

Power of RBI ~ S. 11 Power to issue directions to secure compliance of

provisions Directions may requrie the AP to act or desist

to act RBI may call for information to secure compliance

with prov. Levy penalty if

AP contravenes directions or fails to file areturn with RBI

Penalty should not be > 10,000 ~ continuingdefault penalty upto 2000


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Opportunity of being heard can be given to AP

Power to inspect AP ~ S. 12 RBI may authorize an officer to inspect Purpose of inspection

Obtain information with AP has failed tofurnish, verify correctness of statement,securing compliance with provisions

Duties of AP ~ to produce books, accounts,documents, furnish statement, provide allassistance to inspection officer

Duties of Acquirer of Foreign exchange S. 12 He should use the foreign exchange for purpose

mentioned in declaration Not to use for any unauthorized purpose Surrender to AP within specified time if foreign

exchange could not be used for specified purpose.

Current Account Transaction Sec. 2(j) & 5 Definition of Current A/c transactions S. 2(j)

It means any transaction other than capital a/ctransaction

It includes : Payments in connection to foreign trade,current business services, ST banking & creditfacilities, interest on loans & net income frominvestments

Remittances for living expenses for parents,spouse & children residing abroad, foreigntravel, education & medical care of parents,spouse & children.

Provisions applicable to Current Account transactions They are freely permitted CG can impose reasonable prohibitions &

restrictions Rules on Current Account Transactions

Transactions for which drawal of Foreign exchangeis prohibited ~ Rule 3 read with Sch. I


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Payment to travel to Nepal & Bhutan Remittances from income from lottery

winnings, racing / riding, purchase of lotterytickets, banned magazines, football pools,sweepstakes etc.

Payment of export commission under rupeestate credit route, equity investments in JV

Remittances of dividend to company to whichrequirements of dividend balancing isapplicable

Payment relating to Call Back services oftelephones

Remittance of interest income on funds held inNon-Resident Special Rupee (Account)

Scheme

Transactions permissible with approval of CG Remittance of freight of vessel chartered by PSU Multi-modal transport operators making remittance to agent Remittance of container detection charges exceeding

prescribed rate by DG of shipping Adv. In a foreign print media > $10,000 exception : tourism,

foreign investment, international bidding

Payment of imports through ocean transport Remittance of price money or sponsorship of sports activity> $1 L except: National / international / state level sportsbodies

Remittances of hiring channels of transponders by TVchannels

Cultural tours Remittances under Technical collaboration agreements of

royalty > 5% on local sales, 8% on exports and US $ 2million(lump-sale)

Remittances for membership of P&IC club

Transactions permissible with RBI approval Business travel, attending conference, maintenance

expenses of patient going abroad, accompanyingattendant Limit $25K


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Medical treatment abroad Estimate from doctor inindia / abroad

Private visits to a country - $10 K per F.Y Gift / Donation p.a - $5000 per F.Y Person going abroad for employment - $ 1L Remittance for consultancy services for infra.

Project - $10M per project Higher education abroad 1L per academic yr Remittance for trade mark or franchise no limit Commissions to agents for sale of residential flats

abroad 5% of inward remittance or $25000 (W.E.Higher)

Repatriation Repatriate to India means ~ Sec. 2(y)

Bringing into india realized foreign exchange andselling the foreign exchange to AP in exchange ofrupees (or) holding realized amount in account withAP

It includes realized amount for discharge of debt orliability

Realization & Repatriation ~ S.8 If any amount of foreign exchange is due to PRI, he

should take steps to realize & repatriate ~ the wholemoney, within period specified in manner specifiedby RBI

Duties of PRI PRI should not refrain in doing anything which

results in Cessation / reduction of proceeds (part/full)

receivable by him, delaying receipt, receipt ofexport proceed otherwise than in specifiedmanner

General Permission U/S 3 General permission u/s 3(a)

Any person can buy from post office any foreignexchange in form of postal orders

General permission u/s 3(b)


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PRI will make payment in indian Rs. On behalf ofPROI

