CU-BBA-SEM-IV-Commercial And Company Law-Second Draft

be transferred to a ‘Securities Premium Account; and the provisions of this Act relating to reduction share capital of a company, shall, except as provided in this section, shall apply as if the securities premium account were the paid-up share capital of the company. The securities premium account may be applied by the company- ● towards the issue of unissued shares of the company to the members of the company as fully paid bonus shares; ● in writing off the preliminary expenses of the company; ● in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; ● in providing for the premium payable on the redemption o any redeemable preference shares or of any debentures of the company; or ● for the purchase of its own shares or other securities. The securities premium account may be applied by such class of companies, as may be prescribed and whose financial statement complies with the accounting standards prescribed- ● in paying up unissued equity shares of the company to be issued to the members of the company as fully paid bonus shares; or ● in writing off the expenses of or the commission paid of discount allowed on any issued of equity shares of the company; or ● for the purchase of its own shares or other securities 9.13 PROHIBITION ON ISSUE OF SHARES AT DISCOUNT Section 53 provides that except for the issue of sweat equity shares, a company shall not issue shares at a discount. Any share issued by a company at a discounted price shall be void. However, a company may issue shares at a discount to its creditors when its debt is converted into shares in pursuance of any statutory resolution plan or debt restructuring scheme in accordance with any guidelines or directions or regulations specified by the Reserve Bank of India under the Reserve Bank of India Act, 1934 or the Banking (Regulation) Act, 1949. Section 53(3) provides that where a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than `1 lakh but which may extend to `5 lakh. Every officer, who is in default, shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than `1 lakh but which may extend to ` 5lakhs, or with both. 201 CU IDOL SELF LEARNING MATERIAL (SLM)

9.14 PREFERENCE SHARE CAPITAL Explanation (ii) to Section 43 defines the expression ‘preference share capital’ with reference to any company limited by shares, as that part of the issued share capital of the company which carries or would carry a preferential rights with respect to- • payment of dividend, either as a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income tax; and • repayment, in the case of winding up or repayment of capital, of the amount of the share capital paid-up or deemed to have been paid up whether or not, there is a preferential right to the payment of any fixed premium or premium on any fixed scale, specified in the memorandum or articles of the company. Explanation (iii) to Section 43 provides that capital shall be deemed to be preference capital, notwithstanding that it is entitled to either or both of the following rights, namely:— (a) that in respect of dividends, in addition to the preferential rights, it has a right to participate, whether fully or to a limited extent, with capital not entitled to the preferential right aforesaid; (b) that in respect of capital, in addition to the preferential right to the repayment, on a winding up, it has a right to participate, whether fully or to a limited extent, with capital not entitled to that preferential right in any surplus which may remain after the entire capital has been repaid. Issue of preference shares Rule 9 of Companies (Share Capital and Debentures) Rules, 2014, provides that a company having a share capital may, if so authorized by articles, issue preference shares subject to the following conditions: • the issue should be authorized by passing a special resolution in the general meeting of the company; • the company, at the time of such issue of preference shares, has no subsisting default in the redemption of preference shares issued earlier either before or after the commencement of this Act or in payment of dividend due on any preference shares. In the resolution, the company shall set out the following: • the priority with respect to payment of dividend or repayment of capital vis-à-vis equity shares; • the participation in surplus fund; • the participation in surplus assets and profits, on winding up which may remain after the entire capital has been repaid; 202 CU IDOL SELF LEARNING MATERIAL (SLM)

• the payment of dividend on cumulative or non-cumulative basis; • the conversion of preference shares into equity shares; • the voting rights; • the redemption of preference shares. The explanatory statement to be annexed to the notice of the general meeting shall provide the complete material facts concerned with and relevant to the issue of such shares, including- • the size of the issue and number of preference shares to be issued and nominal value of each share; • The nature of such shares i.e., cumulative or non-cumulative, participating or non- participating, convertible or non-convertible; • the objectives of the issue; • the manner of issue of shares; • the price at which such shares are proposed to be issued; • the basis on which the price has been arrived at; • the terms of issue, including terms and rate of dividend on each share, etc., • the terms of redemption, including the tenure of redemption, redemption of shares at premium and if the preference shares are convertible, the terms of conversion; • the manner and modes of redemption; • the current shareholding pattern of the company; • the expected dilution in equity share capital upon conversion of preference shares. The particulars of the issue of the preference shares shall be noted in the Register of Members. If a company wants to list its preference shares on a recognized stock exchange, it shall issue the preference shares in accordance with the regulations made by SEBI. Issue and redemption of preference shares Section 55(1) provides that no company limited by shares shall, after the commencement of this Act, issue any preference shares which irredeemable. Section 55(2) provides that a company limited by shares may, if so authorized by its articles, issue preference shares which are liable to be redeemed within a period not exceeding 20 years from the date of their issue subject to the terms and conditions prescribed. Rule 10 states that a company engaged in the setting up and dealing with of infrastructural projects may issue preference shares for a period exceeding twenty years but not exceeding thirty years, subject to the redemption of a minimum ten percent of such preference shares 203 CU IDOL SELF LEARNING MATERIAL (SLM)

per year from the twenty first year onwards or earlier, on proportionate basis, at the option of the preference shareholders. Period of redemption Rule 9(6) provides that a company may redeem its preference shares only on the terms on which they were issued or as varied after due approval of preference shareholders under Section 48 of the Act. The preference shares may be redeemed- • at a fixed time or on the happening o a particular event; • any time at the company’s option; or • any time at the shareholder’s option. 9.15 SUMMARY  Share capital of a company can be classified as:  nominal, authorized or registered capital.  issued and subscribed capital.  called up and uncalled capital.  A share is defined as a share in the share capital of a company and includes stock.  The Companies Act, 2013 permits a company limited by shares to issue two classes of shares, namely equity share capital and preference share capital.  A preference share or preference share capital is that part of share capital which carries a preferential right with respect to both dividend and capital.  Preference shares may be of various types, namely participating and non- participating, cumulative and non-cumulative shares, redeemable and irredeemable preference shares.  Equity share capital means all share capital which is not preference share capital  A share certificate is prima facie evidence to the title of the person whose name is entered on it.  A company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of (i) its free reserves;(ii)the securities premium account; or (iii)the capital redemption reserve account.  Sweat equity shares means equity shares issued by a company to its employees or directors at a discount or for consideration, other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called. 9.16 KEYWORDS  Share Capital - Funds raised by issuing shares in return for cash or other considerations. The amount of share capital a company can change over time because 204 CU IDOL SELF LEARNING MATERIAL (SLM)

each time a business sells new shares to the public in exchange for cash, the amount of share capital will increase. Share capital can be composed of both common and preferred shares.  Special Resolution - A resolution is a Special Resolution when it is intended to be passed as a special resolution. The votes cast in favour of such resolution by members who, are required to be not less than three times the number of the votes, if any, cast against the resolution by members so entitled and voting.( See section 114 of Companies Act, 2013)  Employee Stock Option’ (ESOP) - As defined under sub-section (37) of Section 2 of the Companies Act, 2013, “employees’ stock option” 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.  Rights Issue - Rights issue is an issue of capital to be offered to the existing shareholders of the company through a letter of offer.  Sweat Equity Shares - Sweat equity shares mean equity shares issued by a company to its employees or directors at a discount or for consideration, other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called. 9.17 LEARNING ACTIVITY 1. The paid-up capital of ARC Limited is Rs. 50, 00,000/- divided into 5, 00,000 Equity Shares of Rs. 10/- each. The Board of Directors want to return a part of the paid-up the share capital as it feels that it is in excess of the needs of the Company. Can the Company do so? What procedure is to be followed? ___________________________________________________________________________ ___________________________________________________________________________ 2. XYZ Limited wants to alter capital clause of its Memorandum of Association. What are the ways in which said clause may be altered under provisions of Companies Act, 2013? ___________________________________________________________________________ ___________________________________________________________________________ 9.18 UNIT END QUESTIONS A. Descriptive Questions Short Questions 205 CU IDOL SELF LEARNING MATERIAL (SLM)

1. Write short note on Alteration of share capital 2. Write short note on reduction of share capital 3. Write a note on Employee stock option 4. What is a bonus share? 5. Define preference share. Long questions 1. What are the conditions for issue of equity shares? 2. Sweat equity shares are issued to directors or employees at a discount or for consideration other than cash – discuss 3. What is the procedure for issue of redeemable preference share? 4. What are the conditions for redemption of preference shares? 5. What are the conditions to issue preference shares? B. Multiple Choice Questions 1. For which purposes securities premium account can be utilized? a. In writing off the preliminary expenses. b. Buy back of shares. c. Issue of bonus shares. d. All of these 2. The Bonus shares may be issued out of the- a. Free reserves. b. Securities premium account. c. Capital redemption reserve account. d. All of these 3. If a company does not have a common seal, the share certificate shall be signed by- a. Two directors. b. One director and Company Secretary. c. Either (a) or (b); d. None of these 4. In case of unlisted company the duplicate share certificate shall be issued within a period of- a. 45 days b. 3 months c. 6 months 206 CU IDOL SELF LEARNING MATERIAL (SLM)

d. None of these. 5. Which one of the following is not correct in regard to share certificate? a. The Company Secretary shall issue the share certificate. b. The share certificate shall be issued in pursuance of a resolution of the Board. c. Every share certificate shall be distinguished to its distinctive number. d. The shares may be in the dematerialized form. Answers 1-d, 2-d, 3-c, 4-b, 5-a 9.19 REFERENCES Textbooks/ ReferenceBooks:  Bhushan,Bharat., Kapoor,N.D.,Abbi,Rajni,“ElementsofBusinessLaw”.SultanChand&SonsPvt.Ltd.  Dagar,InderJeetandAgnihotri,Anurag.Business Laws:Text andProblems.SagePublication.  JagotaR.(2119).BusinessLaws. MKMPublishersScholar TechPress.  Sharma,J.P.andKanojiaS.(2119).Business Laws.NewDelhi.BharatLawHousePvt.Ltd.  Singh,Avtar.(2118).ThePrinciplesofMercantileLaw. Lucknow. EasternBookCompany.  TulsianP.C.(2118).BusinessLaw. NewDelhi. TataMcGrawHill.AdditionalResources  Kuchhal,MC.(2118).Business Laws.New Delhi.Vikas PublishingHouse.  Arora,Sushma.(2115).Business Laws.NewDelhi.Taxmann 207 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 10 APPOINTMENT AND REMOVAL OF 208 DIRECTORS STRUCTURE 10.0 Learning Objectives 10.1 Directors – Introduction 10.2 – Types of directors 10.3 Qualifications 10.4 Directors identification number 10.5 Disqualification for appointment of director 10.6 vacation of office of a director 10.7 resignation of a director 10.8 removal of director 10.9 remuneration of directors 10.10 duties of director 10.11 Meeting of board 10.12 Frequency of the meeting of the board 10.13 preparation of notices for meetings of boars/ committees of board 10.14 agenda of board/ committees meetings 10.15 convening a meeting 10.16 quorum for board meetings 10.17 chairman of the meeting of the board/committee 10.18 passing of resolution by circulation 10.19 minutes 10.20 Summary 10.21 Keywords 10.22 Learning Activity 10.23 Unit end Questions 10.24 References CU IDOL SELF LEARNING MATERIAL (SLM)

