Business law 2

Directors and Shareholders

S. 2 (10)- definition of board.
S. 179- outlines the power of the board.
Exercise all such powers and to do all such acts and things the company is
authorised to exercise. Subjected to this act, moa, aoa, regulations, etc.
regulations made by the board do nott act retrospectively.
General power of the board- the director is authorised to act in certain way by
primary legislation (2013 act), moa, ao, or any other regulation or rules passed by
the company in the general meeting.
Powers-
1. To make calls on shareholders for payment of unpaid amount of share
capital. Applicable provision- s. 49, 50, 173, 179, Companies Act, 2013, Rule
20 of the company Incorporation Rules, 2014, Rule 4 of the Companies (Share
Capital and debentures) Rules, 2014. Regulation 30 and 46 of SEBI LODR,
2015.
a. The company shall issue call letter to all the shareholders of the same
class with the details of the time, date, place and mode of payment.
b. Call money shall not exceed 50% of the face value of the shares.
c. There shall be atleast 30 days of interval between two successive calls.
d. s. 50- In case the call money has not been paid the shareholder will be
barred from exercising their voting rights.
2. To authorise buy back of securities. After following regulations given under s.
68 of companies act. Through GDR and ADR.
3. To issue securities and debentures. Whether inside or outside India.
4. To borrow money. Loans from financial institutions, other companies and
issue of debt instruments- debentures and bonds.
5. To invest the funds of the company.
6. To grant loans, give guarantee and issue securities.
7. To approve financial statements and board reports. S. 134- Financial
Statements or board report- FS shall be approved by the BoDs before they
are signed on behalf of the board at least by the chairperson of the company
or by 2 of its directors- the MD and the CEO.
 8. To diversify the business of the company.
9. To approve amalgamation, merger and deconstruction.
10.any other prescribed matter. The power (s.161) of filing casual vacancies in
the board who will stay in position till next AGM. Power to make political
contributions (s.182) except government companies. Power to appoint
internal (138). and external auditors (204 (1)). Related party transactions (s.
188)- contracts with suppliers, creditors, lessor, third party. To appoint and
remove the key managerial personnel.
Power 4, 5 and 6 may be delegated, even to the head of the branch office.
Loans doesn't mean loans granted by banking companies and also not day to day
operations on overdraft, cash credit or other such arrangements.
Case- Nibro Limited vs National Insurance Company Ltd. - shareholder vs directors,
whose decision will prevail. Powers of a company in respect to a particular matter
are to be exercised by the company in the general meeting. And in all other cases
the board of director is entitled to exercise to all its powers.
Do shareholders have the right to intervene? They can restrict the power of the
board.
How?- After amending the AoA.
Case- Jagdish Prashad vs Paras Ram- Until and unless the board has acted in a valid
and legal manner, the shareholders cannot pass a resolution amending AOA,
invalidating a previously passed resolution.
When can they intervene?
Directors acting in a malafide manner. Case- Marshall Gear Co. vs Menning Wardle
Co Ltd.
Directors themselves the wrong doer- Case- Satyacharan Lal vs RP Bajoria.
Incompetency of the board- when they are not validly appointed. Case- BN
Biswanathan vs Tiffins BA & P Ltd.
Deadlock in the management- when they cannot come to a decision. Case- Barron
vs Potter.
S. 179, Clause 1- The board is bound by the regulations specified by the act, moa,
aoa and other relevant regulations and the board must adhere to the additional
regulations set by the company in the general meeting as long as they do not
contradict the existing provisions.
Second proviso- Certain key decisions or actions must be approved by the company
shareholders during the general meeting and the board is restricted from taking
those actions independently.
Clause 2- Any regulation established by the company during the General meeting
will not nullify previous actions taken by the board.
S. 185, Loans to directors, etc.
S. 166: Duties of the directors
Cases-
1. Dr. A Lakshmana Swami vs LIC- LIC acquired the business of United India LIC
Co. Ltd, which was incorporated to carry on life insurance business. Before
the acquisition donation of Rs. 2,00,000/- were made by the directors to a
trust with the object of promoting insurance education and business
knowledge. The SC held that the donation of Rs 2,00,000 was beyond the
object and outside the scope of AoA. That is ultra vires and the directors were
personally held liable.
2. Terrascope Venture vs SEBI- Act or deeds done by director in breach of his
duties becomes valid once it is ratified. Acts criminal in nature cannot be
ratified.