Hospitality expenses of a person visiting inindia

Payment for purchase of gold / silver ~payment made by crossed cheque or draft

Payment to a guarantor by PRI (principaldebtor)

Payment to non-WTD (PROI) in the form ofsitting fees, commission, remuneration, travelexpenses

General permission u/s 3 PROI during his stay in india ~ paying in Indian Rs. PROI makes payment in foreign exchange PROI is making payment in foreign currency notes PROI paying by postal orders

These provisions do not apply to transactions Entered in indian Rs. With citizen of india, Nepal or

Bhutan

Capital Account Transaction Sec. 6 CAT means which alters

Assets or liabilities outside india of PRI or in india of

a PROI It includes the following Transfer or issue of foreign security by PRI,

PROI, branch office or agency in india ofPROI

Borrowing or lending in foreign currency Deposits between PRI & PROI Transfer of immovable property outside india Export, import or holding of currency

Control over CAT ~ S.6 RBI may prohibit / restrict / regulate CAT by making

regulations RBI may specify and class of transactions that are

permissible or limit upto which the foreign exchangeis admissable

CAT that cannot be prohibited


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Amortization of loans or depreciation on directinvestments

Assets acquired o/s india when a person was PROI Assets acquired in india when a person was PRI Assets acquired by inheritance

Regulations of CAT Permissible for PRI ~ Reg. 3 read with Sch. I

Investment in foreign securities, foreigncurrency loans, trf. of immovable property,loans & OD (borrowing & lending), insurancepolicy by PRI

Permissible for PROI Investment in india, Guarantee, deposits,

acquisition of immovable property, remittanceof capital assets o/s india

Prohibited capital account transactions Chit funds, nidhi company, agricultural & plantation,

real estate business that shall not include Development of townships, construction of

residential premises, construction of bridges Trading in Transferable Development Rights (TDRs)

Land is acquired by CG/SG without monetary

compensation, the owner of land is givenTDRs which is transferrable.

Liberalized Remittance Scheme Eligibility

To all resident individuals ~ not applicable tocorporate, firms, HUF, trusts

The purpose is to make remittance upto $2L per FYfor capital or current a/c including gift & donations

Prohibition It should be specifically prohibited under the act Remittances made to Bhutan, Nepal, Mauritius or

Pakistan Countries identified by (FATF) (Financial Action

Task Force) as non-cooperative countries. Countries having significant risk of committing acts

of terrorism


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Procedure to hold inquiry AA will consider the reply by accused AA shall fix a date for the hearing Procedure for Hearing

Accused will either appear in person or takelegal assistance

AA shall explain the alleged contravention Accused will be given opportunity to produce

documents AA will summon & enforce attendence of any

person & hearing can be postpone from timeto time

AA will impose the penalty accordingly Imprisonment for non-payment of penalty

Penalty to be paid within 90 days otherwiseimprisonment upto 3 yrs if penalty exceedsRs.1cr. Otherwise 6months

Exemption from Realization & Repatriation ~ S.9 Possessing foreign exchange or coins as specified

by RBI Foreign exchange acquired by employment,

service, honorarium, business, trade, vocation, gift,inheritance

Possession & Retention of Foreign Currency Authorised Person

The AP can possess foreign currency notes or coinswithout limit

Any other person PRI can possess coins without any limit PRI can possess & retain foreign currency notes,

bank notes and foreign currency travelers' checkupto US$2000 provided

He went outside india and acquired foreignexchange by service, honorarium, gift or travelabroad

PROI acquired foreign exchange while on visitto India.


