Icai chennai - unlisted public companies - 16.06.2014

1. K.VAITHEESWARAN
ADVOCATE & TAX CONSULTANT
Flat No.3, First Floor,
No.9, Thanikachalam Road,
T. Nagar,
Chennai - 600 017, India
Tel.: 044 + 2433 1029 / 4048
402, Front Wing,
House of Lords,
15/16, St. Marks Road,
Bangalore – 560 001, India
Tel : 080 22244854/ 41120804
Mobile: 98400-96876
E-mail : askvaithi@yahoo.co.uk, vaithilegal@yahoo.co.in
UNLISTED PUBLIC COMPANIES
Companies Act, 2013

2.  Section 2(71) defines the term ‘public company’ to mean:
a company which—
(a) is not a private company;
(b) has a minimum paid-up share capital of five lakh rupees or
such higher paid-up capital, as may be prescribed:
Provided that a company which is a subsidiary of a company,
not being a private company, shall be deemed to be public
company for the purposes of this Act even where such
subsidiary company continues to be a private company in its
articles ;

3.  Section 2 (41) defines the term ‘financial year’.
 The new law stipulates that all companies will have
to adopt the uniform financial year of April 1st
to 31st
March.
 Existing companies have been provided cooling
period of two years to modify their financial year in
accordance with the new Act from the date of
commencement.

4.  Section 7(3) of the Act makes it mandatory for every
company to be allotted with a corporate identity
number.
 The Registrar of Companies shall allot the CIN by
way of application made to it.
 CIN must be included in the certificate of
incorporation from the date of allotment.
 CIN along with the company’s name, address, of its
registered office along with telephone number, fax
number, if any, e-mail and website addresses, if any
must be printed in all its business letters, billheads,
letter papers and in all its notices and other official
publications. [Sec. 12 (3)(a)]

5.  A public company shall not commence business or exercise any
borrowing power unless a declaration is filed by a director in Form-
INC 21 duly verified by a Company Secretary or Chartered
Accountant or Cost Accountant in practice.
 This declaration is to the effect that every subscriber to the
Memorandum has paid the value of the shares agreed to be taken
by him and the paid up capital is not less than Rs.5 lakhs.
 The Company has to file with the Registrar a verification of its
registered office in Form INC 22.

6. • An company which has raised money from public
through prospectus and still has any unutilized
amount of the money raised shall not change its
objects for which it raised the money unless
(i) special resolution is passed by the Company
(ii) details of the resolution is published in the
newspapers and in the website
(iii)opportunity to exit should be given to the
dissenting shareholders by the promoters and
shareholders having control in accordance with the
regulations specified by SEBI.

7.  A Company may by a special resolution alter its articles including alterations
having the effect of conversion of
(a) A private company into a public company; or
(b) A public company into a private company.
 The second proviso which provides that conversion of public into private would
not take effect except with the approval of the Tribunal is yet to be notified.
 In terms of General Circular No.18 dated 11.06.2014, corresponding provisions of
Sec.31(1) and Sec.31(2A) of the Companies Act, 1956 shall remain in force and
application for conversion will have to be filed before RoC as per the earlier
provisions.
 Where provisions for entrenchment referred to in Sec.6(3) are sought to be
introduced by an amendment to the Articles, special resolution is required.
 Articles may contain provisions for entrenchment to the effect that the specified
provisions of the Articles may be altered only if conditions or procedures that are
more restrictive than those applicable in the case of special resolutions are met
or complied with.
 In terms of Sec.6(5) where the Articles contain provisions for entrenchment
whether made on formation or by amendment, the Company shall give notice to
the Registrar in such Form and manner as may be prescribed.

8.  Every public company having a paid-up capital of Rs.10 crores or more
shall have whole time key managerial personnel (KMP).
 Such companies are required to appoint :
(i) Managing Director, or Chief Executive Officer or manager and in
their absence a whole-time Director
(ii) Company Secretary;
(iii) Chief Financial Officer;
 In terms of Sec.196(3), a person who is below the age of 21 or has
attained the age of 70 cannot be appointed as a Managing Director or
Whole-time Director or Manager.
 Persons who have attained the age of 70 can be appointed by passing a
special resolution indicating justification for appointing such person.
 Whether Sec.196(3) is violative of Article 19 of the Constitution of India?

