SUPPLEMENT

EXECUTIVE PROGRAMME
(NEW SYLLABUS)

For
June, 2023 Examination
(Supplement covers amendments/developments from August 2021
to November 2022)

COMPANY LAW
MODULE 1

PAPER 2

Disclaimer: This document has been prepared purely for academic

purposes only and it does not necessarily reflect the views of ICSI. Any
person wishing to act on the basis of this document should do so only
after cross checking with the original source.
 Index

S.No. Name of Lesson Page No.

1. Lesson 1- Introduction to Company Law 2 – 12
2. Lesson 2- Share and Share Capital 13-14
3. Lesson 3- Members and Shareholders 15-15
4. Lesson 4 – Debt Capital and Deposits 16-16
5. Lesson 5- Charges 17-17
6. Lesson 6- Distribution of Profits – Dividend 18-21
7. Lesson 7- Corporate Social Responsibility 22-28
8. Lesson 8- Accounts, Audit and Auditors 29-33
9. Lesson 9 - Transparency and Disclosures 34-34
10. Lesson 10 - An overview of Inter-Corporate Loans Investments, 35-39
Guarantees and Security Related Party Transactions
11. Lesson 12 - An overview of Corporate Reorganisation 40-43
12. Lesson 13- An Introduction to MCA- 21 and filing in XBRL 44-46
13. Lesson 16 – Directors 47-53
14. Lesson 19 – General Meetings 54-54
15. Lesson 20- Virtual Meetings 55-56
16. Miscellaneous 57-63

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 Lesson 1- Introduction to Company Law

1) Important Committees recommending changes to the Companies Act

1952 The Government of India appointed a Committee of twelve members

Bhabha representing various interests under the chairmanship of Shri C.H. Bhabha, to go
into the entire question of the revision of the Companies Act, 1913
Committee

The Government of India appointed a Committee of six members under the

1957 chairmanship of Shri A.V. Visvanatha Sastri to overcome such practical difficulties
in its working as may have been encountered since it came into force, to remove
Sastri such drafting defects and obscurities as may have interfered with the working of
Committee the Companies Act, to ensure the better fulfilment of the purposes underlying the
Act and to consider what changes in the form or structure of the Act, if any.

This Committee was constituted by Government under the Chairmanship of

1978 Shri Rajindar Sachar to consider and report on what changes are necessary in
Sachar the Companies Act, 1956, with particular reference to the modifications which
are required to be made in the form and structure of the Companies Act, 1956,
Committee so, as to simplify them and to make them more effective, wherever necessary.

1997 Chandrate Committee was formed under the chairmanship of

Dr.K.R.Chandratre.The main objective of the Group was to re-write the
Chandrate Companies Act,1956 to facilitate a healthy growth of the Indian corporate sector
Committe under a liberalised, fast changing and highly competitive environment
e

Vaish Committeer Chairmanship of Shri Justice V. Balakrishna Eradi has

2000 constituted a Committee consisting of experts to examine the existing law
Eradi relating to winding up proceedings of companies in order to remodel it in line
with the latest developments and innovations in the corporate law and
Commitee governance.

2002 The Committee was constituted under the Chairmanship of Shri R.D. Joshi to
Joshi Committee examine the remanants of the companies Bill, 1997.

2003 Naresh
Chandra This Committee was constituted by Government under the Chairmanship of
Shri. Naresh Chandra, to Regulate Private Companies and Partnerships.
Committee

The Irani Committee was constituted under the chairmanship of Dr. J J Irani,
2005 Director, Tata Sons, with the task of advising the Government on the proposed
Irani Committee revisions to the Companies Act, 1956.

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 2005
The Government of India appointed a Committee under the Chaimanship
Vaish of O.P. Vaish to streamline the prosecution mechanism under the
Companies Act, 1956 to make it more effective.
Committee

The government of India has constituted a Company Law Committee for examining
Company and making recommendations to the Government on various provisions and issues
Law pertaining to implementation of the Companies Act, 2013 and the Limited Liability
Partnership Act, 2008.
Committee

2) Origin of Company Law

The Bubble Act of 1720
The concept of corporate form was brought in for the first time in United Kingdom wherein the
body corporate could be brought into existence either by a Royal Charter or by a Special Act of
Parliament. Both these methods were very expensive and dilatory. Consequently, to meet the
growing commercial needs of the nation, large unincorporated partnerships came into existence,
trading, however, in corporate form. The memberships of each such concern being very large, the
management of business was left to a few trustees resulting into separation of ownership from
management. Rules of law were not being developed by that time which gave a chance to fraudulent
promoters to exploit the public money. As a result, many spurious companies were created which
were formed only to disappear resulting in loss to the investing public.
The English parliament, therefore, passed an Act known as the Bubbles Act of 1720, which, instead
of prohibiting the formation of fraudulent companies, made the very business of companies illegal.
Bubble Act is an English statute passed on 9, June 1720 to prevent corporate fraud. It forbade all
joint-stock companies not authorized by royal charter. One of the reasons for the act was to prevent
other companies from competing with the South Sea Company for investors’ capital. The Act was
repealed in 1825.

3) How to read and understand a Section?

The Companies Act, 2013 is to be read with relevant Rules, Schedules under Companies Act,
Circulars/ Clarifications issued by Ministry of Corporate Affairs.
For example Section 135 (Relating to Corporate Social Responsibility) is to be read with the
Companies (Corporate Social Responsibility Policy) Rules 2014, Schedule VII (Activities relating
to Corporate Social Responsibility) and circulars/clarifications issued by Ministry of Corporate
Affairs on Section 135 & Rules made thereunder.
Reading provisions of Companies Act, 2013 with delegated legislations
For example when you read sections relating to issue of capital you should read the sections with
Companies (Share Capital and Debentures) Rules, Companies (Prospectus and Allotment of
Securities) Rules. Besides, other legislative aspects including the provisions of SEBI Act, SEBI
(ICDR) Regulations, SEBI (LODR) Regulations, provisions of Depositories Act for
dematerialization provisions and even the provisions of FEMA when the shares are issued to non-
residents, wherever applicable, are required to be read in collusion.
Breaking sections into parts and preparing notes for each section
Company law is so wide that it cannot be easily remembered after only one reading. Students may
make notes for each topic about sections, the genesis, amendments notified, reasons for
amendments along with delegated legislation. They may also make notes on exemptions provided,

3
exceptions and the reasons behind such exemptions/ exceptions. This will help in understanding
the background of the provisions, the spirit of law and would help in remembering the provisions
also. The exemptions provided for certain class of companies under Section 462 of Companies Act
are provided in the e-book at MCA portal under respective sections.
Students may break the sections at relevant places and giving emphasis on critical words and read
for getting more clarity.
For examples Section 2(6) deals with the Definition of “Associate Company” which may be read
with the following breaks.
“associate company”, in relation to another company… .......... /,
means a company in which that other company has a significant influence ............ /,
but which is not a subsidiary company of the company having such influence and ............ /.
includes a joint venture company. Explanation.—
For the purpose of this clause,—
(a) the expression “significant influence” means control of at least twenty percent of total voting
power, or control of or participation in business decisions under an agreement;
(b) the expression “joint venture” means a joint arrangement whereby the parties that have joint
control of the arrangement have rights to the net assets of the arrangement;
Thus the definition can be read by breaking at the places as indicated above, by understanding the
terms ‘joint venture company’, ‘significant influence’ and the definition of subsidiary as mentioned
in section 2(87).

Interpretations of some standard words and Phrases used in Statutes

“Proviso”- A clause, as in a document or statute, that begins with the words “Provided that” is called
‘proviso’. The term ‘proviso’ is defined as a clause making some condition or stipulation; a clause in a
statute, deed, or other legal document introducing a qualification or condition to some other provision,
frequently the one immediately preceding the proviso itself.

It is well settled that “the effect of an excepting or qualifying proviso, according to the ordinary rules
of construction, is to except out of the preceding portion of the enactment, or to qualify something
enacted therein, which but for the proviso would be within it.”

also must be complied with.

“Notwithstanding anything contained”

Notwithstanding means, in spite of; without being opposed or prevented by; nevertheless; although,
regardless of. A provision in a statute beginning with the words ‘Notwithstanding anything contained’
is called a ‘non-obstante’ provision and is generally used in a statute to give an overriding effect to a
particular section or the statute as a whole. A non-obstante clause is used in a statutory drafting to
create an exception to or override the provision which this phrase follows.

“Subject to”- The ordinary meaning of the phrase ‘subject to’ is being dependent upon; conditional
upon; subordinate to; subservient to something else to happen or to be true; that on the condition of the
provisions of the specified section being observed or complied with. It is used to express the intention
that when while complying with one statutory provision, another provision relating to the subject matter
also must be complied with.

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 “Nothing contained in this section” shall apply

The phrase “Nothing in this section shall apply” or “Nothing contained in this section shall apply”,
isfrequently used in legislative drafting. Literally, it means anything contained in the preceding part of
the section would not apply in the situation stated in the provision that begins with this phrase.

“Without prejudice to the provisions contained in this Act/any other Act”

The phrase ‘without prejudice’ means without dismissing, damaging, or otherwise affecting; without
detriment; harm. So when one provision says ‘without prejudice to any other provision’, it means that
no other provision is affected by that provision or that other provisions remain unaffected. This is a
qualifying phrase used in statutory drafting in a provision to protect the operation of another provision
which it refers to. In other words, both the provisions operate independently.

“That is to say”

This phrase explains or clarifies the preceding word, phrase or expression.

“For the purposes of this section/provision/definition”

It has limited applicability; it applesto only the relevantsection / provision/ definition but appliesto the
whole of it.

“As the case may be”- The phrase is used when in a provision two or more things are covered and the
provision is applicable to both or all of them.

“Shall”-When used in a statute, the presumption is that its use is mandatory and not merely directory.

“May” is either permissive or directory

4) Reforms brought under the Companies Act, 2013 for Ease of Doing Business
The enactment of the Companies Act, 2013 allowed India to have a modern legislation for growth
and regulation of corporate sector in India. The Act was enacted in light of the changing economic
and business environment both domestically and globally to facilitate business-friendly corporate
regulations, improve corporate governance norms, enhances accountability on the part of
corporates and auditors, raise levels of transparency and protect interests of investors, particularly
small investors. The objective of the Companies Act, 2013 is to provide business friendly corporate
regulation/ pro-business initiatives; e-Governance Initiatives; good corporate governance and CSR;
enhanced disclosure norms; enhanced accountability of management; stricter enforcement of laws;
audit accountability; Protection for minority shareholders; Investor protection and Shareholder
activism; Robust framework for insolvency regulation; and Institutional structure. Initially, it
seems that changes in the Companies Act, 2013 will brought out the significant changes in the
manner of doing business in India. It becomes true, when the initial unrest of business community
was taken to the Government and to address the practical difficulties faced by the business
community upon notification of the various provisions of the Act and Rules made thereunder and
the term “Ease of Doing Business” was popularised in India. On Ease of Doing Business front, the
Government of India has enacted the series of amendments, relaxation, exemptions and
simplification in the various Acts, Rules, Regulations etc. covering various business related issues
and processes and also extends support to facilitate ease of doing business. In the series the

5
Companies Act, 2013 has also been amended to extend relief to the business entities governed
under the Companies Act, 2013. The object and rationale for such amendments are discussed
below:
The Companies (Amendment) Act, 2015
The Companies (Amendment) Act, 2015 addressed the initial practical difficulties experienced
from implementation of the provisions of the Act and difficulties faced by the companies /
stakeholders / Professionals in complying with some of the provisions of the Companies Act, 2013.
The Companies (Amendment) Act, 2015 was enacted after it received the President’s assent on
25th May 2015.

Company Law Committee and the Companies (Amendment) Act, 2017

During the consideration of the Companies (Amendment) Act, 2015 in the Rajya Sabha, views
were expressed that more amendments would be required; accordingly, the Government has
constituted a Companies Law Committee on 4th June, 2015. The terms of references of the
Committee are:
(i) to make recommendations to the Government on issues arising from the implementation of the
Companies Act, 2013; and
(ii) to examine the recommendations received from the Bankruptcy Law Reforms Committee, the
High Level Committee on CSR, the Law Commission and other agencies, while undertaking (i)
above. The report of the CLC was submitted to the Government on the 1st February, 2016 and the
Companies (Amendment) Bill, 2016 introduced in Lok Sabha on 16 March, 2016 is based on the
recommendations of the Companies Law Committee after taking into account the comments
received on the report. The amendments proposed, inter-alia, include changes in definitions to
remove ambiguities; allowing greater flexibility in incorporating and running a company by
simplifying Memorandum of Association and doing away with Central Government approvals,
etc.; easing raising of capital, procedures; rationalizing penal provisions related to auditors,
reconciling the competing objectives of improving corporate governance, incentivising individuals
to take up positions of responsibility in boards and reducing compliance cost. The report have also
recommended some changes to remove ambiguities in the CSR provisions based on the
recommendations of the High Level Committee on CSR.
The Companies (Amendment) Bill 2016, was referred to the Standing Committee on Finance on
12th April 2016 for examination and report thereon. The Standing Committee on Finance
Committee submitted it’s report on 07, December, 2016, which was further placed before the Lok
Sabha on 27th July, 2017 and Passed in Rajya Sabha on 19th December, 2017.

The Companies (Amendment) Act, 2017

The subsequent amendments in Companies Act, 2013 was made through the Companies
(Amendment) Act, 2017 which was expected to ensure better corporate governance and improve
the ease of doing business by simplify procedures, making compliance easier and taking stringent
action against defaulting companies, strengthen corporate governance standards, achieve better
harmonization with other statutes and address difficulties in implementation of the Companies Act,
2013.

Committee on review of Offences under the Companies Act, 2013 & the Companies
(Ordinance), 2018
In order to review the framework dealing with offences under the Companies Act, 2013 and related
matters and to make recommendations to promote better corporate compliance, the Government of

6
India has constituted a Committee on review of Offences under Companies Act, 2013 in July, 2018
and the said Committee, submitted its report in August, 2018.
The Committee recommended that the existing rigour of the law should continue for serious
offences, whereas the lapses that are essentially technical or procedural in nature may be shifted to
in-house adjudication process. The Committee observed that this would serve the twin purposes of
promoting of ease of doing business and better corporate compliance. It would also reduce the
number of prosecutions filed in the Special Courts which would in turn facilitate speedier disposal
of serious offences and the offenders shall be penalised.
The liability under section 447 which deals with corporate fraud would continue to apply wherever
fraud is noticed. The Committee also recommend suitable amendments for significant reduction in
compounding cases before the Tribunal, declaration of commencement of business, maintenance
of a registered office, protection of depositors registration and management of charge declaration
of significant beneficial ownership and independence of independent director.
After the submission of the Report, the immediate relief were expected by the Corporate and Stake
holders, However, at that time the parliament was not in session, to provides the immediate relief,
the Ordinance in need to be issued by the Government of India, accordingly the Companies
(Amendment) Ordinance, 2018 was promulgated by the President on the 2nd day of November,
2018.
In order to give continued effect to the Companies (Amendment) Ordinance, 2018, the President
promulgated the Companies (Amendment) Ordinance, 2019 and the Companies (Amendment)
Second Ordinance, 2019 on the 12th day of January, 2019 and the 21st day of February, 2019
respectively. With the constitution of new assembly, The Companies (Amendment) Bill, 2019 was
introduced in Lok Sabha on July 25, 2019, to replace the Companies (Amendment) Second
Ordinance, 2019 with certain other amendments which are considered necessary to ensure more
accountability and better enforcement to strengthen the corporate governance norms and
compliance management in corporate sector. The Companies (Amendment) Bill, 2019 passed in
Lok Sabha on 26th July, 2019 and on 30th July, 2019 in the Rajya Sabha.

The Companies (Amendment) Act, 2019

The Companies (Amendment) Act, 2019 received the President assent on 31st July, 2019 and
replaced the Companies (Amendment) Second Ordinance, 2019. It provided certain additional
amendments, inter-alia, for the Ease of Doing Business, including:
i. Amendment in clause (41) of section 2 of the Companies Act, 2013 so as to empower the Central
Government to allow certain companies to have a different financial year instead of as determined
by the Tribunal;
ii. Amendment in sixteen sections of the Act so as to modify the punishment as provided in the
said sections from fine to monetary penalties to lessen the burden upon the Special Courts;
iii. Amendment in section 135 of the Act so as to bring clarity to –
(a) carry forward the unspent corporate social responsibility amount, to a special account to be
spent within three financial years and transfer thereafter to the Fund specified in Schedule VII, in
case of an ongoing project; and
(b) transfer the unspent amount to the Fund specified under Schedule VII, in other cases;
iv. Amendment in section 441 of the Act so as to enhance the jurisdiction of the Regional Director
for compounding the offences.
The Companies (Amendment) Act, 2020
In view of constant effort of Government of India to facilitate ease of doing business in India to the
corporates, a Company Law Committee (CLC) consisting of representatives from Ministry of
7
 Corporate Affairs, industry chambers, professional institutes and legal fraternity was constituted
on the September 18, 2019 headed by Mr. Injeti Srinivas (Secretary of MCA), to give
recommendations to decriminalize some more provisions of the Companies Act, 2013 and facilitate
ease of living related changes.
Company Law Committee submitted its report on November 14, 2019. On the basis of this report,
the Finance Ministry has proposed some major amendments in the Companies Act, 2013 under the
Companies Amendment Bill, 2020 which was introduced in Lok Sabha on March 17, 2020. Later
it was passed by the Lok Sabha on September 19, 2020 and by the Rajya Sabha on September 22,
2020. Finally on September 28, 2020, the Companies (Amendment) Act, 2020 received the assent
of Hon’ble President of India.
Based on the recommendations of the CLC and internal review by the Government, the government
has amended various provisions of the Act to decriminalise minor procedural or technical lapses
under the provisions of the said Act, into civil wrong; and considering the overall pendency of the
courts, a principle based approach was adopted to further remove criminality in case of defaults,
which can be determined objectively and which otherwise lack any element of fraud or do not
involve larger public interest. In addition, the Government also proposes to provide greater ease of
living to corporates through certain other amendments to the Companies Act, 2013.

