COMPANY LAW MARATHON

(for Dec 2020 and onwards examination)

INSPIRE ACADEMY

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 Topics to be covered…
S.no. TOPIC
1 Chapter 1 Introduction
2 Chapter 2 Share Capital
3 Chapter 3 Member & Shareholder
4 Chapter 4 Debt Capital
5 Chapter 5 Charge
6 Chapter 6 Dividend
7 Chapter 7 CSR
8 Chapter 8 Accounts and Audit
9 Chapter 9 Transparency and Disclosures
10 Chapter 10 Section 186-188
11 Chapter 11 Register and Records
12 Chapter 12 Corporate Reorganization

“What you do today,

Can improve all your tomorrows”
SHUBHAMM SUKHLECHA (CA, CS, LLM)
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Chapter 1 Introduction
Lifting of Corporate Veil

As soon as a company gets incorporated, the company becomes a separate legal entity in the eyes of law, which can be
sued in its own name and also sue someone in its own name.

Cases where the separate legal entity is disregarded, refers to lifting of corporate veil.

Cases where corporate veil has been lifted by judiciary:

 To prevent fraud and misconduct

 Evasion of Tax (if multiple companies have been incorporated for the purpose of evading tax, in such a case
court lifts the corporate veil and all the companies are seen as one in the eyes of law)
 To protect labour welfare legislations
 Protection of Public policy
 Company acting as an agent

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 Company and Corporation

“Company” means a company incorporated under this Act or under any previous company law [Section 2(20)].

Features of a Company:

Separate Legal entity (Salomon v. Salomon)

Limited liability
Company is not a citizen (R.C. Cooper v. Union of India)
Company has Nationality and Residence
Perpetual Succession
Can sue or be sued in its own name

Body Corporate or Corporation [Section 2(11)]:

“Body corporate” or "corporation" includes a company incorporated outside India, but does not include
[1] a co-operative society registered under any law relating to co-operative societies and
[2] any other body corporate, which are specified the Central Government by notification

 The Expression Corporation or body corporate is wider than the word company.
 A society registered under the Societies Registration Act, 1860 has been held by the Supreme Court not to come
within the term ‘body corporate' under the Companies Act, though it is a legal person capable of holding
property and becoming a member of a company.

छोटी छोटी मगर मोटी बातें (Important Points to remember)

 Two companies incorporated with the same set of shareholders, will still be considered as two distinct entitities.
 Even if the entire estate is taken over by the government, that does not constitute taking over the management
of the company.
 Even if all the assets are taken over by another company, that does not constitute taking over the management
of the company.
 If a person has formed various companies merely to divide his income to avoid/reduce tax liability, it will
amount to misuse of corporate form, Hence corporate veil will be lifted and the person will be required to pay
tax on the entire income.
 Even if a shareholder holds 99% shares (virtually the entire share capital), Still he cannot be held liable for the
acts of the company.
 Even if all the shareholder of a company dies, the company still continues, the shares devolve upon the legal heir
of the shareholder.
 If the number of members reduces below the statutory limits, and the company carries on business for more
than 6 months, every person who is a member during that time shall be liable for the debts incurred during that
time. (unlimited liability)

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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Chapter 2 Share Capital
Classification of Share Capital

Nominal, Authorised or Registered Capital

The Share capital authorized by memorandum, to be the maximum capital a company can raise.
Issued Capital
Out of the Authorised capital, the Share capital actually issued/ offered by the company to public.
Subscribed Capital
Out of the Issued Share capital, the Share capital actually subscribed by the public.
Called-up Capital
Such part of the capital, on which money has been called up.
Paid-up Share Capital
Such part of the capital, on which money has been paid up.

Types of Share Capital

Share capital which does not get any voting rights

but gets preference in two cases:
Equity Share Capital Equity Share Capital 1. As regards dividends, it must carry a
With______________ With______________ preferential right to fixed amount or
__________ __________ amount calculated at a fixed rate and
2. As regards the capital, in the event of a
winding, there must be a preferential
right to be repaid the amount of the
capital paid up on such share.