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SCRA Securities Contract (Reg.) Act, 1956

Objects of the Act To provide for regulation of stock exchanges Regulation of transaction in securities Prevent undesirable speculation & transaction in sec. Regulate buying & selling of securities outside limits of

stock exchange To provide ancillary matters

Extent Applies to whole of india Non-applicability

Govt, RBI, local authority, corporation, exempted by CG

Definitions Spot Delivery Contract S.2(i)

Any contract that provides for Actual delivery of securities & payment of

price for securities Either on the day of the contract or next day

The actual period taken in post shall be reduced if Parties do not reside in the same town Securities are dispatched or money is remitted

through post

Contract in which Securities are transferred by depository From one beneficiary account of owner to

another

Listing of Securities S.21, 22A & 22F Every Company will make an application to SE for

listing securities S.21 Is SE refuses to grant permission, then it should

give reasons Companies right to appeal S.22A

Appeal to be filed with SAT, filed within 15days from

Receipt of order of refusal of SE or expiry of10 weeks from closing of subscription list


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Extension: SAT can condone the delay forsufficient cause, extension shall not exceed 1month

Procedure adopted by SAT (S.22B) Issue SCN to SE SAT will dispose the appeal within 6m SAT will set aside or confirm the order and

copies will be sent to the parties of appeal SE will comply with order of SAT

Any aggrieved order of SAT, an appeal can be filedto supreme court

Corporatisation, Demutalisation and Scheme S.2 Corporatisation ~ Sec. 2(aa)

It means succession of RSE, being BOI or society,by another SE being company

Incorporated for purpose of assisting, regulating orcontrolling business of buying, selling or dealing insecurities carried on by individuals or society

Demutalisation ~ Sec. 2(ab) Segregation of ownership & Management from

trading rights of members of RSE, as per schemeapproved by SEBI

Scheme ~ Sec.2(ga) The Scheme of Corporatisation & Demutalisationwill provide for

Issue of shares for lawful consideration &provision of trading rights in lieu ofmembership cards

Restriction on voting rights Transfer of property, business, assets, rights,

liabilities, contracts of RSE Transfer of employee of RSE to another RSE

The Corporatisation & Demutalisation of RSE is compulsory to bedone before the appointed date, specified by SEBI by notification inOfficial Gazette


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Procedure for Corporatisation & Demutalisation ~ S.4B Every RSE shall submit a scheme for

Corporatisation & Demutalisation to SEBI forapproval

Approval by SEBI Before approving it will make anenquiry and obtain further information from RSE inthis behalf, it will grant the approval only if it is ininterest of trade & public interest

SEBI while approving the scheme imposerestrictions

Voting rights of shareholders who are stockbrokers

Right of shareholder or stockbroker to appointrepresentatives on governing board

The maximum number of representatives inthe governing board should not exceed 1/4thof total strength of governing board

Conditions for approval ~ RSE should ensure that atleast 51% of equity share capital is held by publicother than shareholders having trading rights

It should comply with these provisions within12 months of order of SEBI, further extensionof another 12 months can be granted by SEBI

Publication of scheme By SEBI in official Gazette and publication byRSE, in 2 daily newspapers circulating in indiaas specified by SEBI

Effect of Publication Scheme will become effective & binding on all

persons & authorities (members, creditors, depositors & employees

of RSE on any contract, right, power,obligation or liability in connection with RSE)

Rejection of Scheme SEBI will reject if it is satisfied that it would not

be in interest of trade and public interest to doso, order of rejection will be published in OG

A reasonable opportunity of being heard willbe given to RSE


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Clearing Corporation ~ S. 8A Clearing Corporation means

A company incorporated under Companies Act1956, for purpose

Periodical settlement of contracts and differences Delivery and payment for securities Any other matter incidental or connected with above

Benefits RSE will transfer all duties & functions of clearing

house to Clearing corporation, but with priorapproval of SEBI

Clearing Corporation should make bye-laws Submit to SEBI for approval The approval will be granted only if it is in interest of

trade & public interest

Delisting of Securities ~ S.21A RSE can delist the securities of company on

grounds prescribed under the Act RSE shall record the reasons for delisting & give

reasonable opportunity for company to being heard Appeal for the Company or aggrieved investor

Appeal to be filed with SAT within 15 days of

decision of RSE for delisting Extension: SAT can condoe the delay forsufficient cause ~ period of extension shall notexceed 1 month