5) Agencies under MCA-21

The Ministry of Corporate Affairs (MCA) is primarily concerned with administration of the
Companies Act 2013, the Limited Liability Partnership Act, 2008 & other allied Acts and rules &
regulations framed there-under mainly for regulating the functioning of the corporate sector in
accordance with law.
Besides, it exercises supervision over the three professional bodies, namely, Institute of Chartered
Accountants of India (ICAI), Institute of Company Secretaries of India (ICSI) and the Institute of
Cost Accountants of India which are constituted under three separate Acts of the Parliament for
proper and orderly growth of the professions concerned.
The Ministry also has the responsibility of carrying out the functions of the Central Government
relating to administration of Partnership Act, 1932, the Companies (Donations to National Funds)
Act, 1951 and Societies Registration Act, 1980 etc.

Registrar of Companies (ROC) as defined under Section 2 (75) of the Companies Act, 2013
means a Registrar, an Additional Registrar, a Joint Registrar, a Deputy Registrar or an Assistant
Registrar, having the duty of registering companies and discharging various functions under this
Act.
Registrars of Companies (ROC) appointed in the various States and Union Territories are vested
with the primary duty of registering companies and LLPs floated in the respective states and the
Union Territories and ensuring that such companies and LLPs comply with statutory requirements
under the Act. These offices function as registry of records, relating to the companies registered
with them, which are available for inspection by members of public on payment of the prescribed
fee. The Central Government exercises administrative control over these offices through the
respective Regional Directors.
Regional Director (RD) is in-charge of the respective region, each region comprising a number of
States and Union Territories. They supervise the working of the offices of the Registrars of
Companies and the Official Liquidators working in their regions. They also maintain liaison with
the respective State Governments and the Central Government in matters relating to the
administration of the Companies Act and LLP Act. Certain powers of the Central Government
under the Act have been delegated to the Regional Directors. They have also been declared as heads
8
 of Department.
Official Liquidators (OL) means an Official Liquidator appointed under sub-section (1) of section
359 of the Companies Act, 2013.
As per Section 359 (1) of the Companies Act, 2013, for the purposes of this Act, so far as it relates
to the winding up of companies by the Tribunal, the Central Government may appoint as many
Official Liquidators, Joint, Deputy or Assistant Official Liquidators as it may consider necessary
to discharge the functions of the Official Liquidator.
The liquidators appointed shall be whole-time officers of the Central Government. The salary and
other allowances of the Official Liquidator, Joint Official Liquidator, Deputy Official Liquidator
and Assistant Official Liquidator shall be paid by the Central Government.
Serious Fraud Investigation Office (SFIO)- The Government in the backdrop of major failure of
non-banking financial institutions, phenomenon of vanishing companies, plantation companies and
the recent stock market scam had decided to set up Serious Fraud Investigation Office (SFIO), a
multi-disciplinary organization to investigate corporate frauds. The Organization has been
established and it has started functioning since 1st October, 2003.
The SFIO is expected to be a multi-disciplinary organisation consisting of experts in the field of
accountancy, forensic auditing, law, information technology, investigation, company law, capital
market and taxation for detecting and prosecuting or recommending for prosecution white collar
crimes/frauds.
The National Financial Reporting Authority (NFRA) was constituted on 01st October, 2018 by
the Government of India under Sub Section (1) of section 132 of the Companies Act, 2013.
As per Sub Section (2) of Section 132 of the Companies Act, 2013, the duties of the NFRA are to:
• Recommend accounting and auditing policies and standards to be adopted by companies for
approval by the Central Government;
• Monitor and enforce compliance with accounting standards and auditing standards;
• Oversee the quality of service of the professions associated with ensuring compliance with such
standards and suggest measures for improvement in the quality of service;
• Perform such other functions and duties as may be necessary or incidental to the aforesaid
functions and duties.
Sub Rule (1) of Rule 4 of the NFRA Rules, 2018, provides that the Authority shall protect the
public interest and the interests of investors, creditors and others associated with the companies or
bodies corporate governed under Rule 3 by establishing high quality standards of accounting and
auditing and exercising effective oversight of accounting functions performed by the companies
and bodies corporate and auditing functions performed by auditors.
National Company Law Tribunal/National Company Law Appellate Tribunal
(NCLT/NCLAT) - The setting up of the NCLT and NCLAT are part of the efforts to move to a
regime of faster resolution of corporate disputes, thus improving the ease of doing business in
India. The Ministry of Company Affairs (MCA) on 1st June, 2016 notified the Constitution of
National Company Law Tribunal (NCLT) & The National Company Law Appellate Tribunal
(NCLAT) in exercise of powers conferred under section 408 and 410 of the Companies Act,
2013.
The constitution of NCLT & NCLAT was a step towards improving and easing all the judicial
matters relating to the Company law under one roof.

6) Interpretation of Definitions of the Companies Act, 2013

A definition is a statement of the meaning as of a word or phrase. Usually, every statute has a
definitions sections (also called ‘interpretation clause’) which provides definitions of various words
9
and phrases used in the statute (e.g. Section 2 of the Companies Act, 2013).
Definition:
• To Define: The Act of making something definite, distinct or clear.
• Definition: An exact statement or description of the nature, scope, or meaning of something
(Oxford dictionary)
• In relation to a Statute: Definitions given in a statute are those of certain words or expressions
used elsewhere in the Statute.
• Object of using Definitions: - To avoid frequent repetitions - To aid interpretation of words for
that specific statute
•
Types of Definitions
 Restrictive Definitions - Use of the word “mean”
 Extensive Definitions - Use of the word “include”

When in a definition the word “mean” is used, it means word is restricted to the scope indicated in
the definition section. It means definition is hard and fast definition and no other meaning can be
assigned to the expression than is put down in definition.
The word “include” gives a wider meaning to the words or phrases in the statute. The legislature
does not intend to restrict the definition, it makes the definition enumerative but not exhaustive.
This is to say, the term defined will retain its ordinary meaning may or may not compromise. The
word “includes” by the legislature shows the intention of the legislature that it wanted to give
extensive and enlarged meaning to such expression.

Example of few Definitions under the Companies Act, 2013

• “Director” means a director appointed to the Board of a company;

• “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;
• “Charge” means an interest or lien created on the property or assets of a company or any of
its undertakings or both as security and includes a mortgage;
• “Body Corporate or Corporation” includes a company incorporated outside India, but does
not include:
(i) a co-operative society registered under any law relating to co-operative societies; and
(ii) any other body corporate (not being a company as defined in this Act), which the Central
Government may, by notification, specify in this behalf;
• “Book and paper” include books of account, deeds, vouchers, writings, documents, minutes
and registers maintained on paper or in electronic form;
• “Deposit” includes any receipt of money by way of deposit or loan or in any other form by a
company, but does not include such categories of amount as may be prescribed in consultation
with the Reserve Bank of India;

‘Explanations’ in Statutes:
Object and Purpose of explanations:
• To explain/clarify the meaning of words contained in the particular section,

10
 • Part and Parcel of the enactment,
• Does not widen the scope of the word explained.
For eg: “holding company”, in relation to one or more other companies, means a company of which
such companies are subsidiary companies;
Explanation.—For the purposes of this clause, the expression “company” includes anybody
corporate.

7. Extension of Period of the Company Law Committee

(MCA Order F.No.2/1/2018-CL-V dated 05th September, 2022)

In line with the Government’s objective of promoting Ease of Living in the country by providing Ease
of Doing Business to law abiding corporates, fostering improved corporate compliance for stakeholders
at large and also to address the emerging issues having impact on the working of corporates in the
country, the Company Law Committee was constituted vide MCA order dated 13.07.2018 for
examining and making recommendations to the Government on various provisions and issues pertaining
to implementation of the Companies Act, 2013 and the Limited Liability Partnership Act, 2008.
Thereafter, the tenure of the company law committee was time to time extended by the Government,
this time also vide MCA order dated September 05, 2022 the tenure has been further extended for one
year i.e. upto 16.09.2023.

Brief Analysis:

The government has extended the tenure of the Company Law Committee, which was constituted in
2019, by one year. The committee has the mandate for examining and making recommendations to the
government on various issues related to implementation of the Companies Act and Limited Liability
Partnership Act. Last year also, the Ministry had extended the panel's tenure till September 16, 2022
which has been further extended for another one year.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=rhzCSk7hQy%252Ff3XOJ3BwBCw%253D%253
D&type=open

8. The Companies (Specification of Definition Details) Amendment Rules, 2022

(MCA Notification No. G.S.R 700(E) dated 15th September, 2022)

The Ministry of Corporate Affairs (MCA) vide its notification dated September 15, 2022 has notified
“the Companies (Specification of Definition Details) Amendment Rules, 2022” which has come into
force on the date of its publication in the Official Gazette. According to the amendment the definition of
Small Company is modified as under:
“For the purposes of section 2(85)(i) and (ii) of the Companies Act, 2013, the paid up capital and
turnover of the small company shall not exceed rupees four crore and rupees forty crore respectively.”

Brief Analysis:

Through this notification the Ministry has amended the definition of small company w.e.f. 15.09.2022
by amending the limit of paid up capital and turnover for the small company. Earlier, definition of
“small companies” under the Companies Act, 2013 was revised by increasing their thresholds for paid
up capital from “not exceeding Rs. 50 lakh” to “not exceeding Rs. 2 crore” and turnover from “not
exceeding Rs. 2 crore” to “not exceeding Rs. 20 crore”. This definition has, now, been further revised
by increasing such thresholds for paid up Capital from “not exceeding Rs. 2 crore” to “not exceeding
Rs. 4 crore” and turnover from “not exceeding Rs. 20 crore” to “not exceeding Rs. 40 crore”.
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It seems that MCA frequently amending the definition of Small Company to provide many advantages
to Corporates. This move of MCA is expected to provide lenience for the compliance burden of about
various small companies in India. The move is likely to get more companies under the ‘small’ category
and advantage them in terms of the compliance requirements. As due to this move, many Companies
will get exemptions of so many compliances of the Companies Act, 2013.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=tiMs9IFJ8xuPm%252B%252Foxc6fUw%253D%2
53D&type=open

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 Lesson 2- Share and Share Capital
1. The Companies (Share Capital and Debentures) Amendment Rules, 2022 (MCA Notification
No. G.S.R. (E) dated 04th May, 2022.

The Ministry of Corporate Affairs (MCA) vide its Notification dated May 04, 2022 has notified the
Companies (Share Capital and Debentures) Amendment Rules, 2022 which shall come into force on
the date of its publication in the Official Gazette. According to the amendment, in the annexure to the
Companies (Share Capital and Debentures) Rules, 2014, in Form No. SH-4 (Securities Transfer Form),
before the enclosures, the following declaration shall be inserted, namely:-
 Transferee is not required to obtain the Government approval under the Foreign Exchange
Management (Non-debt Instruments) Rules, 2019 prior to transfer of shares; or
 Transferee is required to obtain the Government approval under the Foreign Exchange
Management (Non-debt Instruments) rules, 2019 prior to transfer of shares and the same has
been obtained and is enclosed herewith.”

Brief Analysis:

According to this amendment a declaration has to be made by the transferee prior to share transfer in
Form No. SH-4 regarding whether he/she is required to obtain Government approval under the Foreign
Exchange Management (Non-debt Instruments) Rules, 2019. Earlier no such declaration was required
to be made by the transferee.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=z0TPPBoxhsbnobHAN7dyxw%253D%2
53D&type=open

2. The Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022 (MCA
Notification No. G.S.R. 338(E). Dated 05th May, 2022.)

The Ministry of Corporate Affairs (MCA) vide its Notification dated May 05, 2022 has notified the
Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022 which shall come into
force on the date of its publication in the Official Gazette. The amendments inter alia provide following-

(i) Insertion of new proviso to Rule 14 of the Companies (Prospectus and Allotment of Securities)
Rules, 2014 stating that, no offer or invitation of any securities under rule 14 shall be made to a body
corporate incorporated in, or a national of, a country which shares a land border with India, unless such
body corporate or the national, as the case may be, have obtained Government approval under the
Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and attached the same with the
private placement offer cum application letter.

(ii) in Annexure, in Form PAS-4, in Part-B, after serial number (vii), the following shall be inserted,
namely :-
“(viii) Tick whichever is applicable:-

(a) The applicant is not required to obtain Government approval under the Foreign Exchange
Management (Non-debt Instruments) Rules, 2019 prior to subscription of shares.- ;

(b) The applicant is required to obtain Government approval under the Foreign Exchange
Management (Non-debt Instruments) Rules, 2019 prior to subscription of shares and the same has been
13
obtained, and is enclosed herewith. ”.

Brief Analysis:

Through this amendment the MCA has inserted a new proviso in rule 14 of the Companies (Prospectus
and Allotment of Securities) Rules, 2014 stating that no offer or invitation to securities shall be made to
the nationals of or entities incorporated in a country sharing border with India until and unless they have
obtained Government approval under the Foreign Exchange Management (Non-debt Instruments)
Rules, 2019 and attached the same with the private placement offer cum application letter and the
relevant modification to be made in Form PAS-4.

For details:
https://egazette.nic.in/WriteReadData/2022/235565.pdf

14
 Lesson 3- Members and Shareholders

1. The Companies (Management and Administration) Amendment Rules, 2022

(MCANotification No. G.S.R. 279 (E). Dated 06th April, 2022)
The Central Government notified the Companies (Management and Administration) Amendment
Rules, 2022, the said amendment rules inter-alia consist provisions pertaining to inspection of registers
and returns as mentioned under rule 14 of the Companies (Management and Administration) Rules,
2014 by inserting sub rule 3;
“Notwithstanding anything contained in sub-rules (1) and (2), the following particulars of the register
or index or return in respect of the members of accompany shall not be made available for any
inspection under sub-section (2) or for taking extracts or copies under sub-section (3) of section 94,
namely-address or registered address (in case of a body corporate); e-mail ID; Unique Identification
Number; PAN Number.”
Brief Analysis:
Through this amendment, MCA has inserted a new Rule 14(3) to restrict the inspection of register or
index or return in respect of the members of accompany. According to the Amendment, particulars of
the register or index or return in respect of the members of a Company related to Address or Registered
Address (in case of a body corporate); e-mail ID; Unique Identification Number; PAN Number, shall
not be made available for any inspection under sub-section (2) or for taking extracts or copies under
sub-section (3) of Section 94 other Companies Act, 2013.

For details:
https://egazette.nic.in/WriteReadData/2022/234911.pdf

15
 Lesson 4 – Debt Capital and Deposits

1. The Companies (Acceptance of Deposits) Amendment Rules, 2022

(MCA notification no. G.S.R (E) dated 24th August, 2022)

The Ministry of Corporate Affairs (MCA) vide its notification dated August 29, 2022 has notified “the
Companies (Acceptance of Deposits) Amendment Rules, 2022” which has come into force on the date
of its publication in the Official Gazette. According to the amendment in rule 16 of the Companies
(Acceptance of Deposits) Rules, 2014:

“Every company to which these rules apply, shall file return of deposit in E Form DPT-3 and furnish the
information contained therein as on the 31st day of March of that year duly audited by the auditor of the
company and declaration to that effect shall be submitted by the auditor in E Form DPT-3.”
Also, the E Form DPT-3 and E Form DPT-4 are substituted.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=99KwRbJSkMXjVLv09KTgJg%253D%253D&ty
pe=open

16
 Lesson 5- Charges
1. The Companies (Registration of Charges) Amendment Rules, 2022 (MCA Notification No.
G.S.R. (E). Dated 27th April, 2022)
The Ministry of Corporate Affairs (MCA) vide its Notification dated April 27, 2022 has notified the
Companies (Registration of Charges) Amendment Rules, 2022 which shall come into force on the date
of its publication in the Official Gazette.
The amendments inter-alia provide that in rule 3 pertaining to registration of creation or modification of
Charge, a sub-rule (5) shall be inserted, namely: “Nothing contained in this rule shall apply to any
charge required to be created or modified by a banking company under section 77 in favour of the
Reserve Bank of India when any loan or advance has been made to it under sub-clause (d) of clause (4)
of section 17 of the Reserve Bank of India Act, 1934.”
Brief Analysis:
MCA amended the Companies (Registration of Charges) Rules, 2014 to notify that the rule 3 shall not
apply to any charge required to be created or modified by a banking company under section 77 (Duty to
register charge) in favour of the Reserve Bank of India when any loan or advance made to it under
section 17 (4) (d) of the RBI Act, 1934.Rule 3 of the Companies (Registration of Charges) Rules, 2014,
casts a duty on the Company that the particulars of the creation or modification of the charges shall be
filed with the ROC in E-form CHG-1 (for other than debentures) or Form CHG-9 (for debentures) as
the case may be.
The Section 17 of the Reserve Bank of India Act, 1934 defines the manner in which the RBI can
transact business. As per section 17 (4) (d) the RBI can grant loan against the security of promissory
notes of any scheduled bank or State co-operative Bank, supported by documents of title to goods [such
documents having been transferred], assigned, or pledged to any such bank as security for a [loan or
advance made] for bona fide commercial or trade transactions, or for the purpose of financing
agricultural operations or the marketing of crops.
For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=GigV%252BdVKmC9d16l5L5Kj5Q%253D
%253D&type=open

2. The Companies (Registration of Charges) Second Amendment Rules, 2022

(MCA notification no. G.S.R (E) dated 29th August, 2022)

The Ministry of Corporate Affairs (MCA) vide its notification dated August 29, 2022 has notified “the
Companies (Registration of Charges) Second Amendment Rules, 2022” which has come into force on
the date of its publication in the Official Gazette. According to the amendment, rule 13 is inserted by
stating that, signing of charge e-forms (i.e. Form No. CHG-1, CHG-4, CHG-8 and CHG-9) by
insolvency professional or resolution professional or liquidator for companies under resolution or
liquidation, as the case may be and filed with the Registrar.
Further, the E Form No. CHG-1 is substituted.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=4o6aHVQPVnWMaUqWvlFEow%253D%253D&
type=open

17
 Lesson 6- Distribution of Profits – Dividend

1) The Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and
Refund) Amendment Rules, 2021(Notification No: G.S.R. 396 (E), dated June 09, 2021)

The Central Government has made the Investor Education and Protection Fund Authority
(Accounting, Audit, Transfer and Refund) Amendment Rules, 2021 to further amend the Investor
Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.