Committees and their roles

1. Audit Committee- s. 177 along with Rule 6, Companies (Meetings of the Board
and Powers) Rule, 2014.
Required for- listed companies, public companies having a paid up share
capital of ₹10 Crores or more. All public companies having a turnover of ₹100
Crores or more. Public companies having outstanding loans, borrowings,
debentures, deposits, exceeding ₹50 crores or more.
Composition- The committee shall consist of a minimum of 3 directors with
independent directors forming the majority. Clause 49 of the listing
agreements that minimum two-thirds members of the committee should be
independent directors. All the members must be financially literate. The
chairman of the committee should be an independent director. At least 4
meetings must be conducted in a financial year with maximum time gap of 4
months.
Functions- s. 177
2. Nomination and Remuneration Committee- s. 178
Required for-listed companies, public companies having a paid-up share
capital of ₹10 Crores or more. All public companies having a turnover of ₹100
Crores or more. Public companies having outstanding loans, borrowings,
debentures, deposits, exceeding ₹50 crores or more.
Composition- Three or more non-executive directors. Chairman should be an
independent director.
Functions-
● They will identify a person qualified to be the director. And the persons
who are qualified to be in the upper level management. Recommend
the board for removal of such person.
● Formulate the criteria for determining qualifications, positive attributes
and independence of director relating to remuneration of directors, key
managerial personnel and other employees.
3. Stakeholders Relationship Committee- S. 178
A company which consists of more than 1000 number of shareholders,
debenture holders or any other securities, such company has to constitute
this committee. Chairperson must be non-executive director.
Grievances to be handled by this committee- related to securities, transfer,
allotment, refund of application money, unpaid dividend.
4. Risk Management Committee- Clause 49 of the listing agreement.
As per the clause, it is said that the board has to form this committee. The
committee has to evaluate the internal financial controls and the risk
management system.
Composition- Board of directors and senior executives. Chair- somebody from
the board.
5. Corporate Social Responsibilty Committee - S. 135 and Rule 3, Companies
(Corporate Social Responsibilty) Rule, 2014 mandates every company having
netwoth of ₹500 crores or more, turnover of ₹1000 Crores or more, a net
profit of ₹5 Crores or more has to constitute a CSR committee. They are also
mandated use 2% of the profit for CSR activities.
Schedule 7, Companies Act, 2013.
 Cases- Technicolor India vs RoC- Company eligible for CSR but spent less
than the threshold. It was said that they have to support their report, that is,
spend the amount they have not spent on CSR activities.
The concept of CSR and protection towards the environment has come from
Bhopal Gas Tragedy (absolute liability) and Ryland vs Fletcher (strict liability).
1. Indian Petrochemicals Corp. vs MC Mehta, 1987
2. Union Carbide Corporation vs Union of India
3. Hirapower and Steels Ltd
Majority and Minority Shareholders (Shareholders democracy)
Majority shareholders - shareholders holding more than 50% shares.
Minority shareholders- shareholders holding less than 50% shares.
Rule of majority- Principle of non-interference- Foss vs Harbottle 1843- In this
case, two minority shareholders, Foss and Turton got an action against the director
and the solicitor of the company claiming that illegal transactions in relation to
company’s property were being carried out. They also claimed that there was no
qualified board. They were asking for damages.
Decision- It was held by the court that the action couldn’t be brought by the
minority shareholders. The court also stated that the wrong done to the company
could be ratified by the majority of the members and also the court held that the
proper plaintiff is the company itself and not the minority shareholders.
Ratio- The majority of the members are competent to decide whether to commence
proceeding against the directors.
Case- MacDougall vs Gardiner- 1875- ratio- If the thing complained of is a thing
which is in substance the majority of the company are entitled to do, or if something
has been done irregularly which the majority of the shareholder are entitled to do
regularly, or if something has been done illegally which the majority of the company
are entitled to do legally, there can be no use of litigation about it, the ultimate end
of which is only that the meeting has to be called, then ultimately the majority gets
it wishes.
Case- RajahMundhry Electric Supply Co. vs Nageswara Rao- 1956- Ratio- In
this case the SC observed that the courts in general will not intervene at the
instance of the shareholders in the matters of internal administration and will not
interfere with the management of the company by its directors so long as they are
acting within the powers conferred on them under AoA. If the directors are
supported by the majority shareholders then the minority shareholders, in general,
can do nothing about it. The rule laid down in Foss vs Harbottle can’t be technically
and automatically applied in the Indian context.
Case- Pavlides vs Jensen- 1956- In this case, one minority shareholder bought
action against 3 of the directors and company, on grounds of negligently selling of a
mine which was owned by the company. Contended that there was a difference of
the selling price (82,000 pounds) and actual value (1,00,000 pounds).
Decision- It was open to the company on the resolution of the majority shareholders
to sell the mine at a price decided by the company, it was also open to decide that
the directors by the negligence or error of judgment has sold the mine undervalued.
Case- Edwards vs Halliwell- Exceptions to Foss vs Harbottle-
1. Ultra vires- acting beyond the powers vested by the AoA and MoA. Case-Bharat
Insurance Company ltd vs Kanheiyalal, Facts- one of the objective- to advance
money at interest on security of land, houses, machinery and other properties
situated in India. Shareholder’s complaint- several loans advanced without
adequate security, which is contrary to the object in MoA. Relief asked- Permanent
injunction on such investments.
Decision- the court permitted the plaintiff’s case, The company is the best judge of
its own affairs and the court shouldn’t interfere, but the application of assets is not
just a subject of mere internal management of the company. therefore, directors
acting ultra vires. Even a single member can maintain the suit.
2. Fraud on Minority- Meiner vs Hooper- Hooper had a contract with one company
for laying down transatlantic wires, later it entered into contract with another
company because it was more profitable, but the second company required
concessional subsidy from Government which was with first company so Hooper
convinced the trustee to transfer the concessional subsidy to the second company.
Meiner, a minority shareholder, went to court with complaints of improper transfer
and illegal profit.
It was observed by the court that the scheme of Hooper can be classified as
oppressive exploitation of the minority members and that a derivative action would
fall against it.
3. Acts requiring special majority- case- Dhakeswari Cotton Mills vs Nilkamal
Chakraborty- With a special resolution in general meeting related to a greater
amount of commission and monthly allowance of MDs were decided with a show of
hands as no poll was demanded. The plaintiff sought a declaration that there wasn't
an appropriate majority so the resolution wasn’t binding and held the ruling in favor
of the plaintiff.
4.Individual Membership rights- If such a right is in question, a single shareholder
can, on principle, defy a majority consisting of all other shareholders.
Derivative suit is a lawsuit brought by a shareholder or group of shareholders on
behalf of the corporation against the corporation's directors, officers, or other third
parties who breach their duties.
Corporate Rights of a member-
Representative suit-
Case- Nnaggpa Chettiar vs Madras Race Club-
Case- Joseph vs Joss-
5. Control of wrong doers- Held in Foss vs Harbottle- The principle shall extend only
to the extent that when the director is in breach of fiduciary duty. Every shareholder
may be considered an authorized organ to bring legal action.
6. Oppression and Mismanagement- s. 241-246.