9. • All unlisted public companies having paid up share capital of Rs.10 crores or
more will have to comply with the requirements of rotation of Auditors.
• The Company cannot appoint or re-appoint
(a) an individual as auditor for more than one term of 5 consecutive years; and
(b) an audit firm as auditor for more than two terms for 5 consecutive years;
• Auditor or firm who has completed the term as specified above shall not be
eligible for reappointment in the same company for 5 years from the completion
of the term.
• As on date of appointment firm having common partner or partners to the firm
whose tenure has expired in a company immediately preceding the financial year
cannot be appointed.
• Every company existing on or before the commencement of this Act shall
comply with this requirement within 3 years from the date of
commencement.
• Members through resolution can provide that auditor partner and team shall be
routed at such intervals; audit shall be conducted by more than one auditor.

10.  Every unlisted public company having
- paid up share capital of Rs.50 crores or more during the preceding
financial year; or
- turnover of Rs.200 crores or more during the preceding financial year;
or
- outstanding loans or borrowings from banks or public financial
institutions exceeding Rs.100 crores or more at any point of time during
the preceding financial year; or
- outstanding deposits of Rs.25 crores or more at any point of time
during the preceding financial year;
Shall appoint an internal auditor or firm of internal auditor.
 Sec.138 provides that the internal auditor shall either be a Chartered
Accountant or Cost Accountant or such other professional as may be
decided by the Board.
 The Explanation to Rule 13 provides that the internal auditor may or may
not be an employee of the Company. The term ‘Chartered Accountant’
shall mean a Chartered Accountant whether engaged in practice or not.

11.  A secretarial audit report must be prepared by every public
company having –
 paid-up share capital of Rs.50 crore or more; or
 turnover of Rs.250 crores or more.
 Secretarial audit report given by a company secretary in
practice must be annexed with the Board’s report made in
terms of sub-section (3) of Section 134.

12.  Every public company having paid up capital of Rs.100
crores or more; or turnover of Rs.300 crores or more shall
appoint atleast one woman director.
 Monetary limits as on the last date of the latest audited
financial statements.
 Every company existing on or before the commencement of
this Act shall comply with this requirement within one year
from such commencement.
 Issues

13.  An Audit Committee must be established by the following
class of companies:
 Every public company with a paid up capital of Rs.10 crore
or more;
 Every public company having a turnover of Rs.100 crore or
more;
 Every public company having in aggregate outstanding
loans or borrowings or debentures or deposits exceeding
Rs.50 crores
 The paid up share capital, turnover, outstanding loans,
borrowings, or deposits or debentures shall be taken into
account as existing on the date of the last financial
statements.

14.  Existing Audit Committee shall be reconstituted within
one year from the date of the commencement of this Act.
 Notification dated 12.06.2014 has been issued by the
Government of India amending the Companies (Meetings
and Powers of the Board) Rules, 2014.
 The proviso provides that public companies covered under this
Rule which were not required to constitute their audit
committee under Sec. 292A of the Companies Act, 1956 shall
constitute their audit committee within one year from the
commencement of these Rules or appointment of
independent directors by them whichever is earlier.

15.  The Audit Committee shall consist of a minimum of 3
directors with majority of them as Independent Directors.
 The majority of the members of the Audit Committee
including its Chairperson shall be persons with ability to read
and understand the financial statement.
 Financial statement is defined to include a balance sheet,
profit and loss account, cash flow statement, statement of
changes in equity if applicable.

16.  Terms of reference for the Audit Committee:
 Recommendation for appointment, remuneration and terms of
appointment of Auditors
 Review and monitor the Auditor’s independence and performance
and effectiveness of Audit process
 Examination of the financial statement and Auditor’s report
 Approval or any subsequent modification of transactions with related
parties
 Scrutiny of inter corporate Loans & Investments
 Valuation of undertaking / Assets
 Evaluation of internal financial control and risk management system
 Monitoring the end use of funds raised through public offers

17.  Audit Committee may call for comments of the Auditors
about the internal control system, scope of audit including
observations of the auditors and review of financial
statements before their submissions to the Board.
 Board’s report under Sec. 134(3) has to disclose the
composition of the Audit Committee.