10.0 LEARNING OBJECTIVES After studying this unit, the student will be able to  Understand the various types of directors  Apply various provision for appointment and removal of directors  Differentiate between independent director and whole time director  Appreciate the importance of board meeting 10.1 DIRECTORS - INTRODUCTION Section 2(34) of the Act defines the term ‘director’ as a director appointed to the Board of a company. Section 2(10) of the Act defines the term ‘Board’ or ‘Board of Directors’ in relation to a company as the collective body of the directors of the company. Company to have Board of Directors Section 149 (1) of the Act provides that every company shall have a Board of Directors consisting of individuals as directors. Number of directors The Board shall have a minimum number of three directors in the case of public company and two directors in the case of a private company and in case of One Person Company one director. The maximum number of directors shall be fifteen. A company may appoint more than 15 directors after passing a special resolution. Obligation of the company Every company existing or before the date of commencement of the Companies Act, 2013 shall within one year is required to appoint Board of directors with the requisite number including one woman director by the prescribed company. The further requirement is that every company shall have at least one director who has stayed in India for a total period of not less than 182 days during the financial year. 10.2 TYPES OF DIRECTORS The directors may be of various types such as woman director, independent director, nominee director, Managing Director, Whole time Director, executive director, non executive director, small shareholders director, first directors etc., Women Director Second proviso to Section 149(1) read with Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014 provides that the following classes of companies shall appoint at least one woman director- 209 CU IDOL SELF LEARNING MATERIAL (SLM)

• every listed company; • every other public company having- ■ paid up share capital `100 crores or more; or ■ turnover of `300 crores or more. For this purpose, the paid capital or turnover as on the last date of latest audited financial statements shall be taken into account. A company incorporated under the Companies Act, 2013 and covered under provisions of second proviso to Section 149(1) shall comply with such appointment of woman director within a period of six months from the date of its incorporation. Any intermittent vacancy of a woman director shall be filed up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy whichever is later. Independent director Section 149 (4) provides that every listed company is required to appoint at least one third of the total number of directors as independent directors. Any fraction contained in such one third numbers shall be rounded off as one. In case the Board contains total 10 directors in a company, the company is required to appoint 4 independent directors (10/3=3.1; fraction is rounded off to 4). The Central Government may prescribe minimum number of independent directors in case of any class or classes of public companies. Rule 4 provides that the following class or classes of companies shall have at least 2 directors as independent directors- • the Public companies having paid up share capital of `10 crores or more; or • the Public companies having turnover of `100 crores or more; or • the Public companies which have, in aggregate, outstanding loans, debentures and deposits exceeding `50 crores. Section 149 (5) provides that every listed company existing on or before the commencement of the Act shall comply with the provisions for appointing independent director within one year from such commencement of the Act. The term ‘independent director’ is defined under Section 149(6) of the Act as a director other than a Managing Director or a whole time director or a nominee director- ■ who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience; ■ He shall not be a promoter of the company or its holding, subsidiary or associate company; ■ He shall not be related to the promoters or directors in the company, its holding, subsidiary or associate company; ■ he shall not have any pecuniary relationship other than remuneration as such director or having transaction not exceeding ten per cent. of his total income or such amount as may be 210 CU IDOL SELF LEARNING MATERIAL (SLM)

prescribed with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year; ■ none of whose relatives— (i) is holding any security of or interest in the company, its holding, subsidiary or associate company during the two immediately preceding financial years or during the current financial year: Provided that the relative may hold security or interest in the company of face value not exceeding fifty lakh rupees or two per cent. of the paid-up capital of the company, its holding, subsidiary or associate company or such higher sum as may be prescribed; (ii) is indebted to the company, its holding, subsidiary or associate company or their promoters, or directors, in excess of such amount as may be prescribed during the two immediately preceding financial years or during the current financial year; (iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company, for such amount as may be prescribed during the two immediately preceding financial years or during the current financial year; or (iv) has any other pecuniary transaction or relationship with the company, or its subsidiary, or its holding or associate company amounting to two per cent. or more of its gross turnover or total income singly or in combination with the transactions referred to in sub-clause (i), (ii) or (iii); ■ neither he or any of his relatives- • holds or has held the position of a key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company, in any of the three financial years immediately preceding the financial year; • is or has been an employee or proprietor or partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of- ■ a firm of auditors or company secretaries in practice or cost auditors of the company; or ■ any legal or a consulting firm that has or had any transaction with the company, amounting to 10% or more of the gross turnover of such firm. • holds together with his relatives 2% or more of the total voting power of the company; or • is a Chief Executive or Director of any non-profit organization that receives 25% or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds 2% or more of the total voting power of the company; or ■ who possess such other qualifications as may be prescribed. 211 CU IDOL SELF LEARNING MATERIAL (SLM)

10.3 QUALIFICATION Rule 5 prescribes the qualifications of independent directors. An independent director shall possess appropriate skills, experience and knowledge in one or more fields of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines related to the company’s business. Section 149, further provides that an independent director shall not be entitled to any stock option. He may receive remuneration by way of sitting fee and the reimbursement of expenses for participation in the Board and other meetings and profit related commission as may be approved by the members. An independent director shall hold office for a term of office up to five consecutive years on the Board of a company. He shall be eligible for re- appointment on passing a special resolution by the company. The Board’s report shall disclose the same. No independent director shall hold office for more than two consecutive terms. He shall be eligible for appointment after the expiration of three years of ceasing to become an independent director. The provisions for retirement of directors by rotation shall not be applicable to independent directors. Independent directors may be selected from a data bank containing the details of persons who are eligible and willing to act as independent directors maintained by any agency as notified by the Central Government. The appointment of independent director shall be approved by the company in general meeting. Nominee Director As per Section 161(3) of Companies Act, 2013 Subject to the articles of a company, the Board may appoint any person as director nominated by any institution in pursuance of the provisions of any law for the time being in force or of any agreement or by the Central Government or the State Government by virtue of its shareholding in a Government Company. For the purposes of section 149 of Companies Act, 2013, a nominee director means a director nominated by any financial institution. Managing Director Section 2(54) defines the term ‘Managing Director’ as a director, who by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of Managing Director, by whatever name called. Whole time Director Section 2(94) of the Act defines the term ‘whole time director’ as including a director in the whole time employment of the company. 212 CU IDOL SELF LEARNING MATERIAL (SLM)

Appointment of director elected by small share holders ‘Small shareholders’ means a shareholder holding shares of nominal value of not more than `20000/- or such other sum as may be prescribed. A listed company may have one director elected by small shareholders. Rule 7 requires that a listed company, may upon notice of not less than 1000 small shareholders or one tenth of the total number of such shareholders, whichever is lower, have a small shareholders’ director elected by small shareholders. Such director shall not be liable to retire by rotation. The tenure shall not exceed a period of three consecutive years and on the expiry of the tenure such director shall not be eligible for re-appointment. A disqualified person for the appointment of director shall not be eligible for such appointment. No person shall hold the position of small shareholder’s director in more than two companies at the same time. A small shareholders’ director shall not, for a period of 3 years from the date on which he ceases to hold office as a small shareholders’ director in a company, be appointed in or be associated with such company in any other capacity either directly or indirectly. First directors Section 152 (1) provides that where no provision is made in the articles of a company for the appointment of first director, the subscribers to the memorandum who are individuals shall be deemed to the first directors of the company until the directors are duly appointed. In One Person Company an individual being member shall be deemed to be its first director until the director or directors are duly appointed by the member. Additional Director Section 161 (1) provides that the articles of a company may confer on its Board of Directors the power to appoint any person, other than a person who fails to get appointed as a director in a general meeting, as an additional director at any time. Such director shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier. Alternate director Section 161(2) provides that the Board of Directors of a company may, if so authorized by its articles or by a resolution passed by the company in general meeting, appoint a person not being a person holding any alternate directorship for any other director in the company or holding directorship in the same company, to act as an alternate director for a director during his absence for a period not less than 3 months from India. Appointment of Directors Every director, save as otherwise expressly provided in the Act, shall be appointed by the company in general meeting. The main requirement for the appointment of a director is that 213 CU IDOL SELF LEARNING MATERIAL (SLM)

he is to obtain Director Identification Number (‘DIN’ for short). A person to be appointed as director shall furnish his DIN and a declaration that he is not disqualified to become a director under the Act. The said person is to give his consent to act as a director in Form – DIR -2. The company shall, within 30 days of the appointment of a director, file such consent with the Registrar in Form – DIR-12 along with the fee prescribed. Rotation of directors Unless the articles provide for the retirement of all directors at every annual general meeting, not less than two thirds of the total number of directors of a public company shall- • be persons whose period of office is liable to determination by retirement of directors by rotation; and • save as otherwise expressly provided in the Act, be appointed by the company in general meeting. At the first annual general meeting of a public company held next after the date of the general meeting at which the first directors are appointed at every subsequent annual general meeting, one third of such of the directors for the time being as are liable to retire by rotation, or if their number is neither three nor a multiple of three, then, the number nearest to one-third, shall retire from office. The directors to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment, but as between persons who became directors on the same day, those who are to retire shall, in default of and subject to any agreement among themselves, be determined by lot. The company may fill up the vacancy by appointing the retired director or some other person thereto. Re-appointment of Director A director liable to be retired may be re-appointed in the general meeting. Section 164(2) provides that no person who is or has been a director of a company which- • has not filed financial statements or annual returns for any continuous period of 3 financial years; or • has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more, shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of 5 years from the date on which the said company fails to do so. 214 CU IDOL SELF LEARNING MATERIAL (SLM)