Procedure adopted by SAT Issue of SCN ~ SAT will give reasonable

opportunity of being heard Disposal of appeal within 6 months Order of SAT ~ set aside confirm vary Copies of SAT order to be sent to the parties SE is duty bound to comply with SAT order

Special provisions for public issue & Listing of sec. Sec.17A

Applies to securities in Sec.2(h)(ie) Any certificate, issued to an investor by any

issuer being a special purpose distinct entity


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that possess any debt or receivable, includingmortgage debt, and acknowledging beneficialinterest of such investor in such debt,including mortgage debt, as the case may be

Conditions for public issue The eligibility criteria should be fulfilled by

issuer to issue securities u/s 2(h)(ie) Before issuing the offer document to the

public, the issuer should make an applicationto RSE for permission for such certificates

If the permission for listing is not granted, theissuer should repay all moneys pay interestof 15% p.a if all money is not paid within 8days

All provisions of listing of securities applicableto public company will apply here.

Recognition of a Stock Exchange Sec.3 & 4 Application for recognition Sec. 3

Application should be made by the SE to CG As per provisions of act & SCR rules, 1957,

application to be made with the bye-laws Rules will have provisions relating to constitution &

Management of SE It will specify the governing body, powers ofoffice bearers, admission, qualification,suspension of members, firm being admittedto membership

Bye-laws will have ~ Regulations & control ofcontracts

Enquiry by CG CG may make an enquiry & call for additional

information CG will give order of satisfaction, they will provide

conditions of recognition

Qualification of members Manner in which contracts are entered into Maintenance of Accounts by CA Appointment of representatives by CG


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Order will be published in official gazette Refusal to grant recognition ~ Sec. 4

CG will give opportunity of being heard Reason for refusal will be communicated in writing

Additional Trading Floor It means a trading ring or trading facility offered by RSE Outside the area of operation of RSE to enable investors

to buy & sell securities through such trading floor Prior approval of SEBI is required

Venture Capital It is money provided by professionals who invest

alongside management, in young, rapidly growing

companies that have the potential to develop intoeconomic power house.

They are private partnership closely held They are also called as risk capital Stages of Venture capital assistance

Seed money ~ development stage Start up capital ~ initial sales in volume Second & thrid stage assistance Follow-on financing ~ expansion programmes

Angel funding VCs who invest in green shoe projects launched

by unknown promoters. Consumer Finance

Consumer credit Involves extending short term or medium term loans

to finance purchase of commodities for personalconsumption. Refinance is also covered

Credit Evaluation Capacity, Capital & Character ~ first 2 point to the

ability of the borrower to repay, the 3rd focuses onwillingness to repay

The past track record is verified, present &future earnings

The worth of the individual with existing levelof debts


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Powers of CG and SEBI Periodical returns relating to affairs should be furnished to

SEBI Annual Report should be furnished to the CG All information & explanation that SEBI may require

should be furnished by the Recognized stock exchange Information could be regarding Stock ex. Or

member Every RSE should maintain BOA as prescribed by CG

BOA are subject to inspection & to be preserved for5 yrs

Any inquiry can be made by SEBI on the : Affairs of Governing Body or member It can direct the RSE (governing body) to make an

enquiry on affairs of the member After the inquiry SEBI can direct the Governing body to

take disciplinary action on the member (fine, expulsion of member, suspension, penalty)

Governing body should give effect to the directions.

CG can suspend the business of a RSE It should form an opinion of an emergency Make a notification in OG with reason for suspension

Suspension will be subject to conditions and it shall benot more than 7 days Period of suspension can be extended by a fresh

notification in OG

Contacts in derivatives are legal & valid IT should be traded in RSE, settled in a clearing house &

as per the rules & bye laws.