Statutory Exceptions-
1. Variation of class rights- s. 48- When the share capital of the company is
divided into classes, different classes have different rights, those rights can
be altered only by alteration of MoA and AoA, which needs special majority-
3/4
The holders of not less than 10% of the issued shares who have not assented
to the variation, may apply to the tribunal.
2. Request for investigation- u/s 213, 100 or all members holding not less than
1/10 of the voting rights may apply to the tribunal for conducting an
investigation into affairs. The application has to be supported by evidence.
3. Skill of compromise and arrangement- s. 230
4. Oppression and Mismanagement-s. 241-246
5. Class action- s. 245- minority shareholders can approach tribunal if the affairs
of the company has beeen conducted in a manner prejudicial to the interest
of the company and members.

s. 241- Who can approach the tribunal?

 1. Any member of the company if they believe that the affairs of the company
have been conducted in a manner prejudicial to the members or public. E.g;
preferential allotment of shares, not listening to opinions of minority
shareholders.
2. Significant change in the management which will lead to prejudicial interest
of its members or class of members.
3. Central Government, if affairs are conducted in a manner prejudicial to the
public interest.
4. Tribunal can take suo moto cognizance.

s. 242- Powers of Tribunal

1. If the company’s affairs have been conducted in a prejudicial manner or
oppressive to any members or public.
2. If winding up of the company would unfairly prejudice certain members, the
tribunal can still take action to address these issues without resorting to
dissolution.
Powers-
1. Regulation of conduct of affairs.
2. purchase of shares
3. reduction of share capital- issued capital.
4. can enforce restriction on transfer or sell shares till the matter is resolved.
5. termination or modification of agreement.
6. setting aside fraudulent transactions.
7. removal of officers
8. recovery of undue gains
9. appointment of new managements, additional directors.
10.Imposition of cost
11.any other just and equitable matters.
Clause 3- Filing order with the registrar- The company has to file a certified copy of
the tribunal with RoC, within 30 days.
Clause 4- Interim order- order in between the proceedings for conducting affairs of
the company.
Clause 5- if the tribunal order u/ subsection 1, the company is prohibited from
making any alteration inconsistent with the order without the Tribunal's leave.
Clause 8- Contravention of subsection 5- company will be punished with fine- 1
lakhs to 25 lakhs, and officer- 25,000 to 1 lakhs.

s. 243- consequences of termination or modification of certain agreements-

Claims against the company- when the tribunal’s order terminates, set asides or
modifies the agreement, it absolves the company from any claims for damages or
compensation arising from that agreement.
Restrictions on managing directors and managers- individuals whose agreements
are terminated or set aside by the tribunal’s orders are prohibited from being
appointed or acting as directors, managing directors of the company for five years
from the date of the order.
Penalty for contravention- Anyone who knowingly acts as manager and managing
director will be punished with fine- 5 lakhs and imprisonment of 6 months.

s. 244- Right to apply u/s 241-

s. 245- class action- allows a group of members to approach the tribunal or file a
suit if they believe that the company affairs have been conducted in a manner
which is detrimental to their interest.