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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Provision for issuing shares with differential rights
 AOA must authorize.
 Ordinary resolution to be passed at GM (for listed companies, such OR should be passed either by postal ballet
or at a GM offering e-voting)
 the shares with differential rights shall not exceed twenty-six percent of the total post-issue paid up equity share
capital including equity shares with differential rights issued earlier.
 the company having consistent track record of distributable profits for the last three years;
 the company has not defaulted in filing financial statements and annual returns for three financial years
immediately preceding the financial year in which it is decided to issue such shares;
 the company has no subsisting default in the payment of a declared dividend to its shareholders or repayment
of its matured deposits or redemption of its preference shares or debentures that have become due for
redemption or payment of interest on such deposits or debentures or payment of dividend;
 the company has not defaulted in payment of the dividend on preference shares or repayment of any term loan
from a public financial institution or State level financial institution or scheduled Bank that has become
repayable or interest payable thereon or dues with respect to statutory payments relating to its employees to
any authority or default in crediting the amount in Investor Education and Protection Fund to the Central
Government; ( A company may issue equity shares with differential rights upon expiry of five years from the
end of the financial year in which such default was made good. )
 the company has not been penalized by Court or Tribunal during the last three years of any offence under the
RBI Act, 1934 , the SEBI Act, 1992, the Securities Contracts Regulation Act, 1956, the Foreign Exchange
Management Act, 1999 or any other special Act, under which such companies being regulated by regulators.

not default for dividend, AOA

Pref shares, deposits, debentures,
Loan, interest amount, IEPF etc

OR
[Listed Co.-
Conditions for Postal Ballet]
issuing shares with
differential rights

Last 3 years Maximum limit

- Distributable profit 26% of post issue capital
- No default in filing financial statement
And annual return
- Not penalized by court or tribunal

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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Issue of Shares

At Par At Premium At Discount

In accordance with the provisions of Section 52(2) of the Act, the securities
premium can be utilised only for:

 issuing fully paid bonus shares to members;

 for the purchase of its own shares or other securities under section 68.
 for providing for the premium payable on redemption of any redeemable
preference shares or debentures of the company
 writing off commission paid or discount allowed, or the expenses incurred
on issue of shares or debentures of the company
 writing off the balance of the preliminary expenses of the company;

According to section 2(88), sweat equity shares mean such equity

shares issued by a company to its directors or employees at a
discount or for consideration, other than cash for providing their
know-how or making available rights in the nature of intellectual
property rights or value additions, by whatever name called.

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 Provision for Sweat Equity Shares

A company can issue sweat equity shares, of a class of shares already issued, if the following conditions are satisfied:

 the issue has been authorized by a special resolution passed by the company in the general meeting.
 the following are clearly specified in the resolution:
o number of shares;
o current market price;
o consideration, if any; and
o class or classes of directors or employees to whom such equity shares are to be issued.
 Where shares are listed on a recognized stock exchange, the company issuing sweat equity shares should
comply with the regulations made in this behalf by SEBI.
 a company whose shares are not so listed should issue sweat equity shares in compliance with the rules made in
this behalf by the Central Government i.e., Companies (Share Capital and Debentures) Rules, 2014.

Conditions for
SR
issuing sweat
equity shares

SEBI Regulations (Listed co)

Comply with
CG Rules (Unlisted co)

Validity of Special Resolution 12 months from the date of passing of resolution

authorizing sweat equity shares
Limits on issue of sweat equity the company shall not issue sweat equity shares for more than fifteen percent
shares of the existing paid up equity share capital in a year or shares of the issue
value of rupees five crores, whichever is higher. The issuance of sweat equity
shares in the company shall not exceed twenty five percent, of the paid up
equity capital of the company at any time.
Lock in The sweat equity shares issued to directors or employees shall be locked for a
period of three years from the date of allotment and the fact that the share
certificates are under lock-in and the period of expiry of lock in shall be
stamped in bold or mentioned in any other prominent manner on the share
certificate.

Provision for ESOPs

Meaning ESOP means the option given to the directors, officers or employees of a company (or
of its holding company or subsidiary company or companies, if any), which gives such
directors, officers or employees, the benefit or right to purchase, or to subscribe for,
the shares of the company at a future date at a pre-determined price, on fulfillment
of certain condition.