Title to Dividends Right of Registered holder : He shall have the right to

receive & retain the dividend declared even if he hastransferred the security

Right of transferee : The registered holder shall have noright to receive dividend if the transferee has lodgeddocuments for transfer w/n 15 days of the date on whichdividend is due


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Extension of time Death Period taken by legal representative to

claim dividend Loss of transfer deed period taken for

replacement of deed Delay in post Actual period of delay

If the company refuses to register the transfer deed inname of transferee, the transferee right against thetransferor shall not be affected

There will no liability of the company, if the dividend ispaid to the registered holder

These provisions will also be applicable to mutual fund

Board Meeting

One Vote for every director at the Board Meeting Number of shares held by director is immaterial Director need not be a share holder except where Q shs

are required to be held Board resolution is required by majority

No. of votes cast in favor > votes cast against

If there is equality of votes, the resolution will be lostunless chairman uses his casting vote Unanimous resolution for sec. 316, 386 & 372A

No director can appoint a proxy, he should be present to vote inBM.

Who has the authority to Call BM Any director with a requisition Based on a requisition by director, the manager or

secretary can summon a BM. Similarly a director can also

summon a BM Notice of BM shall be sent under authority of Co. Secretary does not have authority to call for a BM, but an

improper notice given by secretary (e.g without authority)can be ratified by Board


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Notice of Board Meeting Notice should be in writing. Oral notice is not valid. It can

be through post or telegram, fax or email It should be a definite notice, contingent notice is not valid No form & length of notice is specified, however it should

be sent in advance 7 days is sufficient Agenda for notice is not prescribed by the act, but it is a

good secretarial practice to have it with the notice. Only for transactions u/s 316(2) & 386(2) the

purpose of the notice should be specified Notice should be given to the director

In India Served to him anywhere in india O/s India Usual address in India Alternate Director Served to original & alternate Interested Director Yes even if he is precluded

from voting notice should be served A director who waived his right to receive notice

Yes, it is the duty of the company to send notice If a director mostly stays aboard it should be sent

to his foreign address If notice is served in india, this will not serve

and purpose and will show lack of probity &fair play on part of Company

( Kamal Kumar Dutta V. Ruby General Hos.) Notice should be sent as per the articles Notice of BM is not required Situations

If Board passes a resolution in a BM fixing time, day& place of all future BMs & a copy is sent to everydirector.

IF the company makes a provision in the articlesfixing time, day & place of future BM a copy of thearticles need not be sent to the directors

( Arunachalam Chettiar Firm V. Kaleeswarar

mills ltd) A notice will become invalid if it is not accompanied

by an agenda if it is proved that it was so given tosecure absence of some directors, who haveobjected to the resolution passed in such BM i.e. ifthe objective is MALAFIDE.


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What are the consequences of omission to givenotice

Even if notice is not given to a single director,Resolution in BM will be void

It is immaterial whether the omission to givenotice was accidental or deliberate

BM shall be valid if, if the director to whomnotice is not given attends the BM & theabsentee director does not complain for wantof notice.

Quorum of BM Quorum for a Private Company

Quorum shall be higher of 1/3rd of Total Strength or

2 Directors ( Fraction rounded as 1) Quorum for a Public Company

First Test : Higher of - 1/3rd of Total Strength or 2directors

Second Test : Applicability If the first test fails &number of interested directors are >= 2/3rd of Totalstrength

The Quorum will be number of remainingdisinterested directors not less than 2

Total Strength Board Strength as reduced byVacant places of directors Interested Director U/s 300

If a director is interested in a contract oragreement, then he cannot be counted for thequorum or discussion or vote.

Every director should be included in the Quorum However, if alternate director is appointed and

both original + alternate are present, bothcannot be counted

But alternate director alone present can becounted in quorum

Articles can only increase the quorum, but cannotreduced the quorum

Quorum is required thourghout the BM, at the timeof transacting each & every business. Just presenceat the commencement is not enough


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If BM is held without Quorum - Void. All resolutionsat the BM are void. They are incapable ofsubsequent ratification.

