PREFACE TO THE FIFTH EDITION V
PREFACE TO THE FOURTH EDITION VII
TABLE OF CASES XXV
TABLE OF STATUTES LXXIII
CORRIGENDA LXXX
PART I : INTRODUCTORY
The place of private company 1
Restriction on Numbers 2
Kinds of company 4
The Normal Type 4
Public and private companies 4
Subsidiary Companies 5
Exemptions and Disclosures 6
Evolution of Private Company 7
Definition of Company 11
Companies Authorised to Register 12
Definition of Private Company 17
Restrictions as to Transferability of shares 17
Right of pre-emption 18
Restriction as to Members 19
Prohibition upon Issue of Prospectus 19
PART II : PRIVATE COMPANIES LIMITED BY SHARES NOT BEING SUBSIDIARIES OF A PUBLIC COMPANY
CHAPTER I : FORMATION AND REGISTRATION
FORMATION
Who can subscribe 20
Lawful Objects 22
REQUIREMENTS FOR REGISTRATION
MEMORANDUM OF ASSOCIATION
Form of memorandum 23
Requirements with respect to memorandum 23
The Name 24
Registered Office clause 26
Objects 27
Purpose of Objects clause 27
Objects and Powers 28
Share Capital 32
Liability 33
Stamp on Memorandum of Association 33
Articles of Association 34
Power exercisable if authorised by articles 36
Special provisions in articles 37
Specimen articles 37
Stamp on articles 37
Declaration of compliance with the requirements of the Act 38
Fees payable to the Registrar 38
Formation agreements 39
Agreements for converting partnership into private company 39
Formation agreements : Fuller forms 39
Agreements for sale of business to proposed company 40
New Business 41
Specimen Forms 42
Registration 42
Conclusiveness of certificate of incorporation 42
Legal personality of company 42
Memorandum and articles operating as binding contract 45
Promoters 46
Fiduciary Position 47
CHAPTER II : PROCEDURE SUBSEQUENT TO INCORPORATION
Commencement of business 51
Matters requiring attention immediately on incorporation 51
Registered office 51
Publication of Name and Address 52
Advertisement of authorised capital 54
Submission of return of particulars of directors etc. to Registrar 54
Allotment of shares and notification thereof to the Registrar 54
What is payment in cash? 56
Appointment of Auditors 57
Precedents of minutes of director's meetings 57
CHAPTER III : SHARE CAPITAL-SHARES-MEMBERSHIP
Capital Structure 60
Different kinds of capital 60
Alteration of memorandum in respect of capital clause 61
Notification of alteration to Registrar 64
Reserve share capital 65
Reduction of share capital 65
Kinds of Capital 66
Issued Capital 67
Subscribed Capital 67
Called up Capital 67
Paid-up Capital 67
Reserve Capital 67
Working Capital 67
Fixed Capital 67
Circulating Capital 67
Purchase by Company of its own shares 68
Shares 69
Preferences shares 70
Nature of shares-Share certificates 71
Stamp duty on letters of allotment 72
Transfer 74
Refusal to register transfer of shares 76
Rectification of register 79
Section 111 and the erstwhile Section 155 82
Transmission 83
Membership 84
Agreement to be member of company 85
Minor's contract to be member 86
Procedure of transfer 87
Blank Transfers 88
Transfer Contravening Section 108 90
Relationship between Transferror and Transferee 92
Mortgage or pledge of shares 94
Lien On Shares 95
Postponement and Loss of Lien 95
No Notice of Trust 97
Public Trustee 98
Declaration of Beneficial Interest 99
CHAPTER IV : DIRECTORS
Definition 101
Position of Directors 101
Appointment of directors 103
Appointment by Nomination 105
Voting Agreements 106
Appointment of managing and whole-time directors 107
Share qualification 107
Disqualifications of Directors 108
Additional grounds of disqualification for managing, and
whole-time directors 109
Age limit and other restrictions not applicable 109
Vacation of office by directors 109
Removal of Directors 112
Directors for life 113
Procedure for removal of directors 113
Resignation 116
Meetings of the Board 117
Validity of acts of directors 121
Assignment of office 123
Alternate directors 124
Powers of the Board and restrictions thereon 125
Powers exercisable only at meetings of the Board 126
Restrictions on powers of Board 128
Political Contributions 129
Contributions to National Defence Fund etc. 130
Acts in excess of powers 131
Disclosure by company to members of certain contracts 132
Interested director taking part in proceedings 133
Restrictions on remuneration of directors and number of directorships 133
Appointment of sole selling agents 134
Meaning of substantial interest 137
Compensation for loss of Office 138
Sanction of Board for certain contracts 139
Powers of Board to act in absence of managing agents, etc. 140
Disclosure of interest 141