(i) In the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and
Refund) Rules, 2016, in rule 3, in sub-rule (2), after clause (f), the following shall be inserted,
namely:-

“(fa) all shares held by the Authority in accordance with proviso of subsection (9) of section 90
of the Companies Act, 2013 and all the resultant benefits arising out of such shares, without any
restrictions;”

Brief Analysis:

Insertion of a new clause (fa) in Rule 3 sub-rule 2 of IEPF (Accounting, Audit, Transfer and
Refund) Rules, 2016.
In addition to the existing amounts which shall be credited to the Investor Education Protection
Fund, a new clause (fa) is inserted in Rule 3 sub-rule 2 of IEPF (Accounting, Audit, Transfer and
Refund) Rules, 2016, which states that all shares held by the Authority in accordance with proviso
of Section 90(9) of the Act and all the resultant benefits arising out of such shares, without any
restrictions shall also be credited to the fund.

Section 90(9) of the Companies Act, 2013 is reproduced below for reference:
Register of significant beneficial owners in a company
90(9) 'The company or the person aggrieved by the order of the Tribunal may make an application
to the Tribunal for relaxation or lifting of the restrictions placed under sub-section (8), within a
period of one year from the date of such order.

Provided that if no such application has been filed within a period of one year from the date of
the order under sub-section (8), such shares shall be transferred, without any restrictions, to the
authority constituted under sub-section (5) of section 125, in such manner as may be prescribed'.

(ii) After rule 6 of the Investor Education and Protection Fund Authority (Accounting, Audit,
Transfer and Refund) Rules, 2016, following rule shall be inserted, namely:-

“6A. Manner of transfer of shares under sub-section (9) of section 90 of the Companies Act,
2013 to the Fund.-

(1) The shares shall be credited to DEMAT Account of the Authority to be opened by the
Authority for the said purpose, within a period of thirty days of such shares becoming due to be
transferred to the Fund:

18
Provided that transfer of shares by the companies to the Fund shall be deemed to be transmission
of shares and the procedure to be followed for transmission of shares shall be followed by the
companies while transferring the shares to the fund:

Provided further that such shares shall be transferred to the Authority without any restrictions and
no application shall be filed for claiming back such shares from the Authority.

(2) For the purposes of effecting transfer of such shares, the Board shall authorise the Company
Secretary or any other person to sign the necessary documents.

(3) The company shall follow the following procedure while transferring the shares, namely:-

(A) for the purposes of effecting the transfer, where the shares are dealt with in a depository-

(i) the company shall inform the depository by way of corporate action, where the
shareholders have their accounts for transfer in favour of the Authority,

(ii) on receipt of such intimation, the depository shall effect the transfer of shares in
favour of DEMAT account of the Authority;

(B) for the purposes of effecting the transfer of shares held in physical form-

(i) the Company Secretary or the person authorised by the Board shall make an
application, on behalf of the concerned shareholder, to the company, for issue of a new
share certificate;

(ii) on receipt of the application under clause (a), a new share certificate for each such
shareholder shall be issued and it shall be stated on the face of the certificate that “Issued
in lieu of share certificate No. for the purpose of transfer to IEPF under subsection (9)
of section 90 of the Act” and the same be recorded in the register maintained for the
purpose;

(iii) particulars of every share certificate shall be in Form No. SH-1 as specified in the
Companies (Share Capital and Debentures) Rules, 2014;

(iv) after issue of a new share certificate, the company shall inform the depository by
way of corporate action to convert the share certificates into DEMAT form and transfer
in favour of the Authority.

(4) The company shall make such transfers through corporate action and shall preserve copies for
its records.

(5) While effecting such transfer, the company shall send a statement to the Authority in Form
No. IEPF-4 within thirty days of the corporate action taken under sub-rule (4) of rule 6A
containing details of such transfer and the company shall also attach a copy of order of the
Tribunal under sub-section (8) of section 90 of the Act along with a declaration that no application
19
 under sub-section (9) of section 90 of the Act has been made or is pending before the Tribunal.

(6) The voting rights on shares transferred to the Fund shall remain frozen: Provided that for the
purpose of the Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011, the shares which have been transferred to the Authority shall not
be excluded while calculating the total voting rights.

(7) The company shall maintain all such statements filed under sub – rule (3) in the same format
along with all supporting documents and the Authority shall have the powers to inspect such
records.

(8) All benefits accruing on such shares like bonus shares, split, consolidation, fraction shares and
the like except right issue shall also be credited to such DEMAT account [by the company which
shall send a statement to the Authority in Form No. IEPF-4 within thirty days of the corporate
action containing details of such transfer.]

(9) If the company is getting delisted, the Authority shall surrender shares on behalf of the
shareholders in accordance with the Securities and Exchange Board of India (Delisting of Equity
Shares) Regulations, 2009 and the proceeds realised shall be credited to the Fund and a separate
ledger account shall be maintained for such proceeds.

(10) In case the company whose shares or securities are held by the Authority is being wound up,
the Authority may surrender the securities to receive the amount entitled on behalf of the security
holder and credit the amount to the Fund and a separate ledger account shall be maintained for
such proceeds.

(11) Any further dividend received on such shares shall be credited to the Fund and a separate
ledger account shall be maintained for such proceeds.

(12) Any amount required to be credited by the companies to the Fund as provided under sub-
rules (9), (10) and sub-rule (11) shall be remitted into the specified account of the IEPF Authority
maintained in the Punjab National Bank [and the details thereof shall be furnished to the Authority
in Form No. IEPF-7 within thirty days from the date of remittance].

Provided further that all such amounts shall be transferred to the Authority without any restrictions
and no application shall be filed for claiming back such amounts from the Authority.

(13) Authority shall furnish its report to the Central Government as and when noncompliance of
the rules by companies came to its knowledge.”

For details:
https://egazette.nic.in/WriteReadData/2021/227437.pdf

20
2) The Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and
Refund) Second Amendment Rules, 2021 (Notification No: G.S.R. 785(E), dated November
09, 2021)
The Central Government has notified the Investor Education and Protection Fund Authority
(Accounting, Audit, Transfer and Refund) Second Amendment Rules, 2021, to further amend the
Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund)
Rules, 2016.

This amendment is a major step towards the mission and vision of Government of India of Ease
of Living and Ease of Doing Business, Ministry of Corporate Affairs (MCA) and has further
simplified claim settlement process through rationalization of various requirements under Investor
Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.

 For claimants, requirement of Advance Receipt has been waived off;

 Requirement of Succession Certificate/ Probate of Will/ Will has been relaxed up to Rs 5,00,000
(five lakh) both for Physical & DEMAT shares;
 Notarization of documents has been replaced with self-attestation and requirements of Affidavits
and Surety relatively have been eased.

For companies, requirement of attaching documents related to Unclaimed Suspense Account has
been eased and companies have been given flexibility to accept transmission document viz.
Succession Certificate, Will etc. as per their internal approved procedures and Newspaper
Advertisement requirement for loss of physical Share Certificate has been waived off up to an
amount of Rs.5,00,000.

The focus of the change has been to make the process simpler and quicker for the claimants.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=hN09WrxY89kYWPXEaho1ng%253D%2
53D&type=open

21
 Lesson 7- Corporate Social Responsibility

1) Frequently Asked Questions (FAQs) on Corporate Social Responsibility (CSR)

(General Circular No: 14/2021, dated August 25, 2021)

In view of several amendments in Section 135 of the Companies Act, 2013 as well in the CSR
Rules, the MCA has issued an updated set of Frequently Asked Questions (FAQs) on the
Corporate Social Responsibility (CSR), in supersession of clarifications and FAQs issued vide
General Circular no. 21/2014 (dated June 18, 2014), 36/2014 (dated September 17, 2014),
01/2016 (dated January 12, 2016) ,05/2016 (dated May 16, 2016), clarification issued vide letter
dated January 25, 2018 and General Circular no. 06/2018 (dated May 28, 2018), for better
understanding and facilitating effective implementation of CSR.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=GTatbQatWaZKl7Zzifcd9Q%253D%253
D&type=open

2) CSR: Case Studies

01. 13.11.2019 Apurvanatvar & Company India (P) NCLT, Mumbai

Limited vs. Registrar of Companies,
Mumbai

Company Violated provisions of Section 135 read with Section 134(3) of the Companies Act,
2013

Background
Apurva Natvar Parikh & Co Private Limited is a Private incorporated on 26th June 1959. It is
classified as Nongovt company and is registered at Registrar of Companies, Mumbai. It is inolved
in supporting and auxiliary transport activities; activities of travel agencies. The Company had
violated the provision of Section 135 read with Section 134(3)(o) of the Companies Act, 2013 read
with Rule 8 of Companies (Corporate Social Responsibility Policy) Rules, 2014 wherein the
Company had not made CSR Expenditure and has not explained the reasons in Board’s Report of
F. Y. 2014-15 for non-spending of the CSR amount along with other disclosure as required under
Section 135(2) of the Act.

Timeline of Events

Apurva Natvar Parikh & Co Private Limited filed a compounding application with NCLT, Mumbai
on January 10, 2018 as it has violated the CSR provisions. It received a notice dated December 8,
2017 from ROC, Mumbai stating that the Company has not complied with the provisions of Section
135 read with Section 134(3)(o) of the Companies Act,2013 by not disclosing the details in the
Financial Year 2014-15, the Composition of CSR Committee of the Company and/or not specifying
any reasons for under spending the CSR amount in its Boards Report for F.Y. 2014-15 as required
under Section 135 r/w Section 134(3)(o) of the Act and with Rule 8 of Companies(Corporate Social
Responsibility Policy) Rules, 2014 r/w General Circular 21/2014 issued by the Ministry of
Corporate Affairs. Pursuant to the receipt of the Notice, the Company sent a reply dated December
16, 2017 to Registrar of Companies enclosing the Directors Report of the Company dated
22
September 2, 2015, issued by the Board of Directors of the Company in respect of the Company’s
activities for the F.Y. 2014-15. Thereafter, on February 01, 2018, the Applicants received another
notice from the ROC dated January 3, 2018 wherein the ROC has asked the Company and the
officers in default to file the necessary application in order to compound the above-mentioned
offence committed by them as per the procedure prescribed, under the Companies Act, 2013.
It is submitted that as per Section 135 of the Act, the Company was required to spend an amount
of Rs. 5,26,047.30 towards its Corporate Social Responsibility objectives in the F.Y. 2015-16. In
compliance with the provisions of the Act, the Company spent an amount of Rs. 35,08,500/-
towards its Corporate Social Responsibility objectives in the F.Y. 2015-16. However, in spite of
having spent the requisite amount, the Company inadvertently did not attach the CSR Policy of
the Company to the Director’s Report for the F.Y. 2015-2016. In order to rectify the inadvertent
error, the Company has written to the ROC vide letter dated February 9, 2018, whereby the
Company has informed the ROC of the said violation of Section 134(3)(0) of the Act. It is
further submitted that to make default good the Board in its Board Meeting held of July 18, 2014
framed the CSR Policy in accordance with the Schedule VII of the Companies Act, 2013.
It is further submitted that the Company had constituted the CSR Committee, framed the CSR
Policy as per the provisions of the Act and made the necessary disclosures as required under
Section. 134 (3) (o) in the Board of Directors Report for the F. Y. 2015-16. Consequently, the
Default has been made good.

Provisions of Companies Act, 2013

Section 135(5)
According to the provision of Section135 (5) of the Act, the Board of the Company was required
to spend, in every financial year, at least 2% of the average net profit of the Company during the
three immediately preceding financial years, in pursuance of its Corporate Social Responsibility
(CSR) policy, applicable to every company having net worth of Rs. Five Hundred Crore or more,
or turnover of Rs. One thousand crore or more, or having net profit of Rs. Five Crore or more,
during Financial Year.
Section 134(3)(o)
Further the provision of Section 134 (3) (o) provides that, if company fails to comply with the
provision of Section 135 (5), then the Board in its report shall specify the reasons for not spending
the amount.
Judgment
The Bench gone through the pleadings on record and the submissions made by the ApurvaNatvar
Parikh & Co Private Limited and ROC reply herein and said that the Applicants/Defaulters had
violated the provision of S. 134 (3) (o) of the Act, and for the said violation the punishment is
provided u/Section 134 (8) of Companies Act, 2013. The ROC has also reported that, the
Company has made the said default good by formulating the Corporate Social Responsibility
(CSR) Policy, constituting the CSR Committee and giving the requisite disclosure as per the
relevant provisions of the Act, in the Board Report of the Company for the F.Y. 2015-16 and
onwards.

23
The bench considered the entire records, pleadings of the Applicants and submissions of the Ld.
Authorised Representative and imposed a Compounding Fee of Rs 1,00,000/- on the Company
and Rs. 1,00,000/- each on the Directors of the Company that the Compounding fee should be
paid within a period of three weeks from the date of order in the account of “Prime Minister’s
National Relief Fund.”

02. 28/11/2018 In the Matter of M/s. Hira Power and NCLT, Mumbai
Steels Limited

The determination of the Quantum of the CSR responsibility can only be ascertained after
the finalization of accounts at the close of the Books of Accounts of a particular financial
year.

Background
Hira Power & Steels Limited, promoted by the Agrawal family is a leading player in the Steel
Segment in Central India. The Company’s main business interests are in Ferro Alloys, Power and
Mining and it has its manufacturing facilities in Chhattisgarh, India, an area known for low cost
production of Steel due to the easy availability of Raw Materials, Cheap Labour and Supportive
Government Policies. The Company filed a Compounding application before Registrar of
Companies (ROC), Chattisgarh and the same has been forwarded to the NCLT, Mumbai along
with ROC Report.

Timeline of Events
ROC had informed that, this application was filed because the Company had violated the
provision of Section 134 (3) (o) of the Companies Act, 2013 read with Rule 8 of Companies
(Corporate Social Responsibility Policy) Rules, 2014 wherein the Company fails to give
explanation for the non-spending of the CSR amount for the Financial Year 2014-15 in Director’s
Report.

Hira Power & Steels Limited submitted that due to inadvertent mistake the Company has failed
to comply with the provisions of the S. 134 (3) (o) and were willing to comply with the provisions
of the Act bona fidely. They had made all endeavours to comply with the provisions of the Act
however, because of number of Circulars which were issued by the Ministry of Corporate Affairs
with respect to CSR there was ambiguity in the correct implementation of the provisions.

It is further stated that the Company had constituted the CSR Committee as per the provisions of
the Act on August 05, 2015 and made the necessary declarations as per Section 134 (3) (o) in the
Director’s Report for the F. Y. 2015-16. Consequently, the Default has been made good.

It is also submitted that, due to number of Circulars / Notifications issued by the Government the
Applicants / Defaulters herein, could not ascertain the actual position of the CSR amount to spend
and therefore the said contravention has happened.

In light of above submissions it is submitted that since, the Applicants / Defaulters herein had not

24
deliberately contravened the provisions of the Companies Act, 2013 and subsequently, after
ascertaining the correct position, made the committed default hence, this Application may be
allowed and minimum Compounding Fee may be imposed.

Judgment
The Bench said that, this provision regarding CSR is newly incorporated in the Statute and
thereafter number of circulars was issued and as a result of those circulars no clear clarification
regarding the provision can be recorded by the Company or its Directors. It is also noticed that
the Company had made the default good by constituting the CSR committee and by furnishing
declaration in the Director’s Report for the F. Y. 2015-16.

The determination of the Quantum of the CSR responsibility can only be ascertained / quantified
after the finalisation of accounts at the close of the Books of Accounts of a particular financial
year. As a result, the amount to be contributed for charitable purpose as CSR responsibility can
be intimated to the concerned authorities thereafter only i.e. after the finalisation of accounts of a
particular financial year.

Compounding Fee of Rs. 10,000/- by the each Applicant / Defaulter herein (i.e. Rs. 50,000/- in
total) was levied on the Company.

03. 01.07.2019 M/S Shri Santosh Meenakshi Textiles NCLT,Chennai

(P) Ltd. vs. Roc, Tamilnadu,
Coimbatore

CSR Committee must be constituted if net profit exceeds the prescribed threshold limit

Background
Sree Santhosh Meenakshi textiles private limited is established at thekkalur, the Manchester of
South India. The company has carved niche of its own in the competitive yarn market. Shri
Santosh Meenakshi Textiles Pvt Ltd. filed an appeal under Section 421 of the Companies Act,
2013 against the impugned order of National Company Law Tribunal, Chennai by which the
appellant company is held liable to spend the amount of Corporate Social Responsibility (CSR)
for the FY 2014-15 taking into account only the net profit for the FY 2013-14; the appellant
company is held liable to adhere to the other provisions of Section 135 of the Act and the company
is permitted to file an application for revision of financial statement or Board report after
incorporating the information of CSR.

When the appellant filed its financial statement along with Board Report with the ROC, the ROC
observed the same and issued a Show Cause Notice to the Company as to why they have not
complied with Section 135(1), 135(5) and Section 134(3)(o) of the Companies Act, 2013. The
appellant filed Company Petition before the NCLT, Chennai under Section 131 of the Companies
Act, 2013 and the NCLT passed the impugned order wherein it held that – “…… Petitioner
Company is liable to spend the amount on account of CSR for FY 2014-15 taking into account
only the net profit before tax for the FY 2013-14….”