(Firesotne Tyres & Rubber Co V. Synthetic &chemicals ltd)

Minutes of the BM S. 193 to 195 The minutes should be prepared w/n 30 days of

conclusion of BM The minutes should be signed w/n a reasonable time

Each page should be initiated / signed Last page should be dated & signed

Who should sign Chairman of the BM or succeeding BM Discretionary powers of Chairman

The Chairman has discretionary powers to includeor non-include the matter in the minutes

Nothing can be included if he is of the opinion that Irrelevant or immaterial Defamatory of any person Detrimental to interest of the company

Minutes shall contain a fair & correct summary of theproceedings of the meeting

What is the method to prepare a minute book

Minutes should not be attached to minute book bypasting or otherwise Minutes can be maintained in loose leaf provided

The pages are serially numbered Safeguards are taken against falsification ie

proper locking devices for security & propercontrol to prevent irregular removal of looseleaves.

Loose leaves should be bound in books atreasonable intervals say 6 months.

If these procedures are not followed DCA willrefrain from taking a action against thecompany which maintains minutes in looseleaf.

Right to Inspection of Books Director has a right to inspection of BM


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The minutes are open to inspection to members, thearticles can empower the members to inspect theBM minutes.

Frequency of BM S. 285 Minimum requirement : In every Calender year at least 4

BMs should be held from Jan Dec and in Each quarteratleast 1 BM should be held

There are no maximum limits for BMs Exemption can be given by CG to

Classes of Companies it may deem fit Exemption will be in full or part

If the BM was duly called for, but was not able to be heldfor want of quorum (S.288), S.285 is not deemed to be

contravened.

In the Absence of Quorum Automatic Adjournment S. 288 If the Quorum is not present in the BM, then the BM shall

be adjourned on the day prescribed by the articles IF the articles is silent : the BM shall be adjourned to

same day, time & place in next week (or) if that day is apublic holiday the next succeeding day, which is not apublic holiday

Quorum is required in the adjourned BM also S. 285 shall not be contravened if the BM was called butcould not be held for want of Quorum.

Adjourned BM Fresh notice of Adjourned BM is not required It is required only when

Articles prescribe IF BM is adjourned for a indefinite period

A resolution passed on the Adjourned BM shall be

deemed to have been passed on the day of theAdjourned BM and not any earlier date.

Sitting fees can be paid even if the BM was not held forwant of Quorum

IF a BM is adjourned and again held Sitting fees will bepaid only once, as the adjourned BM is a continuation ofthe original BM.


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Chairman of the BMs Board will elect the Chairman for a particular period The directors present can choose one as a chairman if

Board does not elect a Chairman Or the Chairman is not present w/n 5 min of BM

Casting Vote is a second or deciding vote exercisable byChairman

This helps in resolving a deadlock in Board When there is equality of votes, the resolution is lost

unless chairman at his own discretion uses hiscasting vote.

The Casting vote power should be contained in thearticles Table A Reg. 74

Committee of Directors A Board can pass a resolution to constitute a committee

of Directors Board should be authorised by articles to do so

Articles power is not required, if the Act gives theauthorization to constitute the Committee

The Board can at anytime revoke the powers delegated tothe Committee

Quorum of the committee is specified by the Board, if it is

not specified the whole of the committee shall be thequorum. All those powers that the Board should exercise at the BM

cannot be delegated to the committee of directors.

Time, Place and Day of BM Place : BM can be held at any place (outside the city,

town or village where the registered office is situated) Day : BM will be held on a day even if its a public holiday

The original BM can be held on a public holiday,

even a voluntarily adjourned BM can be held on apublic holiday.

IF a BM is adjourned for WANT of quorum, then itshall be held as per date prescribed in articles and ifthat day is a public holiday, then the BM will be heldon a public holiday.


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If the original BM was not held due to LACK ofQuorum and the articles do not prescribe the day ofadjourned meeting then the BM will be held on thesucceeding day, same time & place, if that day is apublic holiday.

Time : BM can be held at anytime, even after businesshours

Articles can provide that the BM should not be held on apublic holiday, outside the particular state or afterbusiness hours.