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 Who is an a) a permanent employee of the company who has been working in India or outside
employee for this India; or
purpose? b) a director of the company, whether a whole time director or not but excluding an
independent director; or
c) an employee as defined in clauses (a) or (b) of a subsidiary, in India or outside India,
or of a holding company of the company
but does not include-
 an employee who is a promoter or a person belonging to the promoter group;
or
 a director who either himself or through his relative or through any body
corporate, directly or indirectly, holds more than ten percent of the
outstanding equity shares of the company.
Conditions

Varying the
terms of ESOP

Minimum vesting
Period

Minimum lock-in

Prospectus
Prospectus means any document described or issued as a prospectus and includes a red herring prospectus referred to
in section 32 or shelf prospectus referred to in section 31 or any notice, circular, advertisement or other document
inviting offers from the public for the subscription or purchase of any securities of a body corporate. [Section 2(70)]

SHELF PROSPECTUS

RED HERRING PROSPECTUS

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 ABRIDGED PROSPECTUS

Provision for issue of Bonus Shares

Sources for issue of Bonus shares

(i) its free reserves;

(ii) the securities premium account; or
(iii) the capital redemption reserve account

Conditions for issue of Bonus Shares

 it is authorised by its articles;

 Special resolution to be passed in the general meeting of the company;
 it has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it;
 it has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to
provident fund, gratuity and bonus;
 the partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up.

Provision for Buy Back

Meaning Buy back means a company purchasing its own securities.

Sources of BB (i) its free reserves; or
(ii) the securities premium account; or
(iii) the proceeds of the issue of any shares or other specified securities.
(However, no buy-back of any kind of shares or other specified securities can be made
out of the proceeds of an earlier issue of the same kind of shares or same kind of
other specified securities.)
Conditions for BB

Can BB be Once buy back has been announced, it ________________ be withdrawn.

withdrawn?

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 Period of Buy
Back
Time limit for
completion of
buy-back
Post buy-back
debt-equity ratio
Time gap
between BB
Transfer to CRR When a company purchases its own shares out of free reserves or securities premium
account, a sum equal to the nominal value of the shares so purchased shall be
transferred to the capital redemption reserve account.

Issue and Redemption of Preference Shares

ISSUE
Tenure of Company cannot issue irredeemable preference shares.
Preference Company cannot issue redeemable preference shares with the redemption period
shares beyond 20 years, except for an infrastructure company.
(An infrastructure company may issue preference share for maximum tenure of 30 years)
Conditions for  Must be authorised by its articles.
issuing Pref.  Special resolutionto be passed at the general meeting.
shares  No subsisting default in the redemption of preference shares issued earlier or in
payment of dividend due on any preference shares.
Register of Pref. When a company issues preference shares, the Register of Members for preference
shares shares shall contain all the particulars.
REDEMPTION
Provision for  Such shares shall be redeemed only if they are fully paid
redemption of
Pref. shares  Preference Shares shall be redeemed out of the:
 profits of the company available for dividend or
 proceeds of a fresh issue of shares made for the purposes of such redemption;

 where such shares are proposed to be redeemed out of the profits of the company, a
sum equal to the nominal amount of the shares to be redeemed, transferred to a
reserve, to be called the Capital Redemption Reserve Account.

 Premium, if any, payable on redemption shall be provided for out of the profits of the
company or out of the company’s securities premium account, before such shares are
redeemed.

 CRR can be utilized only to issue fully paid up bonus shares.

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 Reserve Capital and Capital Reserve
Reserve Capital Capital Reserve
 A part of uncalled capital reserved to be called  It is created by the accumulation of profits out of
only in case of winding up. capital gain or earning.
 Creation of reserve capital is not mandatory.  It is mandatory to crate capital reserve in case of
capital profits.
 Reserve Capital is not disclosed in balance sheet.  Disclosed under the head reserve and surplus in
balance sheet.
 Reserve capital cannot be used to write off  Capital reserve is used to write off capital losses
capital losses or to issue bonus shares. or to issue bonus shares.

Time period for issue of fresh certificates

within a period of two months in the case of subscribers to the memorandum

(from the date of incorporation)
within a period of two months in the case of any allotment of any of its shares
(from the date of allotment)
within a period of one months (from the date of in the case of a transfer or transmission of securities;
receipt of instrument by the company)
within a period of six months in the case of any allotment of debenture.
(from the date of allotment)