10.4 DIRECTOR IDENTIFICATION NUMBER Every individual, who intends be appointed as director of a company shall make an application electronically in Form No. DIR-3 to the Central Government for allotment of DIN along with the prescribed fees. The Central Government shall provide an electronic system to facilitate submission of application for the allotment of DIN through the portal on the website of the Ministry of Corporate Affairs. The applicant shall download Form DIR-3 from the portal, fill in the required particulars sought 1 therein, verify and sign the form and after attaching copies of the following documents, scan and file the entire set of documents electronically- • photograph; • proof of identity; • proof of residence; • board resolution proposing his appointment as director in an existing company; • Specimen signature duly verified. Form DIR-3 shall be signed and submitted electronically by the applicant using his or her own Digital signature certificate and shall be verified digitally by a company secretary in full time employment of the company or by the managing director or director or CEO or CFO of the company in which the applicant is intended to be appointed as director in an existing company. On application, the system shall generate an application number. The Central Government shall process the application and decide on the approval or rejection and communicate the same to the applicant along with the DIN allotted in case of approval by way of a letter by post or electronically or in any other mode within 30 days from the receipt of such application. If any defect is found in the application the Central Government shall give intimation of such defect or incompleteness to the applicant by placing it on its web site and by email to the applicant to rectify such defects within 15 days from the date of intimation. If the same has not been rectified, the Government shall reject the application directing to file a fresh application. In case of rejection or invalidation of application, the fee so paid with the application shall neither be refunded nor adjusted with any other application. The DIN allotted to a director before the commencement of this Act shall be deemed to be the DIN allotted under the present Act. The DIN allotted shall be valid up to the life time of the Director. The said number shall not be allotted to any other person. Similarly, a person shall be allotted only one DIN. 215 CU IDOL SELF LEARNING MATERIAL (SLM)

Every director, functioning as a director in one or more companies on or before the 30th June, 2007 and who has not yet intimated his DIN to such company or companies shall, within one month of the receipt of Director Identification Number from the Central Government, intimate his Director Identification Number to the company or all companies wherein he is a director as per Form DIR-3B. Every company shall, within 15 days of the receipt of intimation, furnish the same with the Registrar in Form DIR-3C. If a company fails to furnish DIN, the company shall be punishable with fine which shall not be less than `25,000/- but which may extend to `1 lakh. Every officer of the company who is default shall be punishable with fine which shall not be less than `25,000/- but which may extend to ` 1 lakh. Section 159 provides that if any individual or director of a company, contravenes any of the provisions of Section 152 (dealing with the appointment of directors), Section 155 (dealing with prohibition to obtain more than one DIN) and Section 156 (Director to intimate DIN), such individual or director shall be punishable with imprisonment for a term which may extend to six months or with fine which may extend to `50,000/-. If the contravention is a continuing one, further fine will be imposed which may extend to `500/- for every day after the first during which the contravention continues. The Central Government may prescribe any identification number which shall be treated as Director Identification Number for the purposes of this Act and in case any individual holds or acquires such identification number, the requirement of section 153 shall not apply or apply in such manner as may be prescribed. 10.5 DISQUALIFICATIONS FOR APPOINTMENT OF DIRECTOR Section 164 of the Act details the disqualification of a person for the appointment as a Director. A person shall not be eligible for appointment as a Director of a company, if- (a) he is of unsound mind and stands so declared by a competent court; (b) he is an undischarged insolvent; (c) he has applied to be adjudicated as an insolvent and his application is pending; (d) he has been convicted by a Court of any offence, whether involving moral turpitude or otherwise and sentenced to imprisonment for not less than 6 months and a period of 5 years has not elapsed from the date of expiry of the sentence; If a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of 7 years or more, he shall not be eligible to be appointed as a director in any company; (e) an order disqualifying him for appointment as a director has been passed by the Court or Tribunal and the order is in force; 216 CU IDOL SELF LEARNING MATERIAL (SLM)

(f) he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others and six months have elapsed from the last day fixed for the payment of the call; (g) he has been convicted of the offence dealing with related party transactions under Section 188 at any time during the last preceding five years; or (h) He has not obtain DIN. A private company may by its articles provide for any disqualifications for appointment as a director in addition to the above disqualifications. The disqualifications referred under (d), (e) and (g) above shall continue to apply even if the appeal or petition has been filed against the order of conviction or disqualification. 10.6 VACATION OF OFFICE OF A DIRECTOR Section 167 provides that the office of a Director shall become vacant in case- (a) he incurs any of the disqualifications specified in Section 164; Provided that where he incurs disqualification under sub-section (2) of section 164, the office of the director shall become vacant in all the companies, other than the company which is in default under that sub-section. (b) he absents himself from all the meetings of the Board of Directors held during a period of 12 months with or without seeking leave of absence of the Board; (c) he acts in contravention of the provisions of Section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested. (d) he fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in contravention of the provisions of Section 184; (e) he becomes disqualified by an order of a Court or Tribunal; (f) he is convicted by a court of any offence, whether involving moral turpitude or otherwise and sentenced in respect thereof to imprisonment for not less than 6 months. Provided that the office shall not be vacated by the director in case of orders referred under (e) and (f)- (i) for thirty days from the date of conviction or order of disqualification; (ii) where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed of; or (iii) where any further appeal or petition is preferred against order or sentence within seven days, until such further appeal or petition is disposed of. 217 CU IDOL SELF LEARNING MATERIAL (SLM)

(g) he is removed in pursuance of the provisions of the Act; (h) he, having been appointed a director by virtue of his holding any office or other employment in the holding, subsidiary or associate company, ceases to hold such office or other employment in that company. (i) he breaches the limits of maximum directorship allowed. A private company may, by its articles, provide any other ground for the vacation of the office of a director in addition to the above. Where all the directors of a company vacate their offices under any of the disqualifications, the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting. If a person, functions as a director even when he knows that the office of director held by him has become vacant on account of any of the disqualifications, he shall be punishable with imprisonment for a term which may extend to 1 year or with fine which shall not be less than `1 lakh but which may extend to `5 lakhs or with both. 10.7 RESIGNATION OF A DIRECTOR Section 168 provides the procedure for the resignation of a director as detailed below: • A director may resign from his office by giving a notice in writing to the company; • He shall within 30 days from the date of resignation, forward to the Registrar a copy of his resignation along with the reasons for the resignation, in Form No. DIR – 11 along with the fee; • A foreign director may authorize in writing a practicing Chartered Accountant or Cost Accountant in practice or Company Secretary in practice or any other resident director of the company to sign the Form No. DIR – 11 and file the same on his behalf intimating the reasons for the resignation; • The Board shall on receipt of such notice take notice of the same; • The company shall intimate the Registrar in Form No. DIR-12 within one month from the date of receipt of such notice; • The said information is to be posted on the website of the company; • The fact of the resignation shall be included in the report of directors laid in immediately following general meeting by the company; • The resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later; 218 CU IDOL SELF LEARNING MATERIAL (SLM)

• The director who has resigned shall be liable even after his resignation for the offences which occurred during his tenure; Where all directors of a company resign from their offices the promoter or , in his absence, the Central Government shall appoint the required number of directors, who shall hold the office till the directors are appointed by the company in general meeting. 10.8 REMOVAL OF DIRECTORS Section 169 deals with the procedure of removal of directors. A company may remove a director by passing ordinary resolution. A company cannot remove a director appointed by the Tribunal. The following is the procedure to remove a director and to appoint another director in the place of removed director: • A special notice of any resolution, shall be sent for a meeting in which the director is to be removed, to the company; • On receipt of notice of a resolution to remove a director, the company shall send a copy of it to the director concerned; • The director, whether he is a member or not, is entitled to be heard on the resolution at the meeting; • The director concerned may make his representation in writing to the company; • The director may request the company to send his representation to the members of the company; • The Company, shall if the time permits it to do so- ■ in any notice of the resolution given to members of the company, state the fact of the representation having been made; and ■ send a copy of the representation to every member of the company to whom notice of the meeting is sent, whether before or after receipt of the representation of the company. If a copy of the representation is not sent due to insufficient time or for the company’s default, the director may require that the representation shall be read out at the meeting. The copy of the representation need not be sent out and read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the Tribunal is satisfied that the rights conferred by this section are being abused to secure needless publicity for defamatory matter. The Tribunal may order the company’s costs on the application to be paid in whole or in part by the director notwithstanding that he is not a party to it. A vacancy created by the removal of the director may be filled by the appointment of another director in his place at the meeting at which he is removed. Provided special notice of the 219 CU IDOL SELF LEARNING MATERIAL (SLM)

intended appointment has been given. The new director so appointed shall hold office till the date up to which his predecessor would have held office if he had not been removed. If the vacancy is not filled, it may be filled as casual vacancy in accordance with the provisions of the Act. The removed director shall not be reappointed as director by the Board of Directors. Nothing in this sector shall be taken as depriving a person removed under this section of any compensation or damages payable for his removal as director, as per the terms of contract or terms of his appointment as director or of any other appointment terminating with that as director or as derogating from any power to remove a director under other provisions of the Act. 10.9 REMUNERATION OF DIRECTORS Overall remuneration Section 197 (1) provides that the total managerial remuneration payable by a public company to its directors, including Managing Director and a Whole time director in respect of any financial year shall not exceed 11% of the net profits of the company. The company, in general meeting may, authorize the payment of remuneration exceeding 11% of the net profits of the company. Where the company has defaulted in payment to bank/PFI or NCD or any secured creditor, prior approval of the bank/PFI shall be obtained before the special resolution. If any director draws or receives, directly or indirectly, by way of remuneration any such sums in excess of the limit prescribed or without approval required under this section, he shall refund such sums to the company and until such sum is refunded hold it in trust for the company. Remuneration to MD or WTD The second proviso to Section 197(1) provides that the remuneration payable to any one Managing Director or whole time director or manager shall not exceed 5% of the net profits of the company. If there are more than one whole time director remuneration shall not exceed 10% of the net profits to all such directors and manager taken together. Remuneration payable to directors The remuneration payable to directors, who are neither Managing Directors nor Whole Time directors, shall not exceed 1% of the net profits, if there is a Managing Director or Whole time director or manager. In other cases it shall not exceed 3% of the net profits. Remuneration when there is no profit Section 197(3) provides that if, in any financial year, a company has no profits or its profits are inadequate, the company shall not pay to its directors including Managing Directors or whole time director by way of remuneration any sum exclusive of any fees payable. 220 CU IDOL SELF LEARNING MATERIAL (SLM)

Remuneration may be payable in such a situation in accordance with the provisions of Schedule V. Sitting fees A director may receive fee for attending the meetings of the Board or Committee thereof or for any other purpose whatsoever as may be decided by the Board. Such fees shall not exceed one lakh rupees per meeting of the Board or Committee thereof. The independent directors and women directors may receive the fees not less than the fee payable to other directors. Professional fee Any remuneration for services rendered by any such director in other capacity shall not be included if the services rendered are of a professional nature and in the opinion of the Nomination and Remuneration Committee or the Board of Directors, the director possesses the requisite qualification for the practice of the profession. Periodicity of payment Section 197(6) provides that a director may be paid remuneration either by way of monthly payment or at a specified percentage of the net profits of the company or partly by one way and partly by other. Insurance premium Section 197 (13) provides that where any insurance is taken by a company on behalf of its managing director, whole time director for indemnifying any of them against any liability in respect of any negligence, default, misfeasance, breach of duty or breach of trust for which they may be guilty in relation to the company, the premium paid on such insurance shall not be treated as part of the remuneration payable to such director. If such person is proved to be guilty, the premium paid on such insurance shall be treated as part of remuneration. 10.10 DUTIES OF A DIRECTOR Section 166 of the Act prescribes the duties of a director under the provisions of this Act as detailed below: • A director of a company shall act in accordance with the articles of the company; • A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment; • A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment; • A director shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company; 221 CU IDOL SELF LEARNING MATERIAL (SLM)