25
Issues involved
NCLAT identifies the issue involved as whether the appellant is covered under Section 135(1) of
the Act or not. NCLAT observes that as per the appellant’s own calculation the net profit is
Rs.5,68,70,023/- for the FY 2013-14 which is apparently more than Rs. 5 crores i.e. threshold
limited prescribed under Section 135(1) of the Act. Therefore, the company is covered under
Section 135(1) of the Act and as such appellant was liable to constitute Corporate Social
Responsibility Committee of the Board in the year 2014-15. Section 135(5) of the Act stipulates
that Board of every company who comes under Section 135(1) of the Act shall ensures that the
company spends in every year at least 2% of the average net profit of the company made during
the three immediately preceding financial years in pursuance of the CSR. The net profit will be
calculated as per Section 198 of the Companies Act, 2013 and that the profit before tax will be
taken as ‘Net Profit’.

Further, NCLAT examines the next issue argued by the appellant that even if it is the company is
deemed to be covered under Section 135(1) of the Act, then also it is not liable to expend any sum
towards CSR in as much since the company had incurred losses in FY 2011-2012 and 2012-13
and the average net profit calculated for the three FY comes in negative. NCLAT disagrees with
the observations of the NCLT which directed the appellant herein to spend the amount on account
of CSR for the FY 2014-15 taking into account only the net profit before tax for the FY 2013-14
as it is clearly against the mandate of law that the amount to be spent is to be at least 2% of the
average net profit of the company made during the three immediately preceding financial years
in pursuance to its CSR Policy. NCLAT observes that the calculations submitted by the appellant
shows that in the last three years the company is made a profit of Rs.1,38,69,595/- and average
net profit of three years will come to Rs.46,23, 198/- and further that the company would never
be covered under the average net profit of three preceding years.

NCLAT observed that that the appellant has resorted to deducting the losses twice over to
somehow arrives at a negative figure to show that it is not required to spend any amount on the
CSR for the FY 2014-15. NCLAT states that the method of calculation of average net profit for
immediately preceding three years as directed by the NCLT will not be applicable.

NCLAT further observes that the company is a defaulter for spending an amount on CSR activities
during the year 2014-15 since company has not constituted the CSR Committee and no proof
substantiating the amount spent by the company on CSR activities has been placed.

Judgment
NCLAT passes an order modifying the impugned order holding that the appellant is liable to
constitute Corporate Social Responsibility Committee of the Board in terms of Section 135(1) in
2014-15 as net profit of the company in the preceding year was more than Rs.5 crores; and further
prescribes a method of calculation for the purpose of Section 135(5).

NCLAT holds appellant liable to constitute CSR committee of the Board in terms of Section
135(1) as the net profit of the company exceeds the threshold limit under Section 135(1) of the
Act; prescribes method for calculation of average net profit for immediately preceding three years
for the purpose of Section 135(5).

26
4. The Companies (Accounts) Amendment Rules, 2022 (MCA Notification No. G.S.R.- (E).
Dated 11th February, 2022)
Central Government notified Form CSR-2 a report on Corporate Social Responsibility (CSR) and rule
12(1B) and provided that every company covered under the provisions of sub section (1) to section 135
shall furnish a report on Corporate Social Responsibility in Form CSR-2 to the Registrar for the
preceding financial year (2020-2021) and onwards as an addendum to Form AOC-4 or AOC-4 XBRL
or AOC-4 NBFC (Ind AS), as the case may be.
Provided that for the preceding financial year (2020-2021), Form CSR-2 shall be filed separately on or
before 31st March 2022, after filing Form AOC-4 or AOC-4 XBRL or AOC-4 NBFC (Ind AS), as the
case may be.

Brief Analysis:
By means of this amendment, the MCA has introduced form CSR-2, which is required to be filed by
those entities which fall under the provisions of Section 135 of the Companies Act, 2013. The MCA
vide its notification dated 11th February 2022 had introduced form CSR-2 by inserting sub-rule (1B) in
rule 12 of the Companies (Accounts) Rules, 2014. It was provided that for the preceding F.Y. (2020-
21), form CSR-2 shall be filed on or before 31st March 2022, after filing form AOC-4. However, due to
technical difficulties being faced by the stakeholders, the MCA has extended the due date by 2 months
by notifying Companies (Accounts) Second Amendment Rules, 2022.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=adQPpN3U8Y7Llcmy0C8FvA%253D%25
3D&type=open

6. Clarification on spending of CSR funds for "Har Ghar Tiranga" campaign- reg.
(MCA General Circular No. 08/2022 dated 26th July, 2022)

`Har Ghar Tiranga', a campaign under the aegis of Azadi Ka Amrit Mahotsav, is aimed to invoke the
feeling of patriotism in the hearts of the people and to promote awareness about the Indian National
Flag. In this regard, it is clarified that spending of CSR funds for the activities related to this campaign,
such as mass scale production and supply of the National Flag, outreach and amplification efforts and
other related activities, are eligible CSR activities under item no. (ii) of Schedule VII of the Companies
Act, 2013 pertaining to promotion of education relating to culture. The companies may undertake the
aforesaid activities, subject to fulfilment of the Companies (CSR Policy) Rules, 2014 and related
circulars/ clarifications issued by the Ministry thereof, from time to time.

Brief Analysis:
The Ministry of Corporate Affairs has issued clarification on spending of CSR funds for Har Ghar
Trianga on 26th July, 2022. As per the clarification issued, spending of CSR funds for activities related
to it like mass scale production and supply of the National Flag, outreach and amplification efforts and
other related activities will be eligible as CSR activities of Schedule VII of the Companies Act, 2013
pertaining to promotion of education relating to culture.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=dXH1ziMu%252FmN%252BBSRLHN9evw%253
D%253D&type=open

27
7. The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022
MCA notification no. G.S.R 715(E) dated 20th September, 2022)

The Ministry of Corporate Affairs (MCA) vide its notification dated September 20, 2022 has notified
“the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022” which has come
into force on the date of its publication in the Official Gazette. According to the amendment the proviso
to rule 3(1) has been inserted stating that, a company having any amount in its Unspent Corporate
Social Responsibility Account as per section 135(6) shall constitute a CSR Committee and comply with
the provisions contained in sub -sections (2) to (6) of the said section.
In case of CSR implementation, the Board shall ensure that the CSR activities are undertaken by the
company itself or through a company established under section 8 of the Act, or a registered public trust
or a registered society, exempted under sub -clauses (iv), (v), (vi) or (via) of clause (23C) of section 10
or registered under section 12A and approved under 80 G of the Income Tax Act, 1961, established by
the company, either singly or along with any other company; or a company as mentioned above is
having an established track record of at least three years in undertaking similar activities.
Further, a Company undertaking impact assessment may book the expenditure towards Corporate Social
Responsibility for that financial year, which shall not exceed two percent of the total CSR expenditure
for that financial year or fifty lakh rupees, whichever is higher; and the format for the annual report on
CSR activities to be included in the board’s report for financial year commencing on or after the 1st day
of April, 2020 has been substituted.

Brief Analysis:
The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022 was introduced on
September 20, 2022 by the Ministry of Corporate Affairs. The following changes have been brought
about by the Amendment Rules:
(a) Companies are required to establish a CSR committee to monitor the execution of their CSR
commitments and in particular any funds in their “Unspent Corporate Social Responsibility Account”.
(b) The Amendment provide that the cost of social impact assessments, which can be considered as
CSR spending, cannot be greater than 2% of all CSR expenditures for the applicable financial year or
Rupees 50 lakh, whichever is higher.
(c) The Amendment also provide for a new format for the annual report on CSR activities. All
companies are required to provide the information in the annual report with respect to brief explanation
of its CSR policy, Information about the members of the CSR committee, Web-links to the company's
website where the CSR Committee's membership, CSR policy, and CSR projects approved by the board
are listed and Executive summary and web links for the impact assessments of CSR projects.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=1Wt3uUYzV0rGCr2Vxa8ztQ%253D%253D&typ
e=open

28
 Lesson 8- Accounts, Audit and Auditors
1) The Companies (Indian Accounting Standards) Amendment Rules, 2021 (Notification No:
G.S.R. 419(E), dated June 18, 2021)

The Central Government, in consultation with the National Financial Reporting Authority, has
notified the Companies (Indian Accounting Standards) Amendment Rules, 2021 to further amend
the Companies (Indian Accounting Standards) Rules, 2015, pertaining to various Indian
Accounting Standards (Ind AS), including those related to:

Additional disclosures w.r.t. interest rate benchmark reform to enable users of financial statements
to understand the effect of interest rate benchmark reform on an entity's financial instruments and
risk management strategy, regarding this an entity shall disclose information about:

(a) the nature and extent of risks to which the entity is exposed arising from financial instruments
subject to interest rate benchmark reform, and how the entity manages these risks; and

(b) the entity‘s progress in completing the transition to alternative benchmark rates, and how the
entity is managing the transition.

Further amendments including changes in the basis for determining the contractual cash flows as
a result of interest rate benchmark reform, additional temporary exceptions arising from interest
rate benchmark reform etc., has been introduced.

For details:
https://egazette.nic.in/WriteReadData/2021/227712.pdf

2) The Companies (Accounting Standards) Rules, 2021 (Dated June 23, 2021)
The MCA vide notification dated June 23, 2021 has notified the Companies (Accounting
Standards) Rules, 2021 for Small and Medium sized companies (SMCs), with which the turnover
and borrowing limits has been revised as well as disclosure requirements has been made less
onerous for SMCs.

The revised definition of “Small and Medium Sized Company” (SMC) means, a company-

(i) whose equity or debt securities are not listed or are not in the process of listing on any stock
exchange, whether in India or outside India;

(ii) which is not a bank, financial institution or an insurance company;

(iii) whose turnover (excluding other income) does not exceed two hundred and fifty crore rupees
in the immediately preceding accounting year;

(iv) which does not have borrowings (including public deposits) in excess of fifty crore rupees at
any time during the immediately preceding accounting year; and

(v) which is not a holding or subsidiary company of a company which is not a small and medium-
sized company.

Explanation - For the purposes of this clause, a company shall qualify as a Small and Medium

29
 Sized Company, if the conditions mentioned therein are satisfied as at the end of the relevant
accounting period.

Obligation to comply with Accounting Standards

(1) Every company, other than companies on which Indian Accounting Standards as notified
under Companies (Indian Accounting Standards) Rules, 2015 are applicable, and its auditor(s)
shall comply with the Accounting Standards in the manner specified.

(2) The Accounting Standards shall be applied in the preparation of Financial Statements.

Qualification for exemption of relaxation in respect of SMC

An existing company, which was previously not a Small and Medium sized Company (SMC) and
subsequently becomes a SMC, shall not be qualified for exemption or relaxation in respect of
Accounting Standards available to a SMC until the company remains a SMC for two consecutive
accounting periods.

For details:

https://www.mca.gov.in/bin/dms/getdocument?mds=RKk43Bmg99ksfV0bUGr6XA%253D%2
53D&type=open

3) The Companies (Accounts) Second Amendment Rules, 2022 (MCA Notification

No.G.S.R.-(E). Dated 31st March, 2022)

MCA has notified the Companies (Accounts) Second Amendment Rules, 2022 which came into force
on the date of their publication in the Official Gazette. Vide this notification, the date of applicability
for the requirement relating to feature of recording audit trail in the Accounting Software has been
extended from 01st April 2022 to 01st April, 2023. Further, MCA has extended the timeline for filing
of Form CSR-2 for FY 2020-21 from 31st March, 2022 to 31st May, 2022.
Brief Analysis:
The Ministry of Corporate Affairs vide notification dated 31st March, 2022 has issued the Companies
(Accounts) Second Amendment Rules, 2022. The amendment has extended the date of applicability for
the requirement relating to Audit Trail feature in the Accounting Software from 01/04/2022 to
01/04/2023.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=3kjEo3H12bPQqpt2k18OTw%253D%253D
&type=open

4) The Companies (Indian Accounting Standards) Amendment Rules, 2022 (MCA Notification
No. G.S.R 255(E). Dated 23rd March, 2022)

MCA has issued the Companies (Indian Accounting Standards) Amendment Rules, 2022 in consultation
with the National Financial Reporting Authority (NFRA) to provide clarifications regarding Annual
Improvements to Ind AS (2021). An entity shall apply Annual Improvements to IND AS (2021), to
financial liabilities that are modified or exchanged on or after the beginning of the annual reporting
period in which the entity first applies the amendment. An entity shall apply that amendment for annual
reporting periods beginning on or after 1st April 2022. The notification has brought a few additions and
30
substitutions in following Indian Accounting Standards (Ind AS):
• Ind AS 16- Property, Plant and Equipment;
• Ind AS 37- Provisions, Contingent Liabilities and Contingent Assets;
• Ind AS 41- Agriculture.
• Ind AS 101- First-time Adoption of Indian Accounting Standards;
• Ind AS 103- Business Combinations;
• Ind AS 109- Financial Instruments;

Brief Analysis:

MCA notifies Companies (Indian Accounting Standards) Amendment Rules, 2022 dated 23rd March,
2022 and further amended the Companies (Indian Accounting Standards) Rules, 2015. The notification
has brought a following additions and substitutions in the below mentioned Indian Accounting
Standards (Ind AS):

• Ind AS 16- Property, Plant and Equipment: The amendment has clarified the accounting
treatment for “excess of net sale proceeds of items produced over the cost of testing”. The excess
of net sale proceeds of items produced over the cost of testing, if any, should not be recognized in
the statement of profit and loss account but deducted from the directly attributable costs considered
as part of cost of an item of PPE. The amendment shall be effective for annual reporting periods
beginning on or after 1st April, 2022.

• Ind AS 37- Provisions, Contingent Liabilities and Contingent Assets: The amendment states that
the types of costs a company can include as the ‘cost of fulfilling a contract’ while assessing
whether a contract is onerous as under:
- The incremental costs of fulfilling that contract like direct labour and materials, etc.
- An allocation of other costs that relate directly to fulfilling contracts- like an allocation of
depreciation charge for an item of PPE used in fulfilling that contract.
The amendment apply for annual reporting periods beginning on or after 1st April, 2022 to
contracts existing at the date when amendments are first applied.
• Ind AS 41- Agriculture: This Ind AS requires biological assets to be measured on initial
recognition and at the end of each reporting period at its fair value less costs to sell. Through this
amendment the requirement to exclude cash flows for taxation when measuring fair value was
removed.

• Ind AS 101- First-time Adoption of Indian Accounting Standards: This amendment aims at
simplifying the application of Ind AS 101 for subsidiary that becomes a first time adopter of the
Indian Accounting Standards later than its parent. The amendment states that if a subsidiary, joint
venture of associate adopts Ind AS later than its parent and applies para D16(a) then the subsidiary
may elect to measure cumulative translation differences for all foreign operations at amounts
included in the consolidated financial statements of the parent, based on parent’s date of transition
to Ind AS.

• Ind AS 103- Business Combinations: The amendment have substituted the reference to the
Framework for preparation and Presentation of Financial Statements with Indian Accounting
Standards with reference to the Conceptual Framework for Financial Reporting under Indian
Accounting Standards (Conceptual Framework), without changing the accounting requirements for
business combinations. The amendment would be applicable to those business combinations for
which the acquisition date is on or after 1st April, 2022.

31
 • Ind AS 109- Financial Instruments: As per this accounting standard, a financial liability is
derecognized when it is extinguished, which may inter alia happen when there is an exchange
between an existing borrower and lender of debt instruments with substantially different terms or a
substantial modification of the terms of an existing debt instrument (modification of terms).
The amendment clarifies that for the purpose of performing the 10% test for derecognition of
financial liabilities, in determining fees paid, the borrower includes amounts paid by the borrower
to or on behalf of the lender, and fees received include amounts paid by the lender to or on behalf
of the borrower. The amendment is applied prospectively to modifications and exchanges that
occur on or after the date the entity first applies the amendment.

For details:
https://egazette.nic.in/WriteReadData/2022/234814.pdf

5) The Companies (Accounts) Third Amendment Rules, 2022 (MCA Notification No. G.S.R.
407(E).—Dated 31st May, 2022
The Ministry of Corporate Affairs (MCA) vide its notification dated May 31, 2022 has notified the
Companies (Accounts) Third Amendment Rules, 2022, which shall come into force on the date of its
publication in the Official Gazette. According to the amendment under rule 12 of the Companies
(Accounts) Rules 2014 below changes are mentioned:
 For financial year (2020-2021), Form CSR-2 shall be filed separately on or before 30 June
2022 after filing Form AOC-4 or AOC-4 XBRL or AOC-4 NBFC (Ind AS), as the case
may be.
 For the financial year (2021-2022), Form CSR-2 shall be filed separately on or before 31st
March, 2023 after filing Form AOC-4 or AOC-4 XBRL or AOC-4 NBFC (Ind AS), as the
case may be".
Brief Analysis:
Though thus notification, MCA has extended the date of filing of report on Corporate Social
Responsibility in Form CSR-2 till 30th June, 2022 for the Financial Year 2020-21 and 31st March,
2023 for the Financial Year 2021-22.
For details:
https://egazette.nic.in/WriteReadData/2022/236165.pdf

6. The NFRA Amendment Rules, 2022

MCA Notification no. G.S.R (E) dated 17th June, 2022)

The Ministry of Corporate Affairs (MCA) vide its notification dated 17th March, 2022 has notified
“The National Financial Reporting Authority (NFRA) Amendment Rules, 2022” which has come into
force on the date of its publication in the Official Gazette. The amendment substituted rule 13
(Punishment in case of non-compliance) of the NFRA Rules, 2018 by stating that, whoever contravenes
any of the provisions of these rules, shall be punishable with fine not exceeding Rs. 5,000, and where
the contravention is continuing one, with a further fine not exceeding Rs. 500 for every day after the
first during which the contravention continues.
Earlier to this amendment the contravention under aforesaid rules was punishable as per section 450
(punishment where no specific penalty or punishment is provided) of the Companies Act, 2013.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=ALYJ%252BRnuB%252BCYMY4Llv02JA%253
D%253D&type=open
32
7. Ministry of Corporate Affairs (MCA): Clarification
(MCA Clarification dated 26th September, 2022)

Amendment to Schedule III to the Companies Act, 2013 vide MCA Notification GSR. 207(E) dated
24th March 2021 mandates companies to round off the figures appearing in the Financial Statements
depending upon their total income. However, if the companies provide absolute figures in e-forms i.e.
AOC-4, the same shall not be treated as incorrect certification by the Professionals.