Concept of Beneficial ownership of shares

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 छोटी छोटी मगर मोटी बातें (Important Points to remember)
 Once the Board has announced the bonus issue, Board cannot reverse the decision of Bonus issue.
 If the prospectus mentions that the company is paying dividend for last 5 years but fails to disclose the source of
profit for paying such dividend (where actually the company was actually incurring losses for last 5 years), such
prospectus is held to be false and misleading.
 To split the share which are jointly held, a proper transfer deed duly stamped and executed by all the joint
holders is required to be submitted to the company.
 For transposition, no transfer deed and stamp duty is required.
 If allotment was made without delivering a copy of the prospectus to ROC, the company and officer in default
shall be punished, however the allotment shall remain valid. (This is a case of irregular allotment, but not void
allotment)
 If a person has acquired the shares from secondary market (eg stock exchange), he cannot claim damages from
the company on the reason of any untrue statement in the prospectus. (only a person who has purchased the
shares directly from the company can claim damages for untrue statement).
 Normally any person applying to get the shares under transmission after the death of the member has to
produce probate, letter of administration, or succession certificate, but if AOA authorizes, BOD can dispense this
requirement for a widow. (BOD may ask for an indemnity bond).
 Warrant can be transferred by mere delivery, no transfer deed or stamp duty is required.
 Refusal of transfer on the ground that the person (who was an employee of the company) after becoming
member will create nuisance at the general meeting in not a valid reason to refuse the registration of transfer.

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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Chapter 3 Members and Shareholders
The concept of member and shareholders

Modes of acquiring membership

As per Section 2(55) of the Companies Act, 2013, a person may acquire the membership of a company:

a) by subscribing to the Memorandum of Association (deemed agreement); or

b) by agreeing in writing to become a member:
a. by making an application to the company for allotment of shares; or
b. by executing an instrument of transfer of shares as transferee; or
c. by consenting to the transfer of share of a deceased member in his name; or
d. by acquiescence or estoppel.
c) by holding shares of a company and whose name is entered as beneficial owner in the records of a depository
(Under the Depositories Act, 1996)

Clarification regarding status of GDR holder

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 Who can become a member?

Company as a member of another company

Partnership firm as a member

Limited Liability Partnership

Section 8 company

Foreigners as members

Minor as member

Insolvent as member:

Pawnee

Trade Union as member

छोटी छोटी मगर मोटी बातें (Important Points to remember)

 AOA cannot impose a blanket ban prohibiting transfer of shares in favor of a minor.
 BOD cannot expel any member even by inserting an article in the AOA, if they are of the view that activities or
conduct of such a member was detrimental to the interest of the company.

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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Chapter 4 Debt Capital
Power of the company to borrow

The power of the company to borrow is exercised by its directors, who cannot borrow more than the sum authorized.

Act prohibits the Board of directors of a company from borrowing a sum which together with the monies already
borrowed exceeds the aggregate of the paid-up share capital of the company and its free reserves apart from temporary
loans obtained from the company’s bankers in the ordinary course of business unless they have received the prior
sanction of the company by a special resolution in general meeting.

(The power to issue debentures cannot be delegated by the Board of directors. However, the power to borrow monies
can, be delegated by a resolution passed at a duly convened meeting of the directors to a committee of directors,
managing director, manager or any other principal officer of the company.)

Ultra vires Borrowing

Where a company borrows without the authority conferred on it by the articles or beyond the amount set out in the
Articles, it is an ultra vires borrowing. Any act which is ultra vires the company is void. In such a case the contract is void
and the lender cannot sue the company for the return of the loan.

The lender under equity has the following remedies:

Injunction and Under the equitable doctrine of restitution he can obtain an injunction provided he can trace and
Recovery: identify the money lent, and any property which the company has bought with it. Even if the monies
advanced by the lender cannot be traced, the lender can claim repayment if it can be proved that
the company has been benefited thereby.
Subrogation Where the money of an ultra vires borrowing has been used to pay off lawful debts of the company,
he would be subrogated to the position of the creditor paid off and to that extent would have the
right to recover his loan from the company.
Suit against In case of ultra vires borrowing, the lender can sue the director for repayment.
Directors:

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 Debentures

Debenture Includes

 Debenture Stock
 Bonds or
 Any other instrument

Evidencing a debt

Whether constituting a charge on companies assets, or not

Duties of debenture trustees

1. Satisfy himself that the letter of offer does not contain any matter which is inconsistent with the terms of the
issue of debentures or with the trust deed;
2. satisfy himself that the covenants in the trust deed are not prejudicial to the interest of the debenture holders;
3. call for periodical status or performance reports from the company;
4. Ensure that the company does not commit any breach of the terms of issue of debentures or covenants of the
trust deed and take such reasonable steps as may be necessary to remedy any such breach;
5. Inform the debenture holders immediately of any breach of the terms of issue of debentures or covenants of the
trust deed;
6. Ensure that the assets of the company issuing debentures and of the guarantors, if any, are sufficient to discharge
the interest and principal amount at all times
7. Call for reports on the utilization of funds raised by the issue of debentures-
8. Take steps to convene a meeting of the holders of debentures as and when such meeting is required to be held;
9. ensure that the debentures have been converted or redeemed in accordance with the terms of the issue of
debentures;
10. Perform such acts as are necessary for the protection of the interest of the debenture holders and do all other
acts as are necessary in order to resolve the grievances of the debenture holders.