• A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company; • A director of a company shall not assign his office and any assignment so made shall be void; If a director of the company contravenes the provisions of Section 166 such director shall be punishable with fine which shall not be less than one lakh rupees, but which may extend to five lakh rupees. 10.11 MEETING OF BOARD “Meeting of Board” means a duly convened, held and conducted meeting of the Board or any Committee thereof. The meetings play an important role in a corporate democracy. Directors of the Company have to exercise most of their powers or duties at periodical meetings of the Board or Committee of the Board. Therefore, Companies Act, 2013 and the rules framed thereunder contained detailed provisions relating to frequency, convening and conduct of the meeting. Meetings of the Board are significant in the light of running of the company more efficiently and effectively. Companies Act, 2013, mandates a company to hold minimal number of meetings of the Board for its proper functioning. Board meetings are crucial for a company’s development as these formal meetings are held to devise policies, drive the management, strategize and evaluate the expectations of the stakeholders. For an effective board meetings, it required to:  have a purpose.  members of the board must be provided with adequate notice and appropriate materials in advance.  be chaired effectively.  follow proper meeting procedures and respect the time of board members.  Have clear supporting documents such as an agenda, minutes and other reports.  have action taken reports.  be documented with minutes. Section 173 of the Act deals with Meetings of the Board. Further, as per Section 118(10) of the Act, every company shall observe secretarial standards with respect to General and Board meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 (56 of 1980), and approved as such by the Central Government. As such, it is important to refer to Secretarial Standard on Board Meetings (SS- 222 CU IDOL SELF LEARNING MATERIAL (SLM)

1) along with provisions of Companies Act, 2013 to ensure proper compliance to the statutory requirements regarding Board Meetings. 10.12 FREQUENCY OF THE MEETINGS OF THE BOARD Section 173 of the Act provides that the first board meeting should be held within thirty days of the date of incorporation. Thereafter there shall be minimum number of four board meetings every year and not more than one hundred and twenty days shall intervene between two consecutive Board meetings. Further, in this context Secretarial Standard on Board Meetings (SS-1) issued by ICSI clarifies that the company shall hold at least four Meetings of its Board in each Calendar Year with a maximum interval of one hundred and twenty days between any two consecutive Meetings. Furthermore, SS-1 states that the company shall hold first meeting of its Board within thirty days of the date of incorporation. It shall be sufficient if subsequent Meetings are held with a maximum interval of one hundred and twenty days between any two consecutive Meetings. In case of one person company (OPC), small company, dormant company and private company which is start-up, at least one Board meeting should be conducted in each half of the calendar year and the gap between two meetings should not be less than ninety days. However, this provision would not apply to a one person company in which there is only one director on its Board. In case of Section 8 Company, after MCA exemptions Notification Dated 05.06.2015, the provision of Section 173(1) shall apply only to the extent that the Board of Directors, of such companies shall hold at least one meeting within every six calendar months. Specified IFSC Public Company shall hold the first meeting of the Board of Directors within sixty days of its incorporation and thereafter hold at least one meeting of the Board of Directors in each half of a calendar year. Provided further that a Specified IFSC private company shall hold the first meeting of the Board of Directors within sixty days of its incorporation and thereafter hold at least one meeting of the Board of Directors in each half of a calendar year.”. (Notification Dated 4.01.2017). 10.13 PREPARATION OF NOTICES FOR MEETINGS OF BOARD/COMMITTEES OF BOARD 1. The Act (Section 173(3)) requires that not less than seven days’ notice in writing shall be given to every director at the registered address (whether in India or outside India) as available with the company and such notice shall be sent by hand delivery or by post or by electronic means. Provided that a meeting of the Board may be called at shorter notice to 223 CU IDOL SELF LEARNING MATERIAL (SLM)

transact urgent business subject to the condition that at least one independent director, if any, shall be present at the meeting. Provided further that in case of absence of independent directors from such a meeting of the Board, decisions taken at such a meeting shall be circulated to all the directors and shall be final only on ratification thereof by at least one independent director, if any. 2. SS-1 provides exhaustive guide for the meetings of Board/committees. Accordingly, it provides that Notice convening a Meeting shall be given at least seven days before the date of the Meeting, unless the Articles prescribe a longer period. Notice of an adjourned Meeting shall be given to all Directors including those who did not attend the Meeting on the originally convened date and unless the date of adjourned Meeting is decided at the Meeting, Notice thereof shall also be given not less than seven days before the Meeting. 3. A notice in writing of every Meeting shall be given to every Director by hand or by speed post or by registered post or by facsimile or by e-mail or by any other electronic means. It will not be given by ordinary post. The notice shall contain contact number or e-mail address(es) of the chairman or the company secretary or any other person authorised by the Board, to whom the Director shall confirm in this regard. In case the company sends the Notice by speed post or by registered post , an additional two days shall be added for the service of Notice. 4. The Notice shall be sent to the postal address or e-mail address, registered by the Director with the company or in the absence of such details or any change thereto, any of such addresses appearing in the Director Identification Number (DIN) registration of the Director. Where a Director specifies a particular means of delivery of Notice, the Notice shall be given to him by such means. 5. Proof of sending Notice and its delivery shall be maintained by the company for such period as decided by the Board, which shall not be less than three years from the date of the Meeting. 6. Notice shall be issued by the Company Secretary or where there is no Company Secretary, any Director or any other person authorised by the Board for the purpose. 7. The Notice shall specify the serial number, day, date, time and full address of the venue of the Meeting. 8. The Notice shall inform the Directors about the option available to them to participate through Electronic Mode and provide them all the necessary information. 9. The Notice of a Meeting shall be given even if Meetings are held on pre-determined dates or at predetermined intervals. If notice of meeting is not given to one of its directors, meeting of board of directors is invalid and resolution passed at such meeting are inoperative. Parmeshwari Prasad Gupta v Union of India [1974] 44 Comp Cas 1 (SC) 224 CU IDOL SELF LEARNING MATERIAL (SLM)

Board meeting to transact urgent business, the Notice, Agenda and Notes on Agenda may be given at shorter period of time than stated above, subject to following conditions: (A) If the company is required to have independent director: a. Presence of at least one Independent director is required. b. In case of absence of independent director, decision taken at such meeting shall be circulated to all the directors, and shall be final only on ratification thereof by at least one Independent director. (B) If the company does not require appointing independent director, meeting can be called up at a shorter notice without any conditions to be complied with. As per SS-1, In case the company does not have an Independent Director, the decisions shall be final only on ratification thereof by a majority of the Directors of the company, unless such decisions were approved at the Meeting itself by a majority of Directors of the company. The fact that the meeting is being held at a shorter notice shall be stated in the notice. 10.14 AGENDA OF BOARD/COMMITTEES MEETINGS As per SS-1, the Agenda, setting out the business to be transacted at the Meeting, and Notes on Agenda shall be given to the Directors at least seven days before the date of the Meeting, unless the Articles prescribe a longer period. Agenda and Notes on Agenda shall be sent to all Directors by hand or by speed post or by registered post or by e-mail or by any other electronic means. These shall be sent to the postal address or e-mail address or any other electronic address registered by the Director with the company or in the absence of such details or any change thereto, to any of such addresses appearing in the Director Identification Number (DIN) registration of the Directors. In case the company sends the Agenda and Notes on Agenda by speed post or by registered post, an additional two days shall be added for the service of Agenda and Notes on Agenda. Where a Director specifies a particular means of delivery of Agenda and Notes on Agenda, these papers shall be sent to him by such means. However, in case of a Meeting conducted at a shorter Notice, the company may choose an expedient mode of sending Agenda and Notes on Agenda. Proof of sending Agenda and Notes on Agenda and their delivery shall be maintained by the company for such period as decided by the Board, which shall not be less than three years from the date of the Meeting. The Notice, Agenda and Notes on Agenda shall be sent to the Original Director also at the address registered with the company, even if these have been sent to the Alternate Director. However, the mode of sending Notice, Agenda and Notes on Agenda to the original director shall be decided by the company. 225 CU IDOL SELF LEARNING MATERIAL (SLM)

Notes on items of business which are in the nature of Unpublished Price Sensitive Information may be given at a shorter period of time than stated above, with the consent of a majority of the Directors, which shall include at least one Independent Director, if any. For this purpose, “Unpublished Price Sensitive Information” means any information, relating to a company or its securities, directly or indirectly, that is not generally available, which upon becoming generally available, is likely to materially affect the price of the securities and shall, ordinarily including but not restricted to, information relating to the following: – (i) financial results; (ii) dividends; (iii) change in capital structure; (iv) mergers, de-mergers, acquisitions, delisting, disposals and expansion of business and such other transactions; (v) changes in key managerial personnel; and (vi) material events in accordance with the listing agreement General consent for giving Notes on items of Agenda which are in the nature of Unpublished Price Sensitive Information at a shorter Notice may be taken in the first Meeting of the Board held in each financial year and also whenever there is any change in Directors. Where general consent as above has not been taken, the requisite consent shall be taken before the concerned items are taken up for consideration at the Meeting. The fact of consent having been taken shall be recorded in the Minutes. Supplementary Notes on any of the Agenda items may be circulated at or prior to the Meeting but shall be taken up with the permission of the Chairman and with the consent of a majority of the Directors present in the Meeting, which shall include at least one Independent Director, if any. Each item of business requiring approval at the Meeting shall be supported by a note setting out the details of the proposal, relevant material facts that enable the Directors to understand the meaning, scope and implications of the proposal and the nature of concern or interest, if any, of any Director in the proposal, which the Director had earlier disclosed. Each item of business to be taken up at the Meeting shall be serially numbered. Any item not included in the Agenda may be taken up for consideration with the permission of the Chairman and with the consent of a majority of the Directors present in the Meeting. 226 CU IDOL SELF LEARNING MATERIAL (SLM)