Compensation for loss of office 144
Loans to Directors 147
Director's duty of skill and care 148
Exclusion of liability now not allowed 149
Standard and Degree of skill and care 150
Duty of Non-executive Director 151
Directors' Personal Profits 152
Business opportunities 152
Misuse of Corporate Information 154
Cessation of Directorship 154
Competition by Directors 156
Directors' Liability to creditors 156
Duty to attend meetings 157
Officer who is in default 158
Appointment to place of Profit 160
CHAPTER V : GENERAL MEETINGS
What are general Meetings 163
Statutory meeting and annual general meeting 163
When annual meeting to be held 163
Time and place of Annual General Meeting 166
Power of Company Law Board to call Annual General Meeting 166
Extraordinary General Meeting on requisition 167
Other meetings 169
Statutory provisions on procedural matters in respect of meetings 169
Length of notice 170
Contents of notice and manner of service 171
Manner of Service 172
Effect of omission to give notice 172
What is special business 173
Explanatory statement to be annexed to notice 173
Quorum 175
Chairman of meetings 177
Appointment by Court 177
Conduct of Business 178
Adjournment and postponement 178
Proxies 179
Inspection of proxies 180
Manner of voting and declaration of result 182
Polls 182
Restrictions on the exercise of voting rights 184
Right of members to use votes differently 185
Voting on shares held in Trust 185
Appointment of scrutineers 185
Powers of Company Law Board to call meeting 186
Resolution passed at adjourned meeting 186
Representation of corporations at meeting of companies
and of creditors 186
Ordinary and special resolutions 187
Whether company can provide a different majority requirement 189
Resolutions requiring special notice 189
Circulation of member's resolutions and statements 190
Minutes 190
Publication of reports of proceedings of general meeting 192
CHAPTER VI : ALTERATION OF MEMORANDUM AND ARTICLES OF ASSOCIATION
General Rule relating to alteration 193
Change of Name 193
Rectification of Name 194
Provisions relating to Private companies existing before the
commencement of the Act 194
Temporary change of name on reduction of capital 195
Change of name by omitting the word 'Limited' 195
Chance of place of registered office 195
Alteration of Objects 195
Filing altered copy of Memorandum with Registrar 197
Transfer of Registered office 197
Extension of time for filing documents 198
Alteration of Memorandum in respect of clause limiting liability 198
Alteration of the capital clause 199
Alteration of Articles of Association 199
Alteration of Articles By Directors 200
Members not bound by alteration in respect of certain matters 201
Alteration to be noted in copies of Memorandum and Articles 201
Amendment of other provisions in the memorandum 201
CHAPTER VII : BOOKS AND REGISTERS
Papers, Books and Registers to be kept 202
Memorandum of Association, the Articles of Association, Agreements
and Resolutions referred to in Section 192 203
Penalty provision 204
Register of Members 205
Power of Company Law Board to Rectify the Register 205
Register prima facie evidence 205
Applicability to Private Companies 206
Things other than Transfer Matters 206
Index of Members 208
Register of Debenture holders 209
Index of Debenture holders 209
Foreign Register of Members and Debenture holders 209
Company's Register of Charges 210
Copies of Instruments creating a charge 210
Register of Directors, Mangers and Secretaries 210
Inspection of Register 211
Duty of Directors to make disclosures 211
Registrar's Register 212
Register of Directors' shareholdings etc. 212
Register of contracts, companies and firms in which Directors
are interested 213
Register of Company's Investments not held in its own name 214
The Minute Book of General Body Meetings ; The Minute Book of
Directors' Meetings ; the Minute Book of Committee Meetings 216
Inspection and Copies 217
Supply of Copies of Memorandum and Articles etc. 217
Inspection of Register of members, index of members, register and
index of debenture holders, copies of all annual returns together
with copies of certificates and documents required to be
annexed thereto 218
Contracts for appointment of manager etc. 219
Inspection of the register of directors, etc. 219
Inspection of directors' shareholding 220
Inspection of register of contracts in which directors interested 220
Inspection of Register of investments not held in company's
own name 220
Inspection of minute books 220
Inspection of books of account 220
Copies of balance sheet and auditor's report 222