Disqualification of debenture trustees

No person including a company that is in the business of providing trusteeship services shall be appointed as a trustee
for the deposit holders, if the proposed trustee –
(a) is a director, key managerial personnel or any other officer or an employee of the company or of its holding,
subsidiary or associate company or a depositor in the company;
(b) is indebted to the company, or its subsidiary or its holding or associate company or a subsidiary of such holding
company;
(c) has any material pecuniary relationship with the company;
(d) has entered into any guarantee arrangement in respect of principal debts secured by the deposits or interest
thereon;
(e) is related to any person specified in clause (a) above.

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 Meaning and Provision for deposits

छोटी छोटी मगर मोटी बातें (Important Points to remember)

 Consumer forum has the authority to order the company to make the payment to the deposit holders.

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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Chapter 5 Charges
Meaning and Types

Section 2(16): “charge” means an interest

or lien created on the property or assets of On the basis
a company or any of its undertakings or of conditions
both as security and includes a mortgage.

On the basis
of nature

Crystallization of floating Charge

(a) when the company goes into liquidation;

(b) when the company ceases to carry on its business;
(c) when the creditors or the debenture holders take steps to enforce their
security e.g. by appointing receiver to take possession of the property charged;
(d) on the happening of the event specified in the deed.

EFFECT OF CRYSTALISATION:

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 Registration of Charge

Consequences of non-registration of Charge

According to Section 77, all types of charges created by a company are to be mandatorily registered,

where they are not filed with the Registrar of Companies for registration,

it shall be void as against the liquidator and any other creditor of the company.

छोटी छोटी मगर मोटी बातें (Important Points to remember)

 Charge has to be registered even if the property is situated outside India.
 Charge can be created on intangible assets as well.

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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Chapter 6 Dividend
Flow of Dividend

Dividend is proposed by
Dividend is declared Dividend is
Board in Board Meeting transferred by
by members in
the company in
General Meeting separate bank
account within 5
days of declaration
by members

Dividend is paid Unpaid dividend Unpaid dividend is

to the members is transferred to transferred to Investor
within 30 days of unpaid dividend Education and
declaration by account within Protection Fund after
members next 7 days expiration of 7 years of
transferring in unpaid
dividend account

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 Investor Education and Protection Fund

I
E
P
F

छोटी छोटी मगर मोटी बातें (Important Points to remember)

 If any company is in violation of repayment of deposits or its interest, the company cannot declare dividend.
 Dividend cannot be paid in cash through cash counters, it has to be paid through banking channels.
 Dividend cannot be paid in kind.
 Dividend once declared becomes a debt payable by the company, Hence once declared, dividend cannot be
revoked. The only case where dividend will not be paid even after declaration is where dividend is declared on
the basis of false accounts.
 Dividend can be declared only after making provision for depreciation and providing for previous year losses not
written off.
 In depositing the amount of dividend in 5 days and paying the dividend in 30 days, any intervening holiday shall
not be excluded.
 If a company does not declare dividend, it does not amount to Oppression or Mismanagement.

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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Chapter 7 Corporate Social Responsibility
Applicability of CSR

As per section 135(1) of the Companies Act 2013, the CSR provision is applicable to companies which fulfills any of the
following criteria during the immediately preceding financial year:-

 Companies having net worth of rupees ________________________ or more, or

 Companies having turnover of rupees ________________________ or more,
 Companies having a net profit of rupees ________________________ or more.

NOTE: The CSR Rules specify that a company which does not satisfy the specified criteria for a consecutive period of
three financial years is not required to comply with the CSR obligations, implying that a company not satisfying any of
the specified criteria in a subsequent financial year would still need to undertake CSR activities unless it ceases to
satisfy the specified criteria for a continuous period of three years.

CSR Committee

Companies that trigger any of the aforesaid conditions must constitute a Corporate Social Responsibility Committee of
the Board to formulate and monitor the CSR policy of a company.