18.  Vigil mechanism has to be established by the following companies:-
(i) Listed companies
(ii) Companies that accept deposits from the public
(iii) Companies which have borrowed monies from banks and public
financial institutions in excess of Rs.50 crores.
 Directors and employees of the company can report their genuine
concerns and grievances.
 If there is an audit committee requirement the vigil mechanism shall be
over seen by the audit committee.
 In other cases, the Board shall nominate a director to place a role of audit
committee for the purpose of vigil mechanism.
 Adequate safe-guards to be provided against victimization of employees
and directors who avail the vigil mechanism.

19.  Nomination and Remuneration Committee is mandatory for
 Every listed company
 Every public company with a paid up capital of Rs.10 crore
or more;
 Every public company having a turnover of Rs.100 crore or
more;
 Every public company having in aggregate outstanding
loans or borrowings or debentures or deposits exceeding
Rs.50 crores
 The paid up share capital, turnover, outstanding loans,
borrowings, or deposits or debentures shall be taken into
account as existing on the date of the last financial
statements.

20.  Notification dated 12.06.2014 has been issued by the
Government of India amending the Companies (Meetings
and Powers of the Board) Rules, 2014.
 The second proviso provides that public companies covered
under this Rule shall constitute their nomination and
remuneration committee within one year from the
commencement of these Rules or appointment of
independent directors by them whichever is earlier.

21.  Nomination & Remuneration Committee shall consist of three or more
non-executive directors out of which not less than one-half shall be
independent directors.
 The Nomination Committee shall identify persons who are qualified to
become directors, who may be appointed in senior management;
appointment, removal and evaluation of every director’s performance.
 Where there are more than 1000 shareholders or debenture holders or
deposit holders or any other security holders at any time during a
financial year, the Company has to constitute Stakeholders Relationship
Committee.
 The Stakeholders Relationship Committee shall consist of a chairperson
who shall be a non-executive director and such other members as may be
decided by the Board.
 This Committee shall consider and resolve the grievances of the security
holders of the Company.

22. • Every company having
- net worth of Rs.500 crores or more; or
- turnover of Rs.1000 crore or more; or
- a net profit of Rs.5 crores or more;
- during any financial year shall constitute a
• Corporate Social Responsibility (CSR) Committee of the
Board consisting of 3 or more directors, out of which at
least one director shall be an independent director.

23. • Every public company must have a minimum of 3
directors and a maximum of 15 directors.
• Company may appoint more than fifteen directors
after passing a special resolution.
• Subscribers to the memorandum would be the first
directors if there is no provision in the Articles for
appointment of first director.
• Where a company fails to file financial statements /
returns or fails to repay any deposit, etc. as set out in
Sec.164(2), Company has to file Form-DIR-9 giving
the names and addresses of all the Directors of the
Company during the relevant financial year.

24.  Sec.149(3) provides that every company shall have atleast
one director who has stayed in India for not less than 182
days in the previous calendar year.
 Financial year is the basis in the new law but for this
provision the reference is to calendar year.
 If a foreign citizen meets the requirement of Sec.149(3),
he may become a resident for the purpose of Sec.6 of the
Income Tax Act which refers to 182 days or more in a
previous year.
 If a person stays in India between January to July, Sec.149(3)
is met and for the purpose of IT he has stayed only for 90
days in one previous year and 122 days in the succeeding
financial year.