10.15 CONVENING A MEETING Any Director of a company may, at any time, summon a Meeting of the Board, and the Company Secretary or where there is no Company Secretary, any person authorised by the Board in this behalf, on the requisition of a Director, shall convene a Meeting of the Board, in consultation with the Chairman or in his absence, the Managing Director or in his absence, the Whole-time Director, where there is any, unless otherwise provided in the Articles. Directors may participate in the meeting either in person or through video conferencing or other audio visual means as prescribed, which are capable of recording and recognising the participation of the directors and of recording and storing the proceedings of such meetings along with date and time. (Details are given in lesson 20, i.e., Virtual Meetings). 10.16 QUORUM FOR BOARD MEETINGS One third of total strength or two directors, whichever is higher, shall be the quorum for a Board meeting. For the purpose of determining the quorum, the participation by a director through Video Conferencing or other audio visual means shall also be counted, unless he is to be excluded for any item of business under any provisions of the Act or the rules - Section 174(1). The Act mandates that certain restricted matters shall not be dealt with in any meeting held through video conferencing or other audio visual means, however, where there is quorum in a meeting through physical presence of directors, any other director may participate conferencing through video or other audio visual means. Section 174 is not applicable to One Person Company in which there is only one director. If at any time the number of interested directors exceeds or is equal to two-thirds of the total strength of the Board of directors, the number of directors who are not interested and present at the meeting, being not less than two shall be the quorum during such time. For instance if there are twelve directors and ten of them are interested, remaining two directors would not have normally constituted quorum since four directors is the requisite quorum, but, in such event, remaining two disinterested directors would constitute quorum. Act lays down only minimum number of directors to form a quorum, company by its articles can provide for a higher number of quorum - Amrit Kaur Puri v Kapurthala Flour, Oil & General Mills Co (P) Ltd. [1984] 56 Comp Cas 194 (P & H) Where due to removal or resignation or for some other reason, the number of directors is reduced below the quorum, then the continuing directors may act for the purpose of increasing the number of directors to that fixed for the quorum, or of summoning a general meeting of the company and for no other purpose. The meeting shall be adjourned due to want of quorum, unless the articles of the company otherwise provide shall be held to the same day at the same time and place in the next week 227 CU IDOL SELF LEARNING MATERIAL (SLM)

or if that day is a National Holiday, till the next succeeding day, which is not a national holiday, at the same time and place. If the Board meeting is adjourned for want of quorum and at the adjourned Board meeting also no quorum is present, meeting stands dissolved. Adjourned Board meetings are the continuation of the original board meeting. According to SS-1, the Chairman may, unless dissented to or objected by the majority of Directors present at a Meeting at which a Quorum is present, adjourn the Meeting for any reason, at any stage of the Meeting. Quorum shall be present not only at the time of commencement of the Meeting but also while transacting business A Director shall neither be reckoned for Quorum nor shall be entitled to participate in respect of an item of business in which he is interested. However, in case of a private company, a Director shall be entitled to participate in respect of such item after disclosure of his interest. Additionally for listed entities the quorum for every meeting of the board of directors of the top 1000 listed entities with effect from April 1, 2019 and of the top 2000 listed entities with effect from April 1, 2020 shall be one-third of its total strength or three directors, whichever is higher, including at least one independent director. The participation of the directors by video conferencing or by other audio-visual means shall also be counted for the purposes of such quorum. The top 1000 and 2000 entities shall be determined on the basis of market capitalisation, as at the end of the immediate previous financial year. 10.17 CHAIRMAN OF THE MEETING OF THE BOARD/COMMITTEE The Chairman of the Company shall be the chairman of the Board. If the company does not have a Chairman, the Directors may elect one of themselves to be the chairman of the Board. In case of committee meeting, a member of the committee appointed by the Board or elected by the Committee as chairman of the Committee, in accordance with the Act or any other law or the Articles, shall conduct the meetings of the committee. If no Chairman has been so elected or if the elected chairman is unable to attend the meeting, the Committee shall elect one of its members present to chair and conduct the meeting of the committee, unless otherwise provided in the articles. The Chairman of the Board shall conduct the Meetings of the Board. If no such Chairman is elected or if the Chairman is unable to attend the Meeting, the Directors present at the Meeting shall elect one of themselves to chair and conduct the Meeting, unless otherwise provided in the Articles. 228 CU IDOL SELF LEARNING MATERIAL (SLM)

10.18 PASSING OF RESOLUTION BY CIRCULATION A company may pass the resolutions through circulation. No resolution shall be deemed to have been duly passed by the Board or by a committee thereof by circulation, unless the resolution has been circulated in draft form together with the necessary papers to all the directors or members of committee at their address registered with the company in India by hand delivery or by speed post or by courier or through electronic means which may include e-mail or fax. The said resolution must be passed by majority of directors or members entitled to vote. Where not less than one-third of the total number of directors of the company for the time being require that any resolution under circulation must be decided at a meeting, the chairperson shall put the resolution to be decided at a meeting of the Board. The resolution passed through circulation be noted at a subsequent meeting and made part of the minutes of such meeting. Matters covered by section 179(3) and rule 8 of the Companies (Meetings of Board and its powers) Rules, 2014 is required to be passed at a meeting of Board and cannot be passed by circulation. Further SS-1, requires that each item of business proposed to be passed by way of resolution by circulation shall be explained by a note setting out details of the proposal, relevant material facts that enable the directors to understand the meaning, scope and implications of the proposal, the nature of concern of interest, if any, of any director in the proposal, which the director had earlier disclosed and the draft of the resolution proposed. The note shall also indicate how a Director shall signify assent or dissent to the Resolution proposed and the date by which the Director shall respond. Each resolution shall be separately explained. The decision of the directors shall be sought for each resolution separately. Not more than seven days from the date of circulation of the draft of the resolution shall be given to the directors to respond and the last date shall be computed accordingly. An additional two days shall be added for the service of the draft Resolution, in case the same has been sent by the company by speed post or by registered post or by courier. Passing of resolution by circulation shall be considered valid as if it had been passed at a duly convened meeting of the Board. This shall not dispense with the requirement for the Board to meet at the specified frequency. The Resolution is passed when it is approved by a majority of the Directors entitled to vote on the Resolution, unless not less than one-third of the total number of Directors for the time being require the Resolution under circulation to be decided at a Meeting. The Resolution, if passed, shall be deemed to have been passed on the earlier of: 229 CU IDOL SELF LEARNING MATERIAL (SLM)

(a) the last date specified for signifying assent or dissent by the Directors, or (b) the date on which assent has been received from the required majority, provided that on that date the number of Directors, who have not yet responded on the resolution under circulation, along with the Directors who have expressed their desire that the resolution under circulation be decided at a Meeting of the Board, shall not be one third or more of the total number of Directors; and shall be effective from that date, if no other effective date is specified in such Resolution. In case the Director does not respond on or before the last date specified for signifying assent or dissent, it shall be presumed that the Director has abstained from voting. Resolutions passed by circulation shall be noted at a subsequent Meeting of the Board and the text thereof with dissent or abstention, if any, shall be recorded in the Minutes of such Meeting. 10.19 MINUTES Section 118 provides that every company shall prepare, sign and keep minutes of proceedings of every general meeting, including the meeting called by the requisitions and all proceedings of meeting of any class of share holders or creditors and every resolution passed by postal ballot and every meeting of Board of Directors or of every committee of the Board within thirty days of the conclusion of every such meeting concerned or passing of resolution by postal ballot in books kept for that purpose with their pages consecutively numbered. In case of meeting of Board of Directors or of a committee of Board, the minutes shall contain: (a) Name of the directors present at the meeting; and (b) In the case of each resolution passed at the meeting, the names of dissenting director or a director who has not concurred the resolution. The Chairman shall exercise his absolute discretion in respect of inclusion or non-inclusion of the matters which is regarded as defamatory of any person, irrelevant or immaterial to the proceedings; or detrimental to company’s interest in the minutes. Minutes kept shall be evidence of the proceedings recorded in a meeting. SS-1 contain detailed procedure regarding recording, contents, finalization, entry and signing of minutes which should be ensured. Every company shall keep Minutes of all Board and Committee Meetings in a Minutes Book. Minutes kept in accordance with the provisions of the Act evidence the proceedings recorded therein. Minutes help in understanding the deliberations and decisions taken at the Meeting. 1) Minutes shall be recorded in books maintained for that purpose. A distinct Minutes Book shall be maintained for Meetings of the Board and each of its Committees. Company may maintain its Minutes in physical or in electronic form. The pages of the Minutes Books shall be consecutively numbered. 230 CU IDOL SELF LEARNING MATERIAL (SLM)

2) Minutes shall not be pasted or attached to the Minutes Book, or tampered with in any manner. Minutes Books, if maintained in loose-leaf form, shall be bound periodically depending on the size and volume and coinciding with one or more financial years of the company. 3) Minutes Books shall be kept at the Registered Office of the company or at such other place as may be approved by the Board. 4) Contents of Minutes General Contents a) Minutes shall state, at the beginning the serial number and type of the Meeting, name of the company, day, date, venue and time of commencement of the Meeting; b) Minutes shall record the names of the Directors present physically or through Electronic Mode, the Company Secretary who is in attendance at the Meeting and Invitees, if any, including Invitees for specific items; c) Minutes shall contain a record of all appointments made at the Meeting; Specific Contents Minutes shall inter-alia contain: (a) The name(s) of Directors present and their mode of attendance, if through Electronic Mode. (b) In case of a Director participating through Electronic Mode, his particulars, the location from where he participated and wherever required, his consent to sign the statutory registers placed at the Meeting. (c) The name of Company Secretary who is in attendance and Invitees, if any, for specific items and mode of their attendance if through Electronic Mode. (d) Record of election, if any, of the Chairman of the Meeting. (e) Record of presence of Quorum. (f) The names of Directors who sought and were granted leave of absence. (g) Noting of the Minutes of the preceding Meeting. (h) Noting the Minutes of the Meetings of the Committees. (i) The text of the Resolution(s) passed by circulation since the last Meeting, including dissent or abstention, if any. (j) The fact that an Interested Director did not participate in the discussions and did not vote on item of business in which he was interested and in case of a related party transaction such director was not present in the meeting during discussions and voting on such item. (k) The views of the Directors particularly the Independent Director, if specifically insisted upon by such Directors, provided these, in the opinion of the Chairman, are not defamatory of 231 CU IDOL SELF LEARNING MATERIAL (SLM)