Brief Analysis:
The MCA vide. Notification dated 24-03-2021 introduced an amendment in Schedule III of the
Companies Act, 2013 whereby the companies were mandated to round off the figures appearing in the
Financial Statements depending upon their total income. Now, the MCA has issued clarification that in
case the companies provide an absolute figure in AOC-4, the same shall not be treated as an incorrect
certification by the professionals.

For details:
https://www.mca.gov.in/content/mca/global/en/home.html

33
 Lesson 9 - Transparency and Disclosures

CASE LAWS PERTAINING TO ANNUAL RETURN

1. In the matter of Anil kumar Poddar vs. Nessville Trading (P.) Ltd.,Appellant made an application
for inspection of register of members and annual return of respondent company for the years 2009
to 2012.When company failed to provide copies of aforementioned documents, he filed petition for
supply of documents. The Respondent relied upon doctrine of “ejusdem generis” saying the word
"any other person" mentioned in Section 163(2) of the erstwhile Companies Act, 1956
(corresponding to section 94 of the Companies Act, 2013) is limited to the person holding
commercial interest such as creditor, financier, customer etc., because the preceding would the
member and debenture holder to this word "any other person" being the persons having interest in
the company, then the following word "any other person" cannot be said as extendable to any
person who has no interest in the company, normally, a person considered to aggrieved when his
interest is affected by the act of somebody else, but whereas this Petitioner has no interest in these
companies, therefore, he cannot be called aggrieved to file these company petitions against the
Respondent. The NCLT, Mumbai Bench held that, since petitioner was neither a shareholder, nor
debenture holder nor holding commercial interest in respondent company, he was not entitled to
seek relief under Section 163 of the erstwhile Companies Act, 1956 (corresponding to section 94
of the Companies Act, 2013) regarding supply of copies of documents for inspection.

2. In the matter of Suhas Chakma vs. South Asia Human Rights Documentation Centre Pvt. Ltd., the
contention of the petitioner is that he never executed any instrument of transfer of his shareholdings
to the 2nd respondent, and that he came to know that he was not a shareholder of the 1st respondent
company by virtue of inspection of the Annual Return and that in relation to the illegal and
fraudulent transfer of his shares, he came to know about the same only upon perusal of the Annual
Returns. The NCLT, New Delhi Bench observed that, in view of the wordings used in section 164
of the Companies Act, 1956 (now Section 95 under the Companies Act,2013) to the effect that
registers, returns and documents shall be only prima facie evidence and hence subject to rebuttal,
and therefore, cannot be treated as conclusive evidence and in absence of share transfer forms and
specified share certificates/letter of allotment in question, transfer of equity shares of Petitioner by
Respondents were fraudulent and sham and declare it to be illegal and void.

34
 Lesson 10- An overview of Inter-Corporate Loans
Investments, Guarantees and Security Related Party
Transactions

1) Practical aspects on Inter-Corporate Loans and Investments:

a) Illustration:
Mr. A is the managing director in AB Ltd., which is engaged in manufacturing medicines. Mr. A
is a qualified software expert. AB Ltd. after following a due process of tendering engages the
services of Mr. A in his capacity of a software expert and for which an amount of Rs 50 lakh is
proposed to be paid. The next lowest quotation for the proposal is Rs 2 crore.
This is a transaction with a related party. This transaction will fall under the proviso to Section
197(4) of the Act. If the terms and conditions are comparable with those offered by other parties,
the transaction will not be treated as an office or place of profit as covered under Section 188.
(Price offered by Mr. A is certainly far lower than the next lowest quote but the other terms also
need to be examined). However, approval of the Audit Committee will be necessary. Approval of
the Nomination & Remuneration Committee as provided under Section 197of the Act will also be
required.
b) Illustration:
Mr. X was appointed as the managing director in MNP Ltd. on 1st January 2020. MNP Ltd. is
engaged in manufacturing automobiles. Mr. X holds a few patents in his name since July 2010 and
he is requested by MNP Ltd. for a licence of 5 years of one of the patents for which an amount of
Rs 50 lakh is proposed to be paid.
Although this transaction is with a related party, this transaction will be protected under the proviso
to Section 197(4) of the Act. Section 188(1) of the Act will be attracted if the transaction is not on
an arm’s length basis. This transaction is in the same line of business as that of the company and
obtaining a license of the patent will be in its ordinary course of business. However, approval of
the Audit Committee will be necessary. Approval of the Nomination & Remuneration Committee
as provided under Section 197 of the Act will also be required.

2) Various Issues and Views on Inter-Corporate Loans and Investments:

a) Issue: Will the requirement of passing a shareholder’s resolution not be applicable for transactions
entered into between a Holding company and its wholly owned subsidiary whose accounts are
consolidated with such holding company and placed for approval before the shareholders at the
general meeting of the Holding company?
View: Yes, the fifth proviso to Section 188(1) provides that the requirement of passing the
resolution under the first proviso of section (1) of Section 188 shall not be applicable for
transactions entered into between a holding company and its wholly owned subsidiary whose
accounts are consolidated with such holding company and placed before the shareholders at the
general meeting for approval.
It is pertinent to observe that explanation (2) to Rule 15 of the Companies (Meetings of Board and
its Powers) Rules, 2014 provides that in case of a wholly owned subsidiary, the resolution that is
passed by the holding company would be sufficient for the purpose of entering into the transaction
between the wholly owned subsidiary and the holding company. \
This will mean that in case the fifth proviso to Section 188(1) is not available to a company as the
accounts are not so consolidated, then as per explanation (2) to Rule 15 a resolution passed by the
holding company will be sufficient.
35
b) Issue: Who determines that the transaction with related party is in the ordinary course of business?
Is it the Board or the Audit Committee?
View: The Companies Act, 2013 does not clearly lay down tests for determining whether a
transaction is in the ordinary course of business.
The Memorandum of Association of the company should be referred to for ascertaining whether
the activity is covered in the objects clause therein. This is not a conclusive test but will assist in
determining whether a transaction is in the ordinary course of business or not. The Audit
Committee may decide whether a particular transaction is in the ordinary course of business and
such decision will be based on the policy on transactions with related parties, if any. The
company’s policy on transactions with related parties should specify the parameters to guide the
Audit Committee on whether a transaction is in the ordinary course of business or not. Apart from
such a policy, a company may formulate guidelines approved by the Audit Committee and the
Board of Directors on transactions with related parties. In such cases, the company can enter into
transactions based on the approved guidelines and every transaction need not be placed before the
Audit Committee for determining whether the same is in the ordinary course of business or not. In
case the company does not have an Audit Committee, the decision as to whether a transaction is
in the ordinary course of business or not will be taken by the Board.
c) Issue: Will a transaction of payment of salary to an employee who is a relative of a Director,
(where such payment is in the ordinary course of business and on arm’s length) require disclosure
as a related party transaction in the Board’s Report?
View: The same need not be disclosed as a related party transaction in Form AOC-2 in the Board’s
Report unless the same is material in the context of the company’s business.
d) Issue: Is it required that items falling in the ambit of the fourth proviso to Section 188(1) of the
Act i.e. transactions entered into by the company in its ordinary course of business other than
transactions which are not on an arm’s length basis, be mentioned in Form AOC-2?
View: Form AOC–2 uses the term ‘material’ and therefore if the transactions are material, the
same will need disclosure. A transaction which is in the ordinary course of business and on arm’s
length basis but which is considered to be material will require disclosure in Form AOC–2. It is to
be noted that approvals of the Board and the shareholders are not required if the transaction is in
the ordinary course of business and on arm’s length basis, but disclosure is required from the
perspective of transparency.
e) Issue: Where a Board meeting is held prior to the Audit Committee meeting and the Board
approves a transaction with a related party. Can the Audit Committee approval be taken
subsequently?
View: Yes. The legal requirement is clear that the transactions referred to in Section 188 require
approval of the Audit Committee. Audit Committee approval after Board’s approval is irregular
but not illegal. Further, the approval of the Audit Committee should be obtained before the
transaction.
f) Issue: Whether approval of the Board will need to be taken by a wholly owned subsidiary which
is not required to constitute an Audit Committee, for entering into transactions with related parties
in the ordinary course of business and on an arm’s length basis?
View: In such case, it is a good practice to place the item pertaining to related party(ies) before the
Board. This is, however, not mandatory.
g) Issue: Where transactions are between a holding company and its wholly owned subsidiary
company, will Section 177 of the Act be attracted?
View: A transaction between a holding company and its wholly owned subsidiary company is
exempted from the requirement of Audit Committee approval under Section 177 of the Act and as

36
 per Regulation 23 of the SEBI (LODR) Regulations in case of a listed company. However, if the
transaction is a related party transaction i.e. of the nature falling under Section 188(1) of the Act,
then approval of the Audit Committee will be required for such transaction.
In case of a transaction between a holding company and a subsidiary company which is not a
wholly owned subsidiary, Sections177 and 188 of the Act as well as Regulation 23 of the Listing
Regulations will apply.
The company is required to check whether it is a transaction in the ordinary course of business and
on an arm’s length basis as per Section 188 of the Act. In case it is a material related party
transaction for the purpose of Regulation 23 of Listing Regulations, then approval of shareholders
will also be necessary.
h) Issue: In case of a public company there are three Directors and all are related to each other and
there is an item of business in which all the three directors are interested. What is the way forward
in such a situation?
View: The Board may approve such items only if a dis-interested quorum is present. Otherwise,
the matter would need to be placed for approval at a General Meeting. At a general meeting, if
90% or more of the number of members are related to the promoters or are related parties, then the
related parties can also vote on the resolution to approve any contract or arrangement.
In case of a listed public company, the directors need to decide first on the proposed resolution
and then the matter needs to be placed before the shareholders for approval.

3) Case Study

26.09.2019 ITC Ltd. (Appellant) vs. Securities Appellate

Securities and Exchange Tribunal
Board of India &
Ors.(Respondents)
Related-party transactions only contemplate transactions between a company and related
party
Securities Appellate Tribunal(SAT): Coram of Justice Tarun Agarwala,(Presiding Officer), Justice
M. T. Joshi(Judicial Member), and Dr. C. K. G. Nair (Member), dismissed an appeal filed by ITC
Ltd. against the proposed sale transaction of the substantial assets of Hotel Leela ventures Ltd.
(Leela) for which the impugned Postal Ballot Notice (PB Notice) was issued and allowed the
appeal filed by JM Financial Asset Reconstruction Co. Ltd. (JMF ARC).
Fact of the Case
“Leela” under financial distress, had decided to restructure its debts under the Corporate Debt
Restructuring (CDR) mechanism. The majority lender institutes agreed for the same. On 20-09-
2012 the CDR package of Leela was approved. Thereafter, a Master Restructuring Agreement was
executed on 25-09 2012 between Leela and State Bank of India (SBI) and other lenders on the
other hand. Under the said Master Restructuring Agreement, Leela was to comply with certain
terms and conditions, which it could not.
Thereafter, on 25-06-2014, a Trusteeship Agreement under the SARFAESI Act was executed
between JMF ARC and the lenders under which a Trust was created named as JMF ARC-Hotels
June 2014-Trust. This Trust had issued security receipts to these Joint Lenders and also offer
documents were issued for the private placement of the said receipts. Eventually, the CDR package
was declared as failed and on 30-06-2014, majority lenders had assigned Rs.4150.14 crore of
debtto the Trust. JMF ARC paid Rs.865 crores upfront and issued security receipt worth Rs.3200
crores. It filed disclosures under Regulation 29(2) of the Takeover Regulations on 25-10-2017.
37
JMF ARC later filed a corporate insolvency resolution process before the National Company Law
Tribunal Mumbai Bench (NCLT), the proceedings for which are pending.
Due to initiative of JMF ARC, a proposal was received from Brookfield for the “Asset Sale
Transaction” of the Company’s assets and the additional transactions between Brookfield and
some of the promoters. On 18-03-2019, the Board of Directors of Leela approved the framework
agreement comprising the Asset Sale Transaction and PB Notice was issued. On 22-04-2019, the
appellant ITC filed a Company Petition before the NCLT complaining of oppression and
mismanagement, which too is pending before the NCLT. ITC argued that they were not allowed
to obtain a copy of the Framework Agreement but could only take notes.
ITC objected that all the transactions were related party transactions which could not be generally
put for the vote including the Promoters, Directors being related parties as also JMF ARC. Further,
JMF ARC acting as a Merchant Banker Leela was also to gain a remuneration of Rs 70 cores
besides its resolution of debt assigned to it by the lenders. Further, JMFARC had acquired
26%ofthe equity of Leela against the provisions of the Takeover Regulations, 2011, it should have
been prohibited by SEBI from participating in the voting under the provisions of Regulation 32 of
the Takeover Regulations.
SEBI had held that the transactions in question were not related party transactions. They stated
that in acquiring 26% of the equity shares of the Leela by JMF ARC, only a technical breach has
occurred which could be exempted.
Aggrieved by this order of not restraining Promoters/Directors of Leela and JMF ARC from
voting, ITC filed an appeal before SAT.
All the respondents submitted that the appellant was a rival company which was trying to scuttle
the transaction only to compel Leela to undergo the debt resolution under the Insolvency and
Bankruptcy Code. The appellant, on the other hand, submitted that the Directors and the Promoters
of Respondent Leela were pushing ahead with their personal agenda of pocketing an amount of Rs
300 crores through the additional transaction.

The Tribunal answered the following issues:

• Whether the disputed transactions were related party transactions limiting the voting rights of the
directors, promoters of the Leela and of JMF ARC?
• Whether JMF ARC could be completely prevented from voting in view of the Takeover
Regulations?
Judgment
The Tribunal was of the view that it was not required of them to asses the proposed transaction to
find as to whether it is in the interest of the investors. In view of objection to the voting rights or
limitations on the voting rights of the directors/promoters of the respondents, the reliefs can be
modified in terms of the relevant regulations. The appeal filed by ITC Ltd. was dismissed by the
Tribunal citing the following regulations:

Takeover Regulations:
In view of the Takeover Regulations of 2011 an acquirer acquiring 25% or more shares, voting
rights or control in a listed Company has to adopt the route as provided by the Takeover
Regulations subject to certain exemptions. JMF ARC acquired 26% of the shares of the Company
by claiming exemption as provided by Regulation 10 of the Takeover Regulations. SEBI in the
impugned order held that the said acquisition was only a technical breach of the Regulations fit
for exemption and did not exercise its power to issue directions as provided by Regulation 32 of
the Takeover Regulations.
38
Corporate debt restructuring scheme was announced by the Reserve Bank of India through various
circulars from time to time for the purpose of restructuring the debt of financially distressed
companies in an attempt to revive such Companies. The circulars provided a basic framework.
Specific plans were to be worked out for a Company inter alia regarding interest moratorium, plans
of payment, etc. to be worked out in the agreement which would be approved by the Empowered
Group of CDR scheme. In the event of default, the agreement can provide for certain
contingencies. Clause 7.2 of the Master Restructuring Agreement provided for remedy upon
default. Therefore, the covenant regarding conversion right would come into picture only when
the CDR scheme fails i.e. default is made by the borrower in pursuance of the CDR scheme.
LODR Regulations: Related Party Transactions:
The appellant had objected the exercise of PB Notice asking all the shareholders including the
respondents who are the promoters/directors of the in view of the fact that the proposed Asset Sale
Transaction of the Company with Brookfield was a composite transaction to be consummated only
when additional transactions with the promoters personally are also agreed. It was submitted that
as the nature of the transaction was, the same would be a related party transaction attracting the
provisions of Regulation 23 of the LODR Regulations.
Therefore, the entire transaction was held to be a composite transaction. Further, the additional
transaction between Brookfield and ITC cannot also be termed as related party transactions and,
therefore, the provisions of Regulation 23 of the LODR Regulations would not be attracted.

4) Clarification on applicability of regulation 23 of SEBI (Listing Obligations and Disclosure

Requirements) Regulations, 2015 in relation to Related Party Transactions (SEBI Circular
No. - SEBI/HO/CFD/CMD1/CIR/P/2022/40 dated 30th March, 2022)

Impact of clarification:

SEBI vide this circular has clarified that for an Related Party Transaction (RPT) that has been
approved by the audit committee and shareholders prior to April 01, 2022, there shall be no
requirement to seek fresh approval from the shareholders. The RPT that has been approved by the
audit committee prior to April 01, 2022 which continues beyond such date and becomes material as
per the revised materiality threshold shall be placed before the shareholders in the first General
Meeting held after April 01, 2022.
Further, provided that the explanatory statement contained in the notice sent to the shareholders for
seeking approval for an RPT shall provide relevant information so as to enable the shareholders to
take a view whether the terms and conditions of the proposed RPT are not unfavourable to the
listed entity, compared to the terms and conditions, had similar transaction been entered into
between two unrelated parties.