Passing Resolution by Circulation S. 289 Conditions for passing a resolution are : The No. of Directors present in india are >= quorum BM Resolution will be circulated in draft with necessary

papers To all directors in India & at their usual address in

India The Resolution will be approved by

Disinterested directors in India or Majority of the Disinterested director in India or O/s

India Generally all resolutions can be passed by circulation

Any resolution required by Act to be passed only at BMcannot be passed by circulation (e.g. S. 262, 293A, 297, 372A, 316, 386)


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Audit of Accounts:

Qualification & Disqualification of Auditors: A person should be a Chartered Accountant holding COP

Holder of a certificate of Part B state entitling him to act asauditor Disqualification:

Body corporate Officer or employee of the company Person is a partner or employee of the officer / employee

of Company Person is indebted to the company or given a guarantee,

to a third person if the debt / guarantee > 1,000 Person holding a security in a company after a period of 1

year from dt. Of commencement of Co.(amendment) act,2000 Security any instrument with voting rights

A person is disqualified for appointment as auditor in acompanys subsidiary or holding Co, or subsidiary of theholding company

The auditor have to immediately vacate the office if thedisqualification attracts

ICAI By a resolution passed in GM, if the auditor recovers his

fees from company on a progressive basis, even though theaudit has not been completed he will not be said to beindebted to company and shall not vacate the office of auditor.

Ceiling on Number of Audits S. 244(1B) The ceiling is the specified number of audits Specified number: Means not more than 20 Companies, in

which not more than 10 companies should have a paid upcapital of Rs. 25 lakhs or more.

Following audits will be excluded to calculate thisSpecified Number Audit of Private Company

Guarantee Company with no share capital Foreign Company Internal Audit Cooperative societies, trusts & Corporations


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Tax audit Special audit & investigations Branch audit

Following audits are included

Joint Audit & audit of licensed company u/s 25 Ceiling on Max. Audits: An auditor can accept maximum 30

audits including Private Companies ICAI Notification. Nonobservance of this ceiling will lead to professional misconduct

The auditor should give a certificate to the company, beforeappointment as auditor, with the requirements that, if theauditor is appointed it will be within the ceiling limit of number ofaudits.

Reappointment of Retiring Auditor S. 224(2)

At every AGM the existing auditor shall retire & eligible forreappointment

Retiring auditor shall not be reappointed in the following cases If he is disqualified for reappointment He has expressed his unwillingness to be reappointed Where a resolution is passed in AGM appointing

someone else in his place and providing expressly that heshall not be reappointed

If a notice is given for the intended resolution to appoint

someone else in the place of retiring auditor, by reason ofdeath, incapacity or disqualification the resolutioncannot be proceeded with

IF the AGM is not held w/n the time, will the auditor vacate hisoffice?

An auditor will hold office, from conclusion of the AGM inwhich they are appointed till conclusion of Next AGM

Hence, an auditor will continue in office even if the AGMis not held w/n the limits as per S. 166 & 210.

Rights of Auditors Right to access BOA, vouchers ~ at all times Right to obtain information & explanation ~ for performance of

his duties

Right to receive notice of GM & attend GM (S. 172)


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Right to speak (be heard) on any matter that concerns him asan auditor (S.231)

Right to inspect branch office If accounts of branches are audited by another person

The company auditor can visit the branch & access BOA Right of Lien on BOA

BOA should belong to the company The documents should come to the possession of auditor

with approval of Company Auditor should have done work assigned to him on those

documents These books can be retained that is connected with the

work on which payment is not paid. Right to receive remuneration Right to receive notice of removal & make representations

First Auditors: S. 224(5) The Board will appoint the first auditors w/n 1 m from date of

registration of Company IF the Board fails to appoint the first auditors, they will be

appointed by members in GM OR is required. Auditor of a newly formed company cannot be appointed by the

memorandum or articles ICAI Compendium of Opinions. Tenure: The first auditor will hold office until conclusion of First

AGM The company need not give intimation of appointment of First

auditors; similarly auditors need not inform to registrar that, theyhave accepted the appointment.