any person, not irrelevant or immaterial to the proceedings or not detrimental to the interests of the company. (l) If any Director has participated only for a part of the Meeting, the Agenda items in which he did not participate. (m) The fact of the dissent and the name of the Director who dissented from the Resolution or abstained from voting thereon. (n) Ratification by Independent Director or majority of Directors, as the case may be, in case of Meetings held at a shorter Notice. (o) Consideration of any item other than those included in the Agenda with the consent of majority of the Directors present at the Meeting and ratification of the decision taken in respect of such item by a majority of Directors of the company. (p) The time of commencement and conclusion of the Meeting. 5) Apart from the Resolution or the decision, Minutes shall mention the brief background of all proposals and summarise the deliberations thereof. In case of major decisions, the rationale thereof shall also be mentioned. 6) Minutes shall contain a fair and correct summary of the proceedings of the Meeting. 7) Minutes shall be written in clear, concise and plain language Wherever the decision of the Board is based on any unsigned documents including reports or notes or presentations tabled or presented at the Meeting, which were not part of the Notes on Agenda and are referred to in the Minutes, shall be identified by initialling of such documents by the Company Secretary or the Chairman. 8) Where any earlier Resolution(s) or decision is superseded or modified, Minutes shall contain a specific reference to such earlier Resolution(s) or decision or state that the Resolution is in supersession of all earlier Resolutions passed in that regard. 9) Minutes of the preceding Meeting shall be noted at a Meeting of the Board held immediately following the date of entry of such Minutes in the Minutes Book. 10) Finalization of Minutes-Within fifteen days from the date of the conclusion of the Meeting of the Board or the Committee, the draft Minutes thereof shall be circulated by hand or by speed post or by registered post or by courier or by e-mail or by any other recognised electronic means to all the members of the Board or the Committee, as on the date of the Meeting, for their comments. 11) Minutes shall be entered in the Minutes Book within thirty days from the date of conclusion of the Meeting. The date of entry of the Minutes in the Minutes Book shall be recorded by the Company Secretary. Minutes, once entered in the Minutes Book, shall not be altered. Any alteration in the Minutes as entered shall be made only by way of express 232 CU IDOL SELF LEARNING MATERIAL (SLM)

approval of the Board at its subsequent Meeting at which the Minutes are noted by the Board and the fact of such alteration shall be recorded in the Minutes of such subsequent Meeting. 12) Signing and Dating of Minutes-Minutes of the Meeting of the Board shall be signed and dated by the Chairman of the Meeting or by the Chairman of the next Meeting. Minutes, once signed by the Chairman, shall not be altered, save as mentioned in this Standard. The Chairman shall initial each page of the Minutes, sign the last page and append to such signature the date on which and the place where he has signed the Minutes. 13) Within fifteen days of signing of the Minutes, a copy of the said signed Minutes, certified by the Company Secretary or where there is no Company Secretary by any Director authorised by the Board, shall be circulated to all the Directors, as on the date of the Meeting and appointed thereafter, except to those Directors who have waived their right to receive the same either in writing or such waiver is recorded in the Minutes. 14) The Minutes of Meetings of the Board and any Committee thereof can be inspected by the Directors. Extracts of the Minutes shall be given only after the Minutes have been duly entered in the Minutes Book. However, certified copies of any Resolution passed at a Meeting may be issued even earlier, if the text of that Resolution had been placed at the Meeting. 15) Minutes of all Meetings shall be preserved permanently in physical or in electronic form with Timestamp. Minutes Books shall be in the custody of the Company Secretary. Rule 25 contains provisions with regards to minutes of meetings. A distinct minute book shall be maintained for each type of meeting namely: (i) General meetings of the members; (ii) Meetings of the creditors; (iii) Meetings of the Board; and (iv) Meetings of the committees of the Board. 10.20 SUMMARY  There shall be minimum of four Board meetings every year and not more one hundred and twenty days shall intervene between two consecutive Board meetings.  Director can participate in the Board meeting physically or through video conferencing or other audio-visual mode as may be prescribed  Notice of not less than seven days in writing is required to call a board meeting and notice of meeting to all directors shall be given, whether he is in India or outside India by hand delivery or by post or by electronic means. 233 CU IDOL SELF LEARNING MATERIAL (SLM)

 – One third of total strength or two directors, whichever is higher, shall be the quorum for a Board meeting. The participation of director at Board meeting through video conferencing or by other electronic means shall be counted for the purpose of Quorum  Section 173 provides the participation of directors in a meeting may be either in person or through video conferencing or other audio-visual means, which are capable of recording and recognizing the participation of the directors and of recording and storing the proceedings of such meetings along with date and time.  The Chairman may adjourn a Meeting with the consent of the Members and shall adjourn a Meeting if so decided by the Members. The Meeting may, however, be adjourned at any time. It may be adjourned after some items of business have been transacted and the remaining items can be transacted at the adjourned Meeting.  A company may pass the resolutions through circulation. The Resolution is passed when it is approved by a majority of the Directors entitled to vote on the Resolution, unless not less than one-third of the total number of Directors for the time being require the Resolution under circulation to be decided at a Meeting  SS-1 provides exhaustive guide for conduct of meetings of Board/committees. Company Secretary should perform his duties before, during and after the conduct of Board/Committees in accordance with the requirements of SS-1. 10.21 KEYWORDS  One person Company “One Person Company” means a company which has only one person as a member; (Sec 2(65))  Small Company “small company” means a company, other than a public company,– (i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; and (ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees: Provided that nothing in this clause shall apply to— (A) a holding company or a subsidiary company; (B) a company registered under section 8; or (C) a company or body corporate governed by any special Act; (Sec 2(85)  Adjournment means to defer or suspend the meeting to a future time, either at an appointed date or indefinitely or as decided by the members present at the scheduled meeting. 10.22 EARNING ACTIVITY 1. In any financial year, if a company has no profits or its profits are inadequate, the company shall not pay remuneration to its directors. Comment 234 CU IDOL SELF LEARNING MATERIAL (SLM)

___________________________________________________________________________ _____________________________________________________________________ 2. The DIN allotted to a director before the commencement of this Act shall be deemed to be the DIN allotted under the new Act. ___________________________________________________________________________ ___________________________________________________________________________ 10.23 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Write short notes on quorum 2. Write something about minutes 3. What is board meeting 4. Who is an additional director? 5. Define independent director 6. Write on various types of directors Long Questions 1. Can a director be removed? If so give the procedure 2. When shall the office of the director become vacant? 3. What are the duties of director in a company? 4. State the procedure for holding meeting of board of directors. 5. What is the agenda for the meeting of the board of directors? B. Multiple Choice Questions 1. The minimum age prescribed for the appointment of Managing Director is- a. 18 years. b. 21 years c. 30 years d. 70 years. 2. At every AGM, not less than _____ of the total number of directors shall retire by rotation. a. One third. b. Two third. c. Three fourths. d. Half. 235 CU IDOL SELF LEARNING MATERIAL (SLM)

3. A director may be elected by small shareholders upon a notice by a. Not less than 1000 small shareholders. b. One tenth of the total number of shareholders. c. Not less than 1000 small shareholders or one tenth of such shareholders, whichever is lower. d. None of these 4. Which one of the following is not the criterion for the appointment of independent director? a. He shall not be a promoter of the company. b. He shall relate to the promoters of the company. c. He shall not have any pecuniary relationship with the company or their promoters or directors during two immediately preceding financial year. d. His relatives have not held any pecuniary relationship with the company amounting to 2% or more of its gross turnover. 5. No independent director shall hold office for more than ____ consecutive terms. a. 2 b. 3 c. 4 d. 5 Answers 1-b, 2-b, 3-c, 4-b, 5-a 10.24 REFERENCES Textbooks/ ReferenceBooks:  Bhushan,Bharat., Kapoor,N.D.,Abbi,Rajni,“ElementsofBusinessLaw”.SultanChand&SonsPvt.Ltd.  Dagar,InderJeetandAgnihotri,Anurag.Business Laws:Text andProblems.SagePublication.  JagotaR.(2119).BusinessLaws. MKMPublishersScholar TechPress.  Sharma,J.P.andKanojiaS.(2119).Business Laws.NewDelhi.BharatLawHousePvt.Ltd.  Singh,Avtar.(2118).ThePrinciplesofMercantileLaw. Lucknow. EasternBookCompany.  TulsianP.C.(2118).BusinessLaw. New Delhi. TataMcGrawHill.AdditionalResources  Kuchhal,MC.(2118).Business Laws.New Delhi.Vikas PublishingHouse.  Arora,Sushma.(2115).Business Laws.NewDelhi.Taxman 236 CU IDOL SELF LEARNING MATERIAL (SLM)

237 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 11 WINDING UP STRUCTURE 11.0 Learning Objectives 11.1 Introduction 11.2 Winding up by Tribunal 11.3 Voluntary Winding up 11.4 Summary 11.5 Keywords 11.6 Learning Activity 11.7 Unit End Questions 11.8 References 11.0 LEARNING OBJECTIVES After studying this unit students should be able to • Explain the meaning of Winding up • Describe powers of Tribunal and orders passed on receipt of Winding up petition • Outline the procedure for voluntary winding up • Describe the procedure for Winding up by an order of Tribunal 11.1 INTRODUCTION INTRODUCTION Companies Act, 2013 contains provisions related to winding up of companies. However, Insolvency and Bankruptcy Code, 2016 which has into enforcement in 2016, has made substantial changes in these provisions. Provisions for application for winding up for “Inability to pay debts” has been omitted. As per Section 2(94A) of the Companies Act, 2013, the term “winding up” means winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016, as applicable. 238 CU IDOL SELF LEARNING MATERIAL (SLM)

11.2 WINDING UP BY TRIBUNAL MODES OF WINDING UP [SECTION 270] The provisions of Part I of the Chapter of the Companies Act, 2013 shall apply to the winding up of a company by the Tribunal under this Act WINDING UP BY THE TRIBUNAL [SECTION 271 – 303] CIRCUMSTANCES IN WHICH COMPANY MAY BE WOUND UP BY TRIBUNAL [SECTION 271] A company may, on a petition under section 272, be wound up by the Tribunal— (a) if the company has, by special resolution, resolved that the company be wound up by the Tribunal; (b) if the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality; (c) if on an application made by the Registrar or any other person authorised by the Central Government by notification under this Act, the Tribunal is of the opinion that the affairs of the company have been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purpose or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that it is proper that the company be wound up; (d) if the company has made a default in filing with the Registrar its financial statements or annual returns for immediately preceding five consecutive financial years; or (e) if the Tribunal is of the opinion that it is just and equitable that the company should be wound up. PETITION FOR WINDING UP [SECTION 272] Petition may be presented by: Subject to the provisions of this section, petition before tribunal may be presented by the following: • The Company • Any Contributory or Contributories. • All or any of the persons specified above • The registrar • Any person authorized by Central Government in that behalf • In case affairs of the company conducted against the nation interest, by the CG/SG. Petition by contributory: A contributory shall be entitled to present a petition for the winding up of a company. Shares in respect of which he is a contributory or some of them were either originally allotted to him or have been held by him, and registered in his name, for at least six 239 CU IDOL SELF LEARNING MATERIAL (SLM)