TATA vs Cyrus Mistry-

Aruna Oswal vs Pankaj Oswal & Ors

In the case, the deceased, Abhay Oswal had 53,53,960 shares of Oswal Agro Mills
Ltd (39.88%) in his name. Abhay filed a nomination in name of Aruna, she will get
shares after Abhay’s death.
Now the eldest son, Pankaj, filed a petition in HC, claiming 1/4th of the estate and
1/4th of the shares belonging to his mother.
Issues- Whether a company petition under s. 241 and 242 of the act is maintainable
when the determination of ownership of shares in such petition in the subject
matter of the pending partition suit?
Whether the inheritance of shares can be divided under a company petition or not
or is it a civil matter?
NCLT
NCLT held that Pankaj lacked the minimum eligibility criteria under s. 244, of Act.
(1/10th of the shares).
It didn’t decide on the maintainability of the petition.
NCLAT
NCLT should decide first on this issue, dismissed the petition, later appealed.
HC
It is a civil matter and it cannot be decided under a company petition. (s.72,
Companies Act, 2013).
SC
Recognised the question of right, title and interest and inheritance of shares is a
civil dispute.
Shanti Prasad Jain vs Kalinga Tubes-

Module- 2: Membership
Section 2 (55)- Subscribers to the memorandum. The first shareholders of the
company after incorporation. Their names are registered in the register of
members.
Every other person who agrees in writing to become the member and whose name
is entered in the register.
Every person holding shares and are registered as beneficial owners in depositories.
Bala Krishnan Gupta vs Swadeshi Polytechs- 2 elements- agreed in writing and entry
of the name in the register.

Methods of becoming a member-

i. by subscribing to memorandum- holding of shares is not necessary. In this case,
neither application form nor allotment of shares is necessary. On registration of
companies, the subscribers will be entered as members in the register of members.
ii. by agreement in writing- by virtue of allotment of shares, transfer and
transmission of shares. Allotment by company, transfer by existing shareholder and
transmission to the legal heir after death of the member.
iii. by holding shares- as beneficial owner in depositories.

Note- All shareholders are members but all members are not shareholders.

Members without being shareholders.

1. signatories to MoA.
2. Members of company limited by guarantee. Company limited by guarantee
do not have share capital.
3. Transferor of shares- Those who have transferred their shares but their name
still appears in the register.
4. Person may be liable to be the member by the order of the court.

Rights of members-
A number of rights have been conferred on the members by the Companies Act,
2013, some of the important rights are as under:
i) Right to receive copies of Memorandum and Articles of Association on request and
on payment of the prescribed fee. 239
ii) Right to receive share certificate within the prescribed period of 3 months from
the date of allotment.
iii) Right to transfer his shares according to the provisions of the Companies Act and
Articles of Association.
iv) Right to have his name entered in the Register of Members.
v) Right of priority to have shares offered in case of increase of capital.
vi) Right to receive notice of meetings, to attend, to appoint a proxy and vote at the
meeting.
vii) Right to participate in the appointment of directors, auditors, etc. at the annual
general meeting.
viii) Right to inspect register of members, register of debenture holders and copies
of annual returns.
ix) Right to apply to the Tribunal for rectification of register of members.
x) Right to request to the Tribunal for calling an annual general meeting when the
Board of Directors fails to call such meeting or apply for an extraordinary meeting of
the company, whenever necessary.
xi) Right to receive copies of the financial statements and Director’s Report before
the annual general meeting.
xii) Right to receive proper notice of resolutions requiring special notice.
xiii) Right to have, on request, minutes of proceedings at a general meeting.
xiv) Right to apply to the Tribunal for ordering an investigation into the affairs of the
company.
xv) Right to present petition to the Tribunal for relief in cases of oppression and
mismanagement.
xvi) Right to present petition to the Tribunal for the winding up the company.
xvii) Right to share in the surplus assets of the company on winding up.
xviii) In the case of a body corporate which is a member, the right to appoint a
representative to attend a general meeting on its behalf.
xix) The right to require the company to circulate resolution under section 111.
xx) Right to apply to the Tribunal under section 48 to have any variation of
shareholders’ rights set aside.
xxi) Right to participate in the removal of directors by passing an ordinary
resolution

Company as a member of another company. By virtue of being a juristic person.

Limited Liability Partnership
charitable companies- s. 8 companies
Foreigners can be member as per FEMA, 1999. But in case of alien enemy, voting
rights will be canceled.
Trade union- All India Bank Officers vs Dhanlaxmi Bank- A registered trade union is
a body corporate and can sue and be sued and enter into contract.
S. 13, Trade Union Act- A trade union has the power to hold movable and
immovable property of the companies.
Insolvent?- can be a member of the companies, a person who was a member before
insolvency notwithstanding the insolvency, if specifically mentioned in the AoA.
Hindu Undivided Family can be a member of the company, the shares will be held
by the karta on behalf of the company.
Societies?- if registered under Society Registration Act.
Minor will hold the shares in the name of guardian, but will not incur any liability.