Register of appointments of managing agents as selling agents etc. 223
Correction of Errors in Documents filed with Registrar 223
CHAPTER VIII : OTHER MANAGERIAL PERSONNEL
Managing agents, etc. 225
Managing Director 226
Managers 227
Secretary 227
New Rules as to qualifications of secretary 232
CHAPTER IX : MANAGEMENT AND ADMINISTRATION-MISCELLANEOUS PROVISIONS
Contracts, Deeds and Investments 234
Contracts before Incorporation 234
Mode of contracting 237
Authorisation 238
Bills of Exchange and Promissory Notes 239
Investments of the Company 240
Service of Documents 240
Service of documents on company 240
Service of documents on Registrar 241
Service of documents on members by company 241
Authentication of Documents 242
Annual returns 243
Managerial remuneration 246
Exclusion of Liability 247
Prevention of management by undesirable persons 247
Power to Restrain Fraudulent persons from managing companies 247
Restriction on appointment of firms and bodies corporate to office 250
Dividends 250
Changes made by the Amendment of 1988 253
Compulsory Reserves 254
Unpaid Dividend Account 254
Declared Dividend a Statutory Debt 255
Penalty Provisions 256
Restriction on payment to coerce Redemption of Irredeemable
Preference shares 256
Mode of Payment 257
Reserve Fund 257
Capitalisation of Profits 257
Bonus shares 258
Payment of interest out of capital 258
Books of accounts 259
System of Accounting 260
Directors' Right of Inspection 261
Inspection of Accounts by Official Agencies 261
Annual Accounts and Balance Sheet and Board's Report to the
General Meeting 262
Particulars of Employees in Directors' Report 264
New Rules as to Directors' Report 265
Recommendation of Dividend 268
Material Changes after the Date of Balance-sheet 268
Liability for Statements in Accounts and Reports 268
Filing of accounts 268
Penalty for Improper Issue etc. 271
Officers' duty to disclose Payments etc. 271
Documents to be annexed to Accounts, their meeting 272
Publication in the form in Table F in Schedule I 272
Right of Members to copies of Balance-sheet and Auditors' Report 272
AUDIT
Appointment of Auditors 273
Restriction on Number of Auditorships 276
Appointment by Special Resolution 277
Powers and functions of auditors 278
Valuation of Shares of private companies 280
Duties of Auditors 281
Duty of Care 281
Duty to the Company 283
Liability for fraudulent misrepresentation 286
Extended Audit Procedures and Auditors Reports 287
Audit of Branch Accounts 291
Special audit 291
Audit of cost accounts 292
Power of Registrar to call for special information 293
Seizure of documents by Registrar 293
CHAPTER X : BORROWING POWERS -DEBENTURES-CHARGES AND INVESTMENTS
Borrowing Powers 294
Exercise of Borrowing Powers 294
Restriction on Borrowing Powers 295
Debentures 295
Debenture Trust Deed 296
Remedies of debenture holders 297
Receiver 297
Manager 298
Chargee's Right of Interference 299
Receiver's Duty to Return Documents 299
Transfer of Debentures 299
Charges-Registration 300
Rectification of Register 303
Position while the company is a going concern 304
Filing of particulars sufficient 305
Pledge 305
Acquiring property subject to charge 306
Charge by virtue of series of debentures 306
Commission for Subscription 306
Certificate of Registration 306
Alterations and satisfaction 307
Time for raising objection 308
Where not necessary 308
Uncalled capital 308
Lien for cost of repair 309
Book Debts 309
Pledge and hypothecation 309
Floating Charge 309
Characteristics of Floating Charge 309
Subsequent Mortgagers or Charges 310
Statutory Restrictions 311
Crystallisation of floating charge 312
Notice of Charges 313
Registration of Charge when property is acquired subject to charge 313
Particulars to be filed with Registrar in case of a series of Debentures 314
Register of Charges 314
Duty of Company to file particulars 315
Satisfaction of Charge 315
Loans to Companies 316
Loans to Companies 316
Meaning of ''Same management'' 316
Register of Loans 317
Exceptions 317
Investments 317
Investment in other companies 317
Meaning of Group 319
Register of Investments 319
Invitation for Deposits 320
Acceptance of Deposits 320
CHAPTER XI : INVESTIGATION
Investigation when ordered 324
Mandatory provisions 325
Discretionary or Permissive Provisions 326
On Members' Application 327
On a report by Registrar under Section 234 327
Manner of Exercising Discretion 329
Investigation of connected companies 331
Production of documents and examination of officers 332
Application for seizure of books, papers etc. 333
Powers of Inspector and Reports of inspection 333
Report, a prima facie evidence 334
Action on Report 335