For details:
https://www.sebi.gov.in/legal/circulars/mar-2022/clarification-on-applicability-of-regulation- 23-
of-sebi-listing-obligations-and-disclosure-requirements-regulations-2015-in-relation-to- related-
party-transactions_57398.html

39
 Lesson 12- An overview of Corporate Reorganization

1) Case Law
In the matter of Mohit Agro Commodities & Ors. NCLAT, dated June 28, 2021
When the ‘Transferor and Transferee Company’ involve a Parent Company and a Wholly
Owned Subsidiary the meeting of Equity Shareholders, Secured and Unsecured Creditors
can be dispensed with as the rights of the Equity Shareholders of the ‘Transferee Company’
are not being affected
Fact of the Case
The Appellant Company (‘Transferor Company’ and ‘Transferee Company’) filed Applications
under Sections 230 to 232 and other relevant provisions of the Companies Act, 2013 seeking
dispensation of the meeting of the Equity Shareholders, Secured Creditors and Unsecured
Creditors in respect of the scheme of Amalgamation of the ‘Transferor Company’ with the
‘Transferee Company’ with effect from the appointed date on the aggrieved terms and conditions
has set out in the scheme in accordance with Sections 230 to 232 of the Companies Act, 2013 and
other applicable provisions of the Act. It is contented that there is no change in the capital structure
of the ‘Transferor Company’ till the date of approval of the schemes by the Board of Directors.
It is further stated that the ‘Transferor Company’ is a Wholly Owned Subsidiary of the ‘Transferee
Company’ and that both the Companies are incorporated in similar type of nature of activities and
that the ‘Transferee Company’ had acquired the ‘Transferor Company’ as a business supportive
mechanism for ease of operations.
Judgment
The NCLAT has observed that Section 232(1) of the Companies Act, 2013 uses the word ‘may’
which introduces an element of discretion to the Tribunal to be exercised in the interest of justice
in appropriate situations. Section 232 is a specific provision carved out by the Legislature when
both conditions maintained in clauses (a) and (b) of sub-Section (1) of Section 232 are met.
In the instant case the amalgamation sought for is between a Wholly Owned Subsidiary and the
Holding Company. The point which needs to be noted is:
• whether such an arrangement alters the rights of the Stakeholders of the Company?
• whether such an amalgamation has any bearing internally on Creditors/Members of both the
Companies?
• whether not holding the subject meeting would amount to violation of any of the provisions of
the Companies Act, 2013?
• whether the Tribunal can exercise their discretion when the ‘Transferor Company’ is a Wholly
Owned Subsidiary of the ‘Transferee Company’ and financial position of the ‘Transferee
Company’ is positive and the merger is not affecting the rights of the Shareholders or the
Creditors?
Therefore, it is held that the rights and liabilities of Secured and Unsecured Creditors were not
getting affected in any manner by way of the proposed scheme as no new shares are being issued
by the ‘Transferor Company’ and no compromise is offered to any Secured and Unsecured
Creditors of the ‘Transferee Company’. Hence, when the ‘Transferor and Transferee Company’
involve a Parent Company and a Wholly Owned Subsidiary the meeting of Equity Shareholders,
Secured Creditors and Unsecured Creditors can be dispensed with as the rights of the Equity
Shareholders of the ‘Transferee Company’ are not being affected.

40
2. The Companies (Registration Offices and Fees) Amendment Rules, 2022 (MCA Notification No. G.S.R.
12(E)—Dated 11th January, 2022)

The Central Government has notified the Companies (Registration Offices and Fees) Amendment Rules, 2022
further to amend the Companies (Registration Offices and Fees) Rules, 2014. The said notified rules shall come
into force with effect from 1st July, 2022.

In the Companies (Registration Offices and Fees) Rules, 2014, in the Annexure, in item I (Fee for filing under
section 403 of the Companies Act, 2013), sub-item B, has been substituted.

Brief Analysis:

As per rule 12 of the Companies (Registration Offices and Fees) Rules, 2014, fees or additional fees is payable
for filing, submission, registration or recording of the document. Item I, sub item A, in the Annexure to rule 12
covers the fees payable, whereas, sub-item B in the Annexure to rule 12 covers the additional fees payable for
delay in filing of forms. The Companies (Registration Offices and Fees) Amendment Rules, 2022 substitute sub-
item B in the Annexure.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=T%252F%252B384mFkSrHFx1liwRTn
Q%253D%253D&type=open

3. MCA Notifications No. S.O. 147(E) dated January 11, 2022

The Central Government appoints the 1st July, 2022, as the date on which the provisions of second and third
proviso to clause (i) of section 80 of the Companies (Amendment) Act, 2017 shall come into force.

Brief Analysis:

MCA has notified section 80 of Companies (Amendment) Act, 2017 w.e.f. 1st July, 2022 which relates to
amendment in Section 403 of Companies Act, 2013. Section 403 of Companies Act, 2013 deals with Fee for
Filing, etc. It states that where any documents, fact or information required to be submitted, filed, registered or
recorded within the period provided in respective sections it may be submitted, filed, registered or recorded, as
the case may be, after expiry of the period so provided in those sections, on payment of such additional fee as
may be prescribed, which shall not be less than one hundred rupees per day and different amounts may be
prescribed for different classes of companies and where there is default on two or more occasions in submitting,
filing, registering or recording of the document, fact or information, it may, without prejudice to any other legal
action or liability under this Act, be submitted, filed, registered or recorded, as the case may be, on payment of a
higher additional fee, as may be prescribed and which shall not be lesser than twice the additional fee as provided
in the provisions of the Act. It also states that where a company fails or commits any default to submit, file,
register or record any document, fact or information before the expiry of the period specified in the relevant
section, the company and the officers of the company who are in default, shall, without prejudice to the liability
for the payment of fee and additional fee, be liable for the penalty or punishment provided under this Act for such
failure or default.”.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=VrIKR5%252BwlgL7%252BmN7eJV
%252BIg%253D%253D&type=open

41
4. MCA Notifications No. S.O. 148(E) dated January 11, 2022

The Central Government appoints the 1st July, 2022, as the date on which the provisions of section 56 of the
Companies (Amendment) Act, 2020 shall come into force.

Brief Analysis:

The Ministry of Corporate Affairs vide its notification dated 11th January 2022, appoints 1st July 2022 as the
date on which the provisions of section 56 of the Companies (Amendment) Act 2020 shall come into force.

Section 56 of the Companies (Amendment) Act revises section 403(1) of Companies Act, 2013 which deals with
the fee required to be paid by companies in case they fail to submit, file, register or record any document with the
Registrar of Companies.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=iT%252FontW9dKI4nmHzMDRmVA
%253D%253D&type=open

5. Amendment in the notification pertaining to application for Fast Track Corporate Insolvency
Resolution Process
(MCA notification no. S.O. 4142(E) dated 30th August, 2022)

The Ministry of Corporate Affairs (MCA) vide its notification dated August 30, 2022 has notified the
amendment in the notification no. S.O. 1911(E) dated June 14, 2017.
As per the amendment, an application for fast track corporate insolvency resolution process may be
made in respect of the following corporate debtors, namely:
(a) A Small Company as defined under clause (85) of section 2 of Companies Act, 2013; or
(b) A Startup (other than the partnership firm) as defined in the notification of the Government of India
in the Ministry of Commerce and Industry number G.S.R. 127(E), dated the 19th February, 2019,
published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), dated the 19th
February, 2019 and as amended from time to time; or”
(c) An unlisted company with total assets, as reported in the financial statement of the immediately
preceding financial year, not exceeding rupees one crore.

Brief Analysis:

Through this notification, Government of India has notified that an application for fast track corporate
insolvency resolution process may be made also by a Startup (other than the partnership firm).
For details:
https://egazette.nic.in/WriteReadData/2022/238571.pdf

6. The Companies (Registered Valuers and Valuation) Amendment Rules, 2022

(MCA notification no. G.S.R (E) dated 21st November, 2022)

The Ministry of Corporate Affairs (MCA) vide its notification dated November 21, 2022 has notified
“the Companies (Registered Valuers and Valuation) Amendment Rules, 2022” which has come into
force on the date of its publication in the Official Gazette. The highlights of the amendment are
mentioned below:
a) Rule 3(2)(c) is modified by clarifying that a partnership firm or company shall not be registered as a
registered valuer unless all the partners or directors are eligible to be under Rule 3(1) to be registered as
registered valuers.
42
Further, a new clause (f) to Rule 3(2) is inserted specifying that, such partner or director shall not be a
member of more than one registered valuers organisation at one point in time and the partnership entity
or company already registered as valuers to comply with the provisions within six months of date of
commencement of Amended Rules 2022.

(b) Rule 7A has been inserted, which mandates that a registered valuer must inform the authority (i.e.
IBBI-powers delegated under section 458 of the Companies, Act, 2013) as to any change in the personal
details or modification in the composition of directors or partners or any such change in the partnership
deed or Memorandum of Association which may affect the registration of registered valuer.
(c) Rule 14A has been inserted, which specifies that the registered valuers organisation must intimate
the authority (IBBI) as to any change in the composition of its governing board, appellate panel or
committee after payment of requisite fee.
(d) An explanation has been inserted into Clause 26(1)(b) of Annexure III, Part II of Serial Number IX
(dealing with grounds for temporary surrender of membership), which clarifies that a member
functioning as a whole-time director of a company registered as a valuer shall not be considered
“employment” and hence not a ground for the temporary suspension.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=jf9MSWpybbeJiak1ynOMQQ%253D%253D&typ
e=open

43
 Lesson 13- An Introduction to MCA- 21 and filing in XBRL

1) The Companies (Incorporation) Fourth Amendment Rules, 2021 (Notification No: G.S.R.
392(E), dated June 07, 2021)
The Central Government has made the Companies (Incorporation) Fourth Amendment Rules,
2021 to further amend the Companies (Incorporation) Rules, 2014.
1. In Rule 38 A of the Companies (Incorporation) Rules, 2014,
(i) in the marginal heading, for the words, “and Opening of Bank Account”,
The following the words shall be substituted,
“Opening of Bank Account and Shops and Establishment Registration”
(ii) in the opening portion, for the letters “AGILE-PRO”, the letters “AGILE-PRO-S” has been
substituted;
(iii) for clauses “(c) and (d)” relating to “Profession Tax Registration and Opening of Bank
Account”, the following clauses shall be substituted, namely:-
“(d) Profession Tax Registration with effect from the 23rd February, 2020;
(e) Opening Bank Account with effect from the 23rd February, 2020;
(f) Shops and Establishment Registration.”
2. In the Annexure to the Companies (Incorporation) Rules, 2014, for the e-Form No.INC-35
(AGILE-PRO), the e-Form INC-35 (AGILE-PRO-S) has been substituted

BRIEF ANALYSIS:

Rules Amendment Highlights Effect

Rule 38A of the Change in the Heading the facility of obtaining
Companies Application for registration of Goods and Shops and
(Incorporation) Service Tax Identification Number (GSTIN), Establishment
Rules, 2014 Employee State Insurance Corporation Registration has been
(ESIC) registration, Employees’ Provident included.
Fund organisation (EPFO) Registration and
Profession Tax Registration, Opening of
Bank Account and Shops and
Establishment Registration
In the opening portion of the Rule, for the The application for
letters “AGILE-PRO”, the letters “AGILE- incorporation of a
PRO-S” has been substituted; company in SPICe+
under Rule 38 of the
Companies
(Incorporation) Rules,
2014 shall be
accompanied by the form
AGILE-PRO-S (INC-
35).
(d) Profession Tax Registration with effect Sequence revised and
from the 23rd February, 2020. clause (f) w.r.t. Shop and
44
 (e) Opening of Bank Account with effect from Establishment
23rd February, 2020. Registration has been
added.
(f) Shop and Establishment Registration.
Annexure to Rule INC-35 “AGILE-PRO-S” Form Name Revised to
38A of the “INC-35 AGILE-PRO-
Companies S” and respective
(Incorporation) changes to the form has
Rules, 2014 been notified.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=sbRk0d1avtQVQZrw%252BKS2
GA%253D%253D&type=open

3. The Companies (Incorporation) Amendment Rules, 2022 (MCA Notification No. G.S.R. 291 (E).—
Dated 8th April, 2022)

The Central Government notified the Companies (Incorporation) Rules, 2022, the said amendment
rules inserted the proviso to Rule 12 (Application for Incorporation of Companies) as mentioned
below:
“Provided further that in case of a Company being incorporated as a Nidhi, the declaration by the
Central Government under section 406 of the Act shall be obtained by the Nidhi before
commencing the business and a declaration in this behalf shall be submitted at the stage of
incorporation by the company.”
Further, the amendment rules substituted the Form INC-20A and inserted a declaration under Part
B of Form INC-32 (SPICE+) pertaining to, all necessary approvals have been obtained before
commencing business of Nidhi, the said forms are specified under the annexure to the Companies
(Incorporation) Rules, 2014.

Brief Analysis:

The Ministry of Corporate Affairs (“MCA”) notified the Companies (Incorporation) Amendment
Rules, 2022 to further amend the Companies (Incorporation) Rules, 2014 vide notification no.
G.S.R. 291(E) dated April 8, 2022. Through this amendment, MCA has inserted a proviso to Rule
12 wherein a company being incorporated as Nidhi will require a declaration by the Central
Government under section 406 of the Companies Act, 2013 before commencement of business and
a declaration in this behalf shall be submitted at the stage of incorporation by the company.
Further, INC-20A and Part B of Form INC-32 (SPICE+) has also been revised to capture the
aforesaid declaration by a Nidhi Company.

For details:
https://egazette.nic.in/WriteReadData/2022/234994.pdf

4. The Companies (Incorporation) Second Amendment Rules, 2022 (MCA Notification No.
G.S.R. (E).—Dated 20th May, 2022)

The Ministry of Corporate Affairs (MCA) vide its Notification dated May 20, 2022 has notified the
Companies (Incorporation) Second Amendment Rules, 2022 which shall come into force with effect from
June 01, 2022. As per the amendment, Form No. INC-9 (Declaration by Subscribers and First Directors) has
been substituted. The substituted Form inter-alia consist declaration in respect of compliance with
Government approval under FEMA by inserting checkboxes;
• I am required to obtain the Government approval under the Foreign Exchange Management (Non-debt
45
 Instruments) Rules, 2019 prior to subscription of shares and the same has been obtained, and is enclosed
herewith; or

• I am not required to obtain the Government approval under the Foreign Exchange Management (Non-
debt Instruments) Rules, 2019 prior to subscription of shares.
Further, the Ministry has inserted new declaration in Form No. INC 32 (SPICe+), in part B, in declaration,
the following shall be inserted at the end, namely:
“I, on behalf of proposed directors, hereby declare that person seeking appointment is a national of a country
which shares a land border with India, necessary security clearance from Ministry of Home Affairs,
Government of India shall be attached with the consent.
Yes No. (if yes is opted, a copy of the security clearance is to be attached).”

Brief Analysis:

The Ministry of Corporate Affairs (“MCA”) notified the Companies Second (Incorporation)
Amendment Rules, 2022 to further amend the Companies (Incorporation) Rules, 2014 dated May
20, 2022. As per the amendment, Form No. INC-9 (Declaration by Subscribers and First Directors)
has been substituted to include declaration with respect to whether Government approval under the
Foreign Exchange Management (Non-debt Instruments) Rules, 2019 is required to be obtained or
not.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=QJAZ8U7iIBs%252FRWVx91HwmQ%253
D%253D&type=open

6. Ministry of Corporate Affairs- Important Update

(MCA important updated dated 22nd August, 2022)

Stakeholders please note that 9 Company forms (DIR3-KYC Web, DIR3-KYC e-form, CHG-1, CHG-4,
CHG-6, CHG-8, CHG-9, DPT-3, DPT-4) are available in V3 portal for filing purposes.

Brief Analysis:
The MCA has migrated LLP filings to an upgraded Version 3 of the MCA- 21 Portal, and as the first
phase, the go-live of the revised and enhanced LLP forms has commenced from 8th March, 2022. In the
second phase, the Ministry of Corporate Affairs on 31st Aug 2022 at 12:00 AM has launched first set of
Nine (9) Company Forms on MCA21 V3 portal. Following forms will be rolled-out in this phase:
DIR3-KYC Web, DIR3-KYC E-form, DPT-3, DPT-4, CHG-1, CHG-4, CHG-6, CHG-8 & CHG-9.

For details:
https://www.mca.gov.in/content/mca/global/en/home.html

46
 Lesson 16 – Directors

1) The Companies (Creation and Maintenance of databank of Independent Directors)

Amendment Rules, 2021 (Notification No: G.S.R. 418(E), dated June 18, 2021)
The Central Government has made the Companies (Creation and Maintenance of databank of
Independent Directors) Amendment Rules, 2021, to further amend the Companies (Creation and
Maintenance of databank of Independent Directors) Rules, 2019, namely:-
(a) In Rule 3(7) in clause (a) of the Companies (Creation and Maintenance of databank of
Independent Directors) Rules, 2019:
after the words “for inclusion”, the words “or renewal” shall be inserted;
(b) In Rule 3 after sub-rule (7) of the Companies (Creation and Maintenance of databank of
Independent Directors) Rules, 2019, before explanation, the following sub-rule shall be
inserted, namely:-
“(8) In case of delay on the part of an individual in applying to the institute under sub-rule (7) for
inclusion of his name in the data bank or in case of delay in filing an application for renewal
thereof, the institute shall allow such inclusion or renewal, as the case may be, under rule 6 of the
Companies (Appointment and Qualification of Directors) Rules, 2014 after charging a further fee
of one thousand rupees on account of such delay.”
Brief Analysis:
Accordingly, with this amendment, a new sub-rule 8 has been inserted in Rule 3 of the Companies
(Creation and Maintenance of databank of Independent Directors) Rules, 2019, which provides
that in case of delay on the part of an individual in applying to the Indian Institute of Corporate
Affairs for inclusion of name in the independent director’s data bank or in case of delay in filing
an application for renewal thereof, the institute shall allow such inclusion or renewal, as the case
may be, after charging a further fee of Rs.1000 on account of such delay.
For details:
https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=MjAxNDA=&docCategory=Notifica
tionsAndCirculars&type=download

2) The Companies (Appointment and Qualification of Directors) Amendment Rules, 2021

(Notification No. G.S.R. 579(E), dated August 19, 2021)
The MCA has notified the Companies (Appointment and Qualification of Directors) Amendment
Rules, 2021 to further amend the Companies (Appointment and Qualification of Directors) Rules,
2014.
(1) In Rule 6(4) of the Companies (Appointment and Qualification of Directors) Rules,
2014, in the first proviso, for clause (B),
the following clause has been substituted, namely:—
“(B) in the pay scale of Director or equivalent or above in any Ministry or Department, of the
Central Government or any State Government, and having experience in handling,—
(i) the matters relating to commerce, corporate affairs, finance, industry or public enterprises; or
(ii) the affairs related to Government companies or statutory corporations set up under an Act of
Parliament or any State Act and carrying on commercial activities.”.
(2) after the second proviso, the following proviso has been inserted, namely:—
“Provided also that the following individuals, who are or have been, for at least ten years:—
47
 (A) an advocate of a court; or
(B) in practice as a chartered accountant; or
(C) in practice as a cost accountant; or
(D) in practice as a company secretary,
shall not be required to pass the online proficiency self-assessment test.”.