Termination of membership
1. His shares are forfeited.
2. Transfer of shares
3. Insolvent
4. For fraud and misrepresentation
5. Buyback of shares
6. Winding up of the company
7. Contract of membership terminated.

Module-3
Accounts and Audit
S. 128, Companies Act, 2013- mandates every company to maintain relevant books,
books of accounts and financial statements and other relevant books for every
financial year.
As per s. 2 (13), defines books of account.
1. All sums of money received and expended by the company and the matters
in respect of which receipts and expenditures take place.
2. Sale and purchase of goods by company
3. Assets and liabilities of the company.
4. The item of cost as may be prescribed under s. 148 in case of company which
belongs to any class specified under s. 148.
Books of account wil be kept in the registered office of the company, however s.
128 (1) allows the company to have the books of account at any place in where the
board decided.
S. 128 (2)- allows the books of account relating to transactions effected at the
branch office to be kept at that office, however the proper summarised return
periodically are to be sent to the registered office or any other place decided u/s
128 (1) by the branch.
The companies (accounts) 4th amendment rules, 2022- books to be maintained in
electronic form. Must be always accessible and back up has to be done daily.
S. 128 (3)- Books of account and other books shall be open to inspection to the
directors during business hours.
In case of a subsidiary company, only the person is permitted only when he is duly
authorized by the board and resolution is passed in this regard.
S. 206 (1)- The registrar by a written notice may call on the company to produce the
books of accounts and explanation when required.
S. 206 (5)- Central Government may appoint an inspector for carrying out inspection
of books of account.
U/s 45 N of the RBI act- books of account of Non-banking companies can also be
inspected by the RBI.
S. 207 (4)- penalty- every officer including the director who is in default shall be
punishable with fine upto ₹25, 000/- but may extend to ₹1,00,000/- and
imprisonment which may extend to 1 year.
Case- N V Vakharia vs Supreme General Film Exchange Co. Ltd. - The
director can inspect the books of accounts and can also appoint an agent for that
until and unless opposed by the company, the agent shall utilize this opportunity to
inspect books as directed by the principal.
Mandatory for-
● every listed company
● Every unlisted company with paid up capital of 50 crores or more, turnover of
200 crores borrowings and loans 100 crores or more, outstanding deposits of
25 crores or more.
● Private company with paid up capital of 50 crores or more, turnover of 200
crores borrowings and loans 100 crores or more, outstanding deposits of 25
crores or more.
Qualification of internal auditor-
● Acc to s. 141 (1)- the chartered account is eligible for appointment.
● CA- 2 (17)- holds a valid certificate of accountancy.
 ● Auditors can do auditing in 20 companies max in one financial year.
Disqualification-
● if he is officer or employee of the company.
● if he or his relatives or partners are holding shares of the company or its
subsidiary. They (only relatives and partners) can hold up to Face value till
₹1000/- or as may be prescribed, according to s. 141 (3).
● If he or his relatives or partners are indebted to the company or the
subsidiary or associate company.
● If he is the guarantor.
● If any person or firm who is directly or indirectly having business relations
with the company or the subsidiary or associate company.
● A person whose relative is the director or appointed as key managerial
personnel of the company or the subsidiary or associate company.
● Convicted person.
Restrictions- Company (Audit and Auditor) Rules, 2014 sets out the threshold.
According to rule 10 (1), a relative of auditor may hold securities upto face value
₹1,00,000/-.
In case, the person whose partner or relative is indebted to the company, then the
limit is ₹5,00,000/-
And for guarantee limit is ₹1,00,000/-.
Appointment of first auditors (139 (6))-
The first auditor will be appointed within 30 days from registration of the company.
They will hold the position till the first AGM.
Appointment of subsequent auditors (139 (1))-
Every company will appoint auditors in 1st AGM and they will hold it till 6th AGM.
Compulsory rotation- 139 (2)
For listed and certain classes of companies (unlisted public companies with paid up
cap of ₹10 crores and private limited with ₹50 crores or more, company having
borrowings with more than ₹50 crores.) The auditors can be appointed only for 5
years.
Status of an auditor- In case of Spackman vs Evans, auditors are the agent of the
shareholders and creditors. Because they are the end users.