Prosecution 336
Expenses of Investigation 336
Investigation of ownership of Company 337
Investigation of Ownership of Shares 338
Restrictions upon Shares and Debentures 338
Voluntary Winding up not to stop investigation 339
Position of Legal Advisors and Bankers 340
Company Law Board 340
Constitution and Powers 340
Appeals against orders of the Board 341
Advisory Committee 342
Jurisdiction of Company Courts 342
Enforcement of Orders 344
Appeals from Orders 345
CHAPTER XII : PREVENTION OF OPPRESSION AND MISMANAGEMENT
Prevention of Oppression and Mismanagement 346
Right to apply 349
Powers of the Board 351
Powers of the Central Government 354
Independence of the petitioning shareholder 356
Res Judicata 357
CHAPTER XIII : WINDING UP
Dissolution 358
Modes of winding up 358
Liquidator 358
Contributories 358
Debts provable 362
Application of Insolvency Laws 362
Preferential payments 365
Insolvency Laws and Preferential Payments 368
Amendment of Section 529 369
Deposits on Trust 370
Unclaimed Dividends and undistributed Assets 371
Fraudulent Preference 371
Avoidance of voluntary transfer 373
Disclaimer of onerous property 373
Transfer of shares after commencement of winding up 375
Avoidance of Attachments, executions etc. 377
Liquidators' power subject to sanction 378
Books and papers to be Evidence 379
Inspection of Books etc. by creditors and contributories 379
Disposal of Books etc. 380
Information as to pending liquidations 380
Deposit of Money 381
Unpaid Dividends and Undistributed Assets 382
Defunct Companies 383
Restoration 384
CHAPTER XIV : COMPULSORY WINDING UP
Winding up by Court 387
Period of Limitation 389
Failure to commence business or suspension of business 390
Inability to pay Debts 397
Petition for winding up 400
Creditors' Petition 400
Secured creditors 402
Contributory's Petition 402
Registrar's Petition 404
Contingent or Prospective Creditor 404
Application for Revocation of order 405
Right to present winding up petition where company is being wound
up voluntarily or subject to Court's supervision 405
Powers of Court on hearing petition 405
Commencement of winding up 407
Suits stayed on winding up order 407
Official Liquidator 412
Provisional Liquidator 412
General duties of liquidators 413
Supplementary Powers of Court 414
Meetings to ascertain wishes of Creditors or Contributories 414
Court or person before whom affidavit may be sworn 414
Statement of Affairs to be made to Official Liquidator 414
Report by Official Liquidator 417
Custody of company's property 418
Powers of liquidator 418
Discretion of Liquidator 419
Exclusion of time in computing periods of Limitation 419
Legal Assistant to Liquidator 421
Books to be kept by liquidator 421
Exercise and control of liquidator's powers 421
Presentation of accounts and audit 422
Control of Central Government over Liquidators 422
Committee of Inspection 423
Constitution and proceedings of Committee of Inspection 423
Power to stay winding up 424
Power to settle list of contributories 424
Delivery of Property 424
Payment of debts due by contributory and extent of set-off 426
Power of Court to make calls 426
Miscellaneous Provisions 427
Liability for Fraudulent Conduct of Business 427
Falsification of books 428
Frauds by officers 428
Offences by officers 429
Misfeasance Proceedings 430
Prosecution of delinquent officers and members 433
Power to arrest absconding contributory 433
Power to summon persons suspected of having property of company 433
Power to order public examination of promoters, directors etc. 434
Dissolution of company 435
Annulment of dissolution 436
Wrongful withholding of Property 436
Duty on Retirement or Termination 438
Special Statutory Protection 439
Winding up of Unregistered Company 441
Meaning of Unregistered company 441
Winding up 442
Winding up of Foreign Companies 442
Contributories 443
Association 443
CHAPTER XV : VOLUNTARY WINDING UP
Voluntary winding up 444
Members' voluntary winding up : Appointment of liquidator 445
Final meeting and dissolution 448
Creditors' voluntary winding up 449
Appointment of liquidator 449
Committee of Inspection 450
Liquidators remuneration 450
Board's powers on appointment of liquidator 450
Vacancy in the office of liquidator 451
Powers of liquidator to accept shares etc. as consideration for
sale of property of company 451
Duty of liquidator to call meetings 451
Final meeting and dissolution 451
Winding up subject to supervision of Court 452
Powers and obligations of liquidator appointed by Court 452
Position of Liquidator : Duties and Liability 453
Provisions applicable to every voluntary winding up 455