months during the eighteen months immediately before the commencement of the winding up or have devolved on him through the death of a former holder Contributory can file petition ignoring the following points • He may be the holder of fully paid-up shares. • The company may have no assets at all. • The company may have no surplus assets left for distribution among the shareholders after the satisfaction of its liabilities. Petition by registrar: The Registrar shall be entitled to present a petition for winding up under section 271, except on the grounds specified in clause (a) 1of that section. Provided that the Registrar shall obtain the previous sanction of the Central Government to the presentation of a petition: Provided further that the Central Government shall not accord its sanction unless the company has been given a reasonable opportunity of making representations. Petition presented by company: A petition presented by the company for winding up before the Tribunal shall be admitted only if accompanied by a statement of affairs in such form and in such manner as may be prescribed. Copy of petition with registrar: A copy of the petition made under this section shall also be filed with the Registrar and the Registrar shall, without prejudice to any other provisions, submit his views to the Tribunal within 60 days of receipt of such petition POWERS OF TRIBUNAL [SECTION 273] (1) Order passed by tribunal: The Tribunal may, on receipt of a petition for winding up under section 272 pass any of the following orders, namely:— (a) dismiss it, with or without costs; (b) make any interim order as it thinks fit; (c) appoint a provisional liquidator of the company till the making of a winding up order; (d) make an order for the winding up of the company with or without costs; or (e) any other order as it thinks fit Time limit for passing of an order: An order under this sub-section shall be made within ninety days from the date of presentation of the petition. Notice to company on appointing of provisional liquidator: Before appointing a provisional liquidator under clause (c) [given above], the Tribunal shall give notice to the company and afford a reasonable opportunity to it to make its representations, if any unless for special reasons to be recorded in writing, the Tribunal thinks fit to dispense with such notice. Tribunal shall not refuse to make a winding up order: The Tribunal shall not refuse to make a winding up order on the ground only that the assets of the company have been mortgaged for an amount equal to or in excess of those assets, or that the company has no assets. Tribunal make order for any other remedy on just and equitable ground: Where a petition is presented on the ground that it is just and equitable that the company should be wound up, the Tribunal may refuse to make an order of winding up, if it is of the opinion that some other 240 CU IDOL SELF LEARNING MATERIAL (SLM)

remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing the other remedy Procedure for Winding up by an order of Tribunal C. Procedure for Compulsory Winding up by the Tribunal Mentioned below is the procedure for filing compulsory winding up: 1. Filing of petition in Form WIN-1 or WIN-2 by the Eligible Petitioner Eligible petitioners shall file the petitions in the following manner: a) For the purposes of sub-section (1) of section 272, a petition for winding up of a company shall be presented by the eligible petitioner in Form WIN-1 or WIN-2.In case when the petition presented by the Company, then it shall be presented in the Form WIN-2 and in other cases in Form WIN-1. b) Every petition shall he verified by an affidavit made by the petitioner or by the petitioners, where there are more than one petitioners, and in case the petition is presented by a body corporate, by the Director, Secretary or any other authorised person thereof, and such affidavit shall be in FormWIN-3. c) Statements of Affairs must be annexed along with petition in Form WIN-4which shall contain the information up to the date, which shall not exceed thirty days prior to the date of filling the petition duly verified by an affidavit in Form WIN-5. 2. Service of Petition Every contributory of the Company shall be entitled to be furnished by the petitioner or by his authorised representative with a copy of the petition within 24 hours of the requisition made by the contributory on payment of five rupees per page. 3. Advertisement of Petition The Petition shall be advertised at least 14 days before the date fixed for hearing by the Tribunal in Form WIN-6 in any daily newspaper in English and vernacular language widely circulated in the State or Union territory in which the registered office of the company is situated. Further, an application for leave to withdraw a petition for winding up which has been advertised shall not be heard at any time before the date fixed in the advertisement for the hearing of the petition. Withdrawal of petition is only allowed upon adherence to order of Tribunal, including costs and it shall be advertised in the same manner as the original petition. 4. Appointment of Company Liquidator (“CL”) or Provisional Liquidator (“PL”) The process to appoint a Company or Provisional Liquidator is mentioned below: 241 CU IDOL SELF LEARNING MATERIAL (SLM)

a) After the admission of a petition for the winding up of a company by the Tribunal, and upon proof by affidavit of sufficient ground for the appointment of a provisional liquidator, the Tribunal, if it thinks fit, and upon such terms and conditions as in the opinion of the Tribunal shall be just and necessary, may appoint a provisional liquidator of the company, pending final orders on the winding up petition, and where the company is not the applicant, notice of the application for appointment of provisional liquidator shall be given to the company in Form WIN 7 and the company shall be given a reasonable opportunity to make its representation unless the Tribunal, for reasons to be recorded in writing, dispenses with such notice. b) As per Section 275, Company Liquidator (CL) shall be appointed by the Tribunal amongst the Insolvency Professionals registered under the Insolvency and Bankruptcy Code, 2016. c) Notice of appointment of CLby Tribunal shall be made to the liquidator within 7 days in form WIN-9. d) The declaration disclosing conflict of interest in Form WIN-10 within7 days of his appointment by CL. 5. Order of Winding up by the Tribunal The following methodology is prescribed for receipt and filing of the order: a) For the purposes of sub section (1) of section 277, the order for winding up shall be in Form WIN-11. b) The Tribunal shall send the signed and sealed order of winding up within 7 days from the date of receipt of the order by the Registrar, to CL in Form WIN-12 and to ROC in Form WIN-13. c) A copy of the order made by the Tribunal shall also be filed by the liquidator within thirty days of the receipt with the Registrar of Companies in form INC-28 of the Companies (Incorporation) Rules, 2014 within 30 days of the date of order. d) Contents of the Winding up Order: An order for winding up a company shall inter-alia contain that it will be the duty of such of the persons as are liable to submit the books of account of the company completed and audited up to the date of the order, to attend on the Company Liquidator at required time and place and give him all the information, and it will be the duty of every person who is in possession of any property, books or papers, cash or any other assets of the company, including the benefits derived therefrom, to surrender forthwith such property, books or papers, cash or other assets and the benefits so derived , as the case may be, to the CL. 6. Advertisement of Winding up order The order for the winding up of a company by the Tribunal shall, within 14days of the date of the order be advertised by the petitioner in a newspaper in the English language and a 242 CU IDOL SELF LEARNING MATERIAL (SLM)

newspaper in vernacular language widely circulating in the State or the Union territory where the registered office of the company is situated and shall be served by the petitioner upon such person, if any, and in such manner as the Tribunal may direct, and the advertisement shall be in Form WIN 14. 7. Power of CL upon winding up order On winding up order being made; the following powers can be exercised by CL: a) CL shall take charge of assets and books of accounts and papers of the Company. b) The CL can file an application against the promoters/directors of the Company if they do not cooperate in giving the charge of assets and books of accounts of the Company. c) The CL may make an application before Tribunal thereby seeking direction up on any contributory/ trustee etc. to pay such sum to which the Company is entitled. 8. Reports by the CL As per sub section (1) of Section 281 of the Act, the CL shall submit report to the Tribunal in following manner: a) The CL shall file first Report within 60 days of order in form WIN-16 reporting nature and details of asset of the Company, debts due, guarantees, list of contributories and their dues, subsisting contracts etc. Further, as per sub section (4) of Section 281 of the Act, CL may make further report or reports, if he thinks fit to the Tribunal. b) The Tribunal shall within 7 days from the receipt of such report, fix a date for the consideration and notify the date on the notice board of the Tribunal and to the CL. 9. Settlement of list of contributories Sec 285 read with Rule 28 to 35 a. Preparation of provisional list of contributories (Rule 28) Unless the Tribunal dispenses with the settlement of a list of contributories, the CL shall prepare the list of contributories within 21 days of the winding up order. The list shall consist the name of every person who was a member on commencement on winding up or his representative and the list shall be in Form WIN-17. b. Notice of Settlement (Rule 29) Upon the filing of the provisional list of contributories mentioned in Rule 28 above, CL shall do the following functions:  The CL shall obtain a date from the Tribunal for settlement of the list of contributories.  The CL shall give notice of the date appointed by the Tribunal to every person included in the list form WIN-18. 243 CU IDOL SELF LEARNING MATERIAL (SLM)

 Further, if any person intends to object to his being settled as a contributory in such case he should file in Tribunal, at least 2 days before the hearing, his affidavit in form WIN-19 in support of his contention and serve a copy of the same on the CL. c. Settlement List (Rule 30) On the date appointed for the settlement of the list referred to in rule 29, the Tribunal shall hear any person who objects to being settled as a contributory or as a contributory in such character or for such number of shares or extent of interest as is mentioned in the said list, and after such hearing, shall finally settle the list in accordance with sub-section (1) of section 285 and the aforesaid list when settled shall be certified by the Tribunal under its seal and shall be in Form WIN 20. d. Notice of settlement to contributories (Rule 31) Upon the receipt of the settled list of contributories, as certified by the Tribunal in terms of rule 30, the CL shall within a period of 7 days issue notice to every person placed on the said list of contributories in form WIN 21 and shall be sent to each person settled on the said list by pre-paid registered post or speed post at the address mentioned in the said list and an Affidavit confirming the service of notice in form WIN-22. e. Supplemental list (Rule 32) The Tribunal may add to the list of contributories by a supplemental list or lists and any such addition shall be made in the same manner in all respects as the settlement of the original list. f. Variation of list (Rule 33) Save as provided in rule 31, the list of contributories shall not be varied, and no person settled on the list as a contributory shall be removed from the list, or his liability in any way varied, except by order of the Tribunal and in accordance with such order. g. Application for rectification of list (Rule 34) If after the settlement of the list of contributories, the Company Liquidator has reason to believe that a contributory who had been included in the provisional list has been improperly or by mistake excluded or omitted from the list of contributories as finally settled or that the character in which or the number of shares or extent of interest for which he has been included in the list as finally settled or any other particular contained therein, requires rectification. Then the CL can make application for rectification in the list even after the settlement. h. List of Contributories consisting of past members (Rule 35) It shall not be necessary to settle a list of contributories consisting of the past members of a company, unless so ordered by the Tribunal and where an order is made for settling a list of contributories consisting of the past members of a company, the provisions of these rules 244 CU IDOL SELF LEARNING MATERIAL (SLM)

shall apply to the settlement of such list in the same manner as they apply to the settlement of the list of contributories consisting of the present members. 10. Advisory Committee The Tribunal may direct for constitution of an Advisory Committee and determine the persons who may be the members of the advisory committee. The meeting of the creditors and contributories in accordance with the provisions of subsection (3) of section 287 to determine the persons who may be the members of the advisory committee shall be convened, held and conducted in the manner provided in the prescribed rules for the holding and conducting of meeting of creditors and contributories 11. Meeting of creditors and contributors (Rule 44 – 65) Subject to any directions given by the Tribunal, rules as hereinafter set out shall apply to meetings of creditors and contributories as may be convened in pursuance of subsection (3) of section 287 and sub-section (3) of section 292. a. Notice of Meeting: The provisions of sending notice of the meeting of creditors and contributories by CL is stipulated below:  The CL shall summon meetings of creditors and contributories by giving at least 14 days’ notice by sending individually to every creditor of the company a notice of the meeting of creditors, and to every contributory of the company a notice of the meeting of contributories. The notice of the meeting required to be sent not less than 14 days before the date fixed for the meeting.  Where creditors and contributors are more than 500, the notice to be sent by way of newspaper advertisement shall begiven in Form WIN-25.  The CL or any other person nominated by him shall be the Chairman and the nomination shall be given in WIN-32.  Notice of the meeting shall be given in form WIN-30. The CL may, at its discretion can give notice to the officers of the Company.  Proof of notice shall be submitted by way of an Affidavit in form WIN-31. b. Resolution at Creditors or Contributory meeting: Resolution shall be deemed to be passed when majority in value of the contributories present personally or by proxy and voting has been made in favour of the resolution. c. Quorum: The Quorum shall be at least three creditors or contributories entitled to vote and where total creditors or contributors do not exceed 3, then all creditors or contributors entitled to vote. d. Minutes of proceedings: 245 CU IDOL SELF LEARNING MATERIAL (SLM)