Section 135(1) of the Act requires the CSR Committee to consist of three directors or more, including atleast one
independent director. (Where a company is not required to appoint an independent director under sub-section (4) of
section 149, it shall have in its Corporate Social Responsibility Committee two or more directors.)

CSR Expenditure

 The Board of every company shall ensure that the company spends, in every financial year, at least two per cent
of the average net profits of the company made during the three immediately preceding financial as per their
CSR policy. This amount will be CSR expenditure.
 If the company fails to spend such amount, the Board shall, in its report specify the reasons for not spending the
amount.

छोटी छोटी मगर मोटी बातें (Important Points to remember)

 Expenditure incurred on specified activities that are carried out in India only will qualify as CSR expenditure.
Such expenditure includes contribution to the corpus or on projects or programs relating to CSR activities.
 Expenditure incurred by foreign holding company for CSR activities in India will qualify as CSR spend of Lesson 7
n Corporate Social Responsibility 287 the Indian subsidiary if, the CSR expenditures are routed through Indian
subsidiaries and if the Indian subsidiary is required to do so as per section 135 of the Act.

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 Chapter 8 Accounts and Audit
Books of Accounts

 Money received and expended

 Sales and purchase of goods
 Assets and liabilities

With respects to branch offices

Can be maintained in
electronic mode
[OPTIONAL] Branch will maintain BOA and
will send summarized returns to
BOOKS OF
head office quarterly.
ACCOUNTS

Double entry books of

accounts
Report on accrual basic

Preserved for at least 8 years Report at

Registered Any other place

Office in India
[Inform ROC within
7 days]

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 Financial Statements

1. Chairman or 2 directors
Out of which
Should be One must be MD
presented in 2. CEO
3. CFO
AGM
Should be 4. CS
signed

 Balance sheet
 P & l A/c , I & E A/c
FINANCIAL STATEMENT  Cash flow statement
 Statement of change in equity.
 Explanatory notes

Companies having subsidiaries Should comply with

or associates or ACCOUNTING STANDARDS
Joint ventures If Not Complied; Disclose:
Should make consolidated  Deviation
financial statements as well.  Reason
 Financial effects

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 NATIONAL FINANCIAL REPORTING AUTHORITY (NFRA)

Objective of NFRA (1) Make recommendations on formulation of accounting and auditing policies and standards
for adoption by companies, class of companies or their auditors;
(2) Monitor and enforce the compliance with accounting standards, monitor and enforce the
compliance with auditing standards;
(3) Oversee the quality of service of professionals associated with ensuring compliance with
such standards and suggest measures required for improvement in quality of service, and
(4) Perform such other functions as may be prescribed in relation to aforementioned objectives.

Constitution of
NFRA

Audit of NFRA

Jurisdiction

Penalties by NFRA A. Imposing penalty of

(i) not less than one lakh rupees which may extend to five times of the fees received in case of
individuals and
(ii) not less than five lakh rupees which may extend to ten times of the fees received in case of
firms

B. Debarring member or the firm from-

(i) being appointed as an auditor or internal auditor or undertaking any audit in respect of
financial statements or internal audit of the functions and activities of any company or body
corporate; or
(ii) performing any valuation as provided under section 247, for a minimum period of six months
or such higher period not exceeding ten years as may be determined by the National Financial
Reporting Authority.

Appeal against
NFRA

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 AUDIT
1. Statutory Audit

Statutory
Audit

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2. Cost Audit

Cost
Audit

3. Secretarial Audit

Secretarial
Audit

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4. Internal Audit

Internal
Audit

छोटी छोटी मगर मोटी बातें (Important Points to remember)

 FS have to be filed with ROC, even if the FS have not been adopted at the general meeting or even if the AGM
has not taken place.
 BOD has the power to approve the FS, before it is signed and placed at the AGM, BOD cannot delegate this
power to any committee.
 If the auditor signs the balance sheet on the same day, on which BOD have approved it, It cannot be inferred
that the auditor has not performed the audit efficiently.
 A director of a holding company can inspect the books of accounts of its subsidiary company, if the director is
authorized by the board of the holding company.
 In OPC, the FS are signed by just one director.

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 Chapter 9 Transparency and Disclosures
Annual Report

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 Board’s Report

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 Annual Return

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 Website Disclosures

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Chapter 10 An overview of Inter Corporate
Loans, Investments, Guarantees and Security,
Related Party Transactions
Section 186: Loan to third party

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 Section 188: RELATED PARTY TRANSACTION

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