25.  Sec.149 has come into force from 01.04.2014.
 Sec. 149(5) provides that the requirements of
Sec.149(3) can be complied within 1 year in
respect of existing companies.
 Compliance before 31.03.2015
 Company law / Tax / Travel Planning

26.  No person can be a director unless he has been allotted a DIN under
Section 154.
 Every individual has to make an application electronically in Form-DIR-3
for allotment of DIN.
 A person who has been appointed to hold the office is required to furnish
a consent in writing in Form-DIR-2 before the appointment.
 Company has to file the consent with the Registrar in Form-DIR-12 along
with prescribed fees within 30 days of appointment.
 Contravention in appointment; obtaining more than one DIN and
failure to intimate DIN to Companies where a person is a director is
punishable with imprisonment upto 6 months or fine upto Rs.50,000/.
 Sec.158 provides that DIN has to be mentioned in returns,
information or particulars where they relate to the directors or refer
to the director.

27.  Sec. 161 provides that the Board authorized by its
Articles or by a resolution can appoint a person to act
as an alternate director for a director during his
absence for a period of not less than 3 months from
India.
 Person appointed as an alternate director should not
be holding any alternate directorship for any other
director in the company.
 Section 313 of the 1956 Act refers to absence from the
State in which meetings of the Board are ordinarily
held

28.  Articles can confer power on the Board to appoint any
person as an additional director who shall hold office upto
the next AGM or the last date by which it should have been
held, whichever is earlier.
 Bombay High Court decision in Krishnaprasad Pillani, given
effect in the statute itself.
 A person who fails to get appointed as a director in a general
meeting cannot be appointed as an additional director –
Sec.161(1).

29.  Alternate director will vacate office when the
original director returns to India.
 Period of not less than 3 months – Continuous
period.
 Alternate director must have the
qualifications of an independent director in
case he is an alternate director for an
independent director.
 Whether decision in Ross Porter still valid?

30.  Sec. 274 of the 1956 Act provided for certain disqualifications,
which have been retained.
 There are two more disqualifications through Sec. 164 of the 2013
Act namely:
(i) He has been convicted of the offence dealing with related party
transaction under Section 188 at any time during the last
preceding 5 years.
(ii) He has not obtained DIN under Section 152(3).
 A person who is convicted of any offence and sentenced in respect
thereof to imprisonment for a period of seven years or more shall
not be eligible to be appointed as director in any company.
 The disqualification in Sec.274(1)(g) of the 1956 Act has been
retained but under the new law it is immaterial whether the
defaulting company is a public company or not.

31.  A private company can provide for additional disqualifications
through its Articles.
 Can a Public Company provide for additional disqualifications?
 Director has to inform about his disqualification in Form-DIR-8
before he is appointed or re-appointed.
 Where a company fails to file financial statements / returns or
fails to repay any deposit, etc. as set out in Sec.164(2),
Company has to file Form-DIR-9 giving the names and
addresses of all the Directors of the Company during the
relevant financial year.
 If DIR-9 is not filed within 30 days of the failure, officers of
the Company shall be officers in default.

32.  Not more than 20 companies at the same time including any
alternate directorship.
 Maximum number of public companies in which a person
can be appointed as a director shall not exceed 10.
 Old Sec.278 which provided for exclusion of certain
directorships for calculation of limits omitted in the new law.
 Members may by special resolution specify any lesser
number of companies in which a director of a company may
act as directors. No such provision in the 1956 Act.
 Can members judge, decide, restrict the right and liberty
of a director?
 Misuse of Sec.165(2)?

33.  In the 1956 Act there was no express provision with
reference to duties of directors.
 Director has to act in accordance with the Articles.
 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 the environment.
 Exercise duties with due and reasonable care, skill and
diligence and exercise independent judgment.

34.  Should 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.
 Should not achieve or attempt to achieve any undue gain or
advantage to himself / relatives / partners / associates.
 Provisions are similar to Sec. 171 to Sec. 177 of the Companies
Act, 2006 – UK.
 Reasonable care Vs. Error of judgment
 Directors are not bound to examine the entries in the
Company’s books of accounts – Central Calcutta Bank (1959)
29 CC 437
 A Director need not supervise the work of co-directors –
Huckerby Vs. Eliott

35.  Similar to Sec.283 of the 1956 Act. (unsound mind, insolvent, Court
order, etc.)
 Office shall become vacant if a Director absents himself from all the
meetings of the Board of Directors during the period of 12 months with
or without seeking leave of absence of the Board.
 Old law provided for 3 consecutive meetings or from all meetings for a
continuous period of 3 months whichever is longer without leave of
absence.
 No concept of leave of absence in the new law but liberal provisions.
 Share qualification not required.
 Where a director is convicted of an offence whether involving moral
turpitude or otherwise and sentenced to imprisonment for not less than
6 months, office would be vacated even if he has filed an appeal against
the order of the Court.