The chairman of the meeting shall cause minutes of the proceedings at the meeting in the following manner:  Minutes to be drawn up and fairly entered in the Minute Book within 30 days and the minutes shall be signed by him or by the chairman of the next meeting.  A list of creditors and contributories present at every meeting shall be made and kept in Form WIN 33.  The Company Liquidator shall, within seven days of the conclusion of the meeting, report the result thereof to the Tribunal in Form No. WIN 34. 12. Examination of Promoters or Directors u/s 299 And 300 read with rule 139 to 154 The process of examination of Promoters or Directors is mentioned below: a) Where CL made a report stating fraud by the promoters/ directors of the Company: Tribunal may after considering the report, direct that such person or officer shall attend before the Tribunal on an appointed day for examination as to the promotion or formation or the conduct of the business of the company or as to his conduct and dealings as an officer thereof. b) Issue of summons against the directors or promoters: Tribunal may, upon hearing, make an order for issuing summons against persons named in the order in form WIN-62 and Summon shall be in form WIN- 63. c) Order directing examination shall be in form WIN-64 and shall be made at least 7 days prior to date fixed for hearing. No person shall take part in examination except CL and his Authorised Representative. 13. Sale by Company Liquidator The process of sale of asset or property of the Company can be made by the CL, post taking previous sanction of the Tribunal. The procedure of sale is mentioned below: a) Every sale shall be held by the CL, or, if the Tribunal shall so direct, by an agent or an auctioneer approved by the Tribunal, and subject to such terms and conditions, if any, as may be approved by the Tribunal and all sales shall be made by public auction or by inviting sealed tenders or by electronic bidding or in such manners as the Tribunal may direct. b) Where property forming part of a company’s assets is sold by the Company Liquidator through an auctioneer or other agent, the gross proceeds of the sale shall, unless, the Tribunal otherwise orders, be paid over to the liquidator by such auctioneer or agent and the charges and expenses connected with the sale shall afterwards be paid to such auctioneer or agent in accordance with the scales, if any, fixed by the Tribunal. 14. Termination of winding up The process of conclusion of winding up of the affairs of the Company is mentioned below: 246 CU IDOL SELF LEARNING MATERIAL (SLM)

a) When all affairs have been fully wound up, CL shall file application for dissolution within 10 days along with audited financial accounts & auditor’s certificate. b) Upon application filed, Tribunal shall in consideration of accounts and auditor’s certificate, pass an order of dissolution. c) Liquidator shall pay the balance into Company Liquidation Dividend and Undistributed Assets Account any unclaimed dividends payable to creditors or undistributed assets refundable to contributories in his hands on the date of the order of dissolution, and such other balance in his hands. d) The winding up of a company shall, for purposes of section 302, be deemed to be concluded at the date on which the order dissolving the company has been reported by the Company Liquidator to the Registrar of Companies unless any fund or assets of the company remaining unclaimed or undistributed in the hands or under the control of the Company Liquidator, have been distributed, or paid into the Company Liquidation Dividend and Undistributed Assets Account as provided in section 352. SUMMARY PROCEDURE FOR LIQUIDATION UNDER SECTION 361 The rules allow any of the following class of companies to close their business by making a winding up application to Central Government without going to Tribunal. For the purpose of clause (ii) of sub-section (1) of section 361, the class of companies shall be as under, based on the latest audited Balance Sheet: Companies accepting deposit and having Upto INR 25 Lacs total outstanding deposits Companies having total outstanding loan Upto INR 50 Lacs including secured loan Companies having total turnover Upto INR 50 Crores Companies with Paid up capital Upto INR 1 Crore The provisions of the Rules related to filing and audit of the Company Liquidator’s accounts and its procedure (Rule 91 to 99 of the Rules) and disposing of assets (Rule 165 to 167 of the Rules) shall be applicable to above class of companies with modification that the word “Tribunal” shall be considered as “Central Government 247 CU IDOL SELF LEARNING MATERIAL (SLM)

11.3 VOLUNTARY WINDING UP OF A COMPANY:- The company can be wound up voluntarily by the mutual decision of members of the company, if: • The company passes a Special Resolution stating about the winding up of the company. • The company in its general meeting passes a resolution for winding up as a result of expiry of the period of its duration as fixed by its Articles of Association or at the occurrence of any such event where the articles provide for dissolution of company. PROCEDURE FOR VOLUNTARY WINDING UP:- 1. The members of the Company including the Directors shall pass a declaration when it is delivered to the registrar for registration before that date, which must be within five weeks immediately preceding the date of the passing of the resolution for winding up the company 2. When it is proposed to wind up a company voluntarily, its director or directors, or in case the company has more than two directors, the majority of its directors, shall, at a meeting of the Board, make a declaration verified by an affidavit to the effect that they have made a full inquiry into the affairs of the company and they have formed an opinion that the company has no debt or whether it will be able to pay its debts in full from the proceeds of assets sold in voluntary winding up 3. According to S. 306 of the Act, the company shall along with the calling of a meeting of the company at which the resolution for the voluntary winding up is to be proposed, cause a meeting of its creditors either on the same day or on the next day and shall cause a notice of such meeting to be sent by registered post to the creditors with the notice of the meeting of the company under section 304. 4. The passed resolution must be published in the Official Gazette or the local vernacular newspaper circulating within that district, as a notice, within fourteen days of declaration. 5. The company in its general meeting, where a resolution of voluntary winding up is passed, shall appoint a Company Liquidator from the panel prepared by the Central Government for the purpose of winding up its affairs and distributing the assets of the company and recommend the fee to be paid to the Company Liquidator, as per Section 310 of the Act 6. The company shall give notice to the Registrar of the appointment of a Company Liquidator along with the name and particulars of the Company Liquidator, of every vacancy occurring in the office of Company Liquidator, and of the name of the Company Liquidator appointed to fill every such vacancy within ten days of such appointment or the occurrence of such vacancy. 7. The Company Liquidator shall report quarterly on the progress of winding up of the company in such form and in such manner as may be prescribed to the members and creditors 248 CU IDOL SELF LEARNING MATERIAL (SLM)

and shall also call a meeting of the members and the creditors as and when necessary but at least one meeting each of creditors and members in every quarter and apprise them of the progress of the winding up of the company in such form and in such manner as may be prescribed. The failure of Company liquidator in complying with the above, then, he shall be punishable, in respect of each such failure, with fine which may extend to ten lakh rupees. 8. Then, a Final meeting is organised where the Company Liquidator shall prepare a report of the winding up showing that the property and assets of the company have been disposed of and its debt fully discharged or discharged to the satisfaction of the creditors and thereafter call a general meeting of the company for the purpose of laying the final winding up accounts before it and giving any explanation therefor 9. According to section 318 (4) of the Act, it explains that, Within two weeks after the meeting, the Company Liquidator shall— (a) send to the Registrar— (i) a copy of the final winding up accounts of the company and shall make a return in respect of each meeting and of the date thereof; and (ii) copies of the resolutions passed in the meetings; and (b) file an application along with his report under sub-section (1) in such manner as may be prescribed along with the books and papers of the company relating to the winding up, before the Tribunal for passing an order of dissolution of the company. 11.4 SUMMARY  Winding up of a company is defined as a process by which the life of a company is brought to an end and its property administered for the benefit of its members and creditors  An Administrator, called a liquidator is appointed and he takes control of the company, collects its assets, pays its debts and finally distributes any surplus among the members in accordance with their rights  A liquidator is appointed to realize the assets & properties of the company. After payments of the debts, is any surplus of assets is left out they will be distributed among the members according to their rights  Winding up does not necessarily mean that the company is insolvent. A perfectly solvent company may be wound up by the approval of members in a general meeting  Winding up may be voluntary or by an order of Tribunal  Tribunal may, on receipt of a petition for winding up under section 272 pass any of the following orders, namely:— (a) dismiss it, with or without costs; (b) make any interim order as it thinks fit; (c) appoint a provisional liquidator of the company till the making of a winding up order; (d) make an order for the winding up of the company with or without costs; or (e) any other order as it thinks fit:  Section 272(1) of the Companies Act, 2013 provides that subject to the provisions of this section, a petition to the Tribunal for the winding up of a company shall be presented by— (a) the company; (b) any contributory or contributories; (c) all or any 249 CU IDOL SELF LEARNING MATERIAL (SLM)

of the persons specified in clauses (a) and (b); (d) the Registrar; (e) any person authorized by the Central Government in that behalf; or (f) in a case falling under clause (b) of section 271, by the Central Government or a State Government. 11.5 KEYWORDS  Winding up: It means winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016, as applicable.  Registrar: Registrar means Registrar of companies  Tribunal: Tribunal refers to National Company Law Tribunal  Liquidator: A liquidator is an officer who is particularly appointed to wind up the affairs of a company when it decides to end its operations or is ended by order of Tribunal 11.6 LEARNING ACTIVITY 1. What is the difference between Winding up and dissolution of a company? ___________________________________________________________________________ ___________________________________________________________________________ 2. What is the meaning of the term Liquidation, is it different from the term winding up? ___________________________________________________________________________ ___________________________________________________________________________ 11.7 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. State the different modes of Winding up of a company 2. Who can present a petition to the Tribunal for the winding up of a company? 3. Explain the role of liquidator in Winding up 4. What are the orders a Tribunal may pass on receipt of a petition for winding up under section 272? 5. Explain the provisions relating to Summary procedure for liquidation under section 361 Long Questions 1. Discuss in detail about petition for winding up as given in Section 272 of companies Act 2013 250 CU IDOL SELF LEARNING MATERIAL (SLM)