Statement of affairs 455
Powers of Liquidator 455
Removal of Liquidator 456
Costs of Voluntary Winding up 457
Income-tax liability 458
Arrangements with Creditors 458
PART III : PRIVATE COMPANIES WHICH ARE SUBSIDIARIES OF A PUBLIC COMPANY
Meaning of a holding company and subsidiary 459
Whether expression ''private company subsidiary of a public company''
includes a private company which is a subsidiary of a body
corporate incorporated outside India 460
Differences in application of Companies Act to private companies
which are, and those which are not, subsidiaries of a public company 461
Differences in application of the Act to Public Companies
and Private Companies 465
Conversion of Private Company into Public Company 469
Conversion by default 469
Conversion by operation of law 469
Acceptance of Deposits from Public 471
General Effects of Conversion 474
Additional Certificates along with Annual Returns 474
Deemed Public Company a Company of Third Category 474
Consequential changes 476
Effect on Remuneration 477
Interested Directors 477
Reconversion 478
Conversion by Choice 478
Government Private Companies 478
Conversion of Public Company into Private Company 479
PART IV : COMPANIES LIMITED BY GUARANTEE AND UNLIMITED COMPANIES
Essential characteristics of Guarantee Companies 481
Private companies limited by guarantee 481
Mode of formation 482
Provisions for dispensing with ''Limited'' in name of charitable or
other companies 482
Unlimited Companies 484
PART V : FORMATION OF A PRIVATE LIMITED COMPANY
A Suggested Questionnaire to ascertain in the wishes of Promoters 485
The Process of Formation 487
Memorandum of Association 488
Articles of Association 494
PART VI
THE SCHEDULES
APPENDED TO THE COMPANIES ACT, 1956
Synopsis 497
Schedule I : Regulations for Management of a company limited
by shares 498
Schedule IA : List of Relatives 526
Schedule II : Matters to be specified in Prospectus and reports to be
set out therein 527
Schedule III : Form of Statement in lieu of Prospectus to be delivered
to registrar by a company which does not issue a Prospectus or which
does not go to allotment on a Prospectus issued, and reports to be
set out therein 535
Schedule IV : Form of Statement in lieu of Prospectus to be
delivered to registrar by a private company on becoming a
public company and reports to be set out therein 540
Schedule V : Contents and form of annual return of a company
having a share capital 545
Schedule VI : Form of balance sheet 554
Schedule VII : Restrictions on powers of managing agents/secretaries
and treasurer 575
Schedule VIII : Declarations to be made by firms, private companies
and other bodies corporate acting as managing agents/secretaries
and treasurer 576
Schedule IX : Form of proxy 578
Schedule X : Table of Fees to be paid to the registrar 579
Schedule XI : Form in which Sections 539 to 544 of act are to apply
to cases where an application is made under section 397 or 398 581
Schedule XII : Enactments Repealed 584
Schedule XIII : Conditions to be fulfilled for the appointment of managing
or whole-time director or a manager without the approval of the
central government 584
Schedule XIV : Rates of Depreciation 589
PART VII : SALE AND PURCHASE OF PRIVATE COMPANIES
Procedure 595
Reconstruction And Amalgamation 600
MRTP Companies 603
Reduction of Capital in Amalgamation 603
Compromises and Arrangements 603
Sanction of the Court 605
Duties and Powers of the Court 607
Advantages of Court's Sanction 612
Power of Supervision 613
Legal Formalities 614
Take-over and Acquisition of Minority Interest 615
Employees 618
Effect upon employees 618
Transferor's Right to Sell-Verification 619
Legal Formalities 620
Amalgamation in National Interest 620
Preservation of Books and Papers of Amalgamated Company 621
Precedents 621
Agreement for Sale of Shares 621
Enquiries before contract on Purchase of Shares 637
Letter of Disclosure 641
Completion Agenda 642
Minority Shareholder's Agreement 644
APPENDICES
The Companies (Central Government's) General Rules and
Forms, 1956 650
The Companies (Issue of Share Certificates) Rules, 1960 778
The Companies (Fees on Applications) Rules, 1968 782
Offences Under the Companies Act, 1956 784
List of Documents to be Produced Before or Filed with the Registrar 819
The Companies (Appeals to the Central Government) Rules, 1957 826
The Companies (Preservation and Disposal of Records) Rules, 1966 828
The Company Law Board (Bench) Rules, 1975 830
The Companies (Appointment of Sole Agents) Rules, 1975 851
SUBJECT INDEX 861
3
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