The knowledge of the auditors is the knowledge of the principal and the shareholder
is not bound by the information which the auditors has acquired during the course
of audit if the information is not communicated to the auditors.
Rights of the auditors-
1. To access books of accounts, within his tenure and can also do a surprise
inspection. Check compliance and make changes.
2. Rights to make suggestions to the board.
3. To obtain information and explanation from KMPs.
4. To visit branches of the company situated in any other place and get the
copies checked.
5. To receive notice and attend meetings.
6. Right to sign the audit report.
7. Right to remuneration. After the completion of work. Fixed by appointing
authority and for pending dues, the auditor achieves creditor status at the
time of winding up.
8. Right to be indemnified for all the legal expenses they have incurred.
9. Right to get technical and legal advice.
Difference between internal and external auditors.
Authorities under the companies Act, 2013.
1. NCLT- quasi judicial body. Derives its powers from Company Act, 2013,
established in 2016 and has 16 benches with the main bench at Delhi.
Members are segregated into judicial and technical. For being a president, he
must have been a judge of High Court for 5 years. Judicial member is a judge
of HC or District Court or advocate for 10 years of any court. Technical
members should have experience of 5 years corporate law service or Indian
legal service or has been holding the rank of secretary or additional secretary
to Government of India or CA, CS practicing for 15 years or has been
presiding officer of labour court or tribunal court under Industrial Disputes
Act.
Qualification- 409
Selection procedure- 412
For appointment of president and other members-
Term of all- 5 years from date of appointment and can be reappointed.
 Resignation and removal- Submit their resignation in writing to the Central
Government. The C. Govt after consultation with CJI , under section 417, can
remove any members or president from the office if they has been declared
insolvent or convicted of any offence which in opinion of Central Government
involves moral turpitude or has become mentally and physically incapable or
has aquired any financial or other interest which will likely affect prejudicially
the parties or if he has abused his position which is prejudicial to the public
interest. In all the cases they will be given an opportunity to heard except in
case of insolvent.
Power as of a civil court under CPC. Summons, production of documents, receiving
evidence on affidavit, examination of witness, dismissing an application for default
and contempt of court.
2. NCLAT- higher forum than NCLT. Established u/s 410. Hears appeals from NCLT
and National Financial Reporting Authority. Chairperson+Technical+judicial. Total
11 members.
Qualification of chairperson- Judge of SC or Chief Justice of HC.
Judicial Member- Judge of HC or Judicial members of NCLT for 5 years.
Technical- year of experience of 25 years in matters of law, industrial management
and reconstruction, winding up, etc.
Selection procedure- same
Term- 5 years and reappointment
3. SC- Appeal has to be done within 60 days from the NCLAT order.
4. Mediation and conciliation panel- s. 442. The central Govt has a panel of experts
to mediate between parties during the pendency of the proceeding.
Special Courts-
Can be created by C. Govt for speedy trial of offenses under the act. The special
court comprises a district judge- in charge of offences listed under the companies
act, 2013. Single judge deals with cases where imprisonment is upto or more than 2
years. And other cases will be dealt with the metropolitan magistrate and JMFC u/s
HIgh Courts will hear appeals.
Registrar of Companies
Means a registar, or an additional or a joint or deputy or an assistant registrar
having the duty of registering the companies and all other functions as mentioned
u/s 2 (75), 2013 act.
Regional Directors-
There are 7. Ahmedabad, Chennai, Delhi, Mumbai, Kolkata, Shillong and Hyderabad.
Appointment done by MCA. Functions of Central Govt is delegated to regional
directors u/s 458.
National Financial Reporting Authority.
NFRA is constituted by the C. Govt. It is the apex body of matters relating to
accounting and auditing standards. Responsible for formulation, monitoring and
enforcement of various accounting standards.
Serious Fraud Investigation Office
Constituted u/s 211 and 212. It is a multi-disciplinary body. capital market, financial
sector, accounting, forensic, tax, audit, IT, etc. Role is to investigate fraud relatring
to companies on receipt of report from registar or if a special resolution has been
passed requiring the company to investigate the fraud or on public interest or on
request from any central or state government department. Power to arrest and seek
information and disclosures.