36.  Notice in writing to the Company
 Resignation takes effect from the date on which the Notice is
received by the Company or the date if any specified in the
Notice whichever is later.
 Company has to intimate Registrar in Form-DIR-12 within 30
days of the receipt of notice of resignation.
 Director has to forward a copy of his resignation along with
reasons in Form-DIR-11 along with fees within 30 days from
the date of resignation.
 If all Directors resigned or vacate their office under Sec.167,
the promoter or in his absence the Central Government shall
appoint the required number of Directors.

37. Company Number Provision
Listed Public Company Atleast one third of the
total number of directors
Sec. 149(4)
Public Companies having
paid up share capital of
Rs.10 crores or more
Atleast two directors must
be independent directors
Rule 4(i) of the Companies
(Appointment and
Qualification of Directors)
Rules, 2014.
Public Companies having
turnover of Rs.100 crores
or more
Atleast two directors must
be independent directors
Rule 4(ii)
Public Companies which
have in an aggregate
outstanding loans,
debentures and deposits
exceeding Rs.50 crores.
Atleast two directors must
be independent directors
Rule 4(iii)

38.  Paid up share capital or turnover or
outstanding loans or debentures or deposits
as existing on the last date of the latest
audited financial statements shall be taken
into account.
 Sec. 149 has been notified from 01.04.2014.
 Limits as per audited financial statements for
the year ending 31.03.2014 or 31.03.2015?

39.  Higher number of independent directors may
be appointed depending on the composition
of the audit committee.
 Any casual vacancy of independent directors
must be filled-up by the Board at the earliest,
(not later than immediate next Board
meeting or 3 months from the date of such
vacancy, whichever is later).

40.  Should be a person of integrity and possess relevant
experience and expertise in the opinion of the
Board.
 Should possess such qualifications as may be
prescribed.
 Rule 5 provides that 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.

41.  A person who is / was a promoter of the Company / Holding / Subsidiary /
Associate (CHSA)
 A person who is related to the promoters or directors of the CHSA.
 A person who has / had pecuniary relationship with the CHSA or their promoters
or directors during the two immediately preceding financial years or during the
current financial year – Sec.149(6)(c) – General Circular No.14.
 A person whose relatives has / had pecuniary relationship or transaction with
CHSA or their promoters or directors amounting to 2% of the gross turnover or
total income or Rs.50 lakhs or such higher amount as may be prescribed,
whichever is lower during the two immediately preceding financial years or
during the current financial year – Sec.149(6)(d)
 A person as well as his relative holds or has held the position of key managerial
personnel or is or has been an employee of CHSA in any of the preceding three
financial years

42.  A person or relative is or has been an employee /
proprietor / partner in a firm of auditors / company
secretaries in practice / cost auditor of CHSA in the
immediately preceding 3 financial years.
 A person or relative is or has been an employee /
proprietor / partner in any legal or consulting firm
in the immediately preceding 3 financial years, that
has or has had any transaction with CHSA
amounting to 10% or more of the gross turnover
of such firm.

43. Sec. 2(77) defines a ‘relative’ covering
the following persons:-
 Members of HUF;
 Husband and wife;
 Such other persons as prescribed.