Removal of Auditors S.224, 225 & 408 Removal of first Auditor before expiry of his term S. 224(5)

Auditor is being removed before the first AGM

OR is required for removal passed at the GM Special notice is not required Another person can be appointed, whose nomination is

given to the members not less than 14 days before meeting Removal of subsequent auditor before expiry of his term

S.224(7) Approval of CG is required, OR shall be passed in GM


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No special notice is required for removal Removal of auditor at the AGM (after expiry of term) S. 225

Previous approval of CG is not required OR will be passed Special notice is required for removal, it should state that

Retiring auditor shall not be reappointed Some other person other than retiring auditor shallbe appointed.

Removal by CG CG will give directions to company u/s 408 for purposes of

oppression & mismanagement, to remove the auditor Existing auditor should vacate w/o requiring any action for

his removal

Procedures of S. 225(2) & 225(3) Company will send the notice of removal to the auditor Auditor has the right to

Make representations in writing to company Orally heard at the meeting Get his representation circulated among members

Company is duty bound To send copies of representation to every member To state the fact that rep. is made in the notice sent to

every member If the copy of representation is not sent by company, the

auditor shall require that the representation be read out atthe meeting

Intervention by CLB by making an application by company IF the right to make a representation is being abused by

auditor to secure needless publicity for defamatory matter By order of CLB, copy of rep. need not be sent to

members, rep. need not be read out, Cost of applicationshall be paid by auditor.

Audit Committee: S. 292A It is applicable to public company with paid up capital of 5 Cr. Constitution of audit committee is mandatory

Composition of Audit Committee Only directors can become members. Min : 3 members


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Minimum 2/3rd of Total members of the committee shall bedirectors other than WTD / MD

Only a member of the committee can be appointedChairman

He shall be elected by the members of AC & will attendAGMs to clarify matters relating to audit. The meetings of the AC should be attended by auditor,

internal auditor & director-in-charge of finance Functions of Audit Committee

It will act as per the Board, ensure compliance with IC

It shall hold periodic discussions with auditors on IC,Scope of audit & audit observation

It will review the half yearly & annual FS beforepresenting to board.

Powers of AC Investigation in any matter referred by Board u/s 292A

Shall have Access to information in records It has a power to seek external professional advice

Disclosure requirements Disclose the composition of the committee in Annual

report Recommendation of Audit Committee

This will be binding on board on any financial mgmt

If the recommendations are not accepted, the board willrecord reasons and communicate to members

Duties of the Auditor Duty bound to make audit report, which will be read in GM.

Audit report will be open for inspection It shall relate to B/S, P&L, documents annexed

Duty to make adequate disclosures Auditor should state that in his opinion & best to his information

& according to the explanation given to him the B/S & P&L A/cgive the information as per the act and True & Fair state ofaffairs

Branch auditor report is forwarded, AS is complied with,observations are in THICK or ITALIC type

If the director is being disqualified from being appointed as adirector u/s 274(1g)


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All matters of CARO are fulfilled Report on specific enquires

Loans & advances made by co., on the basis of security areproperly secured and the terms are not prejudicial to interest of

company Book entries are not prejudicial to interest of the company If the sale price of shares is less than the purchase price If loans & advances are shown as deposits Personal expenses are charged to revenue If shares are allotted in cash, whether cash is received

Auditor should give full information on the Qualification Duty to sign the audit report

Special Audit S.233A IF the CG is of the opinion that the affairs of the company are not

being managed as per sound business principles or prudentcommercial practices or

The company is managed in a manner that will causeserious injury or damage to trade, industry or business

The financial position has endangered its insolvency

There will be no opportunity of being heard The period will be specified in the order of Special audit

The CG will appoint the Special auditor Either the Company Auditor or Independent CA

Special auditor will have same powers & duties Report of Special Auditor

All matters u/s 227 & other matters that is refereed by CG He will submit report to the CG. On submission CG will

take such action, as it may deem fit If the CG has not take any action within 4 m, then it will

send the copy with its comments to Co. the

Documents

Corporate Laws - CA