Brief Analysis:
The Amendment provides that an individual is exempted to pass the online proficiency self-
assessment test to be included in independent directors’ databank if he has served for a total period
of not less than three years as on the date of inclusion of his name in the data bank in the pay scale
of Director or equivalent or above in any Ministry or Department, of the Central Government or
any State Government, and having experience in handling,—
(i) the matters relating to commerce, corporate affairs, finance, industry or public enterprises; or
(ii) the affairs related to Government companies or statutory corporations set up under an Act of
Parliament or any State Act and carrying on commercial activities.”.
It is further provided that an individual who are or have been, for at least ten years an advocate of
a court or as a chartered accountant in practice or as a cost accountant in practice or as a company
secretary in practice, shall not be required to pass the online proficiency self-assessment test.

For details:
https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=MzU0MTU=&docCategory=Notific
ations&type=open

3) The Companies (Creation and Maintenance of databank of Independent Directors) Second

Amendment Rules, 2021 (Notification No: G.S.R. 580(E), dated August 19, 2021)
The MCA has notified the Companies (Creation and Maintenance of databank of Independent
Directors) Second Amendment Rules, 2021 to further amend the Companies (Creation and
Maintenance of databank of Independent Directors) Rules, 2019. In the Companies (Creation and
Maintenance of databank of Independent Directors) Rules, 2019, after rule 5, the following new
rule 6 and the Schedule has been inserted, namely:-
“6. Annual report on the capacity building of independent directors:- The institute shall within
sixty days from the end of every financial year send an annual report to every individual whose
name is included in the data bank and also to every company in which such individual is appointed
as an independent director in format provided in the Schedule to these Rules.” The amendment
also prescribes the format of Annual report on Capacity Building of Independent Director.

Brief Analysis:
With this amendment the Indian Institute of Corporate Affairs (IICA) shall within sixty days from
the end of every financial year send an annual report to every individual whose name is included
in the data bank and also to every company in which such individual is appointed as an independent
director.
For details:
https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=MzU0MTY=&docCategory=Notific
ations&type=open
48
4) Various Issues and Views on Independent Director – Section 149(6)
a. Issue: Whether the spouse of Secretarial Auditor or Statutory Auditors of the company, be
appointed as an independent director in the company?
View: According to Section 149(6)(e)(ii) of the Act, an independent director in relation to a
company, means who neither himself nor any of his relatives is or has been an employee or
proprietor or a 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 its holding, subsidiary or associate company. Hence such a
person whose spouse is the secretarial auditor/statutory auditor of the company cannot be
appointed as an independent director in that company.
b. Issue: Can a friend of a director be considered as independent?
View: Law does not prohibit the appointment of a friend of a director of the company as an
independent director, if he fulfils all the legal requirements.
c. Issue: Can a Spouse of an independent director be appointed as an independent director?
View: No, a Spouse of an independent director cannot be appointed as an independent director.
Refer to Section 149(6)(b)(ii) which provides that an independent director in relation to a company
means one who is not related to promoters or directors in the company, its holding, subsidiary or
associate company.
d. Issue: Can an independent director be appointed for the first term as an additional director by the
board of directors of a company?
View: Section 150(2) of the Act provides that “the appointment of independent director shall be
approved by the company in general meeting as provided in sub-section (2) of section 152”.
Section 152(2) of the Act mandates that save as otherwise expressly provided in the Act, every
director shall be appointed by the company in general meeting. Section 161(1) of the Act confers
on the Board of Directors of a company 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 who
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.
On a holistic reading of sections 150(2), 152(2) and 161 of the Act, it is clear that the Act confers
the power on the Board to appoint additional directors designated as independent directors subject
to approval of the shareholders at the general meeting of the company.
Further schedule IV of the Act provides that “the appointment of independent director(s) of the
company shall be approved at the meeting of the shareholders.”
The requirement of the above sections read with Schedule IV and Section 149 (4) do not imply
that there is a requirement of prior approval of shareholders for appointment of an independent
director. Therefore, it can be said that an independent director can be appointed by the Board as
an additional director and his appointment can be approved by the shareholders at the next annual
general meeting, as required under section 161(1) and schedule IV to the Act, with effect from the
date of the Board meeting. The period of five years shall be counted from the effective date of
appointment as approved by the Board in its meeting. Hence, the period between the effective date
of appointment of independent director by the Board and the date of approval by the shareholders
shall be considered as part of the first term of the independent director.
Further as per second proviso to rule 4(1) of the Companies (Appointment and Qualification of
Directors) Rules, 2014, any intermittent vacancy of an independent director shall be filled-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. This further substantiates the above conclusion that
appointment of independent directors can be done by the Board as additional director subject to

49
 approval of shareholders at the general meeting.
e. Issue: Can an independent director be appointed as an additional director by the Board of Directors
of a company for a second term once his first term is over?
View: In order to reply to the aforesaid, it is imperative to look into the provisions of section
149(10) of the Act which provides as under: “an independent director shall hold office for a term
up to five consecutive years on the Board of a company, but shall be eligible for reappointment on
passing of a special resolution by the company.” Further section 149(11) of the Act provides as
under: “Notwithstanding anything contained in sub-section (10), no independent director shall
hold office for more than two consecutive terms, but such independent director shall be eligible
for appointment after the expiration of three years of ceasing to become an independent director”.
The term “Consecutive” has not been defined in the Act. However reference of the word
“consecutive” can be drawn from Merriem Webster dictionary, which provides the meaning as
following one after the other or successive. This effectively means both the terms have to follow
each other. Similarly, in the Webster dictionary, the term “eligible” is referred to in the context a
person or thing that is qualified or permitted to do or be something. The term “re-appointment” is
also defined in the Webster dictionary as “to name officially to a position for a second or
subsequent time”.
While going through the aforesaid definitions as used in sections 149(10) and 149(11), it becomes
clear that an independent director is eligible to be reappointed for a second term only on passing
of special resolution by the shareholders and not before. Therefore, obtaining shareholders’
consent prior to his reappointment for a second term, in considered view, is a pre-requisite for the
independent director to be eligible to serve on the Board of the company for a second term.
If the shareholders’ approval by special resolution for his reappointment for second term is not
taken as on the last date of the first term, then such independent director cannot be re-appointed
by Board as an additional director for second term, as he does not possess the eligibility to get re-
appointed for second term and hence, he ceases to be a director at the end of his first term.
f. Issue: Whether Circular resolution is allowed for appointment of an independent director while
appointing him for the first term?
View: There is no restriction on appointment of an independent director by way of a circular
resolution, if he is to be appointed by the Board as an additional director. However, it must be
ensured that Nomination and Remuneration Committee of the company has duly discussed and
recommended the candidate, before circulation of Board resolution.
g. Issue: Can appointment of independent director be done to fill the casual vacancy created by
resignation of any other independent director?
View: Whenever any existing independent director ceases to be a director of company either due
to resignation, death or otherwise, then in order to ensure the requisite Board composition, a new
independent director should be appointed. The Board can appoint an individual either as an
additional director under section 161(1) of the Act to hold office till the next annual general
meeting of the company or he can be appointed as a director in the casual vacancy to fill the
vacancy created in the office of independent director. It may be noted that if a director is appointed
by the Board to fill the casual vacancy (as mentioned above), then as per Section 161(4) read with
Annexure A to the Secretarial Standard on Meetings of the Board of Directors (SS-1), his
appointment should be approved at a Board meeting and not through resolution by circulation.
Such appointment should also be approved by the members in the immediate next general meeting.
Further, as per proviso to section 161(4) of the Act, such director shall hold office only up to the
date up to which the director in whose place he is appointed would have held the office of
independent director, if had not been vacated. Hence, the first term of such newly appointed
independent director shall be for a term lesser than 5 years, which he would have otherwise got if

50
 he had been appointed as an Additional Director.
h. Issue: Whether end of first term of director without re-appointment for second term or end of the
second term of an Independent Director terminates directorships of a director?
View: Under section 149(10) of the Act, an independent director shall hold office for a term up to
five consecutive years on the Board of a company, but shall be eligible for re-appointment on
passing of a special resolution by the company based on the recommendation of the Nomination
and Remuneration Committee and Board of Directors of the company and disclosure of such
appointment shall be made in the Board’s Report. Since the term used is holding office for a term
up to five consecutive years the independent director will cease to be a Director on the expiry of
his term of five years. Hence, the director will lose/ vacate his directorship also on the expiry of
the first term or the second term as the case may be.
i. Issue: If a known person is to be appointed as Independent Director, should his name be mentioned
in Databank?
View: Any individual who intends to get appointed as an independent director in a company shall
before such appointment shall register his name with the databank of independent directors.

5. The Companies (Appointment and Qualification of Directors) Amendment Rules, 2022

(MCA Notification No. G.S.R. (E) dated 01st June, 2022)
The Ministry of Corporate Affairs (MCA) vide its notification dated June 01, 2022 has notified the
Companies (Appointment and Qualification of Directors) Amendment Rules, 2022 which shall come
into force on the date of its publication in the Official Gazette. The amendments inter - alia provide
that:
(i) In case the person seeking appointment is a national of a country which shares land border with
India, necessary security clearance from the Ministry of Home Affairs shall also be attached
along with the consent (Form DIR -2).(Insertion of proviso to Rule 8)
(ii) No application number shall be generated in case of the person applying for Director
Identification Number (DIN) is a national of a country which shares land border with India,
unless necessary security clearance from Ministry of Home Affairs has been attached along
with application for DIN (Form DIR - 3).{Insertion of proviso to Rule 10(1)}
(iii)In form DIR -12 a declaration is inserted to be opted by person seeking appointment as director
as to whether the national of a country which shares land border with India has sought
necessary security clearance from Ministry of Home Affairs or not.

Brief Analysis:
Through this amendment, MCA has introduced changes in its various forms relating to appointment of
directors by aligning the forms with the Foreign Exchange Management (Non -Debt Instruments) Rules,
2019. As per the changes made, if the person seeking appointment is a national of a country which
shares land border with India, necessary security clearance from the Ministry of Home Affairs shall also
be attached along with the consent.
Similarly, no application number shall be generated in case of the person applying for Director
Identification Number (DIN) is a national of a country which shares land border with India, unless
necessary security clearance from Ministry of Home Affairs has been attached along with application
for DIN (Form DIR -3).
In form DIR-12, a declaration is inserted which needs to be opted by person seeking appointment as
director as to whether the national of a country which shares land border with India has sought
necessary security clearance from Ministry of Home Affairs or not.
For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=U4Pl6Cz4l3T9YHrD1ZOq2g%253D%253D&type
=open
51
6. The Companies (Appointment and Qualification of Directors) Second Amendment, Rules, 2022
(MCA notification no. G.S.R. 439(E) dated 10th June, 2022)
The Ministry of Corporate Affairs (MCA) vide its notification dated June 10, 2022 has notified “The
Companies (Appointment and Qualification of Directors) Second Amendment, Rules, 2022” which
shall come into force on the date of its publication in the Official Gazette. According to the amendment
sub -rule 5 is inserted under rule 6 of the Companies (Appointment and Qualification of Directors)
Rules, 2014, which is specifying, any individual whose name has been removed from the databank
under sub -rule (4), may apply for restoration of his name on payment of fees of Rs. 1000 and the IICA
shall allow such restoration subject to the following conditions, namely:
 his name shall be shown in a separate restored category for a period of one year from the
date of restoration within which, he shall be required to pass the online proficiency self-
assessment test and thereafter his name shall be included in the databank, only, if he passes
the said online proficiency self-assessment test and in such case, the fees paid by him at the
time of initial registration shall continue to be valid for the period for which the same was
initially paid; and
 in case he fails to pass the online proficiency self-assessment test within one year from then
date of restoration, his name shall be removed from the data bank and he shall be required to
apply afresh under sub-rule (1) for inclusion of his name in the databank.
For Details:
https://egazette.nic.in/WriteReadData/2022/236474.pdf
7. The Companies (Appointment and Qualification of Directors) Third Amendment Rules, 2022
(MCA notification no. G.S.R. (E) dated 29th August, 2022)
The Ministry of Corporate Affairs (MCA) vide its notification dated August 29, 2022 has notified “the
Companies (Appointment and Qualification of Directors) Third Amendment Rules, 2022” which has
come into force on the date of its publication in the Official Gazette. According to the amendment the E
Form DIR-3-KYC and Form DIR-3- KYC-WEB are substituted.
For Details:
https://www.mca.gov.in/bin/dms/getdocument?mds=slrNNMj6rSE43YrWxXorGw%253D%253D&typ
e=open
4. SEBI (Listing Obligation and Disclosure Requirements) (Sixth Amendment) Regulation, 2022
(SEBI Notification No. SEBI/LAD-NRO/GN/2022/103 dated 14 November 2022)
On November 14, 2022, the Securities & Exchange Board of India (SEBI) has notified Securities and
Exchange Board of India (Listing Obligations and Disclosure Requirements) (Sixth Amendment)
Regulations, 2022 which brought changes in regulation 25(2A) pursuant to ease of resolution
requirements for appointment or removal of Independent directors.
According to the amendment, proviso to Sub-regulation 2A of Regulation 25 is inserted stating that
where a special resolution for the appointment of an independent director fails to get the requisite
majority of votes but the votes cast in favour of the resolution exceed the votes cast against the
resolution and the votes cast by the public shareholders in favour of the resolution exceed the votes
cast against the resolution, then the appointment of such an independent director shall be deemed to
have been made.
Further, an independent director appointed under the first proviso shall be removed only if the
votes cast in favour of the resolution proposing the removal exceed the votes cast against the
resolution and the votes cast by the public shareholders in favour of the resolution exceed the
votes cast against the resolution.
This amendment rationalize the process of appointment of independent director even if the special
resolution per-se fails.
For details:
https://www.sebi.gov.in/legal/regulations/nov-2022/securities-and-exchange-board-of-india-listing-
obligations-and-disclosure-requirements-sixth-amendment-regulations-2022_65048.html
52
 Lesson 19- General Meetings

1) Various practical aspects on General Meetings

a. Illustration:
Mr. X, Ms. Y (wife of Mr. X) and Mr. C (son of X & Y) are the Directors of XYZ Ltd. They are
also the Members of XYZ Ltd. Along with 4 other persons who are brothers and sisters of Mr. X.
XYZ Ltd. proposes to hold the General Meeting at the residence of Mr. X.
In this case, since only the directors and their relatives are members of the company and the
residence of Mr. X is generally known to all Members of XYZ Ltd. and can be easily located, the
route-map and prominent landmark is not required to be provided in the Notice.
b. Illustration:
XYZ Ltd. proposes to enter into a contract with PQR Ltd. Mr. X and Mr. Y, who are promoters of
XYZ Ltd. hold 1.5% and 0.5% of the total paid-up share capital of PQR Ltd. respectively. In this
case, the shareholding of both, Mr. X and Mr. Y should be disclosed in the explanatory statement
of the Notice of General Meeting of XYZ Ltd., since the extent of their shareholding collectively
is not less than two percent of the paid-up share capital of PQR Ltd.
c. Illustration:
Say, a company XYZ Ltd. wish to hold its General Meeting at a shorter notice, immediately after
the Board Meeting on same day and the required consent from 95% of the Members entitled to
vote at the Meeting is received before the time fixed for commencement of Meeting. Although in
such a case the consent of 95% Members entitled to vote at the meeting is received, still the proxy
requirements need to be complied with by the Company.
In other words, in the above case the Board Meeting and General Meeting can’t be held on the
same day.
d. Illustration:
Considering the above illustration, if the consent of all the Members (i.e. 100%) entitled to vote at
such Meeting is received before the time fixed for commencement of the Meeting, the proxy
requirements need not be complied with. In other words, in such a case the Board Meeting and
General Meeting can be held on the same day.
e. Illustration:
Consider a company where the number of Members was originally large, say 500, and the Quorum
fixed by the Articles was 100 Members present. Subsequently, 450 Members sold their shares
which were acquired by some of the remaining 50 Members. Here, proceedings will be valid if all
Members are present in person. In the given case, if less than 50 Members are present, there shall
be no Quorum.
f. Illustration:
Assume that the General Meeting of a company is scheduled on 22nd September 2020 and
company has received 4 proxies for the same holdings of a Member dated with 5th, 12th, 10th and
20th September 2020. The proxy dated last should be considered valid i.e. 20th. However, if the
proxies received are not dated or bear the same date without mention of time, all proxies should
be treated as invalid.