44.  Rule 4 of the Companies (Specification of
definitions Details) Rules, 2014 specifies the
following persons:-
 Father including step father
 Mother including step mother
 Son including step son
 Son’s wife
 Daughter
 Daughter’s husband
 Brother including step brother
 Sister including step sister

45.  Schedule IV of the Companies Act introduced
from 01.04.2013 provides for a code for
‘Independent Directors’.
 It is divided into guidelines of professional
conduct; role and functions; duties; manner
of appointment; re-appointment; resignation
and removal; separate meetings and
evaluation mechanism

46.  Independent director shall help in bringing an independent judgment
to bear on the Board’s deliberations on issues of strategy,
performance, risk management, resources, key appointments and
standards of contacts.
 Scrutinize the performance of the management in meeting agreed
goals and objectives and monitor the reporting of performance.
 Satisfy themselves on the integrity of the financial information and
that financial control and the systems of risk management are robust
and defensible.
 Safeguard the interest of all stakeholders particularly minority
shareholders.
 Balance the conflicting interest of the stakeholders.
 Moderate and arbitrate in situations of conflict between
management and shareholders interest. … …

47.  Independent Directors are to be inducted into companies
through selection by the Board from a database where
several eligible candidates are listed. Examples of such
databases are indianboards.com, iodonline.com and icsi.edu
 Authorized bodies are required to maintain a data bank of
persons willing and eligible to be appointed as independent
directors.
 Company must carry out its own due diligence before
appointment.
 A person who wants to get his name included in the data
bank should make an application in Form-DIR-1.
 Whether an independent director can be truly independent?

48.  Sec. 149(12) provides that an independent director or a non-executive
director who is not a promoter / key managerial personnel shall be held
liable only in respect of acts of omission or commission by a Company
which had occurred with his knowledge, attributable through Board
process and with his consent or connivance or where he had not acted
diligently.
 Sec. 448 deals with punishment for a false statement. If in any return,
report, certificate, financial statement, prospectus, statement or other
documents required under the Act or Rules, any person makes a
statement which is false in any material particulars knowing it to be
false or omits any material fact knowing it to be material it shall be
treated as fraud under Sec.447.
 Sec. 439 provides that not withstanding anything in CrPC, every offence
except the offence set out in Sec. 212(6) shall be deemed to be non-
cognizable.
 Sec. 212(6) refers to Sec. 448 and provides that bail would be granted
only after hearing the public prosecutor.

49. Companies Act, 2013 Indian Penal Code, 1860 UK Companies Act,
2006
Fraud in relation to affairs of the
Company or any body corporate
includes any act, omission,
concealment of any fact or
abuse of any position committed
by any person or any other
person with the connivance in
any manner, with intent to
deceive, to gain undue
advantage from or injure the
interest of the Company or its
shareholders or its creditors or
any other person whether or
not there is any wrongful gain
or wrongful loss – Explanation
(i) to Section 447.
A person is said to do a
thing fraudulently if he
does that thing with
intent to defraud but not
otherwise – Sec. 25 of the
Indian Penal Code.
The Supreme Court in the
case of Dr.Vimala Vs.
Delhi Administration (AIR
1963 SC 1572) has held
that ‘defraud’ involves two
elements, deceit and injury
to the person deceived
A director is liable
only if—
(a) he knew the
statement to be
untrue or misleading
or was reckless as to
whether it was
untrue or
misleading, or
(b) he knew the
omission to be
dishonest
concealment of a
material fact. – Sec.
463

50.  Board can exercise all such powers and do all such acts and
things as the company is authorised to do subject to the Act /
MoA and Articles.
 Where any act or thing can be done by the Company only in
a General Meeting as per the legislation or Memorandum
and Articles then the Board shall not exercise such power.
 A regulation made by the Company in a general meeting
cannot invalidate any prior act of the Board which would
have been valid if that regulation had not been made.

51.  The following powers shall be exercised by the Board of Directors by
means of resolution passed at a meeting of the board:
 make calls on shareholders in respect of money unpaid on their
shares
 authorise buy-back of securities under section 68
 issue securities, including debentures, whether in India or outside
 borrow monies
 invest the funds of the company
 grant loans or give guarantee or provide security in respect of loans
 approve financial statement and the director’s report
 diversify the business of the company
 approve amalgamation, merger or reconstruction
 take over a company or acquire a controlling or substantial stake in
another company
 Any other matter which may be prescribed

52.  In addition to Section 179, the following powers of the Board shall be exercised
only by way of resolution passed at the meetings of the Board:
 to make political contributions;
 Appoint or remove key managerial personnel;
 Take note of appointments or remove of one level below the KMP;
 Appoint internal auditors and secretarial auditor;
 to take note of the disclosure of director’s interest and shareholding;
 to buy, sell investments held by the company (other than trade investments),
constituting five percent or more of the paid – up share capital and free reserves
of the investee company
 to invite or accept or renew public deposits and related matters;
 To review or change the terms and conditions of public deposits;
 to approve quarterly, half yearly and annual financial statements or financial
statements as the case may be.