Module 4
Corporate Restructuring (230-240).
1. Expansion- Merger, Amalgamation, Acquisiton, Tender offer and Joint
Venture.
2. Sell off- Split offs, Split ups, Spin off, Equity Carved out.
3. Corporate Control- Buyback, stand still agreement, anti-take over
agreements.
4. Changes in ownership structure- various exchange offers, share purchase and
share repurchase and going private.
Reasons for corporate restructuring
I. Revival
II. Expansion of scale of economics.
Operational Restructuring- Joint Venture, Acquisition, lay off.
1. Physical
2. Human Capital
3. Financial
Financial restructuring- significant changes made to the company’s financial
structure- equity, debt, assets, and financial health of the company.
Merger vs amalgamation-
1. Similar businesses coming together- merger
Amalgamtion is kind of purchase.
2. Merger- companies coming together might retain their identities.
Amalgamation- Acquiring company will retain its identities and the smaller
one loses its identity.
3. In merger, controlling stake is mutually decided.
Amalgamation- controlling stake is with majority shareholders and smaller
company is just a minority shareholder.
4. More legal complexities in amalgamation.
Different types of merger-
1. Horizontal merger- Between 2 entities in similar kind of business.
2. Vertical merger- different line of production
3. Congeneric merger- Two companies related industries, not direct
competitors, complementary products, share distribution channels. Example-
P&G had an alliance with Gillette.
4. Conglomerate merger- when two companies operating in entirely different or
business sectors. Example- General Electric has aviation, healthcare and
energy and has formed an alliance with NBC (National Broadcasting
Company).
5. Reverse Merger- Privately held companies acquire majority stakes in public
limited companies, to bypass IPO procedure. Example- Beleant Pharma and
Biovail Corporation (public company).
Tender Offer is a public solicitation made by a prospective acquirer to the
shareholders of the target company. Done to bypass negotiation with the target
company.
Joint venture- Collaboration of two companies for a specific project by pooling their
resources and capital together.
Amalgamation-
Acquisition- Acquiring shares, assets or controlling stakes of another company.
Spin off- A company separates a portion of its business into a different separate
entity. New entity is a standalone company with a separate management. E.g. ebay
and Paypal
Split off- occurs when a parent company divests a portion of its subsidiary operation
or assets to form a new independent company.
In case of Spin off the new entity becomes a standalone company, in split off the
divested portion is exchanged for shares or assets of the newly formed company
Equity carve out- partial IPO. When a parent company sells a minority stake in one
of its subsidiaries to the public effectively making it a separate, publicly traded
entity.
Buyback- Purchasing its own issued shares.
Standstill agreement- contractual arrangement between target company and its
potential acquirer in exchange of some concession.
Anti take over amendments- are the changes done to corporate governance also
known as anti take over defence mechanism.
Section 230
A compromise is between the company, the creditors and other stakeholders in
case of disputes, obligations, etc. Reaching an agreement between a company and
its creditors and the stakeholders to settle the outstanding debt and liabilities.
Includes reducing amount owed, extending payment terms or offering alternate
forms of repayment.
Arrangement is wider than compromise. Includes restructing ownership and capital
structure of the company.
Compromise is done through the consolidation of shares within different classes
together.
Division of shares- dividing into different classes to increase the number of shares.
230 (1)- Application to be submitted to Tribunal by the company/ creditor/
stakeholder/ liquidator for financial and operational restructuring. Tribunal might
order for consolidation/ division or both.
230 (2)- Affidavit to be submitted all audited reports, latest financial position,
pending proceedings against the company, and information regarding reduction of
the share capital. Creditors’ responsibility statement in the prescribed form that the
arrangement will be feasible and not harm any shareholders’ interest. Auditor’s
report should also state that the fund requirements of the company after the
restructuring will meet the liquidity test. There has to be an adoption to RBI
guidelines. Valuation report by the valuer has to be attached.
230 (3)- Notice to the creditors, members and debenture holders- along with effect
of comp/arrangement, valuer’s report and reflected in the website of the company.
In case of listed company, send all these to stock exchange and SEBI- as a
disclosure requirement.
230 (4)- objections to the arrangement or compromise- Members who have 10% of
shareholding or creditor who has given 5% of the overall debt. For approval- special
resolution is required, can do through postal, ballot, proxy or by being present.
230 (5)- Receipt of the notice- by SEBI, RBI, Stock exchanges, Income tax
authorities, RoC, official liquidator (in case of liquidation), MCA, CCI, etc.
230 (6)- Majority of the person required for the sanction of a scheme which should
be a majority of 3/4 th. The order of the sanction has to be ordered by the tribunal.
230 (7)- whenever there is a conversion of preference shares then the pending
dividends would be given to them inform of the cash or dividends. The tribunal
orders the sanction. Protection of the classes of the creditors. If the compromise in
agreement results in shareholders right it should be given.
Sec 48 talks about variation in shareholder rights. The rights attached to the shares
of any class should be in consent of ¾ th majority or by passing a special resolution
and it should be ratified in MoA and AoA.
If there is any proceeding pending before the BIFR shall stand void if the
arrangement and the compromise is approved by the creditors.
Exit offers are given to the descending shareholders. In exchange of shares they will
be paid.
The auditor of the company shall ensure that the accounting treatments are
consistent with the accounting standards given in s. 133.
230 (8)- filing the order- order has to be filed with RoC within 30 days of the passing
of order.
230 (9)- if the assent of 90% of the creditors has been obtained through affidavit
then calling of the formal meeting can be bypassed to streamline the process.
230 (10)- Buyback of shares- as per s. 68
230 (11)- includes takeover offers, shall be in compliance with SEBI regulations in
case of listed companies.
230 (12)- Companies other than the listed companies- If there is any grievances, the
aggrieved party has teh right to make an application to the tribunal.
Section 231- Power of the tribunal to - whenever a tribunal is sanctioning an
arrangment or company, the tribunal has the power to supervise and modify the
arrangement.
If the tribunal determines that the arrangement and compromise can’t be
implemented and financial obligations are not met then the tribunal may order for
winding up.
This order will be considered order u/s 273.
Section 232- seeking approval from tribunal.
1. File NCLT No. 1 form
2. Tribunal meeting of creditors and members.
3. Notice to creditors, members and shareholders.
● Draft of proposal, terms of scheme of mergers and acquisition
● A confirmation that draft has been filed with the registrar.
● Report adopted by the directors of the merging companies.
● Report of valuation by an expert.
● Supplementary accounting statement.
4. Tribunal may sanction the amalgamation by order after being satisfied that
the procedure has been followed. May add provisions about transfer of assets
anf liabilities and treatmenet of various shareholder and class.
5. Company shall file a certified copy of the order with the registrar within 30
days of receipt of same.
6. Until the completion of the scheme the company shall file a statement
indicating whether the scheme has been carried out in accordance with the
order.
7. The statement shall be filed with the registrar after being certified by a CA,
Cost accountant or CS in practice.
Penalty- ₹1 Lakhs - ₹25 lakhs
Imprisonment of officer- 1 year and fine- ₹1 lakhs- ₹3 lakhs.
S. 233- alternative framework- 2 or more small companies, a wholly owned
company and its wholly owned subsidiary company, 2 or more start up companies
or one or more
Effect of Registration:
Registration of the scheme results in the dissolution of the transferor company
without winding-up.
Transfer of property and liabilities to the transferee company occurs.
Legal proceedings involving the transferor company continue with the transferee
company.
Settlement of dissenting shareholders or creditors' claims becomes the liability of
the transferee company.
Shareholding:
The transferee company cannot hold shares in its own name or in trust, and such
shares are canceled or extinguished.
The transferee company adjusts its authorized capital and pays prescribed fees.
Merger with Foreign company
Mainly authority with RBI and C. Govt. Prior approval from RBI. Payment of
consideration to in form of cash and depository receipts.