53
 Lesson 20 - Virtual Meetings

1) The Companies (Meetings of Board and its Powers) Amendment Rules, 2021 (Notification
No: G.S.R. 409(E), dated June 15, 2021)*
The MCA vide Notification dated June 15, 2021 has omitted Rule 4 of the Companies (Meetings
of Board and its Powers) Rules, 2014 which was related to the matters not to be dealt with in a
meeting through video conferencing or other audio-visual means.
Accordingly, with the said amendment, now the following previously restricted matters can be
considered in a Board Meeting held through video conferencing or other audiovisual means,
namely: -
i. the approval of the annual financial statements;
ii. the approval of the Board’s report;
iii. the approval of the prospectus;
iv. the Audit Committee Meetings for consideration of financial statement including consolidated
financial statement if any, to be approved by the board under section 134 (1) of the Companies
Act, 2013; and
v. the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.
For details:
https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=MTkxMzU=&docCategory=Notifica
tionsAndCirculars&type=download

(* Note: The above-mentioned amendment is also relevant for Lesson No. 9 and 22)

2) Case Laws
1) Achintya Kumar Barua alias Manju Baruah and Ors.Vs. Ranjit Barthkur Company
Appeal (AT) No. 17 of 2018 February 08, 2018
NCLAT: Participation in board meeting through video conferencing – Whether right of a
director is subject to availability of facility by company?
The NCLAT observed that Section 173(2) gives right to a Director to participate in the meeting
through videoconferencing or other audio-visual means and the Central Government has notified
Rules to enforce this right and it would be in the interest of the companies to comply with the
provisions in public interest.
• It is clear that the Rules require that the company shall comply with the procedure prescribed for
convening and conducting the Board meetings through video-conferencing or other audio-visual
means.
• The Chairperson and Company Secretary, if any, have to take due and reasonable care as
specified in Rule 3(2) of the Companies (Meetings of the Board and its Power) Rules, 2014.
• The appellant contented that sub-Rule (2)(e) puts the burden on the Chairperson to ensure that
no person other than the concerned Director is attending and this would not be possible for
Chairperson to ensure in video-conferencing.
c The NCLAT observed that they do not find force in the submission as Rules, read as a whole are
a complete scheme.
Sub-Clause (4)(d) of Rule 3 puts responsibility on the Director participating also. The Chairperson
will ensure compliance of sub-Clause (e) or Clause (2) and the Director will need to satisfy the
54
Chairperson that Sub-Clause (d) of Clause 4 is being complied.
• Appellants tried to rely on the Secretarial Standard on Meetings of the Board of Directors to
submit that the guidelines are that such participation can be done “if the Company provides such
facility”. NCLAT observed that such guidelines cannot override the provisions under the Rules.
The mandate of Section 173(2) read with Rules mentioned above cannot be avoided by the
companies.
• Hence, NCLAT came to the conclusion that the provisions of section 173(2) of the 2013 Act are
mandatory and the companies not be permitted to make any deviations therefrom and directed non-
applicants before it to provide the facilities as per Section 173(2) of the New Act subject to
fulfilling the requirements of Rule 3(3)(e) of the Rules.

55
 Miscellaneous

1) The MCA notified the commencement date for Section 4 of the Companies (Amendment)
Act, 2020 (Notification No: S.O. 2904(E), dated July 22, 2021)
The MCA has appointed September 01, 2021 as the commencement date of Section 4 of the
Companies (Amendment) Act, 2020 for implementation of amendments in the Rectification of
Name of Company provisions under Section 16 of the Companies Act, 2013.

Brief Analysis:

 The time limit of compliance of direction given by the Central Government to change the name
of company has been reduced from 6 months to 3 months.

 Further, the Central Government has been empowered to allot a new name to the company, in
case of default in complying with its direction instead of imposing punishment for non-
compliance for such default.
The company is however not prevented from subsequently changing its name.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=%252BrVndsNHmju%252FOHCLaLZg
VA%253D%253D&type=open

2) The Companies (Incorporation) Fifth Amendment Rules, 2021, (Notification No: G.S.R.
503(E), dated July 22, 2021) (Effective from September 01, 2021)

The Central Government has made the Companies (Incorporation) Fifth Amendment Rules, 2021
to further amend the Companies (Incorporation) Rules, 2014, namely:-

In the Companies (Incorporation) Rules, 2014, after rule 33, the following rule shall be
inserted, namely:-

Rule 33A-Allotment of a new name to the existing company under section 16(3) of the
Companies Act, 2013

(1) In case a company fails to change its name or new name, as the case may be, in accordance with
the direction issued under section 16(1) of the Companies Act, 2013 within a period of three
months from the date of issue of such direction, the letters “ORDNC” (which is an abbreviation
of the words “Order of Regional Director Not Complied”), the year of passing of the direction,
the serial number and the existing Corporate Identity Number (CIN) of the company shall become
the new name of the company without any further act or deed by the company, and the Registrar
shall accordingly make entry of the new name in the register of companies and issue a fresh
certificate of incorporation in Form No. INC-11C.
Provided that nothing contained in sub-rule (1) shall apply in case e-form INC-24 filed by the
company is pending for disposal at the expiry of three months from the date of issue of direction
by Regional Director unless the said e-form is subsequently rejected.

56
(2) A company whose name has been changed under sub-rule (1) shall at once make necessary
compliance with the provisions of section 12 of the Companies Act, 2013 and the statement,
“Order of Regional Director Not Complied (under section 16 of the Companies Act, 2013)” shall
be mentioned in brackets below the name of company, wherever its name is printed, affixed or
engraved.

Provided, no such statement is required to be mentioned in case the company subsequently

changes its name in accordance with the provisions of section 13 of the Companies Act, 2013.

For details: https://www.egazette.nic.in/WriteReadData/2021/228419.pdf

3) The Companies (Specification of definitions details) Third Amendment Rules, 2021,

(Notification No: G.S.R. 539(E), dated August 05, 2021)

The Central Government has made the Companies (Specification of definitions details) Third
Amendment Rules, 2021 to further amend the Companies (Specification of definitions details)
Rules, 2014.

In Rule 2(1)(h) of the Companies (Specification of definitions details) Rules, 2014 under the
definition of “Electronic Mode”, the following explanation shall be inserted, namely:-
“Explanation.- For the purposes of this clause, electronic based offering of securities, subscription
thereof or listing of securities in the International Financial Services Centres set up under section
18 of the Special Economic Zones Act, 2005 (28 of 2005) shall not be construed as ‘electronic
mode’ for the purpose of clause (42) of section 2 of the Act.”

Brief Analysis:
Rule 2(1)(h) of the Companies (Specification of Definitions Details) Rules, 2014 defines the
term 'electronic mode' in the context of a foreign company.

With the insertion of this Explanation, it is clarified that electronic-based offering of securities,
subscription thereof, or listing of securities in the IFSC under SEZ Act, 2005 is not to be
construed as ‘electronic mode’ for the purpose of Section 2(42) of the Companies Act, 2013
related to the definition of Foreign Companies.

For details:

https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=MzMzMjM=&docCategory=Notific
ations&type=open

4) The Companies (Registration of Foreign Companies) Amendment Rules, 2021 (Notification

No. G.S.R. 538(E), dated August 05, 2021)
The Central Government has made the Companies (Registration of Foreign Companies)
Amendment Rules, 2021 to further amend the Companies (Registration of Foreign Companies)
Rules, 2014.
In Rule 2(1)(c) of the Companies (Registration of Foreign Companies) Rules, 2014 under the
definition of “Electronic Mode”, the following explanation shall be inserted, namely:-
57
 “Explanation.- For the purposes of this clause, electronic based offering of securities, subscription
thereof or listing of securities in the International Financial Services Centres set up under section
18 of the Special Economic Zones Act, 2005 (28 of 2005) shall not be construed as ‘electronic
mode’ for the purpose of clause (42) of section 2 of the Act.”

Brief Analysis:
Rule 2(1)(c) of the Companies (Registration of Foreign Companies) Rules, 2014 defines the term
'electronic mode' in the context of a foreign company.

With the insertion of this Explanation, it is clarified that electronic-based offering of securities,
subscription thereof, or listing of securities in the IFSC under SEZ Act, 2005 is not to be construed
as ‘electronic mode’ for the purpose of Section 2(42) of the Companies Act, 2013 related to the
definition of Foreign Companies.
For details:
https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=MzMzMjI=&docCategory=Notifica
tions&type=open

5) Notification under Section 393A of the Companies Act, 2013 (Notification No: S.O. 3156(E),
dated August 05, 2021)

The MCA exempts the following class of companies from the provisions of Sections 387 to 392
(both inclusive) of the Companies Act, 2013, namely:

(a) Foreign companies;

(b) Companies incorporated or to be incorporated outside India, whether the company has or has
not established, or when formed may or may not establish, a place of business in India,

insofar as they relate to the offering for subscription in the securities, requirements related to the
prospectus, and all matters incidental thereto in the International Financial Services Centres set
up under Section 18 of the Special Economic Zones Act, 2005 (28 of 2005).

For details:
https://www.mca.gov.in/bin/ebook/dms/getdocument?doc=MzMzMjQ=&docCategory=Notific
ations&type=open

6. The Nidhi (Amendment) Rules, 2022 (MCA Notification No. G.S.R. 301 (E).—Dated 19th
April, 2022)

The Ministry of Corporate Affairs (MCA) vide its Notification dated April 19, 2022 has notified the
Nidhi (Amendment) Rules, 2022 which shall come into force on the date of its publication in the
Official Gazette. The said amendments inter-alia provide that:

• No company, which has not complied rule 3A pertaining to Declaration of Nidhis, shall raise
any deposit from its members or provide any loan to its members under the provisions of these
rules from the date of such non-compliance, or from the date of the commencement of the
above said rules, or the date of rejection of the application in Form NDH-4, whichever is later.
Further, if any deposit raised by a company after the date of noncompliance, the said deposit
shall be deemed to have been raised in pursuance of Acceptance of Deposits by Companies
(Chapter V). (Insertion: Fourth and Fifth Proviso to Rule 3A)
58
• Public company desirous to be declared as a Nidhi shall apply, in Form NDH-4, within a
period of one hundred twenty days of its incorporation for declaration as Nidhi, if it fulfils the
following conditions, namely:-

(I) it has not less than two hundred members; and

(II) it has Net Owned Funds of twenty lakh rupees or more etc. (Insertion: Rule 3B)

The company shall attach a declaration with regard to the fulfilment of fit and proper person by
all of its directors and promoters with the Form NDH-4.To determine that any promoter or
director is a fit and proper person, the following criteria should be looked upon:

a) Integrity, honesty, ethical behaviour, fairness, reputation and character

b) Not incurring any of the following disqualifications:

i. Any complaint or information under section 154 of CrPC has been filed or is pending against
him

ii. Chargesheet filed against him in the matter of economic offences

iii.Restraining, prohibition or department order has been passed against him in any matter
related to company law, securities law or financial market in force

iv. Conviction order passed against him involving moral turpitude

v. Declared involvement and not been discharged

vi. Unsound mind

vii.Wilful defaulter

viii.Fugitive economic offender

ix. Director of five or more companies

x. Such person is the director in five or more than five; or promoter in three or more than three
Nidhi Companies.

• A Nidhi shall be a public company and shall have a minimum paid up equity share capital of
ten lakh rupees and shall comply with this requirement within a period of eighteen months of
commencement of amendment rules. [Substitution: Rule 4(1)]

• Rule 5 is about the minimum number of members, Net owned fund, etc., and in the
amendment, it has been mentioned that it will not be applicable for the companies incorporated
as Nidhi Company on or after the enforcement of Nidhi Company New Rules 2022. So, the
requirement of filling of application in Form NDH 1 within 90 days from the incorporation of
the company shall not be applicable to the companies incorporated on or after the enforcement
of Nidhi (Amendment) Rules, 2022. [As per rule 5(5)]

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• Under General Restrictions and Prohibitions- no Nidhi shall acquire or purchase securities of
any other company or control the composition of the Board of Directors of any other company
in any manner whatsoever or enter into any arrangement for the change of its management.
[Substitution: Rule 6(d)]

• A member shall not transfer more than fifty percent of his shareholding (as on the date of
availing of loan or making of deposit) during the existence of such loan or deposit, as the case
may be, provided that the member shall retain the minimum number of 10 equity shares
equivalent to Rs. 100 at all times. [New sub- rule 8(4)]

• Every Nidhi shall maintain Net Owned Funds of not less than twenty lakh rupees or such
higher amount as the Central Government may specify from time to time and shall comply with
this requirement within a period of eighteen months of commencement of amendment rules.
(Substitution: Rule 9)

• A Nidhi company may not close a branch unless the proposal to close the branch, along with
a plan for paying existing deposits and recovering existing loans, has been approved by the
Board of Directors in a meeting and has received the prior approval of the Regional Director.
Within 30 days of receiving the application, the regional director must issue an approval order.
After receiving approval from the Regional Director, the Nidhi Company must publish in the
local newspaper (in Form NDH-5) at its place of business prior to 30 days of closure, as well as
post a copy of the closure notice on the Nidhi Company’s notice board for thirty days from the
date of publication, and notify the Registrar within 30 days of closure.

Furthermore, any location that is not a registered office or branch where a Nidhi Company
conducts business must be closed within six months after the enforcement of the Nidhi
Company New Rules 2022 and must be reported to the Registrar in Form NDH-2. [Rule 10]
• The word silver shall be added next to the word gold where ever it is stated, so from now
Nidhi Company will able to grant loans to its members for silver jewellery. [Under Rule 12 and
Rule 20]
• In the case of joint shareholders loan Nidhi Company will be able to it only to the member
whose name appears first in the register of members. [Rule 15]
• A Nidhi company shall not declare dividends exceeding 25% in a financial year [Rule 18 by
substituting old Rule 18].
• If a company does not comply with the requirements or fails to comply with any of the
requirements on or after the date of enforcement of these Rules or if the central government has
rejected the application, then it shall not raise the deposit from its members or provide any loan
to its member under the provisions of these rules from the date of non-compliance or the date of
enforcement of the Nidhi (Amendment) Rules, 2022 or the rejection of the application,
whichever is later. And, also that the deposit raised by a company after the date of non-
compliance or date of enforcement of the Nidhi (Amendment) Rules, 2022 or the date of
rejection of the application, whichever is later, shall be deemed to have been raised in
pursuance of Chapter V of the Companies Act and shall be subject to all the requirement of that
chapter or any other provisions of the said Act. No fee shall be charged for filing an application
under this rule if it is filed within 9 months from the enforcement of the new rules; however,
earlier, it was 6 months. [Rule 23A]
For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=LTZyclKMNK0LX6JwM%252BaPeA%2
53D%253D&type=open

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7. Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) (Amendment)
Regulations, 2022 (Vide Notification F. No. IBBI/2022-23/GN/REG.081 dated 05th April,
2022)

In exercise of the powers conferred by section 196(1)(t) read with section 240 of the Insolvency and
Bankruptcy Code, 2016, the Insolvency and Bankruptcy Board of India amended the Insolvency and
Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017.

Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) (Amendment)

Regulations, 2022 inter-alia provides that the liquidator shall endeavour to complete the liquidation
process of the corporate person and submit the Final Report under regulation 38 within :

(a)two hundred and seventy days from the liquidation commencement date where the creditors
have approved the resolution under section 59(3)(c) or regulation 3(1)(c) and

(b)ninety days from the liquidation commencement date in all other cases

Further, the liquidator shall submit the Final Report and the compliance certificate in Form-H
along with the application under section 59(7) to the Adjudicating Authority.

Brief Analysis:

As per this amendment, the Liquidator is required to complete the liquidation process of the
corporate person and submit the Final Report under regulation 38 within:

a. 270 days from the liquidation commencement date where the creditors have approved the
resolution under section 59(3)(c) or regulation 3(1)(c).

b. 90 days from the liquidation commencement date in all other cases. Compliance certificate
to be submitted in Form-H.
For details:
https://www.ibbi.gov.in/uploads/legalframwork/08722b75c35b6fbbd5a38299a2284e6a.pdf
8. CBDT notification for PAN integration with LLP incorporation form FiLLip
(Ministry of Finance notification no. 04/2022 dated 26th July, 2022)

The Central Board of Direct Taxes vide its notification dated July 26, 2022 has notified the procedure of
PAN application and allotment through Simplified Proforma for incorporating Limited Liability
Partnerships (LLPs) electronically (Form : FiLLiP) of the Ministry of Corporate Affairs.
In exercise of the powers delegated by the Central Board of Direct Taxes vide notification G.S.R dated
09.02.2017, the Director General of Income-tax (Systems) laid down applicable form, format and
procedure for Permanent Account Number (PAN) application filing by LLPs.

Brief Analysis:
The Ministry of Finance has issued notification dated 26th July, 2022 stating that application for PAN
for LLP will now be filed in Simplified Proforma for incorporating Limited Liability Partnerships
(LLPs) electronically (Form : FiLLiP) form using DSC of applicant and after generation of LLPIN,
MCA will forward the data in form 49A to Income tax authority.
For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=kvBTyn49lNlMUOv%252B38VTDg%253D%253
D&type=open

61
9. The Companies (Incorporation) Third Amendment Rules, 2022
(MCA notification G.S.R (E) dated 18th August, 2022)

The Ministry of Corporate Affairs (MCA) vide its notification dated August 18, 2022 has notified “The
Companies (Incorporation) Third Amendment Rules, 2022” which has come into force on the date of its
publication in the Official Gazette. According to the amendment, rule 25B is inserted in the Companies
(Incorporation) Rules, 2014, stating physical verification of registered office of the company by the
Registrar in terms of section 12(9) of the Companies Act, 2013 in presence of two witnesses of the
locality.

The Registrar shall carry the documents as filed on MCA 21 in support of address of the registered
office of the company for the purposes of physical verification and take a photograph of the registered
office. Further a report of physical verification of the registered office of the company is also required to
be in the prescribed format.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=wIHQjtXEQJK%252F7i1M2jM5wQ%253D%253
D&type=opendd

10. The Companies (Removal of Names of Companies from the Register of Companies) Second
Amendment Rules, 2022
(MCA notification no. G.S.R (E) dated 24th August, 2022)

The Ministry of Corporate Affairs (MCA) vide its notification dated August 24, 2022 has notified “the
Companies (Removal of Names of Companies from the Register of Companies) Second Amendment
Rules, 2022” which has come into force on the date of its publication in the Official Gazette. The
aforesaid rules made amendment in Form No. STK 1, Form No. STK – 5 and Form No. STK-5A
pertaining to opting the checkpoint: “the company(ies) is/are not carrying on any business or operations,
as revealed after the physical verification carried out under Section 12(9) of the Companies Act, 2013”.

For details:
https://www.mca.gov.in/bin/dms/getdocument?mds=z76om3NiBGIHmWy4e0HtcA%253D%253D&ty
pe=open

Note: Students appearing in June, 2023 Examination should also update themselves on all the relevant
Notifications, Circulars, Clarifications, Orders etc. issued by MCA, SEBI, ICSI & or other authority till
30th November, 2022.

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