53.  The Board through a resolution can delegate to any
committee of directors / managing director /
manager or any other principal officer the powers
pertaining to borrowing, investment, grant of loans
or guarantee.

54. Section 293 of the 1956 Act Section 180 of the 2013 Act
Only public companies All companies
Ordinary resolution Special resolution
No definitions Definition of ‘undertaking’;
‘substantially the whole of
undertaking’;
Compensation in the context
of compulsory acquisition
Compensation in the context
of merger or amalgamation.

55.  Every Special Resolution passed by the company in general meeting
to borrow money shall specify the total amount up to which monies
may be borrowed by the Board.
 Special resolution to sell, lease or otherwise dispose off the whole or
substantially the whole of the undertaking may stipulate the conditions
including terms - use, disposal or investment of the sale proceeds.
 Title of the buyer/ other person who buys/leases any property/
investment/undertaking in good faith or the sale/ lease of the property in
the ordinary course shall not be affected.
 Debt incurred by the company in excess of the limits imposed by the
members shall not be valid unless it is proved by the lender that he has
advanced loan in good faith and has no knowledge that the limit has
been exceeded????

56.  Consent of the Board required for a company to enter into any contract
or arrangement with a related party with respect to the following
transactions:
 Sale, purchase or supply of any goods or materials.
 Selling or otherwise disposing of or buying, property of any kind.
 Leasing of property of any kind.
 Availing or rendering of any services.
 Appointment of any agent for purchase or sale of goods, materials,
services or property.
 Appointment to any office or place of profit in the company or its
subsidiary or associate company
 Underwriting the subscription of any securities or derivatives thereof, of
the Company.

57.  No contract or arrangement, in the case of a company having a paid-up
share capital of not less than such amount, or transactions not exceeding
such sums, as may be prescribed, shall be entered into except with the
prior approval of the company by a special resolution.
 No member of the company shall vote on such special resolution, to
approve any contract or arrangement which may be entered into by
the company, if such member is a related party.

58.  For the purposes of the first proviso to Section 188(1) prior approval by special
resolution is required in terms of Rule 15 of the Companies (Meetings of Board
and its Powers) Rules, 2014 for
(i) A company having a paid up share capital of Rs.10 crores or more;
(ii) Sale / purchase / supply of goods or materials directly or through
appointments of agents exceeding 25% of the annual turnover.
(iii) Selling or otherwise disposing of or buying property of any kind directly or
through appointment of agents exceeding 10% of its net worth.
(iv) Leasing of property of any kind exceeding 10% of the net worth or exceeding
10% of the turnover.
(v) Availing or rendering any services directly or through appointment of
agents exceeding 10% of the net worth.
(vi) Appointment to any office or place of profit in the Company or subsidiary or
associate company at a monthly remuneration exceeding Rs.2,50,000/-.
(vii) Remuneration for underwriting of subscription of any securities or derivatives
thereof in the Company exceeding 1% of the net worth.

59.  Prior approval of shareholders by Special Resolution
must be obtained where the paid up capital of the
company is not less than such amount/ transactions
not exceeding such sums.
 A member who is a related party shall not vote on
special resolution to approve the related party
contract.

60.  Nothing in Section 188 shall apply to any transaction
entered into by the Company in its ordinary course of
business other than transactions which are not on arms
length basis.
 Arms length transaction means a transaction between
two related parties that is conducted as if they are
unrelated so that there is no conflict of interest.

61. K.VAITHEESWARAN
ADVOCATE &TAX CONSULTANT
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