Module 5: Winding up of the company

270- modes of winding up
271- grounds of winding up
272- petition for winding up- Who can? The company itself, the creditors or the class
of creditors, the contributors, the RoC and any person authorized by the central
government.
Creditors- secured creditors, debenture holders and trustee of debenture
273- Powers of tribunal
Winding up rules 2020- winding up form has to be presented WIA-1 OR WIA - 2 has
to be verified by an affidavit
276- removal of the liquidator
Threshold- required for initiating CIRP- ₹1 crore.
Who can initiate? Financial creditor, operational creditor, corporate debtor and
NCLT.
Financial creditors- 5 (7)- “financial creditor” means any person to whom a financial
debt is owed and includes a person to whom such debt has been legally assigned or
transferred to.
Operational creditors- 5 (20)- “operational creditor” means a person to whom an
operational debt is owed and includes any person to whom such debt has been
legally assigned or transferred.
CIRP Procedure-
Initiated by operational creditors either 100 in number or not less than 10% of total
number of creditors in same class.
Public announcement, then invite claim from creditors (s. 13)
Committee of Crditors (s. 21) will have their first meeting within 7 days of
formulation of the committee as per s. 22.
The RP shall release an invitation of expression of interest seeking resolution plans
from various resolution applicants within 75 days of commencement of CIRP.
RP has to make the list of claimants.
Once the final list is made, the RP will request for resolution plan, information
memorandum, evaluation matrix and any other document necessary for preparation
of resolution plan.
The resolution applicants must submit the resolution plan within 30 days of the
issuance of request for resolution plan.
As soon as the resolution plan is received the CoC will either approve (66%
majority) or reject the plan.
If approved, then it will go to NCLT for final approval. NCLT will only intervene when
there is non-compliance of statutory provision. Otherwise upheld the commercial
wisdom of the CoC.
Time frame- 180 + 90 days (extension), amended- 330 days in total.
If time frame is not followed then corporate debtor will go into resolution.
Hierarchy- s. 53- who will get money first and who will get later.
Fast track- s. 56- 90+45 days (applicable to small companies.
Moratorium period- NCLT will declare- during that time no initiation of fresh suit
against the corporate debtor.
Module 6
Competition Law
The objective is to defend the consumer interest from anti-competitive interests.
Previous act- Monopolies and Restrictive Trade Practices (MRTP) Act of 1969
1. Cartel- agreement between competing firms to fix the price and avoid
competing market practices. This artificial control of price harms consumer
interest. There might be agreement to limit the quantity of goods and
services. Bid-rigging cartel- agreement to who will get the tender. Collusive
bidding-
2. Enterprise- entities who engage in creation, manufacturing, etc.
Section 3- anti competitive agreement
● Appreciable adverse effect- any significant negative impact that agreement
or practice will have on the market.
● Exception- joint venture as such agreement increases efficiency in
production, supply, distribution, storage, acquisition or control of goods or
provision of services
● Tie-in agreement- e.g. antivirus of that company with their operating system.
● Exclusive supply agreements- where the supplier or buyer will impose a
restriction on the retailer from selling similar products to any other party.
 ● Exclusive distribution agreement- prevent other retailers from selling a
product in a store.
● Refusal to deal- because of low price.
Vertical agreement- s. 3 (4)- different level of supply chain
Horizontal agreement- s. 3 (3)- are made between competing business which are
operating in the same level of supply chain and engaged in similar economic
activities.